San Francisco's BankAmerica Corp., reaching to extend its mortgage business from coast to coast, will buy Arbor National Holdings for about $118 million in stock, or $16.35 a share.

That figure provided a nasty shock to holders of Arbor securities, which closed Friday at $20.

But the transaction appears to be highly likely to go through, as members of the Kaufman family tendered stock options and voting rights totalling 58% of the outstanding shares.

The acquisition of Long Island-based Arbor will provide B of A an entree to the East Coast.

The bank, a powerhouse in mortgage lending in California, has been on a steady march eastward this year, buying Minneapolis-based United Mortgage Corp. in March as well as a servicing center in Virginia this summer.

Expansion along functional lines has been a hallmark strategy among the nation's largest banks this year.

Chase Manhattan Bank and Chemical Bank have made major mortgage banking buys this year, and on Monday Barnett Banks agreed to pay $332 million for Equicredit Corp., a first- and second-mortgage lender.

"The addition of Arbor represents another major step in our development as a national mortgage lender," said Arthur D. Ringwald, head of Bank of America's residential lending group.

At an industry conference last week, Mr. Ringwald cited concentration of assets in California as a major factor in the banks desire to lend nationwide.

The Arbor deal brings with it the right to process payments on $5.3 billion of home loans.

In its fiscal year ended Feb. 28, Arbor originated $4.2 billion of mortgages through its 20 retail branches in eight states and 18-state correspondent network.

There is "virtually no overlap," between the networks of Arbor and Bank of America, according to Mr. Ringwald.

Originations have been plummeting at Arbor this year, down 54% at $561 million the quarter ended Aug. 31, the company said.

"Rising interest rates have led to ... an overcapacity of lenders and significant price competition by portfolio lenders, especially in [adjustable rate] products.

This is "a primary reason why Arbor's alliance with BankAmerica is so strategically significant," said Ivan Kaufman, president of Arbor.

Arbor recorded a net loss of between $4.5 million and $5.5 million in the quarter ended Aug. 31, the company said.

Arbor has been for sale since at least since April, when it circulated an offering memorandum, according to sources.

At that time, the company was reported to be asking for $28 a share.

After the announcement of the B of A deal, shares of Arbor were changing hands at $15.75, down $4.25.

The acquisition, which is subject to shareholder and regulatory approval, will be a stock-for-stock transaction and is subject to adjustments.

Before closing, Arbor will auction its commercial mortgage subsidiary.

Mr. Kaufman will be permitted to bid.

The fate of the s employees of Arbor's servicing center is up in the air.

Though BankAmerica Corp. has yet to decide if it will keep the center open, the bank's recent purchase of another payment processing platform in Virginia combined with the high cost of doing business on Long Island indicate that an eventual shutdown is likely.

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