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FORM 10-K

Commission File No. 0-14120

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

Securities registered pursuant to Section 12 (b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

Class A Common Stock, $.01 par value

     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 o

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

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

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

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

     $226,712,906 as of June 30, 2003 which amount excludes the value of all shares beneficially owned (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) by officers and directors of the registrant (however, this does not constitute a representation or acknowledgment that any of such individuals is an affiliate of the registrant).

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

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

     As of March 1, 2004 there were 9,606,885 shares of the registrant’s Class A Common Stock, $.01 par value, outstanding and 17,645,154 shares of the registrant’s Class B Common Stock, $.01 par value, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

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

TABLE OF CONTENTS

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PART I.

Item 1.     Business

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

OVERVIEW

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

      At December 31, 2003, we had approximately $518 million of owned business credit card receivables and $2.5 billion of securitized business credit card receivables.

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

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

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

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

      Prior to February 20, 1998, we also issued consumer credit cards. Under the terms of a contribution agreement, dated October 27, 1997 and amended on February 20, 1998, we and Fleet Financial Group, Inc. (“Fleet”) each contributed substantially all of the assets of our respective consumer credit card businesses, subject to liabilities, to a newly formed entity controlled by Fleet that is now known as Fleet Credit Card Services, L.P. (the “Fleet Partnership”). We acquired a 4.99% minority interest in the newly formed entity as of the date of closing of the transaction. Our minority interest in the Fleet Partnership was approximately 1.3% as of December 31, 2003. This transaction is referred to in this Form 10-K as the “Consumer Credit Card Transaction.”

      Advanta Corp. was incorporated in Delaware in 1974 as Teachers Service Organization, Inc., the successor to a business originally founded in 1951. In January 1988, we changed our name from TSO

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CONTINUING OPERATIONS

Advanta Business Cards

     Overview

Our primary business, Advanta Business Cards, is one of the nation’s largest issuers of business credit cards to small businesses. The “Advanta Business Card” is issued and funded by Advanta Bank Corp. Advanta Business Cards offers business purpose credit cards, primarily to small businesses. Our strategy in Advanta Business Cards is to maximize long-term growth by attracting and retaining more high credit quality customers and deepening our customer relationships.

      Our principal objective is to use our information based strategy to continue to prudently grow our business. Based on our experience and expertise in analyzing the credit behavior and characteristics of our customers, we have developed an extensive database of customer information and attributes. We use this information in conjunction with proprietary credit scoring, targeting and other sophisticated analytical models we have developed to market our products to prospective customers and to manage our relationships with our existing customers. We continually validate our customer segments and models based on actual results, and use this information to refine and improve our analytical assumptions. The information we gather and analyze allows us to market directly to specific customer segments and target prospects effectively. We also use this information proactively to anticipate customer needs and customize our products to meet those needs and to enhance and maintain our relationships with existing customers.

      Through our focus on the small business market, we have identified numerous market segments distinguishable by characteristics such as size of business and industry. We will continue to use a targeted approach to these market segments, aiming to anticipate the distinct needs of various business owners, executives and small businesses, and to offer them products and services geared to their needs. We also plan to strengthen and deepen our relationships with our existing customers by providing value based on factors other than pricing in order to build lasting, profitable relationships.

      We are licensed to issue both MasterCard®* and VISA®** business credit cards, although our primary product is a MasterCard® business credit card. MasterCard® and Visa® both license banks and other financial institutions, such as Advanta Bank Corp., to issue credit cards using their respective service marks and interchange networks. Our business purpose credit cards provide approved customers with access, through merchants, banks, checks and ATMs, to an unsecured revolving business credit line. Under the terms of our cardholder agreements, our business cards may be used for business purposes only.

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

	•	competitively priced offerings and rewards products;
	•	additional cards for employees at no fee with the ability to set individual spending limits;
	•	on-line, downloadable detailed expense management reports that categorize purchases, itemize charges for recordkeeping and tax purposes;
	•	customized cards with the cardholder’s business name displayed on the front of the card and customized business checks; and
	•	free on-line account management.

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      Additional benefits of our Mastercard® and Visa® business credit cards include free auto rental insurance, free purchase protection service for a specified time period and several free emergency assistance and referral services.

      We offer rewards programs on certain of our business credit cards. Under our rewards programs, cardholders may receive cash rebates, bonus miles that can be redeemed for air travel and/or other rewards, based on net purchases charged on their business credit card accounts. We expect to continue to expand our business credit card benefits and our product offerings. We are continually looking for innovative ways to tailor products to the unique needs of small businesses.

      As a participant in the MasterCard® and Visa® associations, Advanta Bank Corp. receives interchange fees as partial compensation for taking credit risk, absorbing fraud losses and funding credit card receivables for a limited period prior to account billing. The interchange fees are paid to us by merchant banks, based on the purchase activity of our cardholders. In addition to interchange income, we generate interest and other income through finance charges assessed on outstanding balances, and balance transfer, cash advance and other fees. We also generate income through specialty credit-related insurance products and services that we offer to our business credit card customers through our insurance subsidiaries.

      In 2003, substantially all of Advanta’s total revenues from continuing operations were derived from Advanta Business Cards. See Note 16 to the consolidated financial statements for additional segment financial information about Advanta Business Cards.

We originate, directly and through the use of third parties, substantially all of our business credit card accounts using direct marketing techniques. Our sources for potential customers include credit reporting agencies, lists from data compilers and customer lists from establishments with a small business customer base. We also acquire customers through our strategic relationships with companies and associations focused on business owners, executives and small businesses. In an effort to expand our customer reach, we are testing new sources for identifying potential customers. We target prospects for our business purpose credit card products using relevant information from the sources described above, historical solicitation data and our proprietary segmentation methods. Our targeting models are continually updated to reflect changes in the competitive environment. We originated approximately 170 thousand new business credit card accounts during the year ended December 31, 2003.

We have developed sophisticated models for assessing the creditworthiness of applicants. Using a proprietary credit scoring system, we evaluate common applicant characteristics and their perceived correlation to credit risk. We regularly update our scoring models to maintain and enhance their predictability.

      On the application for our business credit card product we request information about the individual signing the application (the “signing individual”) and the business. Under the cardholder agreement for our core business credit card product, the signing individual (typically an owner or authorized officer of the business) and the business are jointly and severally liable for all transactions on the account. Therefore, on these accounts we may consider credit-related and other relevant data about both the signing individual and the business in our assessment of the creditworthiness of potential cardholders. Through the application process, we verify the applicant’s identification information and collect available information about the applicant’s business. This information, coupled with credit reports received from external credit reporting agencies, forms the basis for our decision to extend credit. The credit line size we offer will vary at the time of origination and is ultimately determined based upon the information we receive regarding the credit history and creditworthiness of the business and signing individual.

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We have a broad array of competitively-priced offerings and products designed to appeal to our target customers and to respond to the competitive environment. We continually test different pricing and reward strategies. Our pricing and reward strategies include a combination of promotional pricing and cashback or other rewards and/or rebates, including travel rewards, based on spending levels and/or the type of transaction.

      All of our credit card accounts are assigned annual interest rates which are generally variable rates that adjust from time to time according to an index such as the Prime Rate or LIBOR. With notice, we may reprice accounts at our discretion and in accordance with the terms of the applicable cardholder agreement. An account may have promotional pricing, including an introductory period during which a low or zero percent rate is charged for specified types of account transactions. In these instances, the introductory rate on applicable transactions generally is converted to a higher rate at the end of the introductory period.

      We continually monitor the credit quality of our accounts and adjust the pricing and/or credit line size on an account based on a variety of factors, including changes in a cardholder’s credit standing and other factors indicating a risk of future nonpayment. To discourage delinquent payments, we assess late fees and use “penalty pricing” which automatically increases the interest rate assessed on any account that becomes in default in accordance with the terms of the applicable cardholder agreement. The amount by which the interest rate is automatically increased may vary.

We use internal and external resources to support our servicing and collections functions. Certain processing and administrative functions associated with the servicing of our business credit card accounts are outsourced to First Data Resources, Inc. Services performed by First Data Resources, Inc. include: authorizing transactions through the MasterCard® and Visa® systems, based upon our criteria for approval; performing billing and settlement processes; generating monthly billing statements; and issuing credit card plastics and new account agreements.

	Customer Service and Support

We maintain several channels of communication and support for our customers, including a toll-free phone number, on-line account management, postal and facsimile services. We maintain multi-site contact centers, currently located in Horsham, Pennsylvania and Draper, Utah. Our contact centers utilize a unified platform and are managed so that functions can be performed seamlessly regardless of geographic location. Customer contacts are distributed across these sites based on service level objectives. In addition, we leverage numerous technology solutions to increase efficiencies, reduce costs and improve customer satisfaction. We use metrics such as average speed of answer and abandon rate to measure our performance and success.

      Our customer service function works closely with other functions across the Advanta Business Cards organization to achieve seamless service and problem resolution. We are focused on supporting and maintaining our relationships with our existing customers through programs designed to stimulate card usage, enhance customer loyalty and retain existing accounts. Our objective is to maximize every contact opportunity to provide “best in class” service to our customers.

	Delinquencies and Collections

Delinquencies and charge-offs are monitored by management of our collections and credit departments, and information is reported daily to senior management. We use a variety of techniques to discourage delinquent payments, including assessment of late fees and use of “penalty pricing,” as described above. Our credit evaluation, servicing and charge-off policies and collection practices may change from time to time in accordance with our business judgment and applicable laws and regulations.

      We use a variety of collections strategies to pursue late payments. Our strategies are developed using proprietary models that analyze an array of variables, including payment history, Fair, Isaac and Company (“FICO”) credit score, and other credit indicators, to predict the type and timing of collections activity to be

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      We maintain multi-site collection centers, currently located in Horsham, Pennsylvania, Draper, Utah and Gibbsboro, New Jersey.

Venture Capital Investments

We make venture capital investments through certain of our affiliates. Our investments have generally focused on early stage investment opportunities and growth capital financings and restructurings in the financial services and consumer and data information management services industries. In recent years, we have limited our new investment activity and we presently do not expect to make significant additional investments. We actively monitor the performance of our venture capital investments, and employees and officers of our investment affiliates participate on the boards of directors of certain investees. See Note 16 to the consolidated financial statements for additional segment financial information about our venture capital investments.

Advanta Insurance

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

Depository Institutions

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

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

Deposit, Savings And Investment Products

We offer a variety of deposit products such as retail and large denomination certificates of deposit that are insured by the Federal Deposit Insurance Corporation (“FDIC”). At December 31, 2003, we had total deposits of approximately $672 million at our banks, compared to approximately $714 million as of December 31, 2002. Substantially all of the deposits at December 31, 2003 and 2002 were at Advanta Bank

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      Since 1951, Advanta Corp. and its predecessor, Teachers Service Organization, Inc., have offered unsecured debt securities of the corporation, in the form of RediReserve Certificates and Investment Notes, to retail investors through our retail note programs. Advanta Corp. has sold these debt securities, also referred to in this Form 10-K as “retail notes,” predominantly on a direct basis in select states. The RediReserve Variable Rate Certificates are payable on demand and the maturities on the Investment Notes range from 90 days to ten years. The RediReserve Certificates and Investment Notes are obligations of Advanta Corp. and are not insured or guaranteed by any public or private entity. We change the interest rates that we offer frequently, depending on market conditions and our funding needs. Other terms of the debt securities, including the rates, may also vary depending on the size of the investment or other factors. At December 31, 2003, $315 million of RediReserve Certificates and Investment Notes were outstanding with interest rates ranging from 0.75% to 11.56%.

DISCONTINUED OPERATIONS

Advanta Leasing Services

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

      Prior to January 23, 2001, Advanta Leasing Services, a business unit of Advanta, offered flexible lease financing programs to small businesses. The primary products that we offered through our leasing business consisted of leases for small-ticket items such as computers, copiers, fax machines and other office equipment. Advanta Leasing Services originated and funded its leases and other equipment financing arrangements through Advanta Bank Corp. Advanta Business Services Corp. conducted the marketing, lease originations, customer service and collections for our leasing business.

      At December 31, 2003, we had owned lease receivables of $71 million. During 2003, we exercised clean-up call options on our remaining leasing securitization transactions. As a result of exercising these clean-up call options we had an increase in owned lease receivables and no securitized lease receivables as of December 31, 2003. At December 31, 2002, we had owned lease receivables of $44 million and securitized lease receivables of $152 million. 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 wind down of the lease portfolio to be complete by January 2007. See Note 20 to the consolidated financial statements for additional financial information about Advanta Leasing Services.

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

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

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      If collection activities are unsuccessful, we typically charge off the account at 120 days past due. An account may be charged off prior to 120 days if we determine that no further payments will be made. In cases where the customer files for bankruptcy, Advanta Leasing Services’ Legal Recovery Department follows up with the debtor to determine whether the debtor intends to assume or reject the contract. In many cases, although the customer has filed for bankruptcy protection from its creditors, it continues to make regular payments on its contract. At the time a non-bankruptcy account is charged off, the account is referred to our in-house litigation department to determine whether we will pursue the customer or any personal guarantor on the contract through litigation. If we determine not to pursue an account through litigation it may be referred to a third party collection agency to enforce the original terms of the contract, or it may be sold.

Advanta Mortgage

Effective February 28, 2001, we completed the Mortgage Transaction and no longer operated a mortgage business. In accordance with the terms of the purchase and sale agreement, Buyer acquired substantially all of the assets and operating liabilities associated with our mortgage business for a purchase price, net of operating liabilities assumed by Buyer, exceeding $1 billion. Following the Mortgage Transaction, we retained contingent liabilities, primarily relating to litigation arising out of the operation of the mortgage business through the Closing Date, that were not specifically assumed by Buyer. See “Item 3 — Legal Proceedings,” and Note 11 to the consolidated financial statements for a discussion of litigation relating to the Mortgage Transaction.

      Prior to the closing of the Mortgage Transaction, Advanta Mortgage, a business unit of Advanta, offered a broad range of mortgage products and services to consumers throughout the country. Advanta Mortgage originated and serviced non-conforming credit first and second lien mortgage loans, including home equity lines of credit. In addition to servicing and managing the loans we originated, Advanta Mortgage serviced the home equity loans of unaffiliated third parties through our subservicing business. Subserviced loans were not included in our portfolio of managed receivables and we did not bear the risk of credit loss on our subserviced portfolio. Prior to the closing of the Mortgage Transaction, at December 31, 2000, Advanta Mortgage’s portfolio of subserviced loans totaled approximately $7.9 billion and our total serviced portfolio, including the “subserviced” portfolio, was $15.8 billion. See Note 20 to the consolidated financial statements for additional financial information about Advanta Mortgage.

GOVERNMENT REGULATION

The following discussion sets forth some of the elements of an extensive regulatory framework applicable to banks, their affiliates and the banking and finance industries, and provides some specific information that is relevant to Advanta Corp. and its subsidiaries. This regulatory framework is intended primarily for the protection of depositors and the Bank Insurance Fund and not for the protection of security holders and creditors. To the extent that the following information describes statutory provisions and regulatory provisions and agreements, it is qualified in its entirety by reference to the particular statutory provisions and regulatory provisions and agreements.

Advanta Corp.

Advanta Corp. is not required to register as a bank holding company under the Bank Holding Company Act of 1956, as amended (the “BHCA”). We own Advanta National Bank, which is a “bank” as defined under the BHCA, as amended by the Competitive Equality Banking Act of 1987 (“CEBA”). However, under grandfathering provisions of CEBA, we are not required to register as a bank holding company because Advanta National Bank did not come within the BHCA definition of the term “bank” prior to the enactment of CEBA. Under CEBA, our other banking subsidiary, Advanta Bank Corp., is not considered a “bank” for purposes of the BHCA. Accordingly, our ownership of Advanta Bank Corp. does not impact our exempt status under the BHCA. Because we are not a bank holding company under the BHCA, we are not subject to

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

Advanta Bank Corp.

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

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

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

Pursuant to provisions of the FDIC Improvement Act of 1991 (the “FDICIA”) and related regulations with respect to prompt corrective action, FDIC-insured institutions such as Advanta Bank Corp. may only accept brokered deposits without FDIC permission if they meet specified capital standards, and are subject to restrictions with respect to the interest they may pay on deposits unless they are “well-capitalized.” To be “well-capitalized” under the prompt corrective action provisions, a bank must have a ratio of combined Tier I and Tier II capital to risk-weighted assets of not less than 10%, Tier I capital to risk-weighted assets of not less than 6%, and a Tier I to average assets of not less than 5%. In each case, at December 31, 2003, Advanta Bank

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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.

Advanta National Bank

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

Advanta National Bank is subject to the FFIEC capital adequacy guidelines described above. See “— Advanta Bank Corp. — Capital Requirements.”

Advanta National Bank is subject to the FDICIA provisions and related regulations with respect to prompt corrective action and the taking of brokered deposits, as described above. See “— Advanta Bank Corp. — Prompt Corrective Action.” Presently, Advanta National Bank is required to maintain capital in excess of the minimum regulatory standards. At December 31, 2003, Advanta National Bank had capital at levels a bank is required to maintain to be classified as “well-capitalized” under the regulatory framework for prompt corrective action. However, Advanta National Bank does not meet the definition of “well-capitalized” because of the existence of its agreement with the OCC, even though it has achieved the higher imposed capital ratios required by the agreement with the OCC. See Note 14 to the consolidated financial statements and “— Regulatory Agreements.”

In 2000, Advanta National Bank also reached agreements with its bank regulatory agency, primarily relating to the bank’s subprime lending operations. The agreements established temporary asset growth limits at Advanta National Bank, imposed restrictions on taking brokered deposits and required that Advanta National Bank maintain certain capital ratios in excess of the minimum regulatory standards. In 2001, Advanta National Bank entered into an additional agreement with its regulatory agency regarding restrictions on new business activities and product lines at Advanta National Bank after the Mortgage Transaction, and the resolution of outstanding Advanta National Bank liabilities. The agreement also reduced the capital

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Lending Activities

Although our current lending activities are principally directed to business purpose credit for small businesses, certain aspects of various federal and state laws, including the Equal Credit Opportunity Act, the Community Reinvestment Act, the Truth-in-Lending Act, the Fair Credit Reporting Act (the “FCRA”) as amended by the Fair and Accurate Credit Transactions Act of 2003 (the “FACT Act”) and the Servicemembers Civil Relief Act, may apply to our lending activities. To the extent applicable, provisions of these statutes and related regulations require that certain disclosures be made to borrowers, prohibit discriminatory practices in extending credit, prohibit sending unsolicited credit cards, require our FDIC-insured banking institutions to serve the banking needs of their local communities, provide certain credit protections for activated military borrowers and regulate the dissemination and use of information relating to a borrower’s creditworthiness.

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

Dividends

There are various legal limitations on the extent to which national banks, including Advanta National Bank, can supply funds through dividends to their parent companies or affiliates. The prior approval of the OCC is required if the total of all dividends declared by the national bank in any calendar year exceeds its net profits for that year combined with its retained net profits for the preceding two years, less any required transfers to surplus accounts. In addition, a national bank may not pay a dividend in an amount greater than its undivided profits then on hand after deducting its losses and bad debts. The OCC also has authority under the Financial Institutions Supervisory Act to prohibit a national bank from engaging in any unsafe or unsound practice in conducting its business. It is possible, depending upon the financial condition of the bank in question and other factors, that the OCC, pursuant to its authority under the Financial Institutions Supervisory Act, could claim that a dividend payment might under some circumstances be an unsafe or unsound practice.

      Under Advanta National Bank’s current agreement with the OCC, Advanta National Bank is not eligible to pay any dividends without the OCC’s prior approval. See “— Regulatory Agreements.”

Transfers of Funds

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

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Regulation of Insurance

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

      The maximum dividend that Advanta Insurance Company can distribute to Advanta Corp., in any twelve-month period, without prior approval of the State of Arizona Department of Insurance, is the lesser of: 10% of the subsidiary’s statutory surplus; or for any given twelve-month period, the subsidiary’s net investment income. The maximum dividend that Advanta Life Insurance Company can distribute to Advanta Insurance Company, in any twelve-month period, without prior approval of the State of Arizona Department of Insurance, is the lesser of: 10% of the subsidiary’s statutory surplus; or for any given twelve-month period, the subsidiary’s net income.

      The State of Arizona has adopted minimum risk-based capital standards as developed by the National Association of Insurance Commissioners. Risk-based capital is the quantification of an insurer’s investment, underwriting, reserve and business risks in relation to its total adjusted capital and surplus. The ratio of an insurer’s total adjusted capital and surplus is compared to various levels of risk-based capital to determine what intervention, if any, is required by either the insurance company or an insurance department. At December 31, 2003, our insurance subsidiaries met all risk-based capital standards and required no intervention by any party.

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

Legislative and Regulatory Developments

The banking and finance businesses in general are the subject of extensive regulation at the state and federal levels, and numerous legislative and regulatory proposals are advanced each year which, if adopted, could affect our profitability or the manner in which we conduct our activities. It is impossible to determine the extent of the impact of any new laws, regulations or initiatives that may be proposed, or whether any of the federal or state proposals will become law.

      Congress is considering legislation that would enhance the authority for banks to pay interest on business checking accounts and to fully implement interstate banking. With respect to both of these legislative proposals, there are initiatives under consideration that would limit their applicability so that they would not be applicable to state-chartered industrial loan corporations, such as Advanta Bank Corp. If the proposals are so limited, unless there is an exemption for existing industrial loan corporations, Advanta Bank Corp. may lose future flexibility in branch locations or offering new products. Congress is also considering limiting the ability of commercial firms that are ineligible to own banks under the BHCA from chartering industrial loan corporations. Enactment of this limitation might also restrict Advanta Bank Corp.’s flexibility in the future.

      Congress enacted the FACT Act which extensively amends the FCRA governing the use of consumer credit reports. Significantly, the FACT Act extends the preemption of state law with respect to certain matters such as the permissible purposes for use of credit report information and liability for furnishing credit information to the credit bureaus. The FCRA affects all lenders that furnish information for posting to consumer reports, compile and maintain consumer report information, or use consumer reports. Among other things, the FACT Act provides: new identity theft protections for consumers; a requirement that one free consumer report be made available, annually and upon request, to consumers; new restrictions on the sharing of personal information for marketing purposes among affiliated companies; and changes to the notice requirements for users of consumer reports. Many of the implementing administrative agency rulemaking

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      In addition, Congress is continuing to consider legislation to reform the Bankruptcy Code. The bankruptcy reform bills would require that debtors pass a means test to determine eligibility for bankruptcy relief while adding new consumer protections, such as new minimum payment and introductory rate disclosures for some credit card products and exemptions for retirement savings in bankruptcy. While directed at consumer bankruptcies, if adopted the bankruptcy reform initiatives could also impact individuals operating small businesses who file for bankruptcy liquidation under Chapter 7 of the Bankruptcy Code.

      Our current marketing is based on direct marketing to business owners, executives and small businesses. We use primarily direct mail, but also, to a lesser extent, telemarketing solicitations and the internet. There are new federal laws and rules that govern the use of unsolicited commercial e-mail and strengthen “do not call list” laws that restrict certain telemarketing activities. In late 2003, Congress enacted the Controlling the Assault of Non-Solicited Pornography and Marketing Act (the “CAN-SPAM Act”) which requires unsolicited commercial email messages to be labeled as such and to include opt-out instructions and the sender’s physical address. It prohibits the use of deceptive subject lines and false headers in such messages. The Federal Trade Commission (the “FTC”) is authorized, but not required, to establish a “do not email” registry. Under the CAN-SPAM Act, state laws that require labels on unsolicited commercial e-mail or prohibit such messages are pre-empted, although state restrictions against false and deceptive emails remain in place. Additionally, on October 1, 2003, the FTC began enforcing its amended Telemarketing Sales Rule which provides a national “do not call” list by which consumers may register their home telephone numbers to prevent most interstate telemarketing calls. The new rule exempts business to business telemarketing and, therefore, we do not expect that the CAN-SPAM Act or the new FTC rule will have a significant impact on our business activities or results.

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

COMPETITION

As a marketer of credit products, we face intense competition from numerous financial services providers. Within the highly competitive bank credit card industry there is increased competitive use of advertising, target marketing and pricing competition with respect to both interest rates and cardholder fees as both traditional and new credit card issuers seek to expand or to enter the market. Many of our competitors are substantially larger and have more capital and other resources than we do. Competition among lenders can take many forms, including convenience in obtaining a loan, the size of their existing customer base and the ability to cross sell products to that customer base, intellectual property rights, customer service, size of loans, interest rates and other types of finance or service charges, the nature of the risk the lender is willing to assume and the type of security, if any, required by the lender. We have responded to the increased competition in the bank credit card industry primarily by focusing on business purpose credit for business owners, executives and small businesses and offering cards with promotional pricing, including low or zero introductory rates, and rewards products tailored to the needs of our small business customers. We also have responded by developing our marketing strategies for our business credit cards to attract and retain more high credit quality customers. Although we believe we are generally competitive in most of the geographic areas in which we offer our products and services, there can be no assurance that our ability to market our products and services successfully or to obtain an adequate yield on our loans will not be impacted by the nature of the competition that now exists or may develop.

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

EMPLOYEES

As of December 31, 2003, we had 882 employees. We believe that we have good relationships with our employees. None of our employees is represented by a collective bargaining unit.

AVAILABLE INFORMATION

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

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

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

This Report contains statements (including without limitation in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in this Report under Item 7), that are considered “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. In addition, other written or oral communications provided by Advanta from time to time may contain “forward-looking statements.” Forward-looking statements, including statements and information relating to: anticipated earnings per share; anticipated returns on equity or assets; anticipated growth in credit card accounts and credit card receivables; anticipated net interest margins; anticipated operating expenses and employment growth; the level of new account acquisitions, customer spending and account attrition; anticipated payment rates; anticipated marketing expense; estimated values of our retained interests in securitizations and anticipated cash flows; our ability to replace existing credit facilities, when they expire, with appropriate levels of funding on similar terms and conditions; the value of the investments that we hold; anticipated delinquencies and charge-offs; realizability of net deferred tax asset; anticipated outcome and effects of litigation; and other future expectations of Advanta that do not relate strictly to historical facts, are based on certain assumptions by management. Forward-looking statements are often identified by words or phrases such as “anticipate,” “expect,” “estimate,” “intend,” “believe,” “will likely result,” “project,” “may,” “plan,” “objective,” “trend” and “goal.” The cautionary statements provided below are being made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995 (the “Act”) and with the intention of obtaining the benefits of the “safe harbor” provisions of the Act for any such forward-looking information.

      Forward-looking statements are subject to various assumptions, risks and uncertainties which change over time, and speak only as of the date they are made. We undertake no obligation to update any forward-looking information. We caution readers that any forward-looking statement provided by us is not a guarantee of future performance and that actual results may be materially different from those in the forward-looking

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	•	The effects of, and changes in, political conditions, social conditions, monetary and fiscal policies and general economic conditions, such as rising interest rates, inflation, recession or other adverse economic conditions, including the impact on credit losses and collection costs, delinquency levels, number of customers seeking protection under the bankruptcy laws and losses due to fraud by third parties or customers.
	•	Factors affecting our net interest margin and the value of our assets and liabilities including interest rate fluctuations and the continued legal or commercial availability of techniques, including loan pricing and repricing, hedging and other techniques, that we use or may use to manage the risk of those fluctuations.
	•	Legal and regulatory developments, including effects of, and changes or proposed changes in federal and state laws and regulations, policies, and practices and the application of such laws, regulations, policies and practices concerning accounting, taxes, banking, securities, capital requirements, reserve methodologies, telemarketing and other means of solicitations, and other aspects of the financial services and marketing industries.
	•	The amount, type and cost of funding available to us, including securitization of our receivables, and any factors affecting the timing of or changes to that funding, such as changes in the current economic, legal, regulatory, accounting and tax environments, adverse changes in the performance of our securitized assets or the market for asset-backed securities generally, changes in the ratings on our debt or the debt of our subsidiaries and the activities of parties with which we have agreements or understandings, including any activities affecting any investment.
	•	Competitive product and pricing pressures among financial institutions, the amount of actual marketing investment made by us, changes in cardholder behavior or preferences, the rate of repayment of receivable balances, changes in general economic conditions and other factors beyond our control affecting our ability to acquire new accounts and retain cardholders after promotional periods have expired, our aggregate number of accounts or receivable balances and the growth rate thereof.
	•	The effects of “seasoning” (the average age of a lender’s portfolio), including the impact on our level of delinquencies and losses which may require a higher allowance for receivable losses for on-balance sheet assets and may adversely impact securitization income. The addition of account originations or balances and the attrition of those accounts or balances could significantly impact the seasoning of our overall portfolio.
	•	The effects of changes in the amount of, and rate of growth in, our expenses (including employee and marketing expenses) as we develop or change our business and expand into new market areas and the effects of changes within our organization or in our compensation and benefit plans.
	•	Factors affecting our ability to successfully develop, acquire, produce, test and market products or services, including a failure to implement new product or service programs when anticipated, the ability and cost to obtain intellectual property rights, the failure of or delay in customers’ acceptance of our products or services, losses associated with the testing and implementation of new products or services or financial, legal or other difficulties as may arise in the course of such implementation.
	•	Factors affecting our business operations and activities resulting from the fact that our banking and finance businesses are highly regulated and subject to periodic review and examination by federal and state regulators, including the OCC and the FDIC, such as the effects of, and changes in, the level of scrutiny, regulatory requirements and initiatives, including certain mandatory and possibly discretionary actions by federal and state regulators, restrictions and limitations imposed by banking laws, examinations, audits, and agreements between our bank subsidiary and its regulators.

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	•	The costs and other effects of legal and administrative cases and proceedings, settlements and investigations, claims and changes in those items, developments or assertions by or against us or any of our subsidiaries arising in the ordinary course of business or in connection with our discontinued operations.
	•	Our acquisition or disposition of assets (interest-earning, fixed or other).
	•	The completion of post-closing procedures following the Mortgage Transaction and revisions to estimated charges associated with the discontinued operations of our mortgage and leasing businesses.
	•	The proper design and operation of our disclosure controls and procedures.
	•	Our relationships with customers, significant vendors and business partners.
	•	Our ability to attract and retain key personnel.

At December 31, 2003, Advanta had no owned real property and total leased office space was approximately 368,064 square feet, as described below. Advanta leased approximately 109,511 square feet in Spring House, Pennsylvania for its principal executive and corporate offices and for use by Advanta Business Cards. In Horsham, Pennsylvania, Advanta leased approximately 110,000 square feet in one building for business cards operations and certain Advanta Bank Corp. and corporate staff functions and approximately 6,000 square feet in a second building for storage space. Advanta leased approximately 21,328 square feet in Voorhees, New Jersey that is primarily used by our leasing business unit. Advanta also leased approximately 12,000 square feet of office space and 1,600 square feet of storage space in two buildings in Gibbsboro, New Jersey for our leasing and business cards operations. In Delaware, Advanta leased approximately 36,589 square feet of office space for Advanta National Bank and for other corporate and business cards operations; approximately 16,644 square feet of this office space is subleased to an unrelated third party. Advanta also leased approximately 50,625 square feet of office space in Draper, Utah for Advanta Bank Corp. In Salt Lake City, Utah, Advanta leased approximately 1,939 square feet of office space for the retail note program. In New York, New York, Advanta leased approximately 3,345 square feet of office space for its venture capital investment activities. In Washington, D.C. Advanta leased 100 square feet of office space for its government relations office.

      In addition to the locations described above, until February 28, 2001, Advanta leased approximately 84,923 square feet of office space in twenty-one states to support the mortgage loan production offices and an additional 6,213 square feet of office space in five states to support Advanta Mortgage and Advanta Leasing Services. Since Advanta ceased origination of new leases and exited the mortgage business in the first quarter of 2001, Advanta has been buying out, assigning or subleasing these spaces. Accordingly, as of December 31, 2003, the remainder of this leased space totaled approximately 15,127 square feet. Approximately 3,584 square feet of this office space is subleased to unrelated third parties.

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

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      In an ongoing element of Fleet’s disputes with us, Fleet has claimed $508 million of tax deductions from its partnership with us in connection with the Consumer Credit Card Transaction, which are required under the law to be allocated solely to Advanta. As required, we reported these deductions on our 1998 corporate tax return. However, we have not used or booked the benefit from most of these deductions because for tax purposes we have a very substantial net operating loss carryforward. We have $547 million of net operating loss carryforwards from all sources at December 31, 2003, and have booked no benefit from approximately $400 million of these net operating loss carryforwards. If the deductions are ultimately allocated as claimed by Fleet, the impact on our equity at December 31, 2003 would be a decrease of approximately $35 million. The deductions are attributable to deductions for bad debt reserves that we expensed in computing our book income or loss before the Consumer Credit Card Transaction, but which were not deductible by Advanta for tax purposes until after the closing of the transaction in 1998. The tax law requires “built in losses” like these to be deducted by the party who contributed the assets to the partnership, in this case, Advanta. The Internal Revenue Service agents who have examined the returns at issue have to ensure that both parties do not obtain the deductions and therefore, following standard practice, proposed to disallow the deductions to both parties until there is a final resolution. The deductions, as well as the allocation of a gain from the sale of a partnership asset of approximately $47 million, are now before the IRS Regional Office of Appeals.

      On January 15, 2003, Fleet filed a complaint in Rhode Island Superior Court seeking a declaratory judgment that we indemnify Fleet under the applicable partnership agreement for any damage Fleet incurs by not being entitled to the $508 million of tax deductions. Fleet is also seeking a declaratory judgment that it should not indemnify us for any damages that we incur due to any allocation to Advanta of the $47 million gain on the sale of a partnership asset. Fleet’s claim for indemnification appears to be brought by Fleet in the hope that we will advise the IRS that we will agree with a substantial part of Fleet’s tax position. On February 28, 2003, we filed a motion to dismiss the complaint. On August 13, 2003, the court denied the motion to dismiss on procedural grounds. We answered the complaint and filed a counterclaim against Fleet on September 19, 2003. The discovery phase of the case is now ongoing. We believe that the indemnification provision in the partnership agreement does not indemnify Fleet for damages incurred related to the tax deductions and that the lawsuit is frivolous, having no legal basis whatsoever and therefore, we do not have any reserves for this litigation. We do not expect this lawsuit or the tax issues discussed above to have a material adverse effect on our financial condition or results of operations.

      On July 26, 2001, Chase filed a complaint against Advanta Corp. and certain of its subsidiaries in the United States District Court for the District of Delaware alleging, among other things, that we breached our contract with Chase in connection with the Mortgage Transaction. Chase claims that we misled Chase concerning the value of certain of the assets sold to Chase and claims damages of approximately $70 million. In September 2001, we filed an answer to the complaint in which we denied all of the substantive allegations of the complaint and asserted a counterclaim against Chase for breach of contract relating to funds owed by Chase to us in connection with the transaction. The trial was originally scheduled to begin in January 2004. In the second quarter of 2003, the parties extended the discovery period and the court delayed the scheduled trial date to April 2004. The discovery period has ended. In September 2003, we filed a motion for summary

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      On February 13, 2004, we filed a Writ of Summons in Montgomery County, Pennsylvania Court of Common Pleas and on March 8, 2004, we amended this Writ of Summons and filed a complaint against Chase in Montgomery County, Pennsylvania Court of Common Pleas seeking damages of at least $17.7 million. On February 24, 2004, Chase filed a complaint against us in the United States District Court for the District of Delaware seeking damages of at least $8 million. These filings relate to contractual claims under the Purchase and Sale Agreement governing the Mortgage Transaction and are a continuation of the ongoing dispute associated with the Mortgage Transaction. We do not expect the lawsuit filed by Chase on February 24, 2004 to have a material adverse effect on our financial condition or results of operations.

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

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

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Not applicable.

Executive Officers of the Registrant

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

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

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

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

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

      Mr. Moore joined Advanta Corp. in 1986 as Assistant Treasurer. In addition to serving as Assistant Treasurer, from January 2001 until January 2004, Mr. Moore also served as Advanta Corp.’s Managing Director, Retail Funding. In June 2002, Mr. Moore was elected as a Director of Advanta National Bank. In January 2004, Mr. Moore became President of Advanta Bank Corp.

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

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PART II

Common Stock Price Ranges And Dividends

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

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

      At March 1, 2004, Advanta Corp. had approximately 240 and 586 holders of record of Class A and Class B common stock, respectively.

      Although we anticipate that comparable or higher cash dividends will continue to be paid in the future, the payment of future dividends by Advanta will be at the discretion of the Board of Directors and will depend on numerous factors including Advanta’s cash flow, financial condition, capital requirements, restrictions on the ability of subsidiaries to pay dividends to Advanta Corp. and such other factors as the Board of Directors deems relevant. See “Part I, Item 1 — Government Regulation,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity, Capital Resources and Analysis of Financial Condition.”

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Item 6.     Selected Financial Data

Financial Highlights

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N/M — Not meaningful

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Overview

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

      Advanta Business Cards offers business purpose credit cards, primarily to small businesses. Our business purpose credit cards provide approved customers with access, through merchants, banks, checks and ATMs, to an unsecured revolving business credit line. Advanta Business Cards generates interest and other income through finance charges assessed on outstanding balances, interchange income, balance transfer, cash advance and other fees.

      Our strategy in Advanta Business Cards is to maximize long-term growth by attracting and retaining more high credit quality customers and deepening our customer relationships. Our marketing campaigns are designed to achieve our strategy by utilizing a broad array of competitively-priced offerings and products, including promotional pricing and rewards programs. Through our focus on the small business market, we have identified numerous market segments distinguishable by characteristics such as size of business and industry. We will continue to use a targeted approach to these market segments, aiming to anticipate the distinct needs of various business owners, executives and small businesses, and to offer them products and services geared to their needs. We expect that our targeted approach will result in acquiring more active customers, but may result in somewhat lower account growth rates. We also plan to strengthen and deepen our relationships with our existing customers by providing value based on factors other than pricing in order to build lasting, profitable relationships. We expect business credit card receivable growth to range from 10% to 20% in the year ended December 31, 2004 based on our current plans and strategies.

      Our largest competitors are among the largest issuers of consumer credit cards in the United States. We believe our focus on small businesses provides us with a competitive advantage as compared to these larger competitors. Small business credit cards generally represent a less significant business to our competitors than their consumer credit card portfolios. We believe that our focus and size enable us to quickly respond to the market environment. The small business credit card market has grown significantly in the past several years. Estimates of growth in business credit card receivables on an industry-wide basis are at a compound annual rate of approximately 10% to 12% over the next few years. This growth is expected to be generated from migration of small businesses to business credit cards from consumer credit cards and increased usage of business credit cards as a payment vehicle. We believe that the potential for future growth in the small business credit card market, and our focus in this market, give us a unique and competitive advantage.

      While the current market environment presents opportunities for us, it also presents us with inherent and specific challenges. Our ability to attract and retain more high credit quality customers and deepen our customer relationships is affected by the competitive environment in the credit card industry. The general economic environment in the United States may also affect our results. We continue to develop and refine our programs and strategies to assist us with retaining profitable relationships with our high credit quality customers. Although our success in attracting and retaining more high credit quality customers has had a favorable impact on the credit quality of our owned and securitized receivables, we believe the economic environment in 2002 and 2003 dampened the expected credit quality benefits of our strategy. We believe that an improvement in the U.S. economy could favorably impact the credit quality of our receivables and increase customer activity while a deterioration in the U.S. economy could negatively impact the credit quality of our receivables and decrease customer activity.

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

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

      Advanta Business Cards pretax income decreased for the year ended December 31, 2003 as compared to 2002 due primarily to a decline in yields that was partially offset by growth in both owned and securitized receivables, a decrease in credit loss rates and a decrease in operating expenses as a percentage of owned and securitized receivables. The decrease in yield reflects our array of competitively-priced offerings and products, including promotional pricing and rewards, designed to selectively attract and retain more high credit quality customers and to respond to the competitive environment. We believe that these types of customers will have lower credit losses in future periods. Although there may be month-to-month or quarterly variations, we expect the yields on our business credit cards will decline modestly in 2004, as a result of the anticipated increase in high credit quality customers.

      Advanta Business Cards pretax income in 2002 was essentially unchanged as compared to pretax income in 2001. Results in 2002 reflected growth in both owned and securitized receivables and a decrease in the interest rate earned by noteholders in our securitizations, offset by a decline in yields and an increase in credit loss rates.

      Our Venture Capital segment represents the operating results of venture capital investment activities. We make venture capital investments through certain of our affiliates. In recent years, we have limited our new investment activity and we presently do not expect to make significant additional investments. We actively monitor the performance of our venture capital investments, and employees and officers of our investment affiliates participate on the boards of directors of certain investees. Venture Capital segment results include pretax investment losses of $3.8 million in 2003, $6.9 million in 2002 and $28.9 million in 2001, which reflect the market conditions for our venture capital investments in each respective period.

      Income from continuing operations for the year ended December 31, 2002 includes a pretax charge of $43.0 million related to a ruling in the litigation associated with the transfer of our consumer credit card business in 1998. Loss from continuing operations for the year ended December 31, 2001 includes $41.8 million of pretax unusual charges representing costs associated with the restructure of our corporate functions to a size commensurate with our ongoing businesses and certain other unusual charges related to employee costs. These charges were not attributable to the Advanta Business Cards or Venture Capital segments and are included in Other in the table above. Other also includes net interest expense on excess liquidity not attributable to the Advanta Business Cards or Venture Capital segments that was incurred in 2002 and 2001, and $10 million of charges related to the write-off of insurance-related deferred acquisition costs that were unrealizable subsequent to the termination of an auto insurance strategic alliance in the first quarter of 2001. Net interest expense on excess liquidity decreased as we deployed excess liquid assets resulting from the Mortgage Transaction in the first quarter of 2001.

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Loss, net, on discontinuance of mortgage and leasing businesses had the following components:

      Effective February 28, 2001, we completed our exit from the mortgage business through a purchase and sale agreement with Chase Manhattan Mortgage Corporation as buyer (the “Mortgage Transaction”), resulting in an estimated pretax gain in the year ended December 31, 2001 of $20.8 million. In the years ended December 31, 2002 and 2003, we revised our estimate of costs related to our exit from the mortgage business and recognized pretax losses on discontinuance of the mortgage business as shown in the table above. In connection with the discontinuance of the leasing business, we recorded a $4.3 million pretax loss effective December 31, 2000, representing the estimated operating results through the remaining term of the leasing portfolio. In the years ended December 31, 2001, 2002 and 2003, we revised our estimate and recognized pretax losses or gains on discontinuance of the leasing business as shown in the table above. See “Discontinued Operations” in Management’s Discussion and Analysis of Financial Condition and Results of Operations for further discussion.

      Loss from discontinued operations, net of tax, was $8.4 million, or $0.33 per combined diluted common share, for the period from January 1, 2001 through February 28, 2001, the effective date of the Mortgage Transaction.

Critical Accounting Policies and Estimates

Our significant accounting policies are described in Note 2 to the consolidated financial statements. The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Estimates are inherently subjective and are susceptible to significant revision as more information becomes available. Changes in estimates could have a material impact on our financial condition or results of operations. We have identified the following as our most critical accounting policies and estimates because they require management’s most difficult, subjective or complex judgments as a result of the need to make estimates about the effect of matters that are inherently uncertain. We have discussed the development, selection and disclosure of the critical accounting policies and estimates with the Audit Committee of our Board of Directors. Where management has provided sensitivities below, they depict only certain possibilities out of a large set of possible scenarios. These sensitivities do not reflect management’s expectation regarding future expected changes and are for demonstrative purposes only.

     Allowance for Receivable Losses

Receivables on the consolidated balance sheets are presented net of the allowance for receivable losses. The allowance for receivable losses is established as losses are estimated to have occurred through provisions charged to earnings. Provisions for credit losses, representing the portion of receivable losses attributable to principal, are reported separately on the consolidated income statements. Provisions for interest and fee losses are recorded as direct reductions to interest and fee income. The allowance for receivable losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of receivables in light of historical experience by receivable type, the nature and volume of the receivable portfolio, adverse situations that may affect the borrowers’ ability to repay and prevailing economic conditions. Since our business credit card receivable portfolio is comprised of smaller balance homogeneous receivables, we generally evaluate the receivables collectively for impairment through the use of a migration analysis as well as the consideration of other factors that may indicate increased risk of loss, such as bankrupt accounts,

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     Securitization Transactions

Retained interests in business credit card securitizations are included in accounts receivable from securitizations on the consolidated balance sheets. These assets are carried at estimated fair value and the resulting unrealized gain or loss from the valuation is included in securitization income on the consolidated income statements. We estimate the fair value of retained interests in securitizations based on a discounted cash flow analysis when quoted market prices are not available. The cash flows of the retained interest-only strip are estimated as the excess of the weighted average interest yield on each pool of the receivables sold over the sum of the interest rate earned by noteholders, the servicing fee and an estimate of future credit losses over the life of the existing receivables. Cash flows are discounted from the date the cash is expected to become available to us using an interest rate that management believes a third party purchaser would demand. The discounted cash flow analysis requires estimates that are susceptible to significant revision as more information becomes available. Changes in economic conditions, market interest rates and pricing spreads, the composition and risk characteristics of the securitized receivables, bankruptcy laws or other regulatory policies could cause actual cash flows from the securitized receivables to vary from management’s estimates. Note 6 to the consolidated financial statements summarizes the key assumptions used to estimate the fair value of retained interests in securitizations during each of the reporting periods and at December 31, 2003 and 2002. It also includes a sensitivity analysis of the valuations of retained interests in securitizations, assuming two changes in each of those assumptions at December 31, 2003.

     Business Credit Card Rewards Programs

We offer cash back and bonus mile reward programs with certain of our business credit cards. The costs of future reward redemptions are estimated and a liability is recorded at the time cash back rewards or bonus mile points are earned by the cardholder. These costs of future reward redemptions are recorded as a reduction of other revenues on the consolidated income statements. Estimates of the costs of future reward redemptions require management to make predictions about future cardholder behavior, including an assumption regarding the percentage of cardholders that will ultimately claim the rewards. The assumption is based on historical experience, considerations of changes in portfolio composition and changes in the rewards programs, including redemption terms. See Note 17 to the consolidated financial statements for the estimated percentages used in each reporting period. It is reasonably possible that actual results will differ from our estimates or that our estimated liability for these programs may change. If the estimated percentage of cardholders that will ultimately claim rewards for each program increased by 10% at December 31, 2003, other revenues of the Advanta Business Card segment would decrease by $1.9 million and our liabilities would increase by the same amount. The sensitivity assumes that the estimated percentage of cardholders that will ultimately claim rewards cannot exceed 100% for any individual program.

      The estimated costs of future reward redemptions was decreased in the years ended December 31, 2003 and 2002, based on changes in experience or redemption terms. The estimate changes included a decrease in the estimated percentage of cardholders that will ultimately claim rewards. The changes in estimated costs of future reward redemptions increased other revenues by $2.8 million in 2003 and $1.9 million in 2002 as discussed in Note 17 to the consolidated financial statements.

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     Litigation Contingencies

Our litigation reserves are estimated based on the status of litigation and our assessment of the ultimate resolution of each action after consultation with our attorneys. However, due to the inherent uncertainty in litigation and since the ultimate resolutions of our litigation, claims and other legal proceedings are influenced by factors outside of our control, it is reasonably possible that our estimated liability under these proceedings may change or that actual results will differ from our estimates. Changes in estimates or other charges related to litigation are included in operating expenses of the respective business segment if related to continuing operations. For discussion of discontinued operations estimates, see “Discontinued Operations” below. In the year ended December 31, 2002, we recorded a $43 million loss on transfer of consumer credit card business in connection with a ruling issued by the court in the Fleet Financial Group, Inc. (“Fleet”) litigation. This charge was classified in continuing operations as a loss on transfer of consumer credit card business in noninterest revenues, consistent with the classification of the gain on transfer of consumer credit card business of $541 million in 1998. In addition, other operating expenses for the year ended December 31, 2002 were reduced by a $1.1 million decrease in litigation reserves resulting from a reduction of damages in a jury verdict in a case involving a former executive. See Note 11 to the consolidated financial statements for further discussion of litigation contingencies.

     Income Taxes

Our effective tax rate is based on expected income, statutory tax rates, current tax law and tax planning opportunities available to us in the various jurisdictions in which we operate. Management judgment is required in determining our effective tax rate and in evaluating our tax positions. Deferred income tax assets and liabilities are determined based on the tax effects of the temporary differences between the book and tax bases of the various assets and liabilities and give current recognition to changes in tax rates and laws. Changes in tax laws, rates, regulations and policies could materially affect our tax estimates and are outside of our control. We evaluate the realizability of the deferred tax asset and recognize a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. Changes in estimates of deferred tax asset realizability or effective tax rates, if applicable, are included in income tax expense (benefit) on the consolidated income statements and would affect all business segments since the consolidated effective tax rate is applied to all business segments’ pretax income (loss). The net deferred tax asset is presented net with current income taxes receivable or payable for financial reporting purposes, and is included in other assets on the consolidated balance sheets.

      In establishing the valuation allowance on the deferred tax asset, we consider (1) estimates of expected future taxable income, (2) existing and projected book/tax differences, (3) tax planning strategies available, and (4) the general and industry specific economic outlook. Estimates of expected future taxable income are based on forecasts for continuing operations over a reasonable forecasting horizon and the general and industry-specific economic outlook. This realizability analysis is inherently subjective, as it requires management to forecast the business credit card market and the competitive and general economic environment in future periods. A 10% change in the estimated realizability of our deferred tax assets related to net operating losses would impact deferred tax assets and income tax expense by $5.2 million at December 31, 2003.

      While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, we believe that our income tax accruals reflect the probable outcome of known tax contingencies. See Note 11 to the consolidated financial statements for a discussion of tax matters currently before the Internal Revenue Service Regional Office of Appeals.

     Discontinued Operations

Our exit from the mortgage business and discontinuance of the leasing business represent the disposal of business segments and the results of these segments are classified as discontinued operations in all periods presented. Estimates of future cash flows are used in the accounting for discontinued operations, including estimates of the future costs of mortgage business-related litigation and estimates of operating results through the remaining term of the leasing portfolio. Estimates regarding mortgage business-related litigation include assumptions about the number of future litigation claims, the resolution of existing claims, the anticipated timeframe of trial proceedings in the Chase litigation and potential recoveries from insurance reimbursements.

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      Discontinued operations estimates are based on historical experience, current levels of contingent liabilities and our current expectations regarding the ultimate resolutions of those contingent liabilities. As all estimates used are influenced by factors outside of our control, there is uncertainty inherent in these estimates, making it reasonably possible that they could change in the near term. Changes in estimates related to discontinued operations are included in loss, net, on discontinuance of mortgage and leasing businesses on the consolidated income statements. We have made significant changes to these estimates in recent years. Estimates of leasing business operating results decreased $45.0 million in 2001, increased $11.3 million in 2002 and decreased $600 thousand in 2003. The estimated costs of mortgage business-related litigation increased by $25.3 million in 2002 and $2.6 million in 2003. See Note 20 to the consolidated financial statements for a detailed description of the nature and amounts of changes in discontinued operations estimates in the reporting periods.

Advanta Business Cards

Advanta Business Cards originates new accounts directly and through the use of third parties. The following table provides key statistical information on our business credit card portfolio for the years ended December 31. Credit quality statistics for the business credit card portfolio are included in the “Provision and Allowance for Receivable Losses” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(1)	Active accounts are defined as accounts with a balance at month-end. Active account statistics do not include charged-off accounts. The statistic reported above is the average number of active accounts for the year ended December 31.

      The decrease in new account originations in the year ended December 31, 2003 as compared to the prior years reflects the selectivity of our refined customer acquisition models. Beginning in the second quarter of 2003, we started using 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 our activities to identify and establish strategic relationships with organizations focused on certain business owners, executives and small businesses.

      Pretax income for Advanta Business Cards was $56.3 million for the year ended December 31, 2003 as compared to $63.2 million for the year ended December 31, 2002 and $63.5 million for the year ended December 31, 2001. The components of pretax income for Advanta Business Cards for the years ended December 31 were as follows:

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      Net interest income on owned interest-earning assets increased by $417 thousand for the year ended December 31, 2003 and $1.8 million for the year ended December 31, 2002. Our yields on business credit card receivables declined in both 2003 and 2002 as a result of our competitively-priced offerings and products in those years, consistent with our business strategy. The declines in yields were more than offset by increases in average owned business credit card receivables of $116.1 million in the year ended December 31, 2003 and $89.8 million in the year ended December 31, 2002, resulting in increases in net interest income on owned interest-earning assets. Average owned business credit card receivables increased in the years ended December 31, 2003 and December 31, 2002 due to growth and the timing of securitization activity. See further discussion in the “Off-Balance Sheet Arrangements” 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 for the years ended December 31, 2003 and 2002 are due primarily to higher transaction volume that produced higher interchange income and growth in average owned and securitized receivables. Noninterest revenues also include the impact of changes in estimated costs of future reward redemptions in 2003 and 2002. See further discussion in the “Other Revenues” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

      The increases in the provision for credit losses in the years ended December 31, 2003 and 2002 primarily reflect increases in average owned business credit card receivables, 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 prior periods. The increase in operating expenses for the year ended December 31, 2003 resulted from growth in owned and securitized receivables. The increase in operating expenses in 2002 as compared to 2001 resulted from growth in owned and securitized receivables and additional investments in initiatives to strengthen our position as a leading issuer of business credit cards to the small business market.

Venture Capital

The components of pretax loss for our Venture Capital segment for the years ended December 31 were as follows:

      As shown in the table above, pretax loss for our Venture Capital segment is comprised primarily of realized and unrealized 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 $9.5 million at December 31, 2003 and $13.5 million at December 31, 2002. Operating expenses for the year ended December 31, 2003 include approximately $410 thousand of lease termination costs incurred in the second quarter of 2003 relating to office space formerly used in our venture capital operations.

      We closed an operational location of our Venture Capital segment in the first quarter of 2004. We expect to incur higher expenses in the Venture Capital segment in the first quarter of 2004 due to this closure, and then lower expenses thereafter.

Interest Income and Expense

Interest income increased by $4.8 million to $108.4 million for the year ended December 31, 2003 as compared to 2002. The average yield earned on our business credit card receivables decreased in 2003 as

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      Interest income decreased by $24.3 million to $103.6 million for the year ended December 31, 2002 as compared to 2001. The decrease in interest income in 2002 was due primarily to a decrease in the average yield earned on our investments and receivables as a result of the prevailing interest rate environment and our competitively-priced offerings and products, partially offset by an increase in average owned business credit card receivables of $90 million in the year ended December 31, 2002 as compared to 2001. Also contributing to the decrease in interest income was a decrease in average federal funds sold, restricted interest-bearing deposits and investments of $377 million for the year ended December 31, 2002 as compared to 2001. These assets decreased as excess liquid assets resulting from the Mortgage Transaction in the first quarter of 2001 were deployed.

      For the year ended December 31, 2003, interest expense increased by $728 thousand to $48.3 million as compared to the year ended December 31, 2002. The increase in interest expense in 2003 was due to increases in our average interest-bearing liabilities outstanding, partially offset by a decrease in our average cost of funds. Our average outstanding deposits and debt increased $305 million in the year ended December 31, 2003 as compared to 2002. Our average cost of funds decreased from 5.17% for the year ended December 31, 2002 to 3.80% for the year ended December 31, 2003. The decrease in our average cost of funds 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 and growth in average on-balance sheet assets during 2003.

      For the year ended December 31, 2002, interest expense decreased by $34.9 million to $47.6 million as compared to the year ended December 31, 2001. The decrease in interest expense in 2002 was due to a reduction in average outstanding deposits and debt and a decrease in our average cost of funds. In 2001 we sold $389.7 million of our deposit liabilities, paid off substantially all of our outstanding medium-term notes, reduced our outstanding retail notes and reduced debt and deposits by $1.1 billion. Also in 2001, Advanta National Bank suspended originations of deposit accounts. Our average cost of funds decreased from 7.24% for the year ended December 31, 2001 to 5.17% for the year ended December 31, 2002.

      Excess liquid assets resulting from the Mortgage Transaction in the first quarter of 2001 were held in short-term, high quality investments until they could be deployed. As a result, we had interest expense in excess of interest income on this excess liquidity that was unrelated to the funding of our Advanta Business Cards or Venture Capital segments. We did not incur net interest expense unrelated to the funding of our Advanta Business Cards or Venture Capital segments in the year ended December 31, 2003 since the excess liquid assets described above were deployed as of December 31, 2002.

      The following table provides an analysis of interest income and expense data, average balance sheet data, net interest spread and net interest margin for both continuing and discontinued operations. The net interest spread represents the difference between the yield on interest-earning assets and the average rate paid on interest-bearing liabilities. The net interest margin represents the difference between the yield on interest-

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Interest Rate Analysis and Average Balances