Advanta Corp.'s tentative agreement Tuesday to sell its mortgage unit may signal a new beginning for the Spring House, Pa., company, which has been mired in controversy since May.

Though vague on key details, Advanta officials said they expect to net up to $400 million from a deal with a "major financial institution" that has agreed to pay more than $1 billion in cash for the mortgage company. A definitive agreement is expected within 30 days, and the deal for one-third of the $3.3 billion-asset company is expected to close early next year.

The move is part of Advanta's broader strategy to emerge as a niche company focused on business credit cards. The company also is soliciting bids for its leasing business.

"If we close on the mortgage transaction and we get one with leasing, our only operating business will be business credit cards," said Dennis Alter, Advanta's chairman and chief executive officer. "We believe we can prudently and efficiently grow by focusing on the small-business community," he said.

"Our credit card business is a jewel, and we think you ain't seen nothin' yet," said William A. Rosoff, president of Advanta. "When all the smoke clears and the credit card business is our only operating business, we don't expect our stock to trade at a discount - it's only a mere shadow of what it will be in a few years."

Advanta also released its third-quarter results Tuesday, reporting net income of $15.7 million, or 62 cents per share for both its Class A and Class B shares combined. The net income is an increase of more than 10% from the year earlier and a remarkable recovery from a nearly $200 million net loss in the second quarter. But due to $23 million in charges, earnings were less than the company had expected.

Investors responded positively, sending Advanta's Class A shares up more than 45%, to $10, and its Class B shares up 41%, to $7.125.

Jennifer S. Scutti, an analyst at Prudential Securities, called the tentative sale a "pleasant surprise," adding that she had had doubts about Advanta's chances of unloading the mortgage business, especially considering the pall stifling the industry for the last 18 months.

"I had my skepticisms, but I'm pleased with the sale," she said. "I applaud them on their ability to sell the business and get what seems to be a decent price."

Good news at last.

Advanta's troubles began May 31 when the Office of the Comptroller of the Currency issued a cease-and-desist order against its Advanta National Bank subsidiary, requiring a massive writedown of residual assets, higher capital levels, and a change in the bank's chargeoff policy for delinquent mortgages. On the same day, the Federal Deposit Insurance Corp. cited another subsidiary, Advanta Bank Corp., for "unsafe and unsound banking practices" and prohibited it from originating loans, issuing credit cards, or paying dividends on its capital stock, among other sanctions.

Advanta Corp. settled with banking regulators in early August, agreeing to write off $214 million of retained interest in mortgage securitizations. That led to a $192.7 million loss in the second quarter. The writedown consumed about half of Advanta National's capital and reduced the parent company's by one-third.

In a conference call Tuesday, Advanta's earnings were overshadowed by news of the plan to sell its mortgage business.

"The earnings are a nonissue," said one source. "Assuming they sell the mortgage unit, that's a tremendous plus - and a sale above book is an even bigger positive."

Despite some grumbling over Advanta's disclosure practices - which one source called "less than adequate" - most observers appeared bullish about its future as a stand-alone business credit card company.

"The business card piece is really the crown jewel within Advanta," said Ms. Scutti. "That's the operation that really has demonstrated the greatest growth, the highest-margin business, and it moves them away from the higher-risk mortgage business."

Todd Pitsinger, an analyst at Friedman Billings Ramsey & Co. in Arlington, Va., said Advanta's stock is undervalued and should be bought aggressively. Today's announcement, he said, is an "absolute vindication and validation of the approach that the management has taken.

"It's not Capital One; it's not MBNA," he said, "but they're doing the right things to enhance shareholder value."

Christopher Wolfe, an associate director at Fitch, said that from a credit perspective "we would have to look at the new entity in light of the current rating." Fitch currently has a negative watch on Advanta Corp.'s debt.

A successful sale of the mortgage company would be positive for the medium-term-note holders, he said, however. About $360 million of institutional medium-term notes are to be paid off with proceeds of the mortgage unit's sale, but Advanta also faces at least $350 million of maturing retail notes in the next 18 months.

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