Healthy thrifts are becoming the favored prey of banks.

In Cincinnati, Provident Bancorp has ballooned its assets by 60% to $4 billion by buying mutual and stock-owned thrifts.

In St. Louis, the avaricious Boatmen's Bancshares considers an Arkansas savings and loan one of its most successful takeovers.

And in Birmingham, Ala., Amsouth Bancorp. is using thrift purchases to build a multi-state Southeast empire.

|Not Through Buying'

"We're looking, and talking, and probably not through buying," said Harvey Campbell, a senior vice president at Amsouth, which last week snapped up a small thrift in northwest Georgia.

How strong is the trend? During the second quarter alone, banks agreed to pay $1.1 billion for 19 stock-owned thrifts, devouring $9 billion of assets.

Just last week Southern National Corp., a North Carolina bank company, said it would buy First Savings of Greenville, S.C., in a stock swap valued at $181 million.

On average, prices in the second quarter equaled a healthy 1.55 times book value, according to SNL Securities.

No Other Deals to Be Had

Architects of these deals say several forces are at work in the buying bash:

* As mergers cut the population of small banking companies, thrifts remain as the prime -- or sole -- vehicles for major expansion in a growing number of markets.

* The residential mortgage and consumer loan portfolios held by thrifts look more attractive as commercial lending remains in the doldrums.

* Thrifts cost less than most commercial banks.

* Certain legal constraints against bank purchase of thrifts have been cleared away.

* There are few government bargains left now that the Resolution Trust Corp. has essentially completed sales of its thrift inventory.

One consequence of the new mergers, however, is that the thrift industry itself seems less viable. Banks have purchased 384 thrifts from the RTC since 1989, and some experts think the day is not far away when the banking and thrift industries completely merge.

"The thrift industry ultimately will be absorbed by the banking industry and disappear," predicted Reid Nagle, president of SNL Securities.

Drawbacks in Buying Thrifts

For all the apparent advantages, however, buying a healthy thrift remains a ticklish form of acquisition.

Buyers of healthy thrifts, unlike those who made government deals, cannot rescind the relatively high interest rates on certificates of deposits that many thrifts offer. Nor can they deal problem assets to the federal government.

New owners of thrifts being converted into banks also must repay Uncle Sam for special tax breaks on loan-loss provisions that were accorded to many savings and loans.

Provident's chief executive, Allen L. Davis, says his banking company incurred $13 million of after-tax charges on the recapture of tax breaks. "It can really skew earnings and affect public and investor perceptions," said Mr. Davis.

Too Many Home Loans

Outsized mortgage concentrations also can be a problem. And banks must take into account the time it will take to convert thrift customers to transaction-oriented accounts and commercial lending relationships.

"I shy away from banks that have bought too many healthy thrifts," said Dennis Shea, a banking analyst with Morgan Stanley & Co., New York.

Mr. Shea voiced concerns about New Jersey-based First Fidelity Bancorp, for example, which is buying Peoples Westchester, a thrift in suburban New York City that has $1.8 billion of assets.

Another issue that some bankers are worried about is that healthy thrifts tend to be overcapitalized, which, ironically, can create a profitability problem. That's because profitability sags when an institution has more capital than earnings can support.

Paying a Premium

The problem only gets worse when a buyer pays a premium for a heavily capitalized institution, said Jon Stowe, head of acquisitions at Firstar Corp., Milwaukee.

Once a bank decides to pursue a thrift, it must keep antitrust considerations in mind, just as when it pursues other banks.

The Federal Reserve Board in 1992 denied regulatory permission for thrift buyouts planned by Norwest Corp., Minneapolis, and South Trust Corp., Birmingham, Ala., on the grounds that the benefits of the mergers were outweighed by their anticompetitive effect on consumers.

With all the negatives, it is not surprising that many banking companies in the best position to be choosy are cool to thrift acquisitions. One of their chief concerns is the very different management cultures and customer profiles between thrifts and banks.

William Boardman, head of acquisitions at fast-growing Banc One Corp., often has said the company would consider thrifts only as a supplement to existing banking operations in a region -- not as market entry vehicles.

All the concerns, however, appear to be only slowing deals, not breaking them. Many banking companies remain enthusiastic about their thrift purchases, and want more.

In Cincinnati, Provident Bancorp's Mr. Davis said his $4 billion-asset company is eager to buy more newly-converted mutual thrifts and operate them as banks.

A series of bite-sized thrift deals is the most feasible expansion strategy for a comparatively smaller banking company such as his, he noted.

"There are fewer potential bank acquisitions left for smaller regional acquirers," he said.

Purchase of Cragin

In Chicago, ABN Amro North America is shelling out nearly $500 million for Cragin Financial Corp., a $2.8 billion-asset thrift with 27 branches. Cragin, which posted a 1.45% annualized return on average assets in the second quarter, will be folded into LaSalle National Corp., an ABN Amro subsidiary.

"Thrifts aren't the much different from community banks, and they have better valuations," said Theodore H. Roberts, LaSalle's president.

From a back-office and customer standpoint, he said, the thrift operations will be merged entirely into LaSalle.

However, Cragin will retain its thrift charter, at least initially. Mr. Roberts cited the familiar deal rationales of in-market consolidation efficiencies and market-share gains to explain his enthusiasm.

Kirk Bare, a senior vice president at First Union's South Carolina bank, said his company opted for a thrift when it bought South Carolina Federal Savings Bank in 1992 to avoid the headaches of consolidating a string of community banks and to gain valuable mortgage lending expertise.

Why Thrifts Agree to Sell

From the standpoint of thrifts, it's relatively easy to explain the sellout trend.

Surviving S&Ls are still suffering the regulatory aftershocks of the thrift crisis that devastated so many of their counterparts.

Though most survivors are solidly capitalized and profitable, they live in a stifling regulatory environment. Congressmen have not forgotten that taxpayers have thus far spent $80 billion rescuing depositors in 660 broke thrifts.

"I haven't counseled anybody to get into the thrift industry for four of five years," said Richard Kneipper, a banking and thrift lawyer in the Dallas office of the Ohio law firm of Jones, Day, Reavis and Pogue. "Regulators," he added, "seem more concerned with chasing the bad guys than preserving the competitive viability of the industry."

Sitting on Hot Commodities

Thrift managers also know that they are sitting on hot commodities.

"Fourth Financial Corp. made us a good offer, and we think we are worth every penny of it," said William V. Turner, who is selling Great Southern Bancorp, Springfield, Mo., for $88 million, or 1.7 times book value.

The thrift's stock traded at roughly $9 a share after it converted from mutual ownership in 1989. Now, investors in the $515 million-asset company are promised about $30 a share from Wichita, Kan.-based Fourth Financial.

Once the decision is made to intermarry, experienced bankers say, management and communications become key to success or failure. That's true of any merger, but the pitfalls are greater with thrifts.

Avoiding Saviour Mentality

It is tempting for acquiring bankers to view themselves as conquerors, swooping in from above with all the answers for customers and employees. That approach, bankers warn, is the kiss of death.

"You want to be careful not to charge in and destroy the franchise," said Mr. Roberts of LaSalle National.

Mr. Davis of Provident admits to having acted "inappropriately" in yanking old-fashioned passbook accounts at several thrifts, and he says he will not disturb such accounts in future deals.

Mr. Bare of First Union said he bent over backward in the name of continuity with South Carolina Federal. He preserved an uneconomical debit card and waded gingerly into converting depositors from high-yielding CDs into alternative investments.

Despite his caution, he said, the thrift's lobbies overflowed with anxious customers during branch transitions. "More communication would have been helpful," Mr. Bare said.

Future Merger Action

Two regions where a slew of further thrift takeover by banks appears probable are the Midwest and the West, though such transactions clearly have not run their course on the East Coast.

Linda Stromberg, an analyst with Chicago-based Howe Barnes Investments, said she is tracking Amerifed in Joliet, Ill., which has $890 million of assets, and two Chicago-based companies, MAF Bancorp, with $1.5 billion, and Bell Bancorp, with $2 billion.

Joseph A. Jolson, an analyst with Montgomery Securities, predicted that offers will surface for Chicago's St. Paul Bancorp, with assets of $3.5 billion, Michigan's $9.8 billion-asset Standard Federal Bank, and Cleveland-based Charter One Financial, with $5 billion of assets.

On the West Coast, southern California's Downey Savings and Loan Association, with assets of $3.5 billion, recently retained Lehman Brothers to help it "evaluate strategic alternatives." The company's stock has risen by 12% since the July 23 announcement.

Other California thrifts viewed as potential buyout candidates are San Francisco-based SFFed Corp., with assets of $3.3 billion, and Los Angeles-based California Federal Bank, with $15.9 billion of assets, and Coast Federal Bank, with $8.2 billion of assets.

Ahmanson Mentioned

Gareth Plank, an analyst at-Mabon Securities Corp., even goes so far as to say that H.F. Ahmanson, the nation's biggest thrift company at $50 billion of assets, could be a candidate for a megamerger.

Given that the thrift industry still controlled more than $800 billion of assets at March 31, it clearly will take many more deals before the banking and thrift industries ever truly consolidate.

But the strong takeover numbers of the second quarter show that plenty of bankers are at work on the project.

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