##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION  Form 10-Q [X]
    
    Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 2004 or[   ]
    
    Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from  to
 Commission File Number 0-14120 Advanta Corp.  Delaware
(State or other jurisdiction of
incorporation or organization)
    
    23-1462070
(I.R.S. Employer
Identification No.)
 Welsh and McKean Roads, P.O. Box 844, Spring House, PA 19477
(Address of Principal Executive Offices) (Zip Code) (215) 657-4000
(Registrants telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X]    No [   ] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes [x]    No [   ]  Applicable only to issuers involved in bankruptcy proceedings during the
preceding five years: Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [   ]    No [   ] Applicable only to corporate issuers: Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date. Class A
Common Stock, $.01 par value
    
    Outstanding at May 3, 2004
9,606,885 sharesClass B
Common Stock, $.01 par value
    
    Outstanding at May 3, 2004
17,743,762 shares




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##### Table of Contents



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
    
    
    20Item 3. Quantitative and Qualitative Disclosures
About Market Risk
    
    
    36Item 4. Controls and Procedures
    
    
    36PART II - OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    36Item 6. Exhibits and Reports on Form 8-K
    
    
    37MASTER AGREEMENT DUN & BRADSTREETCOMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGESCERTIFICATION OF CEO, SECTION 302CERTIFICATION OF CFO,SECTION 302CERTIFICATION OF CEO, SECTION 906CERTIFICATION OF CFO, SECTION 906
 2




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PART I - FINANCIAL INFORMATION 
 ITEM 1. FINANCIAL STATEMENTS ADVANTA CORP. AND SUBSIDIARIES 
 CONSOLIDATED BALANCE SHEETS (Unaudited)
 March 31,
    
    December 31,(In thousands, except share amounts)
    
    2004
    
    2003ASSETSCash
    
    $
    20,336
    
    
    $
    26,941Federal funds sold
    
    
    325,906
    
    
    
    258,311Restricted interest-bearing deposits
    
    
    3,336
    
    
    
    77,872Investments available for sale
    
    
    185,873
    
    
    
    222,624Receivables, net:Held for sale
    
    
    209,803
    
    
    
    214,664Other
    
    
    299,605
    
    
    
    291,109Total receivables, net
    
    
    509,408
    
    
    
    505,773Accounts receivable from securitizations
    
    
    240,783
    
    
    
    244,337Premises and equipment, net
    
    
    21,182
    
    
    
    20,414Other assets
    
    
    172,537
    
    
    
    278,703Assets of discontinued operations, net
    
    
    44,653
    
    
    
    63,469Total assets
    
    $
    1,524,014
    
    
    $
    1,698,444LIABILITIESDeposits
    
    $
    666,048
    
    
    $
    672,204Debt
    
    
    291,613
    
    
    
    314,817Subordinated debt payable to preferred securities trust
    
    
    103,093
    
    
    
    103,093Other liabilities
    
    
    108,521
    
    
    
    267,123Total liabilities
    
    
    1,169,275
    
    
    
    1,357,237Commitments and contingenciesSTOCKHOLDERS EQUITYClass A preferred stock, $1,000 par value:Authorized, issued and outstanding  1,010
shares in 2004 and 2003
    
    
    1,010
    
    
    
    1,010Class A voting common stock, $.01 par value:Authorized  200,000,000 shares; issued  10,041,017
shares in 2004 and 2003
    
    
    100
    
    
    
    100Class B non-voting common stock, $.01 par value:Authorized  200,000,000 shares; issued  20,907,261
shares in 2004 and 20,542,097 shares in 2003
    
    
    209
    
    
    
    206Additional paid-in capital
    
    
    249,181
    
    
    
    245,295Deferred compensation
    
    
    (11,316
    )
    
    
    (13,242
    )Unearned ESOP shares
    
    
    (10,277
    )
    
    
    (10,387
    )Accumulated other comprehensive income
    
    
    266
    
    
    
    63Retained earnings
    
    
    175,187
    
    
    
    167,783Less: Treasury stock at cost, 434,132 Class A common
shares and 3,197,614 Class B common shares in 2004
and 2003
    
    
    (49,621
    )
    
    
    (49,621
    )Total stockholders equity
    
    
    354,739
    
    
    
    341,207Total liabilities and stockholders equity
    
    $
    1,524,014
    
    
    $
    1,698,444
 See Notes to Consolidated Financial Statements 3




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ADVANTA CORP. AND SUBSIDIARIES 
 CONSOLIDATED INCOME STATEMENTS (Unaudited)
 Three Months EndedMarch 31,(In thousands, except per share amounts)
    
    2004
    
    2003Interest income:Receivables
    
    $
    17,393
    
    
    $
    17,473Investments
    
    
    1,416
    
    
    
    1,926Other interest income
    
    
    4,602
    
    
    
    3,592Total interest income
    
    
    23,411
    
    
    
    22,991Interest expense:Deposits
    
    
    4,492
    
    
    
    6,221Debt and other borrowings
    
    
    4,750
    
    
    
    5,050Subordinated debt payable to preferred
securities trust
    
    
    2,289
    
    
    
    0Total interest expense
    
    
    11,531
    
    
    
    11,271Net interest income
    
    
    11,880
    
    
    
    11,720Provision for credit losses
    
    
    9,511
    
    
    
    9,446Net interest income after provision for credit losses
    
    
    2,369
    
    
    
    2,274Noninterest revenues:Securitization income
    
    
    32,540
    
    
    
    29,610Servicing revenues
    
    
    12,133
    
    
    
    10,027Other revenues, net
    
    
    26,754
    
    
    
    25,432Total noninterest revenues
    
    
    71,427
    
    
    
    65,069Expenses:Operating expenses
    
    
    58,194
    
    
    
    55,522Minority interest in income of consolidated
subsidiary
    
    
    0
    
    
    
    2,220Total expenses
    
    
    58,194
    
    
    
    57,742Income before income taxes
    
    
    15,602
    
    
    
    9,601Income tax expense
    
    
    6,163
    
    
    
    3,696Net income
    
    $
    9,439
    
    
    $
    5,905Basic net income per common shareClass A
    
    $
    0.37
    
    
    $
    0.22Class B
    
    
    0.39
    
    
    
    0.25Combined
    
    
    0.38
    
    
    
    0.24Diluted net income per common shareClass A
    
    $
    0.34
    
    
    $
    0.22Class B
    
    
    0.36
    
    
    
    0.25Combined
    
    
    0.35
    
    
    
    0.24Basic weighted average common shares outstandingClass A
    
    
    8,786
    
    
    
    9,183Class B
    
    
    15,502
    
    
    
    14,816Combined
    
    
    24,288
    
    
    
    23,999Diluted weighted average common shares outstandingClass A
    
    
    8,786
    
    
    
    9,184Class B
    
    
    17,656
    
    
    
    15,212Combined
    
    
    26,442
    
    
    
    24,396
 See Notes to Consolidated Financial Statements 4




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ADVANTA CORP. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (Unaudited)
($ in thousands)
 Class A
    
    Class A
    
    Class B
    
    AdditionalComprehensive
    
    Preferred
    
    Common
    
    Common
    
    Paid-InIncome (Loss)
    
    Stock
    
    Stock
    
    Stock
    
    CapitalBalance at December 31, 2002
    
    
    
    
    
    $
    1,010
    
    
    $
    100
    
    
    $
    204
    
    
    $
    243,910Net income
    
    $
    28,245Other comprehensive income (loss):Change in unrealized
appreciation (depreciation)
of investments, net of tax benefit (expense) of $66
    
    
    (123
    )Comprehensive income
    
    $
    28,122Preferred and common cash
dividends declaredExercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    2,310Stock option exchange program
stock distributionIssuance of restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    2,150Amortization of deferred
compensationForfeitures of restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    (2,976
    )Stock buybackESOP shares committed to be
released
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (99
    )Balance at December 31, 2003
    
    
    
    
    
    $
    1,010
    
    
    $
    100
    
    
    $
    206
    
    
    $
    245,295Net income
    
    $
    9,439Other comprehensive income (loss):Change in unrealized
appreciation (depreciation)
of investments, net of tax
benefit (expense) of $(109)
    
    
    203Comprehensive income
    
    $
    9,642Preferred and common cash
dividends declaredExercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    3,939Stock-based nonemployee
compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    411Issuance of restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    116Amortization of deferred
compensationForfeitures of restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    (603
    )ESOP shares committed to be
released
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23Balance at March 31, 2004
    
    
    
    
    
    $
    1,010
    
    
    $
    100
    
    
    $
    209
    
    
    $
    249,181
 See Notes to Consolidated Financial Statements 5




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($ in thousands) Deferred
    
    AccumulatedCompensation
    
    Other
    
    
    
    
    
    
    
    
    
    Total& Unearned
    
    Comprehensive
    
    Retained
    
    Treasury
    
    StockholdersESOP Shares
    
    Income (Loss)
    
    Earnings
    
    Stock
    
    EquityBalance at December 31, 2002
    
    $
    (28,668
    )
    
    $
    186
    
    
    $
    147,205
    
    
    $
    (42,634
    )
    
    $
    321,313Net income
    
    
    
    
    
    
    
    
    
    
    28,245
    
    
    
    
    
    
    
    28,245Other comprehensive income (loss):Change in unrealized
appreciation (depreciation)
of investments, net of tax
benefit (expense) of $66
    
    
    
    
    
    
    (123
    )
    
    
    
    
    
    
    
    
    
    
    (123
    )Comprehensive incomePreferred and common cash
dividends declared
    
    
    
    
    
    
    
    
    
    
    (7,667
    )
    
    
    
    
    
    
    (7,667
    )Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,313Stock option exchange program
stock distribution
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    183
    
    
    
    183Issuance of restricted stock
    
    
    (2,152
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0Amortization of deferred
compensation
    
    
    4,105
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,105Forfeitures of restricted stock
    
    
    2,643
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (336
    )Stock buyback
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,170
    )
    
    
    (7,170
    )ESOP shares committed to be released
    
    
    443
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    344Balance at December 31, 2003
    
    $
    (23,629
    )
    
    $
    63
    
    
    $
    167,783
    
    
    $
    (49,621
    )
    
    $
    341,207Net income
    
    
    
    
    
    
    
    
    
    
    9,439
    
    
    
    
    
    
    
    9,439Other comprehensive income (loss):Change in unrealized
appreciation (depreciation)
of investments, net of tax
benefit (expense) of $(109)
    
    
    
    
    
    
    203
    
    
    
    
    
    
    
    
    
    
    
    203Comprehensive incomePreferred and common cash
dividends declared
    
    
    
    
    
    
    
    
    
    
    (2,035
    )
    
    
    
    
    
    
    (2,035
    )Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,943Stock-based nonemployee
compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    411Issuance of restricted stock
    
    
    (116
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0Amortization of deferred
compensation
    
    
    1,584
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,584Forfeitures of restricted stock
    
    
    458
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (146
    )ESOP shares committed to be released
    
    
    110
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    133Balance at March 31, 2004
    
    $
    (21,593
    )
    
    $
    266
    
    
    $
    175,187
    
    
    $
    (49,621
    )
    
    $
    354,739
 See Notes to Consolidated Financial Statements 6




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ADVANTA CORP. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 Three Months EndedMarch 31,($ in thousands)
    
    2004
    
    2003OPERATING ACTIVITIES  CONTINUING OPERATIONSNet income
    
    $
    9,439
    
    
    $
    5,905Adjustments to reconcile net income to net cash provided by
operating activities:Investment securities (gains) losses, net
    
    
    (49
    )
    
    
    608Valuation adjustments on other receivables held for sale
    
    
    0
    
    
    
    105Depreciation and amortization
    
    
    2,558
    
    
    
    2,118Stock-based compensation expense
    
    
    1,849
    
    
    
    541Provision for credit losses
    
    
    9,511
    
    
    
    9,446Provision for interest and fee losses
    
    
    2,158
    
    
    
    2,594Change in deferred origination costs, net of deferred fees
    
    
    696
    
    
    
    4,016Change in receivables held for sale
    
    
    (90,500
    )
    
    
    (77,095
    )Proceeds from sale of receivables held for sale
    
    
    95,361
    
    
    
    72,525Change in accounts receivable from securitizations
    
    
    3,554
    
    
    
    (199,742
    )Change in other assets and other liabilities
    
    
    (45,195
    )
    
    
    39,880Net cash used in operating activities
    
    
    (10,618
    )
    
    
    (139,099
    )INVESTING ACTIVITIES  CONTINUING OPERATIONSChange in federal funds sold and restricted
interest-bearing deposits
    
    
    6,941
    
    
    
    (34,571
    )Purchase of investments available for sale
    
    
    (265,601
    )
    
    
    (117,897
    )Proceeds from sales of investments available for sale
    
    
    300,994
    
    
    
    117,331Proceeds from maturing investments available for sale
    
    
    1,718
    
    
    
    11,949Change in receivables not held for sale
    
    
    (20,861
    )
    
    
    (25,268
    )Sales (purchases) of premises and equipment, net
    
    
    (3,053
    )
    
    
    725Net cash provided by (used in) investing activities
    
    
    20,138
    
    
    
    (47,731
    )FINANCING ACTIVITIES  CONTINUING OPERATIONSChange in demand and savings deposits
    
    
    (3,316
    )
    
    
    (93
    )Proceeds from issuance of time deposits
    
    
    157,490
    
    
    
    253,497Payments for maturing time deposits
    
    
    (161,824
    )
    
    
    (39,175
    )Proceeds from issuance of debt
    
    
    7,984
    
    
    
    28,910Payments on redemption of debt
    
    
    (32,465
    )
    
    
    (29,595
    )Change in cash overdraft
    
    
    (4,718
    )
    
    
    0Proceeds from exercise of stock options
    
    
    3,943
    
    
    
    0Cash dividends paid
    
    
    (2,035
    )
    
    
    (2,037
    )Stock buyback
    
    
    0
    
    
    
    (2,372
    )Net cash (used in) provided by financing activities
    
    
    (34,941
    )
    
    
    209,135DISCONTINUED OPERATIONSNet cash provided by operating activities of discontinued
operations
    
    
    18,816
    
    
    
    7,893Net (decrease) increase in cash
    
    
    (6,605
    )
    
    
    30,198Cash at beginning of period
    
    
    26,941
    
    
    
    14,834Cash at end of period
    
    $
    20,336
    
    
    $
    45,032
 See Notes to Consolidated Financial Statements 7




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ADVANTA CORP. AND SUBSIDIARIES 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (IN THOUSANDS EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE NOTED)
 March 31, 2004
(Unaudited) In these notes to consolidated financial statements, Advanta, we,
us, and our refer to Advanta Corp. and its subsidiaries, unless the
context otherwise requires. Note 1) Basis of Presentation Advanta Corp. (collectively with its subsidiaries, Advanta) has
prepared the consolidated financial statements included herein pursuant
to the rules and regulations of the Securities and Exchange Commission.
We have condensed or omitted certain information and footnote disclosures
normally included in consolidated financial statements prepared in
accordance with accounting principles generally accepted in the United
States pursuant to such rules and regulations. In the opinion of
management, the statements include all adjustments (which include normal
recurring adjustments) required for a fair statement of financial
position, results of operations and cash flows for the interim periods
presented. These financial statements should be read in conjunction with
the financial statements and notes thereto included in our latest annual
report on Form 10-K. The results of operations for the interim periods
are not necessarily indicative of the results for the full year. The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results could differ
from those estimates. Material estimates that are particularly
susceptible to significant changes in the near term relate to the
accounting for the fair value of venture capital investments, allowance
for receivable losses, securitization income, business credit card
rewards programs, litigation contingencies, income taxes, and
discontinued operations. Certain prior period balances have been reclassified to conform to the
current period presentation. Statement of Financial Accounting Standards (SFAS) No. 123, Accounting
for Stock Based Compensation, as amended by SFAS No. 148, Accounting
for Stock-Based Compensation  Transition and Disclosure, defines a fair
value based method of accounting for employee stock compensation plans,
whereby compensation cost is measured at the grant date based on the
value of the award and is recognized over the service period, which is
usually the vesting period. However, it permits entities to continue to
measure compensation cost for those plans using the intrinsic value based
method of accounting prescribed by Accounting Principles Board Opinion
(Opinion) No. 25, Accounting for Stock Issued to Employees, whereby
compensation cost is the excess, if any, of the quoted market price of
the stock at the grant date or other measurement date over the amount an
employee must pay to acquire the stock. We have elected to continue with
the accounting methodology in Opinion No. 25 and, as a result, have
provided pro forma disclosures of compensation expense for options
granted to employees under our stock option plans, net of related tax
effects, net income and earnings per share, as if the fair value based
method of accounting had been applied. Had compensation cost for 8




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these plans been determined using the fair value method, our compensation
expense for stock option plans, net of related tax effects, net income
and net income per common share would have changed to the following pro
forma amounts: Three Months EndedMarch 31,2004
    
    2003Stock-based employee compensation expense
for stock option plans, net of related tax
effectsAs reported
    
    $
    0
    
    
    $
    0Pro forma
    
    
    446
    
    
    
    613Net incomeAs reported
    
    $
    9,439
    
    
    $
    5,905Pro forma
    
    
    8,993
    
    
    
    5,292Basic net income per common shareAs reportedClass A
    
    $
    0.37
    
    
    $
    0.22Class B
    
    
    0.39
    
    
    
    0.25Combined
    
    
    0.38
    
    
    
    0.24Pro formaClass A
    
    $
    0.35
    
    
    $
    0.20Class B
    
    
    0.37
    
    
    
    0.22Combined
    
    
    0.36
    
    
    
    0.21Diluted net income per common shareAs reportedClass A
    
    $
    0.34
    
    
    $
    0.22Class B
    
    
    0.36
    
    
    
    0.25Combined
    
    
    0.35
    
    
    
    0.24Pro formaClass A
    
    $
    0.33
    
    
    $
    0.20Class B
    
    
    0.34
    
    
    
    0.22Combined
    
    
    0.34
    
    
    
    0.21
 Note 2) Recently Issued Accounting Standards In January 2003, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 46, Consolidation of Variable Interest
Entities - An
Interpretation of ARB No. 51 (FIN 46). This interpretation requires a
company to consolidate a variable interest entity if the company has
variable interests that give it a majority of the expected losses or a
majority of the expected residual returns of the entity. In December
2003, the FASB revised FIN 46 to clarify some of the provisions and
incorporate several FASB staff positions related to FIN 46 that were
already effective. This interpretation, as revised, did not have a
material effect on our financial position or results of operations since
qualifying special-purpose entities, as defined in SFAS No. 140, are
exempt from the consolidation requirements of FIN 46. However, our
adoption of the revised interpretation resulted in the deconsolidation of
the subsidiary trust that issued our company-obligated mandatorily
redeemable preferred securities (the trust preferred securities)
effective December 31, 2003. As a result of the deconsolidation of that
trust, the consolidated balance sheets include subordinated debt payable
to preferred securities trust of $103 million and an equity investment in
the trust of $3 million, rather than $100 million of trust preferred
securities. Also as a result of the deconsolidation of that trust, the
consolidated income statement includes interest expense on subordinated
debt payable to preferred securities trust beginning January 1, 2004, as
compared to periods through December 31, 2003 that included payments on
the trust preferred securities classified as minority interest in income
of consolidated subsidiary. 9




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##### Table of Contents



In June 2003, the FASB issued an exposure draft, Qualifying
Special-Purpose Entities and Isolation of Transferred Assets  An
Amendment of FASB Statement No. 140. The changes and clarifications in
the proposed statement would prevent derecognition by transferors that
may continue to retain effective control of transferred assets by
providing financial support other than a subordinated retained interest
or making decisions about beneficial interests. The changes would also
help to ensure that variable interest entities will not qualify for the
qualifying special-purpose entity exception to FIN 46, as revised, if any
party involved is in a position to enhance or protect the value of its
own subordinated interest by providing financial support for or making
decisions about reissuing beneficial interests. For public entities,
this proposed statement would apply prospectively to transfers of assets
occurring after the beginning of the first interim period after the
issuance of the final statement. In April 2004, the FASB announced plans
to issue a revised exposure draft in the third quarter of 2004 and a
final standard in the fourth quarter of 2004. Management will evaluate
any potential impact of this revised proposed statement when it is
available. In March 2004, the FASB issued an exposure draft, Share-Based Payment 
An Amendment of Statements No. 123 and 95 that addresses the accounting
for equity-based compensation arrangements, including employee stock
options. Upon implementation of the changes proposed in this statement,
entities would no longer be able to account for equity-based compensation
using the intrinsic value method under Opinion No. 25. Entities would be
required to measure the cost of employee services received in exchange
for awards of equity instruments at the grant date of the award using a
fair value based method. The comment period for this proposed statement
will end on June 30, 2004. For public entities, this proposed statement
would apply prospectively for fiscal years beginning after December 15,
2004 as if all equity-based compensation awards granted, modified or
settled after December 15, 1994 had been accounted for using a fair value
based method of accounting. Management is currently evaluating the
potential impact of the proposed statement. Note 3) Restricted Interest-Bearing Deposits and Investments Available
For Sale At December 31, 2003, restricted interest-bearing deposits included
amounts held in escrow in connection with our litigation with Fleet
Financial Group, Inc. (Fleet) of $74.2 million. On February 2, 2004,
the court issued its final judgment and order in the Delaware Chancery
Court litigation with Fleet. See Note 8. In early February 2004, the
escrow agent released $63.8 million from the escrow account to Fleet in
satisfaction of all amounts due to Fleet in connection with this
litigation and the $10.5 million of funds remaining in the escrow account
were released and transferred from the restricted escrow account to an
unrestricted cash account. 10




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##### Table of Contents



Investments available for sale consisted of the following: March 31, 2004
    
    December 31, 2003Amortized
    
    Fair
    
    Amortized
    
    FairCost
    
    Value
    
    Cost
    
    ValueU.S. Treasury & other U.S.
Government securities
    
    $
    39,726
    
    
    $
    39,819
    
    
    $
    28,593
    
    
    $
    28,544State and municipal securities
    
    
    1,733
    
    
    
    1,790
    
    
    
    1,946
    
    
    
    2,014Mortgage-backed securities
    
    
    4,805
    
    
    
    4,917
    
    
    
    4,954
    
    
    
    4,996Corporate bonds
    
    
    2,105
    
    
    
    2,105
    
    
    
    0
    
    
    
    0Equity securities(1)
    
    
    20,016
    
    
    
    20,163
    
    
    
    20,018
    
    
    
    20,053Money market funds(2)
    
    
    116,965
    
    
    
    116,965
    
    
    
    166,875
    
    
    
    166,875Other
    
    
    114
    
    
    
    114
    
    
    
    142
    
    
    
    142Total investments available for sale
    
    $
    185,464
    
    
    $
    185,873
    
    
    $
    222,528
    
    
    $
    222,624
  (1)
    
    Includes venture capital investments of $9.5 million at March 31,
2004 and December 31, 2003. The amount shown as amortized cost
represents fair value for these investments.  (2)
    
    As of March 31, 2004, money market funds include investments in the
Barclays Global Investors Prime Money Market Fund of $46.0 million,
the Reserve Primary Money Market Fund of $42.0 million and the
Merrill Lynch Premier Institutional Money Market Fund of $26.5
million. As of December 31, 2003, money market funds include an
investment in the Merrill Lynch Premier Institutional Money Market
Fund of $163.8 million. Note 4) Receivables Receivables on the balance sheet, including those held for sale,
consisted of the following: March 31,
    
    December 31,2004
    
    2003Business credit card receivables
    
    $
    528,204
    
    
    $
    518,040Other receivables
    
    
    11,492
    
    
    
    16,976Gross receivables
    
    
    539,696
    
    
    
    535,016Add: Deferred origination costs, net of deferred fees
    
    
    18,515
    
    
    
    19,211Less: Allowance for receivable lossesBusiness credit cards
    
    
    (47,289
    )
    
    
    (47,041
    )Other receivables
    
    
    (1,514
    )
    
    
    (1,413
    )Total allowance
    
    
    (48,803
    )
    
    
    (48,454
    )Receivables, net
    
    $
    509,408
    
    
    $
    505,773
 In June 2001, Advanta Corp. provided a mortgage financing loan and a
revolving home equity line of credit to an executive officer as part of a
relocation agreement. The outstanding balances on these loans are
included in other receivables and were $490 thousand at March 31, 2004
and $474 thousand at December 31, 2003. Upon the termination of the
executive officers employment in February 2004, a repayment event under
the terms of the agreement occurred. The former executive officer has
advised Advanta that he expects to sell the property and use the net
proceeds from the sale to satisfy his loan obligations in accordance with
the terms of the relocation agreement. Based on the anticipated net
proceeds, we expect to forgive a portion of the outstanding loans in the
second quarter of 2004. We recorded an $86 thousand charge in the three
months ended March 31, 2004 for the expected amount of loan forgiveness. 11




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##### Table of Contents



Note 5) Allowance for Receivable Losses The following table presents activity in the allowance for receivable
losses for the periods presented: Three Months EndedMarch 31,2004
    
    2003Beginning balance
    
    $
    48,454
    
    
    $
    46,159Provision for credit losses
    
    
    9,511
    
    
    
    9,446Provision for interest and fee losses
    
    
    2,158
    
    
    
    2,594Gross principal charge-offs:Business credit cards
    
    
    (9,548
    )
    
    
    (9,274
    )Other receivables
    
    
    0
    
    
    
    (20
    )Total gross principal charge-offs
    
    
    (9,548
    )
    
    
    (9,294
    )Principal recoveries:Business credit cards
    
    
    635
    
    
    
    866Other receivables
    
    
    4
    
    
    
    0Total principal recoveries
    
    
    639
    
    
    
    866Net principal charge-offs
    
    
    (8,909
    )
    
    
    (8,428
    )Interest and fee charge-offs:Business credit cards
    
    
    (2,411
    )
    
    
    (2,241
    )Ending balance
    
    $
    48,803
    
    
    $
    47,530
 Note 6) Securitization Activities Accounts receivable from securitizations consisted of the following: March 31,
    
    December 31,2004
    
    2003Retained interests in business credit card
securitizations
    
    $
    149,998
    
    
    $
    149,998Accrued interest and fees on securitized
business credit card receivables, net(1)
    
    
    54,107
    
    
    
    58,178Amounts due from the trust
    
    
    36,678
    
    
    
    36,161Total accounts receivable from securitizations
    
    $
    240,783
    
    
    $
    244,337
  (1)
    
    Reduced by an estimate for uncollectible interest and fees of $11.9
million at March 31, 2004 and $12.6 million at December 31, 2003. The following represents business credit card securitization data and the
key assumptions used in estimating the fair value of retained interests
in securitizations at the time of each new securitization or
replenishment if quoted market prices were not available. Three Months EndedMarch 31,
    
    March 31,2004
    
    2003Average securitized receivables
    
    $
    2,515,532
    
    
    $
    2,171,815Securitization income
    
    
    32,540
    
    
    
    29,610Discount accretion
    
    
    4,602
    
    
    
    3,592Interchange income
    
    
    25,944
    
    
    
    20,404Servicing revenues
    
    
    12,133
    
    
    
    10,027Proceeds from new securitizations
    
    
    90,000
    
    
    
    72,525Proceeds from collections reinvested in
revolving-period securitizations
    
    
    1,623,556
    
    
    
    1,058,392Cash flows received on retained interests
    
    
    66,682
    
    
    
    48,300
 12




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##### Table of Contents



Three Months EndedMarch 31,
    
    March 31,2004
    
    2003Key assumptions:Discount rate
    
    
    10.98
    %
    
    
    
    
    
    
    14.33
    %
    
    
    11.44
    %
    
    
    
    
    
    
    14.56
    %Monthly payment rate
    
    
    20.63
    %
    
    
    
    
    
    
    22.25
    %
    
    
    18.88
    %
    
    
    
    
    
    
    21.00
    %Loss rate
    
    
    7.45
    %
    
    
    
    
    
    
    8.47
    %
    
    
    8.80
    %
    
    
    
    
    
    
    10.29
    %Interest yield, net of interest earned by
noteholders
    
    
    13.47
    %
    
    
    
    
    
    
    13.84
    %
    
    
    14.26
    %
    
    
    
    
    
    
    15.00
    %
 There were no purchases of delinquent accounts from the securitization
trust during the three months ended March 31, 2004 or 2003. The following assumptions were used in estimating the fair value of
retained interests in business credit card securitizations at March 31,
2004 and December 31, 2003. The assumptions listed represent weighted
averages of assumptions used for each securitization. March 31,
    
    December 31,2004
    
    2003Discount rate
    
    
    10.98
    %
    
    
    
    
    
    
    12.40
    %
    
    
    12.44
    %
    
    
    
    
    
    
    14.33
    %Monthly payment rate
    
    
    20.63
    %
    
    
    
    
    
    
    22.25
    %
    
    
    20.80
    %
    
    
    
    
    
    
    22.25
    %Loss rate
    
    
    7.45
    %
    
    
    
    
    
    
    8.20
    %
    
    
    7.70
    %
    
    
    
    
    
    
    8.47
    %Interest yield, net of interest earned by
noteholders
    
    
    
    
    
    
    
    
    
    
    13.47
    %
    
    
    
    
    
    
    
    
    
    
    13.84
    %
 In addition to the assumptions identified above, management also
considered qualitative factors such as the impact of the current economic
environment on the performance of the business credit card receivables
sold and the potential volatility of the current market for similar
instruments in assessing the fair value of retained interests in business
credit card securitizations. We have prepared sensitivity analyses of the valuations of retained
interests in securitizations estimated using the assumptions identified
above. The sensitivity analyses show the hypothetical effect on the fair
value of those assets of two unfavorable variations from the expected
levels for each key assumption, independently from any change in another
key assumption. Set forth below are the results of those sensitivity
analyses on the valuation at March 31, 2004. Effect on fair value of the following
hypothetical changes in key assumptions:Discount rate increased by 2%
    
    $
    (2,372
    )Discount rate increased by 4%
    
    
    (4,664
    )Monthly payment rate at 110% of base assumption
    
    
    (1,771
    )Monthly payment rate at 125% of base assumption
    
    
    (3,992
    )Loss rate at 110% of base assumption
    
    
    (4,526
    )Loss rate at 125% of base assumption
    
    
    (11,316
    )Interest yield, net of interest earned by noteholders,
decreased by 1%
    
    
    (6,076
    )Interest yield, net of interest earned by noteholders,
decreased by 2%
    
    
    (12,151
    )
 The objective of these hypothetical analyses is to measure the
sensitivity of the fair value of the retained interests to changes in
assumptions. The methodology used to calculate the fair value in the
analyses is a discounted cash flow analysis, the same methodology used to
estimate the fair value of the retained interests when quoted market
prices are not available at each reporting date. These estimates do not
factor in the impact of simultaneous changes in other key assumptions.
The above scenarios do not reflect managements expectation regarding 13




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##### Table of Contents



the future direction of these rates, and they depict only certain
possibilities out of a large set of possible scenarios. Managed receivable data Our managed business credit card receivable portfolio is comprised of
both owned and securitized business credit card receivables. Performance
on a managed receivable portfolio basis is useful and relevant because we
retain interests in the securitized receivables and, therefore, we have a
financial interest in and exposure to the performance of the securitized
receivables. Credit quality data on the managed business credit card
receivable portfolio was as follows: March 31,
    
    December 31,
    
    March 31,2004
    
    2003
    
    2003Owned business credit card receivables
    
    $
    528,204
    
    
    $
    518,040
    
    
    $
    465,436Securitized business credit card receivables
    
    
    2,548,942
    
    
    
    2,463,747
    
    
    
    2,278,746Total managed receivables
    
    
    3,077,146
    
    
    
    2,981,787
    
    
    
    2,744,182Receivables 30 days or more delinquent:Owned
    
    
    26,908
    
    
    
    25,301
    
    
    
    27,846Securitized
    
    
    138,440
    
    
    
    148,177
    
    
    
    146,570Total managed
    
    
    165,348
    
    
    
    173,478
    
    
    
    174,416Receivables 90 days or more delinquent:Owned
    
    
    13,368
    
    
    
    12,696
    
    
    
    13,403Securitized
    
    
    69,087
    
    
    
    74,762
    
    
    
    71,255Total managed
    
    
    82,455
    
    
    
    87,458
    
    
    
    84,658Nonaccrual receivables:Owned
    
    
    8,879
    
    
    
    7,866
    
    
    
    6,581Securitized
    
    
    46,409
    
    
    
    47,381
    
    
    
    35,166Total managed
    
    
    55,288
    
    
    
    55,247
    
    
    
    41,747Accruing receivables past due 90 days or more:Owned
    
    
    11,973
    
    
    
    11,320
    
    
    
    11,640Securitized
    
    
    61,713
    
    
    
    66,376
    
    
    
    61,824Total managed
    
    
    73,686
    
    
    
    77,696
    
    
    
    73,464Net principal charge-offs for the three months
ended March 31 and twelve months ended
December 31:Owned
    
    
    8,913
    
    
    
    43,670
    
    
    
    8,408Securitized
    
    
    46,187
    
    
    
    179,538
    
    
    
    45,475Total managed
    
    
    55,100
    
    
    
    223,208
    
    
    
    53,883
 Note 7) Selected Balance Sheet Information Other assets consisted of the following: March 31,
    
    December 31,2004
    
    2003Deferred income taxes
    
    $
    76,533
    
    
    $
    82,175Investment in Fleet Credit Card Services, L.P.
    
    
    32,588
    
    
    
    35,988Cash surrender value of insurance contracts
    
    
    20,896
    
    
    
    21,792Intangible assets
    
    
    4,043
    
    
    
    4,295Investment in preferred securities trust
    
    
    3,163
    
    
    
    3,093Amounts due from transfer of consumer credit
card business
    
    
    0
    
    
    
    70,545Other assets
    
    
    35,314
    
    
    
    60,815Total other assets
    
    $
    172,537
    
    
    $
    278,703
 14




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##### Table of Contents



Other liabilities consisted of the following: March 31,
    
    December 31,2004
    
    2003Accounts payable and accrued expenses
    
    $
    32,496
    
    
    $
    28,458Business credit card rewards
    
    
    19,152
    
    
    
    24,785Current income taxes
    
    
    13,930
    
    
    
    13,449Accrued interest payable
    
    
    8,302
    
    
    
    4,008Amounts due to the securitization trust
    
    
    3,881
    
    
    
    4,021Other(1)
    
    
    30,760
    
    
    
    192,402Total other liabilities
    
    $
    108,521
    
    
    $
    267,123
  (1)
    
    A substantial portion of other liabilities at December 31, 2003
represented our litigation reserves. In February 2004, the court issued its final judgment and order in the
Delaware Chancery Court litigation with Fleet, and a payment was made to
Fleet in satisfaction of all amounts due in connection with this
litigation. See Note 8. In accordance with the courts order, the
payment to Fleet was net of amounts due to Advanta from Fleet. As a
result of the courts order and payment to Fleet in February 2004, there
was a decrease in other assets and other liabilities as of the payment
date. There was no impact to the results of our operations since, based
on the final judgment and order, our reserves were adequate. Eligible cardholders earn cash back rewards or bonus mile rewards based
on net purchases charged on their business credit card accounts. The
costs of future reward redemptions are estimated and a liability is
recorded at the time cash back rewards or bonus mile points are earned by
the cardholder. In each reporting period, we adjust our estimate of the
percentage of cardholders that will ultimately claim rewards and the cost
of rewards based on our experience with each program. In addition, in
the three months ended March 31, 2003, we changed the redemption terms of
certain bonus mile reward programs resulting in a decrease in the
anticipated costs of future reward redemptions. The impact of the
changes in the estimated percentage of cardholders that will ultimately
claim rewards and other changes in anticipated costs of future period
reward redemptions for the bonus mile reward liability in the three
months ended March 31, 2004 and 2003 were as follows: Three Months EndedMarch 31,2004
    
    2003Increase (decrease) in other revenues
    
    $
    (500
    )
    
    $
    1,300Increase (decrease) in net income
    
    
    (300
    )
    
    
    800Amount per combined diluted share
    
    $
    (0.01
    )
    
    $
    0.03
 Note 8) Commitments and Contingencies On January 22, 1999, Fleet and certain of its affiliates filed a lawsuit
against Advanta Corp. and certain of its subsidiaries in Delaware
Chancery Court. Fleets allegations, which we denied, centered around
Fleets assertions that we failed to complete certain post-closing
adjustments to the value of the assets and liabilities we contributed to
Fleet Credit Card Services, L.P. in connection with the transfer of our
consumer credit card business to Fleet Credit Card Services, L.P. (the
Consumer Credit Card Transaction) in 1998. We filed an answer to the
complaint, and we also filed a countercomplaint against Fleet for damages
we believe have been caused by certain actions of Fleet. As a result of
related litigation with Fleet, $70.1 million of our reserves in
connection with this litigation were funded in an interest-bearing escrow
account in February 2001. On 15




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##### Table of Contents



January 22, 2003, the trial court issued a ruling on all but one of the
remaining issues, and ordered further briefing on the remaining
outstanding issue. Effective December 31, 2002, we recognized a $43.0
million pretax loss on the transfer of our consumer credit card business,
representing the estimated impact of implementing the courts January
2003 decisions. This amount represented the amount of estimated
liability in excess of the reserves we had been carrying for the
litigation, based on our expectations of the outcome of the litigation.
In 2003, we accrued interest on the liability at a rate consistent with
the estimation methodology used effective December 31, 2002. On November
7, 2003, the court ruled on the remaining outstanding issue, the method
for calculating the interest to be awarded, and ordered the parties to
submit revised calculations in accordance with this ruling before it
issued a judgment. On February 2, 2004, the court issued its final
judgment and order. In early February 2004, the escrow agent released
$63.8 million from the escrow account to Fleet in satisfaction of all
amounts due to Fleet in connection with this litigation and the $10.5
million of funds remaining in the escrow account were released and
transferred from the restricted escrow account to an unrestricted cash
account. At December 31, 2003, the escrow account was included in
restricted interest-bearing deposits on the consolidated balance sheet.
There was no impact to the results of our operations since, based on the
final judgment and order, our reserves at December 31, 2003 were
adequate. On March 1, 2004, we filed a notice of appeal to commence the
appeals process relating to orders made by the Delaware Chancery Court
during the litigation, and on April 15, 2004, we filed an opening brief
with the Supreme Court of Delaware setting forth the basis for our
appeal. In an ongoing element of Fleets disputes with us, Fleet has claimed $508
million of tax deductions from its partnership with us in connection with
the Consumer Credit Card Transaction, which are required under the law to
be allocated solely to Advanta. As required, we reported these
deductions on our 1998 corporate tax return. However, we have not used
or booked the benefit from most of these deductions because for tax
purposes we have a very substantial net operating loss carryforward. We
have $511 million of net operating loss carryforwards from all sources at
March 31, 2004, and have booked no benefit from approximately $400
million of these net operating loss carryforwards. If the deductions are
ultimately allocated as claimed by Fleet, the impact on our equity at
March 31, 2004 would be a decrease of approximately $35 million. The
deductions are attributable to deductions for bad debt reserves that we
expensed in computing our book income or loss before the Consumer Credit
Card Transaction, but which were not deductible by Advanta for tax
purposes until after the closing of the transaction in 1998. The tax law
requires built in losses like these to be deducted by the party who
contributed the assets to the partnership, in this case, Advanta. The
Internal Revenue Service agents who have examined the returns at issue
have to ensure that both parties do not obtain the deductions and
therefore, following standard practice, proposed to disallow the
deductions to both parties until there is a final resolution. The
deductions, as well as the allocation of a gain from the sale of a
partnership asset of approximately $47 million, are now before the IRS
Regional Office of Appeals. On January 15, 2003, Fleet filed a complaint in Rhode Island Superior
Court seeking a declaratory judgment that we indemnify Fleet under the
applicable partnership agreement for any damage Fleet incurs by not being
entitled to the $508 million of tax deductions. Fleet is also seeking a
declaratory judgment that it should not indemnify us for any damages that
we incur due to any allocation to Advanta of the $47 million gain on the
sale of a partnership asset. Fleets claim for indemnification appears
to be brought by Fleet in the hope that we will advise the IRS that we
will agree with a substantial part of Fleets tax position. On February
28, 2003, we filed a motion to dismiss the complaint. On August 13,
2003, the court denied the motion to dismiss on procedural grounds. We
answered the 16




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##### Table of Contents



complaint and filed a counterclaim against Fleet on
September 19, 2003. The discovery phase
of the case is now ongoing. We believe that the indemnification
provision in the partnership agreement does not indemnify Fleet for
damages incurred related to the tax deductions and that the lawsuit is
frivolous, having no legal basis whatsoever and therefore, we do not have
any reserves for this litigation. We do not expect this lawsuit or the
tax issues discussed above to have a material adverse effect on our
financial condition or results of operations. On July 26, 2001, Chase Manhattan Mortgage Corporation (Chase) filed a
complaint against Advanta Corp. and certain of its subsidiaries in the
United States District Court for the District of Delaware alleging, among
other things, that we breached our contract with Chase in connection with
the Mortgage Transaction. Chase claims that we misled Chase concerning
the value of certain of the assets sold to Chase and claims damages of
approximately $70 million. In September 2001, we filed an answer to the
complaint in which we denied all of the substantive allegations of the
complaint and asserted a counterclaim against Chase for breach of
contract relating to funds owed by Chase to us in connection with the
transaction. The trial was originally scheduled to begin in January
2004. In the second quarter of 2003, the parties extended the discovery
period and the court delayed the scheduled trial date to April 2004. The
discovery period has ended. In September 2003, we filed a motion for
summary judgment with the court with respect to all claims raised in
Chases complaint and Chase filed a motion for partial summary judgment
with respect to certain of its claims. On March 4, 2004, the court
denied both parties motions for summary judgment. On April 26, 2004,
the trial commenced; at trial, Chase has now asserted damages totaling
approximately $88 million. We believe that the lawsuit is without merit
and will vigorously defend Advanta in this litigation and therefore, we
do not have any reserves for future judgments or rulings in this
litigation. However, since this litigation relates to a discontinued
operation, we have established reserves for estimated future litigation
costs. We do not expect this lawsuit to have any impact on our
continuing business and, based on the complete lack of merit, we do not
anticipate that the lawsuit will have a material adverse effect on our
financial condition or results of operations. On February 13, 2004, we filed a Writ of Summons in Montgomery County,
Pennsylvania Court of Common Pleas, which we amended on March 4, 2004;
and on March 8, 2004, we filed a second amendment to this Writ of Summons
and filed a complaint against Chase in Montgomery County, Pennsylvania
Court of Common Pleas seeking damages of at least $17.7 million. On
February 23, 2004, Chase filed a complaint against us in the United
States District Court for the District of Delaware seeking damages of at
least $8 million. These filings relate to contractual claims under the
Purchase and Sale Agreement governing the Mortgage Transaction and are a
continuation of the ongoing dispute associated with the Mortgage
Transaction. We do not expect the lawsuit filed by Chase on February 23,
2004 to have a material adverse effect on our financial condition or
results of operations. In addition to the cases described above, Advanta Corp. and its
subsidiaries are involved in class action lawsuits, other litigation,
claims and legal proceedings arising in the ordinary course of business
or discontinued operations, including litigation arising from our
operation of the mortgage business prior to our exit from that business
in the first quarter of 2001. Management believes that the aggregate loss, if any, resulting from
existing litigation, claims and other legal proceedings will not have a
material adverse effect on our financial position or results of our
operations based on the level of litigation reserves we have established
and our current expectations regarding the ultimate resolutions of these
existing actions. Our litigation reserves are estimated based on the
status of litigation and our assessment of the ultimate 17




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##### Table of Contents



resolution of
each action after consultation with our attorneys. However, due to the
inherent uncertainty in litigation and since the ultimate resolutions of
our litigation, claims and other legal proceedings are influenced by
factors outside of our control, it is reasonably possible that our
estimated liability under these proceedings may change or that actual
results will differ from our estimates. Note 9) Capital Stock In 2001 and 2002, the Board of Directors of Advanta Corp. authorized
management to purchase up to 3.0 million shares of Advanta Corp. common
stock. In 2003, we repurchased 434,132 shares of our Class A Common
Stock and 315,250 shares of our Class B Common Stock, which substantially
completed our purchases under the authorizations. Cash dividends per share of common stock declared during the three months
ended March 31, 2004 and 2003 were $0.063 for Class A Common Stock and
$0.076 for Class B Common Stock. In February 2004, the Board of
Directors of Advanta Corp. approved a 50% increase in the regular
quarterly cash dividends per share beginning in the second quarter of
2004. Note 10) Segment Information AdvantaBusiness
    
    VentureCards
    
    Capital
    
    Other(1)
    
    TotalThree months ended March 31, 2004Interest income
    
    $
    21,849
    
    
    $
    0
    
    
    $
    1,562
    
    
    $
    23,411Interest expense
    
    
    9,123
    
    
    
    88
    
    
    
    2,320
    
    
    
    11,531Noninterest revenues
    
    
    70,262
    
    
    
    32
    
    
    
    1,133
    
    
    
    71,427Pretax income (loss) from continuing
operations
    
    
    16,665
    
    
    
    (1,063
    )
    
    
    0
    
    
    
    15,602Total assets at end of period
    
    
    756,324
    
    
    
    10,524
    
    
    
    757,166
    
    
    
    1,524,014Three months ended March 31, 2003Interest income
    
    $
    20,754
    
    
    $
    0
    
    
    $
    2,237
    
    
    $
    22,991Interest expense
    
    
    10,734
    
    
    
    140
    
    
    
    397
    
    
    
    11,271Noninterest revenues (losses)
    
    
    64,949
    
    
    
    (610
    )
    
    
    730
    
    
    
    65,069Pretax income (loss) from continuing
operations
    
    
    10,977
    
    
    
    (1,376
    )
    
    
    0
    
    
    
    9,601Total assets at end of period
    
    
    915,667
    
    
    
    13,934
    
    
    
    1,021,456
    
    
    
    1,951,057
  (1)
    
    Other includes investment and other activities not attributable to
reportable segments. Total assets in the Other segment include assets of
discontinued operations. 18




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##### Table of Contents



Note 11) Calculation of Earnings Per Share The following table shows the calculation of basic earnings per common
share and diluted earnings per common share. Three Months EndedMarch 31,2004
    
    2003Net income
    
    $
    9,439
    
    
    $
    5,905Less: Preferred A dividends
    
    
    (141
    )
    
    
    (141
    )Net income available to common stockholders
    
    
    9,298
    
    
    
    5,764Less: Class A dividends declared
    
    
    (551
    )
    
    
    (576
    )Less: Class B dividends declared
    
    
    (1,343
    )
    
    
    (1,320
    )Undistributed net income
    
    $
    7,404
    
    
    $
    3,868Basic net income per common shareClass A
    
    $
    0.37
    
    
    $
    0.22Class B
    
    
    0.39
    
    
    
    0.25Combined(1)
    
    
    0.38
    
    
    
    0.24Diluted net income per common shareClass A
    
    $
    0.34
    
    
    $
    0.22Class B
    
    
    0.36
    
    
    
    0.25Combined(1)
    
    
    0.35
    
    
    
    0.24Basic weighted average common shares outstandingClass A
    
    
    8,786
    
    
    
    9,183Class B
    
    
    15,502
    
    
    
    14,816Combined
    
    
    24,288
    
    
    
    23,999Dilutive effect ofOptions Class B
    
    
    1,225
    
    
    
    117Restricted shares Class A
    
    
    0
    
    
    
    1Restricted shares Class B
    
    
    929
    
    
    
    279Diluted weighted average common shares outstandingClass A
    
    
    8,786
    
    
    
    9,184Class B
    
    
    17,656
    
    
    
    15,212Combined
    
    
    26,442
    
    
    
    24,396Antidilutive sharesOptions Class B
    
    
    249
    
    
    
    2,736Restricted shares Class B
    
    
    0
    
    
    
    142
  (1)
    
    Combined represents net income available to common stockholders
divided by the combined total of Class A and Class B weighted
average common shares outstanding. 19




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##### Table of Contents



ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS In this Form 10-Q, Advanta, we, us, and our refer to Advanta
Corp. and its subsidiaries, unless the context otherwise requires. OVERVIEW Net income includes the following business segment results: Three Months Ended($ in thousands)
    
    March 31,2004
    
    2003Pretax income (loss):Advanta Business Cards
    
    $
    16,665
    
    
    $
    10,977Venture Capital
    
    
    (1,063
    )
    
    
    (1,376
    )Total pretax income
    
    
    15,602
    
    
    
    9,601Income tax expense
    
    
    (6,163
    )
    
    
    (3,696
    )Net income
    
    $
    9,439
    
    
    $
    5,905Per combined common share, assuming dilution
    
    $
    0.35
    
    
    $
    0.24
 Advanta Business Cards pretax income increased for the three months ended
March 31, 2004 as compared to the same period of 2003 due primarily to
growth in both owned and securitized receivables, a decrease in cost of
funds and credit loss rates and a decrease in operating expenses as a
percentage of owned and securitized receivables, partially offset by a
decline in yields. The decrease in yields reflects our array of
competitively-priced offerings and products, including promotional
pricing and rewards, designed to selectively attract and retain more high
credit quality customers and to respond to the competitive environment.
We believe that these types of customers will have lower credit losses in
future periods. Although there may be month-to-month or quarterly
variations, we expect yields on our business credit cards to decline
modestly in 2004 as compared to 2003, as a result of the anticipated
increase in high credit quality customers. Venture Capital pretax loss in the three months ended March 31, 2004
includes $807 thousand of expenses relating to lease commitments and
severance costs associated with the closure of an operational location of
our Venture Capital segment in the first quarter of 2004. Venture
Capital segment results also include pretax investment gains of $32
thousand in the three months ended March 31, 2004 and pretax investment
losses of $610 thousand in the three months ended March 31, 2003, which
reflect the market conditions for our venture capital investments in
those periods. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The preparation of financial statements in accordance with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results could differ
from those estimates. We have identified accounting for allowance for
receivable losses, securitization transactions, business credit card
rewards programs, litigation contingencies, income taxes, and
discontinued operations as our most critical accounting policies and
estimates because they require managements most difficult, subjective or
complex judgments as a result of the need to make estimates about the
effect of matters that are inherently uncertain. Estimates are
inherently subjective and are susceptible to 20




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##### Table of Contents



significant revision as more information becomes available. Changes in
such estimates could have a material impact on our financial condition or
results of operations. These accounting policies are described in our
Annual Report on Form 10-K for the year ended December 31, 2003. ADVANTA BUSINESS CARDS Advanta Business Cards originates new accounts directly and through the
use of third parties. The following table provides key statistical
information on our business credit card portfolio for the three months
ended March 31. Credit quality statistics for the business credit card
portfolio are included in the Provision and Allowance for Receivable
Losses section of this Managements Discussion and Analysis of Financial
Condition and Results of Operations. Three Months Ended($ in thousands)
    
    March 31,2004
    
    2003Average owned receivables
    
    $
    551,652
    
    
    $
    515,452Average securitized receivables
    
    $
    2,515,532
    
    
    $
    2,171,815Cardholder transaction volume
    
    $
    1,921,933
    
    
    $
    1,602,498New account originations
    
    
    39,135
    
    
    
    53,931Average number of active accounts(1)
    
    
    592,114
    
    
    
    583,739Ending number of accounts at March 31
    
    
    788,330
    
    
    
    792,626
  (1)
    
    Active accounts are defined as accounts with a balance at
month-end. Active account statistics do not include charged-off
accounts. The statistic reported above is the average number of
active accounts for the three months ended March 31. In the second quarter of 2003, we enhanced our targeting and decision
models used in identifying prospective customers. We have also expanded
our activities to identify and establish strategic relationships with
organizations focused on certain business owners, executives and small
businesses. We expect that our targeted approach will result in
acquiring more engaged customers, but may result in somewhat lower
account growth rates. We also plan to strengthen and deepen our
relationships with our existing customers by providing value based on
factors other than pricing in order to build lasting, profitable
relationships. The decrease in new account originations in the three
months ended March 31, 2004 as compared to the same period of 2003
reflects the selectivity of our refined customer acquisition targeting.
We expect business credit card receivable growth to range from 10% to 20%
for the year ended December 31, 2004 based on our current plans and
strategies. Pretax income for Advanta Business Cards was $16.7 million for the three
months ended March 31, 2004 as compared to $11.0 million for the same
period of 2003. The components of pretax income for Advanta Business
Cards are as follows: Three Months Ended($ in thousands)
    
    March 31,2004
    
    2003Net interest income on owned
interest-earning assets
    
    $
    12,726
    
    
    $
    10,020Noninterest revenues
    
    
    70,262
    
    
    
    64,949Provision for credit losses
    
    
    (9,413
    )
    
    
    (9,408
    )Operating expenses
    
    
    (56,910
    )
    
    
    (54,584
    )Pretax income
    
    $
    16,665
    
    
    $
    10,977
 21




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##### Table of Contents



Net interest income on owned interest-earning assets increased by $2.7
million in the three months ended March 31, 2004 as compared to the same
period of 2003. The increase was due primarily to an increase in average
owned business credit card receivables of $36.2 million and a decrease in
our cost of funds, partially offset by a decrease in the average yield
earned on our business credit card receivables. The decrease in yields
is a result of our competitively-priced offerings and products. Average
owned business credit card receivables increased in the three months
ended March 31, 2004 as compared to the same period of 2003 due to growth
and the timing of securitization activity. Noninterest revenues include securitization income, interchange income,
business credit card rewards costs and other fee revenues. The increase
in noninterest revenues in the three months ended March 31, 2004 as
compared to the same period of 2003 is due primarily to the increased
volume of securitized business credit card receivables that produced
higher securitization income and servicing fees. In addition, the
increase is due to higher transaction volume that yielded higher
interchange income. Noninterest revenues also include the impact of
changes in estimated costs of future reward redemptions in both periods.
See further discussion in the Other Revenues section of this
Managements Discussion and Analysis of Financial Condition and Results
of Operations. Provision for credit losses on business credit card receivables was $9.4
million for the three months ended March 31, 2004, which was consistent
with the same period of 2003. The impact of growth in owned receivables
on provision for credit losses was offset by a reduction in the estimate
of losses inherent in the portfolio based on the delinquency and
principal charge-off trends and the composition of the portfolio as
compared to the same period of 2003. The increase in operating expenses in the three months ended March 31,
2004 as compared to the same period of 2003 was due primarily to an
increase in salaries and employee benefits expense resulting from
executive compensation expense incurred related to changes in senior
management, higher incentive compensation expense resulting from improved
earnings and collections performance, and personnel hired in connection
with initiatives to originate and retain relationships with high credit
quality customers. Operating expenses also reflect a decrease in the
amortization of deferred origination costs, due to the number and timing
of new account originations in prior periods. VENTURE CAPITAL The components of pretax loss for our Venture Capital segment are as
follows: Three Months Ended($ in thousands)
    
    March 31,2004
    
    2003Net interest expense
    
    $
    (88
    )
    
    $
    (140
    )Unrealized gains (losses), net
    
    
    32
    
    
    
    (610
    )Operating expenses
    
    
    (1,007
    )
    
    
    (626
    )Pretax loss
    
    $
    (1,063
    )
    
    $
    (1,376
    )
 The estimated fair value of our venture capital investments was $9.5
million at March 31, 2004 and December 31, 2003. Unrealized gains
(losses) on our venture capital investments reflect the market conditions
for those investments in each respective period. 22




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##### Table of Contents



In recent years, we have limited our new venture capital investment
activity and we presently do not expect to make significant additional
investments. Operating expenses in the three months ended March 31, 2004
include expenses associated with the closure of an operational location
of our Venture Capital segment in the first quarter of 2004, consisting
of $571 thousand of expense relating to lease commitments and $236
thousand of severance costs. Due to the closure, we expect to incur
lower operating expenses in the Venture Capital segment in future
periods. INTEREST INCOME AND EXPENSE Interest income increased $420 thousand to $23.4 million for the three
months ended March 31, 2004 as compared to the same period of 2003.
Interest income was impacted by a decrease in the average yield earned on
our business credit card receivables as a result of our
competitively-priced offerings and products. The impact of lower yields
on business credit card receivables was offset by an increase of $36.2
million in average business credit card receivables in the three months
ended March 31, 2004 as compared to the same period of 2003. Interest
income was also impacted by an increase in average balances and the
average yield on retained interests in securitizations. The increase in
average balances of retained interests in securitizations is due to
additional securitizations completed since March 31, 2003. The increase
in average yield on retained interests in securitization to 12.27% for
the three months ended March 31, 2004 as compared to 10.72% for the same
period of 2003 is due primarily to the composition of retained interests
in the respective periods. Retained interests in securitizations in the
three months ended March 31, 2003 included an investment-grade
subordinated trust asset with a lower effective yield than our other
retained interests in securitizations. Interest expense for the three months ended March 31, 2004 includes $2.3
million of interest expense on subordinated debt payable to preferred
securities trust. Our adoption of FIN 46, as revised, resulted in the
deconsolidation of the subsidiary trust that issued our trust preferred
securities effective December 31, 2003. As a result of the
deconsolidation of that trust, the consolidated income statement includes
interest expense on subordinated debt payable to preferred securities
trust beginning January 1, 2004, as compared to periods through December
31, 2003 that included payments on the trust preferred securities
classified as minority interest in income of consolidated subsidiary. Interest expense increased $260 thousand to $11.5 million for the three
months ended March 31, 2004 as compared to the same period of 2003. The
increase in interest expense is due to the $2.3 million of interest
expense on subordinated debt payable to preferred securities trust
described above, partially offset by a decrease in interest expense on
deposits and debt of $2.0 million. This decrease in interest expense on
deposits and debt was the result of a $155 million decrease in the
average balances of deposits and debt outstanding and a decrease in our
average cost of funding debt and deposits due to the prevailing interest
rate environment and our ability to lower interest rates offered on
senior debt resulting from our liquidity position. The following tables provide an analysis of interest income and expense
data, average balance sheet data, net interest spread and net interest
margin for both continuing and discontinued operations. The net interest
spread represents the difference between the yield on interest-earning
assets and the average rate paid on interest-bearing liabilities. The
net interest margin represents the difference between the yield on
interest-earning assets and the average rate paid to fund
interest-earning assets. Interest income includes late fees on business
credit card receivables. 23




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##### Table of Contents



INTEREST RATE ANALYSIS AND AVERAGE BALANCES Three Months Ended March 31,2004
    
    2003Average
    
    
    
    
    
    Average
    
    Average
    
    
    
    
    
    Average($ in thousands)
    
    Balance
    
    Interest
    
    Rate
    
    Balance
    
    Interest
    
    RateOwned receivables:Business credit cards(1)
    
    $
    551,652
    
    
    $
    17,247
    
    
    
    12.57
    %
    
    $
    515,452
    
    
    $
    17,162
    
    
    
    13.50
    %Other receivables
    
    
    13,888
    
    
    
    146
    
    
    
    4.23
    
    
    
    24,860
    
    
    
    311
    
    
    
    5.07Total owned receivables
    
    
    565,540
    
    
    
    17,393
    
    
    
    12.37
    
    
    
    540,312
    
    
    
    17,473
    
    
    
    13.11Investments(2)
    
    
    497,561
    
    
    
    1,419
    
    
    
    1.13
    
    
    
    575,099
    
    
    
    1,932
    
    
    
    1.35Retained interests in
securitizations
    
    
    149,998
    
    
    
    4,602
    
    
    
    12.27
    
    
    
    134,005
    
    
    
    3,592
    
    
    
    10.72Interest-earning assets of
discontinued operations
    
    
    63,046
    
    
    
    1,526
    
    
    
    9.68
    
    
    
    41,786
    
    
    
    1,277
    
    
    
    12.22Total interest-earning
assets(3)
    
    
    1,276,145
    
    
    $
    24,940
    
    
    
    7.84
    %
    
    
    1,291,202
    
    
    $
    24,274
    
    
    
    7.60
    %Noninterest-earning assets
    
    
    338,536
    
    
    
    
    
    
    
    
    
    
    
    518,488Total assets
    
    $
    1,614,681
    
    
    
    
    
    
    
    
    
    
    $
    1,809,690Deposits
    
    $
    666,270
    
    
    $
    4,682
    
    
    
    2.83
    %
    
    $
    807,208
    
    
    $
    6,608
    
    
    
    3.32
    %Debt
    
    
    303,848
    
    
    
    4,632
    
    
    
    6.13
    
    
    
    318,275
    
    
    
    5,065
    
    
    
    6.45Subordinated debt payable
to preferred securities
trust
    
    
    103,093
    
    
    
    2,289
    
    
    
    8.88
    
    
    
    0
    
    
    
    0
    
    
    
    0.00Other borrowings
    
    
    0
    
    
    
    0
    
    
    
    0.00
    
    
    
    224
    
    
    
    1
    
    
    
    1.69Total interest-bearing
liabilities(4)
    
    
    1,073,211
    
    
    $
    11,603
    
    
    
    4.34
    %
    
    
    1,125,707
    
    
    $
    11,674
    
    
    
    4.21
    %Noninterest-bearing
liabilities
    
    
    194,016
    
    
    
    
    
    
    
    
    
    
    
    262,225Total liabilities
    
    
    1,267,227
    
    
    
    
    
    
    
    
    
    
    
    1,387,932Company-obligated
mandatorily redeemable
preferred securities of
subsidiary trust holding
solely subordinated
debentures of Advanta
Corp. (trust preferred
securities)
    
    
    0
    
    
    
    
    
    
    
    
    
    
    
    100,000Stockholders equity
    
    
    347,454
    
    
    
    
    
    
    
    
    
    
    
    321,758Total liabilities and
stockholders equity
    
    $
    1,614,681
    
    
    
    
    
    
    
    
    
    
    $
    1,809,690Net interest spread
    
    
    
    
    
    
    
    
    
    
    3.50
    %
    
    
    
    
    
    
    
    
    
    
    3.39
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    4.20
    %
    
    
    
    
    
    
    
    
    
    
    3.96
    %
  (1)
    
    Interest income includes late fees for owned business credit cards
receivables of $1.4 million for the three months ended March 31,
2004 and $1.5 million for the three months ended March 31, 2003.  (2)
    
    Interest and average rate for tax-free securities are computed on a
tax equivalent basis using a statutory rate of 35%.  (3)
    
    Includes assets held and available for sale and nonaccrual
receivables.  (4)
    
    Includes funding of assets for both continuing and discontinued
operations. 24




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##### Table of Contents



PROVISION AND ALLOWANCE FOR RECEIVABLE LOSSES For the three months ended March 31, 2004, provision for credit losses on
a consolidated basis was $9.5 million as compared to $9.4 million for the
same period of 2003. The impact of the increase in average owned
business credit card receivables of $36.2 million in the three months
ended March 31, 2004 as compared to the same period of 2003 was
substantially offset by a reduction in the estimate of losses inherent in
the portfolio based on delinquency and principal charge-off trends and
the current composition of the portfolio that included more high credit
quality customers as compared to the same period of 2003. For the three months ended March 31, 2004, the provision for interest and
fee losses, which is recorded as a direct reduction to interest and fee
income, decreased by $436 thousand to $2.2 million as compared to the
same period of 2003. The decrease was due to a reduction in the estimate
of losses inherent in the portfolio based on improved delinquency and
charge-off trends and the current composition of the portfolio as
compared to the same period of 2003, partially offset by growth in
average owned business credit card receivables. The allowance for receivable losses on business credit card receivables
was $47.3 million at March 31, 2004, or 8.95% of owned receivables, which
was relatively consistent with the allowance of $47.0 million, or 9.08%
of owned receivables at December 31, 2003. Although charge-off levels
are not always predictable since they are impacted by the economic
environment and other factors beyond our control, and there may be
month-to-month or quarterly variations in losses or delinquencies, we
anticipate that the owned and managed net principal charge-off rates for
the second and third quarters of 2004 will be lower than those
experienced for the comparable periods of 2003. This expectation is
based upon the level of receivables 90 days or more delinquent at March
31, 2004 and the current composition of the portfolio that reflects our
strategic initiative to selectively attract and retain more high credit
quality customers. The following table provides credit quality data as of and for the
year-to-date periods indicated for our owned receivable portfolio
including a summary of allowances for receivable losses, delinquencies,
nonaccrual receivables, accruing receivables past due 90 days or more,
and net principal charge-offs. Consolidated data includes business
credit cards and other receivables. 25




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##### Table of Contents



March 31,
    
    December 31,
    
    March 31,($ in thousands)

    
    2004
    
    2003
    
    2003CONSOLIDATED  OWNEDAllowance for receivable losses
    
    $
    48,803
    
    
    $
    48,454
    
    
    $
    47,530Receivables 30 days or more delinquent
    
    
    27,020
    
    
    
    25,413
    
    
    
    29,207Receivables 90 days or more delinquent
    
    
    13,480
    
    
    
    12,808
    
    
    
    14,207Nonaccrual receivables
    
    
    8,991
    
    
    
    7,978
    
    
    
    7,385Accruing receivables past due 90 days or more
    
    
    11,973
    
    
    
    11,320
    
    
    
    11,640As a percentage of gross receivables:Allowance for receivable losses
    
    
    9.04
    %
    
    
    9.06
    %
    
    
    9.71
    %Receivables 30 days or more delinquent
    
    
    5.01
    
    
    
    4.75
    
    
    
    5.96Receivables 90 days or more delinquent
    
    
    2.50
    
    
    
    2.39
    
    
    
    2.90Nonaccrual receivables
    
    
    1.67
    
    
    
    1.49
    
    
    
    1.51Accruing receivables past due 90 days or more
    
    
    2.22
    
    
    
    2.12
    
    
    
    2.38Net principal charge-offs
    
    $
    8,909
    
    
    $
    43,704
    (1)
    
    $
    8,428As a percentage of average gross receivables
(annualized)
    
    
    6.30
    %
    
    
    7.18
    % (1)
    
    
    6.24
    %BUSINESS CREDIT CARDS  OWNEDAllowance for receivable losses
    
    $
    47,289
    
    
    $
    47,041
    
    
    $
    45,818Receivables 30 days or more delinquent
    
    
    26,908
    
    
    
    25,301
    
    
    
    27,846Receivables 90 days or more delinquent
    
    
    13,368
    
    
    
    12,696
    
    
    
    13,403Nonaccrual receivables
    
    
    8,879
    
    
    
    7,866

    
    
    
    6,581Accruing receivables past due 90 days or more
    
    
    11,973
    
    
    
    11,320
    
    
    
    11,640As a percentage of gross receivables:Allowance for receivable losses
    
    
    8.95
    %
    
    
    9.08
    %
    
    
    9.84
    %Receivables 30 days or more delinquent
    
    
    5.09
    
    
    
    4.88
    
    
    
    5.98Receivables 90 days or more delinquent
    
    
    2.53
    
    
    
    2.45
    
    
    
    2.88Nonaccrual receivables
    
    
    1.68
    
    
    
    1.52
    
    
    
    1.41Accruing receivables past due 90 days or more
    
    
    2.27
    
    
    
    2.19
    
    
    
    2.50Net principal charge-offs
    
    $
    8,913
    
    
    $
    43,670
    (1)
    
    $
    8,408As a percentage of average gross receivables
(annualized)
    
    
    6.46
    %
    
    
    7.42
    %(1)
    
    
    6.52
    %
  (1)
    
    For the three months ended December 31, 2003, net principal charge-offs
on owned consolidated receivables were $10.2 million or 6.66% as a
percentage of average gross receivables. For the three months ended
December 31, 2003, net principal charge-offs on owned business credit card
receivables were $10.2 million or 6.84% as a percentage of average gross
business credit card receivables. SECURITIZATION INCOME Securitization income increased $2.9 million for the three months ended
March 31, 2004 to $32.5 million as compared to the same period of 2003
due to increased volume of securitized receivables, a decrease in the
floating interest rates earned by note holders and a decrease in the net
principal charge-off rate on securitized receivables, partially offset by
a decrease in yield on securitized receivables. The fluctuation in
yields and rates are similar to those experienced in owned business
credit card receivables as discussed in the Interest Income and Expense
and Provision and Allowance for Receivable Losses sections of this
Managements Discussion and Analysis of Financial Condition and Results
of Operations. Managed Receivable Data In addition to evaluating the financial performance of the Advanta
Business Cards segment under generally accepted accounting principles
(GAAP), we evaluate Advanta Business Cards performance on a managed
basis. Our managed business credit card receivable portfolio is
comprised of both owned and securitized business credit card receivables.
We sell business credit card receivables through securitizations
accounted for as sales under GAAP. We continue to own and service the
accounts that generate the securitized receivables. Managed data
presents 26




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##### Table of Contents



performance as if the securitized receivables had not been sold. We
believe that performance on a managed basis provides useful supplemental
information because we retain interests in the securitized receivables
and, therefore, we have a financial interest in and exposure to the
performance of the securitized receivables. Revenue and credit data on
the managed portfolio provides additional information useful in
understanding the performance of the retained interests in
securitizations. The following tables provide managed data for Advanta
Business Cards and a reconciliation of the managed data to the most
directly comparable GAAP financial measures: INCOME STATEMENT MEASURES AND STATISTICS AdvantaAdvanta
    
    
    
    
    
    
    
    
    
    BusinessBusiness
    
    
    
    
    
    Securitization
    
    Cards
    
    Managed($ in thousands)
    
    Cards GAAP
    
    GAAP Ratio(3)
    
    Adjustments
    
    Managed
    
    Ratio(3)Three Months Ended
March 31, 2004:Interest income
    
    $
    21,849
    
    
    
    12.46
    %
    
    $
    93,107
    
    
    $
    114,956
    
    
    
    14.99
    %Interest expense

    
    
    9,123
    
    
    
    5.21
    
    
    
    11,334
    
    
    
    20,457
    
    
    
    2.67Net interest income
    
    
    12,726
    
    
    
    7.25
    
    
    
    81,773
    
    
    
    94,499
    
    
    
    12.32Noninterest revenues
    
    
    70,262
    
    
    
    40.06
    
    
    
    (35,586
    )
    
    
    34,676
    
    
    
    4.52Provision for credit losses
    
    
    9,413
    
    
    
    5.37
    
    
    
    46,187
    (2)
    
    
    55,600
    
    
    
    7.25Risk-adjusted revenues(1)
    
    
    73,575
    
    
    
    41.94
    
    
    
    0
    
    
    
    73,575
    
    
    
    9.59Average business credit
card interest-earning
assets
    
    
    701,650
    
    
    
    
    
    
    
    2,365,534
    
    
    
    3,067,184Average business credit
card receivables
    
    
    551,652
    
    
    
    
    
    
    
    2,515,532
    
    
    
    3,067,184Net principal charge-offs
    
    
    8,913
    
    
    
    6.46
    
    
    
    46,187
    
    
    
    55,100
    
    
    
    7.19Three Months Ended
March 31, 2003:Interest income
    
    $
    20,754
    
    
    
    12.78
    %
    
    $
    87,095
    
    
    $
    107,849
    
    
    
    16.05
    %Interest expense
    
    
    10,734
    
    
    
    6.61
    
    
    
    9,521
    
    
    
    20,255
    
    
    
    3.01Net interest income
    
    
    10,020
    
    
    
    6.17
    
    
    
    77,574
    
    
    
    87,594
    
    
    
    13.04Noninterest revenues
    
    
    64,949
    
    
    
    40.00
    
    
    
    (32,099
    )
    
    
    32,850
    
    
    
    4.89Provision for credit losses
    
    
    9,408
    
    
    
    5.79
    
    
    
    45,475
    (2)
    
    
    54,883
    
    
    
    8.17Risk-adjusted revenues(1)
    
    
    65,561
    
    
    
    40.38
    
    
    
    0
    
    
    
    65,561
    
    
    
    9.76Average business credit
card interest-earning
assets
    
    
    649,457
    
    
    
    
    
    
    
    2,037,810
    
    
    
    2,687,267Average business credit
card receivables
    
    
    515,452
    
    
    
    
    
    
    
    2,171,815
    
    
    
    2,687,267Net principal charge-offs
    
    
    8,408
    
    
    
    6.52
    
    
    
    45,475
    
    
    
    53,883
    
    
    
    8.02
  (1)
    
    Risk-adjusted revenues represent net interest income and noninterest
revenues, less provision for credit losses.  (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.  (3)
    
    Ratios are as a percentage of average business credit card
interest-earning assets except net principal charge-off ratios, which are
as a percentage of average business credit card receivables. 27




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##### Table of Contents



BALANCE SHEET MEASURES AND STATISTICS Advanta
    
    
    
    
    
    
    
    
    
    AdvantaBusiness
    
    GAAP
    
    Securitization
    
    Business
    
    Managed($ in thousands)
    
    Cards GAAP
    
    Ratio(1)
    
    Adjustments
    
    Cards Managed
    
    Ratio(1)As of March 31, 2004Number of business
credit card accounts
    
    
    788,330
    
    
    
    
    
    
    
    N/A
    
    
    
    788,330Ending business credit
card receivables
    
    $
    528,204
    
    
    
    
    
    
    $
    2,548,942
    
    
    $
    3,077,146Receivables 30 days or
more delinquent
    
    
    26,908
    
    
    
    5.09
    %
    
    
    138,440
    
    
    
    165,348
    
    
    
    5.37
    %Receivables 90 days or
more delinquent
    
    
    13,368
    
    
    
    2.53
    
    
    
    69,087
    
    
    
    82,455
    
    
    
    2.68Nonaccrual receivables
    
    
    8,879
    
    
    
    1.68
    
    
    
    46,409
    
    
    
    55,288
    
    
    
    1.80Accruing receivables past
due 90 days or more
    
    
    11,973
    
    
    
    2.27
    
    
    
    61,713
    
    
    
    73,686
    
    
    
    2.39As of December 31, 2003Number of business
credit card accounts
    
    
    786,700
    
    
    
    
    
    
    
    N/A
    
    
    
    786,700Ending business credit
card receivables
    
    $
    518,040
    
    
    
    
    
    
    $
    2,463,747
    
    
    $
    2,981,787Receivables 30 days or
more delinquent
    
    
    25,301
    
    
    
    4.88
    %
    
    
    148,177
    
    
    
    173,478
    
    
    
    5.82
    %Receivables 90 days or
more delinquent
    
    
    12,696
    
    
    
    2.45
    
    
    
    74,762
    
    
    
    87,458
    
    
    
    2.93Nonaccrual receivables
    
    
    7,866
    
    
    
    1.52
    
    
    
    47,381
    
    
    
    55,247
    
    
    
    1.85Accruing receivables past
due 90 days or more
    
    
    11,320
    
    
    
    2.19
    
    
    
    66,376
    
    
    
    77,696
    
    
    
    2.61As of March 31, 2003Number of business
credit card accounts
    
    
    792,626
    
    
    
    
    
    
    
    N/A
    
    
    
    792,626Ending business credit
card receivables
    
    $
    465,436
    
    
    
    
    
    
    $
    2,278,746
    
    
    $
    2,744,182Receivables 30 days or
more delinquent
    
    
    27,846
    
    
    
    5.98
    %
    
    
    146,570
    
    
    
    174,416
    
    
    
    6.36
    %Receivables 90 days or
more delinquent
    
    
    13,403
    
    
    
    2.88
    
    
    
    71,255
    
    
    
    84,658
    
    
    
    3.08Nonaccrual receivables
    
    
    6,581
    
    
    
    1.41
    
    
    
    35,166
    
    
    
    41,747
    
    
    
    1.52Accruing receivables past
due 90 days or more
    
    
    11,640
    
    
    
    2.50
    
    
    
    61,824
    
    
    
    73,464
    
    
    
    2.68
  (1)
    
    Ratios are as a percentage of ending business credit card
receivables. SERVICING REVENUES Servicing revenues were $12.1 million for the three months ended March
31, 2004 and $10.0 million for the same period of 2003. The increase in
servicing revenue was due to increased volume of securitized business
credit card receivables. 28




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##### Table of Contents



OTHER REVENUES Three Months Ended($ in thousands)
    
    March 31,2004
    
    2003Interchange income
    
    $
    31,575
    
    
    $
    26,138Business credit cards cash back
rewards
    
    
    (5,751
    )
    
    
    (2,426
    )Business credit cards bonus mile
rewards
    
    
    (3,470
    )
    
    
    (1,706
    )Balance transfer fees
    
    
    1,427
    
    
    
    1,351Cash advance fees
    
    
    763
    
    
    
    755Other fee revenues
    
    
    1,289
    
    
    
    1,403Earnings allocable to partnership interest
    
    
    600
    
    
    
    500Investment securities gains (losses), net
    
    
    49
    
    
    
    (608
    )Valuation adjustments on other receivables held
for sale
    
    
    0
    
    
    
    (105
    )Other
    
    
    272
    
    
    
    130Total other revenues, net
    
    $
    26,754
    
    
    $
    25,432
 Interchange income includes interchange fees on both owned and
securitized business credit cards. The increase in interchange income in
the three months ended March 31, 2004 as compared to the same period of
2003 was due to higher transaction volume. The average interchange rate
was 2.1% in each of the three month periods ended March 31, 2004 and
March 31, 2003. The increase in business credit cards cash back rewards in the three
months ended March 31, 2004 as compared to the same period of 2003 was
due primarily to the increase in average business credit card accounts in
the cash back rewards programs and the corresponding transaction activity
in those accounts. The increase in business credit cards bonus mile rewards in the three
months ended March 31, 2004 as compared to the same period of 2003 was
due primarily to changes in estimate of anticipated costs of future
rewards redemptions. Business credit cards bonus mile rewards included a
$500 thousand increase in estimated costs in the three months ended March
31, 2004, and a $1.3 million decrease in estimated costs in the same
period of 2003. See Note 7 to the consolidated financial statements for
further discussion. 29




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##### Table of Contents



Investment securities gains (losses), net, primarily represent increases
(decreases) in valuations of venture capital investments reflecting the
market conditions for the investments. OPERATING EXPENSES Three Months Ended($ in thousands)
    
    March 31,2004
    
    2003Salaries and employee benefits
    
    $
    22,431
    
    
    $
    17,991Amortization of deferred
origination costs, net
    
    
    9,337
    
    
    
    14,184External processing
    
    
    5,219
    
    
    
    4,858Professional fees
    
    
    4,248
    
    
    
    3,196Marketing
    
    
    3,261
    
    
    
    2,927Equipment
    
    
    2,988
    
    
    
    3,394Occupancy
    
    
    2,581
    
    
    
    1,789Credit
    
    
    1,591
    
    
    
    1,185Insurance
    
    
    1,084
    
    
    
    751Postage
    
    
    974
    
    
    
    902Fraud
    
    
    954
    
    
    
    915Telephone
    
    
    925
    
    
    
    1,074Other
    
    
    2,601
    
    
    
    2,356Total operating expenses
    
    $
    58,194
    
    
    $
    55,522
 Salaries and employee benefits in the three months ended March 31, 2004
include $1.6 million of expense associated with executive compensation
expense incurred in connection with changes in senior management and
Venture Capital segment severance costs. In addition, salaries and
employee benefits increased in the three months ended March 31, 2004 as
compared to the same period of 2003 due to higher incentive compensation
expense resulting from improved earnings and collections performance, and
personnel hired in connection with initiatives to originate and retain
relationships with high credit quality customers. Amounts paid to third parties to acquire business credit card accounts
and certain other origination costs are deferred and netted against any
related business credit card origination fee, and the net amount is
amortized on a straight-line basis over the privilege period of one year.
Amortization of deferred origination costs, net, decreased in the three
months ended March 31, 2004 as compared to the same period of 2003 due
primarily to the number and timing of new account originations in prior
periods. We originated a significant volume of new accounts in the
fourth quarter of 2002, and the costs to originate those accounts
increased amortization expense throughout most of 2003. We expect
amortization of business credit card deferred origination costs to be
lower in each of the quarters of 2004, as compared to the same periods of
2003, based on the level of deferred origination costs and the timing of
new accounts during prior periods. External processing expense increased in the three months ended March 31,
2004 as compared to the same period of 2003 due primarily to higher
transaction volume. Professional fees increased in the three months ended March 31, 2004 as
compared to the same period of 2003 due primarily to an increase in the
use of external consultants for certain initiatives to originate and
retain relationships with high credit quality customers and other
corporate matters, partially offset by a reduction in legal expenses
related to the timing of litigation activity. 30




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##### Table of Contents



Marketing expense increased in the three months ended March 31, 2004 as
compared to the same period of 2003 due primarily to amortization expense
on marketing rights purchased in late March 2003 related to our
development of a new customer segment. Equipment expense decreased in the three months ended March 31, 2004 as
compared to the same period of 2003 due to a $585 thousand licensing
fee for automated transaction processing technology that was incurred
in the three months ended March 31, 2003. Occupancy expense increased in the three months ended March 31, 2004 as
compared to the same period of 2003 due to additional office space that
we began leasing in March 2003. In addition, occupancy expense in the
three months ended March 31, 2004 includes approximately $571 thousand of
expense relating to lease commitments associated with the closure of an
operational location of our Venture Capital segment. Credit expense increased in the three months ended March 31, 2004 as
compared to the same period of 2003 due to the utilization of
additional services from credit information service providers. Insurance expense increased in the three months ended March 31, 2004 as
compared to the same period of 2003 due to an increase in directors
and officers professional liability insurance costs as a result of
market rates for this type of insurance. Telephone expense decreased in the three months ended March 31, 2004 as
compared to the same period of 2003 due primarily to a reduction in
contract rate charged by one of our service providers that was
effective February 2003. We expect total operating expenses in each of the remaining quarters of
2004 to be higher than total operating expenses in the three months
ended March 31, 2004. Certain planned initiatives to originate and
retain relationships with high credit quality customers that were
expected to occur in the first quarter, are now expected to occur in
the second quarter and later in the year 2004. LITIGATION CONTINGENCIES Our litigation reserves are estimated based on the status of litigation
and our assessment of the ultimate resolution of each action after
consultation with our attorneys. However, due to the inherent
uncertainty in litigation and since the ultimate resolutions of our
litigation, claims and other legal proceedings are influenced by factors
outside of our control, it is reasonably possible that our estimated
liability under these proceedings may change or that actual results will
differ from our estimates. Changes in estimates or other charges related
to litigation are included in operating expenses of the respective
business segment if related to continuing operations, or loss, net, on
discontinuance of mortgage and leasing businesses if related to
discontinued operations. See Note 8 to the consolidated financial
statements for further discussion of litigation contingencies. 31




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##### Table of Contents



INCOME TAXES Our effective tax rate increased to 39.5% in 2004 due to higher state
income taxes. Income tax expense on income from continuing operations
was as follows: Three Months Ended($ in thousands)
    
    March 31,2004
    
    2003Income tax expense
    
    $
    6,163
    
    
    $
    3,696Effective tax rate

    
    
    39.5
    %
    
    
    38.5
    %
 See Note 8 to the consolidated financial statements for a discussion of
tax matters currently before the Internal Revenue Service Regional
Office of Appeals. OFF-BALANCE SHEET ARRANGEMENTS Off-balance sheet securitizations provide a significant portion of our
funding and they are one of our primary sources of liquidity. At March
31, 2004, off-balance sheet securitized receivables represented 63% of
our funding. These transactions enable us to limit our credit risk in
the securitized receivables to the amount of our retained interests in
securitizations. We had $150.0 million of retained interests in
securitizations at March 31, 2004 and December 31, 2003. The following table summarizes the business credit card securitization data
including income and cash flows: Three Months EndedMarch 31,
    
    March 31,($ in thousands)
    
    2004
    
    2003Average securitized receivables
    
    $
    2,515,532
    
    
    $
    2,171,815Securitization income
    
    
    32,540
    
    
    
    29,610Discount accretion
    
    
    4,602
    
    
    
    3,592Interchange income
    
    
    25,944
    
    
    
    20,404Servicing revenues
    
    
    12,133
    
    
    
    10,027Proceeds from new securitizations
    
    
    90,000
    
    
    
    72,525Proceeds from collections reinvested in
revolving-period securitizations
    
    
    1,623,556
    
    
    
    1,058,392Cash flows received on retained interests
    
    
    66,682
    
    
    
    48,300
 See Note 6 to the consolidated financial statements for the key assumptions
used in estimating the fair value of retained interests in securitizations at
March 31, 2004 and December 31, 2003 and for the three months ended March 31,
2004 and 2003. We have a $280 million committed commercial paper conduit facility that
provides off-balance sheet funding, $90 million of which was used at
March 31, 2004. Upon the expiration of this facility in June 2004,
management expects to obtain the appropriate level of replacement funding
under similar terms and conditions. In June 2003, the FASB issued an exposure draft, Qualifying
Special-Purpose Entities and Isolation of Transferred Assets  An
Amendment of FASB Statement No. 140. The changes and clarifications in
the proposed statement would prevent derecognition by transferors that
may continue to retain effective control of transferred assets by
providing financial support other than a subordinated retained interest
or making decisions about beneficial interests. The changes 32




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##### Table of Contents



would also help to ensure that variable interest entities will not
qualify for the qualifying special-purpose entity exception to FASB
Interpretation No. 46, as revised, if any party involved is in a position
to enhance or protect the value of its own subordinated interest by
providing financial support for or making decisions about reissuing
beneficial interests. For public entities, this proposed statement would
apply prospectively to transfers of assets occurring after the beginning
of the first interim period after the issuance of the final statement.
In April 2004, the FASB announced plans to issue a revised exposure draft
in the third quarter of 2004 and a final standard in the fourth quarter
of 2004. Management will evaluate any potential impact of this revised
proposed statement when it is available. MARKET RISK SENSITIVITY Market risk is the potential for loss or diminished financial performance
arising from adverse changes in market forces including interest rates
and market prices. Market risk sensitivity is the degree to which a
financial instrument, or a company that owns financial instruments, is
exposed to market forces. Fluctuations in interest rates, changes in
economic conditions, shifts in customer behavior, and other factors can
affect our financial performance. Changes in economic conditions and
shifts in customer behavior are difficult to predict, and our financial
performance generally cannot be insulated from these forces. As of March 31, 2004, there were no material changes in our market risk
exposures that affect the quantitative and qualitative market risk
disclosures presented as of December 31, 2003 in our Form 10-K. LIQUIDITY, CAPITAL RESOURCES AND ANALYSIS OF FINANCIAL CONDITION Our goal is to maintain an adequate level of liquidity, for both
long-term and short-term needs, through active management of both assets
and liabilities. Since Advanta Corp.s debt rating is not investment
grade, our access to unsecured, institutional debt is limited. However,
we do have access to a diversity of funding sources as described below,
and had a high level of liquidity at March 31, 2004. At March 31, 2004,
we had $326 million of federal funds sold, $210 million of receivables
held for sale, and $158 million of investments, which could be sold to
generate additional liquidity. Components of funding were as follows: March 31, 2004
    
    December 31, 2003($ in thousands)
    
    Amount
    
    %
    
    Amount
    
    %Off-balance sheet securitized
receivables(1)
    
    $
    2,457,014
    
    
    
    63
    %
    
    $
    2,371,819
    
    
    
    62
    %Deposits
    
    
    666,048
    
    
    
    17
    
    
    
    672,204
    
    
    
    18Debt
    
    
    291,613
    
    
    
    8
    
    
    
    314,817
    
    
    
    8Subordinated debt payable to
preferred securities trust
    
    
    103,093
    
    
    
    3
    
    
    
    103,093
    
    
    
    3Equity
    
    
    354,739
    
    
    
    9
    
    
    
    341,207
    
    
    
    9Total
    
    $
    3,872,507
    
    
    
    100
    %
    
    $
    3,803,140
    
    
    
    100
    %
  (1)
    
    Includes off-balance sheet business credit card receivables.
Excludes our ownership interest in the investor principal balance of
securitizations (subordinated trust assets) that are held on-balance
sheet and classified as retained interests in securitizations. 33




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As shown above in the components of funding table, off-balance sheet
securitizations provide a significant portion of our funding and they are
one of our primary sources of liquidity. See the Off-Balance Sheet
Arrangements section of this Managements Discussion and Analysis of
Financial Condition and Results of Operations for further discussion of
off-balance sheet securitizations and their impact on our liquidity,
capital resources and financial condition. We continue to offer unsecured debt securities of Advanta Corp., in the
form of RediReserve Certificates and Investment Notes, to retail
investors through our retail note program. We change the interest rates
we offer frequently, depending on market conditions and our funding
needs. In the three months ended March 2004, we reduced originations of
retail notes due to our liquidity position and, as a result, the balance
of RediReserve Certificates and Investment Notes outstanding decreased by
$23.2 million to $292 million at March 31, 2004. Based on anticipated
liquidity needs, we plan to continue reducing originations of retail
notes during the remainder of 2004. On February 2, 2004, the court issued its final judgment and order in the
Delaware Chancery Court litigation with Fleet. In early February 2004,
the escrow agent released $63.8 million from the escrow account to Fleet
in satisfaction of all amounts due to Fleet in connection with this
litigation and the $10.5 million of funds remaining in the escrow account
were released and transferred from the restricted escrow account to an
unrestricted cash account. At December 31, 2003, the escrow account was
included in restricted interest-bearing deposits on the consolidated
balance sheet. In accordance with the courts order, the payment to
Fleet was net of amounts due to Advanta from Fleet. As a result of the
courts order and payment to Fleet in February 2004, there was a decrease
in other assets and other liabilities as of the payment date. There was
no impact to the results of our operations since, based on the final
judgment and order, our reserves at December 31, 2003 were adequate. Advanta Corp. and its subsidiaries are involved in other litigation,
including other litigation with Fleet and litigation relating to the
Mortgage Transaction, class action lawsuits, claims and legal proceedings
arising in the ordinary course of business or discontinued operations,
including litigation arising from our operation of the mortgage business
prior to our exit from that business in the first quarter of 2001. See
Note 8 to the consolidated financial statements for further discussion.
Management believes that the aggregate loss, if any, resulting from
existing litigation, claims and other legal proceedings will not have a
material adverse effect on our liquidity or capital resources based on
our current expectations regarding the ultimate resolutions of these
actions. However, due to the inherent uncertainty in litigation and
since the ultimate resolutions of these proceedings are influenced by
factors outside of our control, it is reasonably possible that the
estimated cash flow related to these proceedings may change or that
actual results will differ from our estimates. In February 2004, the Board of Directors of Advanta Corp. approved a 50%
increase in the regular quarterly cash dividends per share beginning in
the second quarter of 2004. The increase in dividends will be funded
with operating cash flows. Our bank subsidiaries are subject to regulatory capital requirements and
other regulatory provisions that restrict their ability to lend and/or
pay dividends to Advanta Corp. and its affiliates. Advanta Bank Corp.
issues and funds our business credit cards and is the servicer of our
discontinued leasing business. In March 2004, Advanta Bank Corp. paid a
dividend of $20 million to Advanta Corp. At March 31, 2004, Advanta Bank
Corp.s combined total capital ratio (combined Tier I and 34




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Tier II capital to risk-weighted assets) was 26.62% as compared to 26.28%
at December 31, 2003. At both dates, Advanta Bank Corp. had capital in
excess of levels a bank is required to maintain to be classified as
well-capitalized under the regulatory framework for prompt corrective
action. Prior to our exit from the mortgage business in the first
quarter of 2001, Advanta National Bank issued and funded a large portion
of our mortgage business. Advanta National Banks operations are
currently not material to our consolidated operating results. Our
insurance subsidiaries are also subject to certain capital and dividend
rules and regulations as prescribed by state jurisdictions in which they
are authorized to operate. Management believes that these restrictions,
for both bank and insurance subsidiaries, will not have an adverse effect
on Advanta Corp.s ability to meet its cash obligations due to the
current levels of liquidity and diversity of funding sources. FORWARD-LOOKING STATEMENTS This report contains forward-looking statements that are subject to
certain risks and uncertainties that could cause actual results to
differ materially from those projected. These forward-looking
statements may be identified by the use of forward-looking phrases such
as will likely result, may, are expected to, is anticipated,
estimate, projected, intends to or other similar words or
phrases. The most significant among these risks and uncertainties are:  (1)
    
    our managed net interest income including changes
resulting from fluctuations in the volume of receivables and
the range and timing of pricing offers to cardholders;(2)
    
    competitive pressures;(3)
    
    political conditions, social conditions, monetary and
fiscal policies and general economic 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 securitizations of our receivables;(8)
    
    factors affecting the value of investments that we hold;(9)
    
    the effects of government regulation, including
restrictions and limitations imposed by banking laws,
regulators, examinations, and Advanta National Banks
agreements with its regulators;(10)
    
    effect of, and changes in, tax laws, rates, regulations
and policies;(11)
    
    relationships with customers, significant vendors and
business partners;(12)
    
    difficulties or delays in the development, production,
testing and marketing of products or services;(13)
    
    the amount and cost of financing available to us;(14)
    
    the ratings on our debt and the debt of our subsidiaries;(15)
    
    revisions to estimates associated with the discontinuance
of our mortgage and leasing businesses;(16)
    
    the impact of litigation;(17)
    
    the proper design and operation of our disclosure
controls and procedures; and(18)
    
    the ability to attract and retain key personnel. Additional risks that may affect our future performance are set forth
elsewhere in this Quarterly Report on Form 10-Q, in our Annual Report on
Form 10-K for the year ended December 31, 2003 and in our other filings
with the Securities and Exchange Commission. 35




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required by this item is set forth in Item
2-Managements Discussion and Analysis of Financial Condition and Results
of Operations in this Report on Form 10-Q. See Market Risk
Sensitivity. 
 ITEM 4. CONTROLS AND PROCEDURES We maintain disclosure controls and procedures that are designed to
ensure that information required to be disclosed in our Exchange Act
reports is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commissions rules and
forms, and that such information is accumulated and communicated to
management, including our Chief Executive Officer and Chief Financial
Officer as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls and
procedures, management recognized that any disclosure controls and
procedures, no matter how well designed and operated, can provide only
reasonable, rather than absolute, assurance of achieving the desired
control objectives, and management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of possible controls
and procedures. An evaluation was performed by management with the participation of our
Chief Executive Officer and Chief Financial Officer, of the effectiveness
of the design and operation of our disclosure controls and procedures.
Based on this evaluation, the Chief Executive Officer and Chief Financial
Officer have concluded that, as of March 31, 2004, our disclosure
controls and procedures are effective to ensure that information required
to be disclosed in the reports that we file or submit under the Exchange
Act is recorded, processed, summarized and reported, within the time
periods specified in the Securities and Exchange Commissions rules and
forms. There have been no changes in our internal controls over
financial reporting that occurred during the period covered by this
report that have materially affected, or are reasonably likely to
materially affect, these internal controls over financial reporting. 
 PART II  OTHER INFORMATION 
 ITEM 1. LEGAL PROCEEDINGS The legal proceedings and claims described under the heading captioned
Commitments and Contingencies in Note 8 of the Notes to Consolidated
Financial Statements set forth in Part I, Item 1 of this Quarterly Report
are hereby incorporated by reference. 36




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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K  (a)
    
    Exhibits  The following exhibits are being filed with this report on
Form 10-Q. ExhibitNumber
    
    Description of Document10.1
    
    Master Agreement between Dun & Bradstreet, Inc. and Advanta
Bank Corp., effective as of March 18, 200412
    
    Consolidated 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
  (b)
    
    Reports on Form 8-K  (b)(1)
    
    A Current Report on Form 8-K, dated January 23, 2004, was
filed by
Advanta setting forth the financial highlights of Advantas results
of
operations for the quarter and year ended December 31, 2003.(b)(2)
    
    A Current Report on Form 8-K, dated March 9, 2004, was filed
by Advanta announcing that its Board of Directors had approved
a 50% increase in Advantas regular quarterly cash dividend
payable on its Class A and Class B Common Stock beginning in
the second quarter of 2004. 37




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized. Advanta Corp.(Registrant)By
    
    /s/ Philip M. BrowneSenior Vice President andChief Financial OfficerMay 6, 2004By
    
    /s/ David B. WeinstockVice President andChief Accounting OfficerMay 6, 2004
 38




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EXHIBIT INDEX Manner ofExhibit
    
    Description
    
    Filing10.1
    
    Master Agreement between Dun & Bradstreet, Inc. and Advanta Bank
Corp., effective as of March 18, 2004
    
    *12
    
    Consolidated 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 Executive 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. 39