ADVANTA CORP, 10-Q, 1997-08-14

ADVANTA CORP
10-Q, 1997-08-14
PERSONAL CREDIT INSTITUTIONS

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<PAGE> 1
Form 10Q

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

[X] Quarterly report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 30, 1997 or
-------------

[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to
------ -------
Commission File Number 0-14120

Advanta Corp.
------------------------------------------------------
(Exact name of registrant as specified in its charter)

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

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

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

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

Yes X No
----- -----

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

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

Yes No
----- -----

* Applicable only to corporate issuers:

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

Class A Outstanding at July 31, 1997
- ---------------------------- ----------------------------
Common Stock, $.01 par value 18,176,112 shares
Class B Outstanding at July 31, 1997
- ---------------------------- ----------------------------
Common Stock, $.01 par value 25,919,906 shares

1
<PAGE> 2
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Part I - Financial Information

Item 1. Financial Statements

Consolidated Condensed Balance Sheets . . . . . . . . . . . . . . . . . . . 3
Consolidated Condensed Income Statements . . . . . . . . . . . . . . . . . 4
Consolidated Condensed Statements of
Changes in Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . 6
Notes to Consolidated Condensed Financial
Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Part II - Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

</TABLE>

2
<PAGE> 3
ADVANTA CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands)

<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------------ ------------------
ASSETS (Unaudited)
- -------
<S> <C> <C>
Cash $ 190,318 $ 165,875
Federal funds sold and interest-bearing
deposits with banks 1,467,729 885,709
Investments available for sale 1,342,659 785,600
Loan and lease receivables, net:
Available for sale 1,105,412 1,476,146
Other loan and lease receivables, net 1,232,802 1,136,857
---------- ----------
Total loan and lease receivables, net 2,338,214 2,613,003
Premises and equipment, net 134,865 108,130
Amounts due from credit card
securitizations 376,295 399,359
Other assets 722,169 626,283
---------- ----------

Total assets $6,572,249 $5,583,959
========== ==========

LIABILITIES
- -----------
Deposits $2,782,054 $1,860,058
Debt and other borrowings 2,570,910 2,462,084
Other liabilities 280,959 309,781
---------- ----------

Total liabilities 5,633,923 4,631,923
---------- ----------

Company-obligated mandatorily redeemable
preferred securities of subsidiary trust
holding solely subordinated debentures
of the Company 100,000 100,000

STOCKHOLDERS' EQUITY
- --------------------
Class A preferred stock, $1,000 par
value: authorized, issued and
outstanding -- 1,010 shares in 1997
and 1996 1,010 1,010
Class B preferred stock, $.01 par
value: authorized -- 1,000,000 shares
in 1997 and 1996; issued -- 25,000
shares in 1997 and 1996 0 0
Class A common stock, $.01 par value:
authorized -- 200,000,000 shares;
issued -- 18,176,112 shares in 1997,
and 17,945,471 shares in 1996 182 179
Class B common stock, $.01 par value:
authorized -- 200,000,000 shares;
issued -- 26,187,682 shares in 1997,
and 25,592,764 in 1996 262 256
Additional paid-in capital, net 335,230 309,250
Retained earnings, net 512,323 541,383
Less: Treasury stock at cost,
295,475 Class B common shares in 1997,
1,231 Class B common shares in 1996 (10,681) (42)
---------- ----------
Total stockholders' equity 838,326 852,036
---------- ----------

Total liabilities and stockholders'
equity $6,572,249 $5,583,959
========== ==========
</TABLE>

See Notes to Consolidated Condensed Financial Statements

3
<PAGE> 4
ADVANTA CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED INCOME STATEMENTS
(In thousands, except per share data)

<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- -------------------------------
1997 1996 1997 1996
--------- -------- ----------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Interest income:
Loans and leases $ 63,561 $ 66,893 $129,583 $125,395
Investments 37,769 16,554 68,821 30,698
-------- -------- --------- --------
Total interest income 101,330 83,447 198,404 156,093

Interest expense:
Deposits 34,099 28,087 61,195 55,833
Other debt 45,698 39,245 90,064 67,434
-------- -------- --------- --------
Total interest expense 79,797 67,332 151,259 123,267

Net interest income 21,533 16,115 47,145 32,826

Provision for credit losses 50,279 27,651 110,643 42,733
-------- -------- --------- --------

Net interest income after
provision for credit losses (28,746) (11,536) (63,498) (9,907)

Noninterest revenues:
Gain on sale of credit
cards 0 33,820 0 33,820
Other noninterest revenues 194,613 173,513 351,467 344,542
-------- -------- --------- -------
Total noninterest revenues 194,613 207,333 351,467 378,362

Operating expenses:
Amortization of credit card
deferred origination
costs, net 15,458 24,487 33,521 44,980
Other operating expenses 143,106 102,958 273,854 192,960
-------- -------- --------- --------
Total operating expenses 158,564 127,445 307,375 237,940

Income (loss) before income
taxes 7,303 68,352 (19,406) 130,515

Provision (benefit) for
income taxes 1,884 23,232 (5,007) 44,365
-------- -------- --------- --------

Net income (loss) $ 5,419 $ 45,120 $(14,399) $ 86,150
======== ======== ========= ========

Earnings (loss) per common
share $ .12 $ 1.00 $ (.32) $ 1.91
======== ======== ========= ========

Weighted average common
shares outstanding 45,708 45,239 46,035 45,076
======== ======== ========= ========

Cash dividends declared:
Class A $ .110 $ .090 $ .220 $ .180
Class B $ .132 $ .108 $ .264 $ .216
</TABLE>

See Notes to Consolidated Condensed Financial Statements

4
<PAGE> 5
Consolidated Condensed Statements of Changes in Stockholders' Equity

($ in thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Class A Class B Class A Class B
Preferred Preferred Common Common
Stock Stock Stock Stock
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at Dec. 31,1995 $1,010 $0 $175 $240
Change in unrealized
appreciation of
investments
Preferred and common
cash dividends declared
Exercise of stock options 4 7
Issuance of stock:
Benefit plans 9
Amortization of deferred
compensation
Termination/tax benefit -
benefit plans
Foreign currency
translation adjustment
Net Income
- -------------------------------------------------------------------------------------------------------------------
Balance at Dec. 31, 1996 1,010 0 179 256
Change in unrealized
appreciation of
investments
Preferred and common
cash dividends declared
Exercise of stock options 3 5
Issuance of stock:
Benefit plans 1
Dividend reinvestment
plan
Amortization of deferred
compensation
Termination/tax benefit-
benefit plans
Foreign currency
translation adjustment
Net Income (loss)
- -------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1997 $1,010 $0 $182 $262
====================================================================================================================

<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Additional Retained
Paid-In Earnings, Treasury Total Stockholders'
Capital net Stock Equity
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at Dec. 31,1995 $280,294 $391,245 $ 0 $672,964
Change in unrealized
appreciation of
investments (338) (338)
Preferred and common
cash dividends declared (24,588) (24,588)
Exercise of stock options 7,503 7,514
Issuance of stock:
Benefit plans 2,185 2,228 4,422
Amortization of deferred
compensation 11,960 11,960
Termination/tax benefit -
benefit plans 7,308 (2,270) 5,038
Foreign currency
translation adjustment (593) (593)
Net Income 175,657 175,657
- -------------------------------------------------------------------------------------------------------------------
Balance at Dec. 31, 1996 309,250 541,383 (42) 852,036
Change in unrealized
appreciation of
investments (760) (760)
Preferred and common
cash dividends declared (14,209) (14,209)
Exercise of stock options 6,228 6,236
Issuance of stock:
Benefit plans 1,629 1,297 2,927
Dividend reinvestment
plan 653 653
Amortization of deferred
compensation 5,534 5,534
Termination/tax benefit-
benefit plans 11,936 (11,936) -
Foreign currency
translation adjustment 308 308
Net Income (loss) (14,399) (14,399)
- -------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1997 $335,230 $512,323 $(10,681) $838,326
===================================================================================================================
</TABLE>

See Notes to Consolidated Condensed Financial Statements

5
<PAGE> 6

ADVANTA CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)

<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------------------
1997 1996
-----------------------------------
OPERATING ACTIVITIES (Unaudited)
- --------------------
<S> <C> <C>
Net income (loss) $ (14,399) $ 86,150
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Sales/valuation adjustments-equity securities (5,489) (3,450)
Depreciation and amortization of intangibles 16,408 7,603
Provision for credit losses 110,643 42,733
Change in other assets and amounts due from
credit card securitizations 51,497 (310,962)
Change in other liabilities (28,443) 96,984
Gain on securitization of receivables (46,379) (44,621)
---------- ---------
Net cash provided/(used) by operating activities 83,838 (125,563)
INVESTING ACTIVITIES
- --------------------
Purchase of investments available for sale (23,679,151) (9,387,736)
Proceeds from sales of investments available for
sale 378,383 762,985
Proceeds from maturing investments available
for sale 22,749,373 8,083,623
Change in fed funds sold and interest-bearing
deposits (614,245) 92,236
Change in credit card receivables, excluding sales 432,116 (3,299,239)
Proceeds from sales/securitizations of receivables 1,691,688 3,874,731
Purchase of personal finance loan/lease portfolios (123,724) (28,661)
Principal collected on personal finance loans 46,966 18,191
Personal finance loans made to customers (1,554,627) (530,318)
Purchases of premises and equipment (43,153) (27,667)
Proceeds from sale of premises and equipment 181 109
Excess of cash collections over income
recognized on direct financing leases 13,593 34,986
Equipment purchased for direct financing leases (163,384) (174,303)
Change in business card receivables,excluding sales (218,485) (89,843)
Net change in other loans (33,580) (2,463)
---------- ---------
Net cash used by investing activities (1,118,049) (673,369)
FINANCING ACTIVITIES
- --------------------
Change in demand and savings deposits 102,040 110,203
Proceeds from sales of time deposits 1,340,410 714,747
Payments for maturing time deposits (520,454) (620,844)
Change in repurchase agreements and term fed funds (10,000) (333,000)
Proceeds from issuance of subordinated/senior debt 8,169 17,344
Payments on redemption of subordinated/senior debt (44,256) (18,396)
Proceeds from issuance of medium-term notes 285,500 209,511
Payments on maturity of medium-term notes (80,000) (52,500)
Change in notes payable (18,361) 855,861
Proceeds from issuance of stock 9,815 4,663
Cash dividends paid (14,209) (11,801)
---------- ---------
Net cash provided by financing activities 1,058,654 875,788
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase in cash 24,443 76,856
Cash at beginning of period 165,875 45,714
Cash at end of period $ 190,318 $ 122,570
</TABLE>

See Notes to Consolidated Condensed Financial Statements

6
<PAGE> 7

ADVANTA CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars in thousands)

June 30, 1997

1) In the opinion of management, the accompanying unaudited and audited
consolidated condensed financial statements contain all adjustments
necessary to present fairly the financial position of Advanta Corp. and
subsidiaries as of June 30, 1997 and December 31, 1996, the results of
their operations for the three and six month periods ended June 30, 1997
and 1996, and their cash flows for the six month periods ended June 30,
1997 and 1996. The results of operations for the six month period ended
June 30, 1997 are not necessarily indicative of the results to be
expected for the full year. Certain prior period amounts have been
reclassified to conform with current year classifications.

2) The preparation of financial statements in accordance with generally
accepted accounting principles 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 period. Actual results could differ from those
estimates.

3) Investments available for sale include securities that the Company sells
from time to time to provide liquidity and in response to changes in the
market. Debt and equity securities classified as Available for Sale are
reported at market value under Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS 115"). Under SFAS 115, unrealized gains and losses on
these securities (except those held by the Company's venture capital
unit, Advanta Partners LP) are reported as a separate component of
stockholders' equity and included in retained earnings.

Changes in the fair value of Advanta Partners LP investments are reported
in noninterest revenues as equity securities gains or losses. The fair
value of publicly traded investments takes into account their quoted
market prices with adjustments made for liquidity or sale restrictions.
For investments that are not publicly traded, estimates of fair value
have been made by management that consider several factors including the
investees' financial results, conditions and prospects, and the values of
comparable public companies. Because of the nature of these investments,
the equity method of accounting is not used in situations where the
Company has a greater than 20 percent ownership interest.

4) Loan and lease receivables available for sale represent receivables
currently on the balance sheet that the Company generally intends to sell
or securitize within the next six months. These receivables are reported
at the lower of aggregate cost or fair market value.

7
<PAGE> 8
5) Loan and lease receivables on the balance sheet, including those
available for sale, consisted of the following:

<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
--------- ------------
<S> <C> <C>
Credit cards $1,473,207 $2,045,219
Personal finance loans 567,354 376,260
Business loans and leases 315,490 214,327
Other loans 54,412 20,835
--------- ----------
Gross loans and lease receivables 2,410,463 2,656,641

Add: Deferred origination costs,
net of deferred fees 44,618 45,546
Less: Reserve for credit losses:
Credit cards (102,084) (76,084)
Personal finance loans (5,118) (8,785)
Business loans and leases (9,433) (4,241)
Other (232) (74)
---------- -----------
Total (116,867) (89,184)
---------- -----------
Net loans and lease receivables $2,338,214 $2,613,003
========== ===========
</TABLE>

Receivables and accounts serviced for others consisted of the following:

<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- -----------
<S> <C> <C>
Receivables:
Credit cards $ 9,712,707 $10,646,177
Personal finance loans* 3,366,648 2,377,430
Business loans and leases 774,102 608,945
----------- -----------
Total $13,853,457 $13,632,552
=========== ===========

Number of Accounts:
Credit cards 5,314,251 5,185,624
Personal finance loans* 62,745 41,103
Business loans and leases 171,058 141,673
----------- -----------
Total 5,548,054 5,368,400
=========== ===========
</TABLE>

* Excludes personal finance loans which were never owned by the Company,
but which the Company services for a fee ("contract servicing").
Contract servicing receivables were $7.5 billion and $3.7 billion at June
30, 1997 and December 31, 1996, respectively. The related number of
accounts serviced at June 30, 1997 and December 31, 1996 were 110,022 and
59,681, respectively.

6) The Company accounts for credit card origination costs under Statement of
Financial Accounting Standards No. 91, "Accounting for Nonrefundable Fees
and Costs Associated with Originating or Acquiring Loans and Initial
Direct Costs of Leases" ("SFAS 91"). This accounting standard requires
certain loan and lease origination fees and costs to be deferred and
amortized over the life of a loan or lease. Origination costs are defined
under this standard to include costs of loan origination associated with
transactions with independent third parties and certain costs relating to
underwriting activities and preparing and processing loan documents. The
Company engages third parties to solicit and originate credit card
account relationships. Amounts deferred under these arrangements
approximated $28.2 million for the first six months of 1997, compared to
$44.8 million for the same period of 1996.

8
<PAGE> 9
The Company amortizes deferred credit card origination costs following
the consensus reached at the May 20, 1993 meeting of the Emerging Issues
Task Force ("EITF") of the Financial Accounting Standards Board ("FASB")
regarding the acquisition of individual credit card accounts from
independent third parties (EITF Issue 93-1). Under this consensus amounts
paid to third parties are deferred and amortized on a straight-line basis
over one year. Costs incurred for originations which were initiated
prior to May 20, 1993 continue to be amortized over a 60 month period as
was the practice prior to the EITF Issue 93-1 consensus.

The Company adopted SFAS No. 125 "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities" ("SFAS 125")
effective January 1, 1997. Under SFAS 125, a transfer of financial
assets in which the transferor surrenders control over those assets is
accounted for as a sale to the extent that consideration other than
beneficial interests in the transferred assets is received in exchange.
SFAS 125 requires that liabilities and derivatives incurred or obtained
by transferors as part of a transfer of financial assets be initially
measured at fair value, if practicable. It also requires that servicing
assets and other retained interests in the transferred assets be measured
by allocating the previous carrying amount between the assets sold, if
any, and retained interests, if any, based on their relative fair values
at the date of the transfer. The adoption of SFAS 125 did not have a
material effect on the Company's financial statements.

Under SFAS 125, the Company records a gain on the securitization of
credit card receivables sold based on the estimated fair value of assets
obtained and liabilities incurred in the sale. The gain recognized at
the time of the sale, which principally represents the estimated fair
value of the retained interest-only strip, is substantially offset by the
estimated fair value of the Company's recourse obligation for anticipated
charge-offs. As these estimates are influenced by factors outside the
Company's control, there is uncertainty inherent in these estimates,
making it reasonably possible that they could change in the near term.
During the "revolving period" of each trust, securitization income is
recorded representing gains on the sale of new receivables which are sold
to the trusts on a continuous basis to replenish the investors' interest
in trust receivables which have been repaid by the credit cardholders.

Prior to January 1, 1997 the Company recorded excess servicing income on
credit card securitizations representing additional cash flow from the
receivables initially sold based on estimates of the repayment term,
including prepayments. As the estimates used to record excess servicing
income were influenced by factors outside the Company's control, there
was uncertainty inherent in these estimates, making it reasonably
possible that they could change in the near term. Excess servicing income
recorded at the time of each transaction was substantially offset by the
establishment of recourse reserves for anticipated charge-offs. During
the "revolving period" of each trust, income was recorded based on
additional cash flows from the new receivables which were sold to the
trusts on a continual basis to replenish the investors' interest in trust
receivables which had been repaid by the credit cardholders. Beginning in
the third quarter of 1996 credit card securitization activities were
affected by the adoption in that

9
<PAGE> 10
quarter of a new charge-off methodology relating to bankruptcies (see
Asset Quality), the upward repricing of interest rates and fees,
increases in charge-offs and the related impact on reserves.

7) The following table shows the changes in the reserve for credit losses
for the periods presented:

<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, December 31,
1997 1996
------------------- ---------------
<S> <C> <C>
Balance, beginning of period $ 89,184 $53,494

Current provision 110,643 96,862

Transfer of recourse
reserves to on-balance
sheet reserves 0 3,000

Reserves on receivables
purchased, net (6,517) 6,404

Net charge-offs (76,443) (70,576)
-------- -------
Balance, end of period $116,867 $89,184
======== =======
</TABLE>

8) At June 30, 1997 and December 31, 1996, the Company had $376.3 million
and $399.4 million, respectively, of amounts due from credit card
securitizations. These amounts include the income on the retained
interest-only strip, accrued interest receivable and other amounts
related to these securitizations and are net of recourse reserves
established. A portion of these amounts is subject to liens held by the
providers of credit enhancement facilities for the respective
securitizations.

9) Selected Balance Sheet Information

OTHER ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---------------- -----------------
<S> <C> <C>
Retained interest only strip -
personal finance loans $172,064 $149,418
Accrued interest receivable 115,554 101,021
Prepaid assets 114,133 117,934
Investment in affordable housing 66,855 48,059
Deferred costs 47,465 42,252
Escrow and investor advances -
mortgage 41,736 20,205
Due from trustees - mortgage 20,050 14,298
Investments in operating leases 14,714 17,276
Retained interest only strip -
business loans and leases 4,178 14,205
Due from trustees - business
loans and leases 4,021 5,326
Current and deferred federal
income taxes 22,604 28,169
Goodwill 5,314 5,795
Other real estate owned 43 2,513
Other 93,438 59,812
-------- --------
Total other assets $722,169 $626,283
======== ========
</TABLE>

10
<PAGE> 11
OTHER LIABILITIES
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---------------- -------------------
<S> <C> <C>
Accounts payable and accrued
expenses $ 85,032 $ 59,432
Accrued interest payable 71,861 55,320
Deferred fees and other reserves 19,446 86,877
Current and deferred state income
taxes 6,290 10,300
Other 98,330 97,852
-------- --------
Total other liabilities $280,959 $309,781
======== ========
</TABLE>

10) Income tax expense (benefit) reflects an effective tax rate of approximately
25.8%, for both the three and six month periods ended June 30, 1997, compared to
a 34.0% tax expense for both of the comparable 1996 periods. The Company
accounts for income taxes under the Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" ("SFAS 109").

Income tax expense consisted of the following components:

<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ ----------------------------
1997 1996 1997 1996
------------ ------------- ------------ -----------
<S> <C> <C> <C> <C>
Current:
Federal $22,460 $27,446 $15,811 $28,417
State 235 1,189 (339) 4,266
------ ------- ------- -------
Total current 22,695 28,635 15,472 32,683

Deferred:
Federal (20,144) (5,672) (19,857) 12,039
State (667) 269 (622) (357)
------- ------- ------- --------
Total deferred (20,811) (5,403) (20,479) 11,682

Total tax expense
(benefit) $ 1,884 $23,232 $(5,007) $44,365
======= ======= ======== =======
</TABLE>

The reconciliation of the statutory federal income tax to the consolidated tax
expense (benefit) is as follows:

<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- -------------------------------
1997 1996 1997 1996
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Statutory federal
income tax $2,515 $23,914 $(6,841) $45,671
State income taxes 280 948 (625) 2,541
Insurance income (1,539) (1,308) (2,981) (3,021)
Tax credits (1,394) (359) (2,729) (583)
APB 28 adjustment 2,322 0 7,577 0
Other (300) 37 592 (243)
------ ------- ------- -------

Consolidated tax
expense (benefit) $1,884 $23,232 $(5,007) $44,365
====== ======= ======= =======
</TABLE>

11
<PAGE> 12
The net deferred tax asset/(liability) is comprised of the following:

<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
--------- ------------
<S> <C> <C>
Deferred taxes:

Gross assets $90,168 $112,861

Gross liabilities (67,564) (83,226)
------- --------

Total deferred taxes $22,604 $ 29,635
======= ========
</TABLE>

The Company did not record any valuation allowances against deferred tax
assets at June 30, 1997 and December 31, 1996.

The tax effect of significant temporary differences representing deferred
tax assets and liabilities is as follows:

<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ -------------
<S> <C> <C>
SFAS 91 $(15,957) $(17,870)
Loan losses 39,199 26,851
Income from personal finance activities 20,173 6,623
Securitization income (23,249) (35,415)
Business loan and lease income (4,491) 56,447
Other 6,929 (7,001)
-------- --------
Net deferred tax assets $ 22,604 $ 29,635
======== ========
</TABLE>

11) The Company has adopted several management incentive plans designed to
provide incentives to participating employees to remain in the employ of
the Company and devote themselves to its success. Under these plans,
certain eligible employees were required and others were given the
opportunity to elect to take portions of their anticipated or "target"
bonus payments for future years in the form of restricted shares of
common stock. The restricted shares are subject to forfeiture should the
employee terminate employment with the Company prior to vesting. The
shares become unrestricted over time if certain performance criteria are
met. At June 30, 1997, a total of 1,261,385 shares issued under these
plans were subject to restrictions and were included in the number of
shares outstanding. These shares are considered common stock equivalents
in the calculation of earnings per common share.

Deferred compensation of $27.4 million and $41.2 million related to these
shares of restricted stock is reflected as a reduction of equity at June
30, 1997 and December 31, 1996, respectively.

12) In December 1996, Advanta Capital Trust I, a newly formed statutory
business trust established by and wholly-owned by the Company (the
"Trust"), issued in a private offering $100 million of capital
securities, representing preferred beneficial interests in the assets of
the Trust (the "Capital Securities"). The

12
<PAGE> 13
Company used the proceeds from the sale for general corporate purposes.
The sole assets of the Trust consist of $100 million of 8.99% junior
subordinated debentures issued by the Company due December 17, 2026 (the
"Junior Subordinated Debentures"). The Capital Securities will be subject
to mandatory redemption under certain circumstances, including at any
time on or after December 17, 2006 upon the optional prepayment by the
Company of the Junior Subordinated Debentures. The obligations of the
Company with respect to the Junior Subordinated Debentures, when
considered together with the obligations of the Company under the
Indenture relating to the Junior Subordinated Debentures, the Amended and
Restated Declaration of Trust relating to the Capital Securities and the
Capital Securities Guarantee issued by the Company with respect to the
Capital Securities will provide, in the aggregate, a full and
unconditional guarantee of payments of distributions and other amounts
due on the Capital Securities. In July, 1997, the Company and the Trust
exchanged the outstanding Capital Securities and Junior Subordinated
Debentures for substantially identical securities which were registered
under the Securities Act of 1933, as amended (the "Act"). The Company
also exchanged the Capital Securities Guarantee for a substantially
identical guarantee which was also registered under the Act. The Trust
has no operations or assets separate from its investment in the Junior
Subordinated Debentures. Separate financial statements of the Trust are
not presented because management has determined that they would not be
material to investors.

13) The following table shows the calculation of earnings (loss) per common
share:

<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- -------------------------------
1997 1996 1997 1996
------------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
Net income (loss) $ 5,419 $45,120 $(14,399) $86,150
less: preferred
dividends 0 0 (141) (141)
------- -------- ------- -------

Net income (loss)
available
to common shares $ 5,419 $45,120 $(14,540) $86,009

Average common
shares outstanding 42,772 40,725 42,678 40,609
Common stock
equivalents 2,936 4,514 3,357 4,467
------- ------- ------- -------

Weighted average
common shares
outstanding
(in thousands) 45,708 45,239 46,035 45,076
------- ------- -------- -------

Earnings (loss) per common share
$ .12 $ 1.00 $ (.32) $ 1.91
======= ======= ========= =======
</TABLE>

13
<PAGE> 14
In February, 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." The new
standard simplifies the computation of earnings per share (EPS) and increases
comparability to international standards. Under SFAS No. 128, primary EPS is
replaced by "Basic" EPS, which excludes dilution and is computed by dividing
income available to common shareholders by the weighted-average number of
common shares outstanding for the period. "Diluted" EPS, which is computed
similarly to fully diluted EPS, reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock.

The Company is required to adopt the new standard in its year-end 1997
financial statements. All prior-period EPS information (including interim EPS)
is required to be restated at that time. Early adoption is not permitted. The
Company believes that the adoption of SFAS 128 will not have a material effect
on EPS.

14
<PAGE> 15
ADVANTA CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Net income for the three months ended June 30, 1997 was $5.4 million or $.12
per share compared to $45.1 million or $1.00 per share for the same period in
1996. For the six months ended June 30, 1997 the Company reported a net loss
of $14.4 million or $.32 per share compared to net income of $86.2 million or
$1.91 for the same period in 1996.

The decrease in net income for the second quarter of 1997 compared to the same
period in 1996 was the result of several factors, including an increase in
charge-off and delinquency rates and a reduction in noninterest revenues. The
managed charge-off rate increased to 5.54% for the second quarter of 1997 from
2.91% for the same period in 1996. The managed delinquency rate was 5.35% for
the second quarter of 1997 compared to 3.36% for the second quarter of 1996.
The 1997 charge-off and delinquency rates reflect the adoption of a new
methodology related to credit card bankruptcies in August 1996 (see Asset
Quality). This methodology is consistent with that used by others in the
credit card industry. In the second quarter of 1997, the Company recorded
noninterest revenues of $194.6 million. For the same period in 1996,
noninterest revenues of $207.3 million were reported, which included a gain of
$33.8 million on the sale of credit card customer relationships.

During the second quarter of 1997, the Company continued to realize improved
net interest margins over 1996 levels. The managed net interest margin climbed
to 7.60% during the three months ended June 30, 1997 compared to 5.84% reported
for the same period in 1996. This increase reflects the contractual repricing
reported in the first quarter of 1997 and the continued repricing of
introductory rate receivables throughout the second quarter, as well as the
Company's continuing efforts to reprice approximately two-thirds of its
consumer credit card receivables. Average managed receivables increased to
$16.2 billion in the second quarter of 1997 from $15.0 billion in the same
quarter of 1996. The operating expense ratio increased to 3.53% in the second
quarter of 1997 from 2.75% for the second quarter of 1996. The increase was
due in part to increased collection efforts related to the credit card
portfolio and to additional costs associated with the substantial growth in
personal finance services including the contract servicing portfolio. That
portfolio, which is not a component of managed receivables, grew from an
average of $1.2 billion in the second quarter of 1996 to $6.6 billion in the
second quarter of 1997.

This Report contains forward-looking statements, including, but not limited to,
projections of future earnings, that are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
projected. Significant risks and uncertainties include: the Company's managed
net interest margin, which in turn is affected by the Company's success in
originating new credit card accounts, the receivables volume and initial
pricing of new accounts, the impact of repricing existing accounts and account
attrition, the mix of account types and interest rate fluctuations; the level
of delinquencies, customer bankruptcies, and charge-offs; and the amount and
rate of growth in the Company's expenses. Earnings also may be significantly
affected by factors that affect consumer debt, competitive pressures from other
providers of

15
<PAGE> 16
financial services, the effects of governmental regulation, the amount and cost
of financing available to the Company and its subsidiaries, the difficulty or
inability to securitize the Company's receivables and the impact of the ratings
of debt of the Company and its subsidiaries. Additional risks that may affect
the Company's future performance are set forth elsewhere in this Quarterly
Report on Form 10-Q and in the Company's Annual Report on Form 10-K for the
year ended December 31, 1996 and other filings with the Securities and Exchange
Commission.

NET INTEREST INCOME

Net interest income for the second quarter of 1997 increased $5.4 million or
33.6% to $21.5 million from $16.1 million for the same period of 1996. This
resulted from an increase in the owned net interest margin to 1.82% for the
second quarter of 1997, from 1.49% for the second quarter of 1996, as well as a
$616.0 million increase in average interest earning assets. The increase in
the net interest margin was negatively impacted by the mix of earning assets.
For the second quarter of 1997, the investment portfolio, which generally has
lower yields than the loan and lease portfolio, comprised 51% of owned interest
earning assets versus 25% in the comparable 1996 period. The year to date
period of 1997 was also impacted by this change in earning asset composition.
For the six months ended June 30, 1997 net interest income rose to $47.1
million, a 43.6% increase over the $32.8 million reported for the same period
in 1996. The owned net interest margin rose to 2.06% for the first half of
1997 from 1.63% in the first half of 1996.

The following tables provide an analysis of both owned and managed interest
income and expense data, average balance sheet data, net interest spread (the
difference between the yield on interest earning assets and the average rate
paid on interest-bearing liabilities),and net interest margin (the difference
between the yield on interest earning assets and the average rate paid to fund
interest earning assets) for the three and six month periods ended June 30,
1997 and 1996. Average owned loan and lease receivables and the related
interest revenues include certain loan fees.

16
<PAGE> 17

INTEREST RATE ANALYSIS
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended June 30,
-------------------------------------------------------------------------------------------------
1997 1996
------------------------------------------- -----------------------------------------------
Average Yield/ Average Yield/
Balance (1) Interest Rate Balance (1) Interest Rate
------------- -------- ------ ------------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
On-balance sheet
- ----------------
Credit cards $ 1,528,193 $ 38,880 10.21% $ 2,899,228 $ 56,305 7.81%
Personal finance loans 556,196 13,450 9.70 190,791 4,887 10.30
Business loans 373,775 11,713 12.56 214,549 6,365 11.90
Other loans 32,640 700 8.60 9,609 203 8.50
----------- ------- ---------- -------
Gross receivables(2) 2,490,804 64,743 10.42 3,314,177 67,760 8.22
Investments(2) 2,550,811 37,793 5.91 1,111,435 16,567 5.80
----------- ------- ---------- -------
Total interest earning
assets $ 5,041,615 $102,536 8.14% $ 4,425,612 $ 84,327 7.61%

Interest-bearing
liabilities $ 5,113,981 $ 79,797 6.23% $ 4,359,090 $ 67,332 6.14%

Net interest spread 1.90% 1.47%
Net interest margin 1.82% 1.49%

Off-balance sheet
- -----------------
Credit cards $10,073,913 $ 9,517,383
Personal finance loans 3,001,737 1,810,733
Business loans 639,730 329,539
----------- ----------
Total average
securitized receivables $13,715,380 $11,657,655
=========== ===========
Total average managed
receivables $16,206,184 $14,971,832
=========== ===========
Managed credit cards $11,602,106 $451,507 15.61% $12,416,611 $378,506 12.26%

Managed net interest
spread (3) 7.62% 5.83%
Managed net interest
margin (3) 7.60% 5.84%
</TABLE>

(1) Includes assets held and available for sale and nonaccrual loans and
leases.
(2) Interest and average rate for tax-free securities, loans and leases
computed on a tax equivalent basis using a statutory rate of 35%.
(3) Includes owned interest earning assets/owned interest-bearing
liabilities and securitized credit card assets/liabilities.

17
<PAGE> 18

INTEREST RATE ANALYSIS
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------------------------------------------------------------------------
1997 1996
-------------------------------------------- -------------------------------------------
Average Yield/ Average Yield/
Balance (1) Interest Rate Balance (1) Interest Rate
----------- ---------- ------- ------------ -------- ------
<S> <C> <C> <C> <C> <C> <C>
On-balance sheet
- ----------------
Credit cards $ 1,671,261 $ 85,509 10.32% $2,655,427 $104,973 7.95%
Personal finance loans 493,918 25,300 10.33 207,408 10,520 10.20
Business loans 315,329 19,836 12.65 183,141 11,123 12.18
Other loans 28,923 1,242 8.67 9,480 388 8.23
----------- -------- ---------- --------
Gross receivables (2) 2,509,431 131,887 10.59 3,055,456 127,004 8.36
Investments (2) 2,375,682 68,869 5.81 1,094,021 30,820 5.48
----------- -------- ---------- --------
Total interest earning
assets $ 4,885,113 $ 200,756 8.27% $4,149,477 $157,824 7.60%

Interest-bearing
liabilities $ 4,919,601 $ 151,259 6.17% $4,012,741 $123,267 6.10%

Net interest spread 2.10% 1.50%
Net interest margin 2.06% 1.63%

Off-balance sheet
- -----------------
Credit cards $10,288,802 $ 8,831,589
Personal finance loans 2,768,417 1,718,737
Business loans 628,464 311,437
----------- ----------
Total average
securitized receivables $13,685,683 $10,861,763
=========== ===========
Total average managed
receivables $16,195,114 $13,917,219
=========== ===========
Managed credit cards $11,960,063 $ 886,667 14.95% $11,487,016 $714,781 12.51%

Managed net interest
spread (3) 7.35% 5.97%
Managed net interest
margin (3) 7.34% 6.03%
</TABLE>

18
<PAGE> 19

MANAGED PORTFOLIO DATA

The Company analyzes its financial results on a managed assets basis in
addition to analyzing data as reported under generally accepted accounting
principles.

The following table provides selected information on a managed basis (excluding
mortgage contract servicing assets), as well as a summary of the effects of
credit card securitizations on selected line items of the Company's condensed
consolidated income statements as of and for the six months ended June 30, 1997
and 1996.
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1997 1996
-------------------- ------------------
Balance sheet data: ($ in thousands)
<S> <C>
Average managed receivables $16,195,114 $13,917,219
Managed receivables 16,263,920 15,392,849
Total managed assets 20,655,395 18,184,022
Managed net interest margin
(on a fully tax equivalent basis) 7.34% 6.03%
As a percentage of gross managed
receivables:
Total loans 30 days or more
delinquent 5.4% (1) 3.4%
Net charge-offs 5.4% (1) 2.9%
Managed Income Statement:
Net interest income $ 554,313 $ 388,220
Provision for credit losses 452,880 204,213
Noninterest revenues 186,536 184,448
Operating expenses 307,375 237,940
--------- ---------
Income (loss) before income taxes $ (19,406) $ 130,515
</TABLE>

(1)The 1997 figures reflect the adoption of a new charge-off methodology in
August 1996 relating to credit card bankruptcies (see Asset Quality).

With respect to the Managed Income Statement, net interest income includes
owned net interest income and securitized net interest income. In the
Consolidated Income Statements, securitized net interest income is reported as
noninterest revenues. In addition, the provision for credit losses includes
the amount by which the provision for credit losses would have been higher had
the securitized receivables remained as owned and the provision for securitized
credit card losses been equal to actual reported charge-offs (see Asset
Quality). Noninterest revenues on the Managed Income Statement exclude the net
interest income and credit losses associated with the securitized credit card
receivables.

PROVISION FOR CREDIT LOSSES

The provision for credit losses for the second quarter of 1997 was $50.3
million compared to $27.7 million for the comparable period of 1996. This
increase was primarily due to higher charge-offs on owned receivables as well
as an increase in impaired assets and delinquency levels. Charge-offs on owned
receivables increased to $38.7 million for the second quarter of 1997 from
$13.4 million for the second quarter of 1996.

For the first half of 1997 the provision for credit losses increased to $110.6
million from $42.7 million for the same period in 1996, resulting from an
increase in charge-offs on owned receivables to $76.4 million in the first six
months of 1997 from $28.3 million during the

19
<PAGE> 20

same period in 1996 and well as increases in impaired assets and delinquency
levels.

ASSET QUALITY

The reserve for credit losses is maintained for on-balance sheet receivables.
This reserve is intended to cover credit losses inherent in the owned loan
portfolio. With regard to securitized assets, the fair value of anticipated
losses and related recourse reserves are reflected in the calculations of
securitization income, amounts due from credit card securitizations and other
assets. Recourse reserves are intended to cover all probable credit losses
over the life of the securitized receivables. The Company periodically
evaluates its on-balance sheet and recourse reserve requirements and, as
appropriate, effects transfers between these accounts.

In the third quarter of 1996, the Company adopted a new charge-off methodology
related to bankrupt credit card accounts, providing for up to a 90-day (rather
than up to a 30-day) investigative period following notification of the
bankruptcy petition, prior to charge-off. This new methodology is consistent
with the methodology used by others in the credit card industry.

The reserve for credit losses on a consolidated owned basis was $116.9 million
or 4.8% of receivables at June 30, 1997 compared to $89.2 million or 3.4% of
receivables at December 31, 1996 and $70.9 million or 2.4% of receivables at
June 30, 1996.

On the total managed portfolio, impaired assets were $434.7 million or 2.7% of
receivables at June 30, 1997, compared to $420.5 million or 2.6% of receivables
at December 31, 1996 and $234.4 million or 1.5% of receivables at June 30,
1996. On the total owned portfolio, impaired assets were $72.3 million or 3.0%
of receivables at June 30, 1997, compared to $70.4 million or 2.7% of
receivables at December 31, 1996, and $42.3 million or 1.5% of receivables at
June 30, 1996. The 30 day and over delinquency rate on managed credit cards
rose to 5.0% at June 30, 1997 up from 2.9% a year ago. The 30-day and over
delinquency rate on owned credit cards rose to 7.1% at June 30, 1997, from 2.4%
at June 30, 1996. The credit risk associated with both the owned and managed
portfolios are very similar; impaired asset, delinquency and charge-off ratios
on the owned portfolio, which is largely comprised of retained interests in
credit card trusts, are affected by the amount and timing of securitizations.

The total managed charge-off rate for the first six months of 1997 was 5.4%, up
from 3.2% for the full year of 1996 and 2.9% for the first six months of 1996.
The charge-off rate on managed credit cards was 6.9% for the first six months
of 1997, up from 3.7% for the full year of 1996 and 3.2% for the comparable
1996 period. The charge-off rate on managed personal finance loans was .6% for
the first six months of 1997, down from .7% for both the full year of 1996 and
the comparable 1996 period. The total owned charge-off rate rose to 6.1% for
the six months ended June 30, 1997 up from 2.3% for the full year of 1996 and
1.9% for the first half of 1996. The charge-off rate on owned credit cards was
8.5% for the first half of 1997, up from 2.5% for the full year of 1996 and
1.9% for the first six months of 1996. The charge-off rate for owned personal
finance loans was .6% for the six months ended June 30, 1997, down from 1.3%
for the full year of 1996 and 1.6% for the first half of 1996. The charge-off
rate on owned business loans rose to 2.2% for the first half of 1997 compared
to 1.5% for the full year of 1996 and 1.8% for the first half of 1996.

20
<PAGE> 21

The following tables provide a summary of impaired assets, delinquencies and
charge-offs, as of and for the year-to-date periods indicated.

<TABLE>
<CAPTION>
($ in thousands) June 30, December 31, June 30,
CONSOLIDATED - MANAGED 1997 1996 1996
---------------------- --------- ------------ -------
<S> <C> <C> <C>
Nonperforming assets $243,013 $191,668 $119,637
Accruing loans past due 90 days or more 191,686 228,845 114,781
Impaired assets 434,699 420,513 234,418
Total loans 30 days or more delinquent 870,477 886,717 516,936
As a percentage of gross receivables:
Nonperforming assets 1.5% 1.2% .8%
Accruing loans past due 90 days or more 1.2 1.4 .7
Impaired assets 2.7 2.6 1.5
Total loans 30 days or more delinquent:
New methodology(1) 5.4 5.4
Prior methodology 5.2(2) 3.4
Net charge-offs:
Amount(1) $437,188 $479,992 $198,590
As a percentage of average gross
receivables(annualized)
New methodology(1) 5.4% 3.2%
Prior methodology 3.5(2) 2.9%
CREDIT CARDS - MANAGED
- ----------------------
Nonperforming assets $106,019 $ 89,064 $ 43,796
Accruing loans past due 90 days or more 191,559 228,822 114,767
Impaired assets 297,578 317,886 158,563
Total loans 30 days or more delinquent 553,740 632,083 364,446
As a percentage of gross receivables:
Nonperforming assets .9% .7% .3%
Accruing loans past due 90 days or more 1.7 1.8 .9
Impaired assets 2.7 2.5 1.3
Total loans 30 days or more delinquent
New methodology(1) 5.0 5.0
Prior methodology 4.6(2) 2.9
Net charge-offs:
Amount(1) $413,569 $451,239 $186,459
As a percentage of average gross
receivables(annualized)
New methodology(1) 6.9% 3.7%
Prior methodology 4.1(2) 3.2%
PERSONAL FINANCE LOANS - MANAGED
- --------------------------------
Nonperforming assets $118,403 $ 93,101 $ 69,633
Total loans 30 days or more delinquent 250,306 194,412 111,066
As a percentage of gross receivables:
Nonperforming assets 3.0% 3.4% 3.3%
Total loans 30 days or more delinquent 6.4 7.1 5.3
Net charge-offs:
Amount $ 10,034 $ 14,981 $ 6,671
As a percentage of average gross
receivables(annualized) .6% .7% .7%
BUSINESS LOANS AND LEASES - MANAGED
- -----------------------------------
Nonperforming assets $ 18,506 $ 9,503 $ 6,208
Impaired assets 18,628 9,503 6,208
Total loans 30 days or more delinquent 66,199 59,880 41,318
As a percentage of receivables:
Nonperforming assets 1.7% 1.2% 1.0%
Impaired assets 1.7 1.2 1.0
Total loans 30 days or more delinquent 6.1 7.3 6.8
Net charge-offs:
Amount $ 13,582 $ 13,777 $ 5,467
As a percentage of average
receivables(annualized) 2.9% 2.3% 2.2%
</TABLE>

(1) The 1997 and December 31, 1996 figures reflect the adoption of a new
charge-off methodology in August 1996 relating to credit card
bankruptcies(see Asset Quality).
(2) Pro forma calculation reflecting charge-off of all credit card bankruptcies
within 30 days of notification.

21
<PAGE> 22

<TABLE>
<CAPTION>
June 30, December 31, June 30,
CONSOLIDATED - OWNED 1997 1996 1996
-------------------- --------- -------- ---------
<S> <C> <C> <C>
Nonperforming assets $ 34,717 $ 29,822 $24,854
Accruing loans past due 90 days or more 37,690 40,597 17,436
Impaired assets 72,407 70,419 42,290
Total loans 30 days or more delinquent 138,274 145,613 79,574
As a percentage of gross receivables:
Nonperforming assets 1.4% 1.1% .9%
Accruing loans past due 90 days or more 1.6 1.5 .6
Impaired assets 3.0 2.7 1.4
Total loans 30 days or more delinquent:
New methodology(1) 5.7 5.5
Prior methodology 5.3(2) 2.7
Net charge-offs:
Amount(1) $ 76,443 $ 70,576 $28,324
As a percentage of average gross
receivables(annualized)
New methodology(1) 6.1% 2.3%
Prior methodology 2.5(2) 1.9%
CREDIT CARDS - OWNED
- --------------------
Nonperforming assets $ 21,800 $ 13,890 $ 8,661
Accruing loans past due 90 days or more 37,563 40,574 17,422
Impaired assets 59,363 54,464 26,083
Total loans 30 days or more delinquent 105,213 107,263 59,255
As a percentage of gross receivables:
Nonperforming assets 1.5% .7% .3%
Accruing loans past due 90 days or more 2.5 2.0 .7
Impaired assets 4.0 2.7 1.0
Total loans 30 days or more delinquent
New methodology(1) 7.1 5.2
Prior methodology 5.0(2) 2.4
Net charge-offs:
Amount(1) $ 71,332 $ 64,520 $24,978
As a percentage of average gross
receivables(annualized)
New methodology(1) 8.5% 2.5%
Prior methodology 2.7(2) 1.9%
PERSONAL FINANCE LOANS - OWNED
- ------------------------------
Nonperforming assets $ 6,748 $ 13,005 $14,738
Total loans 30 days or more delinquent 16,150 28,546 14,715
As a percentage of gross receivables:
Nonperforming assets 1.2% 3.5% 6.0%
Total loans 30 days or more delinquent 2.9 7.6 6.0
Net charge-offs:
Amount $ 1,588 $ 3,060 $ 1,701
As a percentage of average gross
receivables(annualized) .6% 1.3% 1.6%
BUSINESS LOANS AND LEASES - OWNED
- ---------------------------------
Nonperforming assets $ 6,084 $ 2,927 $ 1,455
Impaired assets 6,206 2,927 1,455
Total loans 30 days or more delinquent 16,679 9,462 5,498
As a percentage of receivables:
Nonperforming assets 1.9% 1.4% 1.0%
Impaired assets 2.0 1.4 1.0
Total loans 30 days or more delinquent 5.3 4.4 3.7
Net charge-offs:
Amount $ 3,520 $ 3,001 $ 1,652
As a percentage of average
receivables(annualized) 2.2% 1.5% 1.8%
</TABLE>

22
<PAGE> 23
NONINTEREST REVENUES
($ in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------- -------------------------------
1997 1996 1997 1996
------------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Gain on sale of credit cards $ 0 $ 33,820 $ 0 $ 33,820
Other noninterest revenues:
Credit card securitization
income 48,400 51,735 75,461 117,600
Credit card servicing
income 45,672 43,584 92,983 82,612
Credit card interchange
income 21,974 27,237 42,187 49,199
Income from personal
finance activities 40,586 24,132 73,170 46,127
Business loan and lease
other revenues 16,911 13,886 32,369 24,761
Insurance revenues, net 9,986 7,793 20,345 14,312
Other 11,084 5,146 14,952 9,931
-------- -------- -------- --------
Total other noninterest
revenues $194,613 $173,513 $351,467 $344,542
-------- -------- -------- --------

Total noninterest revenues $194,613 $207,333 $351,467 $378,362
======== ======== ======== ========
</TABLE>

Total noninterest revenues of $194.6 million and $351.5 million for the three
and six month periods ended June 30, 1997 decreased from $207.3 million and
$378.4 million reported for the three and six month periods ended June 30,
1996. The 1996 amounts include a $33.8 million gain on sale of credit card
customer relationships.

Total other noninterest revenues increased by 12.2% to $194.6 million during
the second quarter of 1997 from $173.5 million for the second quarter of 1996.
The increase is a result of a 68.2% increase in income from personal finance
activities including an increase in contract servicing fees over the second
quarter 1996 level and a higher level of securitization activity.
Additionally, other credit card revenues contributed to the increase in other
other noninterest revenues from $5.1 million in the second quarter of 1996 to
$11.1 million for the second quarter of 1997. Credit card securitization
income declined $3.3 million or 6.4% to $48.4 million as a result of lower
spreads due to significantly higher charge-offs. Credit card servicing income
increased $2.1 million due to higher securitized balances. Business loan and
lease other revenues increased to $16.9 million in the second quarter of 1997,
a 21.8% increase over the second quarter of 1996, primarily due to the 94.1%
growth in average securitized receivables. Insurance revenues, net increased
$2.2 million from the second quarter of 1996 to $10.0 million in the second
quarter of 1997 due to the continued successful marketing of insurance products
in the credit card, personal finance and business loan and lease areas.

During the six month period ended June 30, 1997, total other noninterest
revenues increased to $351.5 million from $344.5 reported for the same period
in 1996. This increase is attributable primarily to higher personal finance
and business loan noninterest revenues, higher insurance revenues and other
credit card revenues, offset by a decrease in credit card securitization
income.

23
<PAGE> 24

OPERATING EXPENSES
($ in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
1997 1996 1997 1996
---------- ---------- -------- --------
<S> <C> <C> <C> <C>
Amortization of credit card
deferred origination costs,
net $ 15,458 $ 24,487 $ 33,521 $ 44,980
Other operating expenses:
Salaries and employee
benefits 59,969 43,769 114,630 81,188
External processing 13,457 9,972 25,446 19,805
Marketing 12,522 5,347 23,651 16,469
Equipment expense 9,708 4,842 18,267 9,178
Professional fees 7,811 9,544 16,106 16,374
Postage 7,623 6,873 14,743 12,679
Credit card fraud losses 6,699 6,413 13,176 8,762
Occupancy expense 6,105 3,453 11,396 6,029
Credit and collection
expense 5,678 3,040 10,034 5,625
Telephone expense 5,310 4,653 10,217 8,620
Other 8,224 5,052 16,188 8,231
-------- -------- -------- --------
Total other operating
expenses $143,106 $102,958 $273,854 $192,960
-------- -------- -------- --------

Total operating expenses $158,564 $127,445 $307,375 $237,940
======== ======== ======== ========
</TABLE>

Total operating expenses of $158.6 million for the quarter ended June 30, 1997
increased 24.4% from $127.5 million in the same period of 1996. The
amortization of credit card deferred origination costs, net, decreased from
$24.5 million for the second quarter of 1996 to $15.5 million for the second
quarter of 1997. Total other operating expenses as a percentage of average
managed receivables were 3.53% for the second quarter of 1997, up from 2.75% in
the comparable period in 1996. The increase in operating expenses is
attributable in part to an increase in the number of employees from 2,897 at
June 30, 1996 to 4,002 at June 30, 1997 primarily in the credit card collection
area and to support the growth in loan production and serviced receivables in
the personal finance area. Marketing expenses increased 134% as a result of
increased new business advertising of our personal finance and business card
products, and increased advertising for our credit card product with the primary
purpose of retaining current customer relationships. Other expenses including
external processing, equipment and occupancy expense showed increases
consistent with the current and projected increase in the number of serviced
customer accounts and the addition of space and new technology required to
support this growth.

Total operating expenses for the first half of 1997 increased 29.2% to $307.4
million from $237.9 during the same period in 1996. The operating expense
ratio increased to 3.38% from 2.77% reported in 1996. The increase in expenses
is consistent with an increase in headcount and accounts and customers serviced
throughout the organization.

LIQUIDITY AND CAPITAL RESOURCES

The Company's goal is to maintain an adequate level of liquidity, both long-
and short-term, through active management of both assets and liabilities.
During the first six months of 1997, the Company, through

24
<PAGE> 25

its subsidiaries, securitized $1.35 billion of personal finance loans and $268.7
million of business loan receivables. In addition, funds were raised during
this same period through an increase in deposits at the Banks (as defined below)
and unsecured notes totalling approximately $1.0 billion. Cash generated from
these transactions was temporarily invested in short-term, high quality
investments at money market rates awaiting redeployment to pay down borrowings
and to fund future credit card, personal finance and business loan receivable
growth. Cash and equivalents exceeded amounts normally held as liquidity
protection subsequent to the Company's March 17, 1997 announcement relating to
expected 1997 financial results. At June 30, 1997, the Company had
approximately $1.1 billion of loan and lease receivables and $1.3 billion of
investments available for sale which could be sold to generate additional
liquidity.

Funding diversification is an essential component of the Company's liquidity
management. The debt securities of Advanta Corp., Advanta National Bank USA
("AUS"), and Advanta National Bank (together with AUS, the "Banks") had
investment-grade ratings from the nationally recognized rating agencies
throughout 1996. These ratings had allowed the Company to further diversify
its funding sources. Beginning March 1997, the various rating agencies lowered
their ratings on the debt securities of each of Advanta Corp. and the Banks by
one or two grades. As of May 12, 1997, debt of the Banks was rated at or above
the lowest level of investment grade by each agency except Standard & Poors
which rated it one level below investment grade; debt of the parent company,
Advanta Corp., maintained investment grade ratings (at or above the lowest
investment grade level) from three of the rating agencies, but was rated two
levels below investment grade by Standard & Poors and by Moody's Investors
Service. Effective June 30, 1997, Advanta National Bank was merged into AUS,
and AUS was renamed Advanta National Bank ("ANB"). The combined institution is
larger, more effectively capitalized, and more efficient to run than the two
separate entities. Efforts continue to develop new sources of funding, both
through previously untapped customer segments and through development of new
financing structures. In that regard, on May 1, 1997, Advanta Mortgage Corp.
USA and its subsidiaries entered into a $500 million secured revolving credit
facility. Also, deposit sources proved readily expandable as demonstrated in
the growth noted above.

In December 1996, Advanta Capital Trust I, a newly formed statutory business
trust established by and wholly-owned by the Company (the "Trust"), issued in a
private offering $100 million of capital securities, representing preferred
beneficial interests in the assets of the Trust (the "Capital Securities").
The Company used the proceeds from the sale for general corporate purposes.
The sole assets of the Trust consist of $100 million of 8.99% junior
subordinated debentures issued by the Company due December 17, 2026 (the
"Junior Subordinated Debentures"). The Capital Securities will be subject to
mandatory redemption under certain circumstances, including at any time on or
after December 17, 2006 upon the optional prepayment by the Company of the
Junior Subordinated Debentures. The obligations of the Company with respect to
the Junior Subordinated Debentures, when considered together with the
obligations of the Company under the Indenture relating to the Junior
Subordinated Debentures, the Amended and Restated Declaration of Trust relating
to the Capital Securities and the Capital Securities Guarantee issued by the
Company with respect to the Capital Securities will provide, in the aggregate,
a full and unconditional guarantee of payments of distributions and other
amounts due on the Capital Securities. In July, 1997, the Company and the
Trust exchanged the outstanding Capital Securities and Junior Subordinated
Debentures for

25
<PAGE> 26

substantially identical securities which were registered under the Securities
Act of 1933, as amended (the "Act"). The Company also exchanged the Capital
Securities Guarantee for a substantially identical guarantee which was also
registered under the Act. The Trust has no operations or assets separate from
its investment in the Junior Subordinated Debentures. Separate financial
statements of the Trust are not presented because management has determined
that they would not be material to investors.

Advanta Corp. and ANB together have a $1 billion revolving credit facility, of
which $1 billion is available to ANB and up to a maximum of $500 million is
available to Advanta Corp., provided that no more than $1 billion may be
outstanding at any time. The Company also filed a shelf registration statement
in 1996 with the Securities and Exchange Commission which allows the Company to
sell up to $1.6 billion of debt securities. Approximately $800 million of this
shelf is still available to the Company.

INTEREST RATE SENSITIVITY

Interest rate sensitivity refers to net interest income variability resulting
from mismatches between asset and liability indices (basis risk) and the
effects which changes in market interest rates have on asset and liability
repricing mismatches (gap risk).

The Company attempts to minimize the impact of market interest rate
fluctuations on net interest income and net income by regularly evaluating the
risk inherent in its asset and liability structure, including securitized
assets. This risk arises from continuous changes in the Company's
asset/liability mix, market interest rates, the yield curve, prepayment trends
and the timing of cash flows. Computer simulations are used to evaluate net
interest income volatility under varying rate, spread and volume projections
over monthly time periods of up to two years.

In managing its interest rate sensitivity position, the Company periodically
securitizes receivables, sells and purchases assets, alters the mix and term
structure of its funding base, changes its investment portfolio and short-term
investment position, and uses derivative financial instruments. Derivative
financial instruments are used to manage exposures to changes in interest rates
and foreign exchange rates and create match funding of assets and liabilities.
Derivative financial instruments, by policy, are not used for any speculative
purposes (see discussion under "Derivatives Activities"). The Company has
primarily utilized variable rate funding in pricing its credit card
securitization transactions in an attempt to match the variable rate pricing
dynamics of the underlying receivables sold to the trusts. Variable rate
funding is used on the balance sheet as well, in support of unsecuritized
receivables which carry variable rates. Although credit card receivable rates
are generally set at a spread over a floating rate index, they often contain
interest rate floors. These floors have the impact of converting the credit
card receivables to fixed rate receivables in a low interest rate environment.
In addition, the Company at times offers fixed rate pricing to consumers for
the introductory rate period of its credit cards. In instances when a
significant portion of credit card receivables carry fixed rate introductory
pricing or are at their floors, the Company may convert part of the underlying
funding to a fixed rate by using interest rate hedges, swaps and fixed rate
securitizations. In pricing personal finance and business loan and lease
securitizations, both fixed rate and variable rate funding are used depending
upon the characteristics of the underlying receivables and the overall risk
exposure to the Company.

26
<PAGE> 27
Additionally, basis risk exists in on-balance sheet funding as well as in
securitizing credit card receivables at a spread over the London Interbank
Offered Rate ("LIBOR") when the rate on the underlying assets is indexed to the
prime rate. The Company measures the basis risk resulting from potential
variability in the spread between prime and LIBOR and incorporates such risk
into the asset and liability management process. Substantially all new credit
cards have been issued using LIBOR as the repricing index. This will have the
effect of reducing prime/LIBOR basis risk over time. The Company continues to
seek cost-effective alternatives for minimizing this risk. Subsequent to June
30, 1997, the Company completed the repricing of credit card receivables to a
spread over LIBOR and therefore the interest rate corridor used to hedge the
prime/LIBOR basis risk on the credit card portfolio was terminated.

Interest rate fluctuations affect net interest income at virtually all
financial institutions. While interest rate volatility does have an effect on
net interest income, other factors also contribute significantly to changes in
net interest income. Specifically, within the credit card portfolio, pricing
decisions and customer behavior regarding convenience usage affect the yield on
the portfolio. These factors may counteract or exacerbate income changes due to
fluctuating interest rates. The Company closely monitors interest rate
movements, competitor pricing and consumer behavioral changes in its ongoing
analysis of net interest income sensitivity.

DERIVATIVES ACTIVITIES

The Company utilizes derivative financial instruments for the purpose of
managing its exposure to interest rate and foreign currency risks. The Company
has a number of mechanisms in place that enable it to monitor and control both
market and credit risk from these derivatives activities. At the broader level,
all derivatives strategies are managed under a hedging policy approved by the
Board of Directors that details the use of such derivatives and the individuals
authorized to execute derivatives transactions. All derivatives strategies must
be approved by the Company's senior management (Chief Executive Officer, Chief
Financial Officer and Treasurer).

As part of this approval process, a market risk analysis is completed to
determine the potential impact on the Company from severe negative (stressed)
movements in the market. By policy, derivatives transactions may only be used
to manage the Company's exposure to interest rate and foreign currency risks or
for cost reduction and may not be used for speculative purposes. As such, the
impact of any derivatives transaction is calculated using the Company's
asset/liability model to determine its suitability.

Procedures and processes are in place to provide reasonable assurance that
prior to and after the execution of any derivatives strategy, market, credit
and liquidity risks are fully analyzed and incorporated into the Company's
asset/liability and risk measurement models and the proper accounting treatment
for the transaction is identified and executed.

As of June 30, 1997 and December 31, 1996, all of the Company's derivatives
were designated as hedges or synthetic alterations and were accounted for as
such.

27
<PAGE> 28

The following table summarizes by notional amounts the Company's derivative
instruments:

($ in thousands)
<TABLE>
<CAPTION>
Estimated Fair Value
June 30, December 31, June 30, 1997
1997 1996 Asset/(Liability)
--------------- -------------- -----------------------
<S> <C> <C> <C>
Interest rate swaps $2,374,823 $1,560,444 $14,117
Swaptions 153,000
Interest rate options:
Caps written 1,140,676 1,413,222 (876)
Caps purchased 343,120 365,000 874
Corridors/Collars 500,000 500,000 1,132
Forward contracts 418,568 386,680 (1,005)
---------- ---------- --------
Total notional amount $4,777,187 $4,378,346 $14,242
========== ========== =======
</TABLE>

The notional amounts of derivatives do not represent amounts exchanged by the
counterparties and, thus, are not a measure of the Company's exposure through
its use of derivatives. The amounts exchanged are determined by reference to
the notional amounts and the other terms of the derivatives contracts.

The fair value of interest rate swaps, options and forward contracts is the
estimated amount that the Company would pay or receive to terminate the
agreement at the reporting date, taking into account current interest and
foreign exchange rates and the current creditworthiness of the counterparty.

The Company's credit exposure to derivatives, with the exception of caps
written, is represented by contracts with a positive fair value without giving
consideration to the value of any collateral exchanged. For caps written,
credit exposure does not exist since the counterparty has performed its
obligation to pay the Company a premium payment.

28
<PAGE> 29

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

On June 30, 1997, purported shareholders of the Company who are represented
by a group of law firms filed a putative class action complaint against the
Company and several of its current and former officers and directors in the
United States District Court for the Eastern District of Pennsylvania. A
second, similar complaint was filed in the same court a few days later by a
different group of purported Company shareholders and a different group of
law firms. Both complaints allege that the Company made misrepresentations
in certain of its public filings and statements in violation of the
Securities Exchange Act of 1934. The complaints seek damages of an
unspecified amount. The Company believes that the complaints are without
merit and will vigorously defend itself against the actions.

Item 6. Exhibits and Reports on Form 8-K.

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

Exhibit Number Description of Document

10 Master Loan and Security Agreement dated as
of May 1, 1997, among Advanta Mortgage
Holding Company and certain of its
subsidiaries and Morgan Stanley Mortgage
Capital, Inc.

12 Computation of Ratio of Earnings to Fixed
Charges.

27 Financial data schedule incorporated by
reference to Exhibit 27 to the Company's
Current Report on Form 8-K dated July 16,
1997 filed the same date.

(b) Reports on Form 8-K.

(b) (1) A Current Report on Form 8-K, dated July 14, 1997 was filed by
the Company describing certain shareholders' litigation.

(b) (2) A Current Report on Form 8-K, dated July 16, 1997 was filed by
the Company setting forth the financial highlights of the
Company's results of operations for the period ended June 30,
1997. A Financial Data Schedule was included as an exhibit in
this Form 8-K.

29
<PAGE> 30
(b) (3) A Current Report on Form 8-K, dated July 28, 1997 was filed by
the Company incorporating the calculation of the Earnings to
Fixed Charges Ratio as of March 31, 1997 into Registration
Statement No. 333-05701.

(b) (4) A Current Report on Form 8-K, dated August 7, 1997 was filed by
the Company incorporating certain documentation into
Registration Statement No. 333-05701 including a form of
distribution agreement for the Company's retail medium term
notes and the form of Notes with respect thereto.

30
<PAGE> 31

SIGNATURES

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

Advanta Corp.

(Registrant)

August 14, 1997 By /s/David D. Wesselink
-----------------------------------
Senior Vice President, and
Chief Financial Officer

August 14, 1997 By /s/John J. Calamari
-----------------------------------
Vice President, Finance and
Principal Accounting Officer

31
<PAGE> 32

EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
2 Inapplicable.

3 Inapplicable.

4 Inapplicable.

10 Master Loan and Security Agreement
dated as of May 1, 1997, among Advanta
Mortgage Holding Company and certain of
its subsidiaries and Morgan Stanley
Mortgage Capital, Inc.

11 Inapplicable.

12 Computation of Ratio of Earnings to
Fixed Charges.

15 Inapplicable.

18 Inapplicable.

19 Inapplicable

22 Inapplicable.

23 Inapplicable.

24 Inapplicable.

27 Financial data schedule incorporated by
reference to Exhibit 27 to the
Company's Current Report on Form 8-K
dated July 16, 1997 filed the same
date.

99 Inapplicable.
</TABLE>

<PAGE> 1

================================================================================

MASTER LOAN AND SECURITY AGREEMENT

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

DATED AS OF MAY 1, 1997

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

ADVANTA MORTGAGE HOLDING COMPANY AS A BORROWER
AND
ADVANTA MORTGAGE CORP. USA, AS A BORROWER
AND
ADVANTA MORTGAGE CORP. MIDATLANTIC, AS A BORROWER
AND
ADVANTA MORTGAGE CORP. MIDATLANTIC II, AS A BORROWER
AND
ADVANTA MORTGAGE CORP. MIDWEST, AS A BORROWER
AND
ADVANTA MORTGAGE CORP. OF NEW JERSEY, AS A BORROWER
AND
ADVANTA MORTGAGE CORP. NORTHEAST, AS A BORROWER
AND
ADVANTA MORTGAGE CONDUIT SERVICES, INC., AS A BORROWER
AND
ADVANTA FINANCE CORP., AS A BORROWER

COLLECTIVELY, THE BORROWERS

AND

MORGAN STANLEY MORTGAGE CAPITAL INC.
AS LENDER

================================================================================
<PAGE> 2
TABLE OF CONTENTS

<TABLE>
<S> <C>
RECITALS I

Section 1. Definitions and Accounting Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

1.01 Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

1.02 Accounting Terms and Determinations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Section 2. Loans, Note and Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

2.01 Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

2.02 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

2.03 Procedure for Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

2.04 Limitation on Types of Loans; Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . 11

2.05 Repayment of Loans; Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

2.06 Mandatory Prepayments or Pledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

2.07 Optional Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

2.08 Release of Excess Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Section 3. Payments; Computations; Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

3.01 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

3.02 Computations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

3.03 U.S. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Section 4. Collateral Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

4.01 Collateral; Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

4.02 Further Documentation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

4.03 Changes in Locations, Name, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

4.04. Lender's Appointment as Attorney-in-Fact . . . . . . . . . . . . . . . . . . . . . . . . . 17

4.05. Performance by Lender of Borrowers' Obligations . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>

-i-
<PAGE> 3
<TABLE>
<S> <C>
4.06. Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

4.07 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

4.08. Limitation on Duties Regarding Presentation of Collateral . . . . . . . . . . . . . . . . . 19

4.09. Powers Coupled with an Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

4.10 Release of Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Section 5. Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

5.01 Initial Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

5.02 Initial and Subsequent Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Section 6. Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

6.01 Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

6.02 Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

6.03 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

6.04 No Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

6.05 Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

6.06 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

6.07 Margin Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

6.08 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

6.09 Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

6.10 Collateral; Collateral Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

6.11 Chief Executive Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

6.12 Location of Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

6.13 Hedging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

6.14 True and Complete Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

6.15 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

6.16 Pass-Through Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
</TABLE>

-ii-
<PAGE> 4
<TABLE>
<S> <C>
Section 7. Covenants of the Borrowers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

7.01 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

7.02 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

7.03 Existence, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

7.04 Prohibition of Fundamental Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

7.05 Borrowing Base Deficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

7.06 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

7.07 Hedging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

7.08 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

7.09 Underwriting Guidelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

7.10 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

7.11 Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

7.12 Maintenance of Profitability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

7.13 Servicing Tape . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Section 8. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Section 9. Remedies Upon Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Section 10. No Duty of Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Section 11. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

11.01 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

11.02 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

11.03 Indemnification and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

11.04 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

11.05 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

11.06 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

11.07 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>

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<PAGE> 5
<TABLE>
<S> <C> <C>
11.08 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

11.09 Loan Agreement Constitutes Security Agreement; Governing Law . . . . . . . . . . . . . . . 34

11.10 Submission to Jurisdiction; Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

11.11 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

11.12 Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

11.13 Hypothecation or Pledge of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

11.14 Servicing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

11.15 Periodic Due Diligence Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

11.16 Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

11.17 Joint and Several Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
</TABLE>

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<PAGE> 6

SCHEDULES

SCHEDULE 1 Representations and Warranties re: Mortgage Loans

SCHEDULE 2 Filing Jurisdictions and Offices

EXHIBITS

EXHIBIT A Form of Promissory Note

EXHIBIT B Form of Pooling and Servicing Agreement

EXHIBIT C Form of Opinion of Counsel to Borrower

EXHIBIT D Form of Request for Borrowing

EXHIBIT E Underwriting Guidelines

EXHIBIT F Form of Affiliate Guarantee

EXHIBIT G Mortgage Loan Tape Fields

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<PAGE> 7

MASTER LOAN AND SECURITY AGREEMENT

MASTER LOAN AND SECURITY AGREEMENT, dated as of May 1, 1997,
among Advanta Mortgage Holding Company a Delaware corporation, as a Borrower;
Advanta Mortgage Corp. USA a Delaware corporation, as a Borrower; Advanta
Mortgage Corp. Midatlantic a Pennsylvania corporation, as a Borrower; Advanta
Mortgage Corp. Midatlantic II a Pennsylvania corporation, as a Borrower;
Advanta Mortgage Corp. Midwest a Pennsylvania corporation, as a Borrower;
Advanta Mortgage Corp. of New Jersey a New Jersey corporation, as a Borrower;
Advanta Mortgage Corp. Northeast a New York corporation, as a Borrower; Advanta
Mortgage Conduit Services, Inc. a Delaware corporation, as a Borrower; Advanta
Finance Corp. a Nevada corporation, as a Borrower (each a "Borrower"
collectively, the "Borrowers"); and Morgan Stanley Mortgage Capital Inc., a
Delaware corporation (the "Lender").

RECITALS

The Borrowers have requested that the Lender from time to time
make revolving credit loans to it to finance certain mortgage loans owned or to
be acquired by the Borrowers, and the Lender is prepared to make such loans
upon the terms and conditions hereof. Accordingly, the parties hereto agree as
follows:

Section 1. Definitions and Accounting Matters.

1.01 Certain Defined Terms. As used herein, the following
terms shall have the following meanings (all terms defined in this Section 1.01
or in other provisions of this Loan Agreement in the singular to have the same
meanings when used in the plural and vice versa):

"Affiliate" shall mean with respect to each Borrower, any
"affiliate" of such Borrower as such term is defined in the United States
Bankruptcy Code in effect from time to time.

"Affiliate Guarantee" shall mean a guarantee in substantially
the form of Exhibit F hereto, executed by Guarantor in favor of Lender.

"AMHC" shall mean Advanta Mortgage Holding Company

"Applicable Collateral Percentage" shall mean (a) with respect
to all Eligible Mortgage Loans other than Delinquent Mortgage Loans, 96% and
(b) with respect to all Eligible Mortgage Loans that are Delinquent Mortgage
Loans, 90%.

"Applicable Margin" shall mean 70 basis points (0.70%) per
annum.

"Appraised Value" shall mean the value set forth in an
appraisal made in connection with the origination of the related Mortgage Loan
as the value of the Mortgaged Property.

"Bankruptcy Code" shall mean the United States Bankruptcy Code
of 1978, as amended from time to time.

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<PAGE> 8
"Bailee" shall mean a Person, other than the Trustee,
acceptable to the Lender, who holds Mortgage Loans for the benefit of the
Lender pursuant to a Bailee Agreement and its successors and permitted assigns
thereunder.

"Bailee Agreement" shall mean a Bailee Agreement, among the
Borrower, the Lender and a Bailee, acceptable to the Lender in its sole
discretion.

"Balloon Mortgage Loan" shall mean any Mortgage Loan for which
the related monthly payments, other than the monthly payment due on the
maturity date thereof, are computed on the basis of a period to full
amortization ending on a date that is later than such maturity date.

"Borrower" and "Borrowers" shall have the meaning provided in
the heading hereof.

"Borrowing Base" shall mean the aggregate Collateral Value of
all Eligible Mortgage Loans.

"Borrowing Base Deficiency" shall have the meaning provided in
Section 2.06 hereof.

"Business Day" shall mean any day other than (i) a Saturday or
Sunday or (ii) a day on which the New York Stock Exchange, the Federal Reserve
Bank of New York or the Trustee is authorized or obligated by law or executive
order to be closed or (iii) a day in which banks are authorized or obligated by
law or executive order to be closed in the Commonwealth of Pennsylvania, the
State of California or the State of Delaware.

"Capital Lease Obligations" shall mean, for any Person, all
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) Property to the extent such
obligations are required to be classified and accounted for as a capital lease
on a balance sheet of such Person under GAAP, and, for purposes of this Loan
Agreement, the amount of such obligations shall be the capitalized amount
thereof, determined in accordance with GAAP.

"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.

"Collateral" shall have the meaning provided in Section
4.01(b) hereof.

"Collateral Value" shall mean, with respect to each Eligible
Mortgage Loan, the lesser of (a) the Applicable Collateral Percentage of the
Market Value of such Mortgage Loan, and (b) the outstanding principal balance
of such Mortgage Loan; provided, that,

(i) the Collateral Value shall be deemed to be zero with respect
to each Mortgage Loan (1) in respect of which there is a
material breach of a representation and warranty set forth on
Schedule 1 (assuming each representation and warranty is made
as of the date Collateral Value is determined), (2) in respect
of which there is a delinquency in the payment of principal
and/or interest which continues for a period in excess of 59
days (without regard to any applicable grace periods), (3)
which remains pledged to the Lender hereunder later than 180
days after the date on which it is first included in the
Collateral, (4) which has been released from the possession of
the Trustee under the Pooling and Servicing Agreement to the
Borrowers for a period in excess of 14 days, (5) which has
been subject to a Bailee Agreement and which has not been
delivered to the Trustee by the applicable Bailee within 3
Business Days following the applicable Funding Date, (6)
subject to clauses (ii) and (iii) below, which is a Wet-Ink
Mortgage

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<PAGE> 9
Loan and for which the Trustee has failed to receive the
related Mortgage Loan Documents by the tenth Business Day
following the applicable Funding Date (it being understood
that the Collateral Value of any such Wet-Ink Mortgage Loan
shall be reinstated upon receipt by the Trustee of the related
Mortgage Loan Documents) or (7) which is a Delinquent Mortgage
Loan and remains pledged to the Lender hereunder upon removal
of some or all of the Mortgage Loans pledged to the Lender
hereunder (in accordance with the terms of this Agreement) for
the purpose of issuing securities backed by such Mortgage
Loans;

(ii) subject to clause (i)(6) above, the aggregate Collateral Value
of Eligible Mortgage Loans which are Wet-Ink Mortgage Loans
may not exceed 10% of Maximum Credit;

(iii) the aggregate Collateral Value of Eligible Mortgage Loans
which are Wet-Ink Mortgage Loans and with respect to which the
Trustee has failed to receive the related Mortgage Loan
Documents by the fifth Business Day following the applicable
Funding Date may not exceed 5% of Maximum Credit;

(iv) subject to clause (i)(5) above, the aggregate Collateral Value
of Eligible Mortgage Loans which are in the possession of a
Bailee may not exceed 10% of Maximum Credit;

(v) the aggregate Collateral Value of Eligible Mortgage Loans
which are Second Lien Mortgage Loans may not exceed 20% of the
aggregate principal amount outstanding under the Loans;

(vi) the aggregate Collateral Value of Eligible Mortgage Loans
which are secured by a Manufactured Dwelling may not exceed 5%
of the Maximum Credit;

(vii) the aggregate Collateral Value of Eligible Mortgage Loans
which are Mixed Use Mortgage Loans may not exceed 1% of the
Maximum Credit;

(viii) the aggregate Collateral Value of Eligible Mortgage Loans
which are Balloon Mortgage Loans may not exceed 25% of the
Maximum Credit; and

(ix) the aggregate Collateral Value of Eligible Mortgage Loans
which are Delinquent Mortgage Loans may not exceed 3% of the
aggregate principal amount outstanding under the Loans.

"Combined LTV" or "CLTV" shall mean with respect to any
Mortgage Loan, the ratio of (a) the outstanding principal balance as of the
related date of origination of such Mortgage Loan of (i) the Mortgage Loan plus
(ii) the mortgage loan constituting the first lien (if any) to (b) the
Appraised Value of the Mortgaged Property.

"Committed Loan" shall have the meaning assigned thereto in
Section 2.01(a) hereof.

"Default" shall mean an Event of Default or an event that with
notice or lapse of time or both would become an Event of Default.

"Delinquent Mortgage Loan" shall mean a Mortgage Loan made by
the Borrower to a Mortgagor and underwritten substantially in accordance with
the Underwriting Guidelines, a copy of

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<PAGE> 10
the current version of which is attached hereto as Exhibit E and which is at
least 30 days, but not more than 59 days, delinquent with respect to the
payment of principal or interest (without regard to any applicable grace
period).

"Dollars" and "$" shall mean lawful money of the United
States of America.

"Due Diligence Review" shall mean the performance by the
Lender of any or all of the reviews permitted under Section 11.15 hereof with
respect to any or all of the Mortgage Loans, as desired by the Lender from time
to time.

"Effective Date" shall mean the date upon which the
conditions precedent set forth in Section 5.01 shall have been satisfied.

"Eligible Mortgage Loan" shall mean a Mortgage Loan secured by
a first or second mortgage lien (as reflected on the Mortgage Loan Tape) on a
one-to-four family residential property (a) as to which the representations and
warranties in Section 6.10 and Part I of Schedule 1 hereof are correct in all
material respects and (b) which is underwritten substantially in accordance
with the Borrowers' Underwriting Guidelines, a copy of which is attached hereto
as Exhibit E.

"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time.

"ERISA Affiliate" shall mean any corporation or trade or
business that is a member of any group of organizations (i) described in
Section 414(b) or (c) of the Code of which any Borrower is a member and (ii)
solely for purposes of potential liability under Section 302(c)(11) of ERISA
and Section 412(c)(11) of the Code and the lien created under Section 302(f) of
ERISA and Section 412(n) of the Code, described in Section 414(m) or (o) of the
Code of which any Borrower is a member.

"Eurocurrency Reserve Requirements" shall mean, for any day as
applied to a Loan, the aggregate (without duplication) of the rates (expressed
as a decimal fraction) of reserve requirements applicable to the Lender in
effect on such day (including without limitation basic, supplemental, marginal
and emergency reserves under any regulations of the Board of Governors of the
Federal Reserve System or other Governmental Authority having jurisdiction with
respect thereto), dealing with reserve requirements prescribed for eurocurrency
funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of
such Board) maintained by a member bank of such Governmental Authority.

"Eurodollar Base Rate" shall mean, with respect to each day a
Loan is outstanding (or if such day is not a Business Day, the next succeeding
Business Day), the rate per annum equal to the rate appearing at page 5 of the
Telerate Screen as one-month LIBOR on such date, and if such rate shall not be
so quoted, the arithmetic average determined in good faith by the Lender, of
the rate per annum at which the Lender is offered Dollar deposits at or about
10:00 A.M., New York City time, on such date by at least three unaffiliated
prime banks in the interbank eurodollar market where the eurodollar and foreign
currency exchange operations in respect of its Loans are then being conducted
for delivery on such day for a period of 30 days and in an amount comparable to
the amount of the Loans to be outstanding on such day.

"Eurodollar Rate" shall mean, with respect to each day a Loan
is outstanding, a rate per annum determined by the Lender in its sole
discretion in accordance with the following formula

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<PAGE> 11
(rounded upwards to the nearest 1/100th of one percent), which rate as
determined by the Lender shall be conclusive absent manifest error by the
Lender:

Eurodollar Base Rate
-----------------------------------------
1.00 - Eurocurrency Reserve Requirements

"Event of Default" shall have the meaning provided in Section
8 hereof.

"Federal Funds Rate" shall mean, for any day, the weighted
average of the rates on overnight federal funds transactions with members of
the Federal Reserve System arranged by federal funds brokers, as published on
the next succeeding Business Day by the Board of Governors of the Federal
Reserve System in "Statistical Release H.15(519), Selected Interest Rates" or
any successor publication, or, if such rate is not so published for any day
which is a Business Day, the average of the quotations for the day of such
transactions received by the Lender from three unaffiliated federal funds
brokers of recognized standing selected by it.

"Funding Date" shall mean the date on which a Loan is made
hereunder.

"GAAP" shall mean generally accepted accounting principles as
in effect from time to time in the United States.

"Governmental Authority" shall mean any nation or government,
any state or other political subdivision thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government and any court or arbitrator having jurisdiction over
any Borrower, any of its Subsidiaries or any of their properties.

"Guarantor": shall mean Advanta Corp., a Delaware corporation.

"Interest Rate Protection Agreement" shall mean, with respect
to any or all of the Mortgage Loans, any short sale of US Treasury Security, or
futures contract, or mortgage related security, or Eurodollar futures contract,
or options related contract, or interest rate swap, cap or collar agreement or
similar arrangements providing for protection against fluctuations in interest
rates or the exchange of nominal interest obligations, either generally or
under specific contingencies, entered into by any Borrower or the Guarantor.

"Lender" shall have the meaning provided in the heading
hereto.

"Lien" shall mean any mortgage, lien, pledge, charge, security
interest or similar encumbrance.

"Loan" shall mean any Committed Loan or Uncommitted Loan, as
applicable, and collectively "Loans" shall mean the sum of all Committed Loans
and Uncommitted Loans.

"Loan Agreement" shall mean this Master Loan and Security
Agreement, as the same may be amended, supplemented or otherwise modified from
time to time.

"Loan Documents" shall mean, collectively, this Loan
Agreement, the Note and the Pooling and Servicing Agreement and Affiliate
Guarantee.

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<PAGE> 12
"Loan-to-Value Ratio" or "LTV" shall have the meaning assigned
thereto in Schedule 1 of this Loan Agreement.

"Manufactured Dwelling" shall mean a fully attached
manufactured home which is considered and treated as "real estate" under
applicable state law.

"Market Value" shall mean, as of any date in respect of an
Eligible Mortgage Loan, the price at which such Eligible Mortgage Loan could
readily be sold as reasonably determined in good faith by the Lender, which
price may be determined to be zero. The Lender's determination of Market Value
shall be conclusive upon the parties absent manifest error on the part of the
Lender.
"Material Adverse Effect" shall mean a material adverse effect
on (a) the Property, business, operations or financial condition of any of the
Borrowers, (b) the ability of any of the Borrowers to perform their
obligations under any of the Loan Documents to which they are a party, (c) the
validity or enforceability of any of the Loan Documents, (d) the practical
realization of the Lender's rights and remedies under the Loan Documents, taken
as a whole, (e) the timely payment of the principal of or interest on the Loans
or other amounts payable in connection therewith or (f) the value of the
Collateral taken as a whole.

"Maximum Committed Amount" shall mean $250,000,000.

"Maximum Credit" shall mean the sum of the Maximum Committed
Amount and the Maximum Uncommitted Amount, which shall equal $500,000,000.

"Maximum Uncommitted Amount" shall mean $250,000,000.

"Misclassified Mortgage Loan" shall have the meaning assigned
thereto in Section 2.05(c) hereof.

"Mixed Use Mortgage Loan" shall mean a Mortgage Loan secured
by a Mortgaged Property that is used primarily for residential purposes, but
which is also used for non-residential purposes.

"Mortgage" shall mean with respect to a Mortgage Loan, the
mortgage, deed of trust or other instrument securing a Mortgage Note, which
creates a first or second lien (as indicated on the Mortgage Loan Tape) on the
fee in real property securing the Mortgage Note.

"Mortgage File" shall have the meaning assigned thereto in the
Pooling and Servicing Agreement.

"Mortgage Loan" shall mean a mortgage loan pledged to the
Lender hereunder and which (a) the Trustee has been instructed to hold for the
Lender pursuant to the Pooling and Servicing Agreement, or (b) a Bailee has
been instructed to hold for the Lender pursuant to a Bailee Agreement, and
which Mortgage Loan includes, without limitation, (i) a Mortgage Note and
related Mortgage and (ii) all right, title and interest of any Borrower in and
to the Mortgaged Property covered by such Mortgage.

"Mortgage Loan Documents" shall mean, with respect to a
Mortgage Loan, the documents comprising the Mortgage File for such Mortgage
Loan.

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<PAGE> 13
"Mortgage Loan Schedule" shall have the meaning assigned
thereto in the Pooling and Servicing Agreement.

"Mortgage Loan Schedule and Exception Report" shall mean the
mortgage loan schedule and exception report prepared by the Trustee pursuant to
the Pooling and Servicing Agreement.

"Mortgage Loan Tape" shall mean a computer readable magnetic
tape containing the fields set forth on Exhibit G hereto.

"Mortgage Note" shall mean the original executed promissory
note or other evidence of the indebtedness of a mortgagor/borrower with respect
to a Mortgage Loan.

"Mortgaged Property" shall mean the real property (including
all improvements, buildings, fixtures, building equipment and personal property
thereon and all additions, alterations and replacements made at any time with
respect to the foregoing) and all other collateral securing repayment of the
debt evidenced by a Mortgage Note.

"Mortgagor" shall mean the obligor on a Mortgage Note.

"Multiemployer Plan" shall mean a multiemployer plan defined
as such in Section 3(37) of ERISA to which contributions have been or are
required to be made by any Borrower or any ERISA Affiliate and that is covered
by Title IV of ERISA.

"Net Income" shall mean, for any period, the consolidated net
income as reflected in the consolidated financial statements of AMHC, which
such financial statements shall include all of the Borrowers, for such period
as determined in accordance with GAAP.

"Note" shall mean the promissory note provided for by Section
2.02(a) hereof for Loans and any promissory note delivered in substitution or
exchange therefor, in each case as the same shall be modified and supplemented
and in effect from time to time.

"Pass-Through Certificate" shall mean a certificate pledged
and delivered to the Lender hereunder, issued in the name of the Lender
pursuant to the Pooling and Servicing Agreement, representing a 100% ownership
interest in certain Eligible Mortgage Loans which Eligible Mortgage Loans are
held by Trustee for the benefit of the Lender as to which the representations
and warranties in Section 6.16 and Part II of Schedule 1 hereof are correct in
all material respects.

"PBGC" shall mean the Pension Benefit Guaranty Corporation or
any entity succeeding to any or all of its functions under ERISA.

"Person" shall mean any individual, corporation, company,
voluntary association, partnership, joint venture, limited liability company,
trust, unincorporated association or government (or any agency, instrumentality
or political subdivision thereof).

"Plan" shall mean an employee benefit or other plan
established or maintained by any Borrower or any ERISA Affiliate and covered by
Title IV of ERISA, other than a Multiemployer Plan.

"Pooling and Servicing Agreement" shall mean the Pooling and
Servicing Agreement, dated as of May 1, 1997, among Advanta Mortgage Conduit
Services, Inc. as "Sponsor", Advanta

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<PAGE> 14
Mortgage Corp. USA as "Master Servicer", the Borrowers and the Trustee, as the
same shall be modified and supplemented and in effect from time to time.

"Post-Default Rate" shall mean, in respect of any principal of
any Loan or any other amount under this Loan Agreement, the Note or any other
Loan Document that is not paid when due to the Lender (whether at stated
maturity, by acceleration, by mandatory prepayment or otherwise), a rate per
annum during the period from and including the due date to but excluding the
date on which such amount is paid in full equal to 2% per annum plus the
Eurodollar Base Rate then in effect.

"Property" shall mean any right or interest in or to property
of any kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.

"Regulations G, T, U and X" shall mean Regulations G, T, U and
X of the Board of Governors of the Federal Reserve System (or any successor),
as the same may be modified and supplemented and in effect from time to time.

"Responsible Officer" shall mean, as to any Person, the chief
executive officer, the president, any vice president or the treasurer of such
Person.

"Second Lien Mortgage Loan" shall mean any Mortgage Loan
underwritten substantially in accordance with the Underwriting Guidelines with
respect to which the lien of the mortgage, deed of trust or other instrument
securing a mortgage note creates a second lien on the Mortgaged Property.

"Secured Obligations" shall have the meaning provided in
Section 4.01(c) hereof.

"Servicer" shall have the meaning provided in Section 11.14(c)
hereof.

"Servicing Agreement" shall have the meaning provided in
Section 11.14(c) hereof.

"Servicing Records" shall have the meaning provided in Section
11.14(b) hereof.

"Settlement Agent" shall mean, with respect to any Loan, the
entity selected by the applicable Borrower in the ordinary course of business
in the exercise of reasonably prudent business judgment, subject to Lender's
right to review and approve such entity such approval not to be unreasonably
withheld or delayed (which may be a title company, escrow company or attorney
in accordance with local law and practice in the jurisdiction where the related
Wet-Ink Mortgage Loan is being originated) to which the proceeds of such Loan
are to be distributed by the Trustee pursuant to the instructions of the
Borrower.

"Subsidiary" shall mean, with respect to any Person, any
corporation, partnership or other entity of which at least a majority of the
securities or other ownership interests having by the terms thereof ordinary
voting power to elect a majority of the board of directors or other persons
performing similar functions of such corporation, partnership or other entity
(irrespective of whether or not at the time securities or other ownership
interests of any other class or classes of such corporation, partnership or
other entity shall have or might have voting power by reason of the happening
of any contingency) is at the time directly or indirectly owned or controlled
by such Person or one or more Subsidiaries of such Person or by such Person and
one or more Subsidiaries of such Person.

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<PAGE> 15
"Termination Date" shall mean May 1, 1998 or such earlier date
on which this Loan Agreement shall terminate in accordance with the provisions
hereof or by operation of law.

"Test Period" shall have the meaning provided in Section 7.13
hereof.

"Trustee" shall mean Bankers Trust Company of California,
N.A., a national banking corporation.

"Uncommitted Loan" shall have the meaning assigned thereto in
Section 2.01(b) hereof.

"Underwriting Guidelines" shall mean the underwriting
guidelines delivered by the Borrowers to the Lender on or prior to the
Effective Date and as may be supplemented from time to time thereafter.

"Uniform Commercial Code" shall mean the Uniform Commercial
Code as in effect on the date hereof in the State of New York; provided that if
by reason of mandatory provisions of law, the perfection or the effect of
perfection or non-perfection of the security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than New York, "Uniform Commercial Code" shall mean the Uniform Commercial Code
as in effect in such other jurisdiction for purposes of the provisions hereof
relating to such perfection or effect of perfection or non-perfection.

"Wet-Ink Mortgage Loan" shall mean a Mortgage Loan which is
pledged to the Lender simultaneously with the origination thereof by the
Borrowers, which origination is financed in part or in whole with proceeds of
Loans distributed to a Settlement Agent by the Trustee, it being understood
that a Wet-Ink Mortgage Loan shall cease being a Wet-Ink Mortgage Loan upon
receipt by the Trustee of the related Mortgage Loan Documents.

1.02 Accounting Terms and Determinations. Except as
otherwise expressly provided herein, all accounting terms used herein shall be
interpreted, and all financial statements and certificates and reports as to
financial matters required to be delivered to the Lender hereunder shall be
prepared, in accordance with GAAP.

Section 2. Loans, Note and Prepayments.

2.01 Loans.

a) Subject to fulfillment of the conditions precedent
set forth in Sections 5.01 and 5.02 hereof, and provided that no Default shall
have occurred and be continuing hereunder, the Lender agrees from time to time,
on the terms and conditions of this Agreement, to make loans (individually, a
"Committed Loan"; collectively, the "Committed Loans") to the Borrowers in
Dollars, from and including the Effective Date to and including the Termination
Date in an aggregate principal amount at any one time outstanding up to but not
exceeding the Maximum Committed Amount as in effect from time to time.

(b) In addition to the foregoing, the Lender may from time to
time in its sole discretion, on the terms and conditions of this Agreement,
make loans (individually, an "Uncommitted Loan"; collectively, the "Uncommitted
Loans") to the Borrowers in Dollars during the period from and including the
Effective Date to and including the Termination Date in an aggregate principal
amount at

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<PAGE> 16
any one time outstanding up to but not exceeding the Maximum Uncommitted Amount
as in effect from time to time.

(c) In determining whether Loans outstanding secured by
Pass-Through Certificates and Eligible Mortgage Loans are Committed Loans or
Uncommitted Loans, such Loans shall first be deemed Committed Loans up to the
Maximum Committed Amount, and then the remainder shall be deemed Uncommitted
Loans.

(d) Subject to the terms and conditions of this
Agreement, during such period the Borrower may borrow, repay and reborrow
hereunder.

(e) In no event shall a Loan be made when any Default or
Event of Default has occurred and is continuing.

2.02 Notes.

(a) The Loans made by the Lender shall be evidenced by a
single promissory note of the Borrowers substantially in the form of Exhibit A
hereto (the "Note"), dated the date hereof, payable to the Lender in a
principal amount equal to the amount of the Maximum Credit as originally in
effect and otherwise duly completed. The Lender shall have the right to have
its Note subdivided, by exchange for promissory notes of lesser denominations
or otherwise.

(b) The date, amount, interest rate, and whether such
Loan is a Committed Loan or Uncommitted Loan made by the Lender to the
Borrowers, and each payment made on account of the principal thereof, shall be
recorded by the Lender on its books and, prior to any transfer of the Note,
endorsed by the Lender on the schedule attached to the Note or any continuation
thereof; provided, that the failure of the Lender to make any such recordation
or endorsement shall not affect the obligations of the Borrowers to make a
payment when due of any amount owing hereunder or under the Note in respect of
the Loans.

2.03 Procedure for Borrowing.

(a) The Borrowers may request a borrowing hereunder, on
any Business Day during the period from and including the Effective Date to and
including the Termination Date, by delivering to the Lender, with a copy to
the Trustee, an irrevocable written request for borrowing, substantially in the
form of Exhibit D attached hereto (a "Request for Borrowing"), which request
must be received by the Lender prior to 2:00 p.m., New York City time, on the
requested Funding Date. Such request for borrowing shall (i) attach a schedule
identifying the Eligible Mortgage Loans that the applicable Borrower proposes
to pledge to the Lender and to be included in the Borrowing Base in connection
with such borrowing, (ii) specify the requested Funding Date, (iii) include a
Mortgage Loan Tape containing information with respect to the Eligible Mortgage
Loans that the applicable Borrower proposes to pledge to the Lender and to be
included in the Borrowing Base in connection with such borrowing, and (iv)
attach an officer's certificate signed by a Responsible Officer of the
respective Borrower as required by Section 5.02(b) hereof.

(b) Upon any Borrower's Request for Borrowing (which, for
purposes hereof shall be deemed a request by all of the Borrowers hereunder)
pursuant to Section 2.03(a), the Lender shall, assuming all conditions
precedent set forth in Section 5.01 and 5.02 have been met and provided no

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Default shall have occurred and be continuing, make a Committed Loan to the
Borrowers on the requested Funding Date, in the amount so requested.

(c) Upon any Borrower's Request for Borrowing (which, for
purposes hereof shall be deemed a request by all of the Borrowers hereunder)
pursuant to Section 2.03(a), the Lender may at its sole option, assuming all
conditions precedent set forth in Section 5.01 and 5.02 have been met and
provided no Default shall have occurred and be continuing, make an Uncommitted
Loan to the Borrowers on the requested Funding Date, in the amount so
requested.

(d) No later than 12:00 p.m., New York time, on the
requested Funding Date, (i) the Borrower shall deliver to the Trustee the
Mortgage File pertaining to each Eligible Mortgage Loan (other than a Wet-Ink
Mortgage Loan or a Mortgage Loan held by a Bailee to be pledged to the Lender
and (ii) the Trustee shall issue and deliver the relevant Pass-Through
Certificate to the Lender, to be included in the Borrowing Base on such
requested Funding Date, in accordance with the terms and conditions of the
Pooling and Servicing Agreement.

(e) Pursuant to the Pooling and Servicing Agreement, the
Trustee shall deliver to the Lender and the Borrowers, by no later than 2:00
p.m. New York City time on a Funding Date, a Mortgage Loan Schedule and
Exception Report in respect of all Mortgage Loans pledged to the Lender on such
Funding Date, and a Mortgage Loan Schedule and Exception Report. Such Mortgage
Loan Schedule and Exception Report shall identify those Mortgage Loans that are
Wet-Ink Mortgage Loans and those Mortgage Loans that are being held by a Bailee
(as indicated by the applicable Borrower). Subject to Section 5 hereof, such
borrowing will then be made available to the Borrowers by the Lender
transferring, via wire transfer, in the aggregate amount of such borrowing in
funds immediately available pursuant to Wire Instructions set forth in the
Request for Borrowing.

2.04 Limitation on Types of Loans; Illegality. Anything
herein to the contrary notwithstanding, if, on or prior to the determination of
any Eurodollar Base Rate:

(a) the Lender determines, which determination shall be
conclusive, that quotations of interest rates for the relevant
deposits referred to in the definition of "Eurodollar Base Rate" in
Section 1.01 hereof are not being provided in the relevant amounts or
for the relevant maturities for purposes of determining rates of
interest for Loans as provided herein; or

(b) the Lender determines, which determination shall be
conclusive, that the relevant rate of interest referred to in the
definition of "Eurodollar Base Rate" in Section 1.01 hereof upon the
basis of which the rate of interest for Loans is to be determined is
not likely adequately to cover the cost to the Lender of making or
maintaining Loans; or

(c) it becomes unlawful for the Lender to honor its
obligation to make or maintain Loans hereunder using a Eurodollar
Rate;

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<PAGE> 18
then the Lender shall give the Borrowers prompt notice thereof
and, so long as such condition remains in effect, the Lender shall be under no
obligation to make additional Loans, and the Borrowers shall, at their option,
within 5 Business Days following receipt of such notice either prepay, without
penalty or premium, all such Loans as may be outstanding or pay interest on
such Loans at a rate per annum equal to the Federal Funds Rate plus 1%.

2.05 Repayment of Loans; Interest.

(a) The Borrowers hereby promise to repay in full on the
Termination Date the then aggregate outstanding principal amount of the Loans.

(b) The Borrowers hereby promise to pay to the Lender
interest on the unpaid principal amount of each Loan for the period from and
including the date of such Loan to but excluding the date such Loan shall be
paid in full, at a rate per annum equal to the Eurodollar Rate plus the
Applicable Margin. Notwithstanding the foregoing, the Borrowers hereby promise
to pay to the Lender interest at the applicable Post-Default Rate on any
principal of any Loan and on any other amount payable by the Borrower hereunder
or under the Note that shall not be paid in full when due (whether at stated
maturity, by acceleration or by mandatory prepayment or otherwise) for the
period from and including the due date thereof to but excluding the date the
same is paid in full. Accrued interest on each Loan shall be payable monthly
in arrears on the first Business Day of each month and for the last month of
the Loan Agreement on the first Business Day of such last month and on the
Termination Date, except that interest payable at the Post-Default Rate shall
accrue daily and shall be payable upon such accrual. Promptly after the
determination of any interest rate provided for herein or any change therein,
the Lender shall give notice thereof to the Borrowers.

(c) Following each Funding Date and from time to time (as
further described in Section 11.15 hereof) the Lender shall have the right to
perform a Due Diligence Review with respect to any or all of the Mortgage
Loans. In the event that the Lender discovers any discrepancy between the
information set forth on the Mortgage Loan Tape and the information discovered
as a result of the Lender's Due Diligence Review, in all cases, based upon the
Underwriting Guidelines and the Borrower's credit classification criteria (in
each case, a "Discrepancy"), then the Lender shall give notice thereof to the
applicable Borrower and such Borrower shall promptly correct the information
set forth on the related Mortgage Loan Tape. In the event that any Discrepancy
affects the classification of a Mortgage Loan (in each case, a "Misclassified
Mortgage Loan"), then such Mortgage Loan shall be re-classified.

(d) It is understood and agreed that, unless and until an
Event of Default shall have occurred and be continuing and Lender shall have
exercised its remedies under Section 9(a) hereof, the Borrower shall be
entitled to the proceeds of the Collateral pledged to the Lender hereunder.

2.06 Mandatory Prepayments or Pledge.

If at any time the aggregate outstanding principal amount of
Loans exceeds the Borrowing Base (a "Borrowing Base Deficiency"), as determined
by the Lender and notified to the Borrowers on any Business Day, the Borrowers
shall no later than one Business Day after receipt of such notice, either
prepay the Loans in part or in whole, without penalty or premium, or include
additional Eligible Mortgage Loans in the trust represented by the Pass-Through
Certificate and pledge such additional Eligible Mortgage Loans (which
Collateral shall be in all respects acceptable to the

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<PAGE> 19
Lender) to the Lender, such that after giving effect to such prepayment or
pledge the aggregate outstanding principal amount of the Loans does not exceed
the Borrowing Base.

2.07 Optional Prepayments.

The Borrowers may prepay the Loans, without penalty or
premium, on any date. Any amounts prepaid shall be applied to repay the
outstanding principal amount of the Loan or Loans specified by the Borrowers
(together with accrued interest thereon) until paid in full. Amounts repaid
may be reborrowed in accordance with the terms of this Loan Agreement. If such
Borrower intends to prepay a Loan in whole or in part, such Borrower shall give
one (1) Business Day's prior written notice thereof to the Lender. If such
notice is given, the amount specified in such notice shall be due and payable
on the date specified therein, together with accrued interest to such date on
the amount prepaid.

2.08 Release of Excess Collateral .

On any day on which the Borrowing Base exceeds the aggregate
outstanding principal amount of the Loans, so long as no Default or Event of
Default has occurred and is continuing:

(a) The Borrower may prepare a Request for Release of
Mortgage Loans in the form of Exhibit F to the Pooling and Servicing Agreement
("Request for Release-Overcollateralization"), specifying (1) the Eligible
Mortgage Loans to be released and the requested release date, (2) the Borrowing
Base with respect to such Eligible Mortgage Loans pledged hereunder, (3) the
remaining Borrowing Base after giving effect to the release of the Eligible
Mortgage Loans to be released, (4) the unpaid principal balance of the Loans,
and (5) a certification from the Borrower that, upon release of the Eligible
Mortgage Loans to be released, the Borrowing Base would be equal to or greater
than the unpaid principal balance of the Loans.

(b) The Borrower shall transmit the Request for
Release-Overcollateralization by facsimile transmission to the Lender. Upon
confirming that the Request for Release-Overcollateralization correctly
reflects the information set forth in Section 2.08(a) and that, after giving
effect to the requested release the amount of the Borrowing Base would be equal
to or greater than the unpaid principal balance of the Loans, the Lender shall
countersign the Request for Release-Overcollateralization and transmit the
countersigned Request for Release-Overcollateralization to the Trustee. In the
event that the Lender's assessment of the Borrowing Base would alter the
information set forth in any Request for Release, the Lender shall promptly
notify the Borrower in writing of such assessment.

(c) Upon receipt of the countersigned Request for
Release-Overcollateralization and upon approval of the Request for
Release-Overcollateralization by the Lender, the Trustee shall take the actions
set forth in the Custodial Agreement with respect to the Eligible Mortgage Loan
to be released.

(d) The Lender shall not be obligated to countersign a
Request for Release-Overcollateralization (i) which the Lender reasonably
determines is based on erroneous information or would result in a release of
Collateral other than in accordance with the terms of this Agreement, or (ii)
which does not reflect the Lender's current determination of Market Value.

Section 3. Payments; Computations; Etc.

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<PAGE> 20
3.01 Payments.

(a) Except to the extent otherwise provided herein, all
payments of principal, interest and other amounts to be made by the Borrowers
under this Agreement and the Note shall be made in Dollars, in immediately
available funds, without deduction, set-off or counterclaim, to the Lender at
the following account maintained by the Lender: Account No. 40615114, For the
A/C of MSMCI, Citibank, N.A., ABA# 021000089, not later than 3:00 p.m., New
York City time, on the date on which such payment shall become due (each such
payment made after such time on such due date to be deemed to have been made on
the next succeeding Business Day). Each Borrower acknowledges that it has no
rights of withdrawal from the foregoing account.

(b) Except to the extent otherwise expressly provided
herein, if the due date of any payment under this Loan Agreement or the Note
would otherwise fall on a day that is not a Business Day, such date shall be
extended to the next succeeding Business Day, and interest shall be payable for
any principal so extended for the period of such extension.

3.02 Computations. Interest on the Loans shall be computed
on the basis of a 360-day year for the actual days elapsed (including the first
day but excluding the last day) occurring in the period for which payable.

3.03 U.S. Taxes.

(a) The Borrowers agree to pay to the Lender such
additional amounts as are necessary in order that the net payment of any amount
due to the Lender hereunder after deduction for or withholding in respect of
any U.S. Tax (as defined below) imposed with respect to such payment (or in
lieu thereof, payment of such U.S. Tax by the Lender), will not be less than
the amount stated herein to be then due and payable; provided that the
foregoing obligation to pay such additional amounts shall not apply:

(i) to any payment to the Lender hereunder unless the
Lender is entitled to submit a Form 1001 (relating to the Lender and
entitling it to a complete exemption from withholding on all interest
to be received by it hereunder in respect of the Loans) or Form 4224
(relating to all interest to be received by the Lender hereunder in
respect of the Loans), or

(ii) to any U.S. Tax imposed solely by reason of the
failure by the Lender to comply with applicable certification,
information, documentation or other reporting requirements concerning
the nationality, residence, identity or connections with the United
States of America of the Lender if such compliance is required by
statute or regulation of the United States of America as a
precondition to relief or exemption from such U.S. Tax.

For the purposes of this Section 3.03, (x) "Form 1001" shall mean Form 1001
(Ownership, Exemption, or Reduced Rate Certificate) of the Department of the
Treasury of the United States of America, (y) "Form 4224" shall mean Form 4224
(Exemption from Withholding of Tax on Income Effectively Connected with the
Conduct of a Trade or Business in the United States) of the Department of the
Treasury of the United States of America (or in relation to either such Form
such successor and related form as may from time to time be adopted by the
relevant taxing authorities of the United States of America to document a claim
to which such Form relates), and (z) "U.S. Taxes" shall mean any present or
future tax, assessment or other charge or levy imposed by or on behalf of the
United States of America or any taxing authority thereof or therein.

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<PAGE> 21
(b) Within 30 days after paying any such amount to the
Lender, and within 30 days after it is required by law to remit such deduction
or withholding to any relevant taxing or other authority, the Borrowers shall
deliver to the Lender evidence satisfactory to the Lender of such deduction,
withholding or payment (as the case may be).

(c) The Lender represents and warrants to the Borrowers
that on the date hereof the Lender is either incorporated under the laws of the
United States or a State thereof or is entitled to submit a Form 1001 (relating
to the Lender and entitling it to a complete exemption from withholding on all
interest to be received by it hereunder in respect of the Loans) or Form 4224
(relating to all interest to be received by the Lender hereunder in respect of
the Loans).

Section 4. Collateral Security.

4.01 Collateral; Security Interest.

(a) Pursuant to the Pooling and Servicing Agreement, the
Trustee shall hold the Mortgage Loan Documents delivered to the Trustee as
exclusive bailee and agent for the Lender pursuant to terms of the Pooling and
Servicing Agreement and shall deliver to the Lender Pass-Through Certificates,
each to the effect that it has reviewed such Mortgage Loan Documents in the
manner and to the extent required by the Pooling and Servicing Agreement and
identifying any deficiencies in such Mortgage Loan Documents for the Mortgage
Loans identified in the Mortgage Loan Schedule and Exception Report (in the
form of Exhibit I to the Pooling and Servicing Agreement) as so reviewed.
Pursuant to each Bailee Agreement, the Bailee shall hold the Mortgage Loan
Documents delivered to such Bailee as exclusive bailee and agent for the Lender
pursuant to terms of the applicable Bailee Agreement and shall deliver such
Mortgage Loan Documents to the Trustee in accordance with the terms of the
applicable Bailee Agreement.

(b) All of each Borrower's right, title and interest in,
to and under each of the following items of property, whether now owned or
hereafter acquired, now existing or hereafter created and wherever located, is
hereinafter referred to as the "Collateral":

(i) all Mortgage Loans;

(ii) all Mortgage Loan Documents, including without
limitation all promissory notes, and all Servicing Records (as defined
in Section 11.14(b) below), servicing agreements and any other
collateral pledged or otherwise relating to such Mortgage Loans,
together with all files, documents, instruments, surveys,
certificates, correspondence, appraisals, computer programs, computer
storage media, accounting records and other books and records relating
thereto;

(iii) all purchase agreements relating to, or otherwise
governing, any or all of the Mortgage Loans subject to such purchase
agreements to the extent of the Mortgage Loans;

(iv) all mortgage guaranties and insurance (issued by
governmental agencies or otherwise) and any mortgage insurance
certificate or other document evidencing such mortgage guaranties or
insurance relating to any Mortgage Loan and all claims and payments
thereunder;

(v) all other insurance policies and insurance proceeds
relating to any Mortgage Loan or the related Mortgaged Property;

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<PAGE> 22
(vi) all funds on deposit in Collection Accounts to the
extent such funds represent proceeds from the Mortgage Loans (as
defined in the Pooling and Servicing Agreement), if any;

(vii) all Pass-Through Certificates delivered to the Lender
and/or evidencing any or all of the Mortgage Loans;

(viii) the Pooling and Servicing Agreement as it relates to
or constitutes any or all of the foregoing;

(ix) all "general intangibles" as defined in the Uniform
Commercial Code relating to or constituting any and all of the
foregoing; and

(x) any and all replacements, substitutions,
distributions on or proceeds of any and all of the foregoing.

(c) Each Borrower hereby assigns, pledges and grants a
security interest in all of its right, title and interest in, to and under the
Collateral to the Lender to secure the repayment of principal of and interest
on all Loans and all other amounts owing to the Lender hereunder, under the
Note and under the other Loan Documents (collectively, the "Secured
Obligations"). Each Borrower agrees to mark its computer records and tapes to
evidence the interests granted to the Lender hereunder.

4.02 Further Documentation. At any time and from time to
time, upon the written request of the Lender, and at the sole expense of the
Borrowers, the Borrowers will promptly and duly execute and deliver, or will
promptly cause to be executed and delivered, such further instruments and
documents and take such further action as the Lender may reasonably request for
the purpose of obtaining or preserving the full benefits of this Loan Agreement
and of the rights and powers herein granted, including, without limitation, the
filing of any financing or continuation statements under the Uniform Commercial
Code in effect in any jurisdiction with respect to the Liens created hereby.
Each Borrower also hereby authorizes the Lender to file any such financing or
continuation statement without the signature of such Borrower to the extent
permitted by applicable law provided that the Lender shall promptly provide a
copy thereof to the Borrowers. A carbon, photographic or other reproduction of
this Loan Agreement shall be sufficient as a financing statement for filing in
any jurisdiction.

4.03 Changes in Locations, Name, etc. No Borrower shall (i)
change the location of its chief executive office/chief place of business from
that specified in Section 6 hereof or (ii) change its name, identity or
corporate structure (or the equivalent) or change the location where it
maintains its records with respect to the Collateral unless it shall have given
the Lender at least 30 days prior written notice thereof and shall have
delivered to the Lender all Uniform Commercial Code financing statements and
amendments thereto as the Lender shall request and taken all other actions
deemed reasonably necessary by the Lender to continue its perfected status in
the Collateral with the same or better priority.

4.04. Lender's Appointment as Attorney-in-Fact.

(a) Each Borrower hereby irrevocably constitutes and
appoints the Lender and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of such Borrower and in the name of
such

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<PAGE> 23
Borrower or in its own name, from time to time in the Lender's discretion, for
the purpose of carrying out the terms of this Loan Agreement, to take any and
all appropriate action and to execute any and all documents and instruments
which may be reasonably necessary or desirable to accomplish the purposes of
this Loan Agreement, and, without limiting the generality of the foregoing,
each Borrower hereby gives the Lender the power and right, on behalf of each
Borrower, without assent by, but with notice to, such Borrower, if an Event of
Default shall have occurred and be continuing, to do the following:

(i) in the name of such Borrower or its own name, or
otherwise, to take possession of and endorse and collect any checks,
drafts, notes, acceptances or other instruments for the payment of
moneys due under any mortgage insurance or with respect to any other
Collateral and to file any claim or to take any other action or
proceeding in any court of law or equity or otherwise deemed
appropriate by the Lender for the purpose of collecting any and all
such moneys due under any such mortgage insurance or with respect to
any other Collateral whenever payable;

(ii) to pay or discharge taxes and Liens levied or placed
on or threatened against the Collateral;

(iii) (A) to direct any party liable for any payment under
any Collateral to make payment of any and all moneys due or to become
due thereunder directly to the Lender or as the Lender shall direct;
(B) to ask or demand for, collect, receive payment of and receipt for,
any and all moneys, claims and other amounts due or to become due at
any time in respect of or arising out of any Collateral; (C) to sign
and endorse any invoices, assignments, verifications, notices and
other documents in connection with any of the Collateral; (D) to
commence and prosecute any suits, actions or proceedings at law or in
equity in any court of competent jurisdiction to collect the
Collateral or any thereof and to enforce any other right in respect of
any Collateral; (E) to defend any suit, action or proceeding brought
against such Borrower with respect to any Collateral; (F) to settle,
compromise or adjust any suit, action or proceeding described in
clause (E) above and, in connection therewith, to give such discharges
or releases as the Lender may deem appropriate; and (G) generally, to
sell, transfer, pledge and make any agreement with respect to or
otherwise deal with any of the Collateral as fully and completely as
though the Lender were the absolute owner thereof for all purposes,
and to do, at the Lender's option and such Borrower's expense, at any
time, and from time to time, all acts and things which the Lender
deems necessary to protect, preserve or realize upon the Collateral
and the Lender's Liens thereon and to effect the intent of this Loan
Agreement, all as fully and effectively as such Borrower might do; and

(iv) to direct the actions of the Trustee with respect to
the Collateral under the Pooling and Servicing Agreement.

The Borrower hereby ratifies all that said attorneys shall lawfully do or cause
to be done by virtue hereof. This power of attorney is a power coupled with an
interest and shall be irrevocable.

(b) The Borrowers also authorizes the Lender, if an Event
of Default hall have occurred and be continuing, from time to time, to execute,
in connection with any sale provided for in Section 4.07 hereof, any
endorsements, assignments or other instruments of conveyance or transfer with
respect to the Collateral.

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<PAGE> 24
(c) The powers conferred on the Lender are solely to
protect the Lender's interests in the Collateral and shall not impose any duty
upon the Lender to exercise any such powers. The Lender shall be accountable
only for amounts that it actually receives as a result of the exercise of such
powers, and neither the Lender nor any of its officers, directors, or employees
shall be responsible to the Borrower for any act or failure to act hereunder,
except for its own gross negligence or willful misconduct.

4.05. Performance by Lender of Borrowers' Obligations. If any
Borrower fails to perform or comply with any of its agreements contained in the
Loan Documents and the Lender may itself perform or comply, or otherwise cause
performance or compliance, with such agreement, the reasonable expenses of the
Lender incurred in connection with such performance or compliance, together
with interest thereon at a rate per annum equal to the Post-Default Rate, shall
be payable by the Borrowers to the Lender on demand and shall constitute
Secured Obligations.

4.06. Proceeds. If an Event of Default shall occur and be
continuing, (a) all proceeds of Collateral received by any Borrower consisting
of cash, checks and other near-cash items shall be held by such Borrower in
trust for the Lender, segregated from other funds of such Borrower, and shall
forthwith upon receipt by such Borrower be turned over to the Lender in the
exact form received by such Borrower (duly endorsed by such Borrower to the
Lender, if required) and (b) any and all such proceeds received by the Lender
(whether from a Borrower or otherwise) may, in the sole discretion of the
Lender, be held by the Lender as collateral security for, and/or then or at any
time thereafter may be applied by the Lender against, the Secured Obligations
(whether matured or unmatured), such application to be in such order as the
Lender shall elect. Any balance of such proceeds remaining after the Secured
Obligations shall have been paid in full and this Loan Agreement shall have
been terminated shall be paid promptly over to the Borrowers or to whomsoever
may be lawfully entitled to receive the same. For purposes hereof, proceeds
shall include, but not be limited to, all principal and interest payments, all
prepayments and payoffs, insurance claims, condemnation awards, sale proceeds,
real estate owned rents and any other income and all other amounts received
with respect to the Collateral.

4.07. Remedies. If an Event of Default shall occur and be
continuing, the Lender may exercise, in addition to all other rights and
remedies granted to it in this Loan Agreement and in any other instrument or
agreement securing, evidencing or relating to the Secured Obligations, all
rights and remedies of a secured party under the Uniform Commercial Code.
Without limiting the generality of the foregoing, the Lender without demand of
performance or other demand, presentment, protest, advertisement or notice of
any kind (except any notice required by law referred to below) to or upon the
Borrowers or any other Person (each and all of which demands, presentments,
protests, advertisements and notices are hereby waived), may in such
circumstances forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give
option or options to purchase, or otherwise dispose of and deliver the
Collateral or any part thereof (or contract to do any of the foregoing), in one
or more parcels or as an entirety at public or private sale or sales, at any
exchange, broker's board or office of the Lender or elsewhere upon such terms
and conditions as it may deem advisable and at such prices as it may deem best,
for cash or on credit or for future delivery without assumption of any credit
risk. The Lender shall have the right upon any such public sale or sales, and,
to the extent permitted by law, upon any such private sale or sales, to
purchase the whole or any part of the Collateral so sold, free of any right or
equity of redemption in the Borrowers, which right or equity is hereby waived
or released. The Borrowers further agree, at the Lender's request, to assemble
the Collateral and make it available to the Lender at places which the Lender
shall reasonably select, whether at the Borrowers' premises or elsewhere. The

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Lender shall apply the net proceeds of any such collection, recovery, receipt,
appropriation, realization or sale, after deducting all reasonable costs and
expenses of every kind incurred therein or incidental to the care or
safekeeping of any of the Collateral or in any way relating to the Collateral
or the rights of the Lender hereunder, including without limitation reasonable
attorneys' fees and disbursements, to the payment in whole or in part of the
Secured Obligations, in such order as the Lender may elect, and only after such
application and after the payment by the Lender of any other amount required or
permitted by any provision of law, including without limitation Section
9-504(1)(c) of the Uniform Commercial Code, need the Lender account for the
surplus, if any, to the Borrowers. To the extent permitted by applicable law,
the Borrowers waive all claims, damages and demands they may acquire against
the Lender arising out of the exercise by the Lender of any of its rights
hereunder, other than those claims, damages and demands arising from the gross
negligence or willful misconduct of the Lender. If any notice of a proposed
sale or other disposition of Collateral shall be required by law, such notice
shall be deemed reasonable and proper if given at least 10 days before such
sale or other disposition. The Borrowers shall remain liable for any
deficiency (plus accrued interest thereon as contemplated pursuant to Section
2.05(b) hereof) if the proceeds of any sale or other disposition of the
Collateral are insufficient to pay the Secured Obligations and the fees and
disbursements of any attorneys employed by the Lender to collect such
deficiency.

4.08. Limitation on Duties Regarding Presentation of
Collateral. The Lender's duty with respect to the custody, safekeeping and
physical preservation of the Collateral in its possession, under Section 9-207
of the Uniform Commercial Code or otherwise, shall be to deal with it in the
same manner as the Lender deals with similar property for its own account.
Neither the Lender nor any of its directors, officers or employees shall be
liable for failure to demand, collect or realize upon all or any part of the
Collateral or for any delay in doing so or shall be under any obligation to
sell or otherwise dispose of any Collateral upon the request of any Borrower or
otherwise.

4.09. Powers Coupled with an Interest. All authorizations
and agencies herein contained with respect to the Collateral are irrevocable
and powers coupled with an interest.

4.10 Release of Security Interest. Upon termination of this
Loan Agreement and repayment to the Lender of all Secured Obligations and the
performance of all obligations under the Loan Documents the Lender shall
release its security interest in any remaining Collateral. So long as no Event
of Default has occurred and is continuing, the Borrower may, subject to the
Pooling and Servicing Agreement, and subject to Section 2.08 hereof, request
the release of one or more Eligible Mortgage Loans constituting Collateral
pursuant to a Request for Release-Overcollateralization.

Section 5. Conditions Precedent.

5.01 Initial Loan. The obligation of the Lender to make its
initial Loan hereunder is subject to the satisfaction, immediately prior to or
concurrently with the making of such Loan, of the condition precedent that the
Lender shall have received all of the following documents, each of which shall
be satisfactory to the Lender and its counsel in form and substance:

(a) Loan Documents.

(i) Note. The Note, duly completed and executed;

(ii) Pooling and Servicing Agreement. The Pooling and
Servicing Agreement, certified as a true, correct and complete copy of
the original, attached hereto as Exhibit B. In

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addition, the Borrowers shall have taken such other action as the
Lender shall have requested in order to perfect the security interests
created pursuant to the Loan Agreement;

(iii) Affiliate Guaranty. The Affiliate Guaranty,
certified as a true, correct and complete copy of the original,
attached hereto as Exhibit F;

(b) Organizational Documents. A good standing
certificate and certified copies of the charter and by-laws (or
equivalent documents) of each Borrower and of all corporate or other
authority for each Borrower with respect to the execution, delivery
and performance of the Loan Documents and each other document to be
delivered by each Borrower from time to time in connection herewith
(and the Lender may conclusively rely on such certificate until it
receives notice in writing from each Borrower to the contrary);

(c) Legal Opinion. A legal opinion of counsel to the
Borrowers, Guarantor and Master Servicer, substantially in the form
attached hereto as Exhibit C;

(d) Mortgage Loan Schedule and Exception Report. A
Mortgage Loan Schedule and Exception Report, dated the Effective Date,
from the Trustee, duly completed;

(e) Pass-Through Certificates. A Pass-Through
Certificate of each Borrower pledged to Lender in consideration for
the Loans, registered in the name of the Lender;

(f) Letter Agreements. The (i) letter agreement from the
Guarantor and the Borrowers to the Lender, dated as of May 1, 1997 and
(ii) letter agreement from PNC Bank, National Association to AMHC and
Advanta Mortgage Corp. USA, dated as of May 1, 1997.

(g) Other Documents. Such other documents as the Lender
may reasonably request.

5.02 Initial and Subsequent Loans. The making of each Loan
to the Borrowers (including the initial Loan) on any Business Day is subject to
the satisfaction of the following further conditions precedent, both
immediately prior to the making of such Loan and also after giving effect
thereto and to the intended use thereof:

(a) no Default or Event of Default shall have occurred
and be continuing;

(b) both immediately prior to the making of such Loan and
also after giving effect thereto and to the intended use thereof, the
representations and warranties made by the Borrowers in Section 6
hereof, and elsewhere in each of the Loan Documents, shall be true and
complete on and as of the date of the making of such Loan in all
material respects (in the case of the representations and warranties
in Section 6.10 and Schedule 1, solely with respect to Mortgage Loans
included in the Borrowing Base) with the same force and effect as if
made on and as of such date (or, if any such representation or
warranty is expressly stated to have been made as of a specific date,
as of such specific date). The Lender shall have received an
officer's certificate signed by a Responsible Officer of each Borrower
certifying as to the truth and accuracy of the above, which
certificate shall specifically include a statement that such Borrower
is in compliance in all material respects with all governmental
licenses and authorizations and is qualified to do business and in
good standing in all required jurisdictions except where the failure
to be so qualified would not have a Material Adverse Effect.

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(c) the aggregate outstanding principal amount of the
Loans shall not exceed the Borrowing Base;

(d) subject to the Lender's right to perform one or more
Due Diligence Reviews pursuant to Section 11.15 hereof, the Lender
shall have completed its due diligence review of the Mortgage Loan
Documents for each Loan and such other documents, records, agreements,
instruments, mortgaged properties or information relating to such
Loans as the Lender in its sole discretion deems appropriate to review
and such review shall be satisfactory to the Lender in its sole
discretion;

(e) the Lender shall have received from the Trustee a
Mortgage Loan Schedule and Exception Report with exceptions acceptable
to the Lender in its sole discretion in respect of Eligible Mortgage
Loans to be pledged hereunder on such Business Day;

(f) the Trustee shall have received a Notice of Pledge
substantially in the form provided in the Pooling and Servicing
Agreement (a copy of which shall be delivered to the Lender);

(g) none of the following shall have occurred and/or be
continuing:

(i) an event or events shall have occurred resulting in
the effective absence of a "repo market" or comparable "lending
market" for financing debt obligations secured by mortgage loans or
securities for a period of (or reasonably expected to be) at least 30
consecutive days or an event or events shall have occurred resulting
in the Lender not being able to finance any Loans through the "repo
market" or "lending market" with traditional counterparties at rates
which would have been reasonable prior to the occurrence of such event
or events, provided that the Lender shall notify the Borrowers
promptly upon the occurrence of any such event, provided further that
this Section 5.02(f)(i) shall not take effect until 5 Business Days
after such notice; or

(ii) an event or events shall have occurred resulting in
the effective absence of a "securities market" for securities backed
by mortgage loans for a period of (or reasonably expected to be) at
least 30 consecutive days or an event or events shall have occurred
resulting in the Lender not being able to sell securities backed by
mortgage loans at prices which would have been reasonable prior to
such event or events, provided that the Lender shall notify the
Borrowers promptly upon the occurrence of any such event, provided
further that this Section 5.02(f)(ii) shall not take effect until 5
Business Days after such notice.

Each request for a borrowing by the Borrowers hereunder shall constitute a
certification by the Borrowers that all the conditions set forth in this
Section 5 have been satisfied (both as of the date of such notice, request or
confirmation and as of the date of such borrowing).

Section 6. Representations and Warranties. The Borrowers
represent and warrant to the Lender that throughout the term of this Loan
Agreement:

6.01 Existence. Each Borrower (a) is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, (b) has all requisite corporate or other
power, and has all governmental licenses, authorizations, consents and
approvals necessary to own its assets and carry on its business as now being or
as proposed to be conducted, except where the

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<PAGE> 28
lack of such licenses, authorizations, consents and approvals would not be
reasonably likely to have a material adverse effect on its Property, business
or financial condition taken as a whole; and (c) is qualified to do business
and is in good standing in all other jurisdictions in which the nature of the
business conducted by it makes such qualification necessary, except where
failure so to qualify would not be reasonably likely (either individually or in
the aggregate) to have a material adverse effect on its Property, business or
financial condition taken as a whole.

6.02 Financial Condition. AMHC has heretofore furnished to
the Lender a copy of (a) its consolidated balance sheet and the consolidated
balance sheets of its consolidated Subsidiaries for the fiscal year of the
Borrowers ended December 31, 1996, and the related consolidated statements of
income and retained earnings and of cash flows for the Borrowers and their
consolidated Subsidiaries for such fiscal year, with the opinion thereon of
Arthur Andersen LLP. All such financial statements are complete and correct
and fairly present, in all material respects, the consolidated financial
condition of the Borrowers and their Subsidiaries and the consolidated results
of their operations as at such dates and for such fiscal periods, all in
accordance with GAAP applied on a consistent basis except, in the case of
interim financial statements, for the absence of footnotes and subject to
year-end adjustments. Since April 17, 1997, there has been no material adverse
change in the consolidated business, operations or financial condition of the
Borrowers and their consolidated Subsidiaries taken as a whole from that set
forth in said financial statements.

6.03 Litigation. There are no actions, suits, arbitrations,
investigations or proceedings pending or, to the Borrowers' knowledge,
threatened against any Borrower, the Guarantor or any of their Subsidiaries or
affecting any of the Property of any of them before any Governmental Authority
(i) as to which individually or in the aggregate there is a reasonable
likelihood of an adverse decision which would be reasonably likely to have a
material adverse effect on the Property, business or financial condition of the
Borrowers or (ii) which questions the validity or enforceability of any of the
Loan Documents or any action to be taken in connection with the transactions
contemplated hereby.

6.04 No Breach. Neither (a) the execution and delivery of
the Loan Documents nor (b) the consummation of the transactions therein
contemplated in compliance with the terms and provisions thereof will conflict
with or result in a breach of the charter or by-laws of any Borrower, or any
applicable law, rule or regulation, or any order, writ, injunction or decree of
any Governmental Authority, or any Servicing Agreement or other material
agreement or instrument to which any Borrower or any of its Subsidiaries is a
party or by which any of them or any of their Property is bound or to which any
of them is subject, or constitute a default under any such material agreement
or instrument which breach or conflict will have a Material Adverse Effect or
result in the creation or imposition of any Lien (except for the Liens created
pursuant to this Loan Agreement) upon any Property of the Borrower or any of
its Subsidiaries pursuant to the terms of any such agreement or instrument.

6.05 Action. Each Borrower has all necessary corporate or
other power, authority and legal right to execute, deliver and perform its
obligations under each of the Loan Documents; the execution, delivery and
performance by such Borrower of each of the Loan Documents have been duly
authorized by all necessary corporate or other action on its part; and each
Loan Document has been duly and validly executed and delivered by such Borrower
and constitutes a legal, valid and binding obligation of such Borrower,
enforceable against such Borrower in accordance with its terms except as may be
limited by applicable bankruptcy, moratorium or other laws affecting creditors'
rights generally and by general principles of equity.

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<PAGE> 29
6.06 Approvals. No authorizations, approvals or consents of,
and no filings or registrations with, any Governmental Authority or any
securities exchange are necessary for the execution, delivery or performance by
any Borrower of the Loan Documents or for the legality, validity or
enforceability thereof, except for filings and recordings in respect of the
Liens created pursuant to this Loan Agreement.

6.07 Margin Regulations. Neither the making of any Loan
hereunder, nor the use of the proceeds thereof, will violate or be inconsistent
with the provisions of Regulation G, T, U or X.

6.08 Taxes. The Guarantor has filed all Federal income tax
returns and all other material tax returns that are required to be filed by it,
which tax returns represent all Federal income tax returns and all other
material tax returns that are required to be filed by the Borrowers, and have
paid all taxes due pursuant to such returns or pursuant to any assessment
received by it or any of its Subsidiaries, except for any such taxes as are
being appropriately contested in good faith by appropriate proceedings
diligently conducted and with respect to which adequate reserves have been
provided. The charges, accruals and reserves on the books of the Guarantor and
its Subsidiaries in respect of taxes and other governmental charges are, in the
opinion of the Borrowers, adequate.

6.09 Investment Company Act. Neither the Borrower nor any of
its Subsidiaries is an "investment company", or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.

6.10 Collateral; Collateral Security.

(a) The Borrower has not assigned, pledged, or otherwise
conveyed or encumbered any Pass-Through Certificate or Mortgage Loan to any
other Person, and immediately prior to the pledge of such Pass-Through
Certificate or Mortgage Loan to the Lender, the applicable Borrower was the
sole owner of such Pass-Through Certificate or Mortgage Loan and had good and
marketable title thereto, free and clear of all Liens (other than the interest
of the Trustee pursuant to the Pooling and Servicing Agreement), in each case
except for Liens to be released simultaneously with the Liens granted in favor
of the Lender hereunder. No Pass-Through Certificate or Mortgage Loan pledged
to the Lender hereunder was acquired by the applicable Borrower from an
Affiliate of the applicable Borrower

(b) The provisions of this Loan Agreement are effective
to create in favor of the Lender a valid security interest in all right, title
and interest of each Borrower in, to and under the Collateral.

(c) Upon receipt by (i) the Lender of each Pass-Through
Certificate issued in Lender's name and (ii) the Trustee of each Mortgage Note,
endorsed as prescribed in the Pooling and Servicing Agreement by a duly
authorized officer of the applicable Borrower, and the related Pledge Notice
(as defined in the Pooling and Servicing Agreement) the Lender shall have a
fully perfected first priority security interest in, respectively, the
applicable Pass-Through Certificate, and in the Mortgage Loan evidenced by the
Mortgage Note and in such Borrower's interest in the related Mortgaged
Property.

(d) Upon the filing of financing statements on Form UCC-1
naming the Lender as "Secured Party" and each Borrower as "Debtor", and
describing the Collateral, in the jurisdictions and recording offices listed on
Schedule 2 attached hereto, the security interests granted hereunder in the

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Collateral will constitute fully perfected first priority security interests
under the Uniform Commercial Code in all right, title and interest of each
Borrower in, to and under such Collateral which can be perfected by filing
under the Uniform Commercial Code.

6.11 Chief Executive Office. Each Borrower's chief executive
office (other than Advanta Finance Corp.) on the Effective Date is located at
500 Office Center Drive, Suite 400, Fort Washington, Pennsylvania 19034;
Advanta Finance Corp.'s chief executive office is located at 16875 West
Bernardo Drive, San Diego, California 92127.

6.12 Location of Books and Records. The location where each
Borrower keeps its books and records, including all computer tapes and records
relating to the Collateral is its chief executive office.

6.13 Hedging. The Borrowers or the Guarantor have entered
into Interest Rate Protection Agreements, having a notional amount not less
than 70% of the aggregate unpaid principal amount of the fixed-rate Mortgage
Loans.

6.14 True and Complete Disclosure. The information, reports,
financial statements, exhibits and schedules furnished in writing by or on
behalf of each Borrower to the Lender in connection with the negotiation,
preparation or delivery of this Loan Agreement and the other Loan Documents or
included herein or therein or delivered pursuant hereto or thereto, when taken
as a whole, do not contain any untrue statement of material fact or omit to
state any material fact necessary to make the statements herein or therein, in
light of the circumstances under which they were made, not misleading. All
written information furnished after the date hereof by or on behalf of each
Borrower to the Lender in connection with this Loan Agreement and the other
Loan Documents and the transactions contemplated hereby and thereby will not
contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, or (in the case of projections)
based on reasonable estimates, on the date as of which such information is
stated or certified.

6.15 ERISA. Each Plan to which any Borrower or its
Subsidiaries make direct contributions, and, to the knowledge of such Borrower,
each other Plan and each Multiemployer Plan, is in compliance in all material
respects with, and has been administered in all material respects in compliance
with, the applicable provisions of ERISA, the Code and any other Federal or
State law. To any Borrowers' knowledge, no event or condition has occurred and
is continuing as to which the Borrower would be under an obligation to furnish
a report to the Lender under Section 7.01(d) hereof.

6.16 Pass-Through Certificates. Borrower represents and
warrants to Lender with respect to each Pass-Through Certificate, that (a) such
Pass-Through Certificate is registered in the name of Lender, (b) immediately
prior to the transfer to the Lender of the interest represented by such
Pass-Through Certificate, such interest is owned by a Borrower free from all
liens and encumbrances, (c) prior to or concurrently with such transfer to the
Lender of the interest represented by such Pass-Through Certificate shall have
been issued in the name of and delivered to the Lender, (d) such Pass-Through
Certificate represents a 100% ownership interest in the Eligible Mortgage Loans
referenced therein, (e) the Eligible Mortgage Loans referenced in such
Pass-Through Certificate are being held by the Trustee for the benefit of the
holder of such Pass-Through Certificate, (f) each Borrower has notified the
Trustee or other registrar issuing such Pass-Through Certificate that Lender is
the holder of such Pass-Through Certificate for all purposes and (g) all
representations and warranties set forth in Part II of Schedule 1 are true and
correct.

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Section 7. Covenants of the Borrowers. Each Borrower
covenants and agrees with the Lender that, so long as any Loan is outstanding
and until payment in full of all Secured Obligations:

7.01 Financial Statements. Borrowers shall deliver to the
Lender:

(a) as soon as available and in any event within 60 days
after the end of each of the first three quarterly fiscal periods of
each fiscal year of AMHC and the Guarantor, the unaudited consolidated
balance sheets of AMHC and the Guarantor and their consolidated
Subsidiaries as at the end of such period and the related unaudited
consolidated statements of income and retained earnings and of cash
flows AMHC and the Guarantor and their consolidated Subsidiaries for
such period and the portion of the fiscal year through the end of such
period, accompanied by a certificate of a Responsible Officer of AMHC
and the Guarantor, respectively, which certificate shall state that
said consolidated financial statements fairly present in all material
respects the consolidated financial condition and results of
operations of AMHC and the Guarantor and its consolidated Subsidiaries
in accordance with GAAP, consistently applied, as at the end of, and
for, such period (except for the absence of footnotes thereto and
subject to normal year-end audit adjustments);

(b) as soon as available and in any event within 90 days
after the end of each fiscal year of AMHC and the Guarantor, the
consolidated balance sheets of AMHC and the Guarantor and their
consolidated Subsidiaries as at the end of such fiscal year and the
related consolidated statements of income and retained earnings and of
cash flows for AMHC and the Guarantor and their consolidated
Subsidiaries for such year, setting forth in each case in comparative
form the figures for the previous year, accompanied by an opinion
thereon (but only with respect to the items covering AMHC and its
consolidated Subsidiaries) of independent certified public accountants
of recognized national standing, which opinion shall not be qualified
as to scope of audit or going concern and shall state that said
consolidated financial statements fairly present the consolidated
financial condition and results of operations of AMHC and its
consolidated Subsidiaries as at the end of, and for, such fiscal year
in accordance with GAAP, and a certificate of such accountants stating
that, in making the examination necessary for their opinion, they
obtained no knowledge, except as specifically stated, of any Default
or Event of Default;

(c) from time to time such other information regarding
the financial condition, operations, or business and AMHC and the
Guarantor as the Lender may reasonably request; and

(d) as soon as reasonably possible, and in any event
within thirty (30) days after a Responsible Officer of any Borrower
knows, or with respect to any Plan or Multiemployer Plan to which such
Borrower or any of its Subsidiaries makes direct contributions, has
reason to believe, that any of the events or conditions specified
below with respect to any Plan or Multiemployer Plan has occurred or
exists, a statement signed by a senior financial officer of such
Borrower setting forth details respecting such event or condition and
the action, if any, that such Borrower or its ERISA Affiliate proposes
to take with respect thereto (and a copy of any report or notice
required to be filed with or given to PBGC by such Borrower or an
ERISA Affiliate with respect to such event or condition):

(i) any reportable event, as defined in Section
4043(b) of ERISA and the regulations issued thereunder, with
respect to a Plan, as to which PBGC has not by

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regulation waived the requirement of Section 4043(a) of ERISA
that it be notified within thirty (30) days of the occurrence
of such event (provided that a failure to meet the minimum
funding standard of Section 412 of the Code or Section 302 of
ERISA, including without limitation the failure to make on or
before its due date a required installment under Section
412(m) of the Code or Section 302(e) of ERISA, shall be a
reportable event regardless of the issuance of any waivers in
accordance with Section 412(d) of the Code); and any request
for a waiver under Section 412(d) of the Code for any Plan;

(ii) the distribution under Section 4041(c) of
ERISA of a notice of intent to terminate any Plan or any
action taken by such Borrower or an ERISA Affiliate to
terminate any Plan;

(iii) the institution by PBGC of proceedings under
Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan, or the
receipt by such Borrower or any ERISA Affiliate of a notice
from a Multiemployer Plan that such action has been taken by
PBGC with respect to such Multiemployer Plan;

(iv) the complete or partial withdrawal from a
Multiemployer Plan by any Borrower or any ERISA Affiliate that
results in liability under Section 4201 or 4204 of ERISA
(including the obligation to satisfy secondary liability as a
result of a purchaser default) that would have a Material
Adverse Effect or the receipt by any Borrower or any ERISA
Affiliate of notice from a Multiemployer Plan that it is in
reorganization or insolvency pursuant to Section 4241 or 4245
of ERISA or that it intends to terminate or has terminated
under Section 4041A of ERISA;

(v) the institution of a proceeding by a
fiduciary of any Multiemployer Plan against any Borrower or
any ERISA Affiliate to enforce Section 515 of ERISA, which
proceeding is not dismissed within 30 days; and

(vi) the adoption of an amendment to any Plan
that, pursuant to Section 401(a)(29) of the Code or Section
307 of ERISA, would result in the loss of tax-exempt status of
the trust of which such Plan is a part if such Borrower or an
ERISA Affiliate fails to provide timely security to such Plan
in accordance with the provisions of said Sections.

Each Borrower will furnish to the Lender, at the time AMHC furnishes each set
of financial statements pursuant to paragraphs (a) and (b) above, a certificate
of a Responsible Officer of such Borrower to the effect that, to the best of
such Responsible Officer's knowledge, such Borrower during such fiscal period
or year has observed or performed in all material respects all of its covenants
and other agreements, and satisfied every condition, contained in this Loan
Agreement and the other Loan Documents to be observed, performed or satisfied
by it, and that such Responsible Officer has obtained no knowledge of any
Default or Event of Default except as specified in such certificate (and, if
any Default or Event of Default has occurred and is continuing, describing the
same in reasonable detail and describing the action such Borrower has taken or
proposes to take with respect thereto).

7.02 Litigation. Each Borrower will promptly, and in any
event within 10 days after service of process on any of the following, give to
the Lender notice of all legal or arbitrable

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proceedings affecting the Borrowers, the Guarantor, the Master Servicer or any
of their Subsidiaries that questions or challenges the validity or
enforceability of any of the Loan Documents or as to which there is a
reasonable likelihood of adverse determination which would result in a Material
Adverse Effect.

7.03 Existence, etc. Each Borrower will:

(a) preserve and maintain its legal existence and all of
its material rights, privileges, licenses and franchises necessary for
the operation of its business (provided that nothing in this Section
7.03(a) shall prohibit any transaction expressly permitted under
Section 7.04 hereof);

(b) comply with the requirements of all applicable laws,
rules, regulations and orders of Governmental Authorities (including,
without limitation, all environmental laws) if failure to comply with
such requirements would be reasonably likely (either individually or
in the aggregate) to have a material adverse effect on its Property,
business or financial condition;

(c) keep adequate records and books of account, in which
complete entries will be made in accordance with GAAP consistently
applied;

(d) not move its chief executive office from the address
referred to in Section 6.11 unless it shall have provided the Lender
30 days' prior written notice of such change;

(e) pay and discharge all taxes, assessments and
governmental charges or levies imposed on it or on its income or
profits or on any of its Property prior to the date on which penalties
attach thereto, except for any such tax, assessment, charge or levy
the payment of which is being contested in good faith and by proper
proceedings and against which adequate reserves are being maintained;
and

(f) permit representatives of the Lender, during normal
business hours, to examine, copy and make extracts from its books and
records, to inspect any of its Properties, and to discuss its business
and affairs with its officers, all to the extent reasonably requested
by the Lender.

7.04 Prohibition of Fundamental Changes. None of the
Borrowers nor the Guarantor shall enter into any transaction of merger or
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation, winding up or dissolution) or sell all or substantially
all of their assets (it being understood that a securitization of loan assets
shall not be deemed a sale of all or substantially all assets); provided, that
a Borrower or the Guarantor may merge or consolidate with (a) any wholly owned
direct or indirect subsidiary of Advanta Corp., or (b) any other Person if such
Borrower or the Guarantor is the surviving corporation; and provided further,
that if after giving effect thereto, no Default would exist hereunder.

7.05 Borrowing Base Deficiency. If at any time there exists
a Borrowing Base Deficiency the Borrowers shall cure same in accordance with
Section 2.06 hereof.

7.06 Notices. The Borrowers shall give notice to the Lender:

(a) promptly upon receipt of notice or knowledge of the
occurrence of any Default or Event of Default;

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(b) with respect to any Mortgage Loan pledged to the
Lender hereunder, on a monthly basis, upon receipt of any principal
prepayment (in full or partial) of such pledged Mortgage Loan;

(c) with respect to any Mortgage Loan pledged to the
Lender hereunder, on a monthly basis, receipt of notice or knowledge
that the underlying Mortgaged Property has been damaged by waste,
fire, earthquake or earth movement, flood, tornado or other casualty,
or otherwise damaged so as to affect adversely the Collateral Value of
such pledged Mortgage Loan; and

(d) promptly upon receipt of notice or knowledge of (i)
any default related to any Collateral, (ii) any Lien or security
interest (other than security interests created hereby or by the other
Loan Documents) on, or claim asserted against, any of the Collateral
or (iii) any event or change in circumstances which could reasonably
be expected to have a material adverse effect on any Borrower's
Property, business or financial condition of the Borrower.

Each notice pursuant to this Section shall be accompanied by a statement of a
Responsible Officer of such Borrower setting forth details of the occurrence
referred to therein and stating what action such Borrower has taken or proposes
to take with respect thereto.

7.07 Hedging. The Borrowers or the Guarantor shall at all
times maintain Interest Rate Protection Agreements, having a notional amount
not less than 70% of the aggregate outstanding principal balance of all
fixed-rate Mortgage Loans.

7.08 Reports. The Borrower shall provide the Lender with a
quarterly report, which report shall include, among other items, a summary of
such Borrower's delinquency and loss experience with respect to Mortgage Loans
serviced by the Borrowers in the aggregate, any Servicer or any designee of
either, plus any such additional reports as the Lender may reasonably request
with respect to such Borrower's or any Servicer's servicing portfolio or
pending origination's of Mortgage Loans.

7.09 Underwriting Guidelines. Without the prior written
notice to the Lender, no Borrower shall amend or otherwise modify the
Underwriting Guidelines in a manner that materially and adversely affects the
value of the Collateral.

7.10 Transactions with Affiliates. No Borrower will enter
into any transaction, including without limitation any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate unless
such transaction is (a) otherwise permitted under this Loan Agreement, (b) in
the ordinary course of such Borrower's business and (c) upon fair and
reasonable terms no less favorable to such Borrower than it would obtain in a
comparable arm's length transaction with a Person which is not an Affiliate;
provided, however, that nothing contained herein shall prohibit any Borrower
from making a capital contribution of Mortgage Loans to any other Borrower
provided that such capital contribution is made subject to the Lender's Lien on
any such Mortgage Loans that are the subject of such capital contribution.

7.11 Limitation on Liens. Each Borrower will defend the
Collateral against, and will take such other action as is necessary to remove,
any Lien, security interest or claim on or to the Collateral, other than the
security interests created under this Loan Agreement and Liens for taxes and
similar charges and assessments that are not yet due and payable or which are
being contested in good

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faith by appropriate proceedings, and each Borrower will defend the right,
title and interest of the Lenders in and to any of the Collateral against the
claims and demands of all persons whomsoever.

7.12 Maintenance of Profitability. No Borrower shall permit,
for any period of three consecutive fiscal quarters (each such period, a "Test
Period"), Net Income for such Test Period, after income taxes for such Test
Period and distributions made during such Test Period, to be less than $1.00.

7.13 Servicing Tape. The Borrowers shall provide to the
Lender on (i) the 15th calendar day (or if such 15th day is not a Business Day,
the Business Day immediately preceding such 15th day) of the month and (ii) the
last Business Day of the month, a computer readable magnetic tape containing
servicing information, including without limitation those fields reasonably
requested by the Lender from time to time, on a loan-by-loan basis, with
respect to the Mortgage Loans serviced hereunder by any Borrower or any
Servicer.

7.14 Pooling and Serving Agreement._ The parties to the
Pooling and Servicing Agreement shall maintain such Agreement in full force and
effect and shall not amend or modify the Pooling and Servicing Agreement or
waive compliance with any provisions thereunder without the prior written
consent of the Lender.

Section 8. Events of Default. Each of the following events
shall constitute an event of default (an "Event of Default") hereunder:

(a) the Borrowers shall default in the payment of any
principal of or interest on any Loan when due (whether at stated
maturity, upon acceleration or at mandatory or optional prepayment);
or

(b) the Borrowers shall default in the payment of any
other amount payable by it hereunder or under any other Loan Document
after notification by the Lender of such default, and such default
shall have continued unremedied for five Business Days; or

(c) any representation, warranty or certification made or
deemed made herein or in any other Loan Document by any Borrower or
the Guarantor or any certificate furnished to the Lender pursuant to
the provisions hereof or thereof shall prove to have been false or
misleading in any material respect as of the time made or furnished
(other than the representations and warranties set forth in Schedule
1, which shall be considered solely for the purpose of determining the
Collateral Value of the Mortgage Loans; unless the applicable Borrower
shall have made any such representations and warranties with knowledge
that they were materially false or misleading at the time made); or

(d) any Borrower shall fail to comply with the
requirements of any of Section 7.03(a), Section 7.04, Section 7.06(a),
or Sections 7.11 through 7.12 or Section 7.14 hereof; or any Borrower
shall default in the performance of any of its obligations under
Section 7.05 hereof and such default shall continue unremedied for a
period of one (1) Business Day; or any Borrower shall otherwise fail
to comply with any of the requirements of Section 7.03, 7.06 (b)-(d),
7.09, 7.10, 7.13 hereof and such default shall continue unremedied for
a period of five Business Days; or any Borrower shall fail to observe
or perform any other covenant or agreement contained in this Loan
Agreement or any other Loan Document and such failure to observe or
perform shall continue unremedied for a period of seven Business Days;
or

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(e) a final judgment or judgments for the payment of
money in excess of $10,000,000 in the aggregate shall be rendered
against any Borrower or any of its Subsidiaries or the Guarantor by
one or more courts, administrative tribunals or other bodies having
jurisdiction and the same shall not be discharged (or provision shall
not be made for such discharge) or bonded, or a stay of execution
thereof shall not be procured, within 60 days from the date of entry
thereof, and the applicable Borrower or Borrowers or any such
Subsidiary shall not, within said period of 60 days, or such longer
period during which execution of the same shall have been stayed or
bonded, appeal therefrom and cause the execution thereof to be stayed
during such appeal; or

(f) any Borrower or the Guarantor shall admit in writing
its inability to pay its debts as such debts become due; or

(g) any Borrower or any of its Subsidiaries or the
Guarantor shall (i) apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee, examiner or
liquidator or the like of itself or of all or a substantial part of
its property, (ii) make a general assignment for the benefit of its
creditors, (iii) commence a voluntary case under the Bankruptcy Code,
(iv) file a petition seeking to take advantage of any other law
relating to bankruptcy, insolvency, reorganization, liquidation,
dissolution, arrangement or winding-up, or composition or readjustment
of debts, (v) fail to controvert in a timely and appropriate manner,
or acquiesce in writing to, any petition filed against it in an
involuntary case under the Bankruptcy Code or (vi) take any corporate
or other action for the purpose of effecting any of the foregoing; or

(h) a proceeding or case shall be commenced, without the
application or consent of any Borrower or any of its Subsidiaries or
the Guarantor, in any court of competent jurisdiction, seeking (i) its
reorganization, liquidation, dissolution, arrangement or winding-up,
or the composition or readjustment of its debts, (ii) the appointment
of, or the taking of possession by, a receiver, custodian, trustee,
examiner, liquidator or the like of any Borrower or any such
Subsidiary or of all or any substantial part of its property, or (iii)
similar relief in respect of any Borrower or any such Subsidiary under
any law relating to bankruptcy, insolvency, reorganization,
liquidation, dissolution, arrangement or winding-up, or composition or
adjustment of debts, and such proceeding or case shall continue
undismissed, or an order, judgment or decree approving or ordering any
of the foregoing shall be entered and continue unstayed and in effect,
for a period of 60 or more days; or an order for relief against any
Borrower or any such Subsidiary shall be entered in an involuntary
case under the Bankruptcy Code; or

(i) the Pooling and Servicing Agreement or any Loan
Document shall for whatever reason be terminated or cease to be in
full force and effect, or the enforceability thereof shall be
contested by any Borrower; or

(j) any Borrower shall grant, or suffer to exist, any
Lien on any Collateral except the Liens contemplated hereby; or the
Liens contemplated hereby shall cease to be first priority perfected
Liens on any Collateral in favor of the Lender or shall be Liens in
favor of any Person other than the Lender; or

(k) the Lender determines that the number of
Misclassified Mortgage Loans equals at least 5% of the Mortgage Loans
reviewed (based upon a representative sample of at least 50

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Mortgage Loans) pursuant to a Due Diligence Review of Mortgage Loans
pledged to the Lender hereunder; or

(l) there is a material default, breach, violation or
event of default under the Pooling and Servicing Agreement or any
Borrower has waived any such material default, breach, violation or
event of default thereunder.

Section 9. Remedies Upon Default.

(a) Upon the occurrence of one or more Events of Default
other than those referred to in Section 8(g) or (h), the Lender may immediately
declare the principal amount of the Loans then outstanding under the Note to be
immediately due and payable, together with all interest thereon and fees and
expenses accruing under this Loan Agreement. Upon the occurrence of an Event
of Default referred to in Sections 8(g) or (h), such amounts shall immediately
and automatically become due and payable without any further action by any
Person. Upon such declaration or such automatic acceleration, the balance then
outstanding on the Note shall become immediately due and payable, without
presentment, demand, protest or other formalities of any kind, all of which are
hereby expressly waived by the Borrowers.

(b) Upon the occurrence of one or more Events of Default,
the Lender shall have the right to obtain physical possession of the Servicing
Records (subject to the provisions of the Pooling and Servicing Agreement) and
all other files of any Borrower relating to the Collateral and all documents
relating to the Collateral which are then or may thereafter come in to the
possession of any Borrower or any third party acting for any Borrower and such
Borrower shall deliver to the Lender such assignments as the Lender shall
request. The Lender shall be entitled to specific performance of all
agreements of the Borrowers contained in this Loan Agreement.

Section 10. No Duty of Lender. The powers conferred on the
Lender hereunder are solely to protect the Lender's interests in the Collateral
and shall not impose any duty upon it to exercise any such powers. The Lender
shall be accountable only for amounts that it actually receives as a result of
the exercise of such powers, and neither it nor any of its officers, directors,
employees or agents shall be responsible to the Borrowers for any act or
failure to act hereunder, except for its or their own gross negligence or
willful misconduct.

Section 11. Miscellaneous.

11.01 Waiver. No failure on the part of the Lender to
exercise and no delay in exercising, and no course of dealing with respect to,
any right, power or privilege under any Loan Document shall operate as a waiver
thereof, nor shall any single or partial exercise of any right, power or
privilege under any Loan Document preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The remedies
provided herein are cumulative and not exclusive of any remedies provided by
law.

11.02 Notices. Except as otherwise expressly permitted by
this Loan Agreement, all notices, requests and other communications provided
for herein and under the Pooling and Servicing Agreement (including without
limitation any modifications of, or waivers, requests or consents under, this
Loan Agreement) shall be given or made in writing (including without limitation
by telex or telecopy) delivered to the intended recipient at the "Address for
Notices" specified below its name on the signature pages hereof or thereof);
or, as to any party, at such other address as shall be designated

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by such party in a written notice to each other party. Except as otherwise
provided in this Loan Agreement and except for notices given under Section 2
(which shall be effective only on receipt), all such communications shall be
deemed to have been duly given when transmitted by telex or telecopy or
personally delivered or, in the case of a mailed notice, upon receipt, in each
case given or addressed as aforesaid.

11.03 Indemnification and Expenses.

(a) Each Borrower agrees to hold the Lender harmless from
and indemnify the Lender against all liabilities, losses, damages, judgments,
costs and expenses of any kind which may be imposed on, incurred by or asserted
against the Lender (collectively, "Costs"), relating to or arising out of this
Loan Agreement, the Note, any other Loan Document or any transaction
contemplated hereby or thereby, or any amendment, supplement or modification
of, or any waiver or consent under or in respect of, this Loan Agreement, the
Note, any other Loan Document or any transaction contemplated hereby or
thereby, that, in each case, results from anything other than the Lender's
gross negligence or willful misconduct. Without limiting the generality of the
foregoing, the Borrowers agree to hold the Lender harmless from and indemnify
the Lender against all Costs with respect to Wet-Ink Mortgage Loans relating to
or arising out of any breach, violation or alleged breach or violation of any
consumer credit laws, including without limitation the Truth in Lending Act
and/or the Real Estate Settlement Procedures Act. In any suit, proceeding or
action brought by the Lender in connection with any Mortgage Loan for any sum
owing thereunder, or to enforce any provisions of any Mortgage Loan, the
Borrowers will save, indemnify and hold the Lender harmless from and against
all expense, loss or damage suffered by reason of any defense, set-off,
counterclaim, recoupment or reduction or liability whatsoever of the account
debtor or obligor thereunder, arising out of a breach by any Borrower of any
obligation thereunder or arising out of any other agreement, indebtedness or
liability at any time owing to or in favor of such account debtor or obligor or
its successors from the Borrowers. The Borrowers also agree to reimburse the
Lender as and when billed by the Lender for all the Lender's costs and expenses
incurred in connection with the enforcement or the preservation of the Lender's
rights under this Loan Agreement, the Note, any other Loan Document or any
transaction contemplated hereby or thereby, including without limitation the
reasonable fees and disbursements of its counsel. The Borrowers hereby
acknowledge that, notwithstanding the fact that the Note is secured by the
Collateral, the obligation of the Borrowers under the Note is a recourse
obligation of the Borrowers.

(b) The Borrowers agree to pay as and when billed by the
Lender all of the out-of-pocket costs and expenses incurred by the Lender in
connection with the development, preparation and execution of, and any
amendment (unless requested by Lender), supplement or modification to, this
Loan Agreement, the Note, any other Loan Document or any other documents
prepared in connection herewith or therewith. The Borrowers agree to pay as
and when billed by the Lender all of the out-of-pocket costs and expenses
incurred in connection with the consummation and administration of the
transactions contemplated hereby and thereby including without limitation (i)
all the reasonable fees, disbursements and expenses of counsel to the Lender
and (ii) all the due diligence, inspection, testing and review costs and
expenses incurred by the Lender with respect to Collateral under this Loan
Agreement, including, but not limited to, those costs and expenses incurred by
the Lender pursuant to Sections 11.03(a), 11.14 and 11.15 hereof.

11.04 Amendments. Except as otherwise expressly provided in
this Loan Agreement, any provision of this Loan Agreement may be modified or
supplemented only by an instrument in

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writing signed by each Borrower and the Lender and any provision of this Loan
Agreement may be waived by the Lender.

11.05 Successors and Assigns . This Loan Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.

11.06 Survival. The obligations of each Borrower under
Sections 3.03 and 11.03 hereof shall survive the repayment of the Loans and the
termination of this Loan Agreement. In addition, each representation and
warranty made or deemed to be made by a request for a borrowing, herein or
pursuant hereto shall survive the making of such representation and warranty,
and the Lender shall not be deemed to have waived, by reason of making any
Loan, any Default that may arise because any such representation or warranty
shall have proved to be false or misleading, notwithstanding that the Lender
may have had notice or knowledge or reason to believe that such representation
or warranty was false or misleading at the time such Loan was made.

11.07 Captions. The table of contents and captions and
section headings appearing herein are included solely for convenience of
reference and are not intended to affect the interpretation of any provision of
this Loan Agreement.

11.08 Counterparts. This Loan Agreement may be executed in
any number of counterparts, all of which taken together shall constitute one
and the same instrument, and any of the parties hereto may execute this Loan
Agreement by signing any such counterpart.

11.09 Loan Agreement Constitutes Security Agreement;
Governing Law. This Loan Agreement shall be governed by New York law without
reference to choice of law doctrine, and shall constitute a security agreement
within the meaning of the Uniform Commercial Code.

11.10 SUBMISSION TO JURISDICTION; WAIVERS. EACH BORROWER
HEREBY IRREVOCABLY AND UNCONDITIONALLY:

(A) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL
ACTION OR PROCEEDING RELATING TO THIS LOAN AGREEMENT, THE NOTE AND THE
OTHER LOAN DOCUMENTS, OR FOR RECOGNITION AND ENFORCEMENT OF ANY
JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION
OF THE COURTS OF THE STATE OF NEW YORK, THE FEDERAL COURTS OF THE
UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND
APPELLATE COURTS FROM ANY THEREOF;

(B) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE
BROUGHT IN SUCH COURTS AND, TO THE EXTENT PERMITTED BY LAW, WAIVES ANY
OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH
ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR
PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO
PLEAD OR CLAIM THE SAME;

(C) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR
PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR
CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM

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OF MAIL), POSTAGE PREPAID, TO ITS ADDRESS SET FORTH UNDER ITS
SIGNATURE BELOW OR AT SUCH OTHER ADDRESS OF WHICH THE LENDER SHALL
HAVE BEEN NOTIFIED; AND

(D) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO
EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR
SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION.

11.11 WAIVER OF JURY TRIAL. EACH OF THE BORROWER AND THE
LENDER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF
OR RELATING TO THIS LOAN AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY.

11.12 Acknowledgments. Each Borrower hereby acknowledges
that:

(a) it has been advised by counsel in the negotiation,
execution and delivery of this Loan Agreement, the Note and the other
Loan Documents;

(b) the Lender has no fiduciary relationship to the
Borrowers, and the relationship between the Borrowers and the Lender
is solely that of debtor and creditor; and

11.13 Hypothecation or Pledge of Loans. The Lender shall
have free and unrestricted use of all Collateral and nothing in this Loan
Agreement shall preclude the Lender from engaging in repurchase transactions
with its interest in the Collateral or otherwise pledging, repledging,
transferring, hypothecating, or rehypothecating its interest in the Collateral.
Nothing contained in this Loan Agreement shall obligate the Lender to segregate
any Collateral delivered to the Lender by the Borrowers. Notwithstanding the
foregoing, Lender agrees to take such actions as are necessary or desirable to
release or cause to be released its lien and security interest in any Mortgage
Loan which is securitized (which release shall be deemed to occur not later
than simultaneously with such securitization) and to promptly deliver or cause
to be delivered to the Borrowers the Mortgage File relating to any such
Mortgage Loan. Upon payment in full of the Secured Obligations, Lender shall
take such actions as are necessary to release or cause to be released its lien
and security interest in the Collateral and to cause all Mortgage Files to be
returned to the Borrowers.

11.14 Servicing.

(a) Each Borrower covenants to maintain or cause the
servicing of the Mortgage Loans to be maintained in conformity with the
requirements set forth in the Pooling and Servicing Agreement.

(b) If the Mortgage Loans are serviced by a Borrower, (i)
each Borrower agrees that the Lender is the collateral assignee of all
servicing records, including but not limited to any and all servicing
agreements, files, documents, records, data bases, computer tapes, copies of
computer tapes, proof of insurance coverage, insurance policies, appraisals,
other closing documentation, payment history records, and any other records
relating to or evidencing the servicing of Mortgage Loans (the "Servicing
Records"), and (ii) each Borrower grants the Lender a security interest in all

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servicing fees to which such Borrower is entitled pursuant to the Pooling and
Servicing Agreement and rights relating to the Mortgage Loans and all Servicing
Records to secure the obligation of a Borrower or its designee to service in
conformity with this Section and any other obligation of a Borrower to the
Lender. Each Borrower covenants to safeguard such Servicing Records and to
deliver them promptly to the Lender or its designee (including the Trustee) at
the Lender's request, and subject to the Pooling and Servicing Agreement.

(c) In the event any Borrower or its respective Affiliate
is servicing the Mortgage Loans, such Borrower shall permit the Lender to
inspect the Borrower's or its Affiliate's servicing facilities, as the case may
be, for the purpose of satisfying the Lender that such Borrower or its
Affiliate, as the case may be, has the ability to service the Mortgage Loans as
provided in this Loan Agreement.

11.15 Periodic Due Diligence Review. Each Borrower
acknowledges that the Lender has the right to perform continuing due diligence
reviews with respect to the Mortgage Loans, for purposes of verifying
compliance with the representations, warranties and specifications made
hereunder, or otherwise, and each Borrower agrees that upon reasonable (but no
less than 10 Business Days') prior notice (with no notice being required upon
the occurrence of an Event of Default) to any Borrower, the Lender or its
authorized representatives will be permitted during normal business hours to
examine, inspect, and make copies and extracts of, the Mortgage Files and any
and all documents, records, agreements, instruments or information relating to
such Mortgage Loans in the possession or under the control of such Borrower
and/or the Trustee or any Bailee. The Borrowers also shall make available to
the Lender a knowledgeable financial or accounting officer for the purpose of
answering questions respecting the Mortgage Files and the Mortgage Loans.
Without limiting the generality of the foregoing, each Borrower acknowledges
that the Lender may make Loans to the Borrowers based solely upon the
information provided by the Borrowers to the Lender in the Mortgage Loan Tape
and the representations, warranties and covenants contained herein, and that
the Lender, at its option, has the right at any time to conduct a partial or
complete due diligence review on some or all of the Mortgage Loans securing
such Loan, including without limitation ordering new credit reports and new
appraisals on the related Mortgaged Properties and otherwise re-generating the
information used to originate such Mortgage Loan. The Lender may underwrite
such Mortgage Loans itself or engage a mutually agreed upon third party
underwriter to perform such underwriting. Each Borrower agrees to cooperate
with the Lender and any third party underwriter in connection with such
underwriting, including, but not limited to, providing the Lender and any third
party underwriter with access to any and all documents, records, agreements,
instruments or information relating to such Mortgage Loans in the possession,
or under the control, of the Borrowers. Each Borrower further agrees that the
Borrowers shall reimburse the Lender for any and all reasonable out-of-pocket
costs and expenses incurred by the Lender in connection with the Lender's
activities pursuant to this Section 11.15, provided that, unless a Default
shall occur, such reimbursement obligation shall be limited to $25,000 per
annum. Lender agrees (on behalf of itself and its Affiliates, directors,
officers, employees and representatives) to use reasonable precaution to keep
confidential, in accordance with its customary procedures for handling
confidential information and in accordance with safe and sound practices, and
not to disclose to any third party, any non-public information supplied to it
or otherwise obtained by it hereunder with respect to any of the Borrowers,
Advanta Corp. or any of its Affiliates; provided, however, that nothing herein
shall prohibit the disclosure of any such information to the extent required by
statute, rule, regulation or judicial process; provided, further that, unless
specifically prohibited by applicable law or court order, Lender shall, prior
to disclosure thereof, notify Borrowers of any request for disclosure of any
such non-public information. Lender further agrees not to use any such
non-public information for any purpose unrelated to this Agreement.

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11.16 Intent. The parties recognize that each Loan is a
"securities contract" as that term is defined in Section 741 of Title 11 of the
United States Code, as amended.

11.17 Joint and Several Liability. Each Borrower hereby
acknowledged and agrees that such Borrower shall be jointly and severally
liable for all representations, warranties, covenants, obligations and
indemnities of the Borrowers hereunder.

[SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, the parties hereto have caused this Loan
Agreement to be duly executed and delivered as of the day and year first above
written.

ADVANTA MORTGAGE HOLDING ADVANTA MORTGAGE CORP. USA,
COMPANY, A BORROWER A BORROWER

By /s/ By /s/
------------------------------- -------------------------------
Title: Title: