ADVANTA CORP - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


[X]		Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2003 or

[ ]		Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to

Commission File Number 0-14120

Advanta Corp.

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		23-1462070 (I.R.S. Employer Identification No.)

Welsh and McKean Roads, P.O. Box 844, Spring House, PA 19477
(Address of Principal Executive Offices) (Zip Code)

(215) 657-4000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes [X] No [ ]

Applicable only to issuers involved in bankruptcy proceedings during the preceding five years:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes [ ] No [ ]

Applicable only to corporate issuers:

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


Class A Common Stock, $.01 par value		Outstanding at November 4, 2003 9,646,885 shares

Class B Common Stock, $.01 par value		Outstanding at November 4, 2003 17,419,711 shares

TABLE OF CONTENTS


	PART I - FINANCIAL INFORMATION
	ITEM 1. FINANCIAL STATEMENTS
		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED INCOME STATEMENTS
		CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4. CONTROLS AND PROCEDURES
PART II — OTHER INFORMATION
	ITEM 1. LEGAL PROCEEDINGS
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
EXHIBIT INDEX
LETTER AGREEMENT BETWEEN ADVANTA CORP. AND J. BECK
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
CERTIFICATION OF CEO PURSUANT TO SECTION 302
CERTIFICATION OF CFO PURSUANT TO SECTION 302
CERTIFICATION OF CEO PURSUANT TO SECTION 906
CERTIFICATION OF CFO PURSUANT TO SECTION 906

TABLE OF CONTENTS


		Page
PART I – FINANCIAL INFORMATION			3
Item 1.	Financial Statements
	Consolidated Balance Sheets (Unaudited)		3
	Consolidated Income Statements (Unaudited)		4
	Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)		5-6
	Consolidated Statements of Cash Flows (Unaudited)		7
	Notes to Consolidated Financial Statements (Unaudited)		8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		47
Item 4.	Controls and Procedures		48
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings		48
Item 6.	Exhibits and Reports on Form 8-K		49

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ADVANTA CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)


			September 30,			December 31,
(In thousands, except share data)			2003			2002

ASSETS
Cash			$	26,690		$	14,834
Federal funds sold				482,492			332,257
Restricted interest-bearing deposits				77,574			79,449
Investments available for sale				231,931			171,222
Receivables, net:
		Held for sale		238,358			177,065
		Other		283,160			278,282

Total receivables, net				521,518			455,347
Accounts receivable from securitizations				218,512			198,238
Premises and equipment, net				19,463			25,496
Other assets				282,928			277,658
Assets of discontinued operations, net				88,419			127,112

Total assets			$	1,949,527		$	1,681,613

LIABILITIES
Deposits			$	918,956		$	714,028
Debt				319,308			315,886
Trust preferred securities				100,000			0
Other liabilities				280,925			230,386

Total liabilities				1,619,189			1,260,300

Commitments and contingencies
Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely subordinated debentures of Advanta Corp. (trust preferred securities)				0			100,000
STOCKHOLDERS’ EQUITY
Class A preferred stock, $1,000 par value:
	Authorized, issued and outstanding – 1,010 shares in 2003 and
	2002			1,010			1,010
Class A voting common stock, $.01 par value:
	Authorized – 200,000,000 shares; issued – 10,041,017 shares in 2003 and
	2002			100			100
Class B non–voting common stock, $.01 par value:
	Authorized – 200,000,000 shares; issued – 20,587,361 shares in 2003 and
	20,326,289 shares in 2002			206			204
Additional paid-in capital				245,674			243,910
Deferred compensation				(16,166	)		(17,837	)
Unearned ESOP shares				(10,498	)		(10,831	)
Accumulated other comprehensive income				229			186
Retained earnings				158,474			147,205
Less: Treasury stock at cost, 354,132 Class A common shares and 3,197,614 Class B common shares in 2003; 2,896,112 Class B common shares in 2002				(48,691	)		(42,634	)

Total stockholders’ equity				330,338			321,313

Total liabilities and stockholders’ equity			$	1,949,527		$	1,681,613

See Notes to Consolidated Financial Statements

ADVANTA CORP. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS (Unaudited)


			Three Months Ended				Nine Months Ended
			September 30,				September 30,

(In thousands, except per share data)			2003		2002		2003			2002

Interest income:
	Receivables		$	27,701	$	18,770	$	64,088		$	60,253
	Investments			1,794		2,520		5,883			8,366
	Other interest income			4,071		2,629		12,036			7,941

Total interest income				33,566		23,919		82,007			76,560
Interest expense:
	Deposits			7,134		5,676		20,774			17,964
	Debt and other borrowings			5,831		5,376		16,573			18,567
	Trust preferred securities			2,220		0		2,220			0

Total interest expense				15,185		11,052		39,567			36,531

Net interest income				18,381		12,867		42,440			40,029
Provision for credit losses				16,563		9,421		35,274			31,462

Net interest income after provision for credit losses				1,818		3,446		7,166			8,567
Noninterest revenues:
	Securitization income			28,558		29,168		89,920			88,838
	Servicing revenues			9,549		8,334		29,449			24,419
	Other revenues, net			25,977		20,519		76,338			61,396

Total noninterest revenues				64,084		58,021		195,707			174,653

Expenses:
	Operating expenses			54,762		48,977		167,479			147,822
	Minority interest in income of consolidated subsidiary			0		2,220		4,440			6,660

Total expenses				54,762		51,197		171,919			154,482

Income before income taxes				11,140		10,270		30,954			28,738
Income tax expense				4,289		3,954		11,917			11,064

Income from continuing operations				6,851		6,316		19,037			17,674
Loss, net, on discontinuance of mortgage and leasing businesses, net of tax				0		0		(1,968	)		(8,610	)

Net income			$	6,851	$	6,316	$	17,069		$	9,064

Basic income from continuing operations per common share
		Class A	$	0.27	$	0.24	$	0.74		$	0.65
		Class B		0.29		0.26		0.81			0.72
		Combined		0.28		0.25		0.79			0.69

Diluted income from continuing operations per common share
		Class A	$	0.26	$	0.23	$	0.72		$	0.63
		Class B		0.28		0.25		0.79			0.69
		Combined		0.27		0.25		0.76			0.67

Basic net income per common share
		Class A	$	0.27	$	0.24	$	0.66		$	0.31
		Class B		0.29		0.26		0.73			0.38
		Combined		0.28		0.25		0.70			0.35

Diluted net income per common share
		Class A	$	0.26	$	0.23	$	0.64		$	0.30
		Class B		0.28		0.25		0.71			0.36
		Combined		0.27		0.25		0.68			0.34

Basic weighted average common shares outstanding
		Class A		8,978		9,162		9,104			9,146
		Class B		15,100		15,876		14,936			16,117
		Combined		24,078		25,038		24,040			25,263

Diluted weighted average common shares outstanding
		Class A		8,978		9,163		9,104			9,151
		Class B		16,251		16,501		15,639			17,038
		Combined		25,229		25,664		24,743			26,189

See Notes to Consolidated Financial Statements

ADVANTA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)
($ in thousands)


					Class A		Class A		Class B			Additional
		Comprehensive			Preferred		Common		Common			Paid-In
		Income (Loss)			Stock		Stock		Stock			Capital

Balance at December 31, 2001					$	1,010	$	100	$	179		$	223,362

Net income (loss)		$	(24,182	)
Other comprehensive income (loss):
	Change in unrealized appreciation (depreciation) of investments, net of tax benefit (expense) of $577		(1,073	)

Comprehensive income (loss)		$	(25,255	)

Preferred and common cash dividends declared
Exercise of stock options										1			362
Stock option exchange program stock distribution
Issuance of restricted stock										28			22,529
Amortization of deferred compensation
Forfeitures of restricted stock										(4	)		(2,275	)
Stock buyback
ESOP shares committed to be released													(68	)

Balance at December 31, 2002					$	1,010	$	100	$	204		$	243,910

Net income (loss)		$	17,069
Other comprehensive income (loss):
	Change in unrealized appreciation (depreciation) of investments, net of tax benefit (expense) of $(23)		43

Comprehensive income (loss)		$	17,112

Preferred and common cash dividends declared
Exercise of stock options										2			1,831
Stock option exchange program stock distribution
Issuance of restricted stock										2			1,800
Amortization of deferred compensation
Forfeitures of restricted stock										(2	)		(1,774	)
Stock buyback
ESOP shares committed to be released													(93	)

Balance at September 30, 2003					$	1,010	$	100	$	206		$	245,674

See Notes to Consolidated Financial Statements

($ in thousands)


		Deferred			Accumulated
		Compensation			Other									Total
		& Unearned			Comprehensive			Retained			Treasury			Stockholders’
		ESOP Shares			Income (Loss)			Earnings			Stock			Equity

Balance at December 31, 2001		$	(11,359	)	$	1,259		$	179,370		$	(27,622	)	$	366,299

Net income (loss)									(24,182	)					(24,182	)
Other comprehensive income (loss):
	Change in unrealized appreciation (depreciation) of investments, net of tax benefit (expense) of $577					(1,073	)								(1,073	)
Comprehensive income (loss)
Preferred and common cash dividends declared									(7,983	)					(7,983	)
Exercise of stock options															363
Stock option exchange program stock distribution												542			542
Issuance of restricted stock			(22,557	)											0
Amortization of deferred compensation			2,842												2,842
Forfeitures of restricted stock			1,941												(338	)
Stock buyback												(15,554	)		(15,554	)
ESOP shares committed to be released			465												397

Balance at December 31, 2002		$	(28,668	)	$	186		$	147,205		$	(42,634	)	$	321,313

Net income (loss)									17,069						17,069
Other comprehensive income (loss):
	Change in unrealized appreciation (depreciation) of investments, net of tax benefit (expense) of $(23)					43									43
Comprehensive income (loss)
Preferred and common cash dividends declared									(5,800	)					(5,800	)
Exercise of stock options															1,833
Stock option exchange program stock distribution												183			183
Issuance of restricted stock			(1,802	)											0
Amortization of deferred compensation			1,906												1,906
Forfeitures of restricted stock			1,567												(209	)
Stock buyback												(6,240	)		(6,240	)
ESOP shares committed to be released			333												240

Balance at September 30, 2003		$	(26,664	)	$	229		$	158,474		$	(48,691	)	$	330,338

See Notes to Consolidated Financial Statements

ADVANTA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


		Nine Months Ended
		September 30,

($ in thousands)		2003			2002

OPERATING ACTIVITIES – CONTINUING OPERATIONS
Net income		$	17,069		$	9,064
Adjustments to reconcile net income to net cash provided by operating activities:
	Loss, net, on discontinuance of mortgage and leasing businesses, net of tax		1,968			8,610
	Investment securities losses, net		3,674			5,379
	Valuation adjustments on other receivables held for sale		(50	)		1,085
	Depreciation and amortization		6,268			6,136
	Provision for credit losses		35,274			31,462
	Provision for interest and fee losses		8,787			4,364
	Change in deferred origination costs, net of deferred fees		11,804			(2,044	)
	Change in receivables held for sale		(921,245	)		(189,277	)
	Proceeds from sale of receivables held for sale		866,657			162,511
	Change in accounts receivable from securitizations		(20,274	)		(19,629	)
	Change in other assets and other liabilities		56,321			(6,735	)

Net cash provided by operating activities			66,253			10,926

INVESTING ACTIVITIES – CONTINUING OPERATIONS
	Change in federal funds sold and restricted interest-bearing deposits		(148,360	)		38,949
	Purchase of investments available for sale		(585,483	)		(278,707	)
	Proceeds from sales of investments available for sale		353,800			260,752
	Proceeds from maturing investments available for sale		167,366			81,762
	Change in receivables not held for sale		(67,398	)		(34,756	)
	Sales (purchases) of premises and equipment, net		26			(4,554	)

Net cash (used in) provided by investing activities			(280,049	)		63,446

FINANCING ACTIVITIES – CONTINUING OPERATIONS
	Change in demand and savings deposits		(3,786	)		(3,040	)
	Proceeds from issuance of time deposits		568,538			304,365
	Payments for maturing time deposits		(366,542	)		(283,258	)
	Proceeds from issuance of debt		72,251			83,261
	Payments on redemption of debt		(72,926	)		(115,361	)
	Change in other borrowings		0			(32,317	)
	Proceeds from exercise of stock options		1,833			351
	Cash dividends paid		(5,800	)		(6,043	)
	Stock buyback		(6,240	)		(8,909	)

Net cash provided by (used in) financing activities			187,328			(60,951	)

DISCONTINUED OPERATIONS
	Net cash provided by operating activities		11,765			7,412
	Net cash provided by investing activities		26,559			0

Net cash provided by discontinued operations			38,324			7,412

Net increase in cash			11,856			20,833
Cash at beginning of period			14,834			20,952

Cash at end of period		$	26,690		$	41,785

See Notes to Consolidated Financial Statements

ADVANTA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT PER SHARE DATA, UNLESS OTHERWISE NOTED)

September 30, 2003
(Unaudited)

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

Note 1) Basis of Presentation

Advanta Corp. (collectively with its subsidiaries, “Advanta”) has prepared the consolidated financial statements included herein pursuant to the rules and regulations of the Securities and Exchange Commission. We have condensed or omitted certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States pursuant to such rules and regulations. In the opinion of management, the statements include all adjustments (which include normal recurring adjustments) required for a fair statement of financial position, results of operations and cash flows for the interim periods presented. These financial statements should be read in conjunction with the financial statements and notes thereto included in our latest annual report on Form 10-K. The results of operations for the interim periods are not necessarily indicative of the results for the full year.

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

Certain prior period balances have been reclassified to conform to the current period presentation.

Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock Based Compensation,” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure,” defines a fair value based method of accounting for employee stock compensation plans, whereby compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. However, it permits entities to continue to measure compensation cost for those plans using the intrinsic value based method of accounting prescribed by Accounting Principles Board Opinion 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 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 and net income per common share would have changed to the following pro forma amounts:


			Three Months Ended				Nine Months Ended
			September 30,				September 30,

			2003		2002		2003		2002

Compensation expense for stock option plans, net of related tax effects
	As reported		$	0	$	0	$	0	$	0
	Pro forma			576		787		1,792		2,327

Net income
	As reported		$	6,851	$	6,316	$	17,069	$	9,064
	Pro forma			6,275		5,529		15,277		6,737

Basic net income per common share
	As reported
		Class A	$	0.27	$	0.24	$	0.66	$	0.31
		Class B		0.29		0.26		0.73		0.38
		Combined		0.28		0.25		0.70		0.35
	Pro forma
		Class A	$	0.24	$	0.20	$	0.58	$	0.22
		Class B		0.27		0.23		0.66		0.29
		Combined		0.26		0.22		0.63		0.26

Diluted net income per common share
	As reported
		Class A	$	0.26	$	0.23	$	0.64	$	0.30
		Class B		0.28		0.25		0.71		0.36
		Combined		0.27		0.25		0.68		0.34
	Pro forma
		Class A	$	0.24	$	0.20	$	0.57	$	0.22
		Class B		0.26		0.22		0.64		0.27
		Combined		0.25		0.22		0.62		0.25

Note 2) 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, we adopted this interpretation, which 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. The adoption of this interpretation did not have a material impact on our financial position or results of operations.

In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities - An Interpretation of ARB No. 51.” This interpretation requires a company to consolidate a variable interest entity if the company has variable interests that give it a majority of the expected losses or a majority of the expected residual returns of the entity. The consolidation requirements apply to all variable interest entities created after January 31, 2003. In addition, the interpretation, as originally issued, required public companies to apply the consolidation requirements to variable interest entities that existed prior to February 1, 2003 as of the beginning of annual or interim periods beginning after June 15, 2003. However, in October 2003, the FASB deferred the implementation date of this interpretation for variable interest entities that existed prior to February 1, 2003 to annual or interim periods beginning after December 15, 2003. This interpretation does not have a material effect on our financial position or results of operations since qualifying special-purpose entities, as defined in SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities - a Replacement of FASB Statement No. 125” (“SFAS 140”), are exempt from the consolidation requirements of this interpretation.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“SFAS 150”). SFAS 150 establishes standards for how an issuer classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances) because that financial instrument embodies an obligation of the issuer. This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003, except for mandatorily redeemable financial instruments of nonpublic entities. Our adoption of this standard on July 1, 2003 resulted in a reclassification of our company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely subordinated debentures of Advanta Corp. (the “trust preferred securities”) to liabilities. In addition, payments on the trust preferred securities, previously classified as minority interest in income of consolidated subsidiary, are now classified as interest expense. The adoption of this standard had no impact on net income.

In June 2003, the FASB issued an exposure draft, “Qualifying Special-Purpose Entities and Isolation of Transferred Assets - An Amendment of FASB Statement No. 140.” The changes and clarifications in the proposed statement would prevent derecognition by transferors that may continue to retain effective control of transferred assets by providing financial support other than a subordinated retained interest or making decisions about beneficial interests. They would also help to ensure that special-purpose entities will not qualify for the exception to FASB Interpretation No. 46 if any party involved is in a position to enhance or

protect the value of its own subordinated interest by providing financial support for or making decisions about reissuing beneficial interests. For public entities, this proposed statement would apply prospectively to transfers of assets occurring after the beginning of the first interim period after the issuance of the final statement. In October 2003, the FASB announced plans to issue a revised exposure draft. Management will evaluate any potential impact of this revised proposed statement when it is available.

Note 3) Investments Available for Sale

Investments available for sale consisted of the following:


	September 30, 2003				December 31, 2002

	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value

U.S. Treasury & other U.S. Government securities	$	93,295	$	93,372	$	29,212	$	29,257
State and municipal securities		1,938		2,006		2,218		2,302
Collateralized mortgage obligations		396		397		3,408		3,436
Mortgage-backed securities		5,261		5,352		3,852		3,950
Equity securities⁽¹⁾		17,547		17,663		20,223		20,253
Money market funds		113,024		113,024		111,903		111,903
Other		117		117		121		121

Total investments available for sale	$	231,578	$	231,931	$	170,937	$	171,222

(1) Includes venture capital investments of $9.4 million at September 30, 2003 and $13.5 million at December 31, 2002. The amount shown as amortized cost represents fair value for these investments.

Note 4) Receivables

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


			September 30,			December 31,
			2003			2002

Business credit card receivables			$	533,398		$	445,083
Other receivables				17,286			25,589

		Gross receivables		550,684			470,672

Add: Deferred origination costs, net of deferred fees				19,030			30,834
Less: Allowance for receivable losses
	Business credit cards			(46,764	)		(44,466	)
	Other receivables			(1,432	)		(1,693	)

		Total allowance		(48,196	)		(46,159	)

Receivables, net			$	521,518		$	455,347

Note 5) Allowance for Receivable Losses

The following table presents activity in the allowance for receivable losses for the periods presented:


			Nine Months Ended
			September 30,

			2003			2002

Beginning balance			$	46,159		$	41,971
Provision for credit losses				35,274			31,462
Provision for interest and fee losses				8,787			4,364
Gross principal charge-offs:
	Business credit cards			(35,952	)		(31,634	)
	Other receivables			(28	)		(14	)

		Total gross principal charge-offs		(35,980	)		(31,648	)

Principal recoveries:
	Business credit cards			2,445			3,462

Net principal charge-offs				(33,535	)		(28,186	)

Interest and fee charge-offs:
	Business credit cards			(8,489	)		(4,364	)

Ending balance			$	48,196		$	45,247

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 when the account was classified as fraudulent, bankrupt, deceased, 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 is still discontinued when the account is classified as fraudulent, bankrupt, deceased, hardship or credit counseling. 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:


	September 30,		December 31,
	2003		2002

Retained interests in securitizations	$	126,998	$	113,422
Accrued interest and fees on securitized receivables, net		56,988		56,171
Amounts due from the trust		34,526		28,645

Total accounts receivable from securitizations	$	218,512	$	198,238

The following represents business credit card securitization data and the key assumptions used in estimating the fair value of retained interests in securitizations at the time of each new securitization or replenishment if quoted market prices were not available.


		Three Months Ended						Nine Months Ended

		Sept. 30,			Sept. 30,			Sept. 30,			Sept. 30,
		2003			2002			2003			2002

Average securitized receivables		$	2,124,472		$	1,784,825		$	2,195,479		$	1,680,251
Securitization income			28,558			29,168			89,920			88,838
Discount accretion			4,071			2,629			12,036			7,941
Interchange income			22,511			18,585			66,436			51,455
Servicing revenues			9,549			8,334			29,449			24,419
Proceeds from new securitizations			562,347			47,511			861,723			162,511
Proceeds from collections reinvested in revolving-period securitizations			1,272,035			1,044,178			3,040,980			2,863,617
Cash flows received on retained interests			93,453			54,021			226,455			154,026
Key assumptions:
	Discount rate		12.1% - 14.6	%		9.0% - 14.3	%		11.4% - 14.6	%		9.0% - 15.0	%
	Monthly payment rate		18.8% - 21.0	%		18.2% - 21.0	%		18.8% - 21.0	%		18.2% - 21.0	%
	Loss rate		8.5% - 9.4	%		9.6% - 11.5	%		8.5% - 10.3	%		9.6% - 12.8	%
	Finance charge yield, net of interest paid to note holders		14.7% - 15.0	%		14.9% - 15.2	%		14.3% - 15.0	%		14.9% - 15.9	%

Beginning in the fourth quarter of 2002, our interest yield assumption includes both finance charge and late fee yield. Previously, the interest yield assumption included only finance charge yield.

There were no purchases of delinquent accounts during the three or nine months ended September 30, 2003 or 2002.

The following assumptions were used in estimating the fair value of retained interests in business credit card securitizations at September 30, 2003 and December 31, 2002 if quoted market prices were not available. The assumptions listed represent weighted averages of assumptions used for each securitization.


	September 30,			December 31,
	2003			2002

Discount rate		12.6% - 14.6	%		11.4% - 14.0	%
Monthly payment rate		19.9% - 21.0	%		19.3% - 21.0	%
Loss rate		8.5% - 9.3	%		9.4% - 10.3	%
Interest yield, net of interest earned by note holders		14.7	%		15.0	%

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

We have prepared sensitivity analyses of the valuations of retained interests in securitizations estimated using the assumptions identified above. The sensitivity analyses show the hypothetical effect on the fair value of those assets of two unfavorable variations from the expected levels for each key assumption, independently from any change in another key assumption. Set forth below are the results of those sensitivity analyses on the valuation at September 30, 2003.


Effect on fair value of the following hypothetical changes in key assumptions:
	Discount rate increased by 2%	$	(2,236	)
	Discount rate increased by 4%		(4,391	)
	Monthly payment rate at 110% of base assumption		(1,924	)
	Monthly payment rate at 125% of base assumption		(3,624	)
	Loss rate at 110% of base assumption		(5,103	)
	Loss rate at 125% of base assumption		(12,757	)
	Interest yield, net of interest earned by note holders, decreased by 1%		(6,039	)
	Interest yield, net of interest earned by note holders, decreased by 2%		(12,077	)

The objective of these hypothetical analyses is to measure the sensitivity of the fair value of the retained interests to changes in assumptions. The methodology used to calculate the fair value in the analyses is a discounted cash flow analysis, the same methodology used to estimate the fair value of the retained interests when quoted market prices are not available at each reporting date. These estimates do not factor in the impact of simultaneous changes in other key assumptions. The above scenarios do not reflect management’s expectation regarding the future direction of these rates, and they depict only certain possibilities out of a large set of possible scenarios.

Managed receivable data

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


		September 30,		December 31,		September 30,
		2003 ⁽¹⁾		2002 ⁽¹⁾		2002

Owned business credit card receivables		$	533,398	$	445,083	$	445,241
Securitized business credit card receivables			2,343,221		2,149,147		1,808,272

Total managed receivables			2,876,619		2,594,230		2,253,513

Receivables 30 days or more delinquent:
	Owned		30,681		23,406		28,625
	Securitized		146,206		136,128		121,512
	Total managed		176,887		159,534		150,137
Receivables 90 days or more delinquent:
	Owned		14,225		11,959		12,883
	Securitized		67,795		69,335		54,389
	Total managed		82,020		81,294		67,272
Nonaccrual receivables:
	Owned		9,167		4,729		21,178
	Securitized		44,824		27,688		89,389
	Total managed		53,991		32,417		110,567
Accruing receivables past due 90 days or more:
	Owned		12,772		10,535		0
	Securitized		60,755		61,045		0
	Total managed		73,527		71,580		0
Net principal charge-offs for the nine months ended September 30 and twelve months ended December 31:
	Owned		33,507		37,400		28,172
	Securitized		135,648		156,282		117,345
	Total managed		169,155		193,682		145,517

(1) See Note 5 for a discussion of the change in income billing practice effective October 1, 2002.

Note 7) Selected Balance Sheet Information

Other assets consisted of the following:


	September 30,		December 31,
	2003		2002

Current and deferred income taxes, net	$	78,013	$	84,684
Amounts due from transfer of consumer credit card business		70,545		70,545
Investment in Fleet Credit Card Services, L.P.		35,497		34,000
Cash surrender value of insurance contracts		23,625		24,437
Intangible assets		3,824		3,085
Other assets		71,424		60,907

Total other assets	$	282,928	$	277,658

Other liabilities consisted of the following:


	September 30,		December 31,
	2003		2002

Accounts payable and accrued expenses	$	29,574	$	33,486
Business credit card rewards		23,103		16,416
Accrued interest payable		20,081		5,641
Amounts due to the securitization trust		4,320		3,255
Other ⁽¹⁾		203,847		171,588

Total other liabilities	$	280,925	$	230,386

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

Note 8) Deposits

Deposit accounts consisted of the following:


	September 30,		December 31,
	2003		2002

Demand deposits	$	3,964	$	6,561
Money market savings		1,191		2,380
Time deposits of $100,000 or less		554,873		441,611
Time deposits of more than $100,000		358,928		263,476

Total deposits	$	918,956	$	714,028

Time deposit maturities were as follows at September 30, 2003:


Year Ended December 31,
2003	$	285,631
2004		552,430
2005		65,291
2006		9,839
2007		610

Note 9) Commitments and Contingencies

On January 22, 1999, Fleet Financial Group, Inc. (“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 Services, L.P. in connection with the transfer of our consumer credit card business to Fleet Credit Card Services, L.P. (the “Consumer Credit Card Transaction”) in 1998. We filed an answer to the complaint, and we also filed a countercomplaint against Fleet for damages we believe have been caused by certain actions of Fleet. As a result of related litigation with Fleet, $70.1 million of our reserves in connection with this litigation were funded in an 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 represented the amount in excess of the reserves we had been carrying for the litigation, which was based on our expectations of the outcome of the litigation. In 2003, we provided for interest on the liability at a rate consistent with the estimation methodology used effective December 31, 2002. On November 7, 2003, the court ruled on the remaining outstanding issue, the method for calculating the interest to be awarded. The court has ordered the parties to submit revised calculations in accordance with this ruling before it issues a judgment. After considering the

November 2003 ruling, we estimate that our reserves at September 30, 2003 were adequate. The ultimate resolution of any issues that may be appealed could reduce or eliminate the December 2002 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. The deductions are attributable to deductions for bad debt reserves that we expensed in computing our book income or loss before the Consumer Credit Card Transaction, but which were not deductible by Advanta for tax purposes until after the closing of the transaction in 1998. The tax law requires “built in losses” like these to be deducted by the party who contributed the assets to the partnership, in this case, Advanta. The Internal Revenue Service agents who have examined the returns at issue have to ensure that both parties do not obtain the deductions and therefore, following standard practice, proposed to disallow the deductions to both parties until there is a final resolution. The deductions, as well as the allocation of a gain from the sale of a partnership asset of approximately $47 million, are now before the IRS Regional Office of Appeals.

On January 15, 2003, Fleet filed a complaint in Rhode Island Superior Court seeking a declaratory judgment that we indemnify Fleet under the applicable partnership agreement for any damage Fleet incurs by not being entitled to the $508 million of tax deductions. Fleet is also seeking a declaratory judgment that it should not indemnify us for any damages that we incur due to any allocation to Advanta of the $47 million gain on the sale of a partnership asset. Fleet’s claim for indemnification appears to be brought by Fleet in the hope that we will advise the IRS that we will agree with a substantial part of Fleet’s tax position. On February 28, 2003, we filed a motion to dismiss the complaint. On August 13, 2003, the court denied the motion to dismiss on procedural grounds. We answered the complaint and filed a counterclaim against Fleet on September 19, 2003. 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 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 and a judgment in the amount of approximately $6 million was entered against Advanta. On July 8, 2002, the Court of Appeals partially reversed the judgment. On May 6, 2003, the District Court entered an amended judgment in the amount of approximately $4.7 million plus interest from December 7, 2000, and on May 12, 2003, we paid the amended judgment in full. On May 29, 2003, the parties settled the former executive’s claims for attorneys’ fees and costs, resulting in the resolution of this litigation. The amended judgment and settlement payments had no impact on our operating results, due to the reserves we had 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 trial was originally scheduled to begin in January 2004. The parties extended the discovery period and in the second quarter of 2003, in addition to the parties further extending the discovery period, the scheduled date for trial to begin was moved to April 2004. The discovery period has ended. In September 2003, we filed a motion for summary judgment with the court with respect to all claims raised in Chase’s complaint and Chase filed a motion for partial summary judgment with respect to certain of its claims. 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 our exit from that business 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.

In February 2003, we entered into an operating lease agreement for additional office space to be used for certain business card operations and general business purposes. The minimum lease payments on the lease are $243 thousand for the fourth quarter of 2003, $1.4 million in the year 2004, $1.7 million in the year 2005, $1.8 million in each of the years 2006 through 2008, $1.9 million in the year 2009 and $1.7 million in the year 2010.

Note 10) 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 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 were 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 replaced the provisions of the prior understanding and provided for the bank to enhance certain of its internal planning and monitoring processes. Effective October 2003, the regulatory understanding that Advanta Bank Corp. reached with its regulators in October 2002 was removed by Advanta Bank Corp.’s state and federal bank regulators. This action brings to a conclusion the agreements and understandings between Advanta Bank Corp. and its regulators since 2000.

Note 11) Capital Stock

The Board of Directors of Advanta Corp. has authorized management to purchase up to 3.0 million shares of Advanta Corp. common stock. We repurchased 693,300 shares of our Class B Common Stock in the year ended December 31, 2001 and 1,554,759 shares of our Class B Common Stock in the year ended December 31, 2002. In the nine months ended September 30, 2003, we repurchased 354,132 shares of our Class A Common Stock and 315,250 shares of our Class B Common Stock.

Cash dividends per share of common stock declared during the three months ended September 30, 2003 and 2002 were $0.063 for Class A Common Stock and $0.076 for Class B Common Stock. Cash dividends per share of common stock declared during the nine months ended September 30, 2003 and 2002 were $0.189 for Class A Common Stock and $0.227 for Class B Common Stock.

Note 12) Segment Information


	Advanta
	Business		Venture
	Cards		Capital			Other ⁽¹⁾			Total

Three months ended September 30, 2003
Interest income	$	31,597	$	0		$	1,969		$	33,566
Interest expense		12,339		117			2,729			15,185
Noninterest revenues (losses), net		65,054		(1,985	)		1,015			64,084
Pretax income (loss) from continuing operations		13,785		(2,645	)		0			11,140
Total assets		748,179		10,380			1,190,968			1,949,527

Three months ended September 30, 2002
Interest income	$	21,082	$	0		$	2,837		$	23,919
Interest expense		8,978		176			1,898			11,052
Noninterest revenues (losses), net		61,652		(3,505	)		(126	)		58,021
Pretax income (loss) from continuing operations		16,594		(4,369	)		(1,955	)		10,270
Total assets		690,216		14,779			907,831			1,612,826

Nine months ended September 30, 2003
Interest income	$	75,358	$	1		$	6,648		$	82,007
Interest expense		34,342		392			4,833			39,567
Noninterest revenues (losses), net		196,286		(3,837	)		3,258			195,707
Pretax income (loss) from continuing operations		37,409		(6,455	)		0			30,954

Nine months ended September 30, 2002
Interest income	$	67,218	$	2		$	9,340		$	76,560
Interest expense		26,524		562			9,445			36,531
Noninterest revenues (losses), net		180,878		(6,115	)		(110	)		174,653
Pretax income (loss) from continuing operations		44,900		(8,583	)		(7,579	)		28,738

(1) Other includes investment and other activities not attributable to reportable segments. Total assets in the “Other” segment include assets of discontinued operations.

Note 13) Selected Income Statement Information

Other Revenues


	Three Months Ended						Nine Months Ended
	September 30,						September 30,

	2003			2002			2003			2002

Interchange income	$	30,805		$	24,237		$	86,232		$	67,167
Business credit card rewards		(7,756	)		(2,837	)		(19,422	)		(7,864	)
Investment securities losses, net		(1,908	)		(3,286	)		(3,674	)		(5,379	)
Balance transfer fees		1,279			583			3,495			1,363
Cash advance fees		878			773			2,249			2,464
Other fee revenues		1,892			1,391			4,939			4,509
Valuation adjustments on other receivables held for sale		(400	)		(485	)		50			(1,085	)
Other		1,187			143			2,469			221

Total other revenues, net	$	25,977		$	20,519		$	76,338		$	61,396

We offer bonus mile and cash-back reward programs with certain of our business credit cards. Eligible cardholders earn points for bonus mile rewards or cash-back rewards based on net purchases charged on their business credit card account. The cost of future reward redemptions are estimated and recorded at the time bonus mile points or cash-back rewards are earned by the cardholder. These costs of future reward redemptions are recorded as a reduction of other revenues. The estimate of the percentage of cardholders that will ultimately claim rewards varies depending on the structure of the rewards program.

Through the second quarter of 2002, we estimated that 80% to 100% of cardholders for all programs would ultimately claim rewards. In the third quarter of 2002, we revised our estimate of the percentage of cardholders that will ultimately claim bonus mile rewards based on experience for that program life-to-date. After this change in the third quarter of 2002, our estimated range of cardholders that would ultimately claim rewards for all programs was 70% to 100%. In the third quarter of 2003, we again revised our estimate of the percentage of cardholders that will ultimately claim rewards based on experience for those programs life-to-date. This change in the third quarter of 2003 resulted in an estimated range of cardholders that will ultimately claim rewards for all programs of 61% to 97%. In addition, in the first quarter of 2003, we changed the redemption terms of certain bonus mile reward programs resulting in a decrease in the anticipated costs of future reward redemptions. The approximate impacts of the changes in the estimated percentage of cardholders that will ultimately claim rewards and other changes in anticipated costs of future period reward redemptions for the bonus reward liability in the three and nine months ended September 30, 2003 and 2002 were as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,

	2003		2002		2003		2002

Increase in other revenues	$	1,600	$	700	$	2,800	$	1,300
Increase in net income		980		430		1,720		800
Amount per combined diluted share	$	0.04	$	0.02	$	0.07	$	0.03

Operating Expenses


	Three Months Ended				Nine Months Ended
	September 30,				September 30,

	2003		2002		2003		2002

Salaries and employee benefits	$	17,561	$	16,645	$	54,443	$	50,309
Amortization of deferred origination costs, net		12,501		11,845		39,658		36,277
External processing		4,951		4,204		14,576		12,463
Marketing		3,882		2,730		11,253		8,294
Professional fees		3,227		2,675		9,945		9,922
Equipment		2,597		2,683		8,524		7,750
Occupancy		2,126		1,647		6,388		4,945
Credit		1,329		1,308		3,511		4,603
Insurance		1,293		873		3,020		1,987
Fraud		939		807		2,890		2,242
Postage		897		840		2,701		2,462
Telephone		846		1,152		2,692		2,890
Other		2,613		1,568		7,878		3,678

Total operating expenses	$	54,762	$	48,977	$	167,479	$	147,822

We engage unrelated third parties 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. 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 three and nine months ended September 30, 2002 was a decrease in operating expenses of $535 thousand resulting in an increase in net income of $329 thousand or $0.01 per diluted share.

Note 14) Discontinued Operations

The components of the gain (loss) on discontinuance of our mortgage and leasing businesses for the nine months ended September 30, 2003 and 2002 were as follows:


	Nine Months Ended

	September 30, 2003						September 30, 2002

				Advanta						Advanta
	Advanta			Leasing			Advanta			Leasing
	Mortgage			Services			Mortgage			Services

Pretax gain (loss) on discontinuance of mortgage and leasing businesses	$	(2,600	)	$	(600	)	$	(25,300	)	$	11,300
Income tax (expense) benefit		1,001			231			9,740			(4,350	)

Gain (loss) on discontinuance of mortgage and leasing businesses, net of tax	$	(1,599	)	$	(369	)	$	(15,560	)	$	6,950

In the nine months ended September 30, 2003, we recorded a $2.6 million pretax loss on discontinuance of the mortgage business for an increase in our estimated future costs of mortgage business-related contingent liabilities, due primarily to a lengthening of the anticipated timeframe of the resolution for those contingent liabilities, including an extension of the discovery process and a delay in the scheduled trial date in the litigation with Chase Manhattan Mortgage Corporation.

In the nine months ended September 30, 2002, we revised our estimate of 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 related 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 reflected the legal and consulting fees and other costs that we expected to incur based on the levels of contingent liabilities and expense rates, and considered the status of the discovery process associated with the Mortgage Transaction litigation.

In the nine months ended September 30, 2003, we adjusted our estimate of operating results of the leasing segment over the remaining life of the lease portfolio and recorded a $600 thousand pretax loss on leasing discontinuance. The decrease in estimated operating results was principally associated with an unfavorable sales tax assessment, partially offset by favorable credit performance on the leasing portfolio.

In the nine months ended September 30, 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 a former leasing vendor that had filed for bankruptcy protection, and operational improvements in the leasing collections area.

Per share data was as follows:


	Nine Months Ended September 30,

	Advanta						Advanta Leasing
	Mortgage						Services

	2003			2002			2003			2002

Basic gain (loss), net, on discontinuance of mortgage and leasing businesses, net of tax, per common share
Class A	$	(0.07	)	$	(0.62	)	$	(0.02	)	$	0.28
Class B		(0.07	)		(0.62	)		(0.02	)		0.28
Combined		(0.07	)		(0.62	)		(0.02	)		0.28
Diluted gain (loss), net, on discontinuance of mortgage and leasing businesses, net of tax, per common share
Class A	$	(0.06	)	$	(0.59	)	$	(0.01	)	$	0.27
Class B		(0.06	)		(0.59	)		(0.01	)		0.27
Combined		(0.06	)		(0.59	)		(0.01	)		0.27

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


	September 30,			December 31,
	2003			2002

Lease receivables, net	$	91,723		$	40,064
Other assets		1,464			91,686
Liabilities		(4,768	)		(4,638	)

Assets of discontinued operations, net	$	88,419		$	127,112

We are continuing to service the existing lease portfolio. Based on the terms of the remaining leases, we expect assets of discontinued operations to be less than $10 million by June 2005 and the winddown of the lease portfolio to be complete by January 2007. In the nine months ended September 30, 2003, we exercised clean-up call options on the remaining leasing securitization transactions with $94 million of securitized leases outstanding, resulting in an increase in on-balance sheet lease receivables and a decrease in retained interests in leasing securitizations. As a result of exercising these clean-up call options, we have no outstanding securitized leases and no retained interests in leasing securitizations at September 30, 2003. At December 31, 2002, there were $152 million of securitized leases outstanding, and we had retained interests in leasing securitizations of $57 million. The fair value of the retained interests in leasing securitizations at December 31, 2002 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. Both on-balance sheet lease receivables and retained interests in leasing securitizations are classified as assets of discontinued operations on the consolidated balance sheets.

In the second quarter of 2003, we sold two buildings formerly used in our mortgage business that were classified as assets from discontinued operations on the consolidated balance sheets. Proceeds from the sale were approximately $27 million.

Note 15) Calculation of Earnings Per Share

The following table shows the calculation of basic earnings per common share and diluted earnings per common share.


			Three Months Ended						Nine Months Ended
			September 30,						September 30,

			2003			2002			2003			2002

Income from continuing operations			$	6,851		$	6,316		$	19,037		$	17,674
	Less: Preferred A dividends			0			0			(141	)		(141	)

Income from continuing operations available to common shareholders				6,851			6,316			18,896			17,533
Loss, net, on discontinuance of mortgage and leasing businesses, net of tax				0			0			(1,968	)		(8,610	)

Net income available to common shareholders				6,851			6,316			16,928			8,923
	Less: Class A dividends declared			(560	)		(576	)		(1,715	)		(1,726	)
	Less: Class B dividends declared			(1,321	)		(1,401	)		(3,944	)		(4,176	)

Undistributed net income			$	4,970		$	4,339		$	11,269		$	3,021

Basic income from continuing operations per common share
		Class A	$	0.27		$	0.24		$	0.74		$	0.65
		Class B		0.29			0.26			0.81			0.72
		Combined ⁽¹⁾		0.28			0.25			0.79			0.69
Diluted income from continuing operations per common share
		Class A	$	0.26		$	0.23		$	0.72		$	0.63
		Class B		0.28			0.25			0.79			0.69
		Combined ⁽¹⁾		0.27			0.25			0.76			0.67
Basic net income per common share
		Class A	$	0.27		$	0.24		$	0.66		$	0.31
		Class B		0.29			0.26			0.73			0.38
		Combined ⁽¹⁾		0.28			0.25			0.70			0.35
Diluted net income per common share
		Class A	$	0.26		$	0.23		$	0.64		$	0.30
		Class B		0.28			0.25			0.71			0.36
		Combined ⁽¹⁾		0.27			0.25			0.68			0.34

Basic weighted average common shares outstanding
		Class A		8,978			9,162			9,104			9,146
		Class B		15,100			15,876			14,936			16,117
		Combined		24,078			25,038			24,040			25,263
Dilutive effect of:
		Options Class B		641			289			328			487
		Restricted shares Class A		0			1			0			5
		Restricted shares Class B		510			336			375			434
Diluted weighted average common shares outstanding
		Class A		8,978			9,163			9,104			9,151
		Class B		16,251			16,501			15,639			17,038
		Combined		25,229			25,664			24,743			26,189
Antidilutive shares
		Options Class B		1,349			1,699			1,911			1,474
		Restricted shares Class B		0			2,175			84			1,955

(1) Combined represents income available to common shareholders divided by the combined total of Class A and Class B weighted average common shares outstanding.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In this Form 10-Q, “Advanta”, “we”, “us”, and “our” refer to Advanta Corp. and its subsidiaries, unless the context otherwise requires.

OVERVIEW

Income from continuing operations included the following business segment results ($ in thousands):


	Three Months Ended						Nine Months Ended
	September 30,						September 30,

	2003			2002			2003			2002

Pretax income (loss):
Advanta Business Cards	$	13,785		$	16,594		$	37,409		$	44,900
Venture Capital		(2,645	)		(4,369	)		(6,455	)		(8,583	)
Other ⁽¹⁾		0			(1,955	)		0			(7,579	)

Total pretax income		11,140			10,270			30,954			28,738
Income tax expense		(4,289	)		(3,954	)		(11,917	)		(11,064	)

Income from continuing operations	$	6,851		$	6,316		$	19,037		$	17,674

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

For the three months ended September 30, 2003, we reported income from continuing operations of $6.9 million or $0.27 per combined diluted common share, compared to income from continuing operations of $6.3 million or $0.25 per combined diluted common share for the same period of 2002. For the nine months ended September 30, 2003, we reported income from continuing operations of $19.0 million or $0.76 per combined diluted common share, compared to income from continuing operations of $17.7 million or $0.67 per combined diluted share for the same period of 2002. The increases in income from continuing operations for the three and nine months ended September 30, 2003 as compared to the same periods of 2002 are the result of the reduction in net interest expense on excess liquidity not attributable to the Advanta Business Cards or Venture Capital segments and lower unrealized losses on our venture capital investments. These favorable variances are partially offset by decreases in Advanta Business Cards net income.

For the nine months ended September 30, 2003, we recorded an after-tax loss on the discontinuance of our mortgage and leasing businesses of $2.0 million, or $0.08 per combined diluted common share. For the nine months ended September 30, 2002, we recorded an after-tax loss on the discontinuance of our mortgage and leasing businesses of $8.6 million, or $0.33 per combined diluted common share.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. We have identified accounting for 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 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. These accounting policies are described in our Annual Report on Form 10-K for the year ended December 31, 2002.

ADVANTA BUSINESS CARDS

Advanta Business Cards originated, directly and through the use of third parties, new accounts as follows:


	2003		2002

Three months ended September 30		38,368		53,784
Nine months ended September 30		128,461		158,333

Our originations in 2002 and 2003 have included a broad 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 decreases in new account originations in the three and nine months ended September 30, 2003 as compared to the same periods of 2002 reflect the selectivity of our refined customer acquisition models. In the second and third quarters of 2003, we utilized enhanced targeting and decision models to assist us in identifying prospective customers that are interested in an active relationship with Advanta, rather than only a promotional balance transfer. We have also expanded activities to identify alliances with organizations focused on certain small business market segments. We expect our enhanced targeting and decision models will result in acquiring a higher level of active customers, but may result in somewhat lower growth rates.

Pretax income for Advanta Business Cards consisted of the following components ($ in thousands):


	Three Months Ended						Nine Months Ended
	September 30,						September 30,

	2003			2002			2003			2002

Net interest income on owned interest-earning assets	$	19,258		$	12,104		$	41,016		$	40,694
Noninterest revenues		65,054			61,652			196,286			180,878
Provision for credit losses		(16,544	)		(9,179	)		(35,507	)		(30,779	)
Operating expenses		(53,983	)		(47,983	)		(164,386	)		(145,893	)

Pretax income	$	13,785		$	16,594		$	37,409		$	44,900

Net interest income on owned interest-earning assets increased by $7.2 million in the three months ended September 30, 2003 as compared to the same period of 2002 and increased by $322 thousand for the nine months ended September 30, 2003 as compared to the same period of 2002. The increases were due primarily to increases in average owned business credit card receivables of $289 million for the three months ended September 30, 2003 and $148 million for the nine months ended September 30, 2003 as compared to the same periods of 2002, partially offset by decreases in the average yield earned on our business credit card receivables. The decreases in yields are a result of our competitively-priced offerings and products. Average owned business credit card receivables increased in the three and nine months ended September 30, 2003 as compared to the same periods of 2002

due to growth and the timing of securitization activity. See further discussion in the “Liquidity, Capital Resources and Analysis of Financial Condition” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Noninterest revenues include securitization income, interchange income, business credit card rewards costs and other fee revenues. The increases in noninterest revenues in the three and nine months ended September 30, 2003 are due primarily to higher transaction volume and growth in average owned and securitized receivables. Noninterest revenues also include the impact of changes in the estimated costs of future reward redemptions in each period. See further discussion in the “Other Revenues” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations. Based on historical fourth quarter experience and anticipated promotional activities, we expect transaction volume in the fourth quarter of 2003 to increase as compared to the three months ended September 30, 2003, resulting in higher transaction-based fee revenues.

The increases in provision for credit losses in the three and nine months ended September 30, 2003 as compared to the same periods of 2002 primarily reflect the increases in average owned business credit card receivables. For the nine months ended September 30, 2003, the impact of the growth in owned receivables on provision for credit losses was partially offset by a reduction in the estimate of losses inherent in the portfolio based on the delinquency and principal charge-off trends and the current composition of the portfolio as compared to the same period in 2002. The increase in operating expenses in both periods resulted from growth in owned and securitized receivables. In addition, operating expenses reflect an increase in the amortization of deferred origination costs in both periods. We originated a significant volume of new accounts in the fourth quarter of 2002, resulting in increased amortization of deferred origination costs over the subsequent one-year amortization period.

VENTURE CAPITAL

The components of pretax loss for our venture capital segment for the three and nine months ended September 30, 2003 and 2002 were as follows ($ in thousands):


	Three Months Ended						Nine Months Ended
	September 30,						September 30,

	2003			2002			2003			2002

Net interest expense	$	(117	)	$	(176	)	$	(391	)	$	(560	)
Realized losses		(2,000	)		0			(1,803	)		(47	)
Unrealized gains (losses), net		15			(3,505	)		(2,034	)		(6,068	)
Operating expenses		(543	)		(688	)		(2,227	)		(1,908	)

Pretax loss	$	(2,645	)	$	(4,369	)	$	(6,455	)	$	(8,583	)

As shown in the table above, pretax loss for our venture capital segment is comprised primarily of net realized and unrealized gains (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 $9.4 million at September 30, 2003 and $13.5 million at December 31, 2002. Operating expenses for the nine months ended September 30, 2003 include approximately $410 thousand of lease termination costs relating to office space formerly used in our venture capital operations.

INTEREST INCOME AND EXPENSE

Interest income increased by $9.6 million to $33.6 million for the three months ended September 30, 2003 as compared to the same period of 2002 and increased by $5.4 million to $82.0 million for the nine months ended September 30, 2003 as compared to the same period of 2002. The increase in interest income for both periods was due primarily to an increase in average owned business credit card receivables and investments, partially offset by a decrease in the average yield earned on our receivables and investments as a result of the prevailing interest rate environment and the competitively-priced offers described below. Average owned business card receivables increased $289 million for the three months ended September 30, 2003 and $148 million for the nine months ended September 30, 2003 as compared to the same periods of 2002. Average investments increased $150 million for the three months ended September 30, 2003 and $109 million for the nine months ended September 30, 2003 as compared to the same periods of 2002.

Our marketing campaigns in 2002 and 2003 have included a broad 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. These competitively-priced offers have resulted in a decline in yields on our business credit card receivable portfolio and are anticipated to result in lower credit losses on those originations in future periods. We expect yields for the fourth quarter of 2003 to be relatively consistent with those experienced in the three and nine months ended September 30, 2003, due in part to the expiration of promotional pricing periods on a portion of the business credit card portfolio that we anticipate will offset the decline in yields created by new offers at promotional rates.

For the three months ended September 30, 2003, interest expense increased by $4.1 million to $15.2 million as compared to the same period of 2002 and increased by $3.0 million to $39.6 million for the nine months ended September 30, 2003 as compared to the same period of 2002. The increase in interest expense for both periods was due to an increase in average interest-bearing liabilities, primarily our deposits and debt, partially offset by a decrease in our average cost of funds. Average interest-bearing liabilities increased by $580 million in the three months ended September 30, 2003 and increased by $405 million in the nine months ended September 30, 2003 as compared to the same periods of 2002. These increases in average interest-bearing liabilities were due in part to a reclassification. Trust preferred securities were reclassified to interest-bearing liabilities and the related payments were reclassified to interest expense in accordance with SFAS 150 effective July 1, 2003. As a result of this reclassification, average interest-bearing liabilities increased by $100 million and $33 million for the three and nine months ended September 30, 2003. Also, interest expense for the three and nine months ended September 30, 2003 increased by $2.2 million as a result of the reclassification. Our average cost of funds decreased to 3.93% for the three months ended September 30, 2003 from 4.94% in the same period of 2002, and decreased to 3.93% for the nine months ended September 30, 2003 from 5.36% in the same period of 2002. The decrease in our average cost of funds in both periods is primarily a result of the prevailing interest rate environment, partially offset by an increase in the weighted average maturity of our debt securities at the time of origination and our deposit origination strategy related to funding the growth in average on-balance sheet assets during 2003. See further discussion in the “Liquidity, Capital Resources and Analysis of Financial Condition” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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

INTEREST RATE ANALYSIS AND AVERAGE BALANCES
($ in thousands)


		Three Months Ended September 30,

		2003							2002

		Average				Average			Average				Average
		Balance		Interest		Rate			Balance		Interest		Rate

Owned receivables:
	Business credit cards ⁽¹⁾	$	734,715	$	27,526		14.86	%	$	445,264	$	18,453		16.44	%
	Other receivables		18,062		175		3.82			27,655		308		4.42

Total owned receivables			752,777		27,701		14.60			472,919		18,761		15.74
Investments ⁽²⁾			635,312		1,798		1.12			485,165		2,527		2.05
Retained interests in securitizations			134,762		4,071		12.08			102,109		2,629		10.30
Interest-earning assets of discontinued operations			84,178		2,260		10.74			53,117		1,579		11.89

Total interest-earning assets ⁽³⁾			1,607,029	$	35,830		8.86	%		1,113,310	$	25,496		9.09	%
Noninterest-earning assets			511,809							472,942

Total assets		$	2,118,838						$	1,586,252

Deposits		$	1,090,112	$	7,527		2.74	%	$	631,430	$	6,133		3.85	%
Debt			322,069		5,210		6.42			302,821		5,507		7.21
Trust preferred securities			100,000		2,220		8.88			0		0		0.00
Other borrowings			1,957		7		1.37			0		0		0.00

Total interest-bearing liabilities ⁽⁴⁾			1,514,138	$	14,964		3.93	%		934,251	$	11,640		4.94	%
Noninterest-bearing liabilities			275,737							189,558

Total liabilities			1,789,875							1,123,809
Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely subordinated debentures of Advanta Corp. ⁽⁵⁾			0							100,000
Stockholders’ equity			328,963							362,443

Total liabilities and stockholders’ equity		$	2,118,838						$	1,586,252

Net interest spread							4.93	%						4.15	%
Net interest margin							5.15	%						4.94	%

(1) Interest income includes late fees for owned business credit cards receivables of $2.1 million for the three months ended September 30, 2003 and $1.6 million for the three months ended September 30, 2002.

(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.

(5) Represents trust preferred securities.


		Nine Months Ended September 30,

		2003							2002

		Average				Average			Average				Average
		Balance		Interest		Rate			Balance		Interest		Rate

Owned receivables:
	Business credit cards ⁽¹⁾	$	586,259	$	63,322		14.44	%	$	438,415	$	59,277		18.08	%
	Other receivables		22,098		766		4.63			28,108		932		4.43

Total owned receivables			608,357		64,088		14.08			466,523		60,209		17.26
Investments ⁽²⁾			624,024		5,900		1.25			514,655		8,394		2.17
Retained interests in securitizations			142,192		12,036		11.16			93,103		7,941		11.25
Interest-earning assets of discontinued operations			55,158		4,949		11.96			52,543		3,812		9.67

Total interest-earning assets ⁽³⁾			1,429,731	$	86,973		8.11	%		1,126,824	$	80,356		9.51	%
Noninterest-earning assets			569,446							467,558

Total assets		$	1,999,177						$	1,594,382

Deposits		$	992,334	$	21,971		2.96	%	$	632,290	$	19,907		4.21	%
Debt			319,585		15,334		6.42			304,178		17,767		7.81
Trust preferred securities			33,333		2,220		8.88			0		0		0.00
Other borrowings			752		8		1.41			4,716		67		1.87

Total interest-bearing liabilities ⁽⁴⁾			1,346,004	$	39,533		3.93	%		941,184	$	37,741		5.36	%
Noninterest-bearing liabilities			260,739							187,440

Total liabilities			1,606,743							1,128,624
Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely subordinated debentures of Advanta Corp. ⁽⁵⁾			66,667							100,000
Stockholders’ equity			325,767							365,758

Total liabilities and stockholders’ equity		$	1,999,177						$	1,594,382

Net interest spread							4.18	%						4.15	%
Net interest margin							4.44	%						5.06	%

(1) Interest income includes late fees for owned business credit card receivables of $5.1 million for the nine months ended September 30, 2003 and $6.0 million for the nine months ended September 30, 2002.

(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.

(5) Represents trust preferred securities.

PROVISION AND ALLOWANCE FOR RECEIVABLE LOSSES

For the three months ended September 30, 2003, provision for credit losses increased by $7.1 million to $16.6 million as compared to the same period in 2002. For the nine months ended September 30, 2003, provision for credit losses increased by $3.8 million to $35.3 million as compared to the same period in 2002. The increase in provision for credit losses in both periods primarily reflects an increase in our average owned business credit card receivables of $289 million for the three months ended September 30, 2003 and $148 million for the nine months ended September 30, 2003 as compared to the same periods of 2002. For the nine months ended September 30, 2003, the impact of the growth in owned receivables was partially offset by a reduction in the estimate of losses inherent in the portfolio based on the delinquency and principal charge-off trends and the current composition of the portfolio as compared to the same period in 2002.

For the three months ended September 30, 2003, provisions for interest and fee losses, which are recorded as direct reductions to interest and fee income, increased by $2.4 million to $3.8 million as compared to the same period in 2002. For the nine months ended September 30, 2003, provisions for interest and fee losses increased by $4.4 million to $8.8 million as compared to the same period in 2002. The increases in both periods were due to a change in income billing practice effective October 1, 2002 and the increases in average owned business credit card receivables in those periods. 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 when the account was classified as fraudulent, bankrupt, deceased, 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 is still discontinued when the account is classified as fraudulent, bankrupt, deceased, hardship or credit counseling.

The allowance for receivable losses on business credit card receivables was $46.8 million at September 30, 2003, or 8.8% of owned receivables, as compared to the allowance of $44.5 million, or 10.0% of owned receivables at December 31, 2002. The decrease in the allowance for receivable losses as a percentage of owned business credit card receivables reflects our estimate of a lower level of inherent losses in the portfolio at September 30, 2003 and that the composition of the portfolio at September 30, 2003 consisted of more higher credit quality customers than the portfolio at December 31, 2002.

As shown in the table below, the net principal charge-off rate for the nine months ended September 30, 2003 has improved as compared to the rate for the same period of 2002 due to the composition of the portfolio during those periods 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 principal 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, and there may be month-to-month or quarterly variations in losses or delinquencies, we anticipate that the owned and managed net principal charge-off rates for the fourth quarter of 2003 will be lower than those experienced in the nine months ended September 30, 2003. This expectation is based upon the level of receivables 90 days or more delinquent at September 30, 2003 and the current composition of the

portfolio that reflects our strategic initiative to selectively attract and retain more higher credit quality customers.

In January 2003, the bank regulatory agencies issued guidance on account management and loss allowance for credit card lending. The guidance describes the agencies’ expectations for prudent risk management practices for credit card activities, particularly with regard to credit line management, over-limit accounts, and workouts. It also addresses income recognition and loss allowance practices for credit card lending. Based on our understanding of the guidance as currently implemented by the regulatory agencies, we do not expect it to have a material adverse effect on our financial condition or our results of operations. However, similar to other regulatory guidance, this guidance provides wide discretion to the bank regulatory agencies in how the guidance is applied generally or with respect to any particular institution. Accordingly, our account management or loss allowance practices could change 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, or owned, receivable portfolio including a summary of allowances for receivable losses, delinquencies, nonaccrual receivables, accruing receivables past due 90 days or more, and net principal charge-offs. Consolidated data includes business credit cards and other receivables.


		September 30,			December 31,			September 30,
($ in thousands)		2003 ⁽¹⁾			2002 ⁽¹⁾			2002

CONSOLIDATED - OWNED
Allowance for receivable losses		$	48,196		$	46,159		$	45,247
Receivables 30 days or more delinquent			30,800			25,197			30,208
Receivables 90 days or more delinquent			14,344			12,755			13,623
Nonaccrual receivables			9,286			5,525			21,918
Accruing receivables past due 90 days or more			12,772			10,535			0
As a percentage of gross receivables:
	Allowance for receivable losses		8.75	%		9.81	%		9.58	%
	Receivables 30 days or more delinquent		5.59			5.35			6.40
	Receivables 90 days or more delinquent		2.60			2.71			2.88
	Nonaccrual receivables		1.69			1.17			4.64
	Accruing receivables past due 90 days or more		2.32			2.24			0.00
Net principal charge-offs		$	33,535		$	37,416		$	28,186
As a percentage of average gross receivables (annualized):
	Net principal charge-offs		7.35	%		7.49	%		8.06	%
BUSINESS CREDIT CARDS - OWNED
Allowance for receivable losses		$	46,764		$	44,466		$	43,776
Receivables 30 days or more delinquent			30,681			23,406			28,625
Receivables 90 days or more delinquent			14,225			11,959			12,883
Nonaccrual receivables			9,167			4,729			21,178
Accruing receivables past due 90 days or more			12,772			10,535			0
As a percentage of gross receivables:
	Allowance for receivable losses		8.77	%		9.99	%		9.83	%
	Receivables 30 days or more delinquent		5.75			5.26			6.43
	Receivables 90 days or more delinquent		2.67			2.69			2.89
	Nonaccrual receivables		1.72			1.06			4.76
	Accruing receivables past due 90 days or more		2.39			2.37			0.00
Net principal charge-offs		$	33,507		$	37,400		$	28,172
As a percentage of average gross receivables (annualized):
	Net principal charge-offs		7.62	%		7.92	%		8.57	%

(1) See Note 5 to the consolidated financial statements for a discussion of the change in income billing practice effective October 1, 2002.

SECURITIZATION INCOME

Advanta Business Cards recognized securitization income as follows ($ in thousands):


	2003		2002

Three months ended September 30	$	28,558	$	29,168
Nine months ended September 30		89,920		88,838

Securitization income for the three months ended September 30, 2003 decreased slightly as compared to the same period of 2002. For the three month period, the positive impacts from increased volume of securitized receivables, a decrease in the floating interest rates earned by note holders and a decrease in the net principal charge-off rate on securitized receivables were substantially offset by a decrease in yield on securitized receivables. Securitization income for the nine months ended September 30, 2003 increased as compared to the same period of 2002. For the nine month period, the positive impacts described above more than offset the decrease in yields on securitized receivables. These fluctuations in yields and rates are similar to those experienced in owned business credit card receivables as discussed in the “Interest Income and Expense” and “Provision and Allowance for Receivable Losses” sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Managed Receivable Data

In addition to evaluating the financial performance of the Advanta Business Cards segment under generally accepted accounting principles (GAAP), we evaluate Advanta Business Cards’ performance on a managed basis. Our managed receivable portfolio is comprised of both owned and securitized business credit card receivables. We sell business credit card receivables through securitizations accounted for as sales under GAAP. We continue to own and service the accounts that generate the securitized receivables. Managed data presents performance as if the securitized receivables had not been sold. We believe that performance on a managed basis provides useful supplemental information because we retain interests in the securitized receivables and, therefore, we have a financial interest in and exposure to the performance of the securitized receivables. Revenue and credit data on the managed portfolio provides additional information useful in understanding the performance of the retained interests in securitizations. The following tables provide managed data for Advanta Business Cards and a reconciliation of the managed data to the most directly comparable GAAP financial measures ($ in thousands):

INCOME STATEMENT MEASURES AND STATISTICS


									Advanta
	Advanta								Business
	Business		GAAP			Securitization			Cards		Managed
	Cards GAAP		Ratio ⁽³⁾			Adjustments			Managed		Ratio ⁽³⁾

Three Months Ended September 30, 2003:
Interest income	$	31,597		14.54	%	$	83,380		$	114,977		16.09	%
Interest expense		12,339		5.68			9,357			21,696		3.04
Net interest income		19,258		8.86			74,023			93,281		13.05
Noninterest revenues		65,054		29.93			(30,435	)		34,619		4.84
Provision for credit losses		16,544		7.61			43,588	⁽²⁾		60,132		8.41
Risk-adjusted revenues ⁽¹⁾		67,768		31.18			0			67,768		9.48
Average business credit card interest-earning assets		869,477					1,989,710			2,859,187
Net principal charge-offs		15,544		7.15			43,588			59,132		8.27

Three Months Ended September 30, 2002:
Interest income	$	21,082		15.41	%	$	81,637		$	102,719		18.42	%
Interest expense		8,978		6.56			10,336			19,314		3.46
Net interest income		12,104		8.85			71,301			83,405		14.96
Noninterest revenues		61,652		45.05			(30,718	)		30,934		5.55
Provision for credit losses		9,179		6.71			40,583	⁽²⁾		49,762		8.93
Risk-adjusted revenues ⁽¹⁾		64,577		47.19			0			64,577		11.58
Average business credit card interest-earning assets		547,373					1,682,716			2,230,089
Net principal charge-offs		9,179		6.71			40,583			49,762		8.93

Nine Months Ended September 30, 2003:
Interest income	$	75,358		13.79	%	$	260,294		$	335,652		16.09	%
Interest expense		34,342		6.28			28,562			62,904		3.02
Net interest income		41,016		7.51			231,732			272,748		13.07
Noninterest revenues		196,286		35.93			(96,084	)		100,202		4.80
Provision for credit losses		35,507		6.50			135,648	⁽²⁾		171,155		8.20
Risk-adjusted revenues ⁽¹⁾		201,795		36.94			0			201,795		9.67
Average business credit card interest-earning assets		728,451					2,053,287			2,781,738
Net principal charge-offs		33,507		6.13			135,648			169,155		8.11

Nine Months Ended September 30, 2002:
Interest income	$	67,218		16.86	%	$	238,606		$	305,824		19.25	%
Interest expense		26,524		6.65			28,771			55,295		3.48
Net interest income		40,694		10.21			209,835			250,529		15.77
Noninterest revenues		180,878		45.37			(92,490	)		88,388		5.56
Provision for credit losses		30,779		7.72			117,345	⁽²⁾		148,124		9.32
Risk-adjusted revenues ⁽¹⁾		190,793		47.86			0			190,793		12.01
Average business credit card interest-earning assets		531,518					1,587,148			2,118,666
Net principal charge-offs		28,172		7.07			117,345			145,517		9.16

(1) Risk-adjusted revenues represent net interest income and noninterest revenues, less provision for credit losses.

(2) Includes the amount by which the credit losses would have been higher had the securitized receivables remained as owned and the provision for credit losses on securitized receivables been equal to actual reported charge-offs.

(3) Ratios are as a percentage of average business credit card interest-earning assets.

BALANCE SHEET MEASURES AND STATISTICS


	Advanta							Advanta
	Business		GAAP			Securitization		Business		Managed
	Cards GAAP		Ratio⁽²⁾			Adjustments		Cards Managed		Ratio⁽²⁾

As of September 30, 2003⁽¹⁾
Number of business credit card accounts		783,811					N/A		783,811
Ending business credit card receivables	$	533,398				$	2,343,221	$	2,876,619
Receivables 30 days or more delinquent		30,681		5.75	%		146,206		176,887		6.15	%
Receivables 90 days or more delinquent		14,225		2.67			67,795		82,020		2.85
Nonaccrual receivables		9,167		1.72			44,824		53,991		1.88
Accruing receivables past due 90 days or more		12,772		2.39			60,755		73,527		2.56

As of December 31, 2002⁽¹⁾
Number of business credit card accounts		780,326					N/A		780,326
Ending business credit card receivables	$	445,083				$	2,149,147	$	2,594,230
Receivables 30 days or more delinquent		23,406		5.26	%		136,128		159,534		6.15	%
Receivables 90 days or more delinquent		11,959		2.69			69,335		81,294		3.13
Nonaccrual receivables		4,729		1.06			27,688		32,417		1.25
Accruing receivables past due 90 days or more		10,535		2.37			61,045		71,580		2.76

As of September 30, 2002
Number of business credit card accounts		730,174					N/A		730,174
Ending business credit card receivables	$	445,241				$	1,808,272	$	2,253,513
Receivables 30 days or more delinquent		28,625		6.43	%		121,512		150,137		6.66	%
Receivables 90 days or more delinquent		12,883		2.89			54,389		67,272		2.99
Nonaccrual receivables		21,178		4.76			89,389		110,567		4.91
Accruing receivables past due 90 days or more		0		0.00			0		0		0.00

(1) See Note 5 to the consolidated financial statements for a discussion of the change in income billing practice effective October 1, 2002.

(2) Ratios are as a percentage of ending business credit card receivables.

SERVICING REVENUES

Advanta Business Cards recognized servicing revenue as follows ($ in thousands):


	2003		2002

Three months ended September 30	$	9,549	$	8,334
Nine months ended September 30		29,449		24,419

The increase in servicing revenue in both the three and nine months ended September 30, 2003 as compared to the same periods of 2002 was due to increased volume of securitized business credit card receivables.

OTHER REVENUES


	Three Months Ended						Nine Months Ended
	September 30,						September 30,

($ in thousands)	2003			2002			2003			2002

Interchange income	$	30,805		$	24,237		$	86,232		$	67,167
Business credit card rewards		(7,756	)		(2,837	)		(19,422	)		(7,864	)
Investment securities losses, net		(1,908	)		(3,286	)		(3,674	)		(5,379	)
Balance transfer fees		1,279			583			3,495			1,363
Cash advance fees		878			773			2,249			2,464
Other fee revenues		1,892			1,391			4,939			4,509
Valuation adjustments on other receivables held for sale		(400	)		(485	)		50			(1,085	)
Other		1,187			143			2,469			221

Total other revenues, net	$	25,977		$	20,519		$	76,338		$	61,396

Interchange income includes interchange fees on both owned and securitized business credit cards. The increases in interchange income in the three and nine months ended September 30, 2003 as compared to the same periods of 2002 were due primarily to higher transaction volume related to the increase in average business credit card accounts and receivables. The average interchange rate was 2.1% in each of the three and nine months ended September 30, 2003 and 2002.

The increases in business credit card rewards in the three and nine months ended September 30, 2003 as compared to the same periods of 2002 were due primarily to the increase in average owned and securitized business credit card accounts in the cash-back rewards programs and the corresponding transaction activity in those accounts. In addition, business credit card rewards were impacted in each period by changes in the estimated costs of future reward redemptions. The impacts of the changes in estimate were increases in other revenues of approximately $1.6 million in the three months ended September 30, 2003, $700 thousand in the three months ended September 30, 2002, $2.8 million in the nine months ended September 30, 2003 and $1.3 million in the nine months ended September 30, 2002. See Note 13 to the consolidated financial statements for further discussion. For a discussion of other changes in estimate impacting the three and nine months ended September 30, 2002, see the “Operating Expenses” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Investment securities losses, net, primarily represent decreases in valuations of venture capital investments reflecting the market conditions for the investments. Investment securities losses, net, also include net realized gains on other investments of $78 thousand for the three months ended September 30, 2003 and $163 thousand for the nine months ended September 30, 2003. Investment securities losses, net, include net realized gains of $219 thousand on other investments for

the three months ended September 30, 2002 and $738 thousand for the nine months ended September 30, 2002.

The increases in balance transfer fees in the three and nine months ended September 30, 2003 as compared to the same periods of 2002 were due primarily to an increase in balance transfer promotional offers included in our marketing campaigns that resulted in a higher volume of balance transfers.

The increases in other fee revenues in the three and nine months ended September 30, 2003 as compared to the same periods of 2002 were due primarily to higher transaction volume and income from marketing referrals, partially offset by a reduction in fee revenues related to credit protection products that resulted from the shift in our business credit card portfolio toward more higher credit quality customers.

Other revenues included an estimate of the earnings allocable to our partnership interest in Fleet Credit Card Services, L.P. of $1.1 million for the three months ended September 30, 2003 and $2.1 million for the nine months ended September 30, 2003.

OPERATING EXPENSES


	Three Months Ended				Nine Months Ended
	September 30,				September 30,

($ in thousands)	2003		2002		2003		2002

Salaries and employee benefits	$	17,561	$	16,645	$	54,443	$	50,309
Amortization of deferred origination costs, net		12,501		11,845		39,658		36,277
External processing		4,951		4,204		14,576		12,463
Marketing		3,882		2,730		11,253		8,294
Professional fees		3,227		2,675		9,945		9,922
Equipment		2,597		2,683		8,524		7,750
Occupancy		2,126		1,647		6,388		4,945
Credit		1,329		1,308		3,511		4,603
Insurance		1,293		873		3,020		1,987
Fraud		939		807		2,890		2,242
Postage		897		840		2,701		2,462
Telephone		846		1,152		2,692		2,890
Other		2,613		1,568		7,878		3,678

Total operating expenses	$	54,762	$	48,977	$	167,479	$	147,822

Salaries and employee benefits, external processing, fraud, postage and other expenses increased in the three and nine months ended September 30, 2003 as compared to the same periods of 2002 due primarily to growth in owned and securitized business credit card receivables. In addition, other expenses in the nine months ended September 30, 2002 included a $1.1 million decrease in litigation reserves resulting from a reduction of damages in a jury verdict. We expect total operating expenses to increase in the fourth quarter of 2003 as compared to the three months ended September 30, 2003 due to the anticipated timing of initiatives to originate and retain relationships with high credit quality customers and other expenses.

Amortization of deferred origination costs, net, increased in the three and nine months ended September 30, 2003 as compared to the same periods of 2002 due to an increase in the number and timing of new account originations, partially offset by a decrease in the average acquisition cost per account. We originated a significant volume of new accounts in the fourth quarter of 2002, and expect to

have lower amortization expense in the fourth quarter of 2003 as compared to the three months ended September 30, 2003, as those costs would be fully amortized after the amortization period of one year. 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 three and nine months ended September 30, 2002 was a decrease in amortization of business credit card deferred origination costs of $535 thousand. See Note 13 to the consolidated financial statements for further discussion.

Professional fees increased in the three months ended September 30, 2003 as compared to the same period of 2002 due primarily to an increase in the use of external consultants in certain initiatives to originate and retain relationships with high credit quality customers.

Equipment expense increased in the nine months ended September 30, 2003 as compared to the same period of 2002 due to an increase in technology costs, including a licensing fee.

Occupancy expense increased in both the three and nine months ended September 30, 2003 as compared to the same periods of 2002 due to additional office space that we began leasing in March 2003. Occupancy expense on the new office space was $491 thousand in the three months ended September 30, 2003 and $1.0 million in the nine months ended September 30, 2003. In addition, occupancy expense in the nine months ended September 30, 2003 included approximately $410 thousand of lease termination costs paid relating to office space formerly used in our venture capital operations.

Marketing expense increased in the three and nine months ended September 30, 2003 as compared to the same periods of 2002 due to Advanta’s sponsorship and advertising costs associated with tennis events in 2003. Marketing expense also increased due to our development of programs to originate new customers and our customer relationship management initiatives to enhance and maintain our relationships with existing high credit quality business credit card customers, including marketing programs to stimulate usage, enhance customer loyalty and retain existing accounts.

Credit expense decreased in the nine months ended September 30, 2003 as compared to the same period of 2002 due to a 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 impact of a similar shift in the types of recoveries in the three months ended September 30, 2003 was substantially offset by an increase in credit expense related to additional services from credit information service providers.

Insurance expense increased in the three and nine months ended September 30, 2003 as compared to the same periods of 2002 due to an increase in directors’ and officers’ professional liability insurance costs as a result of market rates for this type of insurance. In addition, insurance expense in the nine months ended September 30, 2002 included a $382 thousand reduction of our estimated liability related to worker’s compensation insurance.

Telephone expense decreased in the three and nine months ended September 30, 2003 as compared to the same periods of 2002 due primarily to a reduction in contract rate charged by one of our service providers that was effective February 2003.

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 our exit from that business in the first quarter of 2001. See discussion in Note 9 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.

INCOME TAXES

Income tax expense on income from continuing operations was as follows ($ in thousands):


	2003		2002

Three months ended September 30	$	4,289	$	3,954
Nine months ended September 30		11,917		11,064

Our effective tax rate was 38.5% for both the three and nine months ended September 30, 2003 and 2002. See Note 9 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 nine months ended September 30, 2003, we recorded an after-tax loss on the discontinuance of our mortgage and leasing businesses of $2.0 million. The components of this loss include a $2.6 million pretax loss on mortgage discontinuance, a $600 thousand pretax loss on leasing discontinuance, and a tax benefit of $1.2 million. The $2.6 million pretax loss on mortgage discontinuance was the result of an increase in our estimated future costs of mortgage business-related contingent liabilities, due primarily to a lengthening of the anticipated timeframe of the resolution for those contingent liabilities, including an extension of the discovery process and a delay in the scheduled trial date in the litigation with Chase Manhattan Mortgage Corporation. The $600 thousand pretax loss on leasing discontinuance was principally associated with an unfavorable sales tax assessment and represents a decrease in our estimate of operating results of the leasing segment over the remaining life of the lease portfolio. The impact of the unfavorable sales tax assessment was partially offset by favorable credit performance on the leasing portfolio.

In the nine months ended September 30, 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 related 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 reflected the legal and consulting fees and other costs that we expected to incur based on the levels of contingent liabilities and expense rates, and considered the status of the discovery process associated with the Mortgage Transaction litigation. The $11.3 million pretax gain on leasing discontinuance represented 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.

MARKET RISK SENSITIVITY

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 September 30, 2003 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 have resulted in an approximate $3.5 million decrease in the fair value of our equity investments at September 30, 2003. A 20% adverse change would have resulted in an approximate $4.1 million decrease in fair value at December 31, 2002.

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 September 30, 2003 and December 31, 2002, we estimated that our owned net interest income and managed net interest income would change as follows over a twelve-month period:


		Sept. 30,			Dec. 31,
		2003			2002

Estimated percentage increase (decrease) in owned net interest income:
	Assuming 200 basis point increase in interest rates		13	%		16	%
	Assuming 200 basis point decrease in interest rates		(2	)%		3	%
Estimated percentage increase (decrease) in managed net interest income:
	Assuming 200 basis point increase in interest rates		(5	)%		(4	)%
	Assuming 200 basis point decrease in interest rates		7	%		9	%

Our 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. Changes in the composition of our balance sheet, the current interest rate environment and the lower average interest rate on our deposit portfolio have also impacted the results of the owned and managed net interest income sensitivity analyses at September 30, 2003 as compared to December 31, 2002.

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.

LIQUIDITY, CAPITAL RESOURCES AND ANALYSIS OF FINANCIAL CONDITION

Our goal is to maintain an adequate level of liquidity, for both long-term and short-term needs, through active management of both assets and liabilities. Since Advanta Corp.’s debt rating is not investment grade, our access to unsecured, institutional debt is limited. However, we do have access to a variety of funding sources as described below, and had a high level of liquidity at September 30, 2003. At September 30, 2003, we had $482 million of federal funds sold, $238 million of receivables held for sale, and $207 million of investments, which could be sold to generate additional liquidity. Components of funding were as follows ($ in thousands):


	September 30, 2003					December 31, 2002

	Amount		%			Amount		%

Off-balance sheet securitized receivables⁽¹⁾	$	2,265,293		58	%	$	2,172,266		60	%
Deposits		918,956		23			714,028		19
Debt, other borrowings and trust preferred securities		419,308		11			415,886		12
Equity		330,338		8			321,313		9

Total	$	3,933,895		100	%	$	3,623,493		100	%

(1) Includes both off-balance sheet business credit card receivables and off-balance sheet lease receivables related to discontinued operations, if applicable. 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.

We have a $280 million committed commercial paper conduit facility that provides off-balance sheet funding, all of which was used at September 30, 2003. Upon the expiration of this facility in June 2004, management expects to obtain the appropriate level of replacement funding under similar terms and conditions. At December 31, 2002, $330 million of business credit card receivables were securitized through a commercial paper conduit facility.

In the nine months ended September 30, 2003, we completed three public business credit card securitizations. The revolving periods for those securitizations extend to the following dates:


	Investor Principal
	Balance at		Scheduled End of
	September 30, 2003		Revolving Period
($ in thousands)
Series 2003-A	$	400,000	May 2005
Series 2003-B		300,000	September 2005
Series 2003-C		300,000	November 2004

When a business credit card securitization series is in its revolving period, principal collections on securitized receivables allocated to that series are used to purchase additional receivables to replenish receivables that have been repaid. In contrast, when a series of our securitization trust starts its amortization period, principal collections are held in the trust until the payment date of the notes. As principal is collected on securitized receivables in a series during its amortization period, we need to replace that amount of funding. Our $157 million Series 2000-A business credit card securitization started its scheduled amortization period in February 2003 and the note holders were paid in full in

April 2003. Our $600 million Series 2000-B business credit card securitization started its scheduled amortization period in April 2003 and the note holders were paid in full in July 2003. The increase in on-balance sheet assets during the Series 2000-B amortization period was primarily funded through an increase in deposits. We anticipate completing a public business credit card securitization in the fourth quarter of 2003 under similar terms and conditions as the public securitizations completed in the nine months ended September 30, 2003. Based on the planned level of securitizations and the maturities of existing deposits, we expect on-balance sheet assets and deposits to be lower at December 31, 2003 than September 30, 2003.

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 September 30, 2003, $319 million of RediReserve Certificates and Investment Notes were outstanding with interest rates ranging from 1.24% to 11.56%. In 2002, we began to lengthen the maturities of our unsecured debt securities to enhance our liquidity management and to take advantage of the lower interest rate environment. Debt maturing in one year or less totaled $174 million at September 30, 2003, as compared to $207 million at December 31, 2002 and $219 million at September 30, 2002.

The Board of Directors of Advanta Corp. has authorized management to purchase up to 3.0 million shares of Advanta Corp. common stock. As of December 31, 2002, we had repurchased 2,248,059 shares of our Class B Common Stock. In the nine months ended September 30, 2003, we repurchased 354,132 shares of our Class A Common Stock and 315,250 shares of our Class B Common Stock. We plan to complete our purchases under this authorization in the fourth quarter of 2003.

Our bank subsidiaries are subject to regulatory capital requirements and other regulatory provisions that restrict their ability to lend and/or pay dividends to Advanta Corp. and its affiliates. Advanta Bank Corp. issues and funds our business credit cards and is the servicer of our discontinued leasing business. Prior to our exit from the mortgage business in the first quarter of 2001, Advanta National Bank issued and funded a large portion of our mortgage business. Advanta National Bank’s operations are currently not material to our consolidated operating results. Our insurance subsidiaries are also subject to certain capital and dividend rules and regulations as prescribed by state jurisdictions in which they are authorized to operate. Management believes that these restrictions, for both bank and insurance subsidiaries, will not have an adverse effect on Advanta Corp.’s ability to meet its cash obligations due to the current levels of liquidity and diversity of funding sources. An insurance subsidiary paid $20 million to Advanta Corp. on September 30, 2003, representing an extraordinary dividend and return of capital that was approved in advance by the applicable state regulator.

At September 30, 2003, Advanta Bank Corp.’s combined total capital ratio (combined Tier I and Tier II capital to risk-weighted assets) was 22.90% as compared to 18.46% at December 31, 2002. At both dates, Advanta Bank Corp. had capital in excess of levels a bank is required to maintain to be classified as well-capitalized under the regulatory framework for prompt corrective action. See Note 10 to the consolidated financial statements for a discussion of the removal, effective October 2003, of Advanta Bank Corp.’s revised understanding with its regulators.

In September 2003, the bank regulatory agencies issued a joint notice of proposed rulemaking that would assess a risk-based capital charge against the risks associated with early amortization, a common feature in securitizations of revolving credit card facilities. Such a capital charge would be assessed against only the off-balance sheet investors’ interest and only in the event that the excess spread in the transaction has declined to a predetermined level. The proposed capital requirement would assess increasing amounts of risk-based capital as the level of excess spread approaches the early amortization trigger. Therefore, as the probability of an early amortization event increases, the capital charge against the off-balance sheet portion of the securitization also would increase. Advanta Bank Corp.’s business credit card securitization trust includes early amortization provisions. However, based on our current levels of excess spread, the issuance of a final rule and adoption of the related guidance is not expected to have a material impact on the regulatory capital requirements of Advanta Bank Corp. Comments on the proposed rulemaking were due in late October 2003.

In May 2003, we sold two buildings formerly used in our mortgage business that were classified as assets from discontinued operations on the consolidated balance sheet. The proceeds of approximately $27 million from the sale of the buildings increased our liquidity position. In addition, we sold two lots of real estate for $4.6 million.

In the nine months ended September 30, 2003, we exercised clean-up call options on our remaining leasing securitization transactions with $94 million of securitized leases outstanding, resulting in net cash outflow of $28 million and a corresponding increase in assets of discontinued operations on the call dates. As a result of exercising these clean-up call options, we have no outstanding securitized leases and no retained interests in leasing securitizations at September 30, 2003.

Advanta Corp. and its subsidiaries are involved in class action lawsuits, other litigation, claims and legal proceedings arising in the ordinary course of business or discontinued operations, including litigation arising from our operation of the mortgage business prior to our exit from that business in the first quarter of 2001. Management believes that the aggregate loss, if any, resulting from existing litigation, claims and other legal proceedings will not have a material adverse effect on our 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.

FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. These forward-looking statements may be identified by the use of forward-looking phrases such as “will likely result,” “may,” “are expected to,” “is anticipated,” “estimate,” “projected,” “intends to” or other similar words or phrases. The most significant among these risks and uncertainties are:

(1) our managed net interest income including changes resulting from fluctuations in the volume of receivables and the range and timing of pricing offers to cardholders;

(2) competitive pressures;

(3) political, social and/or general economic conditions that affect the level of new account originations, customer spending, delinquencies and charge-offs;

(4) factors affecting fluctuations in the number of accounts or receivable balances including the retention of cardholders after promotional pricing periods have expired;

(5) interest rate fluctuations;

(6) the level of expenses;

(7) the timing of the securitizations of our receivables;

(8) factors affecting the value of investments that we hold;

(9) the effects of government regulation, including restrictions and limitations imposed by banking laws, regulators, examinations, and Advanta National Bank’s agreements with its regulators;

(10) effect of, and changes in, tax laws, rates, regulations and policies;

(11) relationships with customers, significant vendors and business partners;

(12) difficulties or delays in the development, production, testing and marketing of products or services;

(13) the amount and cost of financing available to us;

(14) the ratings on our debt and the debt of our subsidiaries;

(15) revisions to estimates associated with the discontinuance of our mortgage and leasing businesses;

(16) the impact of litigation;

(17) the proper design and operation of our disclosure controls and procedures; and

(18) the ability to attract and retain key personnel.

Additional risks that may affect our future performance are set forth elsewhere in this Quarterly Report on Form 10-Q, in our Annual Report on Form 10-K for the year ended December 31, 2002 and in our other filings with the Securities and Exchange Commission.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required by this item is set forth in “Item 2-Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Report on Form 10-Q. See “Market Risk Sensitivity.”

ITEM 4. CONTROLS AND PROCEDURES

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

An evaluation was performed by management with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2003, our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. There have been no changes in our internal controls over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, these internal controls over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The legal proceedings and claims described under the heading captioned “Commitments and Contingencies” in Note 9 of the Notes to Consolidated Financial Statements set forth in Part I, Item 1 of this Quarterly Report are hereby incorporated by reference.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits – The following exhibits are being filed with this report on Form 10-Q.


Exhibit
Number		Description of Document

10.1		Letter Agreement, dated as of October 14, 2003, between Advanta Corp. and Jeffrey D. Beck*

12		Consolidated Computation of Ratio of Earnings to Fixed Charges

31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

* Management contract or compensatory plan or arrangement.

(b) Reports on Form 8-K

(b) (1) A Current Report on Form 8-K, dated July 24, 2003, was filed by Advanta setting forth the financial highlights of Advanta’s results of operations for the three months ended June 30, 2003.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Advanta Corp.
(Registrant)


By /s/ Philip M. Browne

Senior Vice President and
Chief Financial Officer
November 12, 2003

By /s/ David B. Weinstock

Vice President and
Chief Accounting Officer
November 12, 2003

EXHIBIT INDEX


		Manner of
Exhibit	Description	Filing

10.1	Letter Agreement, dated as of October 14, 2003, between Advanta Corp. and Jeffrey D. Beck**	*

12	Consolidated Computation of Ratio of Earnings to Fixed Charges	*

31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	*

31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	*

32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	*

32.2	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	*

* Filed electronically herewith.

** Management contract or compensatory plan or arrangement.

(1)		Interest income includes late fees for owned business credit cards receivables of $2.1 million for the three months ended September 30, 2003 and $1.6 million for the three months ended September 30, 2002.

(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.

(5)		Represents trust preferred securities.

(1)		Risk-adjusted revenues represent net interest income and noninterest revenues, less provision for credit losses.

(2)		Includes the amount by which the credit losses would have been higher had the securitized receivables remained as owned and the provision for credit losses on securitized receivables been equal to actual reported charge-offs.

(3)		Ratios are as a percentage of average business credit card interest-earning assets.

(1)		See Note 5 to the consolidated financial statements for a discussion of the change in income billing practice effective October 1, 2002.

(2)		Ratios are as a percentage of ending business credit card receivables.

	(1)		our managed net interest income including changes resulting from fluctuations in the volume of receivables and the range and timing of pricing offers to cardholders;

	(2)		competitive pressures;

	(3)		political, social and/or general economic conditions that affect the level of new account originations, customer spending, delinquencies and charge-offs;

	(4)		factors affecting fluctuations in the number of accounts or receivable balances including the retention of cardholders after promotional pricing periods have expired;

	(5)		interest rate fluctuations;

	(6)		the level of expenses;

	(7)		the timing of the securitizations of our receivables;

	(8)		factors affecting the value of investments that we hold;

	(9)		the effects of government regulation, including restrictions and limitations imposed by banking laws, regulators, examinations, and Advanta National Bank’s agreements with its regulators;

	(10)		effect of, and changes in, tax laws, rates, regulations and policies;

	(11)		relationships with customers, significant vendors and business partners;

	(12)		difficulties or delays in the development, production, testing and marketing of products or services;

	(13)		the amount and cost of financing available to us;

	(14)		the ratings on our debt and the debt of our subsidiaries;

	(15)		revisions to estimates associated with the discontinuance of our mortgage and leasing businesses;

	(16)		the impact of litigation;

	(17)		the proper design and operation of our disclosure controls and procedures; and

	(18)		the ability to attract and retain key personnel.

		* Filed electronically herewith.

		** Management contract or compensatory plan or arrangement.