Bay View Capital Corp., which recently switched its charter from thrift to bank, moved further from its localized home-lending roots Thursday, announcing it would buy a Los Angeles small-business lender with offices in 20 states.

Bay View of San Mateo, Calif., will pay about $309 million for Franchise Mortgage Acceptance Co., by exchanging 0.5125 share of its stock or $10.25 in cash for each FMAC share in a transaction expected to close during the third quarter. FMAC focuses on franchise concept loans to restaurants, service stations, and convenience stores. One of its subsidiaries, Bankers Mutual, focuses on multifamily lending. FMAC is to operate as a subsidiary of Bay View Bank.

Edward H. Sondker, president and CEO of Bay View said the goal of the merger is to build assets and revenue, rather than to cut costs. He said he expects FMAC and Bankers Mutual to originate more than $2.8 billion of loans in the first year after the merger. This level of production would help Bay View overcome the challenges it faced in 1998 from higher than expected mortgage prepayments, he said.

The multifamily loans generated by Bankers Mutual will continue to be sold to Fannie Mae and Freddie Mac, but Mr. Sondker said that Bay View intends to retain some portion of the higher-yielding consumer and commercial franchise loans.

"With the low interest rates, prepayment rates have been a real nemesis of ours," Mr. Sondker said. The change in the balance sheet will help "completely obliterate the issue of prepayments."

Bay View will buy about $400 million of commercial loans from FMAC through the end of the first quarter.

Gary Gordon, an analyst at PaineWebber Inc., said the merger fits Bay View's strategy "very well." This strategy has been to "make their branch system more efficient" with a lower cost of funding (from using checking accounts) coupled with buying specialized assets to get an above-average, risk-adjusted return, he said.

In early afternoon trading FMAC shares were up 25 cents, to $8.5625. Bay View's stock was at $19.25 a share, down from Wednesday's close of $20.625.

Mr. Gordon said he was surprised that Bay View's stock fell. "They're buying Franchise on the cheap," he said. "It should add noticeable value."

In February, Bay View got regulatory approval to convert from a thrift charter to a commercial bank charter. This let it formally orient its balance sheet away from residential and multifamily mortgages and to accentuate auto, consumer, and commercial loans, Lehman Brothers analyst Bruce W. Harting said in a recent report.

FMAC's originations are primarily long-term fixed rate and variable-rate loans. These loans are sold through securitizations or whole-loan transactions to investors on a servicing-retained basis, the company said.

In 1998, FMAC originated about $2.1 billion of loans and leases and now has a combined servicing portfolio of $6 billion.

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