##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
 þ
    
    Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
 for the quarterly period ended September 30, 2008
 or
 o
    
    Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
 for the transition period from  to
 Commission File Number 0-14120
 Advanta Corp.
  Delaware
    
    23-1462070(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 
 
  þ o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
   o o
   Class
    
    Outstanding at November 3, 2008Class A Common Stock, $.01 par value per share
    
    14,410,133 sharesClass B Common Stock, $.01 par value per share
    
    31,231,485 shares




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##### 



TABLE OF CONTENTS
 PagePART I  FINANCIAL INFORMATION
    
    
    3Item 1. Financial Statements
    
    
    3Consolidated Balance Sheets (Unaudited)
    
    
    3Consolidated Income Statements (Unaudited)
    
    
    4Consolidated Statements of Changes in Stockholders Equity (Unaudited)
    
    
    5-6Consolidated Statements of Cash Flows (Unaudited)
    
    
    7Notes to Consolidated Financial Statements (Unaudited)
    
    
    8Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    29Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    54Item 4. Controls and Procedures
    
    
    54PART II- OTHER INFORMATION
    
    
    54Item 1. Legal Proceedings
    
    
    54Item 1A. Risk Factors
    
    
    54Item 6. Exhibits
    
    
    58Exhibit Index
    
    
    60COMPUTATION 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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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
  ADVANTA CORP. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS (Unaudited)
 September 30,
    
    December 31,(In thousands, except share amounts)
    
    2008
    
    2007ASSETSCash
    
    $
    216,115
    
    
    $
    90,228Federal funds sold
    
    
    945,178
    
    
    
    872,587Interest-bearing deposits
    
    
    74,551
    
    
    
    0Investments available for sale
    
    
    595,209
    
    
    
    223,500Receivables, net:Held for sale
    
    
    64,333
    
    
    
    275,679Other
    
    
    586,295
    
    
    
    714,989Total receivables, net
    
    
    650,628
    
    
    
    990,668Accounts receivable from securitizations
    
    
    417,112
    
    
    
    349,581Premises and equipment, net
    
    
    18,018
    
    
    
    16,893Other assets
    
    
    257,928
    
    
    
    220,915Total assets
    
    $
    3,174,739
    
    
    $
    2,764,372LIABILITIESDeposits
    
    $
    1,992,900
    
    
    $
    1,651,737Debt
    
    
    221,742
    
    
    
    220,848Other borrowings
    
    
    25,000
    
    
    
    25,000Subordinated debt payable to preferred securities trust
    
    
    103,093
    
    
    
    103,093Other liabilities
    
    
    266,416
    
    
    
    177,913Total liabilities
    
    
    2,609,151
    
    
    
    2,178,591Commitments and contingenciesSTOCKHOLDERS EQUITYClass A preferred stock, $1,000 par value:Authorized, issued and outstanding - 1,010 shares in
2008 and 2007
    
    
    1,010
    
    
    
    1,010Class A voting common stock, $.01 par value:Authorized - 200,000,000 shares; issued - 14,410,133
shares in 2008 and 2007
    
    
    144
    
    
    
    144Class B non-voting common stock, $.01 par value:Authorized - 200,000,000 shares; issued - 32,707,300
shares in 2008 and 29,618,641 shares in 2007
    
    
    327
    
    
    
    296Additional paid-in capital
    
    
    246,139
    
    
    
    238,416Unearned ESOP shares
    
    
    (8,472
    )
    
    
    (8,785
    )Accumulated other comprehensive loss
    
    
    (6,946
    )
    
    
    (1,674
    )Retained earnings
    
    
    370,807
    
    
    
    393,795Treasury stock at cost, 1,563,736 Class B common shares
in 2008 and 2007
    
    
    (37,421
    )
    
    
    (37,421
    )Total stockholders equity
    
    
    565,588
    
    
    
    585,781Total liabilities and stockholders equity
    
    $
    3,174,739
    
    
    $
    2,764,372
 See accompanying notes to consolidated financial statements.
 3




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##### Table of Contents



ADVANTA CORP. AND SUBSIDIARIES
 
 CONSOLIDATED INCOME STATEMENTS (Unaudited)
 Three Months Ended
    
    Nine Months Ended(In thousands, except per share amounts)
    
    September 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007Interest income:Receivables
    
    $
    31,031
    
    
    $
    34,479
    
    
    $
    97,911
    
    
    $
    104,116Investments
    
    
    10,556
    
    
    
    10,752
    
    
    
    28,442
    
    
    
    27,243Other interest income
    
    
    9,422
    
    
    
    4,729
    
    
    
    25,972
    
    
    
    14,514Total interest income
    
    
    51,009
    
    
    
    49,960
    
    
    
    152,325
    
    
    
    145,873Interest expense:Deposits
    
    
    22,227
    
    
    
    19,223
    
    
    
    67,746
    
    
    
    53,121Debt and other borrowings
    
    
    4,197
    
    
    
    4,066
    
    
    
    12,225
    
    
    
    11,729Subordinated debt payable to preferred
securities trust
    
    
    2,317
    
    
    
    2,317
    
    
    
    6,951
    
    
    
    6,951Total interest expense
    
    
    28,741
    
    
    
    25,606
    
    
    
    86,922
    
    
    
    71,801Net interest income
    
    
    22,268
    
    
    
    24,354
    
    
    
    65,403
    
    
    
    74,072Provision for credit losses
    
    
    28,994
    
    
    
    14,724
    
    
    
    87,703
    
    
    
    36,613Net interest income (loss) after
provision for credit losses
    
    
    (6,726
    )
    
    
    9,630
    
    
    
    (22,300
    )
    
    
    37,459Noninterest revenues:Securitization income (loss)
    
    
    (8,673
    )
    
    
    22,388
    
    
    
    12,932
    
    
    
    68,665Servicing revenues
    
    
    24,483
    
    
    
    24,218
    
    
    
    74,940
    
    
    
    67,135Other revenues, net
    
    
    37,226
    
    
    
    47,819
    
    
    
    169,144
    
    
    
    138,296Total noninterest revenues
    
    
    53,036
    
    
    
    94,425
    
    
    
    257,016
    
    
    
    274,096Operating expenses
    
    
    81,937
    
    
    
    72,325
    
    
    
    233,177
    
    
    
    207,904Income (loss) before income taxes
    
    
    (35,627
    )
    
    
    31,730
    
    
    
    1,539
    
    
    
    103,651Income tax expense (benefit)
    
    
    (16,369
    )
    
    
    12,248
    
    
    
    (1,580
    )
    
    
    40,009Income (loss) from continuing operations
    
    
    (19,258
    )
    
    
    19,482
    
    
    
    3,119
    
    
    
    63,642Gain on discontinuance of mortgage
and leasing businesses, net of tax
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    1,022Net income (loss)
    
    $
    (19,258
    )
    
    $
    19,482
    
    
    $
    3,119
    
    
    $
    64,664Basic income (loss) from continuing
operations per common shareClass A
    
    $
    (0.51
    )
    
    $
    0.44
    
    
    $
    (0.04
    )
    
    $
    1.46Class B
    
    
    (0.45
    )
    
    
    0.49
    
    
    
    0.13
    
    
    
    1.58Diluted income (loss) from continuing
operations per common shareClass A
    
    $
    (0.51
    )
    
    $
    0.43
    
    
    $
    (0.02
    )
    
    $
    1.39Class B
    
    
    (0.45
    )
    
    
    0.45
    
    
    
    0.11
    
    
    
    1.45Basic net income (loss) per common shareClass A
    
    $
    (0.51
    )
    
    $
    0.44
    
    
    $
    (0.04
    )
    
    $
    1.48Class B
    
    
    (0.45
    )
    
    
    0.49
    
    
    
    0.13
    
    
    
    1.61Diluted net income (loss) per common
shareClass A
    
    $
    (0.51
    )
    
    $
    0.43
    
    
    $
    (0.02
    )
    
    $
    1.41Class B
    
    
    (0.45
    )
    
    
    0.45
    
    
    
    0.11
    
    
    
    1.47Basic weighted average common shares
outstandingClass A
    
    
    13,393
    
    
    
    13,343
    
    
    
    13,380
    
    
    
    13,331Class B
    
    
    27,217
    
    
    
    27,800
    
    
    
    27,127
    
    
    
    27,858Diluted weighted average common shares
outstandingClass A
    
    
    13,393
    
    
    
    13,343
    
    
    
    13,380
    
    
    
    13,331Class B
    
    
    27,217
    
    
    
    30,762
    
    
    
    28,505
    
    
    
    31,091
 See accompanying notes to consolidated financial statements.
 4




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ADVANTA
CORP. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (Unaudited)
 Class A
    
    
    Class A
    
    
    Class B
    
    
    AdditionalComprehensive
    
    
    Preferred
    
    
    Common
    
    
    Common
    
    
    Paid-In($ in thousands)
    
    Income (Loss)
    
    
    Stock
    
    
    Stock
    
    
    Stock
    
    
    CapitalBalance at December 31, 2006
    
    
    
    
    
    $
    1,010
    
    
    $
    151
    
    
    $
    351
    
    
    $
    308,051Effect of applying the provisions
of FIN No. 48 (See Note 13)Net income
    
    $
    72,050Other comprehensive income (loss):Unrealized appreciation
(depreciation) of investments,
net of tax benefit (expense)
of $830
    
    
    (1,542
    )Actuarial gain (loss), net of
tax benefit (expense) of ($84)
    
    
    156Comprehensive income
    
    $
    70,664Preferred and common cash
dividends declaredExercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    6,630Stock option exchange program
stock distributionEmployee stock option expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,448Nonemployee stock option expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21
    )Excess tax
benefits from stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,743Issuance of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    (3
    )Amortization of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,834Forfeitures of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2
    )
    
    
    (116
    )Treasury stock acquiredTreasury stock retired
    
    
    
    
    
    
    
    
    
    
    (7
    )
    
    
    (63
    )
    
    
    (93,101
    )ESOP shares committed to be
released
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    951Balance at December 31, 2007
    
    
    
    
    
    $
    1,010
    
    
    $
    144
    
    
    $
    296
    
    
    $
    238,416Net income
    
    $
    3,119Other comprehensive income (loss):Unrealized appreciation
(depreciation) of investments,
net of tax benefit (expense)
of $2,835
    
    
    (5,264
    )Currency translation adjustment
    
    
    (8
    )Comprehensive loss
    
    $
    (2,153
    )Preferred and common cash
dividends declaredExercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    85Employee stock option expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,050Nonemployee stock option expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19Tax deficiency from stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (270
    )Issuance of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32
    
    
    
    (32
    )Amortization of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,786Forfeitures of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    (28
    )ESOP shares committed to be
released
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    113Balance at September 30, 2008
    
    
    
    
    
    $
    1,010
    
    
    $
    144
    
    
    $
    327
    
    
    $
    246,139
 See accompanying notes to consolidated financial statements.
 5




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ADVANTA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (Unaudited)  continued
 AccumulatedOther
    
    
    
    
    
    
    
    
    
    TotalUnearned
    
    Comprehensive
    
    Retained
    
    Treasury
    
    Stockholders($ in thousands)
    
    ESOP Shares
    
    Income (Loss)
    
    Earnings
    
    Stock
    
    EquityBalance at December 31, 2006
    
    $
    (9,204
    )
    
    $
    (288
    )
    
    $
    359,813
    
    
    $
    (92,723
    )
    
    $
    567,161Effect of applying the provisions of FIN
No. 48 (See Note 13)
    
    
    
    
    
    
    
    
    
    
    (6,103
    )
    
    
    
    
    
    
    (6,103
    )Net income
    
    
    
    
    
    
    
    
    
    
    72,050
    
    
    
    
    
    
    
    72,050Other comprehensive income (loss):Unrealized appreciation (depreciation)
of investments, net of tax benefit
(expense) of $830
    
    
    
    
    
    
    (1,542
    )
    
    
    
    
    
    
    
    
    
    
    (1,542
    )Actuarial gain (loss), net of tax
benefit (expense) of ($84)
    
    
    
    
    
    
    156
    
    
    
    
    
    
    
    
    
    
    
    156Comprehensive incomePreferred and common cash
dividends declared
    
    
    
    
    
    
    
    
    
    
    (31,965
    )
    
    
    
    
    
    
    (31,965
    )Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,637Stock option exchange program
stock distribution
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    388
    
    
    
    388Employee stock option expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,448Nonemployee stock option expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21
    )Excess tax
benefits from stock-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,743Issuance of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0Amortization of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,834Forfeitures of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (118
    )Treasury stock acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (38,257
    )
    
    
    (38,257
    )Treasury stock retired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    93,171
    
    
    
    0ESOP shares committed to be
released
    
    
    419
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,370Balance at December 31, 2007
    
    $
    (8,785
    )
    
    $
    (1,674
    )
    
    $
    393,795
    
    
    $
    (37,421
    )
    
    $
    585,781Net income
    
    
    
    
    
    
    
    
    
    
    3,119
    
    
    
    
    
    
    
    3,119Other comprehensive income (loss):Unrealized appreciation
(depreciation) of investments,
net of tax benefit (expense)
of $2,835
    
    
    
    
    
    
    (5,264
    )
    
    
    
    
    
    
    
    
    
    
    (5,264
    )Currency translation adjustment
    
    
    
    
    
    
    (8
    )
    
    
    
    
    
    
    
    
    
    
    (8
    )Comprehensive lossPreferred and common cash
dividends declared
    
    
    
    
    
    
    
    
    
    
    (26,107
    )
    
    
    
    
    
    
    (26,107
    )Exercise of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    85Employee stock option expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,050Nonemployee stock option expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19Tax deficiency from stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (270
    )Issuance of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0Amortization of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,786Forfeitures of nonvested shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (29
    )ESOP shares committed to be
released
    
    
    313
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    426Balance at September 30, 2008
    
    $
    (8,472
    )
    
    $
    (6,946
    )
    
    $
    370,807
    
    
    $
    (37,421
    )
    
    $
    565,588
 See accompanying notes to consolidated financial statements.
 6




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##### Table of Contents



ADVANTA CORP. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 Nine Months Ended($ in thousands)
    
    September 30,2008
    
    2007OPERATING ACTIVITIES  CONTINUING OPERATIONSNet income
    
    $
    3,119
    
    
    $
    64,664Adjustments to reconcile net income to net cash provided by
operating activities:Gain on discontinuance of mortgage and leasing businesses,
net of tax
    
    
    0
    
    
    
    (1,022
    )Investment securities gains, net
    
    
    (36,714
    )
    
    
    (5,666
    )Depreciation and amortization
    
    
    5,261
    
    
    
    4,526Stock-based compensation expense
    
    
    7,826
    
    
    
    7,296Provision for credit losses
    
    
    87,703
    
    
    
    36,613Provision for interest and fee losses
    
    
    15,422
    
    
    
    7,921Change in deferred origination costs, net of deferred fees
    
    
    12,198
    
    
    
    1,179Change in receivables held for sale
    
    
    (356,679
    )
    
    
    (803,352
    )Proceeds from sale of receivables held for sale
    
    
    318,025
    
    
    
    869,373Change in accounts receivable from securitizations
    
    
    (67,531
    )
    
    
    (17,882
    )Change in amounts due to the securitization trust
    
    
    63,745
    
    
    
    2,685Change in other assets and other liabilities
    
    
    121,436
    
    
    
    71,338Net cash provided by operating activities
    
    
    173,811
    
    
    
    237,673INVESTING ACTIVITIES  CONTINUING OPERATIONSChange in federal funds sold and interest-bearing
deposits
    
    
    (147,142
    )
    
    
    (244,550
    )Purchase of investments available for sale
    
    
    (1,414,221
    )
    
    
    (831,179
    )Proceeds from sales of investments available for sale
    
    
    655,633
    
    
    
    721,743Proceeds from sales of other investments
    
    
    37,659
    
    
    
    0Proceeds from maturing investments available for sale
    
    
    543,179
    
    
    
    90,277Change in receivables not held for sale
    
    
    13,371
    
    
    
    (203,351
    )Purchases of premises and equipment, net
    
    
    (6,373
    )
    
    
    (5,125
    )Net cash used in investing activities
    
    
    (317,894
    )
    
    
    (472,185
    )FINANCING ACTIVITIES  CONTINUING OPERATIONSChange in demand and savings deposits
    
    
    3,358
    
    
    
    24,181Proceeds from issuance of time deposits
    
    
    916,828
    
    
    
    662,889Payments for maturing time deposits
    
    
    (610,258
    )
    
    
    (392,600
    )Proceeds from issuance of debt
    
    
    49,710
    
    
    
    21,148Payments on redemption of debt
    
    
    (51,360
    )
    
    
    (26,224
    )Change in cash overdraft and other borrowings
    
    
    (11,830
    )
    
    
    10,814Proceeds from exercise of stock options
    
    
    85
    
    
    
    6,556Cash dividends paid
    
    
    (26,107
    )
    
    
    (24,007
    )Excess tax benefits from stock-based compensation
    
    
    804
    
    
    
    5,620Treasury stock acquired
    
    
    0
    
    
    
    (32,654
    )Net cash provided by financing activities
    
    
    271,230
    
    
    
    255,723Effect of foreign exchange rates on cash
    
    
    (8
    )
    
    
    0DISCONTINUED OPERATIONSNet cash (used in) provided by operating activities of
discontinued operations
    
    
    (1,252
    )
    
    
    3,700Net increase in cash
    
    
    125,887
    
    
    
    24,911Cash at beginning of period
    
    
    90,228
    
    
    
    35,055Cash at end of period
    
    $
    216,115
    
    
    $
    59,966SUPPLEMENTAL DISCLOSURESIncome taxes paid, net
    
    $
    8,646
    
    
    $
    16,570Interest paid
    
    
    32,583
    
    
    
    23,655
  See accompanying notes to consolidated financial statements.
 7




---



##### Table of Contents



ADVANTA CORP. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE NOTED)
 September 30, 2008
(Unaudited)
  Note 1) Basis of Presentation
    Note 2) Recently Issued Accounting Standards
 Fair Value Measurements Effective Date of FASB Statement No. 157
 8




---



##### Table of Contents



The Fair Value Option for Financial
Assets and Financial Liabilities
 Accounting for Collateral Assignment Split-Dollar
Life Insurance Arrangements.
 Accounting for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities, Consolidation of Variable Interest
Entities
 Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities Earnings Per Share,
 Determining the Fair Value of a Financial Asset
When the Market for That Asset Is Not Active
 9




---



##### Table of Contents



Note 3) Investments Available for Sale
  September 30, 2008
    
    December 31, 2007Amortized
    
    Fair
    
    Amortized
    
    FairCost
    
    Value
    
    Cost
    
    ValueU.S. Treasury and government
agency securities
    
    $
    169,382
    
    
    $
    169,501
    
    
    $
    18,416
    
    
    $
    18,469State and municipal securities
    
    
    16,735
    
    
    
    16,405
    
    
    
    18,554
    
    
    
    18,651Corporate bonds
    
    
    0
    
    
    
    0
    
    
    
    7,525
    
    
    
    7,499Asset-backed securities:Credit card asset-backed securities(1)
    
    
    250,000
    
    
    
    246,348
    
    
    
    0
    
    
    
    0Mortgage and home equity line of credit-backed
securities
    
    
    32,904
    
    
    
    25,993
    
    
    
    40,234
    
    
    
    37,340Equity securities(2)
    
    
    7,822
    
    
    
    7,681
    
    
    
    8,066
    
    
    
    8,021Money market funds
    
    
    128,914
    
    
    
    128,914
    
    
    
    133,159
    
    
    
    133,159Other
    
    
    366
    
    
    
    367
    
    
    
    361
    
    
    
    361Total investments available for sale
    
    $
    606,123
    
    
    $
    595,209
    
    
    $
    226,315
    
    
    $
    223,500
 (1)
    
    Amounts at September 30, 2008 represent AdvantaSeries Class A notes issued in our
securitizations and purchased by one of our bank subsidiaries. Includes $100 million
of AdvantaSeries 2008-A1 and $150 million of AdvantaSeries 2008-A3.(2)
    
    Includes venture capital investments of $265 thousand at September 30, 2008 and
$413 thousand at December 31, 2007. The amount shown as amortized cost represents fair
value for venture capital investments.
  Less Than 12 Months in
    
    12 Months or Longer inan Unrealized Loss
    
    an Unrealized LossPosition
    
    Position
    
    TotalGross
    
    
    
    
    
    Gross
    
    
    
    
    
    GrossUnrealized
    
    Fair
    
    Unrealized
    
    Fair
    
    Unrealized
    
    FairAmount
    
    Value
    
    Amount
    
    Value
    
    Amount
    
    ValueU.S. Treasury and
government agency
securities
    
    $
    (8
    )
    
    $
    49,696
    
    
    $
    0
    
    
    $
    0
    
    
    $
    (8
    )
    
    $
    49,696State and municipal
securities
    
    
    (254
    )
    
    
    8,672
    
    
    
    (141
    )
    
    
    1,519
    
    
    
    (395
    )
    
    
    10,191Credit card
asset-backed
securities
    
    
    (3,652
    )
    
    
    246,348
    
    
    
    0
    
    
    
    0
    
    
    
    (3,652
    )
    
    
    246,348Mortgage and home
equity line of
credit-backed
securities
    
    
    (35
    )
    
    
    1,900
    
    
    
    (6,891
    )
    
    
    22,556
    
    
    
    (6,926
    )
    
    
    24,456Equity securities
    
    
    (141
    )
    
    
    7,159
    
    
    
    0
    
    
    
    0
    
    
    
    (141
    )
    
    
    7,159Total
    
    $
    (4,090
    )
    
    $
    313,775
    
    
    $
    (7,032
    )
    
    $
    24,075
    
    
    $
    (11,122
    )
    
    $
    337,850
  10




---



##### Table of Contents



Note 4) Receivables
  September 30,
    
    December 31,2008
    
    2007Business credit card receivables
    
    $
    726,652
    
    
    $
    1,031,607Other receivables
    
    
    7,755
    
    
    
    7,330Gross receivables
    
    
    734,407
    
    
    
    1,038,937Add: Deferred origination costs, net of deferred fees
    
    
    8,073
    
    
    
    20,271Less: Allowance for receivable lossesBusiness credit cards
    
    
    (90,657
    )
    
    
    (67,368
    )Other receivables
    
    
    (1,195
    )
    
    
    (1,172
    )Total allowance for receivable losses
    
    
    (91,852
    )
    
    
    (68,540
    )Receivables, net
    
    $
    650,628
    
    
    $
    990,668
   11




---



##### Table of Contents



Note 5) Allowance for Receivable Losses
  2008
    
    2007Balance at January 1
    
    $
    68,540
    
    
    $
    50,926Provision for credit losses
    
    
    87,703
    
    
    
    36,613Provision for interest and fee losses
    
    
    15,422
    
    
    
    7,921Gross principal charge-offs:Business credit cards
    
    
    (66,836
    )
    
    
    (33,055
    )Other receivables
    
    
    (2
    )
    
    
    (1
    )Total gross principal charge-offs
    
    
    (66,838
    )
    
    
    (33,056
    )Principal recoveries:Business credit cards
    
    
    1,872
    
    
    
    3,008Net principal charge-offs
    
    
    (64,966
    )
    
    
    (30,048
    )Interest and fee charge-offs:Business credit cards
    
    
    (14,847
    )
    
    
    (7,566
    )Balance at September 30
    
    $
    91,852
    
    
    $
    57,846
 Note 6) Securitization Activities
  September 30,
    
    December 31,2008
    
    2007Retained interests in securitizations
    
    $
    180,236
    
    
    $
    213,077Amounts due from the securitization trust
    
    
    132,421
    
    
    
    48,452Accrued interest and fees on securitized
receivables, net(1)
    
    
    104,455
    
    
    
    88,052Total accounts receivable from securitizations
    
    $
    417,112
    
    
    $
    349,581
 (1)
    
    Reduced by an estimate for uncollectible interest and fees of $23.2 million at
September 30, 2008 and $17.3 million at December 31, 2007.
 12




---



##### Table of Contents



Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007Average securitized
receivables
    
    
    $    5,030,299
    
    
    
    $    4,889,381
    
    
    
    $    5,147,465
    
    
    
    $    4,543,999Securitization income (loss)
    
    
    (8,673
    )
    
    
    22,388
    
    
    
    12,932
    
    
    
    68,665Discount accretion
    
    
    9,422
    
    
    
    4,729
    
    
    
    25,972
    
    
    
    14,514Interchange income
    
    
    58,267
    
    
    
    50,800
    
    
    
    171,511
    
    
    
    142,421Servicing revenues
    
    
    24,483
    
    
    
    24,218
    
    
    
    74,940
    
    
    
    67,135Proceeds from new
securitizations(1)
    
    
    0
    
    
    
    113,033
    
    
    
    318,025
    
    
    
    869,373Proceeds from collections
reinvested in revolving-period securitizations
    
    
    2,860,791
    
    
    
    2,801,202
    
    
    
    7,994,045
    
    
    
    7,866,934Cash flows received on
retained interests(2)
    
    
    64,637
    
    
    
    77,377
    
    
    
    257,223
    
    
    
    241,864Key assumptions:Discount rate
    
    
    17.68% - 27.36
    %
    
    
    8.53% - 11.95
    %
    
    
    12.21% - 27.36
    %
    
    
    8.15% - 11.95
    %Monthly payment rate
    
    
    18.99% - 22.50
    %
    
    
    19.28% - 22.00
    %
    
    
    18.79% - 22.50
    %
    
    
    19.28% - 23.10
    %Loss rate
    
    
    8.60% - 12.37
    %
    
    
    3.95%   -   5.23
    %
    
    
    6.20% - 12.37
    %
    
    
    3.70% - 5.23
    %Interest yield, net of
interest earned by
noteholders
    
    
    12.29% - 13.73
    %
    
    
    7.33%   -   8.42
    %
    
    
    8.79% - 13.73
    %
    
    
    7.29% - 8.42
    %
 (1)
    
    Amounts reported for the nine months ended September 30, 2008 exclude $250 million
related to notes issued in our AdvantaSeries 2008-A1 and AdvantaSeries 2008-A3
securitizations that were purchased by one of our bank subsidiaries and are classified
as investments available for sale on the consolidated balance sheet.(2)
    
    Amounts reported for the three and nine months ended September 30, 2008 exclude
interest on AdvantaSeries 2008-A1 and AdvantaSeries 2008-A3 notes that is classified as
interest income on the consolidated income statements.
   September 30,
    
    December 31,2008
    
    2007Discount rate
    
    
    26.14% - 27.36
    %
    
    
    13.25% - 15.28
    %Monthly payment rate
    
    
    20.24% - 22.50
    %
    
    
    19.34% - 20.46
    %Loss rate
    
    
    10.76% - 12.37
    %
    
    
    6.20%   -   7.13
    %Interest yield, net of interest earned by
noteholders
    
    
    13.73
    %
    
    
    8.79
    %
  13




---



##### Table of Contents



Effect on estimated fair value of the following
hypothetical changes in key assumptions:Discount rate increased 200 basis points
    
    $
    (2,227
    )Discount rate increased 400 basis points
    
    
    (4,395
    )Monthly payment rate at 110% of base assumption
    
    
    (430
    )Monthly payment rate at 125% of base assumption
    
    
    (968
    )Loss rate at 110% of base assumption
    
    
    (11,874
    )Loss rate at 125% of base assumption
    
    
    (29,686
    )Interest yield, net of interest earned by noteholders,
decreased 100 basis points
    
    
    (11,050
    )Interest yield, net of interest earned by noteholders,
decreased 200 basis points
    
    
    (22,101
    )
  14




---



##### Table of Contents



Managed business credit card receivable data
  September 30,
    
    December 31,
    
    September 30,2008
    
    2007
    
    2007Owned business credit card receivables
    
    $
    726,652
    
    
    $
    1,031,607
    
    
    $
    1,233,233Securitized business credit card receivables
    
    
    4,863,634
    
    
    
    5,315,421
    
    
    
    4,980,737Total managed receivables
    
    $
    5,590,286
    
    
    $
    6,347,028
    
    
    $
    6,213,970Receivables 30 days or more delinquent:Owned
    
    $
    51,661
    
    
    $
    42,424
    
    
    $
    35,276Securitized
    
    
    314,740
    
    
    
    229,808
    
    
    
    160,375Total managed
    
    
    366,401
    
    
    
    272,232
    
    
    
    195,651Receivables 90 days or more delinquent:Owned
    
    
    24,531
    
    
    
    19,204
    
    
    
    15,693Securitized
    
    
    148,182
    
    
    
    105,577
    
    
    
    71,951Total managed
    
    
    172,713
    
    
    
    124,781
    
    
    
    87,644Nonaccrual receivables:Owned
    
    
    11,194
    
    
    
    10,104
    
    
    
    10,847Securitized
    
    
    72,398
    
    
    
    59,131
    
    
    
    51,831Total managed
    
    
    83,592
    
    
    
    69,235
    
    
    
    62,678Accruing receivables past due 90 days or more:Owned
    
    
    22,203
    
    
    
    17,213
    
    
    
    13,838Securitized
    
    
    133,710
    
    
    
    94,139
    
    
    
    63,078Total managed
    
    
    155,913
    
    
    
    111,352
    
    
    
    76,916Net principal charge-offs for the year-to-date
period ended September 30 and December 31:Owned
    
    
    64,964
    
    
    
    41,589
    
    
    
    30,047Securitized
    
    
    314,694
    
    
    
    178,173
    
    
    
    124,601Total managed
    
    
    379,658
    
    
    
    219,762
    
    
    
    154,648Net principal charge-offs for the three months
ended September 30 and December 31:Owned
    
    
    22,839
    
    
    
    11,542
    
    
    
    10,708Securitized
    
    
    124,303
    
    
    
    53,572
    
    
    
    48,404Total managed
    
    
    147,142
    
    
    
    65,114
    
    
    
    59,112
  15




---



##### Table of Contents



Note 7) Other Assets and Liabilities
  September 30,
    
    December 31,2008
    
    2007Securities sold receivable
    
    $
    84,698
    
    
    $
    71Net deferred tax asset
    
    
    52,846
    
    
    
    38,147Investment in Fleet Credit Card Services, L.P.
    
    
    32,095
    
    
    
    32,095Investment in preferred securities trust
    
    
    3,163
    
    
    
    3,093Other
    
    
    85,126
    
    
    
    147,509Total other assets
    
    $
    257,928
    
    
    $
    220,915
    September 30,
    
    December 31,2008
    
    2007Amounts due to the securitization trust
    
    $
    73,003
    
    
    $
    9,258Liability for unrecognized tax benefits
    
    
    40,398
    
    
    
    39,495Accounts payable and accrued expenses
    
    
    32,342
    
    
    
    31,563Business rewards liability
    
    
    31,322
    
    
    
    29,768Cash back rewards liability
    
    
    23,965
    
    
    
    9,590Cash overdraft
    
    
    12,163
    
    
    
    23,993Current income taxes payable
    
    
    3,072
    
    
    
    2,464Liabilities of discontinued operations
    
    
    1,715
    
    
    
    2,967Other
    
    
    48,436
    
    
    
    28,815Total other liabilities
    
    $
    266,416
    
    
    $
    177,913
  16




---



##### Table of Contents



Note 8) Deposits
  September 30,
    
    December 31,2008
    
    2007Demand deposits
    
    $
    10,805
    
    
    $
    8,874Money market savings
    
    
    86,231
    
    
    
    84,804Time deposits of $100,000 or less
    
    
    984,295
    
    
    
    867,263Time deposits of more than $100,000
    
    
    911,569
    
    
    
    690,796Total deposits
    
    $
    1,992,900
    
    
    $
    1,651,737
  Year Ending December 31,2008
    
    $
    349,9352009
    
    
    1,099,0822010
    
    
    258,3502011
    
    
    77,9822012
    
    
    23,2672013
    
    
    87,248
 Note 9) Commitments and Contingencies
  17




---



##### Table of Contents



Note 10) Capital Stock
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007Class A Common Stock
    
    $
    0.1771
    
    
    $
    0.1771
    
    
    $
    0.5313
    
    
    $
    0.4959Class B Common Stock
    
    
    0.2125
    
    
    
    0.2125
    
    
    
    0.6375
    
    
    
    0.5950
 Note 11) Stock-Based Compensation
   WeightedAverage PriceNumber of
    
    at Date ofShares
    
    IssuanceOutstanding at January 1
    
    
    1,098
    
    
    $
    19.35Granted
    
    
    3,245
    
    
    
    7.93Vested
    
    
    (189
    )
    
    
    23.71Forfeited
    
    
    (172
    )
    
    
    13.36Outstanding at September 30
    
    
    3,982
    
    
    $
    10.10
  18




---



##### Table of Contents



Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007Compensation expense (benefit)
    
    $
    (723
    )
    
    $
    402
    
    
    $
    3,757
    
    
    $
    3,235Income tax expense (benefit)
    
    
    283
    
    
    
    (155
    )
    
    
    (1,301
    )
    
    
    (1,249
    )
  WeightedWeighted
    
    
    
    
    
    AverageAverage
    
    Aggregate
    
    RemainingNumber of
    
    Exercise
    
    Intrinsic
    
    ContractualOptions
    
    Price
    
    Value
    
    LifeOutstanding at January 1
    
    
    7,782
    
    
    $
    14.11Granted
    
    
    1,831
    
    
    
    9.05Exercised
    
    
    (16
    )
    
    
    5.42Forfeited
    
    
    (192
    )
    
    
    24.03Expired
    
    
    (16
    )
    
    
    16.97Outstanding at September 30
    
    
    9,389
    
    
    $
    12.93
    
    
    $
    9,500
    
    
    5.2 yearsOptions exercisable at September 30
    
    
    5,959
    
    
    $
    10.04
    
    
    $
    9,418
    
    
    3.1 years
   Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007Compensation expense
    
    $
    1,129
    
    
    $
    1,426
    
    
    $
    4,050
    
    
    $
    4,007Income tax benefit
    
    
    (463
    )
    
    
    (550
    )
    
    
    (1,403
    )
    
    
    (1,546
    )Weighted average
fair value of
options granted
    
    $
    1.60
    
    
    $
    4.71
    
    
    $
    1.95
    
    
    $
    6.54
 19




---



##### Table of Contents



Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007Expected term (in years)
    
    
    4.0
    
    
    
    4.0
    
    
    
    5.3
    
    
    
    5.7Expected volatility
    
    
    52.46
    %
    
    
    29.26
    %
    
    
    52.46
    %
    
    
    33.50
    %Risk-free interest rate
    
    
    2.89
    %
    
    
    4.28
    %
    
    
    2.99
    %
    
    
    4.57
    %Expected dividend yield
    
    
    10.71
    %
    
    
    5.34
    %
    
    
    9.37
    %
    
    
    4.87
    %
 20




---



##### Table of Contents



Note 12) Segment Information
  AdvantaBusinessCards
    

Other (1)
    
    TotalThree months ended September 30, 2008Interest income
    
    $
    40,362
    
    
    $
    10,647
    
    
    $
    51,009Interest expense
    
    
    18,301
    
    
    
    10,440
    
    
    
    28,741Noninterest revenues
    
    
    53,072
    
    
    
    (36
    )
    
    
    53,036Pretax loss from continuing operations
    
    
    (34,028
    )
    
    
    (1,599
    )
    
    
    (35,627
    )Three months ended September 30, 2007Interest income
    
    $
    39,106
    
    
    $
    10,854
    
    
    $
    49,960Interest expense
    
    
    13,484
    
    
    
    12,122
    
    
    
    25,606Noninterest revenues
    
    
    93,095
    
    
    
    1,330
    
    
    
    94,425Pretax income (loss) from continuing
operations
    
    
    35,982
    
    
    
    (4,252
    )
    
    
    31,730Nine months ended September 30, 2008Interest income
    
    $
    123,605
    
    
    $
    28,720
    
    
    $
    152,325Interest expense
    
    
    58,327
    
    
    
    28,595
    
    
    
    86,922Noninterest revenues
    
    
    243,256
    
    
    
    13,760
    
    
    
    257,016Pretax income (loss) from continuing
operations
    
    
    (15,771
    )
    
    
    17,310
    
    
    
    1,539Total assets at beginning of period
    
    
    1,518,810
    
    
    
    1,245,562
    
    
    
    2,764,372Total assets at end of period
    
    
    1,172,853
    
    
    
    2,001,886
    
    
    
    3,174,739Nine months ended September 30, 2007Interest income
    
    $
    118,310
    
    
    $
    27,563
    
    
    $
    145,873Interest expense
    
    
    39,939
    
    
    
    31,862
    
    
    
    71,801Noninterest revenues
    
    
    268,158
    
    
    
    5,938
    
    
    
    274,096Pretax income (loss) from continuing
operations
    
    
    106,617
    
    
    
    (2,966
    )
    
    
    103,651Total assets at beginning of period
    
    
    1,495,544
    
    
    
    917,594
    
    
    
    2,413,138Total assets at end of period
    
    
    1,620,587
    
    
    
    1,192,935
    
    
    
    2,813,522
 (1)
    
    Other includes investment and other activities not attributable to the Advanta
Business Cards segment. In addition, pretax income (loss) includes a $1.6 million expense for
the three months ended September 30, 2008 and a $4.2 million expense for the three and
nine months ended September 30, 2007 related to our Visa indemnification obligation.
Pretax income for the nine months ended September 30, 2008 includes a $13.4 million
gain on the redemption of Visa shares and the benefit of a $3.9 million net decrease in
Visa indemnification reserves.
 21




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##### Table of Contents



Note 13) Income Taxes
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007Income tax expense (benefit)
attributable to:Continuing operations
    
    $
    (16,369
    )
    
    $
    12,248
    
    
    $
    (1,580
    )
    
    $
    40,009Discontinued operations
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    643Total income tax expense (benefit)
    
    $
    (16,369
    )
    
    $
    12,248
    
    
    $
    (1,580
    )
    
    $
    40,652Effective tax expense (benefit)
rate
    
    
    (46.0
    )%
    
    
    38.6
    %
    
    
    (102.7
    )%
    
    
    38.6
    %
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007Current:Federal
    
    $
    (1,804
    )
    
    $
    10,254
    
    
    $
    8,470
    
    
    $
    26,268State
    
    
    1,004
    
    
    
    2,001
    
    
    
    1,814
    
    
    
    4,348Total current
    
    
    (800
    )
    
    
    12,255
    
    
    
    10,284
    
    
    
    30,616Deferred:Federal
    
    
    (15,034
    )
    
    
    (41
    )
    
    
    (11,366
    )
    
    
    9,320State
    
    
    (535
    )
    
    
    34
    
    
    
    (498
    )
    
    
    73Total deferred
    
    
    (15,569
    )
    
    
    (7
    )
    
    
    (11,864
    )
    
    
    9,393Income tax expense (benefit) attributable to
continuing
operations
    
    $
    (16,369
    )
    
    $
    12,248
    
    
    $
    (1,580
    )
    
    $
    40,009
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    

    September 30,2008
    
    2007
    
    2008
    
    2007Statutory federal income tax
    
    $
    (12,469
    )
    
    $
    11,106
    
    
    $
    539
    
    
    $
    36,278State income taxes, net of
federal income tax benefit
    
    
    100
    
    
    
    853
    
    
    
    803
    
    
    
    2,834Difference in estimated
full year rate and
year-to-date actual rate
    
    
    (3,557
    )
    
    
    0
    
    
    
    (3,557
    )
    
    
    0Compensation limitation
    
    
    (217
    )
    
    
    99
    
    
    
    181
    
    
    
    298Nondeductible expenses
    
    
    (101
    )
    
    
    51
    
    
    
    551
    
    
    
    488Other
    
    
    (125
    )
    
    
    139
    
    
    
    (97
    )
    
    
    111Income tax expense (benefit)
    
    $
    (16,369
    )
    
    $
    12,248
    
    
    $
    (1,580
    )
    
    $
    40,009
 22




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##### Table of Contents



September 30,
    
    December 31,2008
    
    2007Deferred tax assets
    
    $
    73,201
    
    
    $
    62,351Deferred tax liabilities
    
    
    (20,355
    )
    
    
    (24,204
    )Net deferred tax asset
    
    $
    52,846
    
    
    $
    38,147
  September 30,
    
    December 31,2008
    
    2007Rewards programs
    
    $
    19,347
    
    
    $
    13,775Deferred revenue
    
    
    (14,970
    )
    
    
    (15,138
    )Federal tax benefit of state tax positions
    
    
    11,445
    
    
    
    11,028Securitization income
    
    
    8,837
    
    
    
    3,393Receivable losses
    
    
    7,716
    
    
    
    8,506Incentive and deferred compensation
    
    
    6,874
    
    
    
    6,169Deferred origination costs, net of deferred fees
    
    
    (2,885
    )
    
    
    (7,167
    )Visa indemnification
    
    
    2,269
    
    
    
    4,194Unrealized venture capital investment losses
    
    
    422
    
    
    
    148Capital loss carryforwards
    
    
    0
    
    
    
    4,248Other
    
    
    13,791
    
    
    
    8,991Net deferred tax asset
    
    $
    52,846
    
    
    $
    38,147
 Accounting for Uncertainty in
Income Taxes  an Interpretation of FASB Statement No. 109,
 Balance at December 31, 2007
    
    $
    17,732Additions based on tax positions related to the current year
    
    
    1,011Additions for tax positions of prior years
    
    
    104Reductions for tax positions of prior years
    
    
    (1,175
    )Settlements
    
    
    (131
    )Balance at September 30, 2008
    
    $
    17,541
   23




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##### Table of Contents



Note 14) Discontinued Operations
  Nine Months EndedSeptember 30, 2008
    
    September 30, 2007Advanta
    
    
    
    
    
    AdvantaAdvanta
    
    Leasing
    
    Advanta
    
    LeasingMortgage
    
    Services
    
    Mortgage
    
    ServicesPretax gain on
discontinuance of mortgage
and leasing businesses
    
    $
    0
    
    
    $
    0
    
    
    $
    800
    
    
    $
    865Income tax expense
    
    
    0
    
    
    
    0
    
    
    
    (309
    )
    
    
    (334
    )Gain on discontinuance of
mortgage, and leasing
businesses, net of tax
    
    $
    0
    
    
    $
    0
    
    
    $
    491
    
    
    $
    531
   24




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##### Table of Contents



Note 15) Calculation of Earnings Per Share
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007Income (loss) from continuing operations
    
    $
    (19,258
    )
    
    $
    19,482
    
    
    $
    3,119
    
    
    $
    63,642Less: Preferred A dividends
    
    
    0
    
    
    
    0
    
    
    
    (141
    )
    
    
    (141
    )Income (loss) from continuing operations
allocable to common stockholders
    
    
    (19,258
    )
    
    
    19,482
    
    
    
    2,978
    
    
    
    63,501Gain on discontinuance
of mortgage and leasing businesses,
net of tax
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    1,022Net income (loss) allocable to common
stockholders
    
    
    (19,258
    )
    
    
    19,482
    
    
    
    2,978
    
    
    
    64,523Less: Class A dividends declared
    
    
    (2,370
    )
    
    
    (2,358
    )
    
    
    (7,107
    )
    
    
    (6,634
    )Less: Class B dividends declared
    
    
    (6,459
    )
    
    
    (6,124
    )
    
    
    (18,859
    )
    
    
    (17,232
    )Undistributed net income (loss)
    
    $
    (28,087
    )
    
    $
    11,000
    
    
    $
    (22,988
    )
    
    $
    40,657Basic income (loss) from continuing
operations per common shareClass A
    
    $
    (0.51
    )
    
    $
    0.44
    
    
    $
    (0.04
    )
    
    $
    1.46Class B
    
    
    (0.45
    )
    
    
    0.49
    
    
    
    0.13
    
    
    
    1.58Combined(1)
    
    
    (0.47
    )
    
    
    0.47
    
    
    
    0.07
    
    
    
    1.54Diluted income (loss) from continuing
operations per common shareClass A
    
    $
    (0.51
    )
    
    $
    0.43
    
    
    $
    (0.02
    )
    
    $
    1.39Class B
    
    
    (0.45
    )
    
    
    0.45
    
    
    
    0.11
    
    
    
    1.45Combined(1)
    
    
    (0.47
    )
    
    
    0.44
    
    
    
    0.07
    
    
    
    1.43Basic net income (loss) per common shareClass A
    
    $
    (0.51
    )
    
    $
    0.44
    
    
    $
    (0.04
    )
    
    $
    1.48Class B
    
    
    (0.45
    )
    
    
    0.49
    
    
    
    0.13
    
    
    
    1.61Combined(1)
    
    
    (0.47
    )
    
    
    0.47
    
    
    
    0.07
    
    
    
    1.57Diluted net income (loss) per common
shareClass A
    
    $
    (0.51
    )
    
    $
    0.43
    
    
    $
    (0.02
    )
    
    $
    1.41Class B
    
    
    (0.45
    )
    
    
    0.45
    
    
    
    0.11
    
    
    
    1.47Combined(1)
    
    
    (0.47
    )
    
    
    0.44
    
    
    
    0.07
    
    
    
    1.45Basic weighted average common shares
outstandingClass A
    
    
    13,393
    
    
    
    13,343
    
    
    
    13,380
    
    
    
    13,331Class B
    
    
    27,217
    
    
    
    27,800
    
    
    
    27,127
    
    
    
    27,858Combined
    
    
    40,610
    
    
    
    41,143
    
    
    
    40,507
    
    
    
    41,189Dilutive effect ofOptions Class B
    
    
    0
    
    
    
    2,664
    
    
    
    1,078
    
    
    
    2,843Nonvested shares Class B
    
    
    0
    
    
    
    298
    
    
    
    300
    
    
    
    390Diluted weighted average common
shares outstandingClass A
    
    
    13,393
    
    
    
    13,343
    
    
    
    13,380
    
    
    
    13,331Class B
    
    
    27,217
    
    
    
    30,762
    
    
    
    28,505
    
    
    
    31,091Combined
    
    
    40,610
    
    
    
    44,105
    
    
    
    41,885
    
    
    
    44,422Antidilutive sharesOptions Class B
    
    
    9,435
    
    
    
    2,610
    
    
    
    5,188
    
    
    
    1,590Nonvested shares Class B
    
    
    4,027
    
    
    
    3
    
    
    
    1,470
    
    
    
    1
 (1)
    
    Combined represents income (loss) allocable to common stockholders divided by the
combined total of Class A and Class B weighted average common shares outstanding.
 25




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##### Table of Contents



Note 16) Fair Value of Financial Instruments
 Fair Value Hierarchy
  
    
    Level 1  Quoted prices for identical instruments in active markets accessible at
the measurement date.
    
    Level 2  Quoted prices for similar instruments in active markets; quoted prices
for identical or similar instruments in markets that are not active; and valuations
in which all significant inputs are observable in active markets. Inputs are
observable for substantially the full term of the financial instrument.
    
    Level 3  Valuations derived from one or more significant inputs that are unobservable.
 Determination of Fair Value
  Investments Available for Sale
  26




---



##### Table of Contents



Retained Interests in Securitizations
  Assets and Liabilities Measured at Fair Value on a Recurring Basis
  QuotedPrices inActive
    
    SignificantMarkets for
    
    Other
    
    SignificantIdentical
    
    Observable
    
    UnobservableInstruments
    
    Inputs
    
    Inputs(Level 1)
    
    (Level 2)
    
    (Level 3)
    
    TotalInvestments available for sale:U.S. Treasury and government
agency securities
    
    $
    155,354
    
    
    $
    14,147
    
    
    $
    0
    
    
    $
    169,501State and municipal securities
    
    
    0
    
    
    
    16,405
    
    
    
    0
    
    
    
    16,405Asset-backed securities:Credit card asset-backed
securities
    
    
    0
    
    
    
    246,348
    
    
    
    0
    
    
    
    246,348Mortgage and home equity
line of credit-backed
securities
    
    
    0
    
    
    
    3,965
    
    
    
    22,028
    
    
    
    25,993Equity securities
    
    
    7,416
    
    
    
    0
    
    
    
    265
    
    
    
    7,681Money market funds
    
    
    128,914
    
    
    
    0
    
    
    
    0
    
    
    
    128,914Other
    
    
    0
    
    
    
    367
    
    
    
    0
    
    
    
    367Retained interests in
securitizations
    
    
    0
    
    
    
    0
    
    
    
    180,236
    
    
    
    180,236Total assets measured at
fair value
    
    $
    291,684
    
    
    $
    281,232
    
    
    $
    202,529
    
    
    $
    775,445
 27




---



##### Table of Contents



Changes in Level 3 Assets Measured at Fair Value on a Recurring Basis
 Asset-Backed
    
    Retained Interests
    
    EquitySecurities
    
    in Securitizations
    
    Securities
    
    TotalFair value at January 1, 2008
    
    $
    33,989
    
    
    $
    213,077
    
    
    $
    413
    
    
    $
    247,479Unrealized loss(1)
    
    
    0
    
    
    
    (15,553
    )
    
    
    (2
    )
    
    
    (15,555
    )Unrealized loss in other
comprehensive income (loss)
    
    
    (4,035
    )
    
    
    0
    
    
    
    0
    
    
    
    (4,035
    )Purchases, sales, issuances,
settlement, net
    
    
    (7,926
    )
    
    
    (17,288
    )
    
    
    (146
    )
    
    
    (25,360
    )Transfers in and/or out of Level 3
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Fair value at September 30, 2008
    
    $
    22,028
    
    
    $
    180,236
    
    
    $
    265
    
    
    $
    202,529
 (1)
    
    Unrealized gains or losses on retained interests in securitizations are included
in securitization income (loss) on the consolidated income statements. Unrealized
gains or losses on venture capital investments are included in other revenues on the
consolidated income statements.
 28




---



##### Table of Contents



OVERVIEW
  Three Months Ended
    
    Nine Months Ended($ in thousands, except per share data)
    
    September 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007Pretax income (loss):Advanta Business Cards
    
    $
    (34,028
    )
    
    $
    35,982
    
    
    $
    (15,771
    )
    
    $
    106,617Other
    
    
    (1,599
    )
    
    
    (4,252
    )
    
    
    17,310
    
    
    
    (2,966
    )Total pretax income (loss)
    
    
    (35,627
    )
    
    
    31,730
    
    
    
    1,539
    
    
    
    103,651Income tax expense (benefit)
    
    
    (16,369
    )
    
    
    12,248
    
    
    
    (1,580
    )
    
    
    40,009Income (loss) from continuing
operations
    
    $
    (19,258
    )
    
    $
    19,482
    
    
    $
    3,119
    
    
    $
    63,642Per combined diluted common share
    
    $
    (0.47
    )
    
    $
    0.44
    
    
    $
    0.07
    
    
    $
    1.43
   29




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##### Table of Contents



Determining Whether Instruments Granted in
Share-Based Payment Transactions Are Participating Securities Earnings Per Share,
 CRITICAL ACCOUNTING POLICIES AND ESTIMATES
  30




---



##### Table of Contents



ADVANTA BUSINESS CARDS
  Three Months Ended
    
    Nine Months Ended($ in thousands)
    
    September 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007Average owned receivables
    
    $
    858,331
    
    
    $
    1,215,485
    
    
    $
    1,006,859
    
    
    $
    1,249,286Average securitized receivables
    
    $
    5,030,299
    
    
    $
    4,889,381
    
    
    $
    5,147,465
    
    
    $
    4,543,999Customer transaction volume
    
    $
    3,287,478
    
    
    $
    3,606,907
    
    
    $
    10,197,302
    
    
    $
    10,688,752New account originations
    
    
    18,581
    
    
    
    74,195
    
    
    
    111,944
    
    
    
    273,913Average number of active
accounts(1)
    
    
    897,138
    
    
    
    930,102
    
    
    
    929,640
    
    
    
    890,454Ending number of accounts at
September 30
    
    
    1,206,580
    
    
    
    1,294,273
    
    
    
    1,206,580
    
    
    
    1,294,273
 (1)
    
    Active accounts are defined as accounts with a balance at month-end. Active account
statistics do not include charged-off accounts. The statistics reported above are the
average number of active accounts for the three and nine months ended September 30.
   Three Months Ended
    
    Nine Months Ended($ in thousands)
    
    September 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007Net interest income on owned
interest-earning assets
    
    $
    22,061
    
    
    $
    25,622
    
    
    $
    65,278
    
    
    $
    78,371Noninterest revenues
    
    
    53,072
    
    
    
    93,095
    
    
    
    243,256
    
    
    
    268,158Provision for credit losses
    
    
    (29,001
    )
    
    
    (14,724
    )
    
    
    (87,678
    )
    
    
    (36,613
    )Operating expenses
    
    
    (80,160
    )
    
    
    (68,011
    )
    
    
    (236,627
    )
    
    
    (203,299
    )Pretax income (loss)
    
    $
    (34,028
    )
    
    $
    35,982
    
    
    $
    (15,771
    )
    
    $
    106,617
  31




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32




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##### Table of Contents



INTEREST INCOME AND EXPENSE
 Three Months Ended
    
    Nine Months Ended($ in thousands)
    
    September 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007Interest income
    
    $
    51,009
    
    
    $
    49,960
    
    
    $
    152,325
    
    
    $
    145,873Interest expense
    
    
    28,741
    
    
    
    25,606
    
    
    
    86,922
    
    
    
    71,801
    33




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##### Table of Contents



INTEREST RATE ANALYSIS AND AVERAGE BALANCES
 Three Months Ended September 30,2008
    
    
    2007Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average($ in thousands)
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateInterest-earning assets:Owned receivables:Business credit cards(1)
    
    $
    858,331
    
    
    $
    30,940
    
    
    
    14.34
    %
    
    $
    1,215,485
    
    
    $
    34,377
    
    
    
    11.22
    %Other receivables
    
    
    7,739
    
    
    
    91
    
    
    
    4.71
    
    
    
    7,594
    
    
    
    102
    
    
    
    5.32Total receivables
    
    
    866,070
    
    
    
    31,031
    
    
    
    14.25
    
    
    
    1,223,079
    
    
    
    34,479
    
    
    
    11.18Investments(2)
    
    
    1,744,834
    
    
    
    10,556
    
    
    
    2.37
    
    
    
    814,185
    
    
    
    10,755
    
    
    
    5.18Retained interests in
securitizations
    
    
    212,239
    
    
    
    9,422
    
    
    
    17.76
    
    
    
    226,405
    
    
    
    4,729
    
    
    
    8.35Total interest-earning
assets(3)
    
    
    2,823,143
    
    
    $
    51,009
    
    
    
    7.17
    %
    
    
    2,263,669
    
    
    $
    49,963
    
    
    
    8.74
    %Noninterest-earning assets
    
    
    394,888
    
    
    
    
    
    
    
    
    
    
    
    337,451Total assets
    
    $
    3,218,031
    
    
    
    
    
    
    
    
    
    
    $
    2,601,120Interest-bearing liabilities:Deposits
    
    $
    2,011,206
    
    
    $
    22,227
    
    
    
    4.40
    %
    
    $
    1,483,344
    
    
    $
    19,223
    
    
    
    5.14
    %Debt
    
    
    225,334
    
    
    
    3,565
    
    
    
    6.29
    
    
    
    224,771
    
    
    
    4,064
    
    
    
    7.17Subordinated debt
payable to preferred
securities trust
    
    
    103,093
    
    
    
    2,317
    
    
    
    8.99
    
    
    
    103,093
    
    
    
    2,317
    
    
    
    8.99Other borrowings
    
    
    25,195
    
    
    
    632
    
    
    
    9.82
    
    
    
    109
    
    
    
    2
    
    
    
    6.47Total interest-bearing
liabilities
    
    
    2,364,828
    
    
    $
    28,741
    
    
    
    4.84
    %
    
    
    1,811,317
    
    
    $
    25,606
    
    
    
    5.61
    %Noninterest-bearing
liabilities
    
    
    266,532
    
    
    
    
    
    
    
    
    
    
    
    193,501Total liabilities
    
    
    2,631,360
    
    
    
    
    
    
    
    
    
    
    
    2,004,818Stockholders equity
    
    
    586,671
    
    
    
    
    
    
    
    
    
    
    
    596,302Total liabilities and
stockholders equity
    
    $
    3,218,031
    
    
    
    
    
    
    
    
    
    
    $
    2,601,120Net interest spread
    
    
    
    
    
    
    
    
    
    
    2.33
    %
    
    
    
    
    
    
    
    
    
    
    3.13
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.14
    %
    
    
    
    
    
    
    
    
    
    
    4.27
    %
 (1)
    
    Interest income includes late fees for owned business credit card receivables of
$1.9 million for the three months ended September 30, 2008 and $2.3 million for the
same period of 2007.(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.
 34




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##### Table of Contents



Nine Months Ended September 30,2008
    
    
    2007Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Average($ in thousands)
    
    Balance
    
    
    Interest
    
    
    Rate
    
    
    Balance
    
    
    Interest
    
    
    RateInterest-earning assets:Owned receivables:Business credit cards(1)
    
    $
    1,006,859
    
    
    $
    97,633
    
    
    
    12.95
    %
    
    $
    1,249,286
    
    
    $
    103,796
    
    
    
    11.11
    %Other receivables
    
    
    7,604
    
    
    
    278
    
    
    
    4.89
    
    
    
    7,611
    
    
    
    320
    
    
    
    5.63Total receivables
    
    
    1,014,463
    
    
    
    97,911
    
    
    
    12.89
    
    
    
    1,256,897
    
    
    
    104,116
    
    
    
    11.08Investments(2)
    
    
    1,438,091
    
    
    
    28,446
    
    
    
    2.60
    
    
    
    692,406
    
    
    
    27,249
    
    
    
    5.20Retained interests in
securitizations
    
    
    216,939
    
    
    
    25,972
    
    
    
    15.96
    
    
    
    228,468
    
    
    
    14,514
    
    
    
    8.47Total interest-earning
assets(3)
    
    
    2,669,493
    
    
    $
    152,329
    
    
    
    7.60
    %
    
    
    2,177,771
    
    
    $
    145,879
    
    
    
    8.94
    %Noninterest-earning assets
    
    
    440,656
    
    
    
    
    
    
    
    
    
    
    
    319,926Total assets
    
    $
    3,110,149
    
    
    
    
    
    
    
    
    
    
    $
    2,497,697Interest-bearing liabilities:Deposits
    
    $
    1,947,129
    
    
    $
    67,746
    
    
    
    4.65
    %
    
    $
    1,398,289
    
    
    $
    53,121
    
    
    
    5.08
    %Debt
    
    
    220,433
    
    
    
    10,488
    
    
    
    6.36
    
    
    
    226,024
    
    
    
    11,724
    
    
    
    6.94Subordinated debt
payable to preferred
securities trust
    
    
    103,093
    
    
    
    6,951
    
    
    
    8.99
    
    
    
    103,093
    
    
    
    6,951
    
    
    
    8.99Other borrowings
    
    
    25,651
    
    
    
    1,737
    
    
    
    8.90
    
    
    
    110
    
    
    
    5
    
    
    
    5.67Total interest-bearing
liabilities
    
    
    2,296,306
    
    
    $
    86,922
    
    
    
    5.05
    %
    
    
    1,727,516
    
    
    $
    71,801
    
    
    
    5.56
    %Noninterest-bearing
liabilities
    
    
    222,105
    
    
    
    
    
    
    
    
    
    
    
    184,010Total liabilities
    
    
    2,518,411
    
    
    
    
    
    
    
    
    
    
    
    1,911,526Stockholders equity
    
    
    591,738
    
    
    
    
    
    
    
    
    
    
    
    586,171Total liabilities and
stockholders equity
    
    $
    3,110,149
    
    
    
    
    
    
    
    
    
    
    $
    2,497,697Net interest spread
    
    
    
    
    
    
    
    
    
    
    2.55
    %
    
    
    
    
    
    
    
    
    
    
    3.38
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.27
    %
    
    
    
    
    
    
    
    
    
    
    4.55
    %
 (1)
    
    Interest income includes late fees for owned business credit card receivables of
$5.8 million for the nine months ended September 30, 2008 and $7.1 million for the
same period of 2007.(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.
 35




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##### Table of Contents



PROVISION AND ALLOWANCE FOR RECEIVABLE LOSSES
 Three Months Ended
    
    Nine Months Ended($ in thousands)
    
    September 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007Provision for credit losses
    
    $
    28,994
    
    
    $
    14,724
    
    
    $
    87,703
    
    
    $
    36,613Provision for interest and fee losses
    
    
    5,004
    
    
    
    2,894
    
    
    
    15,422
    
    
    
    7,921
    September 30,
    
    December 31,
    
    September 30,($ in thousands)
    
    2008
    
    2007
    
    2007Business Credit Cards  OwnedAllowance for receivable losses
    
    $
    90,657
    
    
    $
    67,368
    
    
    $
    56,636Receivables 30 days or more delinquent
    
    
    51,661
    
    
    
    42,424
    
    
    
    35,276Receivables 90 days or more delinquent
    
    
    24,531
    
    
    
    19,204
    
    
    
    15,693Nonaccrual receivables
    
    
    11,194
    
    
    
    10,104
    
    
    
    10,847Accruing receivables past due 90 days or more
    
    
    22,203
    
    
    
    17,213
    
    
    
    13,838As a percentage of receivables:Allowance for receivable losses
    
    
    12.48
    %
    
    
    6.53
    %
    
    
    4.59
    %Receivables 30 days or more delinquent
    
    
    7.11
    
    
    
    4.11
    
    
    
    2.86Receivables 90 days or more delinquent
    
    
    3.38
    
    
    
    1.86
    
    
    
    1.27Nonaccrual receivables
    
    
    1.54
    
    
    
    0.98
    
    
    
    0.88Accruing receivables past due 90 days or more
    
    
    3.06
    
    
    
    1.67
    
    
    
    1.12Net principal charge-offs for the year-to-date
period ended September 30 and December 31
    
    $
    64,964
    
    
    $
    41,589
    
    
    $
    30,047Net principal charge-offs for the three months
ended September 30 and December 31
    
    
    22,839
    
    
    
    11,542
    
    
    
    10,708As a percentage of average receivables
(annualized):Net principal charge-offs for the
year-to-date period ended September 30 and
December 31
    
    
    8.60
    %
    
    
    3.39
    %
    
    
    3.21
    %Net principal charge-offs for the three months
ended September 30 and December 31
    
    
    10.64
    
    
    
    3.96
    
    
    
    3.52
 36




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##### Table of Contents



SECURITIZATION INCOME (LOSS)
   ($ in thousands)
    
    2008
    
    2007Three months ended September 30
    
    $
    (8,673
    )
    
    $
    22,388Nine months ended September 30
    
    
    12,932
    
    
    
    68,665
  Managed Receivable Data
  37




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##### Table of Contents



Managed Financial Measures and StatisticsAdvanta
    
    
    
    
    
    
    
    
    
    AdvantaBusiness Cards
    
    GAAP
    
    Securitization
    
    Business Cards
    
    Managed($ in thousands)
    
    GAAP
    
    Ratio(1)
    
    Adjustments
    
    Managed
    
    Ratio(1)Three months ended September 30, 2008Net interest income
    
    $
    22,061
    
    
    
    8.24
    %
    
    $
    146,720
    
    
    $
    168,781
    
    
    
    11.46
    %Provision for credit losses
    
    
    29,001
    
    
    
    10.84
    
    
    
    143,856
    (2)
    
    
    172,857
    
    
    
    11.74Noninterest revenues
    
    
    53,072
    
    
    
    19.83
    
    
    
    (2,864
    )
    
    
    50,208
    
    
    
    3.41Average business credit card
interest-earning assets
    
    
    1,070,570
    
    
    
    
    
    
    
    4,818,060
    
    
    
    5,888,630Three months ended September 30, 2007Net interest income
    
    $
    25,622
    
    
    
    7.11
    %
    
    $
    82,362
    
    
    $
    107,984
    
    
    
    7.08
    %Provision for credit losses
    
    
    14,724
    
    
    
    4.08
    
    
    
    48,404
    (2)
    
    
    63,128
    
    
    
    4.14Noninterest revenues
    
    
    93,095
    
    
    
    25.83
    
    
    
    (33,958
    )
    
    
    59,137
    
    
    
    3.87Average business credit card
interest-earning assets
    
    
    1,441,890
    
    
    
    
    
    
    
    4,662,976
    
    
    
    6,104,866Nine months ended September 30, 2008Net interest income
    
    $
    65,278
    
    
    
    7.11
    %
    
    $
    376,576
    
    
    $
    441,854
    
    
    
    9.57
    %Provision for credit losses
    
    
    87,678
    
    
    
    9.55
    
    
    
    330,247
    (2)
    
    
    417,925
    
    
    
    9.05Noninterest revenues
    
    
    243,256
    
    
    
    26.50
    
    
    
    (46,329
    )
    
    
    196,927
    
    
    
    4.27Average business credit card
interest-earning assets
    
    
    1,223,798
    
    
    
    
    
    
    
    4,930,526
    
    
    
    6,154,324Nine months ended September 30, 2007Net interest income
    
    $
    78,371
    
    
    
    7.07
    %
    
    $
    225,557
    
    
    $
    303,928
    
    
    
    6.99
    %Provision for credit losses
    
    
    36,613
    
    
    
    3.30
    
    
    
    124,601
    (2)
    
    
    161,214
    
    
    
    3.71Noninterest revenues
    
    
    268,158
    
    
    
    24.20
    
    
    
    (100,956
    )
    
    
    167,202
    
    
    
    3.85Average business credit card
interest-earning assets
    
    
    1,477,754
    
    
    
    
    
    
    
    4,315,531
    
    
    
    5,793,285As of September 30, 2008Ending business credit card
receivables
    
    $
    726,652
    
    
    
    
    
    
    $
    4,863,634
    
    
    $
    5,590,286Receivables 30 days or more
delinquent
    
    
    51,661
    
    
    
    7.11
    %
    
    
    314,740
    
    
    
    366,401
    
    
    
    6.55
    %Receivables 90 days or more
delinquent
    
    
    24,531
    
    
    
    3.38
    
    
    
    148,182
    
    
    
    172,713
    
    
    
    3.09As of December 31, 2007Ending business credit card
receivables
    
    $
    1,031,607
    
    
    
    
    
    
    $
    5,315,421
    
    
    $
    6,347,028Receivables 30 days or more
delinquent
    
    
    42,424
    
    
    
    4.11
    %
    
    
    229,808
    
    
    
    272,232
    
    
    
    4.29
    %Receivables 90 days or more
delinquent
    
    
    19,204
    
    
    
    1.86
    
    
    
    105,577
    
    
    
    124,781
    
    
    
    1.97As of September 30, 2007Ending business credit card
receivables
    
    $
    1,233,233
    
    
    
    
    
    
    $
    4,980,737
    
    
    $
    6,213,970Receivables 30 days or more
delinquent
    
    
    35,276
    
    
    
    2.86
    %
    
    
    160,375
    
    
    
    195,651
    
    
    
    3.15
    %Receivables 90 days or more
delinquent
    
    
    15,693
    
    
    
    1.27
    
    
    
    71,951
    
    
    
    87,644
    
    
    
    1.41
 (1)
    
    Ratios are as a percentage of average business credit card interest-earning assets except
delinquency ratios which are as a percentage of ending business credit card receivables.(2)
    
    Includes the amount by which the credit losses would have been higher had the securitized
receivables remained as owned and the provision for credit losses on securitized receivables
been equal to actual reported charge-offs. In addition, net unfavorable valuation
adjustments to retained interests in securitizations of $19.6 million for the three months
ended September 30, 2008 and $15.6 million for the nine months ended September 30, 2008 are
included as increases to provision for credit losses.
 38




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##### Table of Contents



SERVICING REVENUES
  ($ in thousands)
    
    2008
    
    2007Three months ended September 30
    
    $
    24,483
    
    
    $
    24,218Nine months ended September 30
    
    
    74,940
    
    
    
    67,135
  OTHER REVENUES
 Three Months Ended
    
    Nine Months Ended($ in thousands)
    
    September 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007Interchange income
    
    $
    67,822
    
    
    $
    62,771
    
    
    $
    204,097
    
    
    $
    180,135Cash back rewards
    
    
    (30,718
    )
    
    
    (16,867
    )
    
    
    (61,383
    )
    
    
    (45,613
    )Business rewards
    
    
    (7,580
    )
    
    
    (6,658
    )
    
    
    (21,106
    )
    
    
    (18,597
    )Investment securities gains, net:MasterCard Incorporated
    
    
    5,428
    
    
    
    2,870
    
    
    
    24,251
    
    
    
    2,870Visa Inc.
    
    
    0
    
    
    
    0
    
    
    
    13,408
    
    
    
    0The Reserve Primary Fund
    
    
    (1,042
    )
    
    
    0
    
    
    
    (1,042
    )
    
    
    0Venture capital investments
    
    
    0
    
    
    
    (69
    )
    
    
    (2
    )
    
    
    1,210Other investments
    
    
    0
    
    
    
    520
    
    
    
    99
    
    
    
    1,586Investment securities gains, net
    
    
    4,386
    
    
    
    3,321
    
    
    
    36,714
    
    
    
    5,666Balance transfer and cash
usage fees
    
    
    1,338
    
    
    
    2,785
    
    
    
    6,202
    
    
    
    8,929Other business credit card fees
    
    
    904
    
    
    
    1,236
    
    
    
    3,009
    
    
    
    3,588Other, net
    
    
    1,074
    
    
    
    1,231
    
    
    
    1,611
    
    
    
    4,188Total other revenues, net
    
    $
    37,226
    
    
    $
    47,819
    
    
    $
    169,144
    
    
    $
    138,296
    39




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##### Table of Contents



OPERATING EXPENSES
 Three Months Ended
    
    Nine Months Ended($ in thousands)
    
    September 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007Salaries and employee benefits
    
    $
    24,028
    
    
    $
    25,029
    
    
    $
    83,674
    
    
    $
    77,373External processing
    
    
    11,207
    
    
    
    7,049
    
    
    
    28,672
    
    
    
    20,756Marketing
    
    
    9,820
    
    
    
    3,806
    
    
    
    23,221
    
    
    
    11,116Amortization of deferred
origination costs, net
    
    
    6,865
    
    
    
    12,592
    
    
    
    27,056
    
    
    
    38,311Professional fees
    
    
    6,616
    
    
    
    4,055
    
    
    
    18,265
    
    
    
    10,938Credit
    
    
    6,079
    
    
    
    1,174
    
    
    
    11,531
    
    
    
    3,621Equipment
    
    
    3,645
    
    
    
    3,197
    
    
    
    10,606
    
    
    
    8,522Occupancy
    
    
    2,680
    
    
    
    2,465
    
    
    
    7,729
    
    
    
    7,110Visa indemnification
    
    
    1,636
    
    
    
    4,184
    
    
    
    (3,865
    )
    
    
    4,184Fraud
    
    
    1,554
    
    
    
    2,251
    
    
    
    5,111
    
    
    
    5,936Postage
    
    
    1,535
    
    
    
    1,521
    
    
    
    4,664
    
    
    
    4,446Other
    
    
    6,272
    
    
    
    5,002
    
    
    
    16,513
    
    
    
    15,591Total operating expenses
    
    $
    81,937
    
    
    $
    72,325
    
    
    $
    233,177
    
    
    $
    207,904
   40




---



##### Table of Contents



CONTINGENCIES
  41




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##### Table of Contents



42




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##### Table of Contents



INCOME TAXES
  Three Months Ended
    
    Nine Months Ended($ in thousands)
    
    September 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007Income tax
expense (benefit)
    
    $
    (16,369
    )
    
    $
    12,248
    
    
    $
    (1,580
    )
    
    $
    40,009Effective
tax expense (benefit) rate
    
    
    (46.0
    )%
    
    
    38.6
    %
    
    
    (102.7
    )%
    
    
    38.6
    %
   DISCONTINUED OPERATIONS
  43




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OFF-BALANCE SHEET ARRANGEMENTS
   Three Months Ended
    
    Nine Months Ended($ in thousands)
    
    September 30,
    
    September 30,2008
    
    2007
    
    2008
    
    2007Average securitized receivables
    
    $
    5,030,299
    
    
    $
    4,889,381
    
    
    $
    5,147,465
    
    
    $
    4,543,999Securitization income (loss)
    
    
    (8,673
    )
    
    
    22,388
    
    
    
    12,932
    
    
    
    68,665Discount accretion
    
    
    9,422
    
    
    
    4,729
    
    
    
    25,972
    
    
    
    14,514Interchange income
    
    
    58,267
    
    
    
    50,800
    
    
    
    171,511
    
    
    
    142,421Servicing revenues
    
    
    24,483
    
    
    
    24,218
    
    
    
    74,940
    
    
    
    67,135Proceeds from new securitizations(1)
    
    
    0
    
    
    
    113,033
    
    
    
    318,025
    
    
    
    869,373Proceeds from collections reinvested
in revolving-period securitizations
    
    
    2,860,791
    
    
    
    2,801,202
    
    
    
    7,994,045
    
    
    
    7,866,934Cash flows received on retained
interests(2)
    
    
    64,637
    
    
    
    77,377
    
    
    
    257,223
    
    
    
    241,864
 (1)
    
    Amounts reported for the nine months ended September 30, 2008 exclude $250 million
related to notes issued in our AdvantaSeries 2008-A1 and AdvantaSeries 2008-A3
securitizations that were purchased by one of our bank subsidiaries and are classified
as investments available for sale on the consolidated balance sheet.(2)
    
    Amounts reported for the three and nine months ended September 30, 2008 exclude
interest on AdvantaSeries 2008-A1 and AdvantaSeries 2008-A3 notes that is classified as
interest income on the consolidated income statements.
  44




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Noteholder
    
    Coupon
    
    Scheduled End of($ in thousands)
    
    Principal Balance
    
    Type
    
    Revolving PeriodAdvantaSeries:2008-A1
    
    $
    125,000
    
    
    Floating
    
    January 31, 20092008-A2
    
    
    122,000
    
    
    Fixed
    
    January 31, 20092008-A3
    
    
    150,000
    
    
    Floating
    
    May 31, 2009
   Noteholder
    
    End of Revolving
    
    Noteholder($ in thousands)
    
    Principal Balance
    
    Period
    
    Payment DateSeries 2001-A
    
    $
    300,000
    
    
    January 2008
    
    April 2008AdvantaSeries:2005-A4
    
    
    150,000
    
    
    December 2007
    
    February 20082005-A1
    
    
    250,000
    
    
    March 2008
    
    May 20082005-D1
    
    
    20,000
    
    
    April 2008
    
    June 20082005-C1
    
    
    100,000
    
    
    July 2008
    
    September 2008
   Noteholder
    
    Expected End of
    
    Expected Noteholder($ in thousands)
    
    Principal Balance
    
    Revolving Period
    
    Payment DateAdvantaSeries:2005-A3
    
    $
    250,000
    
    
    September 2008
    
    November 20082006-A2
    
    
    250,000
    
    
    December 2008
    
    February 2009
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Accounting for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities, Consolidation of Variable Interest
Entities,
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MARKET RISK SENSITIVITY
  September 30,
    
    December 31,2008
    
    2007Estimated percentage increase (decrease) in
net interest income on owned assets:Assuming 200 basis point increase
    
    
    35
    %
    
    
    20
    %Assuming 200 basis point decrease
    
    
    (29
    )%
    
    
    (16
    )%Estimated percentage increase (decrease) in
net interest income on securitized
receivables:Assuming 200 basis point increase
    
    
    (3
    )%
    
    
    (11
    )%Assuming 200 basis point decrease
    
    
    8
    %
    
    
    15
    %Estimated percentage increase (decrease) in
net interest income on managed assets:Assuming 200 basis point increase
    
    
    2
    %
    
    
    (7
    )%Assuming 200 basis point decrease
    
    
    3
    %
    
    
    11
    %
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LIQUIDITY, CAPITAL RESOURCES AND ANALYSIS OF FINANCIAL CONDITION
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September 30, 2008
    
    December 31, 2007($ in thousands)
    
    Amount
    
    %
    
    Amount
    
    %Off-balance sheet securitized
receivables(1)
    
    $
    4,496,146
    
    
    
    61
    %
    
    $
    5,173,404
    
    
    
    67
    %Deposits
    
    
    1,992,900
    
    
    
    27
    
    
    
    1,651,737
    
    
    
    21Debt
    
    
    221,742
    
    
    
    3
    
    
    
    220,848
    
    
    
    3Other borrowings
    
    
    25,000
    
    
    
    0
    
    
    
    25,000
    
    
    
    0Subordinated debt payable to preferred
securities trust
    
    
    103,093
    
    
    
    1
    
    
    
    103,093
    
    
    
    1Equity
    
    
    565,588
    
    
    
    8
    
    
    
    585,781
    
    
    
    8Total
    
    $
    7,404,469
    
    
    
    100
    %
    
    $
    7,759,863
    
    
    
    100
    %
 (1)
    
    Excludes our ownership interest in the noteholder principal balance of securitizations
that are held on-balance sheet.
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VALUATION OF FINANCIAL INSTRUMENTS
 Fair Value Measurements
 Determining the Fair Value of a Financial Asset
When the Market for That Asset Is Not Active
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CAUTIONARY STATEMENT PURSUANT TO THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
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(1)
    
    factors affecting our net interest income on owned and securitized
receivables, including fluctuations in the volume of receivables and
the range and timing of pricing offers to customers;(2)
    
    competitive pressures, including product development and pricing,
among financial institutions;(3)
    
    political conditions, social conditions, monetary and fiscal policies
and general economic and other environmental conditions, including the
impact of the ongoing disruption in the capital markets and
deterioration of the U.S. economy, as well as the potential for
further deterioration and disruption, and the impact of these factors
on the level of new account originations, customer spending,
delinquencies, charge-offs, the value of and ability to realize
expected returns on our investments, and other results of operations;(4)
    
    factors affecting fluctuations in the number of accounts or receivable
balances, including the retention of customers after promotional
pricing periods have expired, changes in terms on their accounts, or
changes in programs or product offerings;(5)
    
    interest rate and credit spread fluctuations;(6)
    
    factors affecting our level of costs and expenses, including those
associated with the implementation of our offshoring initiatives such
as the effects of changes in severance and related costs, changes in
the timing for completion of our planned workforce reduction and other
factors associated with the implementation of our offshoring
initiatives due to, among other things, possible disruption in our
business and operational delays associated with new systems, processes
and changes in personnel;(7)
    
    factors affecting our level of liquidity, including funding decisions,
the potential timing of the securitizations of our receivables and our
ability to monetize our investments;(8)
    
    government regulation of banking and finance businesses, including
the effects of and changes in the level of scrutiny, regulatory
requirements and regulatory initiatives, certain mandatory
and possibly discretionary action by state and federal regulators,
restrictions and limitations imposed by banking laws, regulators,
examinations and reviews, and the
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effects of, and changes in,
regulatory policies, guidance, interpretations and initiatives and
agreements between us and our regulators;(9)
    
    effect of, and changes in, tax laws, rates, regulations and policies;(10)
    
    effect of legal and regulatory developments relating to the legality
of certain business methods, practices and policies of credit card
issuers and the ultimate resolution of industry-related judicial
proceedings relating to the legality of certain interchange rates;(11)
    
    relationships with customers, significant vendors and business
partners;(12)
    
    difficulties or delays in the development, acquisition, production,
testing and marketing of products and services, including the ability
and cost to obtain intellectual property rights or a failure to
implement new products or services when anticipated;(13)
    
    the amount and cost of financing available to us;(14)
    
    the ratings on the debt of Advanta Corp. and its subsidiaries;(15)
    
    the effects of changes in accounting policies or practices as may be
required by changes in U.S. generally accepted accounting principles;(16)
    
    the impact of litigation and legal, regulatory, administrative or
other claims, investigations or proceedings including judgments,
settlements and actual or anticipated insurance recoveries for costs
or judgments, as well as the impact of indemnification or other
obligations for losses associated with litigation due to our status
as a member of Visa USA;(17)
    
    the impact of the Emergency Economic Stabilization Act or other
recent related governmental, legislative and regulatory developments
designed to stimulate the economy;(18)
    
    the proper design and operation of our disclosure controls and
procedures; and(19)
    
    the ability to attract and retain key personnel.
 
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PART II  OTHER INFORMATION
 
   
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##### Table of Contents



Negative trends and developments in economic conditions, financial markets and the financial
services industry may continue to adversely impact our business, results of operations and
financial condition.
 Legislative, regulatory and other legal developments may affect our business operations and
ability to generate new accounts.
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Changes in accounting may affect our reported earnings and results of operations.
 Accounting for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities Consolidation of Variable Interest Entities .
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Our strategic, contractual and other relationships with third parties expose us to risks
that may disrupt our business operations and adversely affect our results of operations and
financial condition.
 
    
    If any third party providing services critical to our
business were to fail or become insolvent, or if we were
unable to renew expiring agreements with such parties on
mutually acceptable terms, our business operations, results
of operations and financial condition could be adversely
impacted.
    
    To the extent these third party relationships involve or
depend on the transfer of knowledge related to our business
for their success, we may be exposed to risks associated
with misappropriation or misuse of intellectual property or
confidential information, including information that is
proprietary to us or to our customers.
    
    If the third parties do not perform as anticipated or if
they default on their obligations, we may not realize the
intended benefits of these relationships, including the
expected productivity, cost or expense improvements.
    
    In the event of a default or termination, our agreements
with third parties may take an extended period of time to
unwind or resolve and, under certain circumstances such as
early termination, may require us to pay substantial
termination fees, which could adversely affect our business
operations, results of operations and financial condition.
    
    If our relationships with third parties include
indemnification provisions or obligations, we may be
required, under specified circumstances, to indemnify the
other parties for certain losses they incur in connection
with the products or services they provide to us. In the
event we are obligated to make payments to third parties
under indemnification or other obligations for losses of
third parties, it could adversely affect our results of
operations and financial condition. For further discussion,
see Note 11 to the consolidated financial statements in our
Annual Report on Form 10-K for the fiscal year ended
December 31, 2007.
    
    If our relationship is with a third party located outside of
the United States, we may be exposed to international
economic, political and other risks that could adversely
affect our business, including, instability in international
political and economic conditions, different intellectual
property laws and protections and difficulty in
administering and enforcing our policies and procedures in a
foreign country, any of which could adversely affect our
results of operations and financial condition.
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ExhibitNumber
    
    Description of Document12
    
    Computation of Ratio of Earnings to Fixed Charges31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232.1
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
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SIGNATURES
  
 /s/Philip M. Browne
 /s/David B. Weinstock
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EXHIBIT INDEX
 Manner ofExhibit
    
    Description
    
    Filing12
    
    Computation of Ratio of Earnings to Fixed Charges
    
    *31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
    
    *31.2
    
    Certification of Chief Financial Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
    
    *32.1
    
    Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
    
    *32.2
    
    Certification of Chief Financial Officer Pursuant to 18 U.S.C
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
    
    . *
 
 *
    
    Filed electronically herewith.
 60