ADVANTA CORP - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549
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FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002 OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NO. 0-14120

ADVANTA CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 23-1462070
(STATE OR OTHER JURISDICTION OF ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
WELSH & MCKEAN ROADS, P. O. BOX 844,
SPRING HOUSE, PENNSYLVANIA 19477 19477
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (215) 657-4000

SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

CLASS A COMMON STOCK, $.01 PAR VALUE
CLASS B COMMON STOCK, $.01 PAR VALUE
CLASS A RIGHT
CLASS B RIGHT
(TITLE OF EACH CLASS)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K Yes [ ].

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [X] No [ ]

State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the common
equity was last sold, or the average bid and asked price of such common equity,
as of the last business day of the registrant's most recently completed second
fiscal quarter.

Note. If a determination as to whether a particular person or entity is
an affiliate cannot be made without involving unreasonable effort and
expense, the aggregate market value of the common stock held by
non-affiliates may be calculated on the basis of assumptions reasonable
under the circumstances, provided that the assumptions are set forth in this
form.

$260,379,447 as of June 30, 2002 which amount excludes the value of all
shares beneficially owned (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934) by officers and directors of the Company (however, this
does not constitute a representation or acknowledgment that any of such
individuals is an affiliate of the Registrant).

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.

As of March 19, 2003 there were 10,041,017 shares of the Registrant's Class
A Common Stock, $.01 par value, outstanding and 17,271,903 shares of the
Registrant's Class B Common Stock, $.01 par value, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

List hereunder the following documents if incorporated by reference and the
Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) any annual report to security holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g., annual report to security holders
for fiscal year ended December 24, 1980).

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PART I.

ITEM 1. BUSINESS

In this Form 10-K, "Advanta", "we", "us", "our" and the "Company" refer to
Advanta Corp. and its subsidiaries, unless the context otherwise requires.

OVERVIEW

Advanta is a highly focused financial services company serving the small
business market. We leverage direct marketing and information based expertise to
identify potential customers and new target markets and to provide a high level
of service tailored to the unique needs of small businesses. We have been
providing innovative financial products and solutions since 1951. Currently, our
lending business consists of Advanta Business Cards, one of the nation's largest
issuers of MasterCard(R)* business credit cards to small businesses. In addition
to Advanta Business Cards, we have venture capital investments. We own two
depository institutions, Advanta Bank Corp. and Advanta National Bank. We
primarily fund and operate our business credit card business through Advanta
Bank Corp. We also own two insurance companies, Advanta Life Insurance Company
and Advanta Insurance Company, through which we offer specialty credit-related
insurance and related products to our existing customers.

At December 31, 2002, we had approximately $2.6 billion in managed
receivables, comprised of $471 million of owned receivables and $2.1 billion of
securitized receivables.

Through the first quarter of 2001, we had two additional lending
businesses, Advanta Mortgage and Advanta Leasing Services. In the first quarter
of 2001, we exited our mortgage business and ceased originating new leases in
our small ticket equipment leasing business. We are, however, continuing to
service the existing leases in our small ticket equipment leasing portfolio
rather than sell the business or the portfolio.

Pursuant to the terms of the purchase and sale agreement, dated January 8,
2001, as amended, by and between Advanta and Chase Manhattan Mortgage
Corporation, a New Jersey corporation ("Buyer"), Advanta and certain of its
subsidiaries transferred and assigned to Buyer and certain of its affiliates
substantially all of the assets and operating liabilities associated with
Advanta's mortgage business. This transaction is referred to throughout this
Form 10-K as the "Mortgage Transaction." The Mortgage Transaction was
consummated on March 1, 2001, effective as of February 28, 2001 (the "Closing
Date").

The assets acquired by Buyer in the Mortgage Transaction consisted of loans
receivable, retained interests in securitizations and other receivables,
contractual mortgage servicing rights and other contractual rights, property and
equipment, and prepaid assets. The liabilities assumed by Buyer in the Mortgage
Transaction consist primarily of certain of our contractual obligations and
other liabilities that appeared on our balance sheet, as well as specified
contingent liabilities arising out of the operation of the mortgage business
before closing that are identified in the purchase and sale agreement.

Following the Mortgage Transaction, we no longer operate a mortgage
business. However, we have retained contingent liabilities, primarily relating
to litigation, arising out of our operation of the mortgage business before the
Closing Date that were not specifically assumed by Buyer in the Mortgage
Transaction.

Prior to February 20, 1998, we also issued consumer credit cards. Under the
terms of a contribution agreement, dated October 27, 1997 and amended on
February 20, 1998, we and Fleet Financial Group, Inc. ("Fleet") each contributed
substantially all of the assets of our respective consumer credit card
businesses, subject to liabilities, to Fleet Credit Card, LLC, a newly formed
Rhode Island limited liability company controlled by Fleet. We acquired a 4.99%
minority interest in Fleet Credit Card, LLC as of the date of closing of the
transaction. This transaction is referred to in this Form 10-K as the "Consumer
Credit Card Transaction."

Advanta Corp. was incorporated in Delaware in 1974 as Teachers Service
Organization, Inc., the successor to a business originally founded in 1951. In
January 1988, we changed our name from TSO Financial Corp. to Advanta Corp. Our
principal executive office is located at Welsh & McKean Roads, P.O.

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* MasterCard(R) is a federally registered servicemark of MasterCard
International, Inc.

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Box 844, Spring House, Pennsylvania 19477-0844. Our telephone number at our
principal executive office is (215) 657-4000.

CONTINUING OPERATIONS

ADVANTA BUSINESS CARDS

Overview

Advanta Business Cards, a business unit of Advanta, is one of the nation's
largest issuers of business credit cards to small businesses. The "Advanta
Business Card" is issued and funded by Advanta Bank Corp. Advanta Business Cards
offers business credit cards to small businesses through targeted direct mail
and telemarketing solicitations and the Internet. To a limited extent, Advanta
Business Cards markets our products at industry trade shows or other forums, as
another solicitation channel.

Our principal objective is to use our information based strategy to
continue to prudently grow our business. Based on our experience and expertise
in analyzing the credit behavior and characteristics of consumers and small
businesses, we have developed an extensive database of customer information and
attributes. We use this information in conjunction with proprietary credit
scoring, targeting and other sophisticated analytical models we have developed
to market our products to prospective customers. We measure the expected
behavior of our prospects by analyzing, among other things, a prospect's
responsiveness, creditworthiness and expected transaction volume. We continually
validate our customer segments and models based on actual results from marketing
campaigns, and use this information to refine and improve our analytical
assumptions. The information we gather and analyze allows us to market directly
to specific customer segments, target prospects effectively, anticipate customer
needs and customize our pricing and products to meet those needs. We also use
this information proactively to enhance and maintain our relationships with
existing customers.

Our primary product is a MasterCard business credit card. We also offer a
limited number of Visa(R)** business credit cards. MasterCard and Visa license
banks and other financial institutions, such as Advanta Bank Corp., to issue
credit cards using their respective servicemarks and interchange networks.
Advanta Bank Corp. receives an interchange fee, paid to us by merchant banks,
based on the purchase activity of our cardholders as partial compensation for
taking credit risk, absorbing fraud losses and funding credit card receivables
for a limited period prior to initial billing. Our business credit cards provide
approved customers with access, through merchants, banks, checks and ATMs, to an
instant unsecured revolving business credit line. Under the terms of our
cardholder agreements, our business cards may be used for business purposes
only.

We offer a number of benefits that we believe are important to small
business owners including:

- additional cards for employees at no fee with the ability to set
individual spending limits;

- on-line detailed expense management reports that categorize purchases and
itemize charges for recordkeeping and tax purposes;

- customized cards with the cardholder's business name displayed on the
front of the card and customized business checks; and

- free on-line account management.

Our business credit card also offers free auto rental insurance, free purchase
protection service for a specified time period and several free emergency
assistance and referral services.

We offer rewards programs on some of our business credit cards. Under the
rewards programs, the cardholder may receive bonus miles that can be redeemed
for air travel, cash rebates and/or other rewards, based on net purchases
charged on their business credit card account. We expect to continue to expand

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** Visa is a registered servicemark of Visa International, Inc.

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our business credit card product offerings and look for innovative ways to
tailor products to the unique needs of small businesses.

The interest rate and credit line size we offer vary and are ultimately
determined based upon the credit history and creditworthiness of the borrower.
At December 31, 2002, the average credit line was approximately $11,000. The
interest rate is generally a variable rate based on a LIBOR (London Interbank
Offered Rate) or Prime Rate index. In most cases, the interest rate will change
with changes in LIBOR or the Prime Rate, as applicable, and is subject to a
minimum below which the interest rate cannot fall.

We generate interest and other income through finance charges assessed on
outstanding balances, interchange income, cash advance and other credit card
fees. We also generate income through specialty credit-related insurance
products and services we offer to our business credit card customers through our
insurance subsidiaries.

The managed portfolio of Advanta Business Cards grew from approximately
$2.0 billion at December 31, 2001 to approximately $2.6 billion at December 31,
2002. In 2002, substantially all of Advanta's total revenues from continuing
operations were derived from Advanta Business Cards. See Note 18 to the
consolidated financial statements for additional segment financial information
about Advanta Business Cards.

Originations

We originate, directly and through the use of third parties, substantially all
of our business credit card accounts using direct marketing techniques,
including direct mail, telemarketing solicitation and the Internet. We
periodically mail solicitations for an Advanta MasterCard or Visa business
credit card. Similarly, we use inbound and outbound telemarketing to solicit
applicants. We offer applications online. To a limited extent, we also market
our business credit cards to small businesses at industry trade shows and other
forums. We originated over 241,000 new business credit card accounts during the
year ended December 31, 2002.

Our sources for potential customers include credit reporting agencies,
customer lists from establishments with a small business customer base,
strategic alliances with companies and associations with a small business
customer base and linking with websites on the Internet that serve small
businesses. In an effort to expand our customer reach, we are testing new
sources for identifying potential customers. We target prospects for our small
business credit card products using relevant information from the sources
described above, historical solicitation data and proprietary segmentation
methods. Our targeting models are continually updated to reflect changes in the
competitive environment.

Underwriting

We have developed sophisticated modeling techniques for assessing the
creditworthiness of applicants. Because the owner of the business is a joint
obligor on our business credit card, we may consider credit-related and other
relevant data about both the business and the individual owner of the business
in our assessment of the creditworthiness of potential cardholders. Through the
application process, we verify the applicant's demographic information and
collect relevant information about the applicant's business, including current
sales and income statistics. This information, coupled with credit reports
received from external credit reporting agencies, forms the basis for our
decision to extend credit. Using a proprietary credit scoring system and other
statistical techniques, we evaluate common applicant characteristics and their
perceived correlation to credit risk. Periodically, our scoring models are
updated to maintain and enhance their predictability.

Pricing

We continually test different pricing and reward strategies. Our pricing and
reward strategies include a combination of promotional pricing and cashback or
other rewards and/or rebates, including travel rewards, based on spending
levels. The level of cashback rewards may also vary by the type of transaction.
Our offers are subject to verification of information provided by the potential
cardholder through the application process.

We offer primarily variable rate credit card accounts. The periodic
interest rates assessed on balances in most of these accounts are indexed to
LIBOR or the Prime Rate, plus an add-on percentage or spread. In most cases, the
rate will change with changes in LIBOR or the Prime Rate, as applicable, and is
subject to a minimum below which the rate cannot fall. In addition, the rate may
vary depending on the type of

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transaction. For example, cash advances are generally subject to higher interest
rates than merchandise purchase transactions. With notice, we may reprice any
account at our discretion, based upon a variety of factors indicating a risk of
future nonpayment, such as changes in a cardholder's credit standing. The credit
line size may also be adjusted up or down based on our continual credit
monitoring. To discourage delinquent payments, we use "penalty pricing" and
automatically increase the interest rate assessed on any account that becomes in
default in accordance with the terms of the applicable account agreement. The
amount of the automatic increase may vary, but typically we add 3% or greater to
the existing interest rate on an account.

Servicing and Collections

We perform most of the servicing and collections for our business credit card
accounts in-house. Certain data processing and administrative functions
associated with the servicing of our business credit card portfolio are
outsourced to First Data Resources, Inc. Services performed by First Data
Resources, Inc. include: authorizing transactions through the MasterCard and
Visa systems; performing billing and settlement processes; generating and
monitoring monthly billing statements; and issuing credit card plastics and new
account agreements.

Customer Service and Support

We maintain several channels of communication for our customers, including a
toll-free phone number, e-mail, postal and facsimile services. In addition, we
leverage numerous technology solutions to manage key performance indicators and
to increase efficiencies and reduce costs. We maintain multi-site contact
centers in Spring House, Pennsylvania and Draper, Utah. Each contact center is
managed as a virtual call center so that functions can be performed seamlessly
regardless of geographic location. Our customer service function works closely
with other functions across the Advanta Business Cards organization to achieve
seamless service and problem resolution. Our strategy is to maximize every
contact opportunity to provide best in class service to our customers and to
create customer loyalty.

Delinquencies and Collections

We have a collections staff to provide the collection activities for our
business credit cards. Accounts are "contractually delinquent" if the minimum
payment is not received by the due date. We discourage delinquent payments by
assessing a late fee and using "penalty pricing" as described above. The
collections staff pursues late payments aggressively and immediately.

Efforts to collect contractually delinquent credit cards currently are made
by our collections personnel or their designees. Collection activities include
statement messages, formal collection letters and telephone calls. Collection
personnel initiate telephone contact with delinquent cardholders as early as the
first day the cardholder becomes contractually delinquent. Based on the use of
behavioral scoring and adaptive control techniques, we determine the timing of
the collection activity to be implemented for each account. If initial telephone
contact fails to resolve the delinquency, we continue to contact the cardholder
by telephone and by mail.

Delinquency levels are monitored by management of our collections and
credit departments, and information is reported daily to senior management.
Efforts to collect delinquent and charged-off accounts are generally made by our
collection group and supplemented in certain cases by external collection
agencies. Our credit evaluation, servicing and charge-off policies and
collection practices may change from time to time in accordance with our
business judgment and applicable laws and regulations.

VENTURE CAPITAL INVESTMENTS

We make venture capital investments through certain of our affiliates, including
Advanta Partners LP and Advanta Growth Capital Fund LP. Advanta Partners LP
focuses primarily on growth capital financings, restructurings and management
buyouts in the financial services, electronic commerce relationship management
services and other consumer and data information management services industries.
Advanta Growth Capital Fund LP. focuses primarily on earlier stage investment
opportunities in the technology and information services sectors. The investment
objective of our investment affiliates is to earn attractive returns by building
the long-term values of the businesses in which they invest. Our investment
affiliates combine transaction expertise, management skills and a broad contact
base with strong industry-specific knowledge.
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We actively monitor the performance of our venture capital investments, and
employees and officers of our investment affiliates participate on the boards of
directors of some investees. Our investments in specific companies and industry
segments may vary over time. We primarily invest in privately-held companies,
including early stage companies. These investments are inherently risky as the
market for the technologies and products the investees have under development
may never materialize. See Note 18 to the consolidated financial statements for
additional segment financial information about our venture capital investments.

ADVANTA INSURANCE

Our life/health and property/casualty insurance subsidiaries, Advanta Life
Insurance Company and Advanta Insurance Company, respectively, provide insurance
and related products mostly to existing Advanta customers. Together with
unaffiliated insurance carriers, we offer specialty credit-related insurance
products and services to our existing business credit card and leasing
customers. Advanta Insurance uses direct mail marketing and telemarketing to
enroll customers in these programs. The focus of these products is on the
customer's ability to repay their debt. These products include coverage for loss
of life, disability, involuntary unemployment, accidental death, and lost or
damaged equipment. Our insurance subsidiaries generally reinsure all or a
portion of the risks associated with these products or services. Under
reinsurance agreements, our insurance subsidiaries assume a proportional quota
share of the risk from the unaffiliated insurance carriers. In consideration for
assuming these risks, our insurance subsidiaries receive reinsurance premiums
equal to the proportional percentage of the net premiums collected by the
insurance carriers, less a ceding fee as defined by the reinsurance treaties,
and proportional acquisition expenses, premium taxes and loss payments made by
the carriers on these risks.

DEPOSITORY INSTITUTIONS

We own two depository institutions, Advanta Bank Corp. and Advanta National
Bank. Advanta Bank Corp. is an industrial loan corporation organized under the
laws of the State of Utah with its principal executive offices located in
Draper, Utah. Advanta Bank Corp.'s principal activity consists of the issuance
of the "Advanta Business Card" credit card to small businesses. Prior to first
quarter 2001, Advanta Bank Corp. also was involved in our small ticket equipment
leasing business and our mortgage business. We no longer operate a mortgage
business or originate new equipment leases. However, Advanta Bank Corp.
continues to be involved as the servicer of our small ticket equipment leasing
business because we are continuing to service our existing lease portfolio. See
"-- DISCONTINUED OPERATIONS."

Advanta National Bank is a national banking association organized under the
laws of the United States of America with its headquarters and sole branch
currently located in Wilmington, Delaware. Prior to the closing of the Mortgage
Transaction, we conducted a large portion of our mortgage business through
Advanta National Bank.

DEPOSIT, SAVINGS AND INVESTMENT PRODUCTS

Deposits with each of our bank subsidiaries are insured by the Federal Deposit
Insurance Corporation ("FDIC"). Through our banks we are able to offer a range
of insured deposit products. Advanta Bank Corp.'s deposit products include money
market savings accounts, retail certificates of deposit and large denomination
certificates of deposit of $99,000 or more. Advanta Bank Corp. generates retail
deposits from repeat deposits from existing customers and from new depositors
attracted by direct mail solicitations, newspaper and other media advertising,
and the Internet.

In the past, Advanta National Bank's deposit products have included money
market savings accounts, retail certificates of deposit and large denomination
certificates of deposit of $99,000 or more. Following the Mortgage Transaction,
Advanta National Bank had excess cash liquidity. As a result, Advanta National
Bank suspended originating deposit accounts.

At December 31, 2002, we had total deposits of approximately $714 million
at our banks, compared to approximately $637 million as of December 31, 2001.
Substantially all of the deposits at December 31, 2002 and 2001 were at Advanta
Bank Corp.

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Since 1951, Advanta Corp. and its predecessor, Teachers Service
Organization, Inc., have offered unsecured debt securities of the corporation,
in the form of RediReserve Certificates and Investment Notes, to retail
investors through our retail note programs. Advanta Corp. has sold these debt
securities, also referred to in this Form 10-K as "retail notes," predominantly
on a direct basis in select states. The RediReserve Variable Rate Certificates
are payable on demand and the maturities on the Investment Notes range from 90
days to ten years. The RediReserve Certificates and Investment Notes generally
require an initial minimum investment of $5,000 and are obligations of Advanta
Corp. and are not insured or guaranteed by any public or private entity. We
change the interest rates that we offer frequently, depending on market
conditions and our funding needs. The rates also vary depending on the size of
each investment. At December 31, 2002, approximately $316 million of RediReserve
Certificates and Investment Notes were outstanding with interest rates ranging
from 2.75% to 11.56%.

DISCONTINUED OPERATIONS

ADVANTA LEASING SERVICES

Overview

On January 23, 2001, we announced that after a thorough review of strategic
alternatives available for our leasing business, we decided to cease originating
new equipment leases. However, we are continuing to service the existing leasing
portfolio.

Prior to January 23, 2001, Advanta Leasing Services, a business unit of
Advanta, offered flexible lease financing programs to small businesses. The
primary products that we offered through our leasing business consisted of
leases for small-ticket items such as computers, copiers, fax machines and other
office equipment.

Advanta Leasing Services originated and funded its leases and other
equipment financing arrangements through Advanta Bank Corp. Advanta Business
Services Corp. conducted the marketing, lease originations, customer service and
collections for our leasing business.

Our leases are generally priced on a fixed rate basis. At December 31,
2002, the leases in our managed portfolio, consisting of owned and securitized
lease receivables, had an average lease size of approximately $5,200 and an
average lease term remaining of approximately 20 months.

Managed lease receivables at December 31, 2002 totaled approximately $196
million, compared to approximately $421 million at December 31, 2001. By the end
of 2003, the managed lease receivables are expected to total approximately $75
million. See Note 22 to the consolidated financial statements for additional
financial information about Advanta Leasing Services.

Originations

Prior to our decision to cease new leasing originations, Advanta Leasing
Services originated leases through marketing programs, vendors, brokers and bulk
or portfolio purchases.

Servicing and Collections

We are continuing to service the existing portfolio of equipment leases. As part
of our servicing we will continue to perform collection activities with respect
to delinquent contracts. Each lease contract has a provision for assessing late
charges in the event that a customer fails to make a payment on the contract on
the related due date. We typically initiate telephone contact when an account is
between one and 16 days past due, depending on certain established criteria.
Telephone contact is continued throughout the delinquency period. If the account
continues to be delinquent, Advanta Leasing Services may exercise any remedies
available to it under the terms of the contract, including termination and
acceleration of the payments due pursuant to the lease contract. We evaluate
each contract on the merits of the individual situation taking into
consideration the equipment value and the current financial strength of the
customer.

If collection activities are unsuccessful, we typically charge off the
account at 120 days past due. An account may be charged off prior to 120 days if
we determine that no further payments will be made. In cases where the customer
files for bankruptcy, Advanta Leasing Services' Legal Recovery Department
follows up with the debtor to determine whether the debtor intends to assume or
reject the contract. In many cases,

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although the customer has filed for bankruptcy protection from its creditors, it
continues to make regular payments on its contract. At the time a non-bankruptcy
account is charged off, the account is referred to our in-house litigation
department to determine whether we will pursue the customer or any personal
guarantor on the contract through litigation. If we determine not to pursue an
account through litigation it may be referred to a third party collection agency
to enforce the original terms of the contract.

ADVANTA MORTGAGE

Effective February 28, 2001, we completed the Mortgage Transaction and no longer
operated a mortgage business. In accordance with the terms of the purchase and
sale agreement, Buyer acquired substantially all of the assets and operating
liabilities associated with our mortgage business for a purchase price, net of
operating liabilities assumed by Buyer, exceeding $1 billion. Following the
Mortgage Transaction, we retained contingent liabilities, primarily relating to
litigation arising out of the operation of the mortgage business through the
Closing Date, that were not specifically assumed by Buyer. See "-- OVERVIEW."

Prior to the closing of the Mortgage Transaction, Advanta Mortgage, a
business unit of Advanta, offered a broad range of mortgage products and
services to consumers throughout the country. Advanta Mortgage originated and
serviced non-conforming credit first and second lien mortgage loans, including
home equity lines of credit. In addition to servicing and managing the loans we
originated, Advanta Mortgage serviced the home equity loans of unaffiliated
third parties through our subservicing business. Subserviced loans were not
included in our portfolio of managed receivables and we did not bear the risk of
credit loss on our subserviced portfolio.

Prior to the closing of the Mortgage Transaction, at December 31, 2000,
Advanta Mortgage's portfolio of subserviced loans totaled approximately $7.9
billion and our total serviced portfolio, including the "subserviced" portfolio,
was $15.8 billion. See Note 22 to the consolidated financial statements for
additional financial information about Advanta Mortgage.

GOVERNMENT REGULATION

ADVANTA CORP.

Advanta Corp. is not required to register as a bank holding company under the
Bank Holding Company Act of 1956, as amended (the "BHCA"). We own Advanta
National Bank, which is a "bank" as defined under the BHCA, as amended by the
Competitive Equality Banking Act of 1987 ("CEBA"). However, under grandfathering
provisions of CEBA, we are not required to register as a bank holding company
because Advanta National Bank, which takes demand deposits but does not make
commercial loans, did not come within the BHCA definition of the term "bank"
prior to the enactment of CEBA. Under CEBA, our other banking subsidiary,
Advanta Bank Corp., also is not considered a "bank" for purposes of the BHCA.
Accordingly, our ownership of Advanta Bank Corp. does not impact our exempt
status under the BHCA. Because we are not a bank holding company, we are not
subject to examination by the Federal Reserve Board, other than for purposes of
assuring continued compliance with the CEBA restrictions discussed below.

Under CEBA, Advanta National Bank is subject to certain restrictions, such
as the limitation that it may either take demand deposits or make commercial
loans, but may not do both. In addition, under CEBA Advanta National Bank may
not acquire control of more than 5% of the stock or assets of an additional
"bank" or "savings association," as these terms are defined in the BHCA. The
Gramm-Leach-Bliley Financial Modernization Act of 1999 (the "GLB Act") was
adopted on November 12, 1999 and became effective on May 12, 2000. Prior to the
enactment of the GLB Act, if Advanta Corp. or Advanta National Bank had ceased
complying with the restrictions set forth in CEBA, registration as a bank
holding company under the BHCA would have been required. Registration as a bank
holding company is not automatic and, if we were to register, it would subject
us and our subsidiaries to inspection and regulation by the Federal Reserve
Board. Under the GLB Act, should Advanta Corp. or Advanta National Bank fail to
comply with any of the restrictions applicable to them under CEBA, there is a
180-day right to cure period following receipt of a notice from the Federal
Reserve Board. The opportunity to cure or remediate an activity that is out of
compliance significantly reduces the risk that Advanta Corp. will be required to
register as a bank holding company under the BHCA.

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ADVANTA BANK CORP.

Advanta Bank Corp., a Utah-chartered industrial loan corporation, is a
depository institution subject to regulatory oversight and examination by both
the FDIC and the Utah Department of Financial Institutions. See "-- Regulatory
Agreements." Under its banking charter, Advanta Bank Corp. may make consumer and
commercial loans and may accept all FDIC-insured deposits other than demand
deposits such as checking accounts.

Advanta Bank Corp. is subject to provisions of federal law which restrict
and control its ability to extend credit and provide or receive services between
affiliates. In addition, the FDIC has regulatory authority to prohibit Advanta
Bank Corp. from engaging in any unsafe or unsound practice in conducting its
business.

Advanta Bank Corp. is subject to capital adequacy guidelines issued by the
Federal Financial Institutions Examination Council (the "FFIEC"). These
guidelines make regulatory capital requirements more sensitive to differences in
risk profiles among banking organizations and consider off-balance sheet
exposures in determining capital adequacy. Under the rules and regulations of
the FFIEC, at least half of a bank's total capital is required to be "Tier I
capital," comprised of common equity, retained earnings and a limited amount of
non-cumulative perpetual preferred stock. The remaining capital, "Tier II
capital," may consist of other preferred stock, certain hybrid debt/equity
instruments, a limited amount of term subordinated debt or a limited amount of
the reserve for possible credit losses. The FFIEC has also adopted minimum
leverage ratios for banks, which are calculated by dividing Tier I capital by
total average assets. Recognizing that the risk-based capital standards address
only credit risk, and not interest rate, liquidity, operational or other risks,
many banks are expected to maintain capital in excess of the minimum standards.

In addition, pursuant to provisions of the FDIC Improvement Act of 1991
(the "FDICIA") and related regulations with respect to prompt corrective action,
FDIC-insured institutions such as Advanta Bank Corp. may only accept brokered
deposits without FDIC permission if they meet specified capital standards, and
are subject to restrictions with respect to the interest they may pay on
deposits unless they are "well-capitalized." To be "well-capitalized" under the
prompt corrective action provisions, a bank must have a ratio of combined Tier I
and Tier II capital to risk-weighted assets of not less than 10%, Tier I capital
to risk-weighted assets of not less than 6%, and a Tier I to average assets of
not less than 5%. In each case, at December 31, 2002, Advanta Bank Corp. met the
capital requirements of the FDICIA and had capital at levels a bank is required
to maintain to be classified as "well capitalized" under the regulatory
framework for prompt corrective action. See Note 16 to the consolidated
financial statements.

ADVANTA NATIONAL BANK

Advanta National Bank is subject to regulation and periodic examination,
primarily by the Office of the Comptroller of the Currency (the "OCC"). The
OCC's regulations relate to the maintenance of reserves for certain types of
deposits and other products offered by a bank, the maintenance of certain
financial ratios, the terms on which a bank may engage in transactions with its
affiliates and a broad range of other banking practices. As a national bank,
Advanta National Bank is also subject to provisions of federal law which
restrict its ability to extend credit to its affiliates or pay dividends to
Advanta Corp.

Advanta National Bank is subject to the FFIEC capital adequacy guidelines
and the FDICIA provisions for accepting brokered deposits described above. See
"-- Advanta Bank Corp."

Presently, Advanta National Bank is required to maintain capital in excess
of the minimum regulatory standards. At December 31, 2002, Advanta National Bank
had capital at levels a bank is required to maintain to be classified as
"well-capitalized" under the regulatory framework for prompt corrective action.
However, Advanta National Bank does not meet the definition of
"well-capitalized" because of the existence of its agreement with the OCC, even
though it has achieved the higher imposed capital ratios required by the
agreement with the OCC. See Note 16 to the consolidated financial statements and
"-- Regulatory Agreements."

REGULATORY AGREEMENTS

In 2000, Advanta Bank Corp. entered into agreements with its bank regulatory
agencies, primarily relating to the bank's subprime lending operations. These
agreements imposed temporary deposit growth limits at

8

Advanta Bank Corp. and required prior regulatory approval of cash dividends. In
April 2002, the agreements were removed and, as a result, the restrictions in
the agreements on deposit growth and payment of cash dividends are no longer
applicable. In connection with removing the agreements, Advanta Bank Corp.
reached an understanding with its regulators, reflecting continued progress in
our ongoing efforts to enhance Advanta Bank Corp.'s practices and procedures.
Effective October 2002, the understanding was revised. The revised understanding
replaces the provisions of the prior understanding and provides for the bank to
enhance certain of its internal planning and monitoring processes. The revised
understanding is consistent with the manner in which Advanta Bank Corp. is
currently operating its business and includes no restrictions expected to have
any impact on our financial results.

In 2000, Advanta National Bank also reached agreements with its bank
regulatory agency, primarily relating to the bank's subprime lending operations.
The agreements established temporary asset growth limits at Advanta National
Bank, imposed restrictions on taking brokered deposits and required that Advanta
National Bank maintain certain capital ratios in excess of the minimum
regulatory standards. In 2001, Advanta National Bank entered into an additional
agreement with its regulatory agency regarding restrictions on new business
activities and product lines at Advanta National Bank after the Mortgage
Transaction, and the resolution of outstanding Advanta National Bank
liabilities. The agreement also reduced the capital requirements for Advanta
National Bank to 12.7% for Tier 1 and Total capital to risk-weighted assets, and
to 5% for Tier 1 capital to adjusted total assets as defined in the agreement.
In addition, the agreement prohibits the payment of dividends by Advanta
National Bank without prior regulatory approval. Management believes that
Advanta National Bank was in compliance with its regulatory agreement at
December 31, 2002.

LENDING ACTIVITIES

Although our current lending activities are principally directed to small
businesses, certain aspects of various federal and state laws, including the
Equal Credit Opportunity Act, the Community Reinvestment Act, the Electronic
Funds Transfer Act, the Truth-in-Lending Act, the Fair Credit Reporting Act (the
"FCRA") and the Soldiers' and Sailors' Relief Act, apply to our lending
activities. To the extent applicable, provisions of these statutes and related
regulations require that certain disclosures be made to borrowers, prohibit
discriminatory practices in extending credit, prohibit sending unsolicited
credit cards, require our FDIC-insured banking institutions to serve the banking
needs of their local communities, provide certain credit protections for
activated military borrowers and regulate the dissemination and use of
information relating to a borrower's creditworthiness.

Important provisions of the FCRA that preempt individual states from
enacting their own, different laws will expire on January 1, 2004. The
provisions, some of which apply to our lending activities, relate to
prescreening rules, credit bureau reinvestigation responsibilities in response
to consumer disputes, adverse action requirements, information contained in a
consumer report, responsibilities of data furnishers and the exchange of
information among affiliated companies. If the provisions are not reenacted by
Congress, states would be able to adopt different laws, potentially with
different requirements in each of these areas, which could increase our
operational and compliance costs. There can be no assurance that the provisions
will be reenacted or that they will be reenacted in the same form as they exist
today and therefore it is possible that states will not be preempted from
adopting their own laws in the future.

Additionally, the GLB Act contains privacy requirements dealing with the
use of nonpublic information about consumer customers. Retail deposit customers
of Advanta National Bank and Advanta Bank Corp. as well as investors who
purchase Advanta Corp.'s retail notes are subject to the GLB Act and its
accompanying regulations. The GLB Act is not preemptive and states may impose
additional requirements.

DIVIDENDS

There are various legal limitations on the extent to which national banks,
including Advanta National Bank, can supply funds through dividends to their
parent companies or affiliates. The prior approval of the OCC is required if the
total of all dividends declared by the national bank in any calendar year
exceeds its net profits for that year combined with its retained net profits for
the preceding two years, less any required transfers to surplus accounts. In
addition, a national bank may not pay a dividend in an amount greater than its
undivided profits then on hand after deducting its losses and bad debts. The OCC
also has authority under the Financial

9

Institutions Supervisory Act to prohibit a national bank from engaging in any
unsafe or unsound practice in conducting its business. It is possible, depending
upon the financial condition of the bank in question and other factors, that the
OCC, pursuant to its authority under the Financial Institutions Supervisory Act,
could claim that a dividend payment might under some circumstances be an unsafe
or unsound practice.

Under Advanta National Bank's current agreement with the OCC, Advanta
National Bank is not eligible to pay any dividends without the OCC's prior
approval. See "-- Regulatory Agreements."

TRANSFERS OF FUNDS

Sections 23A and 23B of the Federal Reserve Act and applicable regulations also
impose restrictions on Advanta National Bank and Advanta Bank Corp. These
restrictions limit the transfer of funds by the depository institution to
certain of its affiliates, including Advanta Corp., in the form of loans,
extensions of credit, investments or purchases of assets. These transfers by any
one depository institution to us or any other single affiliate are limited in
amount to 10% of the depository institution's capital and surplus, and transfers
to all affiliates are limited in the aggregate to 20% of the depository
institution's capital and surplus. These loans and extensions of credit are also
subject to various collateral requirements. Sections 23A and 23B of the Federal
Reserve Act also require generally that the depository institution's
transactions with its affiliates be on terms no less favorable to the bank than
comparable transactions with unrelated third parties. In addition, in order for
us to maintain our grandfathered exemption under CEBA, Advanta National Bank is
not permitted to make any loans to us or any of our subsidiaries.

REGULATION OF INSURANCE

Our insurance subsidiaries are subject to the laws and regulations of, and
supervision by, the states in which they are domiciled or have obtained
authority to transact insurance business. These states have adopted laws and
regulations which govern all insurance policy underwriting, rating, licensing,
marketing, administration and financial operations of an insurance company,
including dividend payments and financial solvency. In addition, our insurance
subsidiaries have registered as an Arizona Holding Company which requires an
annual registration and the approval of certain transactions between all
affiliated entities.

The maximum dividend that any of our insurance subsidiaries can distribute
to Advanta Corp., in any twelve-month period, without prior approval of the
State of Arizona Department of Insurance, is the lesser of:

- 10% of the subsidiary's statutory surplus; or

- for any given twelve-month period, the subsidiary's net income, if it is
a life insurance company; or

- for any given twelve-month period, the subsidiary's net investment
income, if it is a property and casualty insurance company.

The State of Arizona has adopted minimum risk-based capital standards as
developed by the National Association of Insurance Commissioners. Risk-based
capital is the quantification of an insurer's investment, underwriting, reserve
and business risks in relation to its total adjusted capital and surplus. The
ratio of an insurer's total adjusted capital and surplus is compared to various
levels of risk-based capital to determine what intervention, if any, is required
by either the insurance company or an insurance department. At December 31,
2002, our insurance subsidiaries met all risk-based capital standards and
required no intervention by any party.

Our insurance subsidiaries reinsure risks using underwriting insurance
practices and rates which are regulated in part or fully by state insurance
departments. State insurance departments continually review and modify these
rates based on prior historical experience. Any modifications may impact the
future profitability of our insurance subsidiaries.

LEGISLATIVE AND REGULATORY DEVELOPMENTS

The banking and finance businesses in general are the subject of extensive
regulation at the state and federal levels, and numerous legislative and
regulatory proposals are advanced each year which, if adopted, could affect our
profitability or the manner in which we conduct our activities. It is impossible
to determine the

10

extent of the impact of any new laws, regulations or initiatives, or whether any
of the federal or state proposals will become law.

In the second quarter of 2002, the bank regulatory agencies issued an
interagency advisory that required accrued interest receivable relating to
securitized credit cards to be treated as a subordinated residual interest for
regulatory capital calculations no later than December 31, 2002. Advanta Bank
Corp. and Advanta National Bank adopted this guidance effective December 31,
2002. The adoption of this interagency guidance did not impact the regulatory
capital requirements of Advanta National Bank. The adoption of this interagency
guidance at Advanta Bank Corp. resulted in Advanta Bank Corp.'s combined total
capital ratio being reduced by approximately six percentage points.

The USA PATRIOT Act and the International Money Laundering Abatement and
Anti-Terrorist Financing Act of 2001 (the "USA Patriot Act") was enacted on
October 26, 2001 and is intended to detect and prosecute terrorism and
international money laundering. The USA Patriot Act establishes new standards
for verifying customer identification incidental to the opening of new accounts,
including our business credit card and bank deposit accounts. Both Advanta Bank
Corp. and Advanta National Bank have undertaken appropriate measures to comply
with the USA Patriot Act and associated regulations. Other provisions of the USA
Patriot Act provide for: special information sharing procedures governing
communications with the government and other financial institutions with respect
to suspected terrorists and money laundering activity; and enhancements to
suspicious activity reporting, including electronic filing of suspicious
activity reports over a secure filing network.

Congress is considering legislation that would enhance the authority for
banks to pay interest on business checking accounts and to fully implement
interstate banking. With respect to both of these legislative proposals, there
are initiatives under consideration that would limit their applicability so that
they would not be applicable to state-chartered industrial banks, such as
Advanta Bank Corp. If the proposals are so limited, Advanta Bank Corp. may lose
future flexibility in branch locations or offering new products.

Other federal legislative proposals that may impact Advanta and its
businesses include privacy initiatives to restrict the permissible use of
customer-specific credit information and statutory changes to those aspects of
the Truth in Lending Act that are applicable to our business. In addition,
Congress is continuing to consider legislation to reform the Bankruptcy Code.
The bankruptcy reform bills would require that debtors pass a means test to
determine eligibility for bankruptcy relief while adding new consumer
protections, such as new minimum payment and introductory rate disclosures for
some credit card products and exemptions for retirement savings in bankruptcy.
While directed at consumer bankruptcies, if adopted the bankruptcy reform
initiatives could also impact small businesses that file for bankruptcy
liquidation under Chapter 7 of the Bankruptcy Code.

Our current marketing is based on direct marketing to small businesses
using primarily direct mail, telemarketing solicitations and the Internet. There
are a number of federal and state legislative initiatives to restrict the use of
unsolicited commercial e-mail and telemarketing to wireless telephones and to
strengthen "do not call list" laws. Additionally, the Federal Trade Commission
has adopted amendments to its rules that include a proposal for a nationwide
registry for consumers who wish to block telemarketing calls. While these
proposals are intended to apply to individual consumers, the practical
application may impact our marketing to small businesses as well.

Additionally, federal and state legislatures as well as government
regulatory agencies are considering legislative and regulatory initiatives
related to credit scoring disclosure, minimum monthly payments and other aspects
of credit card lending and marketing. While these are generally directed at
consumer transactions, it is possible that if any were to become effective they
could impact small business lending.

COMPETITION

As a marketer of credit products, we face intense competition from numerous
financial services providers. Within the highly competitive bank credit card
industry there is increased competitive use of advertising, target marketing and
pricing competition with respect to both interest rates and annual cardholder
fees as both traditional and new credit card issuers seek to expand or to enter
the market. Many of our competitors are

11

substantially larger and have more capital and other resources than we do.
Competition among lenders can take many forms, including convenience in
obtaining a loan, the size of their existing customer base and the ability to
cross sell products to that customer base, customer service, size of loans,
interest rates and other types of finance or service charges, the nature of the
risk the lender is willing to assume and the type of security, if any, required
by the lender. We have responded to the increased competition in the bank credit
card industry primarily by marketing cards to a target market of small
businesses with promotional pricing, including low or zero introductory rates,
and rewards products tailored to the needs of our small business customers.
Although we believe we are generally competitive in most of the geographic areas
in which we offer our products and services, there can be no assurance that our
ability to market our products and services successfully or to obtain an
adequate yield on our loans will not be impacted by the nature of the
competition that now exists or may develop.

In seeking investment funds from the public, we face competition from
banks, savings institutions, money market funds, mutual funds, credit unions and
a wide variety of private and public entities that sell debt securities, some of
which are publicly traded. Many of our competitors are larger and have more
capital and other resources than we have. Competition relates to matters such
as: rate of return, collateral, insurance or guarantees applicable to the
investment, if any; the amount required to be invested; convenience and the cost
to and conditions imposed upon the investor in investing and liquidating the
investment, including any commissions which must be paid or interest forfeited
on funds withdrawn; customer service; service charges, if any; and the
taxability of interest.

EMPLOYEES

As of December 31, 2002, we had 889 employees. We believe that we have good
relationships with our employees. None of our employees is represented by a
collective bargaining unit.

AVAILABLE INFORMATION

We file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission (the "SEC"). These
filings are available to the public over the Internet at the SEC's web site at
http://www.sec.gov. You may also read and copy any document we file at the SEC's
public reference room located at 450 Fifth Street, NW, Washington, DC 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference room.

Our principal Internet address is http://www.advanta.com. Through
http://www.advanta.com our annual, quarterly and current reports, and amendments
to those reports, are made available free of charge as soon as reasonably
practicable after we electronically file such material with, or furnish it to,
the SEC.

In addition, you may request a copy of these filings (excluding exhibits)
at no cost by writing or telephoning us at the following address or telephone
number: Investor Relations, Advanta Corp., Welsh & McKean Roads, P.O. Box 844,
Spring House, Pennsylvania 19477, telephone: (215) 444-5335.
------------------------

Information or statements provided by the Company from time to time may
contain certain "forward-looking information" including information relating to:
anticipated earnings per share; anticipated returns on equity; anticipated
growth in loans outstanding and credit card accounts; anticipated net interest
margins; anticipated operating expenses and employment growth; the level of new
account acquisitions, customer spending and account attrition; anticipated
payment and prepayment rates of outstanding loans; anticipated marketing
expense; estimated values of our retained interests in securitizations and
anticipated cash flows; our ability to replace existing credit facilities, when
they expire, with appropriate levels of funding on similar terms and conditions;
the value of the investments that we hold; anticipated delinquencies and
charge-offs; realizability of net deferred tax asset; and anticipated outcome
and effects of litigation. The cautionary statements provided below are being
made pursuant to the provisions of the Private Securities Litigation Reform Act
of 1995 (the "Act") and with the intention of obtaining the benefits of the
"safe harbor" provisions of the Act for any such forward-looking information.

12

We caution readers that any forward-looking information provided by us is
not a guarantee of future performance and that actual results may differ
materially from those in the forward-looking information as a result of various
factors, including but not limited to:

- Increased credit losses and collection costs associated with a worsening
of general economic conditions, rising interest rates, shifts in product
mix within our portfolio of loans, rising delinquency levels, increases
in the number of customers seeking protection under the bankruptcy laws
resulting in accounts being charged off as uncollectible, and the effects
of fraud by third parties or customers.

- Intense and increasing competition from numerous providers of financial
services who may employ various competitive strategies. We face
competition from originators of business credit cards, some of which have
greater resources than we do.

- The completion of post-closing procedures following the Mortgage
Transaction and revisions to estimated charges associated with the
discontinued operations of our mortgage and leasing businesses.

- The effects of interest rate fluctuations on our net interest margin and
the value of our assets and liabilities; the continued legal or
commercial availability of techniques, including loan pricing and
repricing, hedging and other techniques, that we use or may use to manage
the risk of those fluctuations.

- Difficulties or delays in the securitization of our receivables and the
resulting impact on the cost and availability of such funding.
Difficulties and delays may result from the current economic, legal,
regulatory, accounting and tax environments and adverse changes in the
performance of the securitized assets or the market for asset-backed
securities generally.

- The amount, type and cost of financing available to us, including
securitization of our receivables and secured financing, and any changes
to that financing including any impact from changes in the current
economic, legal, regulatory, accounting and tax environments, adverse
changes in the performance of our loan portfolio, any impact from changes
in the ratings on our debt or the debt of our subsidiaries and the
activities of parties with which we have agreements or understandings,
including any activities affecting any investment.

- Factors affecting our aggregate number of accounts or receivable
balances, and the growth rate thereof, including the amount of actual
marketing investment made by us, changes in cardholder behavior or
preferences affecting product mix, retention of cardholders after
promotional periods have expired, the rate of repayment of receivable
balances, changes in general economic conditions and other factors beyond
our control.

- The impact of "seasoning" (the average age of a lender's portfolio) on
our level of delinquencies and losses which may require a higher
allowance for receivable losses for on-balance sheet assets and may
adversely impact securitization income. The addition of account
originations or balances and the attrition of those accounts or balances
could significantly impact the seasoning of our overall portfolio.

- The amount of, and rate of growth in, our expenses (including employee
and marketing expenses) as our businesses develop or change and we expand
into new market areas; the acquisition or disposition of assets
(interest-earning, fixed or other); and the effects of changes within our
organization or in our compensation and benefit plans.

- Difficulties or delays in the development, production, testing and
marketing of products or services, including, but not limited to, a
failure to implement new product or service programs when anticipated,
the failure of or delay in customers' acceptance of these products or
services, losses associated with the testing and implementation of new
products or services or financial, legal or other difficulties as may
arise in the course of such implementation.

- The effects of, and changes in, tax laws, rates, regulations and
policies.

- The effects of, and changes in, political conditions, social conditions
and general economic conditions, including inflation, recession or other
adverse economic conditions.

13

- The effects of, and changes in the level of scrutiny, regulatory
requirements and regulatory initiatives, including restrictions and
limitations imposed by banking laws, examinations, audits, and agreements
between our bank subsidiaries and their regulators, resulting from the
fact that our banking and finance businesses are highly regulated and
subject to periodic review and examination by federal and state
regulators, including the OCC and the FDIC.

- The effects of, and changes in, monetary and fiscal policies, federal and
state laws and regulations (financial, consumer, regulatory or
otherwise), and other activities of governments, agencies and other
similar organizations, including the OCC and the FDIC.

- The costs and other effects of legal and administrative cases and
proceedings, settlements and investigations, claims and changes in those
items, developments or assertions by or against us or any of our
subsidiaries arising in the ordinary course of business or in connection
with our discontinued operations.

- Adoptions of new, or changes in existing, accounting policies and
practices and the application of such policies and practices.

- The proper design and operation of our disclosure controls and
procedures.

- Our relationships with customers, significant vendors and business
partners.

- Our ability to attract and retain key personnel.

ITEM 2. PROPERTIES

At December 31, 2002, Advanta owned two buildings in Horsham, Pennsylvania
totaling approximately 198,000 square feet. Since the closing of the Mortgage
Transaction, these buildings have been 100% leased to Buyer. At December 31,
2002, Advanta leased approximately 109,511 square feet in Spring House,
Pennsylvania for its principal executive and corporate offices and for use by
Advanta Business Cards. In addition, Advanta leased approximately 21,474 square
feet in two buildings in the Pennsylvania suburbs of Philadelphia for certain
corporate staff functions. Advanta leased approximately 21,328 square feet in
Voorhees, New Jersey that is primarily used by our leasing business unit.
Advanta also leased approximately 12,000 square feet of office space and 3,000
square feet of storage space in two buildings in Gibbsboro, New Jersey for our
leasing and business cards operations. In Delaware, Advanta leased approximately
36,589 square feet of office space for Advanta National Bank and for other
corporate and business cards operations, approximately 16,644 of this office
space is subleased to an unrelated third party. In New York, Advanta leased
approximately 6,000 square feet of office space in two buildings for Advanta
Partners LP and Advanta Growth Capital Fund, LP. Advanta also leased
approximately 50,625 square feet of office space in Draper, Utah for Advanta
Bank Corp.

In addition to the principal locations in Pennsylvania, New Jersey, New
York, Delaware and Utah, until February 28, 2001, Advanta leased approximately
84,923 square feet of office space in twenty-one states to support the mortgage
loan production offices and an additional 6,213 square feet of office space in
five states to support Advanta Mortgage and Advanta Leasing Services. Since
Advanta ceased origination of new leases and exited the mortgage business in the
first quarter of 2001, Advanta has been buying out, assigning or subleasing
these spaces. Accordingly, as of December 31, 2002, the remaining leased space
totaled approximately 17,576 square feet.

At December 31, 2002, the total leased and owned office space was
approximately 459,459 square feet.

ITEM 3. LEGAL PROCEEDINGS

On January 22, 1999, Fleet and certain of its affiliates filed a lawsuit against
Advanta Corp. and certain of its subsidiaries in Delaware Chancery Court.
Fleet's allegations, which we deny, center around Fleet's assertions that we
failed to complete certain post-closing adjustments to the value of the assets
and liabilities we contributed to Fleet Credit Card LLC in connection with the
Consumer Credit Card Transaction in 1998. We filed an answer to the complaint,
and we also filed a countercomplaint against Fleet for damages we believe have
been caused by certain actions of Fleet. As a result of related litigation with
Fleet, $70.1 million of our reserves in connection with this litigation were
funded in an escrow account in February 2001. On January 22, 2003, the trial
court issued a decision ruling on all but one of the remaining issues, and
ordered further briefing on the remaining outstanding issue. In the year ended
December 31, 2002, we recognized a $43.0 million pretax loss on the transfer of
our consumer credit card business, representing the estimated impact of
implementing the court's decisions. This amount represents the amount in excess
of the reserves we have been

14

carrying for the litigation, which was based on our expectations of the outcome
of the litigation. We estimate that the court's decisions will have a favorable
impact to our liquidity since we would recoup approximately $8 million in cash
from the escrow account funded in February 2001, after payment of amounts due to
Fleet. The court's ruling on the remaining outstanding issue and/or the ultimate
resolution of any issues that may be appealed could reduce or eliminate the
charge to our earnings, although there can be no assurance as to the potential
benefit, if any, to earnings at this time.

In an ongoing element of Fleet's disputes with us, Fleet has claimed $508
million of tax deductions from its partnership with us in connection with the
Consumer Credit Card Transaction, which are required under the law to be
allocated solely to Advanta. As required, we reported these deductions on our
1998 corporate tax return. However, we have not used or booked the benefit from
most of these deductions because for tax purposes we have a very substantial net
operating loss carryforward. We have approximately $636 million of net operating
loss carryforwards at December 31, 2002 and have booked no benefit from $402
million of these net operating loss carryforwards. The deductions are
attributable to deductions for bad debt reserves that we expensed in computing
our book income or loss before the Consumer Credit Card Transaction, but which
were not deductible by Advanta for tax purposes until after the closing of the
transaction in 1998. The tax law requires "built in losses" like these to be
deducted by the party who contributed the assets to the partnership, in this
case, Advanta. The Internal Revenue Service agents who have examined the returns
at issue have to ensure that both parties do not obtain the deductions and
therefore, following standard practice, proposed to disallow the deductions to
both parties until there is a final resolution. The deductions, as well as the
allocation of a gain from the sale of a partnership asset of approximately $47
million, are now before the IRS Regional Office of Appeals.

On January 15, 2003, Fleet filed a complaint in Rhode Island Superior Court
seeking a declaratory judgment that we indemnify Fleet under the applicable
partnership agreement for any damage Fleet incurs by not being entitled to the
$508 million of tax deductions. Fleet is also seeking a declaratory judgment
that it should not indemnify us for any damages that we incur due to any
allocation to Advanta of the $47 million gain on the sale of a partnership
asset. Fleet's claim for indemnification appears to be brought by Fleet in the
hope that we will advise the IRS that we will agree with a substantial part of
Fleet's tax position. On February 28, 2003, we filed a motion to dismiss the
complaint. We believe that the indemnification provision in the partnership
agreement does not indemnify Fleet for damages incurred related to the tax
deductions and that the lawsuit is frivolous, having no legal basis whatsoever.
We do not expect this lawsuit or the tax issues discussed above to have a
material adverse effect on our financial condition or results of operations.

On December 5, 2000, a former executive of Advanta obtained a jury verdict
against us in the amount of $3.9 million in the United States District Court for
the Eastern District of Pennsylvania, in connection with various claims against
Advanta related to the executive's termination of employment. In September 2001,
the District Court Judge issued orders denying both parties' post-trial motions.
A judgment in the amount of approximately $6 million, which includes the $3.9
million described above, was entered against Advanta. In September 2001, we
filed an appeal to the United States Court of Appeals for the Third Circuit. We
have posted a supersedeas bond in the amount of $8 million. On July 8, 2002, the
Court of Appeals rendered a judgment affirming in part and reversing in part the
judgment. The Court of Appeals reduced the total damage award by approximately
$1.1 million and also ordered the District Court to reduce the amount of
liquidated damages based on the reduced award. The effect of this decision will
be to reduce the judgment to approximately $4.7 million rather than $6 million.
On February 24, 2003, the Supreme Court of the United States denied our petition
for certiorari seeking a new trial instead of the reduced verdict. The District
Court Judge has not yet ruled on the executive's petition for attorney's fees
and costs in the amount of approximately $1.4 million, which we have contested.
Management expects that the ultimate resolution of this litigation will not have
a material adverse effect on our financial position or future operating results,
based on the level of reserves we have established in connection with this
litigation.

On July 26, 2001, Chase Manhattan Mortgage Corporation ("Chase") filed a
complaint against Advanta Corp. and certain of its subsidiaries in the United
States District Court for the District of Delaware alleging, among other things,
that we breached our contract with Chase in connection with the Mortgage
Transaction. Chase claims that we misled Chase concerning the value of certain
of the assets sold to Chase. In September 2001, we filed an answer to the
complaint in which we denied all of the substantive allegations of the complaint
and asserted a counterclaim against Chase for breach of contract relating to
funds owed by Chase to us in connection with the

15

transaction. The matter is in discovery and trial is scheduled to begin in
January 2004. We believe that the lawsuit is without merit and will vigorously
defend Advanta in this litigation. We do not expect this lawsuit to have any
impact on our continuing business and, based on the complete lack of merit, we
do not anticipate that the lawsuit will have a material adverse impact on our
financial position or future operating results.

On November 8, 2001 and January 28, 2002, the accounting firm of Grant
Thornton, LLP ("Grant Thornton") filed third-party complaints against Advanta
Mortgage Corp., USA ("AMCUSA") in two related lawsuits in the United States
District Court for the Southern District of West Virginia. The third-party
claims alleged negligent misrepresentation, claiming without specificity or
factual support that Grant Thornton received inaccurate information from AMCUSA
concerning the amount of loans that AMCUSA had been servicing for the First
National Bank of Keystone, West Virginia ("Keystone Bank"). Grant Thornton was
the former auditor for Keystone Bank, which failed. Grant Thornton has been sued
by the FDIC as receiver of Keystone Bank and by shareholders and others with
purported ownership interests in Keystone Bank, alleging that Grant Thornton
rendered an unqualified opinion for Keystone Bank's financial statements, when
in fact the financial statements fraudulently overstated the bank's assets by
more than $500 million. In February 2003, AMCUSA and Grant Thornton agreed to
settle the litigation for an amount that is not material to our financial
position or the results of our operations.

In addition to the cases described above, Advanta Corp. and its
subsidiaries are involved in class action lawsuits, other litigation, claims and
legal proceedings arising in the ordinary course of business or discontinued
operations, including litigation arising from our operation of the mortgage
business prior to the Mortgage Transaction in the first quarter of 2001.

Management believes that the aggregate loss, if any, resulting from these
actions will not have a material adverse effect on our financial position or
results of our operations based on the level of litigation reserves we have
established and our current expectations regarding the ultimate resolutions of
these existing actions. Our litigation reserves are estimated based on the
status of litigation and our assessment of the ultimate resolution of each
action after consultation with our attorneys. However, due to the inherent
uncertainty in litigation and since the ultimate resolutions of our litigation,
claims and other legal proceedings are influenced by factors outside of our
control, it is reasonably possible that our estimated liability under these
proceedings may change or that actual results will differ from our estimates.
Changes in estimates or other charges related to litigation are included in
operating expenses of the respective business segment if related to continuing
operations, or gain (loss) on discontinuance of mortgage and leasing businesses
if related to discontinued operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

16

EXECUTIVE OFFICERS OF THE REGISTRANT

The applicable Board of Directors elected each of the executive officers of
Advanta Corp. and its subsidiaries listed below, to serve at the pleasure of the
Board in the capacities indicated.

Mr. Alter became Executive Vice President and a Director of Advanta Corp.'s
predecessor organization in 1967. He was elected President and Chief Executive
Officer in 1972, and Chairman of the Board of Directors in August 1975. Mr.
Alter has remained as Chairman of the Board since August 1975. In February 1986,
he relinquished the title of President, and in August 1995 he relinquished the
title of Chief Executive Officer. In October 1997, Mr. Alter reassumed the title
of Chief Executive Officer.

Mr. Rosoff joined Advanta Corp. in January 1996 as a Director and Vice
Chairman. In October 1999, Mr. Rosoff became President and Vice Chairman of the
Board of Advanta Corp. Prior to joining Advanta Corp., Mr. Rosoff was a long
time partner of the law firm of Wolf, Block, Schorr and Solis-Cohen LLP, Advanta
Corp.'s outside counsel, where he advised Advanta Corp. for over 20 years. While
at Wolf, Block, Schorr and Solis-Cohen LLP, he served as Chairman of its
Executive Committee and, immediately before joining Advanta Corp., as a member
of its Executive Committee and Chairman of its Tax Department. Mr. Rosoff is a
Trustee of Atlantic Realty Trust, a publicly held real estate investment trust.

Mr. Beck joined Advanta Corp. in 1986 as Senior Vice President of Advanta
National Bank and was elected Vice President and Treasurer of Advanta Corp. in
1992. In June 2000, Mr. Beck was elected Chief Investment Officer of Advanta
Bank Corp. and in May 2001, he was elected President and a Director of Advanta
Bank Corp.

Mr. Browne joined Advanta Corp. in June 1998 as Senior Vice President and
Chief Financial Officer. Prior to joining Advanta Corp., he was an Audit and
Business Advisory Partner at Arthur Andersen LLP where, for over sixteen years,
he audited public and private companies and provided business advisory and
consulting services to financial services companies. Mr. Browne is a director of
and serves as Chairman of the Audit Committee for The Bon-Ton Stores, Inc., a
publicly held corporation. Mr. Browne is also a director of and serves as
Chairman of the Audit Committee for AF&L Insurance Company, a privately held
long-term care and home health care insurance company.

Mr. Carroll joined Advanta Corp. in 2001 as Chief Credit Officer. Prior to
joining Advanta Corp., Mr. Carroll was a consultant with The Secura Group for
two years where he assisted clients, including Advanta, with bank regulatory
issues in areas such as credit risk management, credit policy and process
management, regulatory compliance, due diligence, and consolidation and
conversion projects. Prior to that, he held a variety of positions in credit
management and administration at First Interstate Bancorp. (now Wells Fargo),
where he spent 11 years as a consumer and commercial lender, credit
administrator, regulatory liaison and credit risk manager.

Mr. Weinstock joined Advanta Corp. in 1998 and became Vice President and
Chief Accounting Officer in March 2001. Mr. Weinstock served as the Controller
from April 1999 to October 1999 when he became Vice President of Investor
Relations. Prior to joining Advanta Corp., Mr. Weinstock served as Senior
Manager at Arthur Andersen LLP from 1996 to 1998, where he audited public and
private companies and provided business advisory and consulting services to
financial services companies.

17

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

COMMON STOCK PRICE RANGES AND DIVIDENDS

The Company's common stock is traded on the National Market System of The Nasdaq
Stock Market, Inc. under the symbols ADVNA (Class A voting common stock) and
ADVNB (Class B non-voting common stock).

Following are the high, low and closing prices and cash dividends declared
for the last two years as they apply to each class of stock:

At March 3, 2003, the Company had approximately 250 and 628 holders of
record of Class A and Class B common stock, respectively.

Although we anticipate that comparable cash dividends will continue to be
paid in the future, the payment of future dividends by Advanta will be at the
discretion of the Board of Directors and will depend on numerous factors
including Advanta's cash flow, financial condition, capital requirements and
such other factors as the Board of Directors deems relevant.

The information disclosed under the heading "Equity Compensation Plan
Information" in Item 12 is incorporated by reference herein.

We have established an Employee Savings Plan, qualified under Section
401(k) of the Code (the "401(k) Plan"), which includes as an investment category
available to participants our Class B Common Stock (the "Common Stock"). We also
maintain an Employee Stock Purchase Plan (the "Stock Purchase Plan") which is a
broad-based plan pursuant to which eligible employees may purchase shares of our
Class B Common Stock at a discount. Through the 401(k) Plan and the Stock
Purchase Plan during the period since 1998, we sold to certain of our employees
who participate in the plans shares of Class B Common Stock which were
inadvertently in excess of the number of shares of Class B Common Stock
registered by us on Form S-8 Registration Statements for that purpose.
Exemptions from registration may not be available for all of these transactions.
All of the shares involved in these transactions were acquired by the plans on
behalf of participants on the open market. For the two years ended December 31,
2001 and 2000, shares sold pursuant to the 401(k) Plan and the Stock Purchase
Plan exceeded the number of registered shares of Class B

18

Common Stock by an aggregate for those years of approximately 279,388 shares and
169,724 shares, respectively. For the year ended December 31, 2002, shares sold
pursuant to the 401(k) Plan and the Stock Purchase Plan exceeded the number of
registered shares of Class B Common Stock by approximately 45,152 shares and
42,154 shares, respectively. During 2002, the shares were sold at prices ranging
from $7.69 to $13.65, in the case of the 401(k) Plan and $8.27 to $13.22, in the
case of the Stock Purchase Plan. Because all of the sales of unregistered shares
were made utilizing shares purchased on the open market, we did not receive any
net proceeds in connection with the transactions described above. Registration
Statements on Form S-8 are being filed to register shares of Class B Common
Stock for future issuance in connection with the plans.

19

ITEM 6. SELECTED FINANCIAL DATA

FINANCIAL HIGHLIGHTS

(1) Results through February 1998 include the results of the consumer credit
card unit. The results of the mortgage and leasing businesses are reported
as discontinued operations in all periods presented.

(2) 2001 amounts included severance, outplacement and other compensation costs
associated with restructuring our corporate functions commensurate with the
ongoing businesses as well as expenses associated with exited businesses and
asset impairments. 1999 amounts included charges associated with cost
reduction initiatives in the first quarter and additional costs associated
with products exited in the first quarter of 1998. 1998 amounts included
severance and outplacement costs associated with workforce reduction, option
exercises and other employee costs associated with the disposition of our
consumer credit card business and tender offer, and expense associated with
exited business/products and asset impairment.

(3) Combined represents a weighted average of Class A and Class B (see Note 2 to
the consolidated financial statements).

(4) Includes federal funds sold, investments available for sale and trading
investments, if applicable.

(5) Represents company-obligated mandatorily redeemable preferred securities of
subsidiary trust holding solely subordinated debentures of Advanta Corp.

(6) See "Liquidity and Capital Resources" in Management's Discussion and
Analysis of Operations and Financial Condition for calculation of managed
assets.

(7) The dividend payout ratio for the years ended December 31, 2002, 2001 and
2000 is negative and, therefore, not meaningful.

(8) Effective October 1, 2000, business credit card charge-off statistics
reflect the adoption of a new charge-off policy for bankruptcies. Bankrupt
business credit cards are charged off within a 60-day investigative period
after receipt of notification. The previous policy provided a 90-day
investigative period. Managed and owned business credit card principal
charge-offs for the year ended December 31, 2000 include a 0.2% acceleration
of charge-offs in connection with the adoption of this policy.

21

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

Our primary business segment is Advanta Business Cards, one of the nation's
largest issuers of business credit cards to small businesses. In addition to our
business credit card lending business, we have venture capital investments.
Through the first quarter of 2001, we had two additional lending businesses,
Advanta Mortgage and Advanta Leasing Services. In the first quarter of 2001, we
completed our exit from the mortgage business, announced the discontinuance of
our leasing business, and restructured our corporate functions to a size
commensurate with our ongoing businesses. We are continuing to service the
existing leasing portfolio rather than sell the business or the portfolio. The
results of the mortgage and leasing businesses are reported as discontinued
operations in all periods presented. The results of our ongoing businesses are
reported as continuing operations for all periods presented.

For the year ended December 31, 2002, we reported net loss from continuing
operations of $15.6 million, or $0.63 per combined common share, assuming
dilution, compared to net loss from continuing operations of $30.5 million, or
$1.19 per combined diluted common share, for the year ended December 31, 2001.
For the year ended December 31, 2000, we reported net income from continuing
operations of $11.2 million, or $0.44 per combined diluted common share. Loss
from continuing operations for the year ended December 31, 2002 includes a
pretax charge of $43.0 million related to a ruling in the litigation associated
with the transfer of our consumer credit card business in 1998, and pretax
investment losses on venture capital investments of $6.9 million. Loss from
continuing operations for the year ended December 31, 2001 includes pretax
investment losses on venture capital investments of $28.9 million and $41.8
million of pretax unusual charges representing costs associated with the
restructure of our corporate functions to a size commensurate with our ongoing
businesses and certain other unusual charges related to employee costs. Income
from continuing operations for the year ended December 31, 2000 includes pretax
investment gains, net, on venture capital investments of $7.7 million and a $7.0
million pretax charge for an increase in litigation reserves.

Net income (loss) from continuing operations included the following
business segment results:

(1) Other includes investment and other activities not attributable to the
Advanta Business Cards or venture capital segments.

In the year ended December 31, 2002, we recorded an after-tax loss on the
discontinuance of our mortgage and leasing businesses of $8.6 million, or $0.34
per combined common share, assuming dilution. In the year ended December 31,
2001, we recorded an after-tax loss on the discontinuance of our mortgage and
leasing businesses of $31.6 million, or $1.23 per combined diluted common share.
We also recorded an after-tax loss on the discontinuance of our leasing business
of $4.3 million, or $0.17 per combined diluted common share, effective December
31, 2000. The components of the after-tax loss on discontinuance recorded in
2002 include a pretax loss on the Mortgage Transaction of $25.3 million, a
pretax gain on the discontinuance of our leasing business of $11.3 million, and
tax benefit of $5.4 million. The components of the after-tax loss on
discontinuance recorded in 2001 include a pretax gain on the Mortgage
Transaction of $20.8 million, a pretax loss on the discontinuance of our leasing
business of $45.0 million, and tax expense of $7.4 million. See "Discontinued
Operations" in Management's Discussion and Analysis of Financial Condition and
Results of Operations for further discussion.

22

Loss from discontinued operations, net of tax, was $8.4 million, or $0.33
per combined diluted common share, for the period from January 1, 2001 through
February 28, 2001, the effective date of the Mortgage Transaction. In the year
ended December 31, 2000, loss from discontinued operations, net of tax, was
$163.6 million, or $6.45 per combined diluted common share.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our significant accounting policies are described in Note 2 to the consolidated
financial statements. The preparation of financial statements in accordance with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates. We have identified the following as our most critical accounting
policies and estimates in that they require management's most difficult,
subjective or complex judgments as a result of the need to make estimates about
the effect of matters that are inherently uncertain. Changes in such estimates
could have a material impact on our financial condition or results of
operations.

Fair Value of Venture Capital Investments

Investments of our venture capital segment are included in investments available
for sale and carried at estimated fair value. Management makes fair value
determinations based on quoted market prices, when available, and considers the
investees' financial results, conditions and prospects, values of comparable
companies and market liquidity, when market prices are not available. In
accordance with specialized industry accounting principles of venture capital
companies, unrealized and realized gains and losses on these investments are
included in other revenues in the consolidated income statements. The fair
values of these equity investments are subject to significant volatility. Our
investments in specific companies and industry segments may vary over time, and
changes in concentrations may affect price volatility. We primarily invest in
privately held companies, including early stage companies. These investments are
inherently risky as the market for the technologies or products the investees
have under development may never materialize.

Allowance for Receivable Losses

The allowance for receivable losses is maintained for on-balance sheet
receivables and is intended to cover all losses inherent in the owned receivable
portfolio. Business credit card receivables are comprised of principal amounts
due from cardholders for purchase activities and cash advances, and amounts due
from cardholders relating to billed interest and fees. The allowance for
receivable losses is evaluated on a regular basis by management and is based
upon management's periodic review of the collectibility of receivables in light
of historical experience by loan type, the nature and volume of the receivable
portfolio, adverse situations that may affect the borrowers' ability to repay
and prevailing economic conditions. Since our receivable portfolio is comprised
of large groups of smaller balance homogeneous loans, we generally evaluate each
group collectively for impairment through the use of a migration analysis as
well as the consideration of other factors that may indicate loss. This
evaluation is inherently subjective as it requires estimates that are
susceptible to significant revision as more information becomes available.

Provisions for credit losses, representing the portion of receivable losses
attributable to principal, are reported separately on the consolidated income
statements. Losses are charged against the allowance for receivable losses when
management believes the uncollectibility of a receivable balance is confirmed.
Subsequent recoveries, if any, are credited to the allowance for receivable
losses. Provisions for interest and fee losses are recorded as direct reductions
to interest and fee income. The accrued interest and fee portion of charged-off
receivables is charged against the allowance for receivable losses. All
subsequent recoveries of charged-off receivables are classified as principal
recoveries, since any amounts related to accrued interest and fees are de
minimus.

23

Securitization Transactions

A significant portion of our funding for Advanta Business Cards is through
off-balance sheet business credit card securitizations using a securitization
trust. The securitization trust was created to hold the collateral (the
securitized receivables) and issue debt to investors. The securitization trust
is a qualifying special-purpose entity as defined by Statement of Financial
Accounting Standards ("SFAS") No. 140, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities -- a Replacement of FASB
Statement No. 125," and therefore, is not consolidated as part of Advanta
Corp.'s consolidated financial statements. We do not provide any guarantee of
the debt issued by the special-purpose entity and our recourse in the
transactions is limited to the value of our interests in securitizations that
serve as credit enhancement to the investors' interests in the securitized
receivables.

Our business credit card securitization transactions are accounted for as
sales since we surrender control over the securitized receivables.
Securitization income is recognized at the time of the sale, equal to the excess
of the fair value of the assets obtained (principally cash) over the allocated
cost of the assets sold and transaction costs. Fair value estimates used in the
recognition of securitization income require assumptions of payment, default and
interest rates. To the extent actual results are different than those estimates,
the impact is recognized in securitization income.

We generally retain an interest in securitized receivables in the form of
restricted cash reserve accounts, retained interest-only strips and subordinated
trust assets related to securitizations. Subordinated trust assets represent an
ownership interest in the securitized receivables that is subordinated to the
other investors' interests. Retained interests in securitizations serve as
credit enhancement to the investors' interests in the securitized receivables.
These assets are carried at estimated fair value and the resulting unrealized
gain or loss from the valuation is included in securitization income.

We estimate the fair value of retained interests in securitizations based
on a discounted cash flow analysis when quoted market prices are not available.
The cash flows of the retained interest-only strip are estimated as the excess
of the weighted average interest yield on each pool of the receivables sold over
the sum of the interest rate earned by the note holder, the servicing fee and an
estimate of future credit losses over the life of the existing receivables. Cash
flows are discounted from the date the cash is expected to become available to
us (the "cash-out" method). These cash flows are projected over the life of the
receivables using payment, default, and interest rate assumptions that
management believes would be used by market participants for similar financial
instruments subject to prepayment, credit and interest rate risk. The cash flows
are discounted using an interest rate that management believes a purchaser
unrelated to the seller of the financial instrument would demand. As estimates
used are influenced by factors outside our control, there is uncertainty
inherent in these estimates, making it reasonably possible that they could
change in the near term. See Note 6 to the consolidated financial statements for
the key assumptions used in the estimation of fair values of the retained
interest in securitizations at December 31, 2002 and 2001. Interest income is
recognized over the life of the retained interests in securitizations using the
discount rate used in the valuation.

Accrued interest and fees on securitized receivables are reduced by an
allowance for amounts estimated to be uncollectible. The allowance is estimated
using the same methodology as that used for on-balance sheet receivables that is
described above in "Allowance for Receivable Losses." Provisions for interest
and fee losses on securitized receivables are recorded as a reduction of
securitization income.

In January 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46, "Consolidation of Variable Interest Entities -- An
Interpretation of ARB No. 51." The interpretation requires a company to
consolidate a variable interest entity if the company has variable interests
that give it a majority of the expected losses or a majority of the expected
residual returns of the entity. The consolidation requirements apply to all
variable interest entities created after January 31, 2002. In addition, public
companies must apply the consolidation requirements to variable interest
entities that existed prior to February 1, 2003 and remain in existence as of
the beginning of annual or interim periods beginning after June 15, 2003. We do
not anticipate that the adoption of this interpretation will have a material
effect on our financial position or results of operations since qualifying
special-purpose entities, as defined in SFAS 140, are exempt from the
consolidation requirements of this interpretation.

24

Business Credit Card Rewards Programs

We offer bonus mile and cash-back reward programs with certain of our business
credit cards. Eligible cardholders earn bonus miles for air travel or up to 2%
cash-back rewards based on net purchases charged on their business credit card
account. The costs of future reward redemptions are estimated and a liability is
recorded at the time bonus miles or cash-back rewards are earned by the
cardholder. The estimated costs of future reward redemptions are classified as a
reduction of other revenues in the consolidated income statements. Estimates of
costs of future reward redemptions include an assumption regarding the
percentage of cardholders that will redeem the rewards and vary depending on the
structure of the rewards program. It is reasonably possible that actual results
will differ from our estimates or that our estimated liability for these
programs may change.

Litigation Contingencies

Advanta Corp. and its subsidiaries are involved in class action lawsuits, other
litigation, claims and legal proceedings arising in the ordinary course of
business or discontinued operations, including litigation arising from our
operation of the mortgage business prior to the Mortgage Transaction in the
first quarter of 2001. See discussion in Note 11 to the consolidated financial
statements. Management believes that the aggregate loss, if any, resulting from
these actions will not have a material adverse effect on our financial position
or results of our operations based on the level of litigation reserves we have
established and our current expectations regarding the ultimate resolutions of
these existing actions. Our litigation reserves are estimated based on the
status of litigation and our assessment of the ultimate resolution of each
action after consultation with our attorneys. However, due to the inherent
uncertainty in litigation and since the ultimate resolutions of these
proceedings are influenced by factors outside of our control, it is reasonably
possible that our estimated liability under these proceedings may change or that
actual results will differ from our estimates. Our litigation reserves are
included in other liabilities on the consolidated balance sheets. Changes in
estimates or other charges related to litigation are included in operating
expenses of the respective business segment if related to continuing operations,
or gain (loss) on discontinuance of mortgage and leasing businesses if related
to discontinued operations.

Income Taxes

Deferred income tax assets and liabilities are determined using the asset and
liability (or balance sheet) method. Under this method, we determine the net
deferred tax asset or liability based on the tax effects of the temporary
differences between the book and tax bases of the various assets and liabilities
and give current recognition to changes in tax rates and laws. We evaluate the
realizability of the deferred tax asset and recognize a valuation allowance if,
based on the weight of available evidence, it is more likely than not that some
portion or all of the deferred tax asset will not be realized. In establishing
the valuation allowance, we consider (1) estimates of expected future taxable
income, (2) existing and projected book/tax differences, (3) tax planning
strategies available, and (4) the general and industry specific economic
outlook. This analysis is inherently subjective, as it requires estimates that
are susceptible to significant revision as more information becomes available.
Changes in estimate of deferred tax asset realizability, if applicable, are
included in income tax expense (benefit) on the consolidated income statements
and would affect all business segments since the consolidated effective tax rate
is applied to all business segments' pretax income (loss).

Discontinued Operations

Our exit from the mortgage business and discontinuance of the leasing business
represent the disposal of business segments following Accounting Principles
Board ("APB") Opinion No. 30. Accordingly, results of these operations are
classified as discontinued in all periods presented. Our accounting for
discontinued operations was not impacted by the issuance of SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," since its
provisions for disposal groups of long-lived assets are effective for disposal
activities initiated after January 1, 2002. Estimates of future cash flows are
used in the accounting for discontinued operations, including estimates of the
future costs of mortgage business-related litigation and estimates of operating
results through the remaining term of the leasing portfolio. As all estimates
used are influenced by factors outside our control, there is uncertainty
inherent in these estimates, making it reasonably
25

possible that they could change in the near term. Changes in estimates related
to discontinued operations are included in gain (loss) on discontinuance of
mortgage and leasing businesses on the consolidated income statements.

ADVANTA BUSINESS CARDS

Advanta Business Cards originated, directly and through the use of third
parties, 241,869 new accounts during the year ended December 31, 2002, 224,255
new accounts in 2001 and 311,275 new accounts in 2000. Our managed business
credit card receivable portfolio is comprised of both owned business credit card
receivables and securitized business credit card receivables. Managed business
credit card receivables grew 27% in the year ended December 31, 2002 and 23% in
the year ended December 31, 2001. We expect managed business credit card
receivables to grow approximately 15% to 20% in the year ended December 31,
2003. Our originations in 2002 included a broader array of competitively-priced
offerings and products, including promotional pricing and rewards programs,
designed to selectively attract and retain more higher credit quality customers
and to respond to the competitive environment in the credit card industry. The
level of originations and growth in receivables in 2001 reflected our plan to
grow the portfolio in a controlled manner that we believed was prudent given the
prevailing economic environment.

Pretax income for Advanta Business Cards was $63.2 million in the year
ended December 31, 2002 as compared to $63.5 million in the year ended December
31, 2001 and $45.3 million in the year ended December 31, 2000. The components
of pretax income for Advanta Business Cards in the years ended December 31 were
as follows:

Net interest income on owned receivables and noninterest revenues in 2002
reflect a decrease in the average yield earned on our owned and securitized
business credit card receivables. The decrease in yield is a result of a broader
array of competitively-priced offerings and products in 2002, including
promotional pricing, designed to selectively attract and retain more higher
credit quality customers and to respond to the competitive environment. The
increase in net interest income on owned receivables in 2002 as compared to 2001
is due to a $90 million increase in average owned business credit card
receivables and a decrease in our cost of funds, partially offset by the
decrease in average yield earned on our owned business credit card receivables.
The increase in noninterest revenues in 2002 as compared to 2001 is comprised of
increased securitization income, servicing revenues, interchange income and
other fee revenues due to the growth in average managed receivables.
Securitization income was also impacted by the decrease in yield on securitized
receivables discussed above, a decrease in the interest rate earned by
noteholders and an increased net charge-off rate on securitized receivables.

The increase in the provision for credit losses in 2002 as compared to 2001
reflects an increase in average owned business credit card receivables,
partially offset by estimates as of December 31, 2002 of a lower level of
inherent losses in the portfolio, based on delinquency and net charge-off rate
trends and the current composition of the portfolio, as compared to estimates as
of December 31, 2001. The increase in operating expenses in 2002 as compared to
2001 resulted from growth in managed receivables and additional investments in
initiatives to strengthen our position as a leading issuer of business credit
cards to the small business market.

The increase in noninterest revenues and operating expenses in 2001 as
compared to 2000 was due primarily to growth in managed receivables. The
provisions for credit losses and noninterest revenues in the year ended December
31, 2001 include the impact of an increase in managed credit losses due to the
seasoning of the business credit card portfolio and the economic environment
during the period. The provision for credit

26

losses in the year ended December 31, 2000 includes an $8 million increase
attributable to a revision of our estimate of the allowance for receivable
losses as a result of the following factors: (1) discussions with our banking
regulators relating to the implementation of the agreement between Advanta Bank
Corp. and the Federal Deposit Insurance Corporation that was disclosed in June
2000; (2) changes in the economic environment; and (3) the use of more
conservative loss estimates for certain segments of the loan portfolio. See
further discussion in the "Provision and Allowance for Receivable Losses"
section of Management's Discussion and Analysis of Financial Condition and
Results of Operations.

VENTURE CAPITAL

The components of pretax income (loss) for our venture capital segment in the
years ended December 31 were as follows:

As shown in the table above, pretax income (loss) of our venture capital
segment is comprised primarily of realized and unrealized gains and losses on
our venture capital investments, which reflect the market conditions for those
investments in each respective period, and operating expenses. The estimated
fair value of our venture capital investments was $13.5 million at December 31,
2002, and $18.6 million at December 31, 2001.

INTEREST INCOME AND EXPENSE

Interest income decreased by $24.3 million to $103.6 million in the year ended
December 31, 2002 as compared to the year ended December 31, 2001. The decrease
in interest income in 2002 was due primarily to a decrease in the average yield
earned on our investments and receivables as a result of the prevailing interest
rate environment and the competitively-priced offers described below. Also
contributing to the decrease in interest income was a decrease in average
federal funds sold, restricted interest-bearing deposits and investments of $377
million for the year ended December 31, 2002 as compared to 2001. Excess liquid
assets resulting from the Mortgage Transaction in the first quarter of 2001 were
held in short-term, high quality investments until they could be deployed.
Partially offsetting these decreases were increases in average business credit
card receivables of $90 million in the year ended December 31, 2002 as compared
to 2001.

In 2002, our marketing campaigns have included a broader array of
competitively-priced offerings and products, including promotional pricing and
rewards programs, designed to selectively attract and retain more higher credit
quality customers and to respond to the competitive environment. In the year
ended December 31, 2002, these competitively-priced offers resulted in a decline
in yields on business credit card receivables, and are anticipated to result in
lower credit losses in future periods and higher interchange income due to
higher purchase volume. We anticipate that these trends on business credit card
receivables will continue in 2003 and that our risk-adjusted revenues as a
percentage of average managed business credit card receivables will be between
10.5% and 11.5% in the year ended December 31, 2003 as compared to 12% in the
year ended December 31, 2002. Risk-adjusted revenues represent net interest
margin and fee revenues, less net principal charge-offs.

During the year ended December 31, 2002, interest expense decreased by
$34.9 million to $47.6 million as compared to the year ended December 31, 2001.
The decrease in interest expense in 2002 was due to a reduction in average
outstanding deposits and debt and a decrease in our average cost of funds. Our
average cost of funds decreased from 7.24% in the year ended December 31, 2001
to 5.17% in the year ended

27

December 31, 2002. The decrease in our average cost of funds is primarily a
result of the prevailing interest rate environment.

Interest income decreased by $14.2 million to $127.9 million in the year
ended December 31, 2001 as compared to the year ended December 31, 2000. During
the same period, interest expense decreased by $4.0 million to $82.5 million.
The decrease in interest income was due primarily to a decrease in average
business credit card receivables and investments. Also contributing to the
decreased interest income was a decrease in the average yield earned on our
investment portfolio caused by the interest rate environment and a shift in the
composition of the portfolio. Short-term investments, including federal funds
sold and interest-bearing deposits, represented 52% of the average investment
portfolio in the year ended December 31, 2001 as compared to 27% in the year
ended December 31, 2000. The decrease in interest expense was due to a decrease
in interest-bearing liabilities, partially offset by an increase in our average
cost of funds.

The following table provides an analysis of interest income and expense
data, average balance sheet data, net interest spread and net interest margin
for both continuing and discontinued operations. The net interest spread
represents the difference between the yield on interest-earning assets and the
average rate paid on interest-bearing liabilities. The net interest margin
represents the difference between the yield on interest-earning assets and the
average rate paid to fund interest-earning assets. Interest income includes late
fees on business credit card receivables. Average receivables include deferred
origination costs, net of deferred fees.

INTEREST RATE ANALYSIS

(1) Interest income includes late fees for on-balance sheet business credit
cards of $7.8 million for the year ended December 31, 2002, $6.7 million for
the year ended December 31, 2001 and $9.2 million for the year ended
December 31, 2000.
(2) Interest and average rate for tax-free securities are computed on a tax
equivalent basis using a statutory rate of 35%.
(3) Includes assets held and available for sale and nonaccrual receivables.
(4) Includes funding of assets for both continuing and discontinued operations.

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INTEREST VARIANCE ANALYSIS: ON-BALANCE SHEET

The following table presents the effects of changes in average volume and
interest rates on individual financial statement line items on a tax equivalent
basis using a statutory rate of 35%. The effects on individual financial
statement line items are not necessarily indicative of the overall effect on net
interest income. Total interest income includes income from assets held and
available for sale.

(1) Equals change in volume multiplied by prior year rate.
(2) Equals change in rate multiplied by prior year volume.
(3) Equals change in rate multiplied by change in volume.

PROVISION AND ALLOWANCE FOR RECEIVABLE LOSSES

In the year ended December 31, 2002, the provision for credit losses increased
by $4.9 million to $40.9 million as compared to 2001, and the provision for
interest and fee losses increased by $2.5 million to $6.9 million as compared to
2001. The provision for interest and fee losses in 2002 includes a $698 thousand
increase due to the change in income billing practice effective October 1, 2002.
See Note 2 to the consolidated financial statements. The increase in both
provisions reflects growth in average owned business credit card receivables of
$90 million in the year ended December 31, 2002 as compared to 2001, partially
offset by a reduction in our estimate of losses inherent in the portfolio as of
December 31, 2002, based on improving delinquency and charge-off rate trends
from April to December 2002 and the current composition of the portfolio as
compared to our estimate as of December 31, 2001. In 2001, we were anticipating
worsening net charge-off rates for the first quarter of 2002 due to the
composition and seasoning of the portfolio at December 31, 2001.

DELINQUENCY AND CHARGE-OFF RATE TRENDS ON OWNED BUSINESS CREDIT CARD RECEIVABLES

29

The improvements in delinquency rates are the result of the current
composition of the portfolio and enhancements in the collections area of
operations. In June 2000, we ceased origination of business credit card accounts
with Fair, Isaac and Company ("FICO") credit scores of less than 661. We
estimate that charge-offs for accounts with FICO credit scores of less than 661
at origination reached their peak in the first quarter of 2002, based on the
average age of that segment of the portfolio. Although charge-off levels are not
always predictable since they are impacted by the economic environment and other
factors beyond our control, we anticipate charge-off rates for the year ended
December 31, 2003 and for each quarter of 2003 to be lower than the comparable
periods of 2002. This expectation is based on the current composition of the
portfolio that reflects our strategic initiative to selectively attract and
retain more higher credit quality customers, enhancements in the collections
area of operations made in 2002, and the current level of delinquencies.
However, we are expecting charge-off rates in the first and second quarters of
2003 to be higher than the rate experienced in the fourth quarter of 2002, due
to the current level of receivables 90 days or more delinquent and historical
seasonal trends of charge-offs and bankruptcy petitions.

The provision for credit losses in the year ended December 31, 2001 was
$36.0 million as compared to $36.3 million in the year ended December 31, 2000.
The provision for interest and fee losses was $4.4 million in 2001 as compared
to $2.3 million in 2000. The provision for credit losses in 2000 includes a
revision in our estimate of the allowance for receivable losses on business
credit card receivables. The revised estimate for the overall portfolio was
recorded in September 2000 and was developed based on discussions with our
banking regulators, changes in the economic environment and the use of more
conservative loss estimates for certain segments of the receivable portfolio.
Those segments included accounts with lower credit scores, accounts held by
businesses in operation less than twelve months, and accounts in which cash
borrowings comprise a significant portion of the outstanding balance. As a
result of these changes in estimate in 2000, we increased our allowance for
receivable losses by approximately $8 million, which increased the provision for
credit losses and decreased net income by approximately $8 million or $0.32 per
diluted combined share for the year ended December 31, 2000. The provisions for
credit losses and interest and fee losses in 2001 reflect the seasoning of the
business credit card portfolio and the economic environment. These factors were
evident in the delinquency rates and charge-off rates in 2001 as compared to
2000. Total owned business credit card receivables 30 days or more delinquent
increased from 5.5% at December 31, 2000 to 6.7% at December 31, 2001. The
charge-off rate on owned business credit card receivables for the year ended
December 31, 2001 was 7.2% as compared to 4.5% for the year ended December 31,
2000.

At December 31, 2002, the allowance for receivable losses on a consolidated
basis was $46.2 million, or 9.8% of owned receivables, compared to $42.0
million, or 9.4%, at December 31, 2001. The allowance for receivable losses on
business credit card receivables was $44.5 million, or 10.0% of owned
receivables, at December 31, 2002, as compared to $41.2 million, or 9.9%, at
December 31, 2001.

The allowance for receivable losses on other receivables was $1.7 million
at December 31, 2002 and $802 thousand at December 31, 2001. The increase in the
allowance for receivable losses on other receivables in the year ended December
31, 2002 was due to general economic conditions and corresponding increases in
delinquency rates. The rate of other receivables 90 days or more delinquent was
3.11% at December 31, 2002 as compared to 2.07% at December 31, 2001.

We follow the charge-off and re-age policies established by the Uniform
Retail Credit Classification and Account Management Policy issued by the Federal
Financial Institutions Examination Council. Under this policy, unpaid
receivables are charged off in the month the account becomes 180 days
contractually delinquent; unpaid balances of accounts that declare hardship or
enter credit counseling are charged off in the month the account becomes 120
days contractually delinquent; unpaid receivables of accounts in bankruptcy are
charged off within 60 days of receipt of notification of filing from the
bankruptcy court or within the previous timeframes discussed, whichever is
shorter; and fraudulent amounts are charged off after a 90-day investigative
period, unless our investigation shows no evidence of fraud. Prior to October 1,
2000, unpaid receivables of accounts in bankruptcy were charged off within 90
days of receipt of notification of filing from the bankruptcy court.

In July 2002, the bank regulatory agencies issued draft guidance on account
management and loss allowance for credit card lending. It described the
agencies' expectations for prudent risk management

30

practices for credit card activities, particularly with regard to credit line
management, over-limit accounts, and workouts. The draft guidance also addressed
income recognition and loss allowance practices for credit card lending. We
completed our evaluation of the draft guidance in 2002 and did not expect the
implementation of the guidance to have a material adverse effect on our
financial condition or our results of operations. In January 2003, the bank
regulatory agencies issued the final guidance. The guidance includes provisions
generally applicable to all credit card issuers. We are still evaluating the
impact the minimum payment provisions may have on our future delinquencies and
charge-offs. We do not expect the other provisions of the final guidance to have
a material adverse effect on our financial condition or our results of
operations. However, similar to other examination guidance, this guidance
provides wide discretion to the bank regulatory agencies in the application to
any particular institution. Accordingly, our bank examiners could require
changes in our account management or loss allowance practices in the future.

The following table provides credit quality data as of and for the
year-to-date periods indicated for our on-balance sheet receivable portfolio
including a summary of allowances for receivable losses, nonaccrual receivables,
accruing receivables past due 90 days or more, delinquencies and charge-offs.
Consolidated data includes business credit cards, consumer credit cards through
February 1998, and other receivables. Gross interest income that would have been
recorded for nonaccrual receivables, had interest been accrued throughout the
year in accordance with the assets' original terms, was $4.6 million in 2002.

(1) See "Interest and Fee Income on Receivables" in Note 2 to consolidated
financial statements for a discussion of the change in income billing
practice effective October 1, 2002.

(2) Effective October 1, 2000, business credit card charge-off statistics
reflect the adoption of a new charge-off policy for bankruptcies. Bankrupt
business credit cards are charged off within a 60-day investigative period
after receipt of notification. The previous policy provided a 90-day
investigative period. Business credit card principal charge-offs for the
year ended December 31, 2000 include a 0.2% acceleration of charge-offs in
connection with the adoption of this policy.

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SECURITIZATION INCOME

Securitization income was $119.0 million in the year ended December 31, 2002,
$108.2 million in the year ended December 31, 2001, and $67.9 million in the
year ended December 31, 2000. The increase in securitization income in 2002 as
compared to 2001 was due primarily to increased volume of securitized
receivables. Securitization income in 2002 was also impacted by a decline in
yields on securitized receivables, a decrease in the interest rate earned by
note holders, and an increased net charge-off rate on securitized receivables.
These fluctuations in yields and rates are similar to those experienced in
on-balance sheet business credit card receivables as discussed in the "Interest
Income and Expense" and "Provision and Allowance for Receivable Losses" sections
of Management's Discussion and Analysis of Financial Condition and Results of
Operations. In 2003, we anticipate an increase in the volume of securitized
receivables, as a result of anticipated receivables growth, which is expected to
result in an increase in securitization income as compared to 2002. The increase
in securitization income in 2001 as compared to 2000 was due to increased volume
of securitized receivables and increased yields on securitized receivables,
partially offset by increased charge-offs on securitized receivables.

Managed Receivable Data

Performance on a managed receivable portfolio basis is relevant because we
retain interests in the securitized receivables and, therefore, we have a
financial interest in and exposure to the performance of the securitized
receivables. The following table provides selected information on a managed
receivable portfolio basis.

(1) Risk-adjusted revenues represent net interest margin and fee revenues, less
net principal charge-offs.

(2) See "Interest and Fee Income on Receivables" in Note 2 to the consolidated
financial statements for a discussion of the change in income billing
practice effective October 1, 2002.

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SERVICING REVENUES

Servicing revenues were $34.0 million in the year ended December 31, 2002, $29.2
million in the year ended December 31, 2001, and $17.3 million in the year ended
December 31, 2000. The increase in servicing revenues in 2002 and 2001 was due
to increased volume of securitized business credit card receivables.

OTHER REVENUES

Interchange income includes interchange fees on both owned and securitized
business credit cards. The increase in interchange income in the years ended
December 31, 2002 and 2001 was primarily due to higher purchase volume related
to the increase in average managed business credit card accounts and
receivables. The average interchange rate was 2.1% in the year ended December
31, 2002, 2.2% in the year ended December 31, 2001 and 2.1% in the year ended
December 31, 2000.

Increases in business credit card rewards in the years ended December 31,
2002 and 2001, were due to the increase in average managed business credit card
accounts in the rewards programs and the corresponding purchase activity in
those accounts, partially offset by a change in estimate in 2002. In 2002, we
revised our estimate of the bonus mile reward liability, including a change in
the assumed percentage of cardholders that will ultimately claim rewards from
80% to 70% and a change in the estimated cost of future reward redemptions,
based on experience for that program life-to-date. The impact of the change in
estimate of the bonus mile reward liability was an approximate $1.9 million
increase in other revenues in the year ended December 31, 2002. See Note 19 to
the consolidated financial statements. We anticipate that this change in
estimate will have a favorable impact on results of operations in future
periods, depending on the levels of bonus mile rewards earned by cardholders in
those periods.

Increases in cash advance fees in the years ended December 31, 2002 and
2001 are due to growth in managed business credit card accounts.

In 2002, our marketing campaigns have included a broader array of
competitively-priced offerings and products, including balance transfer
promotions, promotional pricing and rewards programs, geared specifically toward
attracting more higher credit quality customers. We have experienced an
increased volume of balance transfers to cardholder accounts in the year ended
December 31, 2002 as compared to 2001 due to these marketing campaigns. In
connection with offering promotional pricing on balance transfers, we began
assessing balance transfer fees to cardholders in the first quarter of 2002.

Investment securities gains (losses) include changes in the fair value and
realized gains (losses) on venture capital investments. Investment securities
gains (losses) in the year ended December 31, 2002 include $6.9 million of net
decrease in valuations of venture capital investments, and $0.7 million of
realized gains on other investments. Investment securities gains (losses) in the
year ended December 31, 2001 include $9.3 million in realized losses on venture
capital investments, $19.6 million in decreases in valuations of venture capital
investments, and $2.7 million of realized gains on other investments. Investment
securities gains (losses) in the year ended December 31, 2000 include $11.4
million in gains on the sale of venture capital investments, $3.7 million of net
decrease in valuations of venture capital investments, and $2.2 million of
realized losses on other investments.

33

In the second quarter of 2001, we sold $389.7 million of deposit
liabilities to E*TRADE Bank, a wholly owned subsidiary of E*TRADE Group, Inc.,
resulting in a $2.8 million loss.

Insurance revenues (losses), net, and other includes charges of $1.1
million in the year ended December 31, 2002 related to valuation adjustments on
other receivables held for sale. In the first quarter of 2001, we successfully
negotiated an early termination of our strategic alliance with Progressive
Casualty Insurance Company to direct market auto insurance. Insurance revenues,
net and other in the year ended December 31, 2001 includes operating results of
insurance operations, the impact of the termination of the strategic alliance
with Progressive Casualty Insurance Company and $10 million of charges related
to the write-off of insurance-related deferred acquisition costs that were
unrealizable subsequent to the termination of the auto insurance strategic
alliance. Insurance revenues, net and other in the year ended December 31, 2000
includes a charge of approximately $3 million in the insurance business relating
to the settlement of a large policy claim.

LOSS ON TRANSFER OF CONSUMER CREDIT CARD BUSINESS

On January 22, 1999, Fleet Financial Group and certain of its affiliates filed a
lawsuit against Advanta Corp. and certain of its subsidiaries in Delaware
Chancery Court in connection with the transfer of our consumer credit card
business in 1998. See Note 11 to the consolidated financial statements. On
January 22, 2003, the trial court issued a decision ruling on all but one of the
issues that were to be determined at trial, and ordered further briefing on the
remaining outstanding issue. In the year ended December 31, 2002, we recognized
a $43.0 million pretax charge representing the estimated impact of implementing
the court's decisions. This charge was classified in continuing operations as a
loss on transfer of consumer credit card business, consistent with the
classification of the gain on transfer of consumer credit card business of $541
million in 1998.

OPERATING EXPENSES

Salaries and employee benefits, external processing, equipment, telephone
and fraud expense increased in the year ended December 31, 2002 as compared to
the year ended December 31, 2001 due primarily to growth in managed business
credit card receivables and additional investments in initiatives to strengthen
our position as a leading issuer of business credit cards to the small business
market. These included initiatives to provide additional value to our existing
customers, customer retention activities, development of additional products and
services, development of affinity cards and partnership relationships, and
enhancement of internet capabilities for servicing our customers. External
processing expenses in 2002 also reflect a reduction in the contracted rate for
these services that occurred during the first quarter of 2002.

The increase in amortization of business credit card deferred origination
costs, net, in the year ended December 31, 2002 as compared to the year ended
December 31, 2001, is attributable to our strategic

34

initiative to selectively attract and retain more higher credit quality
customers and the competitive environment for credit card issuers. Amortization
of business credit card deferred origination costs in the year ended December
31, 2002 also includes a change in estimate of $1.4 million. Effective July 1,
2002, we refined our estimate of the timing of when accounts are acquired to
better match the resulting estimated period of benefit to the amortization of
deferred acquisition costs. The impact of this change in estimate in the year
ended December 31, 2002 was a decrease in amortization of business credit card
deferred origination costs of $1.4 million. See Note 19 to the consolidated
financial statements.

The increase in marketing expense in the year ended December 31, 2002 as
compared to the year ended December 31, 2001 also resulted from our strategic
initiative to selectively attract and retain more higher credit quality
customers and the competitive environment for credit card issuers, partially
offset by decreased origination activities in our retail note program as a
result of our high liquidity position subsequent to the Mortgage Transaction in
2001.

Professional fees decreased in the year ended December 31, 2002 as compared
to the year ended December 31, 2001 due primarily to a reduction in legal
expenses related to the timing of litigation activity. Credit expense increased
in the year ended December 31, 2002 as compared to the year ended December 31,
2001 due to growth in the volume of charged-off accounts, partially offset by
the shift in the types of recoveries. There was an increase in the proportion of
total recoveries collected through sales of pools of charged-off accounts and a
decrease in the proportion collected through outsourced individual account
recovery efforts.

The decrease in insurance expense in the year ended December 31, 2002 as
compared to 2001 is primarily a result of a decrease in FDIC insurance costs on
deposit liabilities. Our FDIC insurance costs decreased due to the significant
reduction in our outstanding deposits at Advanta National Bank subsequent to the
Mortgage Transaction, and due to a decrease in the insurance assessment rate at
Advanta Bank Corp. In addition, insurance expense in the year ended December 31,
2002 includes a $0.4 million reduction of our estimated liability related to
worker's compensation insurance.

Other operating expenses in the year ended December 31, 2002 include a $1.1
million decrease in litigation reserves resulting from a reduction of damages in
a jury verdict. See further discussion in Note 11 to the consolidated financial
statements. Other operating expenses in the year ended December 31, 2001 include
a $2.2 million cash rebate related to prior periods' business credit card
processing costs.

Salaries and employee benefits, amortization of business credit card
deferred origination costs, net, external processing and fraud loss expenses
increased in the year ended December 31, 2001 as compared to the year ended
December 31, 2000 due primarily to growth in managed business credit card
receivables. Professional fees decreased by $3.1 million in the year ended
December 31, 2001 as compared to the year ended December 31, 2000. The decrease
in professional fees was due to consulting costs incurred in 2000 associated
with the implementation of our bank regulatory agreements, partially offset by
increased legal costs in 2001. The decrease in marketing expenses in the year
ended December 31, 2001 as compared to 2000 reflects decreased origination
activities in our retail note program as a result of our high liquidity position
subsequent to the Mortgage Transaction in the first quarter of 2001. Other
expenses in the year ended December 31, 2000 included an increase in litigation
reserves of $7.0 million.

UNUSUAL CHARGES

Subsequent to our exit from the mortgage business and discontinuance of our
leasing business in the first quarter of 2001, we implemented a plan to
restructure our corporate functions to a size commensurate with our ongoing
businesses and incurred certain other unusual charges related to employee costs.
The restructuring activities had no significant impact on operations while they
were ongoing. Due to the termination of employees and the write-off of certain
assets no longer used, we expected and realized lower personnel expenses in the
support functions in the 12 months following the charges, and expected to
realize lower depreciation and amortization expense over the following 5-7
years. These decreases were due to the termination of employees and the
write-off or write-down of assets previously deployed in connection with exited
businesses. We also expected and realized the elimination of the costs of the
contractual commitments

35

associated with exited business products from future operating results over the
estimated timeframe of the contracts.

Employee costs

In the first quarter of 2001, we recorded a $4.1 million charge for severance
and outplacement costs associated with the restructuring of corporate functions.
There were 69 employees severed who were entitled to benefits. These employees
worked in corporate support functions including accounting and finance, human
resources, information technology, legal and facilities management. Employees
were notified in March 2001, and severance amounts were payable over a 12-month
period following the employee's termination date. These payments were completed
in the third quarter of 2002.

Additionally, during 2001, we incurred $23.2 million of other employee
costs. This amount included approximately $10 million attributable to bonuses to
certain key employees in recognition of their efforts on behalf of Advanta in
the strategic alternatives process. It also included approximately $4.5 million
of bonuses in recognition of the restructuring of the company and other
significant transitional efforts. These bonuses were paid over a 12-month
period. In the second quarter of 2001, we recorded a $1.0 million increase in
employee costs related to a revision in estimate associated with these bonuses.
In 2001, we accelerated vesting of 32% of outstanding options that were not
vested at the date of the closing of the Mortgage Transaction. This acceleration
resulted in a noncash charge of $1.3 million. In connection with reviewing our
compensation plans after the Mortgage Transaction and restructuring of corporate
functions, we implemented a program whereby all outstanding stock appreciation
rights and shares of phantom stock were terminated in exchange for cash to be
paid through a deferred compensation arrangement. We recorded charges of $2.9
million associated with this exchange. The charge reflects a $0.7 million
reduction recorded in the three months ended September 30, 2001, as actual cash
settlement costs were less than estimated. Due to the restructuring of the
company, we implemented programs whereby certain out-of-the-money options were
exchanged for shares of stock, and whereby certain shares of restricted stock
were exchanged for cash and stock options in a tender offer, subject to certain
performance conditions and vesting requirements. Noncash charges associated with
the issuance of the stock, stock options and the tender offer totaled $3.6
million. This charge reflects a $1.4 million increase recorded in the three
months ended September 30, 2001, as actual noncash charges associated with the
tender offer were more than estimated.

Expenses associated with exited businesses/products

In the first quarter of 2001, we recorded charges of $2.2 million related to
other products exited for which no future revenues or benefits would be
received. In the third quarter of 2001, we were able to settle some of these
commitments for less than originally estimated, and reduced the charge by $0.7
million. We paid the remaining costs, which included lease and other
commitments, in the third quarter of 2002.

In 1998, in connection with the transfer of our consumer credit card
business to Fleet Credit Card LLC, we made major organizational changes to
reduce corporate expenses incurred in the past: (1) to support the business
contributed to Fleet Credit Card LLC in the transfer of our consumer credit card
business, and (2) associated with the business and products no longer being
offered or not directly associated with our mortgage, business credit card and
leasing units. As of December 31, 2000, the remaining accrual related to charges
associated with these organizational changes was $13.0 million. This accrual
related to contractual commitments to certain customers, and non-related
financial institutions that were providing benefits to those customers, under a
product that was no longer offered and for which no future revenues or benefits
would be received. A third party assumed the liabilities associated with these
commitments in the first quarter of 2001, and we recorded an additional charge
relating to the settlement of these commitments of $10.3 million.

Asset impairments

In connection with our plan to restructure our corporate functions to a size
commensurate with our ongoing businesses during the first quarter of 2001, we
identified certain assets that would no longer be used, and the carrying costs
of these assets were written off resulting in a charge of $2.6 million. We
estimated the realizable

36

value of these assets to be zero due to the nature of the assets, which include
leasehold improvements and capitalized software.

INCOME TAXES

We reported a pretax loss in the year ended December 31, 2002 as a result of the
$43.0 million charge related to the ruling in the litigation associated with the
transfer of our consumer credit card business in 1998. See Note 11 to the
consolidated financial statements. Since the gain on the transfer of our
consumer credit card business in 1998 was not subject to income tax, the $43.0
million charge in 2002 did not result in a tax benefit. As a result, we reported
income tax expense from continuing operations of $17.2 million for the year
ended December 31, 2002. Our effective tax rate, excluding the $43.0 million
charge, was 38.5% for the year ended December 31, 2002.

We reported a pretax loss in the year ended December 31, 2001 as a result
of unusual charges, valuation adjustments on venture capital investments and the
loss on the discontinuance of the leasing business in 2001. A valuation
allowance was provided against a portion of the resulting deferred tax asset
given our pre-existing net operating loss carryforwards and the uncertainty of
the realizability of the incremental deferred tax asset, resulting in an
effective tax rate of 28% for income from continuing operations for 2001. In the
year ended December 31, 2000, we also reported a pretax loss and a valuation
allowance was provided against the resulting deferred tax asset, resulting in a
0% effective tax rate.

At December 31, 2002, net operating loss carryforwards were $636 million,
of which $391 million expire in 2018, $29 million expire in 2019, $1 million
expire in 2020 and $215 million expire in 2021. We utilized net operating loss
carryforwards of $49 million in 2002. Additionally in 2000, $29 million was
carried back to prior years. See Note 11 to the consolidated financial
statements for a discussion of tax matters currently before the Internal Revenue
Service Regional Office of Appeals.

DISCONTINUED OPERATIONS

In the year ended December 31, 2002, we recorded an after-tax loss on the
discontinuance of our mortgage and leasing businesses of $8.6 million. The
components of this loss include a pretax charge of $7.5 million for a litigation
settlement related to a mortgage loan servicing agreement termination fee
collected in December 2000, a $17.8 million pretax charge primarily related to
an increase in our estimated costs of mortgage business-related contingent
liabilities, an $11.3 million pretax gain on leasing discontinuance, and a tax
benefit of $5.4 million. The $17.8 million charge relates primarily to an
increase in our estimated 2002 and future costs of mortgage business-related
contingent liabilities in connection with (1) contingent liabilities and
litigation costs arising from the operation of the mortgage business prior to
the Mortgage Transaction that were not assumed by the buyer, and (2) costs
related to Advanta's litigation with Chase Manhattan Mortgage Corporation in
connection with the Mortgage Transaction. The change in estimate reflects the
legal and consulting fees and other costs that we expect to incur based on
current levels of contingent liabilities and expense rates, and considers the
status of the discovery process associated with the Mortgage Transaction
litigation. The $11.3 million pretax gain on leasing discontinuance represents a
revision in the estimated operating results of the leasing segment over the
remaining life of the lease portfolio due primarily to favorable credit
performance. The leasing portfolio performed favorably as compared to the
expectations and assumptions established in 2001. This improvement was the
result of successfully obtaining a replacement vendor to service leased
equipment for a former leasing vendor that had filed for bankruptcy protection,
and operational improvements in the leasing collections area.

In the year ended December 31, 2001, we recorded an after-tax loss on the
discontinuance of our mortgage and leasing businesses of $31.6 million. The
components of this net loss include a pretax gain on the Mortgage Transaction of
$20.8 million, a pretax loss on the discontinuance of our leasing business of
$45.0 million, and a tax provision of $7.4 million. The gain on the Mortgage
Transaction does not reflect any impact from the post-closing adjustment process
that has not yet been completed due to litigation related to the Mortgage
Transaction. See Note 11 to the consolidated financial statements. The $45.0
million pretax loss on the discontinuance of the leasing business in 2001 was
due to a change in estimate of the operating results

37

of the leasing segment over the remaining life of the lease portfolio. The
change in estimate was needed due to an increase in estimated credit losses
expected throughout the remaining term of the leasing portfolio based on credit
loss experience in 2001. A principal factor contributing to the increased credit
losses in 2001 was that one of our former leasing vendors had filed for
bankruptcy protection and this vendor's financial problems were impacting its
ability to service the leased equipment in a segment of our leasing portfolio.
This vendor was unique from our other leasing vendors in that it had a
significant servicing relationship with our customers and the equipment under
lease provided fee revenue to our customers for usage. Also, our contract with
the vendor provided that the vendor would provide a guaranty if the performance
of the leases did not meet certain criteria. This guaranty was considered when
underwriting the leases.

We recorded a loss on the discontinuance of our leasing business of $4.3
million, net of tax, effective December 31, 2000, representing the estimated
operating results through the remaining term of the leasing portfolio. Estimated
operating results of the leasing business included estimated valuations of
retained interests in leasing securitizations, estimated cash flows from
on-balance sheet lease receivables, interest expense and operating expenses.

Loss from discontinued operations, net of tax, was $8.4 million for the
period from January 1, 2001 through February 28, 2001, the effective date of the
Mortgage Transaction. Loss from discontinued operations, net of tax, was $163.6
million in the year ended December 31, 2000. Loss from discontinued operations
in the year ended December 31, 2000 includes charges which were made in response
to our regulatory review process, including the implementation of the agreements
with the bank regulators that were signed during the second and third quarters
of 2000, and changes during the second quarter in the market and the political
and regulatory environment for subprime lending. These charges included a pretax
reduction in the valuation of Advanta National Bank's retained interests in
mortgage securitizations of $214.0 million and an increase in Advanta National
Bank's on-balance sheet allowance for receivable losses related to mortgage
loans of $22.0 million. These Advanta National Bank charges reduced net income
by $236.0 million or $9.31 per combined common diluted share.

In addition, loss from discontinued operations in the year ended December
31, 2000 includes $20.3 million of pretax charges resulting from changes in
valuation assumptions related to retained interests in leasing securitizations,
primarily due to higher credit losses associated with certain unprofitable
segments of broker originations from prior periods. These charges reduced net
income by $20.3 million or $0.80 per combined common diluted share. Loss from
discontinued operations in the year ended December 31, 2000 also includes $25.3
million of revenues related to termination fees received under a mortgage
servicing agreement.

ASSET/LIABILITY MANAGEMENT

We manage our financial condition with a focus on maintaining high credit
quality standards, disciplined management of market risks and prudent levels of
growth, leverage and liquidity.

MARKET RISK SENSITIVITY

Market risk is the potential for loss or diminished financial performance
arising from adverse changes in market forces including interest rates and
market prices. Market risk sensitivity is the degree to which a financial
instrument, or a company that owns financial instruments, is exposed to market
forces. Fluctuations in interest rates, changes in economic conditions, shifts
in customer behavior, and other factors can affect our financial performance.
Changes in economic conditions and shifts in customer behavior are difficult to
predict, and our financial performance generally cannot be insulated from these
forces.

We are exposed to equity price risk on the equity securities in our
investments available for sale portfolio. A significant portion of our equity
securities at December 31, 2002 represented venture capital investments. We
typically do not attempt to reduce or eliminate the market exposure on equity
investments. A 20% adverse change in equity prices would result in an
approximate $4.1 million decrease in the fair value of our equity investments as
of December 31, 2002. A 20% adverse change would have resulted in an approximate
$5.3 million decrease in fair value as of December 31, 2001.

38

Financial performance variability as a result of fluctuations in interest
rates is commonly called interest rate risk. Interest rate risk generally
results from mismatches in the timing of asset and liability repricing (gap
risk) and from differences between the repricing indices of assets and
liabilities (basis risk). We regularly evaluate our market risk profile and
attempt to minimize the impact of interest rate risk on net interest income,
securitization income and net income. In managing interest rate risk exposure,
we may periodically securitize receivables, sell and purchase assets, alter the
mix and term structure of our funding base, change our investment portfolio, or
use derivative financial instruments. Derivatives are not used for trading or
speculative activities. There were no interest rate swaps or other derivatives
outstanding related to continuing operations at December 31, 2002 or 2001.

Risk exposure levels vary continuously, as changes occur in our
asset/liability mix, market interest rates and other factors affecting the
timing and magnitude of cash flows. We attempt to analyze the impact of interest
rate risk by regularly evaluating the perceived risks inherent in our asset and
liability structure, including derivative instruments, if applicable. Computer
simulations are used to generate expected financial performance in a variety of
interest rate environments. Those results are analyzed to determine if actions
need to be taken to mitigate our interest rate risk.

We measure our interest rate risk using a rising rate scenario and a
declining rate scenario. Net interest income is estimated using a third party
software model that uses standard income modeling techniques. We also measure
the effect of interest rate risk on our managed net interest income, which
includes net interest income on owned assets and net interest income on
securitized receivables. The measurement of managed net interest income in
addition to net interest income on owned assets is meaningful because our
securitization income fluctuates with yields on securitized receivables and
interest rates earned by note holders. Both increasing and decreasing rate
scenarios assume an instantaneous shift in rates and measure the corresponding
change in expected net interest income as compared to a base case scenario. As
of December 31, 2002 and 2001, we estimated that our owned net interest income
and managed net interest income would change as follows over a twelve-month
period:

Our owned and securitized business credit card receivables include interest
rate floors that cause our managed net interest income to rise in the declining
rate scenario. Our managed net interest income decreases in a rising rate
scenario due to the portion of the business credit card portfolio that is
effectively at a fixed rate because of the nature of the pricing of the accounts
and the variable rate funding of off-balance sheet securitized receivables.
Changes in the composition of our balance sheet, the current interest rate
environment at December 31, 2002 as compared to December 31, 2001, and a reset
of interest rate floors on a significant portion of our business credit cards
portfolio during 2002 have also impacted the results of the owned and managed
net interest income sensitivity analyses.

The above estimates of net interest income sensitivity alone do not provide
a comprehensive view of our exposure to interest rate risk. The quantitative
risk information is limited by the parameters and assumptions utilized in
generating the results. These analyses are useful only when viewed within the
context of the parameters and assumptions used. The above rate scenarios in no
way reflect management's expectation regarding the future direction of interest
rates, and they depict only two possibilities out of a large set of possible
scenarios.

39

LIQUIDITY AND CAPITAL RESOURCES

Our goal is to maintain an adequate level of liquidity, for both long-term and
short-term needs, through active management of both assets and liabilities.
Since Advanta Corp.'s debt rating is not investment grade, our access to
unsecured, institutional debt is limited. However, we do have access to a
diversity of funding sources as described below, and had a high level of
liquidity at December 31, 2002. At December 31, 2002, we had $332 million of
federal funds sold, $177 million of receivables held for sale, and $126 million
of investments, which could be sold to generate additional liquidity.

Components of funding were as follows at December 31:

(1) Includes both off-balance sheet business credit card receivables and
off-balance sheet lease receivables related to discontinued operations.
Excludes our ownership interest in the investor principal balance of
securitizations (subordinated trust assets) that are held on-balance sheet
and classified as retained interests in securitizations or assets of
discontinued operations.

At December 31, 2002, our ratio of equity, including capital securities, to
on-balance sheet assets was 25.1% as compared to 28.5% at December 31, 2001. In
managing our capital needs, we also consider our ratio of equity to managed
assets, since our on-balance sheet assets include retained interests in
securitizations that serve as credit enhancement to the investors' interests in
the securitized receivables. The ratio of equity, including capital securities,
to managed assets was 10.9% at December 31, 2002 as compared to 13.2% at
December 31, 2001. We calculate managed assets as follows:

Off-Balance Sheet Securitizations

As shown in the components of funding table above, off-balance sheet
securitizations provide a significant portion of our funding and they are one of
our primary sources of liquidity. These transactions enable us to limit our
credit risk in the securitized receivables to the amount of interests retained
on-balance sheet. See Note 6 to the consolidated financial statements for key
securitization data including income, cash flows and assumptions used in
measuring the fair value of our retained interests in securitizations. Our
accounting policies related to securitization transactions are discussed in the
"Critical Accounting Policies and Estimates" section of Management's Discussion
and Analysis of Financial Condition and Results of Operations and Note 2 to the
consolidated financial statements.

We completed one public business credit card securitization in each of 2002
and 2001, and our first two public business credit card securitizations in 2000.
These public securitizations enabled us to grow off-balance sheet business
credit card receivables as a component of our funding. In addition to the public
securitizations, the securitization trust has two non-public series outstanding.
The first series, Series 1997-A, provides off-balance sheet funding through a
$330 million committed commercial paper conduit facility, through which $330
million of business credit card receivables were securitized at December 31,
2002. The commitment can

40

be withdrawn under certain conditions, similar to the conditions for an early
amortization event, as described below, for the other series of the
securitization trust. Our commercial paper conduit facility also requires the
servicer, Advanta Bank Corp., to meet its minimum regulatory capital
requirements. Upon the expiration of $50 million of this commercial paper
conduit facility in March 2003 and the remainder of $280 million in June 2003,
management expects to obtain the appropriate level of replacement funding under
similar terms and conditions. The second non-public series was a securitization
completed in 2000.

The revolving periods for each series of the business credit card
securitization trust extend to the following dates:

In addition to investor principal balance, our securitized business credit
card receivables include billed interest and fees of $50.4 million on those
accounts at December 31, 2002.

When the revolving periods of the series end and they start their expected
amortization periods, we will need to replace the funding currently being
provided by those series. We expect the $157 million Series 2000-A to complete
its amortization period by April 2003 and the $600 million Series 2000-B to
complete its amortization period by July 2003. Management expects to replace
this funding through a combination of increased deposits and private and public
securitization transactions under similar terms and conditions as our current
private and public securitizations. However, based on recent trends in market
rates for asset-backed securities issued by certain other credit card companies
and our recent experience, we expect the costs of our public securitization
transactions in 2003 will be higher than what we experienced in 2002.

The securitization agreements contain conditions that would trigger an
early amortization event. An early amortization event would result in the end of
the revolving period prior to the expected dates above, which would require us
to find an alternate means of funding new receivables generated on existing
business credit card accounts. The conditions include the failure to make
payments under the terms of the agreement, or the insolvency or other similar
event of Advanta Bank Corp. An early amortization event would also be triggered
for each individual series if the three-month average excess spread percentage
was not maintained at a level greater than 0% for that series. Excess spread
represents income-related cash flows on securitized receivables (interest,
interchange and fees) net of note holders' interest, servicing fees, and credit
losses. At December 31, 2002, our three-month average excess spread was 11%.
Based on the current levels of excess spread, our financial condition and other
considerations, management believes that it is unlikely that the trust or any
individual series will have an early amortization event. The business credit
card securitization agreements do not have any provisions or conditions
involving the debt rating of Advanta Corp.

Deposits, Debt, Other Borrowings and Equity

In the first quarter of 2001, we received in excess of $1 billion in cash
proceeds from the Mortgage Transaction that resulted in liquidity in excess of
the needs of our continuing businesses. We strategically used the proceeds to
strengthen Advanta for the future, including a significant reduction in our
leverage. In the second quarter of 2001, we sold $389.7 million of our deposit
liabilities to E*TRADE Bank, a wholly owned subsidiary of E*TRADE Group, Inc. We
also paid off substantially all of our outstanding medium-term notes and reduced
our outstanding retail notes. In the year ended December 31, 2001, we reduced
debt and deposits by $1.1 billion. Also, Advanta National Bank suspended
originations of deposit accounts. Excess liquid assets were held in short-term,
high-quality investments earning money market rates until they could be
deployed. As a result, we had interest expense in excess of interest income on
this excess liquidity that was not included

41

in Advanta Business Cards or venture capital segment results. We do not
anticipate that we will incur net interest expense unrelated to the funding of
our Advanta Business Cards or venture capital segments in the year ended
December 31, 2003 since the excess liquid assets described above have been
deployed as of December 31, 2002.

We continue to offer unsecured debt securities of Advanta Corp., in the
form of RediReserve Certificates and Investment Notes, to retail investors
through our retail note program. We change the interest rates we offer
frequently, depending on market conditions and our funding needs. The rates also
vary depending on the size of each investment. At December 31, 2002, $316
million of RediReserve Certificates and Investment Notes were outstanding with
interest rates ranging from 2.75% to 11.56%.

In the first quarter of 2001, after consideration of the parent liquidity
and the capital requirements for the ongoing business, the Board of Directors of
Advanta Corp. authorized management to purchase up to 1.5 million shares of
Advanta Corp. common stock or the equivalent dollar amount of our capital
securities, or some combination thereof. In August 2002, the Board of Directors
authorized the purchase of up to an additional 1.5 million shares of Advanta
Corp. common stock, bringing the total authorization to up to 3.0 million
shares. We intend to continue to make purchases modestly and when we believe it
is prudent to do so while we analyze evolving capital requirements. During the
year ended December 31, 2001, we repurchased 693,300 shares of our Class B
Common Stock. In the year ended December 31, 2002, we repurchased 1,554,759
shares of our Class B Common Stock.

Advanta Corp. and its subsidiaries are involved in class action lawsuits,
other litigation, claims and legal proceedings arising in the ordinary course of
business or discontinued operations, including litigation arising from our
operation of the mortgage business prior to the Mortgage Transaction in the
first quarter of 2001. Management believes that the aggregate loss, if any,
resulting from existing litigation, claims and other legal proceedings will not
have a material adverse effect on our liquidity or capital resources based on
our current expectations regarding the ultimate resolutions of these actions and
amounts held in escrow in connection with certain litigation. However, due to
the inherent uncertainty in litigation and since the ultimate resolutions of
these proceedings are influenced by factors outside of our control, it is
reasonably possible that the estimated cash flow related to these proceedings
may change or that actual results will differ from our estimates.

The following tables detail the composition of the deposit base and the
composition of debt and other borrowings at year end for each of the past five
years.

COMPOSITION OF DEPOSIT BASE

42

COMPOSITION OF DEBT AND OTHER BORROWINGS

Contractual Obligations

The following table summarizes our contractual cash obligations at December 31,
2002 by period. The table does not include purchase obligations, representing
agreements with minimum or fixed terms to purchase goods or services in the
ordinary course of business. We expect that purchase obligations will be funded
with operating cash flows and that they will not have a material impact on our
liquidity or capital resources.

Management expects to fund our deposit and debt obligations with
replacement deposits or debt having similar terms and conditions. We expect to
fund commitments related to operating leases with operating cash flows.

In addition to these obligations, we have commitments to extend credit to
our business credit card customers, representing unused lines of credit, of $6.1
billion at December 31, 2002 and $4.6 billion at December 31, 2001. Lines of
credit on our customers' business credit cards totaled $8.6 billion at December
31, 2002 and $6.6 billion at December 31, 2001. We believe that our customers'
utilization of their lines of credit will continue to be substantially less than
the amount of the commitments, as has been our experience to date. We expect to
fund the commitments to extend credit with the various components of funding
described above, similar to the funding of other new receivables.

Regulatory Agreements and Restrictions at Subsidiaries

Advanta Bank Corp. and Advanta National Bank are subject to regulatory capital
requirements and other regulatory provisions that restrict their ability to lend
and/or pay dividends to Advanta Corp. and its affiliates. Our insurance
subsidiaries are also subject to certain capital and dividend rules and
regulations as prescribed by state jurisdictions in which they are authorized to
operate. See "Part I -- Government Regulation."

In 2000, Advanta Bank Corp. entered into agreements with its bank
regulatory agencies, primarily relating to the bank's subprime lending
operations. These agreements imposed temporary deposit growth limits at Advanta
Bank Corp. and required prior regulatory approval of cash dividends. In April
2002, the agreements were removed and, as a result, the restrictions in the
agreements on deposit growth and payment of
43

cash dividends are no longer applicable. In connection with removing the
agreements, Advanta Bank Corp. reached an understanding with its regulators,
reflecting continued progress in our ongoing efforts to enhance Advanta Bank
Corp.'s practices and procedures. Effective October 2002, the understanding was
revised. The revised understanding replaces the provisions of the prior
understanding and provides for the bank to enhance certain of its internal
planning and monitoring processes. The revised understanding is consistent with
the manner in which Advanta Bank Corp. is currently operating its business and
includes no restrictions expected to have any impact on our financial results.

In 2000, Advanta National Bank also reached agreements with its bank
regulatory agency, primarily relating to the bank's subprime lending operations.
The agreements established temporary asset growth limits at Advanta National
Bank, imposed restrictions on taking brokered deposits and required that Advanta
National Bank maintain certain capital ratios in excess of the minimum
regulatory standards. In 2001, Advanta National Bank entered into an additional
agreement with its regulatory agency regarding restrictions on new business
activities and product lines at Advanta National Bank after the Mortgage
Transaction, and the resolution of outstanding Advanta National Bank
liabilities. The agreement also reduced the capital requirements for Advanta
National Bank to 12.7% for Tier 1 and total capital to risk-weighted assets, and
to 5% for Tier 1 capital to adjusted total assets as defined in the agreement.
In addition, the agreement prohibits the payment of dividends by Advanta
National Bank without prior regulatory approval. Management believes that
Advanta National Bank was in compliance with its regulatory agreements at
December 31, 2002.

At December 31, 2002, Advanta Bank Corp.'s combined total capital ratio
(combined Tier I and Tier II capital) was 18.46%, and Advanta National Bank's
combined total capital ratio was 23.13%. At December 31, 2001, Advanta Bank
Corp.'s combined total capital ratio was 18.80%, and Advanta National Bank's
combined total capital ratio was 23.34%. In each case, Advanta Bank Corp. and
Advanta National Bank had capital at levels a bank is required to maintain to be
classified as "well-capitalized" under the regulatory framework for prompt
corrective action. However, Advanta National Bank does not meet the definition
of "well-capitalized" because of the existence of its agreement with its
regulatory agency, even though it has achieved the higher imposed capital ratios
required by the agreement.

Total stockholders' equity of our banking and insurance affiliates was $280
million at December 31, 2002, of which $226 million was restricted. At January
1, 2003, $54.6 million of stockholders' equity of our bank and insurance
affiliates was available for payment of cash dividends in 2003 under applicable
regulatory guidelines without prior regulatory approval.

In addition to dividend restrictions at banking subsidiaries, certain
non-bank subsidiaries are subject to minimum equity requirements as part of
securitization or other agreements. The total minimum equity requirement of
non-bank subsidiaries was $10 million at December 31, 2002. At December 31,
2002, the non-bank subsidiaries were in compliance with these minimum equity
requirements.

Management believes that the restrictions, for both bank and non-bank
subsidiaries, will not have an adverse effect on Advanta Corp.'s ability to meet
its cash obligations due to the current levels of liquidity and diversity of
funding sources.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See "Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations -- ASSET/LIABILITY MANAGEMENT."

44

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ADVANTA CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

See Notes to Consolidated Financial Statements.

45

ADVANTA CORP. AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENTS

See Notes to Consolidated Financial Statements.

46

ADVANTA CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

($ IN THOUSANDS)

See Notes to Consolidated Financial Statements.

47

ADVANTA CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

See Notes to Consolidated Financial Statements.

48

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS EXCEPT PER SHARE DATA, UNLESS OTHERWISE NOTED)

In these notes to consolidated financial statements, "Advanta", "we", "us", and
"our" refer to Advanta Corp. and its subsidiaries, unless the context otherwise
requires.

NOTE 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Advanta is a highly focused financial services company serving the small
business market. We leverage direct marketing and information based expertise to
identify potential customers and new target markets and to provide a high level
of service tailored to the unique needs of small businesses. We have been
providing innovative financial products and solutions since 1951. Our primary
business segment is Advanta Business Cards, one of the nation's largest issuers
of business credit cards to small businesses. In addition to our business credit
card lending business, we have venture capital investments. We own two
depository institutions, Advanta Bank Corp. and Advanta National Bank. Our banks
are able to offer a variety of deposit products, such as retail and large
denomination certificates of deposit and money market savings accounts, that are
insured by the Federal Deposit Insurance Corporation (the "FDIC"). Advanta
Business Cards is primarily funded and operated through Advanta Bank Corp. At
December 31, 2002, we serviced approximately 780,000 business credit card
customers and managed business credit card receivables of $2.6 billion.

Through the first quarter of 2001, we had two additional lending
businesses, Advanta Mortgage and Advanta Leasing Services. In the first quarter
of 2001, we completed our exit from the mortgage business, Advanta Mortgage,
through a purchase and sale agreement with Chase Manhattan Mortgage Corporation
as buyer (the "Mortgage Transaction"), announced the discontinuance of our
leasing business, and restructured our corporate functions to a size
commensurate with our ongoing businesses. The mortgage and equipment leasing
businesses represented 26% of our customers and 84% of our managed receivables
at December 31, 2000. We are continuing to service the existing leasing
portfolio rather than sell the business or the portfolio. The results of the
mortgage and leasing businesses are reported as discontinued operations in all
periods presented. The results of our ongoing businesses are reported as
continuing operations for all periods presented.

The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States and include the
accounts of Advanta Corp. and its subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.

Certain prior period amounts have been reclassified to conform to the
current year's presentation.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES

The preparation of financial statements in accordance with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates. Material
estimates that are particularly susceptible to significant changes in the near
term relate to the accounting for the fair value of venture capital investments,
allowance for receivable losses, securitization income, business credit card
rewards programs, litigation contingencies, income taxes, and discontinued
operations.

INVESTMENTS AVAILABLE FOR SALE

Investments available for sale include securities that we sell from time to time
to provide liquidity and in response to changes in the market. Debt and equity
securities classified as available for sale are reported at fair value and
unrealized gains and losses on these securities are reported in other
comprehensive income, net of income taxes. The fair values of investments
available for sale are based on quoted market prices, dealer quotes or estimates
using quoted market prices for similar securities. Declines in the fair value of
investments
49

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

available for sale below their cost that are deemed to be other than temporary,
if any, are reflected in earnings as realized losses. There were no declines in
the fair value of investments available for sale below their cost that were
deemed to be other than temporary at December 31, 2002 or 2001.

Investments of our venture capital segment are included in investments
available for sale and are carried at estimated fair value. We primarily invest
in privately held companies, including early stage companies. The fair values of
these equity investments are subject to significant volatility. Our investments
in specific companies and industry segments may vary over time, and changes in
concentrations may affect price volatility. These investments are inherently
risky as the market for the technologies or products the investees have under
development may never materialize. Management makes fair value determinations
based on quoted market prices, when available, and considers the investees'
financial results, conditions and prospects, values of comparable companies and
market liquidity, when market prices are not available. In accordance with the
specialized industry accounting principles of venture capital investment
companies, the unrealized and realized gains and losses on these investments are
included in other revenues rather than other comprehensive income and the equity
method of accounting for investments is not applied.

Purchase premiums and discounts are recognized in interest income using the
interest method over the terms of the securities. Gains and losses on the sale
of securities are recorded on the trade date and are determined using the
specific identification method.

RECEIVABLES HELD FOR SALE

Receivables held for sale represent loans currently on the balance sheet that we
intend to sell or securitize within the next six months. These assets are
reported at the lower of aggregate cost or fair market value by loan type. Net
unrealized losses, if any, are recognized through a valuation allowance by
charges to income.

ALLOWANCE FOR RECEIVABLE LOSSES

The allowance for receivable losses is established as losses are estimated to
have occurred through provisions charged to earnings. Business credit card
receivables are comprised of principal amounts due from cardholders for purchase
activities and cash advances, and amounts due from cardholders relating to
billed interest and fees. Provisions for credit losses, representing the portion
of receivable losses attributable to principal, are reported separately on the
consolidated income statements. Provisions for interest and fee receivable
losses are recorded as direct reductions to interest and fee income as described
below in "Interest and Fee Income on Receivables." The allowance for receivable
losses is evaluated on a regular basis by management and is based upon
management's periodic review of the collectibility of receivables in light of
historical experience by loan type, the nature and volume of the receivable
portfolio, adverse situations that may affect the borrowers' ability to repay
and prevailing economic conditions. This evaluation is inherently subjective as
it requires estimates that are susceptible to significant revision as more
information becomes available. Since our receivable portfolio is comprised of
large groups of smaller balance homogeneous loans, we generally evaluate each
group collectively for impairment through the use of a migration analysis as
well as the consideration of other factors that may indicate loss. Accordingly,
we do not separately identify individual loans for impairment disclosures.

Losses are charged against the allowance for receivable losses when
management believes the uncollectibility of a receivable balance is confirmed.
Subsequent recoveries, if any, are credited to the allowance for receivable
losses. Our charge-off policy for business credit card accounts is to charge off
an unpaid receivable in the month the account becomes 180 days contractually
delinquent. Business credit card accounts suspected of being fraudulent are
charged off after a 90-day investigative period, unless our investigation shows
no evidence of fraud. Effective October 1, 2000, bankrupt business credit cards
are charged off within a 60-day investigative period after receipt of bankruptcy
notification. The previous policy provided a 90-day investigative period. If
customers declare hardship or enter credit counseling, we charge off affected
accounts in the month the account becomes 120 days contractually delinquent.

50

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

INTEREST AND FEE INCOME ON RECEIVABLES

Interest income is accrued on the unpaid balance of receivables. Interest income
includes late fees billed on business credit card receivables. Fee income is
recognized when billed to the cardholder, with the exception of origination fees
as discussed in "Origination Costs and Fees" below. Prior to October 1, 2002,
the billing and recognition of interest and fees was discontinued when the
related receivable became 90 days past due or upon notification of fraud,
bankruptcy, death, hardship or credit counseling. Effective October 1, 2002, we
continue to bill and recognize interest and fees on accounts when they become 90
days past due, and an additional allowance for receivable losses is established
for the additional billings estimated to be uncollectible through a provision
for interest and fee losses. The billing and recognition of interest and fees on
fraudulent, bankrupt, deceased, hardship and credit counseling accounts is still
discontinued upon receipt of notification of these events. Provisions for
interest and fee losses are recorded as direct reductions to interest and fee
income. The accrued interest and fee portion of charged-off receivables is
charged against the allowance for receivable losses. All subsequent recoveries
of charged-off receivables are classified as principal recoveries, since any
amounts related to accrued interest and fees are de minimus.

ORIGINATION COSTS AND FEES

We engage an unrelated third party to solicit and originate business credit card
account relationships. Amounts paid to third parties to acquire business credit
card accounts and certain other origination costs are deferred and netted
against any related business credit card origination fee, and the net amount is
amortized on a straight-line basis over the privilege period of one year. These
costs represent the cost of acquiring business credit card account
relationships, and the net amortization is included in operating expenses.

SECURITIZATION ACTIVITIES

A significant portion of our funding for Advanta Business Cards is through
off-balance sheet business credit card securitizations using a securitization
trust. The securitization trust was created to hold the collateral (the
securitized receivables) and issue debt to investors. The securitization trust
is a qualifying special-purpose entity as defined by Statement of Financial
Accounting Standards ("SFAS") No. 140, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities -- a Replacement of FASB
Statement No. 125," and therefore, is not consolidated as part of Advanta
Corp.'s consolidated financial statements. We do not provide any guarantee of
the debt issued by the special-purpose entity and our recourse in the
transactions is limited to the value of our interests in securitizations that
serve as credit enhancement to the investors' interests in the securitized
receivables.

We sell business credit card receivables through securitizations with
servicing retained. When we securitize receivables, we surrender control over
the transferred assets and account for the transaction as a sale to the extent
that consideration other than beneficial interests in the transferred assets is
received in exchange. We allocate the previous carrying amount of the
securitized receivables between the assets sold and the retained interests,
based on their relative estimated fair values at the date of sale.
Securitization income is recognized at the time of the sale, equal to the excess
of the fair value of the assets obtained (principally cash) over the allocated
cost of the assets sold and transaction costs. During the revolving period of
each business credit card securitization, securitization income is recorded
representing estimated gains on the sale of new receivables to the
securitization trust on a continuous basis to replenish the investors' interest
in securitized receivables that have been repaid by the business credit card
account holders. Fair value estimates used in the recognition of securitization
income require assumptions of payment, default and interest rates. To the extent
actual results are different than those estimates, the impact is recognized in
securitization income.

On a monthly basis, income-related cash flows on securitized receivables
(interest, interchange and fees) are used to pay note holders' interest and
servicing fees, and any excess cash flow serves as credit enhancement to cover
credit losses in that month.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ACCOUNTS RECEIVABLE FROM SECURITIZATIONS

Accounts receivable from securitizations include retained interests in
securitizations, accrued interest and fees on securitized receivables, amounts
due from the trust for the purchase of new loan receivables during the revolving
period, and amounts due from the trust for one month's servicing fee and one
month's income-related cash flows in excess of that month's note holders'
interest, servicing fees and credit losses.

Retained interests in securitizations include restricted cash reserve
accounts, retained interest-only strips and subordinated trust assets related to
securitizations. Subordinated trust assets represent an ownership interest in
the securitized receivables that is subordinated to the other investors'
interests. Retained interests in securitizations serve as credit enhancement to
the investors' interests in the securitized receivables. We account for retained
interests in securitizations as trading securities. These assets are carried at
estimated fair value and the resulting unrealized gain or loss from the
valuation is included in securitization income.

We estimate the fair value of retained interests in securitizations based
on a discounted cash flow analysis when quoted market prices are not available.
The cash flows of the retained interest-only strip are estimated as the excess
of the weighted average interest yield on each pool of the receivables sold over
the sum of the interest rate earned by the note holder, the servicing fee and an
estimate of future credit losses over the life of the existing receivables. Cash
flows are discounted from the date the cash is expected to become available to
us (the "cash-out" method). These cash flows are projected over the life of the
receivables using payment, default, and interest rate assumptions that
management believes would be used by market participants for similar financial
instruments subject to prepayment, credit and interest rate risk. The cash flows
are discounted using an interest rate that management believes a purchaser
unrelated to the seller of the financial instrument would demand. The discounted
cash flow analysis is inherently subjective as it requires estimates that are
susceptible to significant revision as more information becomes available.
Interest income is recognized over the life of the retained interests in
securitizations using the discount rate used in the valuation.

Accrued interest and fees on securitized receivables are reduced by an
allowance for amounts estimated to be uncollectible. The allowance is estimated
using the same methodology as that used for on-balance sheet receivables that is
described above in "Allowance for Receivable Losses" and "Interest and Fee
Income on Receivables." Provisions for interest and fee losses on securitized
receivables are recorded as a reduction of securitization income.

SERVICING RIGHTS

Servicing assets associated with business credit card securitization
transactions are not recognized as the benefits of servicing are not expected to
be more or less than adequate compensation for performing the servicing.

PREMISES AND EQUIPMENT

Premises, equipment, computers and software are stated at cost less accumulated
depreciation and amortization. Depreciation is calculated using the
straight-line method over the estimated useful lives of the assets. Repairs and
maintenance are charged to expense as incurred. Estimated useful lives used for
premises and equipment are as follows:

Furniture, fixtures and equipment 4 to 7 years
Computers and software 3 to 4 years

Leasehold improvements are amortized over the shorter of the lives of the
leases or estimated service lives.

52

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

INTANGIBLE ASSETS

In the fourth quarter of 2002, we purchased rights to host an annual sporting
event that will be held in the Philadelphia area, to raise awareness of
Advanta's involvement in the local community, for $3 million. In accordance with
SFAS No. 142, "Goodwill and Other Intangible Assets," this intangible asset was
initially recorded at fair value. We determined that the intangible asset has an
indefinite useful life, and therefore no amortization was recorded. It will be
tested annually for impairment, or more frequently if events or changes in
circumstances indicate that the asset might be impaired.

BUSINESS CREDIT CARD REWARDS PROGRAMS

We offer bonus mile and cash-back reward programs with certain of our business
credit cards. Eligible cardholders earn bonus miles for air travel or up to 2%
cash-back rewards based on net purchases charged on their business credit card
account. The costs of future reward redemptions are estimated and a liability is
recorded at the time bonus miles or cash-back rewards are earned by the
cardholder. The estimated costs of future reward redemptions are classified as a
reduction of other revenues in the consolidated income statements. Estimates of
costs of future reward redemptions include an assumption regarding the
percentage of cardholders that will redeem the rewards and vary depending on the
structure of the rewards program. It is reasonably possible that actual results
will differ from our estimates or that our estimated liability for these
programs may change.

SECURITIES SOLD UNDER REPURCHASE AGREEMENTS

Securities sold under agreements to repurchase are accounted for as secured
borrowings because we maintain effective control over the transferred assets.
Securities sold under agreements to repurchase are reflected at the amount of
cash received in connection with the transaction. We may be required to provide
additional collateral based on the fair value of the underlying securities.

DERIVATIVE FINANCIAL INSTRUMENTS

We may use derivative financial instruments as part of our risk management
strategy to reduce interest rate risk. Derivatives are not used for trading or
speculative activities. We adopted SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," and SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities -- an amendment of FASB
Statement No. 133," on January 1, 2001. The adoption of SFAS No. 133 and No. 138
had no impact on income from continuing operations and was not material to
income from discontinued operations.

Effective January 1, 2001, we recognize all derivatives on the balance
sheet at fair value. On the date the derivative instrument is entered into, we
may designate the derivative as either (1) a hedge of the fair value of a
recognized asset or liability or of an unrecognized firm commitment, (2) a hedge
of a forecasted transaction or of the variability of cash flows to be received
or paid related to a recognized asset or liability ("cash flow hedge"), or (3) a
hedge of a net investment in a foreign operation. Changes in the fair value of a
derivative that is designated as, and meets all the required criteria for, a
fair value hedge, along with the gain or loss on the hedged asset or liability
that is attributable to the hedged risk, are recorded in current period
earnings. All derivatives used in continuing operations in the year ended
December 31, 2001 were designated as fair value hedges. There were no
derivatives designated as fair value hedges in the year ended December 31, 2002.
There were also no derivatives designated as cash flow hedges or net investment
hedges in the years ended December 31, 2002 or 2001.

Prior to the adoption of SFAS No. 133 on January 1, 2001, gains or losses
on derivatives designated as hedges of balance sheet items not carried at fair
value were deferred and were ultimately recognized in income as part of the
carrying amount of the related balance sheet item exposing us to interest rate
risk. Accrual accounting was applied for derivatives designated as synthetic
alterations with income and expense recorded in the same category as the related
underlying on-balance sheet or off-balance sheet item synthetically altered.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

For derivatives designated as hedges of balance sheet items where changes in
fair value were recognized currently in earnings, the related derivative was
included in the balance sheet at fair value, and changes in the fair value of
the derivative were also recognized currently in earnings.

INTERCHANGE INCOME

Interchange income represents fees paid to us by merchant banks through the
interchange network based on the purchase activity of our cardholders as partial
compensation for taking credit risk, absorbing fraud losses and funding credit
card receivables for a limited period prior to initial billing. Interchange
income includes interchange fees on both owned and securitized business credit
cards.

INSURANCE

Insurance premiums, net of commission expenses, on credit life, disability and
unemployment policies, are earned monthly based upon the outstanding balance of
the underlying receivables. Acquisition costs are deferred and amortized over
the period the related premiums or commissions will be earned in order to match
the expense with the anticipated revenue. Insurance loss reserves are based on
estimated settlement amounts for reported losses, incurred but not reported
losses and loss adjustment expenses.

STOCK-BASED COMPENSATION

SFAS No. 123, "Accounting for Stock Based Compensation," as amended by SFAS No.
148, "Accounting for Stock-Based Compensation -- Transition and Disclosure,"
defines a fair value based method of accounting for employee stock compensation
plans, whereby compensation cost is measured at the grant date based on the
value of the award and is recognized over the service period, which is usually
the vesting period. However, it permits entities to continue to measure
compensation cost for those plans using the intrinsic value based method of
accounting prescribed by Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, whereby compensation cost is the excess, if any,
of the quoted market price of the stock at the grant date or other measurement
date over the amount an employee must pay to acquire the stock. We have elected
to continue with the accounting methodology in Opinion No. 25 and, as a result,
have provided pro forma disclosures of compensation expense for stock option
plans, net of related tax effects, net income (loss) and earnings per share and
other disclosures, as if the fair value based method of accounting had been
applied. Had compensation cost for these plans been determined using the fair
value method, our compensation expense for stock option plans, net of related
tax effects, net income (loss) and net income (loss) per common share would have
changed to the following pro forma amounts:

54

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions for the years ended December 31:

INCOME TAXES

Deferred income tax assets and liabilities are determined using the asset and
liability (or balance sheet) method. Under this method, we determine the net
deferred tax asset or liability based on the tax effects of the temporary
differences between the book and tax bases of the various assets and liabilities
and give current recognition to changes in tax rates and laws. We evaluate the
realizability of the deferred tax asset and recognize a valuation allowance if,
based on the weight of available evidence, it is more likely than not that some
portion or all of the deferred tax asset will not be realized. In establishing
the valuation allowance, we consider (1) estimates of expected future taxable
income, (2) existing and projected book/tax differences, (3) tax planning
strategies available, and (4) the general and industry specific economic
outlook. This analysis is inherently subjective, as it requires estimates that
are susceptible to significant revision as more information becomes available.
Changes in estimate of deferred tax asset realizability, if applicable, are
included in income tax expense (benefit) on the consolidated income statements.

DISCONTINUED OPERATIONS

Our exit from the mortgage business and discontinuance of the leasing business
represent the disposal of business segments following Accounting Principles
Board ("APB") Opinion No. 30. Accordingly, results of these operations are
classified as discontinued in all periods presented. Our accounting for
discontinued operations was not impacted by the issuance of SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," since its
provisions for disposal groups of long-lived assets are effective for disposal
activities initiated after January 1, 2002. Estimates of future cash flows are
used in the accounting for discontinued operations, including estimates of the
future costs of mortgage business-related litigation and estimates of operating
results through the remaining term of the leasing portfolio. As all estimates
used are influenced by factors outside our control, there is uncertainty
inherent in these estimates, making it reasonably

55

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

possible that they could change in the near term. Changes in estimates related
to discontinued operations are included in gain (loss) on discontinuance of
mortgage and leasing businesses on the consolidated income statements.

EARNINGS PER SHARE

Basic earnings per common share is computed by dividing income available to
common stockholders by the weighted-average number of common shares outstanding
during the period. Income available to common stockholders is computed by
deducting preferred stock dividends from net income. Diluted earnings per common
share is computed by dividing income available to common stockholders by the sum
of average common shares outstanding plus dilutive common shares for the period.
Potentially dilutive common shares include stock options and restricted stock
issued under incentive plans. Since the cash dividends declared on our Class B
Common Stock were higher than the dividends declared on the Class A Common
Stock, basic and diluted earnings per common share have been calculated using
the "two-class" method. The two-class method is an earnings allocation formula
that determines earnings per share for each class of common stock according to
dividends declared and participation rights in undistributed earnings. Both
classes of our common stock share equally in undistributed earnings. We have
also presented combined earnings per common share, which represents a weighted
average of Class A and Class B earnings per common share.

RECENTLY ISSUED ACCOUNTING STANDARDS

In November 2002, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others," which
modifies the recognition and disclosure requirements of a company's guarantee
arrangements. Effective January 1, 2003, the interpretation requires a company
that enters into or modifies existing guarantee arrangements to recognize a
liability for the fair value of the obligation undertaken in issuing the
guarantee. Effective December 31, 2002, the interpretation also requires
disclosure of additional information about guarantees. We do not expect the
recognition and measurement provision to have a material impact on our financial
position or results of operations. We have provided the disclosures required by
the interpretation in Note 11.

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities -- An Interpretation of ARB No. 51." The
interpretation requires a company to consolidate a variable interest entity if
the company has variable interests that give it a majority of the expected
losses or a majority of the expected residual returns of the entity. The
consolidation requirements apply to all variable interest entities created after
January 31, 2002. In addition, public companies must apply the consolidation
requirements to variable interest entities that existed prior to February 1,
2003 and remain in existence as of the beginning of annual or interim periods
beginning after June 15, 2003. We do not anticipate that the adoption of this
interpretation will have a material effect on our financial position or results
of operations since qualifying special-purpose entities, as defined in SFAS 140,
are exempt from the consolidation requirements of this interpretation.

CASH FLOW REPORTING

Cash paid for interest was $52.2 million during 2002, $122.4 million during
2001, and $182.4 million during 2000. Cash paid for taxes was $1.7 million
during 2002 and $4.1 million during 2000. The net cash refund received for taxes
was $1.1 million in 2001.

NOTE 3. RESTRICTED INTEREST-BEARING DEPOSITS AND INVESTMENTS AVAILABLE FOR SALE

Restricted interest-bearing deposits include amounts held in escrow in
connection with our litigation with Fleet Financial Group ("Fleet") of $73.4
million at December 31, 2002 and $72.0 million at December 31,

56

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2001. Restricted interest-bearing deposits also include amounts held in escrow
in connection with other litigation-related contingencies of $2.6 million at
December 31, 2002 and $36.1 million at December 31, 2001.

Investments available for sale consisted of the following:

(1) Includes venture capital investments of $13.5 million at December 31, 2002,
$18.6 million at December 31, 2001 and $45.3 million at December 31, 2000.
The amount shown as amortized cost represents fair value for these
investments. See Note 2.

(2) Money market funds include a $110.9 million investment at December 31, 2002
and a $97.0 million investment at December 31, 2001 in the Merrill Lynch
Premier Institutional Money Market Fund.

Distributions from money market funds were $1.1 million in the year ended
December 31, 2002, $5.6 million in the year ended December 31, 2001 and $0.4
million in the year ended December 31, 2000 and were included in interest income
on the consolidated income statements.

Maturities of investments available for sale at December 31, 2002 were as
follows:

57

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Net realized gains on the sale of investments are included in other
revenues in the consolidated income statements. Realized gains and losses on
sales of investments available for sale were as follows in the years ended
December 31:

Investments deposited with insurance regulatory authorities to meet
statutory requirements or held by a trustee for the benefit of primary insurance
carriers were $6.1 million at December 31, 2002 and $6.2 million at December 31,
2001. At December 31, 2001, there were also $32.4 million of investments pledged
to secure repurchase agreements.

NOTE 4. RECEIVABLES

Receivables on the balance sheet, including those held for sale, consisted of
the following:

In June 2001, Advanta Corp. provided a $353 thousand mortgage financing
loan and a $100 thousand revolving home equity line of credit to an executive
officer as part of a relocation agreement. The line of credit may be used to
finance certain costs associated with establishing and maintaining the
residence. The interest rate on the mortgage financing loan and revolving note
is 7% and both loans are secured with liens against the property. The mortgage
financing loan extends through June 30, 2031 and the line of credit extends
through June 30, 2011. Both loans are subject to certain acceleration
provisions. Repayment of principal and interest is deferred for the initial
three-year period of the respective loans. The outstanding balances on these
loans are included in other receivables and were $427 thousand at December 31,
2002 and $367 thousand at December 31, 2001. Borrowings on the line of credit
were $33 thousand in 2002. There were no borrowings on the line of credit in
2001. The aggregate of other advances to executive officers and directors was
less than $225 thousand at December 31, 2002. There was no significant activity
in these advances during the year ended December 31, 2002.

Approximately 14% of our owned business credit card receivables are
concentrated in the state of California. No other single state had a
concentration of receivables in excess of 10% of total receivables.

We have commitments to extend credit to our business credit card customers,
representing unused lines of credit, of $6.1 billion at December 31, 2002 and
$4.6 billion at December 31, 2001. Lines of credit on our customers' business
credit cards totaled $8.6 billion at December 31, 2002 and $6.6 billion at
December 31, 2001. We believe that our customers' utilization of their lines of
credit will continue to be substantially less than the amount of the
commitments, as has been our experience to date.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 5. ALLOWANCE FOR RECEIVABLE LOSSES

The following table displays five years of allowance history:

(1) See "Interest and Fee Income on Receivables" in Note 2 for a discussion of
the change in income billing practice effective October 1, 2002. Provisions
for interest and fee losses are recorded as direct reductions to interest
and fee income.

NOTE 6. SECURITIZATION ACTIVITIES

Accounts receivable from securitizations consisted of the following:

59

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following represents business credit card securitization data for the
years ended December 31, and the key assumptions used in measuring the fair
value of retained interests in securitizations at the time of each new
securitization or replenishment during those periods.

There were no purchases of delinquent accounts during 2002, 2001 or 2000.

In 2002, we revised our interest yield assumption to include both finance
charge and late fee yield. Previously, the interest yield assumption included
only finance charge yield. This change in assumption had no material impact on
securitization income in the year ended December 31, 2002. The retained
interest-only strip valuation includes cash flow projections over the three
month weighted average life of existing receivables at both December 31, 2002
and 2001.

The following assumptions were used in measuring the fair value of retained
interests in business credit card securitizations at December 31, 2002 and 2001.
The assumptions listed represent weighted averages of assumptions used for each
securitization.

In addition to the assumptions identified above, management also considered
qualitative factors such as the impact of the current economic environment on
the performance of the business credit card receivables sold and the potential
volatility of the current market for similar instruments in assessing the fair
value of retained interests in business credit card securitizations.

We have prepared sensitivity analyses of the valuations of retained
interests in securitizations. The sensitivity analyses show the hypothetical
adverse effect on the fair value of those assets of two unfavorable variations
from the expected levels for each key assumption, independently from any change
in another key

60

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

assumption. The following are the results of those sensitivity analyses on the
valuation at December 31, 2002 and 2001.

The objective of these hypothetical analyses is to measure the sensitivity
of the fair value of the retained interests to changes in assumptions. The
methodology used to calculate the fair value in the analyses is a discounted
cash flow analysis, the same methodology used to estimate fair value as
described in Note 2. These estimates do not factor in the impact of simultaneous
changes in other key assumptions. The above scenarios do not reflect
management's expectation regarding the future direction of these rates, and they
depict only certain possibilities out of a large set of possible scenarios.

MANAGED RECEIVABLE DATA

Our managed receivable portfolio is comprised of both owned receivables and
securitized business credit card receivables. Performance on a managed
receivable portfolio basis is relevant because we retain interests in the
securitized receivables and, therefore, we have a financial interest in and
exposure to the performance of the securitized receivables. Credit quality data
on the managed receivable portfolio is as follows:

61

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(1) See "Interest and Fee Income on Receivables" in Note 2 for a discussion of
the change in income billing practice effective October 1, 2002.

(2) Net principal charge-offs for the year ended December 31, 2000 were $17.8
million on owned receivables and $46.8 million on securitized receivables,
for a total of $64.6 million on managed receivables.

The geographic concentration of managed receivables was as follows:

NOTE 7. SELECTED BALANCE SHEET INFORMATION

Other assets consisted of the following:

62

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Other liabilities consisted of the following:

(1) A substantial portion of other liabilities represents our litigation
reserves.

NOTE 8. DEPOSITS

Deposit accounts consist of the following:

Time deposit maturities are as follows:

Year Ended December 31,
2003 $486,874
2004 188,314
2005 29,769
2006 27
2007 103

In the second quarter of 2001, we sold $389.7 million of deposit
liabilities to E*TRADE Bank, a wholly owned subsidiary of E*TRADE Group, Inc.

63

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 9. DEBT

The composition of debt was as follows:

The annual contractual maturities of debt are as follows:

Year Ended December 31,
2003 $206,897
2004 62,379
2005 16,770
2006 8,293
2007 21,547

The average interest cost of our debt was 7.56% during 2002, 9.47% during
2001, and 8.17% during 2000.

NOTE 10. OTHER BORROWINGS

There were no other borrowings at December 31, 2002. Other borrowings at
December 31, 2001 were comprised of $32.3 million of securities sold under
repurchase agreements.

At December 31, 2002, Advanta Bank Corp. had federal funds purchased
facilities available with two correspondent banks totaling $77.5 million.
Advanta Bank Corp had no borrowings under these facilities as of December 31,
2002 or 2001. There were no federal funds purchased facilities available at
Advanta National Bank at December 31, 2002.

64

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table displays information related to selected types of our
short-term borrowings:

The weighted average interest rates were calculated by dividing the
interest expense for the period by the average amount of short-term borrowings
outstanding during the period, calculated as an average of daily amounts.

NOTE 11. COMMITMENTS AND CONTINGENCIES

LITIGATION CONTINGENCIES

On January 22, 1999, Fleet and certain of its affiliates filed a lawsuit against
Advanta Corp. and certain of its subsidiaries in Delaware Chancery Court.
Fleet's allegations, which we deny, center around Fleet's assertions that we
failed to complete certain post-closing adjustments to the value of the assets
and liabilities we contributed to Fleet Credit Card LLC in connection with the
transfer of our consumer credit card business to Fleet Credit Card LLC (the
"Consumer Credit Card Transaction") in 1998. We filed an answer to the
complaint, and we also filed a countercomplaint against Fleet for damages we
believe have been caused by certain actions of Fleet. As a result of related
litigation with Fleet, $70.1 million of our reserves in connection with this
litigation were funded in an escrow account in February 2001. On January 22,
2003, the trial court issued a decision ruling on all but one of the remaining
issues, and ordered further briefing on the remaining outstanding issue. In the
year ended December 31, 2002, we recognized a $43.0 million pretax loss on the
transfer of our consumer credit card business, representing the estimated impact
of implementing the court's decisions. This amount represents the amount in
excess of the reserves we have been carrying for the litigation, which was based
on our expectations of the outcome of the litigation. We estimate that the
court's decisions will have a favorable impact to our liquidity since we would
recoup approximately $8 million in cash from the escrow account funded in
February 2001, after payment of amounts due to Fleet. The court's ruling on the
remaining outstanding issue and/or the ultimate resolution of any issues that
may be appealed could reduce or eliminate the charge to our earnings, although
there can be no assurance as to the potential benefit, if any, to earnings at
this time.

In an ongoing element of Fleet's disputes with us, Fleet has claimed $508
million of tax deductions from its partnership with us in connection with the
Consumer Credit Card Transaction, which are required under the law to be
allocated solely to Advanta. As required, we reported these deductions on our
1998 corporate tax return. However, we have not used or booked the benefit from
most of these deductions because for tax purposes we have a very substantial net
operating loss carryforward. We have approximately $636 million of net operating
loss carryforwards at December 31, 2002 and have booked no benefit from $402
million of these net operating loss carryforwards. The deductions are
attributable to deductions for bad debt reserves that we expensed in computing
our book income or loss before the Consumer Credit Card Transaction, but which

65

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

were not deductible by Advanta for tax purposes until after the closing of the
transaction in 1998. The tax law requires "built in losses" like these to be
deducted by the party who contributed the assets to the partnership, in this
case, Advanta. The Internal Revenue Service agents who have examined the returns
at issue have to ensure that both parties do not obtain the deductions and
therefore, following standard practice, proposed to disallow the deductions to
both parties until there is a final resolution. The deductions, as well as the
allocation of a gain from the sale of a partnership asset of approximately $47
million, are now before the IRS Regional Office of Appeals.

On January 15, 2003, Fleet filed a complaint in Rhode Island Superior Court
seeking a declaratory judgment that we indemnify Fleet under the applicable
partnership agreement for any damage Fleet incurs by not being entitled to the
$508 million of tax deductions. Fleet is also seeking a declaratory judgment
that it should not indemnify us for any damages that we incur due to any
allocation to Advanta of the $47 million gain on the sale of a partnership
asset. Fleet's claim for indemnification appears to be brought by Fleet in the
hope that we will advise the IRS that we will agree with a substantial part of
Fleet's tax position. On February 28, 2003, we filed a motion to dismiss the
complaint. We believe that the indemnification provision in the partnership
agreement does not indemnify Fleet for damages incurred related to the tax
deductions and that the lawsuit is frivolous, having no legal basis whatsoever.
We do not expect this lawsuit or the tax issues discussed above to have a
material adverse effect on our financial condition or results of operations.

On December 5, 2000, a former executive of Advanta obtained a jury verdict
against us in the amount of $3.9 million in the United States District Court for
the Eastern District of Pennsylvania, in connection with various claims against
Advanta related to the executive's termination of employment. In September 2001,
the District Court Judge issued orders denying both parties' post-trial motions.
A judgment in the amount of approximately $6 million, which includes the $3.9
million described above, was entered against Advanta. In September 2001, we
filed an appeal to the United States Court of Appeals for the Third Circuit. We
have posted a supersedeas bond in the amount of $8 million. On July 8, 2002, the
Court of Appeals rendered a judgment affirming in part and reversing in part the
judgment. The Court of Appeals reduced the total damage award by approximately
$1.1 million and also ordered the District Court to reduce the amount of
liquidated damages based on the reduced award. The effect of this decision will
be to reduce the judgment to approximately $4.7 million rather than $6 million.
On February 24, 2003, the Supreme Court of the United States denied our petition
for certiorari seeking a new trial instead of the reduced verdict. The District
Court Judge has not yet ruled on the executive's petition for attorney's fees
and costs in the amount of approximately $1.4 million, which we have contested.
Management expects that the ultimate resolution of this litigation will not have
a material adverse effect on our financial position or future operating results,
based on the level of reserves we have established in connection with this
litigation.

On July 26, 2001, Chase Manhattan Mortgage Corporation ("Chase") filed a
complaint against Advanta Corp. and certain of its subsidiaries in the United
States District Court for the District of Delaware alleging, among other things,
that we breached our contract with Chase in connection with the Mortgage
Transaction. Chase claims that we misled Chase concerning the value of certain
of the assets sold to Chase. In September 2001, we filed an answer to the
complaint in which we denied all of the substantive allegations of the complaint
and asserted a counterclaim against Chase for breach of contract relating to
funds owed by Chase to us in connection with the transaction. The matter is in
discovery and trial is scheduled to begin in January 2004. We believe that the
lawsuit is without merit and will vigorously defend Advanta in this litigation.
We do not expect this lawsuit to have any impact on our continuing business and,
based on the complete lack of merit, we do not anticipate that the lawsuit will
have a material adverse impact on our financial position or future operating
results.

In addition to the cases described above, Advanta Corp. and its
subsidiaries are involved in class action lawsuits, other litigation, claims and
legal proceedings arising in the ordinary course of business or discontinued
operations, including litigation arising from our operation of the mortgage
business prior to the Mortgage Transaction in the first quarter of 2001.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Management believes that the aggregate loss, if any, resulting from these
actions will not have a material adverse effect on our financial position or
results of our operations based on the level of litigation reserves we have
established and our current expectations regarding the ultimate resolutions of
these existing actions. Our litigation reserves are estimated based on the
status of litigation and our assessment of the ultimate resolution of each
action after consultation with our attorneys. However, due to the inherent
uncertainty in litigation and since the ultimate resolutions of our litigation,
claims and other legal proceedings are influenced by factors outside of our
control, it is reasonably possible that our estimated liability under these
proceedings may change or that actual results will differ from our estimates.
Changes in estimates or other charges related to litigation are included in
operating expenses of the respective business segment if related to continuing
operations, or gain (loss) on discontinuance of mortgage and leasing businesses
if related to discontinued operations.

OBLIGATIONS UNDER GUARANTEES

In the normal course of business, we enter into agreements pursuant to which we
may be obligated under specified circumstances to indemnify the counterparties
with respect to certain matters. These indemnification obligations typically
arise in the context of contracts entered into by us to, among other things,
purchase or sell assets or services, service assets (including for unaffiliated
third parties), lease real property and license intellectual property. The
contracts we enter into in the normal course of business generally require us to
hold the other party harmless against losses arising from a breach of a
representation, warranty or covenant. Under the indemnification provisions,
payment by us is generally conditioned upon the other party making a claim
pursuant to the procedures specified in the particular contract, and the
procedures typically allow us to challenge the other party's claims. Further,
our indemnification obligations may be limited in time and/or amount, and in
some instances, we may have recourse against third parties for certain payments
made by us under an indemnification agreement. Also, in connection with the
securitization of receivables, we enter into agreements pursuant to which we
agree to indemnify other parties to these transactions. The agreements contain
standard representations and warranties about the assets and include
indemnification provisions under certain circumstances involving a breach of
these representations or warranties. In connection with the securitization
transactions we also include indemnifications that protect other parties to the
transactions upon the occurrence of certain events such as violations of
securities law and certain tax matters. Contingencies triggering material
indemnification obligations have not occurred historically and are not expected
to occur. It is not possible to determine the maximum potential amount of future
payments under these or similar arrangements due to the conditional nature of
our obligations and the unique facts and circumstances involved in each
particular agreement. There are no amounts reflected on the consolidated balance
sheets as of December 31, 2002 or 2001 related to these indemnifications.

In connection with our exit from certain businesses, we have entered into
agreements that include customary indemnification obligations to the other
parties. Litigation relating to an indemnification provision of an agreement we
entered into with Fleet as part of the Consumer Credit Card Transaction is
described above in "Litigation Contingencies." In general, the agreements we
have entered into in connection with our disposition of assets, liabilities
and/or businesses provide that we will indemnify the other parties to the
transactions for certain losses relating to the assets, liabilities or business
acquired by them. The obligations to indemnify are transaction and circumstance
specific, and in most cases the other party must suffer a minimum threshold
amount of losses before our indemnification obligation is triggered. Under the
indemnification provisions, payment by us is generally conditioned upon the
other party making a claim pursuant to the procedures specified in the
particular contract, and the procedures typically allow us to challenge the
other party's claims. It is not possible to determine the maximum potential
amount of future payments under these or similar arrangements due to the
conditional nature of our obligations and the unique facts and circumstances
involved in each particular agreement. There are no amounts reflected on the
consolidated balance sheets as of December 31, 2002 or 2001 related to these
indemnifications.

See Note 24 for discussion of parent guarantees of subsidiary obligations.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

COMMITMENTS

We lease office space in several states under leases accounted for as
operating leases. Total rent expense related to continuing operations was $5.5
million in 2002, $5.2 million in 2001 and $5.6 million in 2000. The future
minimum lease payments of non-cancelable operating leases are as follows:

Year Ended December 31,
2003 $5,138
2004 4,057
2005 2,966
2006 462
2007 197
Thereafter 49

In the normal course of business, we have commitments to extend credit to
our business credit card customers. See Note 4 for further discussion.

NOTE 12. MANDATORILY REDEEMABLE PREFERRED SECURITIES

In December 1996, a newly formed statutory business trust established and
wholly-owned by Advanta Corp., issued $100 million of capital securities,
representing preferred beneficial interests in the assets of the trust. We used
the proceeds from the sale for general corporate purposes. The assets of the
trust consist of $100 million of 8.99% junior subordinated debentures issued by
Advanta Corp. due December 17, 2026. The capital securities will be subject to
mandatory redemption under certain circumstances. These circumstances include
the optional prepayment by Advanta Corp. of the junior subordinated debentures
at any time on or after December 17, 2006 at an amount per capital security
equal to 104.495% of the principal amount plus accrued and unpaid distributions.
This amount declines ratably on each December 17 thereafter to 100% on December
17, 2016. Our obligations, in the aggregate, provide a full and unconditional
guarantee of payments of distributions and other amounts due on the capital
securities. Dividends on the capital securities are cumulative, payable
semi-annually in arrears at an annual rate of 8.99%, and are deferrable at our
option for up to ten consecutive semi-annual periods, provided that no extension
may extend beyond December 17, 2026. We cannot pay dividends on our preferred or
common stocks during deferments. Dividends on the capital securities have been
classified as minority interest in income of consolidated subsidiary in the
consolidated income statements. The trust has no operations or assets separate
from its investment in the junior subordinated debentures. Separate financial
statements of the trust are not presented because management has determined that
they would not be meaningful to investors.

NOTE 13. CAPITAL STOCK

Class A Preferred Stock is entitled to 1/2 vote per share and a non-cumulative
dividend of $140 per share per year, which must be paid prior to any dividend on
the common stock. The redemption price of the Class A Preferred Stock is
equivalent to its par value and redemption is only permitted upon approval of
the Board of Directors of Advanta Corp.

In 2000, we retired 405,000 shares of Class A Treasury stock and 445,600
shares of Class B Treasury stock.

In 2001, the Board of Directors of Advanta Corp. authorized the purchase of
up to 1.5 million shares of Advanta Corp. common stock or the equivalent dollar
amount of our capital securities, or some combination thereof. In August 2002,
the Board of Directors authorized the purchase of up to an additional 1.5
million shares of Advanta Corp. common stock, bringing the total authorization
to up to 3.0 million shares. During the

68

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

year ended December 31, 2001, we repurchased 693,300 shares of our Class B
Common Stock. In the year ended December 31, 2002, we repurchased 1,554,759
shares of our Class B Common Stock.

Cash dividends per share of common stock declared during each of the years
ended December 31, 2002, 2001 and 2000 were $0.252 for Class A Common Stock and
$0.302 for Class B Common Stock.

NOTE 14. BENEFIT PLANS

We have adopted a stock-based incentive plan designed to provide incentives to
participating employees to remain in our employ and devote themselves to
Advanta's success. Our incentive plan authorizes an aggregate of 20.0 million
shares of Advanta Corp. Class B Common Stock for the grant of options, awards of
shares of stock or awards of stock appreciation rights to employees and
directors. Shares available for future grant were 8.8 million at December 31,
2002 and 11.9 million at December 31, 2001.

RESTRICTED STOCK AWARDS

Under our management incentive programs, eligible employees were given the
opportunity to elect to take portions of their anticipated or target bonus
payments for future years in the form of restricted shares of Advanta Corp.
Common Stock. The current program covers the performance years 2002 through
2005. To the extent that these elections were made, or were required by the
terms of the programs for executive officers, restricted shares were issued to
employees. The number of shares granted to employees is determined by dividing
the amount of future target bonus payments that the employee had elected to
receive in stock by the market price as determined under the incentive program.
The restricted shares are subject to forfeiture prior to vesting should the
employee terminate employment with us. Restricted shares vest 10 years from the
date of grant. Vesting was and may continue to be accelerated annually with
respect to the shares granted under the program covering the particular
performance year, based on the extent to which the employee and Advanta met or
meet their respective performance goals for that performance year. When newly
eligible employees elect to participate in this program, the number of shares
issued to them with respect to their target bonus payments for the relevant
performance years is determined based on the average market price of the stock
for the 90 days prior to the first day of the month in which they are eligible
to join the program. Compensation expense on restricted shares is recognized
over the vesting period of the shares. Compensation expense recognized in
connection with restricted shares was $2.5 million in 2002, $3.3 million in 2001
and $5.3 million in 2000.

Due to the restructuring of the company in the first quarter of 2001, we
implemented a program whereby certain restricted stock was exchanged for cash
and stock options in a tender offer. The cash and stock options are subject to
the same performance conditions and vesting requirements as the tendered
restricted stock. The stock options expire two years after the vesting date.
There were 117 thousand shares of restricted stock tendered with a weighted
average price at date of issuance of $21.11, and 232 thousand options were
issued in connection with the tender offer with an exercise price of $10.63.
Noncash charges associated with the tender offer and related issuance of stock
options were $1.4 million and were included in unusual charges in the
consolidated income statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Substantially all restricted shares outstanding during the three years
ended December 31, 2002 were Class B Common Stock. The following table
summarizes restricted share activity for the three years ended December 31:

STOCK OPTIONS

Stock option transactions in the years ended December 31 were as follows:

The following table summarizes information about stock options outstanding
at December 31, 2002.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Options generally vest over a four-year period and expire 10 years after
the date of grant. Substantially all options outstanding during the three years
ended December 31, 2002 were options to purchase Class B Common Stock.

In 2001, we accelerated vesting of 32% of outstanding options that were not
vested at the date of the closing of the Mortgage Transaction. This acceleration
resulted in a noncash charge of $1.3 million that was included in unusual
charges in the consolidated income statements. We also extended the exercise
period for options held by employees in the discontinued businesses for an
additional six months following the date of the Mortgage Transaction, February
28, 2001. This extension resulted in a noncash charge of $650 thousand that was
included in the loss on discontinuance of mortgage and leasing businesses in the
consolidated income statements.

Due to the restructuring of the company in the first quarter of 2001, we
implemented a program whereby certain out-of-the-money options were exchanged
for shares of stock. There were 510 thousand options forfeited in connection
with this program with a weighted average exercise price of $19.42. Noncash
charges associated with the issuance of the stock were $2.2 million and were
included in unusual charges in the consolidated income statements. Shares
granted in exchange for options were immediately vested but their distribution
is deferred. Participants will receive distributions of 25% of their shares on
the first, second, third and fourth anniversary of the program or they may elect
to defer distributions of any installment of shares until the second through
tenth anniversary of the program. If a participant terminates employment with
Advanta, any unpaid installments will be distributed on the tenth anniversary of
the program. As of December 31, 2002, there were 121 thousand shares remaining
to be distributed.

STOCK APPRECIATION RIGHTS AND PHANTOM STOCK

In connection with reviewing our compensation plans after the Mortgage
Transaction and restructuring of corporate functions in 2001, we implemented a
program whereby all outstanding stock appreciation rights and shares of phantom
stock were terminated in 2001 in exchange for cash to be paid through a deferred
compensation arrangement. We recorded charges of $2.9 million in 2001 associated
with this exchange as unusual charges in the consolidated income statements.
Participants will receive distributions of 25% of their cash on the first,
second, third and fourth anniversary of the program or they may elect to defer
payment of any installment of cash until the second through tenth anniversary of
the program. If a participant terminates employment with Advanta, any unpaid
installments will be distributed on the tenth anniversary of the program.

Compensation expense (benefit) related to stock appreciation rights was
($512) thousand in 2000. Compensation expense (benefit) related to the
appreciation (depreciation) on shares of phantom stock was ($268) thousand in
2000. There was no compensation expense (benefit) related to stock appreciation
rights or shares of phantom stock in 2001 prior to the exchange. There were no
stock appreciation rights or shares of phantom stock outstanding at December 31,
2002 or 2001 due to the exchange discussed above.

EMPLOYEE STOCK PURCHASE PLAN

We have an Employee Stock Purchase Plan, which allows employees and directors to
purchase Advanta Corp. Class B Common Stock at a 15% discount from the market
price without paying brokerage fees. We report this 15% discount as compensation
expense and incurred expense of $56 thousand in 2002, $83 thousand in 2001 and
$163 thousand in 2000. All shares of Advanta Corp. Class B Common Stock
purchased by the plan in the three years ended December 31, 2002 were purchased
on the open market.

EMPLOYEE SAVINGS PLAN

Our Employee Savings Plan is a defined contribution plan available to all of our
employees who have reached age 21 with one year of service. It provides
tax-deferred savings and investment opportunities, including the ability to
invest in Advanta Corp. Class B Common Stock. The plan provides for
discretionary employer
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

contributions equal to a portion of the first 5% of an employee's compensation
contributed to the plan. For the three years ended December 31, 2002, 2001 and
2000, our contributions equaled 100% of the first 5% of participating employees'
compensation contributed to the plan. The compensation expense for this plan
totaled $1.2 million in 2002, $1.3 million in 2001 and $3.1 million in 2000. All
shares of Advanta Corp. Class B Common Stock purchased by the plan in the three
years ended December 31, 2002 were purchased on the open market.

EMPLOYEE STOCK OWNERSHIP PLAN

On September 10, 1998, our Board of Directors authorized the formation of an
Employee Stock Ownership Plan (the "ESOP"), available to all of our employees
who have reached age 21 with one year of service. During 1998, the ESOP borrowed
approximately $12.6 million from Advanta Corp. and used the proceeds to purchase
approximately 1,000,000 shares of Class A Common Stock. The ESOP loan is
repayable with an interest rate of 8% over 30 years. We make annual
contributions to the ESOP equal to the ESOP's debt service less dividends
received on ESOP shares. As the ESOP makes each loan payment, an appropriate
percentage of stock is allocated to eligible employees' accounts based on
relative participant compensation. Shares are also allocated to participants
equal to the value of dividends on allocated shares used for loan payments.
Unallocated shares are reported as unearned ESOP shares in the balance sheet. As
shares of common stock acquired by the ESOP are committed to be released to each
employee, we report compensation expense equal to the current market price of
the shares, and the shares become outstanding for earnings per share
computations. Dividends on allocated ESOP shares are recorded as a reduction of
retained earnings; dividends on unallocated ESOP shares are used to fund debt
service of the ESOP. ESOP compensation expense was $350 thousand in the year
ended December 31, 2002, $431 thousand in the year ended December 31, 2001 and
$455 thousand in the year ended December 31, 2000. At December 31, 2002, there
were 860,804 unearned and unallocated ESOP shares with a fair value of $7.7
million. At December 31, 2001, there were 896,317 unearned and unallocated ESOP
shares with a fair value of $8.9 million.

DEFERRED CASH COMPENSATION PLANS

We offer elective, nonqualified deferred compensation plans to eligible
executives and non-employee directors, which allow them to defer a portion of
their cash compensation on a pretax basis. The executive plan contains
provisions related to minimum contribution levels and both plans have provisions
related to deferral periods with respect to any individual's participation. Plan
participants make irrevocable elections at the date of deferral as to deferral
period and date of distribution. Distribution from the plans may be either at
retirement or at an earlier date, and can be either in a lump sum or in
installment payments. Interest is credited to participants' accounts at the rate
of 125% of the 10-year rolling average interest rate on 10-Year U.S. Treasury
Notes. To assist in funding the deferred compensation liability, we have
invested in life insurance contracts. Compensation expense related to these
deferred cash compensation plans was $369 thousand in the year ended December
31, 2002, $342 thousand in the year ended December 31, 2001 and $447 thousand in
the year ended December 31, 2000.

NOTE 15. REGULATORY AGREEMENTS

Advanta Bank Corp. and Advanta National Bank are wholly owned subsidiaries of
Advanta Corp. In 2000, Advanta Bank Corp. entered into agreements with its bank
regulatory agencies, primarily relating to the bank's subprime lending
operations. These agreements imposed temporary deposit growth limits at Advanta
Bank Corp. and required prior regulatory approval of cash dividends. In April
2002, the agreements were removed and, as a result, the restrictions in the
agreements on deposit growth and payment of cash dividends are no longer
applicable. In connection with removing the agreements, Advanta Bank Corp.
reached an understanding with its regulators, reflecting continued progress in
our ongoing efforts to enhance Advanta Bank Corp.'s practices and procedures.
Effective October 2002, the understanding was revised. The revised understanding
replaces the provisions of the prior understanding and provides for the bank to
enhance certain

72

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

of its internal planning and monitoring processes. The revised understanding is
consistent with the manner in which Advanta Bank Corp. is currently operating
its business and includes no restrictions expected to have any impact on our
financial results.

In 2000, Advanta National Bank also reached agreements with its bank
regulatory agency, primarily relating to the bank's subprime lending operations.
The agreements established temporary asset growth limits at Advanta National
Bank, imposed restrictions on taking brokered deposits and required that Advanta
National Bank maintain certain capital ratios in excess of the minimum
regulatory standards. In 2001, Advanta National Bank entered into an additional
agreement with its regulatory agency regarding restrictions on new business
activities and product lines at Advanta National Bank after the Mortgage
Transaction, and the resolution of outstanding Advanta National Bank
liabilities. The agreement also reduced the capital requirements for Advanta
National Bank to 12.7% for Tier 1 and total capital to risk-weighted assets, and
to 5% for Tier 1 capital to adjusted total assets as defined in the agreement.
In addition, the agreement prohibits the payment of dividends by Advanta
National Bank without prior regulatory approval. Management believes that
Advanta National Bank was in compliance with its regulatory agreements at
December 31, 2002.

NOTE 16. CAPITAL RATIOS

Advanta Bank Corp. and Advanta National Bank are subject to various regulatory
capital requirements administered by the federal banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory -- and possibly
additional discretionary -- actions by regulators that, if undertaken, could
have a direct material effect on the bank's and our financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, banks must meet specific capital guidelines that involve quantitative
measures of their assets, liabilities, and certain off-balance sheet items as
calculated under regulatory accounting practices. The banks' capital amounts and
classification are also subject to qualitative judgments by the bank regulators
about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy
require the banks to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined).

As set forth in the table below, as of December 31, 2002 and 2001, Advanta
Bank Corp. and Advanta National Bank had capital at levels a bank is required to
maintain to be classified as "well-capitalized" under the regulatory framework
for prompt corrective action. However, Advanta National Bank does not meet the
definition of "well-capitalized" because of the existence of its agreement with
its regulatory agency, even though it has achieved the higher imposed capital
ratios required by the agreement. As discussed in Note 15, Advanta National
Bank's agreement with its regulatory agency requires 12.7% for Tier 1 and total
capital to risk-weighted assets, and 5% for Tier 1 capital to adjusted total
assets as defined in the agreement.

In the second quarter of 2002, the bank regulatory agencies issued an
interagency advisory that required accrued interest receivable relating to
securitized credit cards to be treated as a subordinated residual interest for
regulatory capital calculations no later than December 31, 2002. Advanta Bank
Corp. and Advanta National Bank adopted this guidance effective December 31,
2002. The adoption of this guidance did not impact the regulatory capital
requirements of Advanta National Bank. The adoption of this interagency guidance
at Advanta Bank Corp. resulted in Advanta Bank Corp.'s combined total capital
ratio being reduced by approximately six percentage points.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 17. DIVIDEND AND LOAN RESTRICTIONS

In the normal course of business, Advanta Corp. and its subsidiaries enter into
agreements, or are subject to regulatory requirements, that result in dividend
and loan restrictions.

FDIC-insured banks are subject to certain provisions of the Federal Reserve
Act which impose various legal limitations on the extent to which banks may
finance or otherwise supply funds to certain of their affiliates. In particular,
Advanta Bank Corp. and Advanta National Bank are subject to certain restrictions
on any extensions of credit to, or other covered transactions, such as certain
purchases of assets, with Advanta Corp. or its affiliates. Advanta Bank Corp.
and Advanta National Bank are prevented by these restrictions from lending to
Advanta Corp. and its affiliates unless these extensions of credit are secured
by U.S. Government obligations or other specified collateral. Further, secured
extensions of credit are limited in amount: (1) as to Advanta Corp. or any
affiliate, to 10 percent of each bank's capital and surplus, and (2) as to
Advanta Corp. and all affiliates in the aggregate, to 20 percent of each bank's
capital and surplus.

Under grandfathering provisions of the Competitive Equality Banking Act of
1987, we are not required to register as a bank holding company under the Bank
Holding Company Act of 1956, as amended, so long as Advanta Corp. and Advanta
National Bank continue to comply with certain restrictions on their activities.
These restrictions include limiting the scope of Advanta National Bank's
activities to those in which it was engaged prior to March 5, 1987. Since
Advanta National Bank was not making commercial loans at that time, it must
continue to refrain from making commercial loans -- which would include any
loans to Advanta Corp. or any of its subsidiaries -- in order for Advanta Corp.
to maintain its grandfathered exemption under the Bank Holding Company Act. We
have no present plans to register as a bank holding company under the Bank
Holding Company Act.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Advanta National Bank's agreements with its regulatory agency prohibit the
payment of dividends by Advanta National Bank without prior regulatory approval.
In connection with the Mortgage Transaction in the first quarter of 2001, we
sought and received regulatory approval for a return of capital of $261 million
from Advanta National Bank. Advanta National Bank paid no dividends to Advanta
Corp. during 2002, 2001, or 2000. In 2001, Advanta Bank Corp. transferred
certain assets as a dividend to Advanta Corp. The fair value of the assets at
time of the dividend in 2001 was $91.4 million. There were no dividends from
Advanta Bank Corp. to Advanta Corp. during 2002 or 2000.

Our insurance subsidiaries are also subject to certain capital and dividend
rules and regulations as prescribed by state jurisdictions in which they are
authorized to operate. At December 31, 2002, the insurance subsidiaries were in
compliance with these rules and regulations. Insurance subsidiaries paid
dividends to Advanta Corp. of $2.2 million in 2002. In the year ended December
31, 2001, Advanta Corp. received a return of capital from insurance subsidiaries
of $57.5 million. Insurance subsidiaries paid dividends to Advanta Corp. of $6.1
million in 2001. There were no dividends paid to Advanta Corp. by insurance
subsidiaries in 2000.

Total stockholders' equity of our banking and insurance affiliates was $280
million at December 31, 2002 and $220 million at December 31, 2001. Of our total
equity in these affiliates, $226 million was restricted at December 31, 2002 and
$218 million was restricted at December 31, 2001. At January 1, 2003, $54.6
million of stockholders' equity of our bank and insurance affiliates was
available for payment of cash dividends in 2003 under applicable regulatory
guidelines without prior regulatory approval.

In addition to dividend restrictions at banking subsidiaries, certain
non-bank subsidiaries are subject to minimum equity requirements as part of
securitization or other agreements. The total minimum equity requirement of
non-bank subsidiaries was $10 million at December 31, 2002. At December 31,
2002, the non-bank subsidiaries were in compliance with these minimum equity
requirements.

NOTE 18. SEGMENT INFORMATION

Our reportable segments are Advanta Business Cards and our venture capital
segment. During the first quarter of 2001, we made changes to the methods used
to allocate centrally incurred interest and operating expenses to the reportable
segments. These changes were made to better reflect the results of the
continuing businesses due to the discontinuance of the mortgage and leasing
segments and the restructuring of our corporate functions in the first quarter
of 2001. Prior period segment results have been restated to reflect the current
allocation methods.

Advanta Business Cards offers business credit cards to small businesses
through targeted direct mail and telemarketing solicitations and the Internet.
This product provides approved customers with access, through merchants, banks,
checks and ATMs, to an instant unsecured revolving business credit line. Advanta
Business Cards generates interest and other income through finance charges
assessed on outstanding balances, interchange income, cash advance and other
credit card fees.

Our venture capital segment makes venture capital investments through
certain of our affiliates. The investment objective is to earn attractive
returns by building the long-term values of the businesses in which we invest.
Our investment affiliates combine transaction expertise, management skills and a
broad contact base with strong industry-specific knowledge. We actively monitor
the performance of our venture capital investments, and employees and officers
of our investment affiliates participate on the boards of directors of some
investees.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(1) Other includes investment and other activities not attributable to
reportable segments. It also includes corporate overhead previously
allocated to the mortgage and leasing business units while they were
operating segments. Corporate overhead allocations were removed from the
results of the discontinued segments as a result of the restatement for
discontinued operations. Total assets in the "Other" segment include assets
of discontinued operations.
(2) Unusual charges in 2001 represent severance, outplacement and other
compensation costs associated with restructuring our corporate functions
commensurate with the ongoing businesses as well as expenses associated with
exited businesses and asset impairments.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 19. SELECTED INCOME STATEMENT INFORMATION

(1) Investment securities gains (losses), net include changes in the fair value
and realized gains and losses on venture capital investments.

We offer bonus mile and cash-back reward programs with certain of our
business credit cards. Through the second quarter of 2002, we estimated that 80%
to 100% of cardholders would ultimately claim rewards. The estimate of the
percentage of cardholders that will ultimately claim rewards varies depending on
the structure of the rewards program. In 2002, we revised our estimate of the
bonus mile reward liability, including a change in the assumed percentage of
cardholders that will ultimately claim rewards from 80% to 70% and a change in
the estimated cost of future reward redemptions, based on experience for that
program life-to-date. After this change, our estimated range of cardholders that
will ultimately claim rewards for all programs is 70% to 100%. The impact of the
change in estimate of the bonus mile reward liability was an approximate $1.9
million increase in other revenues in the year ended December 31, 2002,
resulting in an increase in net income of approximately $1.2 million or $0.05
per diluted share.

Insurance revenues, net and other in the year ended December 31, 2001
includes operating results of insurance operations, the impact of the
termination of our strategic alliance with Progressive Casualty Insurance
Company to direct market auto insurance and $10 million of charges related to
the write-off of insurance-related deferred acquisition costs that were
unrealizable subsequent to the termination of the auto insurance strategic
alliance in the first quarter of 2001.

77

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Amortization of business credit card deferred origination costs in the year
ended December 31, 2002 includes a change in estimate of $1.4 million. Effective
July 1, 2002, we refined our estimate of the timing of when accounts are
acquired to better match the resulting estimated period of benefit to the
amortization of deferred acquisition costs. The impact of this change in
estimate in the year ended December 31, 2002 was a decrease in amortization of
business credit card deferred origination costs of $1.4 million, resulting in an
increase in net income of $875 thousand or $0.03 per diluted share.

NOTE 20. UNUSUAL CHARGES

Subsequent to the Mortgage Transaction and discontinuance of our leasing
business in the first quarter of 2001, we implemented a plan to restructure our
corporate functions to a size commensurate with our ongoing businesses and
incurred certain other unusual charges related to employee costs. Costs
associated with this restructuring activity and other employee costs are
included in unusual charges in the consolidated income statements. Accruals
related to these costs are included in other liabilities in the consolidated
balance sheets. The details of these costs are as follows:

EMPLOYEE COSTS

In the first quarter of 2001, we recorded a $4.1 million charge for severance
and outplacement costs associated with the restructuring of corporate functions.
There were 69 employees severed who were entitled to benefits. These employees
worked in corporate support functions including accounting and finance, human
resources, information technology, legal and facilities management. Employees
were notified in March 2001, and severance amounts were payable over a 12-month
period following the employee's termination date. These payments were completed
in the third quarter of 2002.

Additionally, during 2001, we incurred $23.2 million of other employee
costs. This amount included approximately $10 million attributable to bonuses to
certain key employees in recognition of their efforts on behalf of Advanta in
the strategic alternatives process. It also included approximately $4.5 million
of bonuses in recognition of the restructuring of the company and other
significant transitional efforts. These bonuses were paid over a 12-month
period. In the second quarter of 2001, we recorded a $1.0 million increase in
employee costs related to a revision in estimate associated with these bonuses.
In 2001, we accelerated vesting of 32% of outstanding options that were not
vested at the date of the closing of the Mortgage Transaction. This acceleration
resulted in a noncash charge of $1.3 million. In connection with reviewing our
compensation plans after the Mortgage Transaction and restructuring of corporate
functions, we implemented a program whereby all outstanding stock appreciation
rights and shares of phantom stock were terminated in exchange for cash to be
paid through a deferred compensation arrangement. We recorded charges of $2.9
million associated with this exchange. The charge reflects a $0.7 million
reduction recorded in the three months ended September 30, 2001, as actual cash
settlement costs were less than estimated. Due to the restructuring of the
company, we implemented programs whereby certain out-of-the-money options were
exchanged for shares of stock, and whereby certain shares of restricted stock
were exchanged for cash and stock options in a tender offer, subject to certain
performance conditions and vesting requirements. Noncash charges associated with
the issuance of the stock, stock options and the tender offer totaled $3.6
million. This charge reflects a $1.4 million increase recorded in the three
months ended September 30, 2001, as actual noncash charges associated with the
tender offer were more than estimated.

78

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

EXPENSES ASSOCIATED WITH EXITED BUSINESSES/PRODUCTS

In the first quarter of 2001, we recorded charges of $2.2 million related to
other products exited for which no future revenues or benefits would be
received. In the third quarter of 2001, we were able to settle some of these
commitments for less than originally estimated, and reduced the charge by $0.7
million. We paid the remaining costs, which included lease and other
commitments, in the third quarter of 2002.

In 1998, in connection with the Consumer Credit Card Transaction, we made
major organizational changes to reduce corporate expenses incurred in the past:
(1) to support the business contributed to Fleet Credit Card LLC in the Consumer
Credit Card Transaction, and (2) associated with the business and products no
longer being offered or not directly associated with our mortgage, business
credit card and leasing units. As of December 31, 2000, the remaining accrual
related to charges associated with these organizational changes was $13.0
million. This accrual related to contractual commitments to certain customers,
and non-related financial institutions that were providing benefits to those
customers, under a product that was no longer offered and for which no future
revenues or benefits would be received. A third party assumed the liabilities
associated with these commitments in the first quarter of 2001, and we recorded
an additional charge relating to the settlement of these commitments of $10.3
million.

ASSET IMPAIRMENTS

In connection with our plan to restructure our corporate functions to a size
commensurate with our ongoing businesses during the first quarter of 2001, we
identified certain assets that would no longer be used, and the carrying costs
of these assets were written off resulting in a charge of $2.6 million. We
estimated the realizable value of these assets to be zero due to the nature of
the assets, which include leasehold improvements and capitalized software.

NOTE 21. INCOME TAXES

Income tax expense (benefit) was as follows:

79

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Income tax expense (benefit) on income from continuing operations consisted
of the following components:

The reconciliation of the statutory federal income tax to income tax
expense (benefit) on income from continuing operations is as follows:

Deferred taxes are provided to reflect the estimated future tax effects of
the differences between the financial statement and tax bases of assets and
liabilities and enacted tax laws. The net deferred tax asset is comprised of the
following:

80

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A summary of deferred tax assets and liabilities follows:

We reported a pretax loss in the year ended December 31, 2002 as a result
of the $43.0 million charge related to the ruling in the litigation associated
with the transfer of our consumer credit card business in 1998. See Note 11.
Since the gain on the transfer of our consumer credit card business in 1998 was
not subject to income tax, the $43.0 million charge in 2002 did not result in a
tax benefit. As a result, we reported income tax expense from continuing
operations of $17.2 million for the year ended December 31, 2002. Our effective
tax rate, excluding the $43.0 million charge, was 38.5% for the year ended
December 31, 2002.

We reported a pretax loss in the year ended December 31, 2001 as a result
of unusual charges, valuation adjustments on venture capital investments and the
loss on the discontinuance of the leasing business in 2001. A valuation
allowance was provided against a portion of the resulting deferred tax asset
given our pre-existing net operating loss carryforwards and the uncertainty of
the realizability of the incremental deferred tax asset, resulting in an
effective tax rate of 28% for income from continuing operations for 2001. In the
year ended December 31, 2000, we also reported a pretax loss and a valuation
allowance was provided against the resulting deferred tax asset, resulting in a
0% effective tax rate.

At December 31, 2002, net operating loss carryforwards were $636 million,
of which $391 million expire in 2018, $29 million expire in 2019, $1 million
expire in 2020 and $215 million expire in 2021. We utilized net operating loss
carryforwards of $49 million in 2002. Additionally in 2000, $29 million was
carried back to prior years. See Note 11 for a discussion of tax matters
currently before the Internal Revenue Service Regional Office of Appeals.

The net deferred tax asset is presented net with current income taxes
receivable (payable) for financial reporting purposes, and is included in other
assets.

NOTE 22. DISCONTINUED OPERATIONS

Effective February 28, 2001, we completed the Mortgage Transaction and exited
our mortgage business, Advanta Mortgage, through a purchase and sale agreement
with Chase Manhattan Mortgage Corporation as buyer. Prior to the Mortgage
Transaction, Advanta Mortgage made nonconforming home equity loans directly to
consumers and through brokers. This business unit originated and serviced first
and second lien mortgage loans, including home equity lines of credit, through
subsidiaries of Advanta. In addition to servicing and managing the loans it
originated, Advanta Mortgage contracted with third parties to service their
nonconforming home equity loans on a subservicing basis. Following the Mortgage
Transaction, we no longer operate a mortgage business. The purchase and sale
agreement provided for the sale, transfer and assignment of substantially all of
the assets and operating liabilities associated with our mortgage business, as
well as specified contingent liabilities arising from our operation of the
mortgage business prior to closing that were identified in the purchase and sale
agreement. We retained contingent liabilities, primarily relating to

81

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

litigation, arising from our operation of the mortgage business before closing
that were not specifically assumed by the buyer.

On January 23, 2001, we announced that after a thorough review of strategic
alternatives available for our leasing business, Advanta Leasing Services, we
decided to cease originating leases. Advanta leasing Services offered flexible
lease financing programs on small-ticket equipment to small businesses. The
primary products financed included office machinery, security systems and
computers. We are continuing to service the existing portfolio rather than sell
the business or the portfolio.

Revenues and expenses of Advanta Mortgage and Advanta Leasing Services were
as follows for the periods prior to our exit from the mortgage business on
February 28, 2001 and our discontinuance of the leasing business effective
December 31, 2000.

We allocated interest expense to the discontinued operations based on the
ratio of net assets of discontinued operations to the total net assets of the
consolidated company.

The components of the gain (loss) on discontinuance of our mortgage and
leasing businesses in the years ended December 31 were as follows:

The proceeds from the Mortgage Transaction exceeded $1 billion, subject to
closing adjustments, resulting in an estimated pretax gain in the year ended
December 31, 2001 of $20.8 million after transaction expenses, severance
expenses and other costs. The gain does not reflect any impact from the
post-closing adjustment process that has not yet been completed due to
litigation related to the Mortgage Transaction. See Note 11. In the year ended
December 31, 2002, we increased our estimate of other costs related to our exit
from the mortgage business by $25.3 million, comprised of $7.5 million for a
litigation settlement related to a mortgage loan servicing agreement termination
fee collected in December 2000, and $17.8 million primarily related to an
increase in our estimated future costs of mortgage business-related contingent
liabilities. The $17.8 million charge relates primarily to an increase in our
estimated 2002 and future costs of mortgage business-related contingent
liabilities in connection with (1) contingent liabilities and litigation costs
arising from the operation of the mortgage business prior to the Mortgage
Transaction that were not assumed by the buyer, and (2) costs related to
Advanta's litigation with Chase Manhattan Mortgage Corporation in connection
with the Mortgage Transaction. The change in estimate reflects the legal and
consulting fees and

82

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

other costs that we expect to incur based on current levels of contingent
liabilities and expense rates, and considers the status of the discovery process
associated with the Mortgage Transaction litigation.

In connection with the discontinuance of the leasing business, we recorded
a $4.3 million pretax loss effective December 31, 2000, representing the
estimated operating results through the remaining term of the leasing portfolio.
Estimated operating results of the leasing business included estimated
valuations of retained interests in leasing securitizations, estimated cash
flows from on-balance sheet lease receivables, interest expense and operating
expenses. In the year ended December 31, 2001, we recorded an additional $45.0
million pretax loss due to a change in estimate of those operating results based
on credit loss experience in 2001. A principal factor contributing to the
increased credit losses in 2001 was that one of our former leasing vendors had
filed for bankruptcy protection and this vendor's financial problems were
impacting its ability to service the leased equipment in a segment of our
leasing portfolio. In the year ended December 31, 2002, we recorded an $11.3
million pretax gain on leasing discontinuance representing a revision in the
estimated operating results of the leasing segment over the remaining life of
the lease portfolio due primarily to favorable credit performance. The leasing
portfolio performed favorably as compared to the expectations and assumptions
established in 2001. This improvement was the result of successfully obtaining a
replacement vendor to service leased equipment for the former leasing vendor
that had filed for bankruptcy protection, as described above, and operational
improvements in the leasing collections area.

Per share data was as follows for the years ended December 31:

The components of assets of discontinued operations, net, were as follows
at December 31:

As discussed above, we will continue to service the existing lease
portfolio. At December 31, 2002, there were $152 million of securitized leases
outstanding, and we had retained interests in leasing securitizations of $57
million. At December 31, 2001, there were $365 million of securitized leases
outstanding, and we had
83

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

retained interests in leasing securitizations of $44 million. The retained
interests in leasing securitizations are included in assets of discontinued
operations in the consolidated balance sheets. At December 31, 2002, the fair
value of the retained interests in leasing securitizations was estimated using a
12% discount rate on future cash flows, loss rates ranging from 5.0% to 5.4% and
a weighted average life of 0.9 years. Actual results may vary from our
estimates, and the impact of any differences will be recognized in income when
determined. At December 31, 2001, the fair value of the retained interests in
leasing securitizations was estimated using a 12.0% discount rate on future cash
flows, loss rates ranging from 9.0% to 9.9% and a weighted average life of 1.1
years.

We use interest rate swaps to manage the impact of fluctuating interest
rates on the fair value of certain retained interests in leasing
securitizations. The interest rate swaps effectively convert a leasing
off-balance sheet variable securitization to a fixed rate. At December 31, 2002,
the notional amount of interest rate swaps outstanding relating to leasing
securitizations was $39.6 million, and the estimated fair value was a liability
of $1.2 million. At December 31, 2001, the notional amount of interest rate
swaps outstanding relating to leasing securitizations was $113.6 million, and
the estimated fair value was a liability of $3.5 million. The interest rate
swaps are recorded at fair value with changes in fair value recorded in Advanta
Leasing Services operating results. As discussed above, the estimated operating
results of Advanta Leasing Services through the remaining term of the lease
portfolio were estimated in the determination of the loss on discontinuance.

84

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 23. CALCULATION OF EARNINGS PER SHARE

The following table shows the calculation of basic earnings per common share and
diluted earnings per common share for the years ended December 31:

(1) Combined represents a weighted average of Class A and Class B earnings per
common share.

85

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 24. PARENT COMPANY FINANCIAL STATEMENTS

ADVANTA CORP. (PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS

The parent company guarantees certain lease payments of its subsidiaries in
connection with lease agreements extending through November 30, 2006. At
December 31, 2002, the maximum amount of undiscounted future payments that the
parent could be required to make under these lease agreement guarantees was $3.8
million. The parent company also guarantees payments of distributions and other
amounts due on mandatorily redeemable preferred capital securities of its
subsidiary Advanta Capital Trust I. See Note 12 for the terms of the mandatorily
redeemable preferred capital securities. At December 31, 2002, the maximum
amount of undiscounted future payments that the parent could be required to make
under this guarantee was $324.8 million, representing the amount of capital
securities outstanding of $100 million at December 31, 2002 and future dividends
of approximately $9 million per year through December 2026. Advanta Capital
Trust I holds $103 million of junior subordinated debentures of the parent,
which are included in debt on the condensed balance sheet above.

86

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ADVANTA CORP. (PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF OPERATIONS

(1) Dividends from bank and insurance subsidiaries in the year ended December
31, 2001 include a noncash dividend from Advanta Bank Corp. of $91.4
million.

The Parent Company Only Statements of Changes in Stockholders' Equity are
the same as the Consolidated Statements of Changes in Stockholders' Equity.

87

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ADVANTA CORP. (PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF CASH FLOWS

In 2001, noncash transactions of the Parent Company included noncash
dividends of $91.4 million from subsidiaries, noncash investment in subsidiaries
of $22.3 million, noncash return of investments from subsidiaries of $50.9
million and noncash affiliate borrowings of $69.1 million. There were no
significant noncash transactions of the Parent Company in 2002 or 2000.

88

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 25. FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair values of our financial instruments are as follows at
December 31:

The fair value of a financial instrument is the current amount that would
be exchanged between willing parties, other than in a forced liquidation. Fair
value is best determined based upon quoted market prices. However, in many
instances, there are no quoted market prices for our various financial
instruments. In cases where quoted market prices are not available, fair values
are based on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. Accordingly, the fair value
estimates may not be realized in an immediate settlement of the instrument.
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements.

We used the following methods and assumptions in estimating fair value
disclosures for financial instruments:

CASH, FEDERAL FUNDS SOLD AND RESTRICTED INTEREST-BEARING DEPOSITS

For these short-term instruments, the carrying amount is a reasonable estimate
of the fair value.

INVESTMENTS AVAILABLE FOR SALE

Investments available for sale are carried at fair value. The fair values of
investments available for sale are based on quoted market prices, dealer quotes
or estimates using quoted market prices for similar securities. For investments
that are not publicly traded, management has made estimates of fair value that
consider several factors including the investees' financial results, conditions
and prospects, and the values of comparable public companies.

RECEIVABLES, NET

The fair values of receivables are estimated using a discounted cash flow
analysis that incorporates estimates of the excess of the weighted average
interest and fee yield over the aggregate cost of funds, servicing costs and an
estimate of future credit losses over the life of the receivables.

89

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ACCOUNTS RECEIVABLE FROM SECURITIZATIONS

Retained interests in securitizations are carried at fair value. The fair values
of retained interests in securitizations are estimated based on discounted cash
flow analyses as described in Note 2. See Note 6 for the assumptions used in the
estimation of fair values of the retained interests in securitizations.

The carrying amount is a reasonable estimate of the fair value of other
components of accounts receivable from securitizations based on the short-term
nature of the assets.

DEMAND AND SAVINGS DEPOSITS

The fair value of demand and money market savings deposits is the amount payable
on demand at the reporting date. This fair value does not include any benefit
that may result from the low cost of funding provided by these deposits compared
to the cost of borrowing funds in the market.

TIME DEPOSITS

The fair value of fixed-maturity certificates of deposit is estimated using
discounted cash flow analyses based on the rates currently offered for deposits
of similar remaining maturities.

DEBT

The fair value of our debt is estimated using discounted cash flow analyses
based on our current incremental borrowing rates for similar types of borrowing
arrangements.

OTHER BORROWINGS

There were no other borrowings at December 31, 2002. Other borrowings at
December 31, 2001 consisted of securities sold under repurchase agreements. The
carrying amount of borrowings under repurchase agreements, which matured within
ninety days, approximated their fair value.

COMMITMENTS TO EXTEND CREDIT

There is no fair value associated with commitments to extend credit to our
business credit card customers, since any fees charged are consistent with the
fees charged by other companies at the reporting date to enter into similar
agreements. We had commitments to extend credit of $6.1 billion at December 31,
2002 and $4.6 billion at December 31, 2001.

NOTE 26. DERIVATIVE FINANCIAL INSTRUMENTS

Interest rate swap agreements generally involve the exchange of fixed and
floating rate interest payments without the exchange of the underlying notional
amount on which the interest payments are calculated. During 2001 and 2000, we
used interest rate swaps to manage the impact of fluctuating interest rates on
our cost of funds. The interest rate swaps effectively converted fixed rate
medium-term notes to a LIBOR-based variable rate. There were no interest rate
swaps or other derivatives outstanding related to continuing operations at
December 31, 2002 or 2001 because of the substantial reduction in outstanding
medium-term notes subsequent to the Mortgage Transaction in 2001. See Note 22
for a discussion of derivatives used in discontinued operations.

The notional amounts of derivatives do not represent amounts exchanged by
the counterparties and, thus, are not a measure of our exposure through our use
of derivatives. The amounts exchanged are determined by reference to the
notional amounts and the other terms of the derivative contracts. The following
table

90

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

summarizes by notional amounts our interest rate swap activity in continuing
operations for the periods presented:

There were no net gains (losses) from hedge ineffectiveness or from
excluding a portion of a derivative instrument's gain or loss from the
assessment of hedge effectiveness included in other income in the periods
presented. There was also no gain or loss recognized in earnings as a result of
a hedged firm commitment no longer qualifying as a fair value hedge.

91

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of Advanta Corp.:

We have audited the accompanying consolidated balance sheet of Advanta
Corp. (a Delaware corporation) and subsidiaries as of December 31, 2002, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The 2001 and 2000
financial statements of Advanta Corp. and subsidiaries were audited by other
auditors who have ceased operations. Those auditors expressed an unqualified
opinion on those financial statements in their report dated March 15, 2002.

We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the 2002 financial statements referred to above present
fairly, in all material respects, the financial position of Advanta Corp. and
subsidiaries as of December 31, 2002, and the results of their operations and
their cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States of America.

/s/ KPMG LLP
Philadelphia, PA
March 24, 2003

92

THE REPORT BELOW IS A COPY OF A PREVIOUSLY ISSUED REPORT OF ARTHUR
ANDERSEN LLP AND HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders of Advanta Corp.:

We have audited the accompanying consolidated balance sheets of Advanta
Corp. (a Delaware corporation) and subsidiaries as of December 31, 2001 and
2000, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended December 31,
2001. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Advanta
Corp. and subsidiaries as of December 31, 2001 and 2000, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States.

/s/ ARTHUR ANDERSEN LLP
Philadelphia, PA
March 15, 2002

93

REPORT OF MANAGEMENT

To the Stockholders of Advanta Corp.:

The management of Advanta Corp. and its subsidiaries ("Advanta") is
responsible for the preparation, content, integrity and objectivity of the
consolidated financial statements. These consolidated financial statements have
been prepared in accordance with accounting principles generally accepted in the
United States and as such must, by necessity, include amounts based upon
estimates and judgments made by management. The other financial information
included in this Form 10-K was also prepared by management and is consistent
with the financial statements.

Management is responsible for establishing and maintaining an effective
internal control structure over financial reporting. These systems and controls
are designed to provide reasonable, but not absolute, assurance that assets are
safeguarded, that transactions are properly recorded and executed in accordance
with management's authorization and that financial statements are reliable.
Advanta's control structure includes: (l) organizational and budgetary
arrangements which provide reasonable assurance that errors or irregularities
would be detected promptly; (2) careful selection of personnel and
communications programs aimed at assuring that policies and standards are
understood by employees; (3) continuing management review and evaluation of
systems and controls; (4) disclosure controls and procedures to ensure that
information required to be disclosed in reports filed or submitted under the
Securities Exchange Act of 1934 (the "Exchange Act") is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission's rules and forms and (5) a program of independent internal
audit and risk management reviews to ensure compliance. Internal controls,
disclosure controls and procedures, and corporate-wide systems, processes and
procedures are regularly evaluated and enhanced.

The consolidated financial statements for 2002 have been audited by KPMG
LLP, independent auditors. Their audit was conducted in accordance with auditing
standards generally accepted in the United States and considered Advanta's
system of internal controls to the extent they deemed necessary to determine the
nature, timing and extent of their audit tests. Their report is printed
herewith. The Audit Committee of the Board of Directors, which consists solely
of outside directors, meets at least quarterly with the independent auditors,
Corporate Audit, Risk Management and representatives of management to discuss,
among other items, accounting and financial reporting matters. Advanta's
independent auditors, Corporate Audit function, Risk Management function and the
Audit Committee have free access to each other.

The management of Advanta evaluated its disclosure controls and procedures
as of December 31, 2002. Based on this evaluation, the Chief Executive Officer
and Chief Financial Officer each concluded that as of December 31, 2002, Advanta
maintained effective disclosure controls and procedures in all material
respects, including those to ensure that information required to be disclosed in
reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission's rules and forms, and is accumulated and communicated to
management, including the Chief Executive Officer and the Chief Financial
Officer, as appropriate to allow for timely disclosure. There have been no
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to our most recent evaluation.

/s/ DENNIS ALTER /s/ PHILIP M. BROWNE /s/ DAVID B. WEINSTOCK
- ----------------------------- ----------------------------- -----------------------------
Chairman of the Board and Senior Vice President and Vice President and Chief
Chief Executive Officer Chief Financial Officer Accounting Officer
March 24, 2003 March 24, 2003 March 24, 2003

94

SUPPLEMENTAL SCHEDULES (UNAUDITED)

QUARTERLY DATA

(1) Noninterest revenues for the three months ended December 31, 2002 included a
$43.0 million pretax loss on the transfer of our consumer credit card
business. See Note 11 to the consolidated financial statements.
(2) See Note 22 to the consolidated financial statements.
(3) Combined represents a weighted average of Class A and Class B (see Note 2 to
the consolidated financial statements).

95

SUPPLEMENTAL SCHEDULES (UNAUDITED) -- CONTINUED

QUARTERLY DATA -- CONTINUED

(1) See Note 20 to the consolidated financial statements.
(2) See Note 22 to the consolidated financial statements.
(3) Combined represents a weighted average of Class A and Class B (see Note 2 to
the consolidated financial statements).

96

SUPPLEMENTAL SCHEDULES (UNAUDITED) -- CONTINUED

ALLOCATION OF ALLOWANCE FOR RECEIVABLE LOSSES

COMPOSITION OF GROSS RECEIVABLES

YIELD AND MATURITY OF INVESTMENTS AT DECEMBER 31, 2002

(1) Yield computed on a taxable equivalent basis using a statutory rate of 35%.
(2) Equity investments and other securities without a stated maturity are
excluded from this table.
(3) Yields are computed by dividing interest by the amortized cost of the
respective investment securities.

MATURITY OF TIME DEPOSITS OF $100,000 OR MORE

97

SUPPLEMENTAL SCHEDULES (UNAUDITED) -- CONTINUED

COMMON STOCK PRICE RANGES AND DIVIDENDS

Advanta's common stock is traded on the National Market tier of The Nasdaq Stock
Market under the symbols ADVNA (Class A voting common stock) and ADVNB (Class B
non-voting common stock). Following are the high, low and closing prices and
cash dividends declared for the last two years as they apply to each class of
stock:

At December 31, 2002, Advanta had approximately 252 holders of record of
Class A stock and 673 holders of record of Class B stock.

98

ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The text of the Proxy Statement under the captions "Election of Directors" and
"Section 16(a) Beneficial Ownership Reporting Compliance" are hereby
incorporated by reference, as is the text in Part I of this Report under the
caption, "Executive Officers of the Registrant."

ITEM 11. EXECUTIVE COMPENSATION

The text of the Proxy Statement under the captions "Executive compensation,"
"Report on Executive Compensation" and "Election of Directors - Committees,
Meetings and Compensation of the Board of Directors," "-- Compensation Committee
Interlocks and Insider Participation" and "-- Other Matters" are hereby
incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The text of the Proxy Statement under the captions "Security Ownership of
Certain Beneficial Owners" and "Security Ownership of Management" are hereby
incorporated herein by reference.

The following table provides information about equity awards under our 2000
Omnibus Stock Incentive Plan and our Employee Stock Purchase Plan as of December
31, 2002.

EQUITY COMPENSATION PLAN INFORMATION

(1) Does not include 2,492,102 shares of restricted Class B Common Stock granted
pursuant to the Advanta Corp. 2000 Omnibus Stock Incentive Plan. Generally,
restrictions on these shares may be removed between 2003 and 2012.

(2) All of the shares remaining available for future issuance are available
under the 2000 Omnibus Stock Incentive Plan which provides for the issuance
of stock options, restricted stock, stock appreciation rights, phantom
shares and other awards (collectively, "Awards").

(3) Advanta Corp.'s Employee Stock Purchase Plan (ESPP) does not specify a
maximum number of shares that may be issued. An aggregate of 37,864 shares
of Class B Common Stock were purchased under the ESPP in 2002.

99

ADVANTA CORP. 2000 OMNIBUS STOCK INCENTIVE PLAN

The 2000 Omnibus Stock Incentive Plan (the "Omnibus Plan") was adopted by the
Board of Directors in April 2000 and approved by the shareholders of the Company
on June 7, 2000. The Omnibus Plan provides for the issuance of a maximum of
20,000,000 shares of Class B Common Stock (including 9,860,191 shares that were
available for issuance under the Company's prior stock incentive plans that were
in effect at the time the Omnibus Plan was approved by the shareholders and
which plans were amended and restated by the Omnibus Plan). The plan provides
for the issuance of options to acquire Class B Common Stock, awards of Class B
Common Stock and/or awards of stock appreciation rights (referred to
collectively as "Awards"). Shares of Class B Common Stock awarded pursuant to
the plan must be authorized and unissued shares or shares acquired for the
treasury of the Company. Generally, if an Award granted under the Omnibus Plan
expires, terminates or lapses for any reason, without the issuance of shares of
Class B Common Stock thereunder such shares shall be available for reissuance
under the Omnibus Plan. Employees and directors of the Company, and consultants
and advisors to the Company who render bona fide services to the Company
unrelated to the offer of securities are eligible to receive Awards under the
Omnibus Plan. The terms of any Award made pursuant to the Omnibus Plan are
described and established in a grant document provided to the Award recipient.
No Awards may be granted under the Omnibus Plan after April 5, 2010. Awards
granted and outstanding as of the date the Omnibus Plan terminates will not be
affected by the termination of the plan. In the event of a change of control of
the Company, stock options and stock appreciation rights granted pursuant to the
Omnibus Plan will become immediately exercisable in full, and all Awards will
become fully vested. Shares subject to Awards granted pursuant to the Omnibus
Plan are subject to adjustment for changes in capitalization for stock splits,
stock dividends and similar events.

ADVANTA CORP. EMPLOYEE STOCK PURCHASE PLAN

In September 1989, the Board of Directors adopted its Employee Stock Purchase
Plan (the "Stock Purchase Plan"). The Stock Purchase Plan is a broad-based plan
that has not been approved by stockholders and is not intended to qualify as an
employee stock purchase plan pursuant to Section 423 of the Internal Revenue
Code, as amended. All full-time and part-time employees and non-employee
directors of the Company or its subsidiaries with at least six months of service
with the Company are eligible to participate in the plan. Eligible employees may
acquire shares of Class B Common Stock (and under certain limited circumstances
Class A Common Stock) under the plan through payroll deductions. Non-employee
directors may contribute a portion of their directors' fees to the plan to
purchase shares of Class B Common Stock. No individual participant may purchase
more than $25,000 of stock under the plan in any one year. Shares are purchased
monthly under the plan. Participants in the Stock Purchase Plan in effect
purchase shares at a 15% discount from the market price because the Company
contributes to the plan an amount equal to 15% of the market price of the shares
actually purchased for the month, and also pays all fees and commissions
relating to the administration of the Stock Purchase Plan and the purchases of
shares under the plan.

The Company's contributions under the plan are treated as taxable income to
the participants and constitute compensation expense to the Company. Cash
dividends received on shares owned by plan participants and held in an account
for the participant under the Stock Purchase Plan are reinvested in accordance
with the terms of the plan. Shares are purchased by the plan administrator on
the open market, unless the Company directs the administrator to purchase shares
directly from the Company. The Stock Purchase Plan does not specify a maximum
number of shares that may be issued pursuant to the plan. Since 1998, all
purchases under the plan have been open market purchases.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The text of the Proxy Statement under the captions "Election of
Directors -- Compensation Committee Interlocks and Insider Participation" and
"Election of Directors -- Other Matters" are hereby incorporated herein by
reference.

100

ITEM 14. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in our Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms, and that such information is accumulated and communicated
to management, including our Chief Executive Officer and Chief Financial Officer
as appropriate, to allow timely decisions regarding required disclosure. In
designing and evaluating the disclosure controls and procedures, management
recognized that any disclosure controls and procedures, no matter how well
designed and operated, can provide only reasonable, rather than absolute,
assurance of achieving the desired control objectives, and management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures.

Within the 90 days prior to the filing of this annual report, an evaluation
was performed under the supervision and with the participation of management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on this evaluation, the Chief Executive Officer and Chief
Financial Officer have concluded that our disclosure controls and procedures are
effective to ensure that information required to be disclosed in the reports
that we file or submit under the Exchange Act is recorded, processed, summarized
and reported, within the time periods specified in the SEC's rules and forms.
There have been no significant changes in our internal controls or in other
factors that could significantly affect these controls subsequent to the date of
the evaluation.

101

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

The following Financial Statements, Schedules, and Other Information of the
Registrant and its subsidiaries are included in this Form 10-K:

(a)(1) Financial Statements.
1. Consolidated Balance Sheets at December 31, 2002 and 2001.
2. Consolidated Income Statements for each of the three years
in the period ended December 31, 2002.
3. Consolidated Statements of Changes in Stockholders' Equity
for each of the three years in the period ended December 31,
2002.
4. Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 2002.
5. Notes to Consolidated Financial Statements.
(a)(2) Schedules.
Other statements and schedules are not being presented
either because they are not required or the information
required by such statements and schedules is presented
elsewhere in the financial statements.
(a)(3) Exhibits
2-a Purchase and Sale Agreement, dated January 8, 2001, by and
between Advanta Corp. and Chase Manhattan Mortgage
Corporation (incorporated by reference to Annex I to Advanta
Corp.'s Definitive Proxy Statement filed January 25, 2001).
2-b Mortgage Loan Purchase and Sale Agreement, dated February
23, 2001, by and among Advanta Corp., Chase Manhattan
Mortgage Corporation, and Chase Manhattan Bank USA, National
Association (incorporated by reference to Exhibit 2.2 to the
Registrant's Current Report on Form 8-K dated March 14,
2000).
2-c Mortgage Loan Purchase and Sale Agreement, dated February
28, 2001, by and among Advanta Corp., Chase Manhattan
Mortgage Corporation, and Chase Manhattan Bank USA, National
Association (incorporated by reference to Exhibit 2.3 to the
Registrant's Current Report on Form 8-K dated March 14,
2000).
3-a Restated Certificate of Incorporation of Registrant
(incorporated by reference to Exhibit 4.1 to Pre-Effective
Amendment No. 1 to the Registrant's Registration Statement
on Form S-3 (File No. 33-53475), filed June 10, 1994), as
amended by the Certificate of Designations, Preferences,
Rights and Limitations of the Registrant's 6 3/4%
Convertible Class B Preferred Stock, Series 1995 (Stock
Appreciation Income Linked Securities (SAILS))(incorporated
by reference to Exhibit 4.3 to the Registrant's Current
Report on Form 8-K dated August 15, 1995), as further
amended by the Certificate of Designations, Preferences,
Rights and Limitations of the Registrant's Series A Junior
Participating Preferred Stock (incorporated by reference to
Exhibit 1 to the Registrant's Registration Statement on Form
8-A, dated March 17, 1997).
3-b By-laws of the Registrant, as amended (incorporated by
reference to Exhibit 3.1 the Registrant's Current Report on
Form 8-K dated March 17, 1997).
3-c Rights Agreement, dated as of March 14, 1997, by and between
the Registrant and the Rights Agent, which includes as
Exhibit B thereto the Form of Rights Certificate
(incorporated by reference to Exhibit 1 to the Registrant's
Registration Statement on Form 8-A dated March 17, 1997), as
amended by Amendment No. 1, dated as of June 4, 1998
(incorporated by reference to Exhibit 1 to the Registrant's
Amended Registration Statement on Form 8-A/A, dated June 11,
1998), and Amendment No. 2, dated as of September 4, 1998,
(incorporated by reference to Exhibit 1 to the Registrant's
Amended Registration Statement on Form 8-A/A, dated
September 23, 1998).

102

4-a* Trust Indenture dated April 22, 1981 between Registrant and Mellon Bank, N.A., (formerly,
CoreStates Bank, N.A.), as Trustee, including Form of Debenture.
4-b Specimen of Class A Common Stock Certificate and specimen of Class B Common Stock Certificate
(incorporated by reference to Exhibit 1 of the Registrant's Amendment No. 1 to Form 8 and Exhibit
1 to Registrant's Form 8-A, respectively, both dated April 22, 1992).
4-c Trust Indenture dated as of November 15, 1993 between the Registrant and The Chase Manhattan Bank
(National Association), as Trustee (incorporated by reference to Exhibit 4 to the Registrant's
Registration Statement on Form S-3 (No. 33-50883), filed November 2, 1993).
4-d Senior Trust Indenture, dated as of October 23, 1995, between the Registrant and Mellon Bank,
N.A., as Trustee (incorporated by reference to Exhibit 4.1 to the Registrant's Registration
Statement on Form S-3 (File No. 33-62601), filed September 13, 1995).
4-e Indenture dated as of December 17, 1996 between Advanta Corp. and The Chase Manhattan Bank, as
trustee relating to the Junior Subordinated Debentures (incorporated by reference to Exhibit 4-g
to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1996).
4-f Declaration of Trust dated as of December 5, 1996 of Advanta Capital Trust I (incorporated by
reference to Exhibit 4-h to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996).
4-g Amended and Restated Declaration of Trust dated as of December 17, 1996 for Advanta Capital Trust
I (incorporated by reference to Exhibit 4-i to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1996).
4-h Series A Capital Securities Guarantee Agreement dated as of December 17, 1996. (incorporated by
reference to Exhibit 4-j to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996).
10-a Advanta Corp. 2000 Omnibus Stock Incentive Plan (incorporated by reference to 4(f) to
Post-Effective Amendment No. 1 to the Registrant's Registration Statement on Form S-8 (File No.
333-04469).+
10-b Card Member License Agreement between Colonial National Financial Corp. (now known as Advanta
Bank Corp.) and MasterCard International Incorporated dated April 14, 1994 (incorporated by
reference to Exhibit 10-b to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 2001).
10-c VISA U.S.A. Inc. Membership Agreement and Principal Member Addendum executed by Advanta Corp. on
February 27, 1997 (incorporated by reference to Exhibit 10-c to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 2001).
10-d VISA U.S.A. Inc. Membership Agreement executed by Advanta Bank Corp. on March 3, 2000
(incorporated by reference to Exhibit 10-d to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 2001).
10-e* Application for membership in VISA(R) U.S.A. Inc. and Membership Agreement executed by Colonial
National Bank USA on March 25, 1983.
10-f* Application for membership in MasterCard(R) International, Inc. and Card Member License Agreement
executed by Colonial National Bank USA on March 25, 1983.
10-g* Indenture of Trust dated May 11, 1984 between Linda Alter, as settlor, and Dennis Alter, as
trustee.
10-g(i) Agreement dated October 20, 1992 among Dennis Alter, as Trustee of the trust established by the
Indenture of Trust filed as Exhibit 10-g (the "Indenture"), Dennis Alter in his individual
capacity, Linda Alter, and Michael Stolper, which Agreement modifies the Indenture (incorporated
by reference to Exhibit 10-g(i) to the Registrant's Registration Statement on Form S-3 (File No.
33-58660), filed February 23, 1993).

103

104

10-v Series 2001-A Indenture Supplement, dated as of April 1,
2001, between Advanta Business Card Master Trust and Bankers
Trust Company (incorporated by reference to Exhibit 4.1 to
the Current Report on Form 8-K, filed April 24, 2001 by
Advanta Business Receivables Corp.).
10-w Series 2002-A Indenture Supplement, dated as of July 1,
2002, between Advanta Business Card Master Trust and
Deutsche Bank Trust Company Americas (incorporated by
reference to Exhibit 4.1 to the Current Report on Form 8-K,
filed July 26, 2002 by Advanta Business Receivables Corp.).
10-x Agreement and General Release between Advanta Corp. and
Rosemary Cauchon, dated December 18, 2002 (filed herewith).+
10-y Master Agreement between Dun & Bradstreet, Inc. and Advanta
Bank Corp., dated June 18, 2002 (filed herewith).
10-z Direct Marketing Agreement, dated effective as of December
15, 1999, by and among Advanta Bank Corp. and CFM Direct, as
amended (filed herewith).
10-aa Advanta Corp. Employee Stock Purchase Plan, as amended
(filed herewith).
10-bb Service Agreement between First Data Resources Inc. and
Advanta Bank Corp., dated as of January 1, 2002
(incorporated by reference to Exhibit 10-u to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 2001).
10-cc Relocation Agreement, made as of June 5, 2001, by and
between Advanta Corp. and Jeffrey D. Beck (incorporated by
reference to Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 2002).+
10-dd Agreement of Lease, made as of January 1, 2002, by and
between Advanta Corp. and Rosemary Cauchon (incorporated by
reference to Exhibit 10.2 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 2002).+

10-ee Lease Agreement, dated August 4, 1995, between Ortho
Pharmaceutical Corporation and Advanta Corp. (filed
herewith).
12 Computation of Ratio Earnings to Fixed Charges (filed
herewith).
21 Subsidiaries of the Registrant (filed herewith).
23.1 Consent of Independent Auditors (filed herewith).
23.2 Explanation Concerning Absence of Current Written Consent of
Arthur Andersen LLP (filed herewith).
24 Powers of Attorney (included on the signature page hereof).
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(filed herewith).
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(filed herewith).

- ---------------

* Incorporated by reference to the Exhibit with corresponding number
constituting part of the Registrant's Registration Statement on Form S-2 (No.
33-00071), filed on September 4, 1985.

+ Management contract or compensatory plan or arrangement.

(b) Reports on Form 8-K

1. A Report on Form 8-K was filed by the Company on October 24, 2002
announcing results for the third quarter.

2. A Report on Form 8-K was filed by the Company on November 26, 2002
announcing earnings guidance for the fiscal year 2003.

105

3. A Report on Form 8-K was filed by the Company on January 17, 2003,
reporting tax issues relating to tax deductions claimed by both Advanta and
Fleet and a complaint filed by Fleet seeking a declaratory judgment.

4. A Report on Form 8-K was filed by the Company on January 23, 2003,
announcing results for the fourth quarter and full year 2002.

5. A Report on Form 8-K was filed by the Company on January 27, 2003,
announcing the trial court's ruling on all but one remaining issue in the
lawsuit filed by Fleet against Advanta in January 1999.

106

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

Advanta Corp.

By: /s/ WILLIAM A. ROSOFF
----------------------------------------
William A. Rosoff, President and
Vice Chairman of the Board

Dated: March 24, 2003

KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned does hereby
constitute and appoint Dennis Alter, William A. Rosoff, Philip M. Browne, David
B. Weinstock and Elizabeth H. Mai, or any of them (with full power to each of
them to act alone), his or her true and lawful attorney in-fact and agent, with
full power of substitution, for him or her and on his or her behalf to sign,
execute and file an Annual Report on Form 10-K under the Securities Exchange Act
of 1934, as amended, for the fiscal year ended December 31, 2002 relating to
Advanta Corp. and any or all amendments thereto, with all exhibits and any and
all documents required to be filed with respect thereto, with the Securities and
Exchange Commission or any regulatory authority, granting unto such
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises in order to effectuate the same as fully to all intents
and purposes as he or she might or could do if personally present, hereby
ratifying and confirming all that such attorneys-in-fact and agents, or any of
them, or their substitute or substitutes, may lawfully do or cause to be done.

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities indicated on the 24th day of March, 2003.

107

CERTIFICATIONS

I, Dennis Alter, certify that:

1. I have reviewed this Annual Report on Form 10-K of Advanta Corp.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):

a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls

108

subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

/s/ DENNIS ALTER
----------------------------------------
Dennis Alter
Chief Executive Officer

March 24, 2003

109

I, Philip M. Browne, certify that:

1. I have reviewed this Annual Report on Form 10-K of Advanta Corp.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) Presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):

a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

/s/ PHILIP M. BROWNE
----------------------------------------
Philip M. Browne
Chief Financial Officer

March 24, 2003

110

EXHIBIT INDEX