During the first four months of 1994, Resolution Trust Corp. transactions achieved an astounding average premium-to-core-deposit ratio of 8.26%. Of 31 completed resolutions, 15 resulted in deposit premiums in excess of 6%, and seven in excess of 10%.

In what is believed to be the highest percentage premium since the formation of the RTC, First of America Bank Corp. of Kalamazoo, Mich., paid a $58.4 million premium, or 16.59%, for the $352 million in core deposits of Goldome Federal Savings Bank, St. Petersburg, Fla.

The average 1994 premium is up significantly from the 5% average of 1993, and is more than four times the average premium paid between 1990 and 1992 of slightly less than 2%.

In the early RTC days, many bankers simply did not believe that poorly managed, failed thrift franchises had any substantive economic value. There was also great concern and confusion over the RTC and its bidding process, including the speed with which the RTC required final bids after dissemination of information packages. These factors resulted in a number of viable bidding institutions "opting" to sit on the sidelines.

The institutions that aggressively participated in the RTC bidding processes were amply rewarded. These organizations quickly learned that RTC transactions were "buyer" friendly, including such provisions as loan put-back rights to minimize asset-quality risk, fixed-asset purchase options to provide flexibility as related to facilities, an absolute right to reprice high-cost certificate- of-deposit accounts, and RTC indemnification for prior acts of the failed thrift. In 20/20 hindsight, the early buyers were the real winners.

In discussions with bankers across the country regarding RTC bid premiums, it is clear that four primary factors are driving the RTC bid premiums to record levels.

First, many institutions are looking at long-term franchise value enhancement as a primary consideration.

These institutions believe that a particular RTC transaction would provide them with either a material increase in market share for an in-market acquisition or, alternatively, would permit them entry into a new market with attractive demographics.

A second fundamental reason for higher premiums is the excess capital that many commercial banks are presently operating with.

A third reason for high RTC premiums is the shrinking number of available franchises.

Finally, as commercial bank market share of financial assets continues to dwindle in the face of nonbank competition from mutual funds, insurance companies, and brokerages, among others, many banking organizations have heeded the advice of many industry observers, which is to acquire or be acquired.

Given the recent RTC bid-premium levels, I encourage potential buyers to maintain two priorities in their pricing decisions as it relates to any acquisition opportunity.

The first and foremost is to base their pricing decision primarily on the overall anticipated effect of the transaction to earnings per share.

The second priority relates to capital adequacy. Cash acquisitions tend to immediately and significantly reduce capital ratios.

Pricing decisions must be made in the context of not only pro forms capital levels, but also your projected capital needs over a three-to-five year time frame.

Adhering to objective financial criteria in your acquisition planning is crucial to its ultimate success.

Mr. Mancinotti is executive vice president and principal of the Austin Associates consulting firm in Toledo.

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