ADVNA Advanta Corp Class A (MM)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

þ		Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2009

or

o		Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from                      to                     

Commission File Number 0-14120

Advanta Corp.

(Exact name of registrant as specified in its charter)

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

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

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

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

Yes þ      No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o      No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o      No þ

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

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

Yes o      No o

Applicable only to corporate issuers:

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

Class		Outstanding at August 3, 2009
Class A Common Stock, $.01 par value per share		14,410,133 shares
Class B Common Stock, $.01 par value per share		29,984,029 shares

 

 

TABLE OF CONTENTS

		Page
PART I — FINANCIAL INFORMATION			3
Item 1. Financial Statements			3
Consolidated Balance Sheets (Unaudited)			3
Consolidated Income Statements (Unaudited)			4
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)			5-6
Consolidated Statements of Cash Flows (Unaudited)			7
Notes to Consolidated Financial Statements (Unaudited)			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			34
Item 3. Quantitative and Qualitative Disclosures About Market Risk			60
Item 4. Controls and Procedures			60
PART II - OTHER INFORMATION			60
Item 1. Legal Proceedings			60
Item 1A. Risk Factors			61
Item 4. Submission of Matters to a Vote of Security Holders			69
Item 5. Other Information			69
Item 6. Exhibits			70
Exhibit Index			72
Exhibit 10.1
Exhibit 12
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I — FINANCIAL INFORMATION

ITEM 1.		FINANCIAL STATEMENTS

ADVANTA CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (Unaudited)

		June 30,				December 31,
(In thousands, except share amounts)		2009				2008
ASSETS
Cash		$	24,974			$	31,716
Federal funds sold			221				32,277
Interest-bearing deposits			1,539,423				1,595,138
Investments available for sale			402,525				977,245
Receivables, net:
Held for sale			0				0
Other			328,639				414,844
Total receivables, net			328,639				414,844
Accounts receivable from securitizations			656,749				301,118
Premises and equipment, net			12,846				16,762
Other assets			163,604				215,945
Total assets		$	3,128,981			$	3,585,045
LIABILITIES
Deposits		$	2,548,073			$	2,541,406
Debt			168,940				206,598
Other borrowings			0				50,000
Subordinated debt payable to preferred securities trust			92,290				103,093
Other liabilities			222,460				176,587
Total liabilities			3,031,763				3,077,684
Commitments and contingencies
STOCKHOLDERS’ EQUITY
Class A preferred stock, $1,000 par value:
Authorized, issued and outstanding – 1,010 shares in 2009 and 2008			1,010				1,010
Class A voting common stock, $.01 par value:
Authorized – 200,000,000 shares; issued – 14,410,133 shares in 2009 and 2008			144				144
Class B non-voting common stock, $.01 par value:
Authorized – 200,000,000 shares; issued – 32,330,069 shares in 2009 and 32,776,722 shares in 2008			323				328
Additional paid-in capital			248,581				250,042
Unearned ESOP shares			(8,195	)			(8,367	)
Accumulated other comprehensive loss			(15,127	)			(13,447	)
(Accumulated deficit) retained earnings			(92,040	)			315,072
Treasury stock at cost, 1,661,780 Class B common shares in 2009 and 1,563,736 Class B common shares in 2008			(37,478	)			(37,421	)
Total stockholders’ equity			97,218				507,361
Total liabilities and stockholders’ equity		$	3,128,981			$	3,585,045

See accompanying notes to consolidated financial statements.

ADVANTA CORP. AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENTS (Unaudited)

		Three Months Ended								Six Months Ended
		June 30,								June 30,
(In thousands, except per share amounts)		2009				2008				2009				2008
Interest income:
Receivables		$	18,946			$	37,750			$	34,960			$	66,880
Investments			3,445				7,954				9,550				17,886
Other interest income			11,195				9,565				23,284				16,550
Total interest income			33,586				55,269				67,794				101,316
Interest expense:
Deposits			23,522				23,600				49,049				45,519
Debt and other borrowings			2,512				4,120				5,480				8,028
Subordinated debt payable to preferred securities trust			2,282				2,317				4,599				4,634
Total interest expense			28,316				30,037				59,128				58,181
Net interest income			5,270				25,232				8,666				43,135
Provision for credit losses			35,335				30,327				76,612				58,709
Net interest income after provision for credit losses			(30,065	)			(5,095	)			(67,946	)			(15,574	)
Noninterest revenues (losses):
Securitization income (loss)			(179,017	)			4,608				(238,924	)			21,605
Servicing revenues			18,053				24,365				38,900				50,457
Gain on extinguishment of debt			8,557				0				8,557				0
Other revenues, net			14,303				65,350				49,350				131,918
Total noninterest revenues (losses)			(138,104	)			94,323				(142,117	)			203,980
Operating expenses			83,344				81,752				158,223				151,240
Income (loss) before income taxes			(251,513	)			7,476				(368,286	)			37,166
Income tax expense			78,556				3,461				37,688				14,789
Net income (loss)		$	(330,069	)		$	4,015			$	(405,974	)		$	22,377
Basic net income (loss) per common share
Class A		$	(8.14	)		$	0.06			$	(10.01	)		$	0.47
Class B			(8.14	)			0.10				(10.01	)			0.54
Diluted net income (loss) per common share
Class A		$	(8.14	)		$	0.06			$	(10.01	)		$	0.47
Class B			(8.14	)			0.09				(10.01	)			0.52
Basic weighted average common shares outstanding
Class A			13,430				13,380				13,424				13,374
Class B			27,127				27,142				27,160				27,082
Nonvested Class B			3,599				3,625				3,729				2,571
Diluted weighted average common shares outstanding
Class A			13,430				13,380				13,424				13,374
Class B			27,127				28,267				27,160				28,196
Nonvested Class B			3,599				3,625				3,729				2,571

See accompanying notes to consolidated financial statements.

ADVANTA CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)

						Class A				Class A				Class B				Additional
		Comprehensive				Preferred				Common				Common				Paid-In
($ in thousands)		Income (Loss)				Stock				Stock				Stock				Capital
Balance at December 31, 2007						$	1,010			$	144			$	296			$	238,416
Net loss		$	(43,823	)
Other comprehensive income (loss):
Unrealized appreciation (depreciation) of investments, net of tax benefit (expense) of $6,172			(11,462	)
Actuarial gain (loss), net of tax benefit (expense) of $161			(299	)
Currency translation adjustment			(12	)
Comprehensive loss		$	(55,596	)
Preferred and common cash dividends declared
Exercise of stock options																			85
Employee stock option expense																			5,437
Nonemployee stock option expense																			(4	)
Excess tax benefits from ESOP																			341
Issuance of nonvested shares															34				(34	)
Amortization of nonvested shares																			5,729
Forfeitures of nonvested shares															(2	)			(27	)
ESOP shares committed to be released																			99
Balance at December 31, 2008						$	1,010			$	144			$	328			$	250,042
Net loss		$	(405,974	)
Other comprehensive income (loss):
Unrealized appreciation (depreciation) of investments:
Other-than-temporary impairment losses for which a portion has been recorded in earnings, net of tax benefit (expense) of $480			(890	)
Other investments, net of tax benefit (expense) $427			(794	)
Currency translation adjustment			4
Comprehensive loss		$	(407,654	)
Preferred and common cash dividends declared
Employee stock option expense																			2,406
Excess tax benefits from ESOP																			198
Issuance of nonvested shares															5				(5	)
Amortization of nonvested shares																			(3,795	)
Forfeitures of nonvested shares															(10	)			(136	)
Treasury stock acquired
ESOP shares committed to be released																			(129	)
Balance at June 30, 2009						$	1,010			$	144			$	323			$	248,581

See accompanying notes to consolidated financial statements.

ADVANTA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited) – continued

						Accumulated				(Accumulated
						Other				Deficit)								Total
		Unearned				Comprehensive				Retained				Treasury				Stockholders’
($ in thousands)		ESOP Shares				Income (Loss)				Earnings				Stock				Equity
Balance at December 31, 2007		$	(8,785	)		$	(1,674	)		$	393,795			$	(37,421	)		$	585,781
Net loss											(43,823	)							(43,823	)
Other comprehensive income (loss):
Unrealized appreciation (depreciation) of investments, net of tax benefit (expense) of $6,172							(11,462	)											(11,462	)
Actuarial gain (loss), net of tax benefit (expense) of $161							(299	)											(299	)
Currency translation adjustment							(12	)											(12	)
Comprehensive loss
Preferred and common cash dividends declared											(34,900	)							(34,900	)
Exercise of stock options																			85
Employee stock option expense																			5,437
Nonemployee stock option expense																			(4	)
Excess tax benefits from ESOP																			341
Issuance of nonvested shares																			0
Amortization of nonvested shares																			5,729
Forfeitures of nonvested shares																			(29	)
ESOP shares committed to be released			418																517
Balance at December 31, 2008		$	(8,367	)		$	(13,447	)		$	315,072			$	(37,421	)		$	507,361
Net loss											(405,974	)							(405,974	)
Other comprehensive income (loss):
Unrealized appreciation (depreciation) of investments:
Other-than-temporary impairment losses for which a portion has been recorded in earnings, net of tax benefit (expense) of $480							(890	)											(890	)
Other investments, net of tax benefit (expense) $427							(794	)											(794	)
Currency translation adjustment							4												4
Comprehensive loss
Preferred and common cash dividends declared											(1,138	)							(1,138	)
Employee stock option expense																			2,406
Excess tax benefits from ESOP																			198
Issuance of nonvested shares																			0
Amortization of nonvested shares																			(3,795	)
Forfeitures of nonvested shares																			(146	)
Treasury stock acquired															(57	)			(57	)
ESOP shares committed to be released			172																43
Balance at June 30, 2009		$	(8,195	)		$	(15,127	)		$	(92,040	)		$	(37,478	)		$	97,218

See accompanying notes to consolidated financial statements.

ADVANTA CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

		Six Months Ended
		June 30,
($ in thousands)		2009				2008
OPERATING ACTIVITIES – CONTINUING OPERATIONS
Net (loss) income		$	(405,974	)		$	22,377
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Investment securities losses (gains), net			913				(32,328	)
Gain on extinguishment of debt			(8,557	)			0
Amortization of discount on investment securities			(2,467	)			(307	)
Depreciation and amortization			3,612				3,284
Impairment of assets			5,327				0
Other-than-temporary impairment losses on investment securities			6,593				0
Stock-based compensation (benefit) expense			(1,535	)			7,402
Provision for credit losses			76,612				58,709
Provision for interest and fee losses			20,270				10,418
Change in deferred origination costs, net of deferred fees			4,586				7,251
Change in receivables held for sale			(125,000	)			(421,647	)
Proceeds from sale of receivables held for sale			125,000				318,025
Change in accounts receivable from securitizations			(355,631	)			(90,557	)
Change in amounts due to the securitization trust			38,576				(61,415	)
Tax deficiency from stock-based compensation			0				606
Change in other assets and other liabilities			59,235				174,610
Net cash used in operating activities			(558,440	)			(3,572	)
INVESTING ACTIVITIES – CONTINUING OPERATIONS
Change in federal funds sold and interest-bearing Deposits			87,771				(188,163	)
Purchase of investments available for sale			(609,759	)			(766,585	)
Proceeds from sales of investments available for sale			710,753				392,017
Proceeds from sales of other investments			0				32,231
Proceeds from maturing investments available for sale			495,756				155,260
Change in receivables not held for sale			(15,263	)			(17,931	)
Purchases of premises and equipment, net			(732	)			(4,368	)
Net cash provided by (used in) investing activities			668,526				(397,539	)
FINANCING ACTIVITIES – CONTINUING OPERATIONS
Change in demand and savings deposits			5,726				(1,934	)
Proceeds from issuance of time deposits			503,467				738,926
Payments for maturing time deposits			(527,208	)			(313,444	)
Proceeds from issuance of debt			21,023				36,740
Payments on redemption of debt			(59,564	)			(32,629	)
Change in cash overdraft and other borrowings			(59,048	)			(10,433	)
Proceeds from exercise of stock options			0				15
Cash dividends paid			(1,138	)			(17,278	)
Tax deficiency from stock-based compensation			0				(606	)
Treasury stock acquired			(57	)			0
Net cash (used in) provided by financing activities			(116,799	)			399,357
Effect of foreign exchange rates on cash			4				0
DISCONTINUED OPERATIONS
Net cash used in operating activities of discontinued operations			(33	)			(1,244	)
Net decrease in cash			(6,742	)			(2,998	)
Cash at beginning of period			31,716				90,228
Cash at end of period		$	24,974			$	87,230
SUPPLEMENTAL DISCLOSURES
Income taxes paid, net		$	1,361			$	5,951
Interest paid			18,800				17,625

See accompanying notes to consolidated financial statements.

ADVANTA CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, UNLESS OTHERWISE NOTED)

June 30, 2009
(Unaudited)

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

Note 1) Basis of Presentation and Current Operating Environment

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

Advanta was founded in 1951 and has long been an innovator in the financial services industry. Most recently, we have been one of the nation’s largest credit card issuers (through Advanta Bank Corp.) in the small business market. At this time we are not originating new business credit card accounts or funding new business credit card receivables. Today, we are the servicer for business credit card receivables that we own on our balance sheet and also the business credit card receivables that are owned by the Advanta Business Card Master Trust. As servicer, we will continue to service and collect the amounts owed on these receivables. In the future, we may pursue other business ventures in the small business market, financial services industry or in other markets or industries.

Deterioration of the U.S. economy beginning in the latter half of 2007 and the negative trends in economic conditions and disruption in the capital markets that have continued into 2009 have adversely affected our business. We, like many small business credit card issuers and other small business lenders, have experienced increased delinquencies and charge-offs due to the impact of the general economic downturn on small businesses. In response to the current economic environment and its negative impact on our business, results of operations and financial condition, in May 2009 we developed a plan that was designed to limit our credit loss exposure and maximize our capital and our liquidity measures. The plan we designed involved the following components: early amortization of our securitization transactions and closing all of our customers’ accounts to future use; and the execution of tender offers for the outstanding trust preferred securities issued by Advanta Capital Trust I and a portion of the Class A senior securitization notes issued by our securitization trust at prices below their par value. As discussed below, we have moved forward with all aspects of our plan with the exception of the tender offer for the Class A senior securitization notes.

Early amortization of the securitization transactions began in June 2009 and effective May 30, 2009, we closed all of our customers’ business credit card accounts to future use. We expect the combination of these events to allow us to realize our plan objective of limiting our credit loss exposure. We also purchased approximately 10.8% of the $100 million outstanding trust preferred securities through our tender offer for the outstanding trust preferred securities. However, on June 8, 2009, Advanta Bank Corp. terminated its tender offer for the Class A senior securitization notes because it was determined that a regulatory condition to the tender offer would not be satisfied. As a result of terminating the tender offer for the Class A senior securitization notes, we now expect that we will not be able to fully realize the plan objectives of maximizing our capital and our liquidity measures. The degree to which we ultimately may realize these plan objectives will depend on our ability to implement additional opportunities to strengthen our capital and our liquidity measures. We have not announced any specific plans at this time and we are still evaluating additional strategies to accomplish these objectives. Our ability to continue as a going concern may depend on our ability to successfully implement a plan for new business opportunities.

Effective June 30, 2009, our wholly owned bank subsidiary, Advanta Bank Corp., entered into two regulatory agreements with the Federal Deposit Insurance Corporation (“FDIC”), its primary federal banking regulator. Advanta Bank Corp. did not admit any wrongdoing in entering into the agreements and entered into the agreements in the interest of expediency and to avoid litigation and the costs associated therewith. The agreements place significant restrictions on Advanta Bank Corp.’s activities and operations, including its deposit-taking operations, and require Advanta Bank Corp. to maintain a total risk-based capital ratio of at least 10% and a tier I leverage capital ratio of at least 5%. The agreements require Advanta Bank Corp. to make certain restitution payments to eligible customers and pay a civil money penalty of $150,000. We previously took a $14 million pretax charge related to our estimate of cash back rewards program restitution in the third quarter of 2008. We recorded an additional $19 million pretax charge, classified in operating expenses, in the second quarter of 2009 related to our estimate of pricing strategies restitution under the agreements. The agreements also have the impact of requiring us to obtain the FDIC’s approval before we would be able to pursue new business opportunities through Advanta Bank Corp., however the agreements do not limit our ability to pursue future business opportunities outside of the bank. See further discussion of the regulatory agreements in Note 12.

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant changes in the near term relate to the accounting for the allowance for receivable losses, securitization income, rewards programs and income taxes.

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

We have evaluated subsequent events through August 10, 2009, which is the date these financial statements were issued and filed with the Securities and Exchange Commission.

Note 2) Recently Issued Accounting Standards

Effective January 1, 2009, we adopted Financial Accounting Standards Board (“FASB”) Staff Position (“FSP”) No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities . The FSP concludes that unvested share-based payment awards that contain nonforfeitable rights to dividends are participating securities under Statement of Financial Accounting Standards (“SFAS”) No. 128, Earnings Per Share, and should be included in the computation of earnings per share under the two-class method. The two-class method is an earnings allocation formula to determine earnings per share for multiple classes of stock according to dividends declared and participation rights in undistributed earnings. The nonvested shares of Class B Common Stock issued under our stock-based incentive plan are participating securities with nonforfeitable rights to dividends. Therefore, upon the adoption of FSP No. EITF 03-6-1, our nonvested Class B Common Stock was included as a third class of stock for purposes of earnings per share computations. This impacted our reported earnings per Class A and Class B share. We adjusted all prior period earnings per share data presented to conform to the provisions of this FSP. The adoption of this FSP did not impact our financial position or net income.

In April 2009, the FASB issued FSP No. FAS 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly. This FSP provides guidance on how to determine the fair value of assets and liabilities when the volume and level of activity for the asset/liability has significantly decreased. The FSP also provides guidance on identifying circumstances that indicate a transaction is not orderly. In addition, the FSP requires disclosure in interim and annual periods of the inputs and valuation techniques used to measure fair value and a discussion of changes in valuation techniques. The adoption of this FSP effective for Advanta for the quarter ending June 30, 2009 did not have a significant impact on our financial position or results of operations.

In April 2009, the FASB issued FSP No. FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments . This FSP amends the requirements for the recognition and measurement of other-than-temporary impairments for debt securities by modifying the pre-existing intent and ability indicator. Under the FSP, an other-than-temporary impairment is triggered when there is an intent to sell the security, it is more likely than not that the security will be required to be sold before recovery, or the entity is not expected to recover the entire amortized cost basis of the security. Additionally, the FSP changes the presentation of an other-than-temporary impairment in the income statement for those impairments. The credit loss component will be recognized in earnings and the remainder of the impairment will be recorded in other comprehensive income. This FSP was effective for Advanta for the quarter ended June 30, 2009 and as discussed further in Note 3, we recognized other-than-temporary impairment losses as of June 30, 2009.

In April 2009, the FASB issued FSP No. FAS 107-1 and APB 28-1, Interim Disclosure about Fair Value of Financial Instruments . This FSP requires interim disclosures regarding the fair values of financial instruments that are within the scope of SFAS No. 107, Disclosures about the Fair Value of Financial Instruments . Additionally, the FSP requires disclosure of the methods and significant assumptions used to estimate the fair value of financial instruments on an interim basis as well as changes of the methods and significant assumptions from prior periods. Our adoption of this FSP effective for the quarter ending June 30, 2009 resulted in additional disclosures but did not impact our financial position or results of operations. See Note 17 for the applicable disclosures.

In June 2009, the FASB issued FASB Statement No. 166, Accounting for Transfers of Financial Assets — an amendment of FASB Statement No. 140, and FASB Statement No. 167, Amendments to FASB Interpretation No. 46(R) . Statement No. 166 eliminates the concept of qualifying special-purpose entities (“QSPE’s”), so all special-purpose entities must be analyzed for consolidation. Statement No. 167 requires consolidation if an entity has both power to direct the activities of the special-purpose entity that most significantly impact its economic performance and receives benefits or absorbs losses that are potentially significant to the special-purpose entity. These statements are effective for Advanta on January 1, 2010. Management is currently evaluating any potential impact these statements may have on our financial position or results of operations.

Note 3) Interest-Bearing Deposits and Investments Available for Sale

Interest-bearing deposits at June 30, 2009 include $6.3 million of deposits pledged as collateral for payment obligations under contracts with certain third parties in the ordinary course of business. There were no interest-bearing deposits pledged as collateral as of December 31, 2008.

Investments available for sale consisted of the following:

		June 30, 2009								December 31, 2008
		Amortized				Fair				Amortized				Fair
		Cost				Value				Cost				Value
U.S. Treasury and government agency securities		$	109,127			$	109,284			$	312,112			$	313,209
State and municipal securities			16,652				16,451				18,015				17,064
Corporate bonds			5,000				4,997				0				0
Commercial paper			0				0				8,796				8,799
Asset-backed securities:
Credit card asset-backed securities (1)			132,518				116,285				291,919				281,601
Mortgage and home equity line of credit-backed securities			23,841				17,076				32,692				22,467
Equity securities			8,116				8,122				8,245				8,191
Money market funds (2)			129,943				129,943				325,548				325,548
Other			367				367				367				366
Total investments available for sale		$	425,564			$	402,525			$	997,694			$	977,245

We evaluate the decline in the fair value of our investment securities to determine whether the decline in value is other than temporary. For securities that we intend to sell or that it is more likely than not that we will be required to sell before recovery of their amortized cost basis, an other-than-temporary impairment is considered to have occurred and the difference between the security’s fair value and amortized cost is recognized in earnings. At June 30, 2009, we determined there were no securities in a loss position that we intended to sell or would be required to sell. For securities that we do not intend to sell and for which it is more likely than not that we will not be required to sell, we separate the amount of the impairment into the amount that is credit related and the amount due to all other factors. The credit component is recognized in earnings and is the difference between the security’s amortized cost basis and the present value of its expected future cash flows. The remainder of the impairment is recorded in other comprehensive income. In assessing these securities, we consider the length of time and extent to which the market value has been less than cost, and the financial condition and near-term prospects of the issuer. In assessing the financial condition and near-term prospects of the issuer, we review the issuer’s ratings and any changes in its ratings and recent performance. For securities that are rated below AA by Standard and Poor’s or Aa2 by Moody’s Investor Service or the equivalent from other rating agencies or that have demonstrated deteriorating performance in the form of ratings downgrades since the date the security was acquired, we project expected future cash flows to assess whether we expect to recover the amortized cost of the security. We estimate the credit component of the expected future cash flow based on projections of future credit defaults of the underlying collateral. The significant inputs we use to project the expected future collateral defaults for mortgage or home equity line of credit-backed securities include published rating agency projections of lifetime default percentages and loss severities for the collateral type and the year of origination. The projections of future collateral defaults are then compared to the level of credit enhancement available, including available overcollateralization, subordination and insurance. If the level of credit enhancement available was sufficient to absorb the projected collateral defaults, no credit impairment was deemed to have occurred and the decline in fair value was not deemed to be other-than-temporary. If the level of credit enhancement available was not sufficient to absorb the projected collateral defaults, we recorded other-than-temporary impairment losses for our proportionate interest in the projected defaults in excess of projected available credit enhancement that would be allocated to our tranche. A similar methodology was used to assess our credit card asset-backed securities that uses internal expectations of future collateral defaults based on our experience with the underlying collateral, which is the pool of securitized receivables in the Advanta Business Card Master Trust.

Our one credit card asset-backed security was in a loss position at June 30, 2009. The $132.5 million par value of the AdvantaSeries 2008-A3 note had an unrealized loss of $16.2 million. The unrealized loss was due to the ongoing difficulties in the asset-backed securities market that created turmoil in the capital markets, negative performance trends of receivables in the Advanta Business Card Master Trust and the early amortization of our securitization transactions in June 2009. In May 2009, the ratings on this security were downgraded by Standard and Poor’s from AA to BBB- and by Moody’s Investor Service from Baa2 to Ba2. The unrealized loss on our credit card asset-backed security was not deemed to be an other-than-temporary impairment loss at June 30, 2009 based on results using the methodology described above.

We own seventeen floating rate mortgage and home equity line of credit-backed securities in our investment portfolio are that are backed by subprime residential mortgage loans or subprime home equity loans. The fair values of these investments declined in the second half of 2007, in 2008 and again in 2009 due to the difficulties in the subprime mortgage industry that created turmoil in the capital markets.

In June 2009, we recognized $6.6 million of other-than-temporary impairment losses on five of the seventeen mortgage or home equity line of credit-backed securities due to the expectation that we will not recover the total amount of amortized cost based on results using the methodology described above. These five securities have had significant unrealized losses for approximately 28 months associated with the disruption in the market for these types of securities. The other-than-temporary impairment losses are classified in other revenues on the consolidated income statement. At June 30, 2009, these securities represent 36% of the fair value of our mortgage and home equity line of credit-backed securities backed by subprime residential mortgage loans or subprime home equity loans. These securities were rated from AAA to BBB- by Standard & Poor’s, from Ba1 to Caa2 by Moody’s Investor Service, or the equivalent from other rating agencies, after taking into account the downgrade of four of these investments by at least one rating agency in the second quarter of 2009.

Based on the methodology described above, the unrealized losses of the remaining twelve of the seventeen mortgage or home equity line of credit-backed securities were not deemed to be other-than-temporary impairment losses. The amounts of unrealized losses per individual mortgage or home equity line of credit-backed security at June 30, 2009 were as follows: one security with a loss of $1.9 million, three securities with a loss between $500 thousand and $1.0 million, five securities with a loss between $100 thousand and $499 thousand and three securities with losses less than $100 thousand. At June 30, 2009, these securities represent 64% of the fair value of our mortgage and home equity line of credit-backed securities backed by subprime residential mortgage loans or subprime home equity loans. Six of these securities were rated from AAA to AA by Standard & Poor’s, from Aaa to Aa2 by Moody’s Investor Service, or the equivalent from other rating agencies, and their ratings are unchanged since they were acquired, and six were rated from AAA to BB by Standard & Poor’s, from Aa2 to B3 by Moody’s Investor Service, or the equivalent from other rating agencies, after taking into account the downgrade of two of these investments by at least one rating agency in the second quarter of 2009.

The following table represents other-than-temporary impairment losses on available for sale debt securities:

		Three Months Ended
		June 30, 2009
Total other-than-temporary impairment losses (unrealized and realized)		$	(7,963	)
Portion of pretax (gain) loss recognized in other comprehensive income (1)			1,370
Net impairment losses recognized in income (2)		$	(6,593	)

The following table presents a rollforward of the credit component of other-than-temporary impairments on available for sale debt securities held as of June 30, 2009:

		Three Months				Six Months
		Ended				Ended
		June 30, 2009				June 30, 2009
Beginning Balance		$	0			$	0
Additions for credit impairments recognized on securities not previously impaired			(6,593	)			(6,593	)
Ending Balance		$	(6,593	)		$	(6,593	)

There were no other declines in the fair value of investments available for sale below their cost that were deemed to be other-than-temporary at June 30, 2009 or December 31, 2008.

The fair value of investments available for sale in an unrealized loss position and the related unrealized losses at June 30, 2009 were as follows:

		Less Than 12 Months in								12 Months or Longer in
		an Unrealized Loss								an Unrealized Loss
		Position								Position								Total
		Gross								Gross								Gross
		Unrealized				Fair				Unrealized				Fair				Unrealized				Fair
		Amount				Value				Amount				Value				Amount				Value
U.S. Treasury and government agency securities		$	(1	)		$	3,254			$	0			$	0			$	(1	)		$	3,254
State and municipal securities			(6	)			1,399				(313	)			7,346				(319	)			8,745
Corporate bonds			(3	)			4,997				0				0				(3	)			4,997
Credit card asset-backed security			0				0				(16,233	)			116,285				(16,233	)			116,285
Mortgage and home equity line of credit-backed securities			(5	)			771				(8,384	)			12,625				(8,389	)			13,396
Other securities			(1	)			35				0				0				(1	)			35
Total		$	(16	)		$	10,456			$	(24,930	)		$	136,256			$	(24,946	)		$	146,712

Note 4) Receivables

Receivables on the consolidated balance sheet consisted of the following:

		June 30,				December 31,
		2009				2008
Business credit card receivables		$	403,215			$	505,578
Other receivables			8,179				8,583
Gross receivables			411,394				514,161
Add: Deferred origination costs, net of deferred fees			0				4,586
Less: Allowance for receivable losses
Business credit cards			(81,536	)			(102,700	)
Other receivables			(1,219	)			(1,203	)
Total allowance for receivable losses			(82,755	)			(103,903	)
Receivables, net		$	328,639			$	414,844

At June 30, 2009, approximately 17% of our owned business credit card receivables were concentrated in the state of California and approximately 9% were concentrated in the state of Florida. This compares to U.S. Census population estimates of the U.S. population residing in these states of 12% for California and 6% for Florida. Approximately 15% of U.S. small businesses are domiciled in California and approximately 7% of U.S. small businesses are domiciled in Florida based on a 2008 Small Business Administration report of 2007 data. We had no other concentrations in a single state of 9% or more of total owned business credit card receivables.

See Note 6 for statistical information on owned receivables 30 days or more delinquent, 90 days or more delinquent, on nonaccrual status, accruing receivables past due 90 days or more, and net principal charge-offs.

Note 5) Allowance for Receivable Losses

The following table presents activity in the allowance for receivable losses for the six months ended June 30:

		2009				2008
Balance at January 1		$	103,903			$	68,540
Provision for credit losses			76,612				58,709
Provision for interest and fee losses			20,270				10,418
Gross principal charge-offs:
Business credit cards			(97,412	)			(43,272	)
Other receivables			(7	)			(2	)
Total gross principal charge-offs			(97,419	)			(43,274	)
Principal recoveries:
Business credit cards			1,881				1,147
Net principal charge-offs			(95,538	)			(42,127	)
Interest and fee charge-offs:
Business credit cards			(22,492	)			(9,727	)
Balance at June 30		$	82,755			$	85,813

Effective June 2009, due to the closure of customers’ accounts to future use, our charge-off policy for contractually delinquent business credit card accounts changed to charge-off an unpaid receivable no later than the end of the month in which it becomes and remains past due 120 cumulative days from the contractual due date. Our previous policy was to charge-off an unpaid receivable no later than the end of the month in which it became and remained past due 180 cumulative days from the contractual due date. There was no change to our charge-off policy for bankrupt business credit card accounts, which is to charge-off an unpaid receivable within 60 days of receipt of notification of filing from the bankruptcy court or within the timeframes adopted in the Uniform Retail Credit Classification and Account Management Policy , whichever is shorter. We had $25.1 million of additional net principal charge-offs in June 2009 associated with the change in charge-off policy.

Note 6) Securitization Activities

We sold business credit card receivables through securitizations accounted for as sales under GAAP. We continue to own and service the accounts that generated the securitized receivables. We used one securitization trust for all of our securitizations. The securitization trust was created to hold the collateral (the business credit card receivables) and issue notes primarily to institutional investors. The securitization trust, Advanta Business Card Master Trust, is a qualified special purpose entity, has no equity and is financed through notes issued primarily to institutional investors, our subordinated trust assets and our seller’s interest. Only principal receivables were sold to noteholders. Accrued interest and fees on securitized receivables remain on-balance sheet and are classified as accounts receivable from securitizations on the consolidated balance sheets. Our seller’s interest is an undivided interest in the principal receivables in the trust and represents the amount of receivables in the trust not allocated to investors. The seller’s interest does not meet the GAAP criteria for sale accounting and is classified as receivables on the consolidated balance sheets. The seller’s interest does not provide credit enhancement to the securitized receivables.

As of June 30, 2009, we had $3.3 billion of securitized receivables, $3.2 billion of which were off-balance sheet. As of December 31, 2008, we had $4.5 billion of securitized receivables, $4.1 billion of which were off-balance sheet. We hold certain securitized receivables on-balance sheet in the form of subordinated trust assets that are a component of retained interests in securitizations and certain AdvantaSeries Class A notes issued in our 2008 securitizations that were purchased by one of our bank subsidiaries and are classified as investments available for

sale. Our investments available for sale included AdvantaSeries Class A notes with a fair value of $116.3 million as of June 30, 2009 and $281.6 million as of December 31, 2008. We had $656.7 million of accounts receivable from securitizations on our balance sheet as of June 30, 2009 and $301.1 million as of December 31, 2008. Accounts receivable from securitizations include amounts due from the securitization trust, accrued interest and fees on securitized receivables and retained interests in securitizations. Our business credit card receivables on the consolidated balance sheet include our undivided interest in the principal receivables in the trust (seller’s interest) of $290 million as of June 30, 2009 and $377 million as of December 31, 2008.

Our recourse or credit risk in off-balance sheet securitized receivables is limited to the amount of our retained interests in securitizations. We have no liquidity arrangements, guarantees and/or other arrangements that could require us to provide financial support to the securitization trust. However, we did voluntarily choose to provide financial support to the trust in April 2009 by buying charged-off receivables that were previously part of the trust portfolio for $7.6 million, which increased the trust’s excess spread. The securitization transactions began early amortization in June 2009, as discussed below, and we do not intend to voluntarily provide financial support to the trust in the future. There are no liquidity arrangements, guarantees and/or other commitments by third parties that would provide financial support to the trust.

Early amortization for our securitization transactions began in June 2009 after the AdvantaSeries three-month average excess spread amount was not maintained at a level greater than $0, which was a trigger for early amortization. The early amortization resulted in the end of the revolving periods prior to the expected dates. In an early amortization, the noteholders are paid as payments on the securitized receivables are received from customers. In order to eliminate the potential negative liquidity impact of early amortization, we closed our customers’ accounts to future use effective May 30, 2009. The early amortization of our securitization transactions and closing our customers’ accounts had a negative impact on the value of our retained interests in securitizations and accrued interest and fees on securitized receivables.

We have historically retained an interest in securitized receivables in the form of subordinated trust assets, cash collateral accounts and retained interest-only strips, each of which served as credit enhancement to the noteholders’ interests in the securitized receivables. The fair values of retained interests in securitizations are dependent upon the performance of the underlying securitized receivables, market-driven interest rates and market credit spreads. Excess spread represents income-related cash flows on securitized receivables (interest, interchange, recoveries and fees) net of noteholders’ interest, servicing fees and credit losses. Due to the closure of customers’ accounts to future use effective May 30, 2009, there will be no future cash flows or income for interchange in future periods. Income-related cash flows on securitized receivables did not exceed the other components of the excess spread in recent months, and we expect the negative excess spread levels to continue. Due to the negative excess spread levels, our par values of cash collateral and subordinated trust assets were reduced by an aggregate of $139 million in the three months ended June 30, 2009 as the balances were used as credit enhancement for securitization noteholders. The cash collateral account had no balance and no fair value as of June 30, 2009. The remaining par value of subordinated trust assets was $8.5 million as of June 30, 2009 and the estimated fair value was $5.5 million. The retained interest-only strip’s fair value was estimated as zero at December 31, 2008 and June 30, 2009. The aggregate reduction in estimated fair value of retained interests in securitizations, including both realized losses and changes in unrealized losses, was $74.1 million for the three months ended June 30, 2009 and $103.8 million for the six months ended June 30, 2009. Securitization loss for the three

and six months ended June 30, 2009 also includes an unfavorable valuation adjustment to accrued interest and fees on securitized receivables of $72.8 million as a result of the early amortization of our securitization transactions and closure of our customers’ accounts to future use. Securitization loss for the three and six months ended June 30, 2009 includes $31.5 million of loss related to interchange cash flows used as credit enhancement. However, this has no net impact on pretax loss since interchange income on the consolidated income statements includes interchange fees on both owned and securitized business credit cards. Securitization income for the six months ended June 30, 2008 included a favorable valuation adjustment to retained interests in securitizations of $4.0 million.

The following disclosures represent the aggregate data for our business credit card securitizations.

Accounts receivable from securitizations consisted of the following:

		June 30,				December 31,
		2009				2008
Amounts due from the securitization trust		$	633,820			$	65,041
Accrued interest and fees on securitized receivables, net (1)			17,436				110,476
Retained interests in securitizations			5,493				125,601
Total accounts receivable from securitizations		$	656,749			$	301,118

Quoted market prices were not available for our retained interests in securitizations for the three and six months ended June 30, 2009 or for the same period of 2008. The following represents securitization data and the key assumptions used in estimating the fair value of retained interests in securitizations at the time of each new securitization or replenishment sale. There were no new securitizations or replenishment sales after May 2009.

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
Average securitized receivables		$	3,852,397			$	5,063,349			$	4,101,319			$	5,206,692
Securitization income (loss)			(179,017	)			4,608				(238,924	)			21,605
Discount accretion			11,195				9,565				23,284				16,550
Interchange income			31,499				57,799				78,682				113,244
Servicing revenues			18,053				24,365				38,900				50,457
Proceeds from new securitizations			0				193,325				125,000				318,025
Proceeds from collections reinvested in revolving- period securitizations			1,042,159				2,581,177				2,867,245				5,133,254
Cash flows received on retained interests (1)			60,914				112,651				112,496				192,586
Key assumptions:
Discount rate			63.67% – 66.60	%			17.20% – 18.70	%			39.33% – 66.60	%			12.21% – 18.70	%
Monthly payment rate			19.17% – 19.96	%			18.79% – 20.46	%			19.17% – 22.20	%			18.79% – 20.46	%
Loss rate			21.32% – 21.96	%			7.85% – 10.12	%			14.54% – 21.96	%			6.20% – 10.12	%
Interest yield, net of interest earned by noteholders			13.62% – 13.87	%			11.36% – 12.29	%			13.62% – 15.06	%			8.79% – 12.29	%

There were no purchases of delinquent accounts from the securitization trust during the three and six months ended June 30, 2009 or 2008.

Managed business credit card receivable data

We service both the receivables owned on our balance sheet and the securitized receivables in the Advanta Business Card Master Trust, collectively referred to as “managed receivables.” Credit quality data on managed business credit card receivables was as follows:

		June 30,				December 31,				June 30,
		2009				2008				2008
Owned business credit card receivables		$	403,215			$	505,578			$	850,925
Securitized business credit card receivables			3,322,078				4,511,650				5,225,773
Total managed receivables		$	3,725,293			$	5,017,228			$	6,076,698
Receivables 30 days or more delinquent (1) :
Owned		$	34,723			$	52,997			$	49,894
Securitized			274,960				425,271				294,432
Total managed			309,683				478,268				344,326
Receivables 90 days or more delinquent (1) :
Owned			9,373				24,132				25,001
Securitized			74,888				188,424				145,715
Total managed			84,261				212,556				170,716
Nonaccrual receivables (1) :
Owned			10,172				9,688				10,670
Securitized			87,951				85,277				68,719
Total managed			98,123				94,965				79,389
Accruing receivables past due 90 days or more (1) :
Owned			8,172				22,166				22,684
Securitized			64,541				170,876				131,977
Total managed			72,713				193,042				154,661
Net principal charge-offs for the year-to-date period ended June 30 and December 31 (1) :
Owned			95,531				89,056				42,125
Securitized			477,896				449,964				190,391
Total managed			573,427				539,020				232,516
Net principal charge-offs for the three months ended June 30 and December 31 (1) :
Owned			68,898				24,092				25,819
Securitized			310,934				135,270				104,638
Total managed			379,832				159,362				130,457

Note 7) Other Assets and Liabilities

Other assets consisted of the following:

		June 30,				December 31,
		2009				2008
Investment in Fleet Credit Card Services, L.P.		$	32,095			$	32,095
Current income taxes receivable			31,837				4,962
Net deferred tax asset			8,064				71,219
Investment in preferred securities trust			3,232				3,093
Securities sold receivable			2,280				33,620
Other			86,096				70,956
Total other assets		$	163,604			$	215,945

At June 30, 2009, we had a $2.3 million receivable in other assets related to September 2008 redemption orders submitted to The Reserve Primary Fund, a money market fund investment. The net asset value of The Reserve Primary Fund declined below $1.00 per share on September 16, 2008, the day following our redemption request. Due to a large number of redemption requests, the fund received an SEC order suspending redemptions and postponing payment for shares that had already been submitted for redemption. The fund made partial distributions to shareholders in 2008 and 2009. We received $37.3 million of our redemption proceeds through June 30, 2009. The timing of the receipt of the remaining $2.3 million of estimated proceeds from the Reserve Primary Fund is uncertain and is subject to the orderly disposition of the fund’s securities and the resolution of pending and threatened claims that may affect the fund’s assets. There is uncertainty as to whether the fund’s loss will be allocated to shareholders that redeemed on September 15, 2008 and there is also uncertainty as to the level of fund assets that will be used to satisfy ongoing costs and expenses, legal fees, and pending or threatened claims against the fund or the fund’s assets. Since our proceeds from the redemption may be less than the redemption price of $1.00 per share, we recorded an estimated loss on the redemption of $1.0 million in 2008. In the six months ended June 30, 2009, we updated our estimate based on additional disclosures by the fund’s management and recorded an additional $860 thousand loss on the redemption.

We had a $14.2 million realized gain in the three months ended June 30, 2008 and $18.8 million realized gain in the six months ended June 30, 2008 on the sale of MasterCard Incorporated shares. In the six months ended June 30, 2008, we had a $13.4 million realized gain on the redemption of Visa Inc. shares. The gain on Visa Inc. shares was related to Visa’s initial public offering and share redemption in March 2008. As of June 30, 2009, we own 497 thousand Visa Inc. Class B common shares that have zero cost basis and no book value. We have no remaining MasterCard Incorporated shares as of June 30, 2009.

Other liabilities consisted of the following:

		June 30,				December 31,
		2009				2008
Accounts payable and accrued expenses		$	47,183			$	31,781
Amounts due to the securitization trust			44,019				5,443
Liability for unrecognized tax benefits			37,552				38,659
Cash back rewards liability			23,096				23,174
Business rewards liability			18,073				30,563
Cash overdraft			3,236				12,284
Liabilities of discontinued operations			1,602				1,635
Current income taxes payable			731				681
Other			46,968				32,367
Total other liabilities		$	222,460			$	176,587

In July 2008, we commenced a reduction of workforce in connection with initiatives to outsource business processes within the areas of information technology, customer service, collections, and accounting and finance. In the first quarter of 2009, we reduced our workforce by approximately 300 employees, or 35%, in order to reduce staffing to a level more commensurate with the portfolio size and scale of business activities that we anticipated at that time for 2009. Both of these reductions were substantially complete by March 31, 2009 and we expect to pay the severance and related costs within twelve months of the severance dates. The severance and related costs were included in salaries and employee benefits expense. The accrued severance and costs related to these initiatives were included in other liabilities on the consolidated balance sheets. A rollforward of the liabilities associated with these workforce reductions and the cumulative costs incurred are as follows:

																		Cumulative
		December 31,				Six Months Ended								June 30,				Costs
		2008				June 30,2009								2009				Incurred
		Accrual				Costs								Accrual				as of June
		Balance				Incurred (1)				Payments				Balance				30, 2009
Outsourcing of business processes		$	418			$	2,271			$	1,947			$	742			$	3,184
First quarter of 2009 reduction in workforce			0				10,012				7,720				2,292				10,012
Total		$	418			$	12,283			$	9,667			$	3,034			$	13,196

In July 2009, we announced plans to further reduce our workforce by approximately 200 employees, or 50%, in order to reduce staffing to a level more commensurate with our current activities. In connection with this reduction of workforce, we expect to incur expenses of approximately $8.5 million to $9.5 million related to severance and related costs. We expect this reduction of workforce to be substantially complete in the third quarter of 2009.

Note 8) Debt and Other Borrowings

The composition of debt was as follows at:

		June 30,				December 31,
		2009				2008
RediReserve variable rate demand certificates (4.60%-4.65%)		$	7,774			$	10,769
91 day retail notes, fixed (7.23%)			2,846				1,862
6 month retail notes, fixed (6.30%-7.70%)			4,212				4,479
12 month retail notes, fixed (5.83%-8.16%)			29,291				40,117
14 month retail notes, fixed (10.44%)			1,364				0
18 month retail notes, fixed (5.40%-8.39%)			5,279				6,620
24 month retail notes, fixed (5.45%-9.53%)			20,552				19,000
30 month retail notes, fixed (5.50%-8.85%)			4,097				4,929
36 month retail notes, fixed (5.59%-9.08%)			9,598				11,257
48 month retail notes, fixed (5.12%-9.35%)			6,436				8,558
60 month retail notes, fixed (5.59%-9.53%)			46,105				63,902
84 month retail notes, fixed (6.30%-9.99%)			4,604				6,167
120 month retail notes, fixed (6.77%-10.44%)			25,721				27,075
Other retail notes, fixed (5.12%-9.53%)			1,061				1,863
Total debt		$	168,940			$	206,598