While applauding Bay View Capital Corp.'s recent deal to buy Franchise Mortgage Acceptance Corp., analysts said they expect more action from the San Mateo, Calif., banking company.

Within a year, they predicted, $5.6 billion-asset Vay View will need more capital and deposits to support its rapidly changing risk profile.

Bay View unveiled a $309 million deal March 11 for Franchise Mortgage, which originated more than $2 billion of loans for restaurants, service stations, and convenience stores last year. Bay View said it expects Franchise Mortgage to lend $2.8 billion in the 12 months after the transaction's close, which is slated for the third quarter.

"While the transaction makes sense strategically for Bay View, it is clearly a strain on its capital base," said Sharon Weinstein, director of financial institutions at Fitch IBCA Inc. in New York. "They need additional capital to support higher-yielding assets."

To help fund loan originations, Bay View also may need to buy a thrift, analysts said.

"They need a bigger deposit base to fully exploit the acquisition of Franchise Mortgage," said James R. Bradshaw, a bank analyst at Pacific Crest Securities in Portland, Ore.

David A. Heaberlin, Bay View's chief financial officer, agreed with both analysts in an interview this week. The company plans to expand its funding sources largely through acquisitions in California, he said. Loan sales and syndications will also be evaluated, he added.

"We would like to acquire other deposit franchises," Mr. Heaberlin said. "We know of a number of thrifts that we find attractive."

Mr. Heaberlin said that Bay View would consider another trust-preferred offering, but that its $90 million December offering can support the balance sheet for the next 12 months.

Bay View's main subsidiary, Bay View Bank, converted from a thrift to a national bank charter this month. It is transforming its balance sheet from low-yielding mortgage loans to higher-margin commercial and consumer products in such areas as auto lending, high-loan-to-value equity loans, and asset-based lending.

Gathering deposits would help Bay View's earnings, according to analysts, because it would enable the bank to hold rather than sell more of Franchise Mortgage's loans.

Securitizing the loans would cost Bay View some profits, said Gary Gordon, an analyst at PaineWebber Inc.

Mr. Heaberlin concurred. "In the long run, it is better to hold the product on the balance sheet," he said.

At first Bay View expects to sell all but 20% to 25% of Franchise Mortgage's loans. To make room for that remainder, Bay View would remove $900 million of its own loans from its books, Mr. Haeberlin said.

Most or all would be securitizied, but some might be sold to one buyer, he said.

Analysts worry about Bay View's reliance on the securitization market, which has become difficult to tap since Wall Street's credit crunch last summer. Recently completed deals have produced smaller profits than those of early 1998, analysts said. But for the Franchise Mortgage acquisition to add to earnings, Bay View would have to keep securitizing loans, analysts said.

Erick J. Reim, a bank analyst at U.S. Bancorp Piper Jaffray in Minneapolis, described Bay View's strategy as evolving into a large originator and securitizer of commercial loans.

"We're taking a cautious approach," he said. "The securitizing market can be a slippery game."

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