You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and related notes appearing elsewhere in this report. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions, such as those set forth in the "Cautionary Statement Pursuant to the Private Securities Litigation Reform Act of 1995," which can be found at the end of this Item, in "Item 1A. Risk Factors in Part II of this report and in "Item 1A. Risk Factors" found in Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2008. Our actual results and the timing of events may differ materially from those anticipated in these forward-looking statements.
"Advanta", "we", "us" and "our" refer to Advanta Corp. and its subsidiaries, unless the context otherwise requires.
OVERVIEW
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 the 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.
The following table summarizes our financial results for each of the reporting periods.

                                          Three Months Ended             Six Months Ended
($ in thousands, except per                    June 30,                      June 30,
share data)                               2009           2008           2009           2008
Pretax income (loss)                   $  (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
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

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.
As part of the additional strategies discussed above, we have developed prudent tax planning strategies that we believe should permit the recovery of our deferred tax assets. However, we concluded that a valuation allowance was required as of June 30, 2009, as there was some level of uncertainty regarding the implementation of the additional strategies. Our income tax expense for the three and six months ended June 30, 2009 includes $167.7 million of expense related to the establishment of the valuation allowance.
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 to the consolidated financial statements.
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.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES
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. We have identified accounting for allowance for receivable losses, securitization income, rewards programs and income taxes 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. 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 position or results of operations. These accounting policies and estimates are described in our Annual Report on Form 10-K for the year ended December 31, 2008.

RESULTS OF OPERATIONS
The components of pretax (loss) income are as follows:

                                       Three Months Ended            Six Months Ended
                                            June 30,                     June 30,
    ($ in thousands)                   2009          2008           2009           2008
    Net interest income             $    5,270     $  25,232     $    8,666     $   43,135
    Noninterest revenues (losses)     (138,104 )      94,323       (142,117 )      203,980
    Provision for credit losses        (35,335 )     (30,327 )      (76,612 )      (58,709 )
    Operating expenses                 (83,344 )     (81,752 )     (158,223 )     (151,240 )

    Pretax income (loss)            $ (251,513 )   $   7,476     $ (368,286 )   $   37,166

The decreases in net interest income for the three and six months ended June 30, 2009 as compared to the same periods of 2008 were due primarily to decreases in average owned receivables, decreases in the average yields earned on receivables and investments, and increases in average deposits outstanding. These impacts were partially offset by increases in average investment balances and decreases in the average cost of funds on interest-bearing liabilities.
Noninterest revenues (losses) include securitization income (loss), servicing revenues, interchange income, investment gains or losses and other revenues, and are reduced by rewards costs. Noninterest revenues for the three and six months ended June 30, 2009 decreased as compared to the same periods of 2008 due primarily to securitization losses resulting from increasing delinquencies and charge-offs on securitized receivables, the early amortization of our securitization transactions and the closure of our customers' accounts to future use effective May 30, 2009. We also had lower interchange income, fee revenues, servicing revenues and lower rewards costs for the three and six months ended June 30, 2009 as compared to the same periods of 2008. Noninterest revenues in the three and six months ended June 30, 2009 include an $8.6 million gain on extinguishment of debt and $6.6 million of other-than-temporary losses recognized on certain of our investment securities. Noninterest revenues in 2008 include investment gains on sales of MasterCard Incorporated shares of $14.2 million for the three months ended June 30, 2008 and $18.8 million for the six months ended June 30, 2008, and a $13.4 million gain on the redemption of Visa Inc. shares for the six months ended June 30, 2008.
The increases in provision for credit losses for the three and six months ended June 30, 2009 as compared to the same periods of 2008 were due primarily to increases in delinquency and net principal charge-off rate trends, partially offset by a decrease in average owned business credit card receivables. See "Provision

and Allowance for Receivable Losses" section of Management's Discussion and Analysis of Financial Condition and Results of Operations for more detailed discussion and a table of credit quality data.
Operating expenses for the three months ended June 30, 2009 include a $19 million estimate of pricing strategies restitution associated with Advanta Bank Corp.'s regulatory agreement with the FDIC, and $5.3 million of asset impairment charges resulting from the closure of our customers' accounts to future use effective May 30, 2009 and the cessation of our business credit card marketing activities. In addition, operating expenses for the six months ended June 30, 2009 included $12.3 million of severance and related costs associated with workforce reductions. Operating expenses for the six months ended June 30, 2008 include the benefit of a $5.5 million decrease in Visa indemnification reserves. See "Contingencies" section of Management's Discussion and Analysis of Financial Condition and Results of Operations for further discussion. The following table provides key statistical information on our business credit card receivables. Credit quality statistics for the business credit card receivables are included in the "Provision and Allowance for Receivable Losses" section of Management's Discussion and Analysis of Financial Condition and Results of Operations.

                                             Three Months Ended                 Six Months Ended
                                                  June 30,                          June 30,
($ in thousands)                           2009             2008             2009             2008
Average owned receivables               $   705,710      $ 1,164,748      $   618,798      $ 1,081,939
Average securitized receivables         $ 3,852,397      $ 5,063,349      $ 4,101,319      $ 5,206,692
Customer transaction volume:
Merchandise sales                       $ 1,586,985      $ 3,055,484      $ 3,847,796      $ 5,894,978
Balance transfers                            43,392          121,752          108,647          360,089
Cash usage                                  200,152          294,475          409,741          654,757

Total customer transaction volume       $ 1,830,529      $ 3,471,711      $ 4,366,184      $ 6,909,824
New account originations                        548           26,269            4,509           93,363
Average number of active accounts(1)        686,007          939,700          730,515          947,042
Ending number of accounts at June 30        535,281        1,305,288          535,281        1,305,288

(1) Active accounts are defined as accounts with a balance at month-end. Active account statistics do not include charged-off accounts. The statistics reported above are the average number of active accounts for the three and six months ended June 30.

The decreases in average owned and securitized receivables, transaction volume, new account originations, average active accounts and the ending number of accounts in 2009 as compared to the same periods of 2008 are the result of the closure of our customers' accounts to future use effective May 30, 2009. In addition, prior to the closure of our customers' accounts in May 2009, we had reduced mail volume in direct mail account acquisition campaigns and tightened underwriting criteria, reduced credit line assignments to amounts near outstanding balances where appropriate, and closed inactive accounts, each in response to economic conditions.

INTEREST INCOME AND EXPENSE

                                 Three Months Ended           Six Months Ended
                                      June 30,                    June 30,
            ($ in thousands)      2009          2008         2009         2008
            Interest income    $   33,586     $ 55,269     $ 67,794     $ 101,316
            Interest expense       28,316       30,037       59,128        58,181

The decreases in interest income for the three and six months ended June 30, 2009 as compared to the same periods of 2008 were due primarily to decreases in average business credit card receivables, decreases in the average yields earned on business credit card receivables due primarily to increases in interest charge-off and delinquency rates that resulted in increased provisions for interest losses and reduced interest yields, and decreases in the average yields earned on investments due to the interest rate environment.
The decrease in interest expense for the three months ended June 30, 2009 as compared to the same period of 2008 was due primarily to a decrease in average debt balances and a decrease in the average cost of funds on deposits resulting from the interest rate environment, partially offset by an increase in our average deposits outstanding. The increase in interest expense for the six months ended June 30, 2009 as compared to the same period of 2008 was due primarily to an increase in our average deposits outstanding, partially offset by a decrease in the average cost of funds on deposits resulting from the interest rate environment and a decrease in average debt balances. We increased our level of deposit funding throughout 2008 to generate additional liquidity in response to continued turmoil in the economy and capital markets. Average deposits increased $433 million for the three months ended June 30, 2009 and $561 million for the six months ended June 30, 2009 as compared to the same periods of 2008.
The following tables provide an analysis of interest income and expense data, average balance sheet data, net interest spread and net interest margin. 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 net interest earnings divided by total interest-earning assets. Interest income includes late fees on business credit card receivables.

INTEREST RATE ANALYSIS AND AVERAGE BALANCES

                                                                Three Months Ended June 30,
                                                     2009                                          2008
                                     Average                       Average         Average                       Average
($ in thousands)                     Balance        Interest         Rate          Balance        Interest         Rate

Interest-earning assets:
Owned receivables:
Business credit cards(1)           $   705,710      $  18,872         10.73 %    $ 1,164,748      $  37,662         13.01 %
Other receivables                        7,910             74          3.76            7,739             88          4.55

Total receivables                      713,620         18,946         10.65        1,172,487         37,750         12.95
Investments(2)                       1,997,662          3,445          0.68        1,361,904          7,956          2.31
Retained interests in
securitizations                         68,142         11,195         65.72          217,629          9,565         17.58

Total interest-earning
assets(3)                            2,779,424      $  33,586          4.84 %      2,752,020      $  55,271          8.05 %
Noninterest-earning assets             541,558                                       463,773

Total assets                       $ 3,320,982                                   $ 3,215,793


Interest-bearing liabilities:
Deposits                           $ 2,491,526      $  23,522          3.79 %    $ 2,058,064      $  23,600          4.61 %
Debt                                   177,802          2,511          5.66          220,235          3,482          6.36
Subordinated debt payable to
preferred securities trust             101,550          2,282          8.99          103,093          2,317          8.99
Other borrowings                         1,018              1          0.51           26,543            638          9.51

Total interest-bearing
liabilities                          2,771,896      $  28,316          4.10 %      2,407,935      $  30,037          5.01 %
Noninterest-bearing liabilities        227,911                                       208,683

Total liabilities                    2,999,807                                     2,616,618

Stockholders' equity                   321,175                                       599,175


Total liabilities and
stockholders' equity               $ 3,320,982                                   $ 3,215,793


Net interest spread                                                    0.74 %                                        3.04 %
Net interest margin                                                    0.76 %                                        3.69 %

(1) Interest income includes late fees for owned business credit card receivables of $1.3 million for the three months ended June 30, 2009 and $2.1 million for the same period of 2008.

(2) Includes federal funds sold, interest-bearing deposits and investments available for sale. Interest and average rate for tax-free securities are computed on a tax equivalent basis using a statutory rate of 35%.

(3) Includes assets held and available for sale and nonaccrual receivables.

                                                                Six Months Ended June 30,
                                                    2009                                          2008
                                    Average                       Average         Average                       Average
($ in thousands)                    Balance        Interest         Rate          Balance        Interest         Rate

Interest-earning assets:
Owned receivables:
Business credit cards(1)          $   618,798      $  34,795         11.34 %    $ 1,081,939      $  66,693         12.40 %
Other receivables                       8,180            165          4.06            7,535            187          4.98

Total receivables                     626,978         34,960         11.24        1,089,474         66,880         12.34
Investments(2)                      2,159,091          9,550          0.88        1,283,034         17,890          2.76
Retained interests in
securitizations                        94,931         23,284         49.06          219,315         16,550         15.09

Total interest-earning
assets(3)                           2,881,000      $  67,794          4.72 %      2,591,823      $ 101,320          7.83 %
Noninterest-earning assets            534,716                                       483,092

Total assets                      $ 3,415,716                                   $ 3,074,915


Interest-bearing liabilities:
Deposits                          $ 2,476,066      $  49,049          3.99 %    $ 1,914,739      $  45,519          4.78 %
Debt                                  185,452          4,926          5.36          217,955          6,923          6.39
Subordinated debt payable to
preferred securities trust            102,317          4,599          8.99          103,093          4,634          8.99
Other borrowings                       31,611            554          3.49           25,881          1,105          8.45

Total interest-bearing
liabilities                         2,795,446      $  59,128          4.26 %      2,261,668      $  58,181          5.17 %
Noninterest-bearing
liabilities                           226,832                                       218,033

Total liabilities                   3,022,278                                     2,479,701

Stockholders' equity                  393,438                                       595,214


Total liabilities and
stockholders' equity              $ 3,415,716                                   $ 3,074,915


Net interest spread                                                   0.46 %                                        2.66 %
Net interest margin                                                   0.61 %                                        3.35 %

(1) Interest income includes late fees for owned business credit card receivables of $2.3 million for the six months ended June 30, 2009 and $3.9 million for the same period of 2008.

(2) Interest and average rate for tax-free securities are computed on a tax equivalent basis using a statutory rate of 35%.

(3) Includes assets held and available for sale and nonaccrual receivables.

PROVISION AND ALLOWANCE FOR RECEIVABLE LOSSES

                                            Three Months Ended          Six Months Ended
                                                 June 30,                   June 30,
  ($ in thousands)                           2009          2008         2009         2008
  Provision for credit losses             $   35,335     $ 30,327     $ 76,612     $ 58,709
  Provision for interest and fee losses       12,505        6,057       20,270       10,418

The increases in the provision for credit losses and the provision for interest and fee losses for the three and six months ended June 30, 2009 as compared to the same periods of 2008 were due primarily to increases in delinquency and net principal charge-off rate trends, partially offset by a decrease in average owned business credit card receivables of $459 million for the three months ended June 30, 2009 and $463 million for the six months ended June 30, 2009, each as compared to the same period of 2008. The deterioration in credit performance has been broad-based across industries, geographic regions and origination vintages in our receivable portfolio. The increasing delinquency and charge-off rates for the three and six months ended June 30, 2009 as compared to the same periods of 2008 reflected deterioration in the U.S. economy. Additional deterioration in the U.S. economy could cause these trends to worsen. In addition, our credit losses could increase if certain customers become unwilling to continue to make payments as a result of the closure of our customers' accounts to future use effective May 30, 2009.
The allowance for receivable losses on business credit card receivables was . . .