How Ncnb Swept Through Texas With A Little Help From The Feds

When NCNB confidently rode into Texas in 1988, the North Carolina outsider didn't exactly get a hero's welcome. Instead, it got jeers from the local populace, hostility from the state's independent bankers, and criticism in Congress for its sweet deal to acquire the remnants of failed First RepublicBank Corp.

Yet NCNB Corp.'s bold bid for the state's largest banking company has clearly paid off. Last year, NCNB made virtually all of its $366 million in profits in Texas. This year, NCNB Texas National Bank could generate at least half of its parent's earnings, estimates bank analyst Anthony J. Polini of A. G. Edwards & Sons Inc. Indeed, earnings at the Texas unit have allowed NCNB to be aggressive about charging off problem loans in the Southeast. "Products and service matter a lot more than where you're from," says Kenneth D. Lewis, president of NCNB's General Bank, which oversees seven state banks.

Much of NCNB's success in Texas stems from the savvy deal the bank negotiated with federal regulators. The Federal Deposit Insurance Corp. kept First Republic's bad assets, and NCNB won guarantees that limited its losses on the loans it kept. A controversial ruling from the Internal Revenue Service handed NCNB $2.8 billion in tax benefits. "The way it was structured, there was no way you could lose money," says analyst Frank W. Anderson of Stephens Inc.

STILL PROWLING. NCNB hasn't stopped with First Republic. Since swallowing that bank's 40 units, it has snatched up 19 savings institutions with more than $7 billion in deposits. NCNB's network has swollen to nearly 300 branches across the state--a big advantage in luring consumers. With $33 billion in assets, NCNB Texas is nearly twice the size of its closest rival and is still prowling for more failed thrifts.

NCNB has also moved aggressively to market its expertise in collecting on problem loans and foreclosed properties. As part of the deal for First Republic, NCNB set up a collections unit to handle the job for the FDIC. The agency covers the losses and pays direct expenses, plus incentives based on the amount collected. In the past two years, NCNB has pulled in $72 millionin management fees for its $4.2 billionin cash collections. With the original pool of bad assets dwindling, NCNB is hunting for new customers. It has contracts to manage more than $2 billion in assets for Resolution Trust Corp., which oversees the S&L bailout.

That could benefit NCNB if it wins its bid for C&S/Sovran Corp. But NCNB's collection effort has cost it plenty of goodwill in the Lone Star State. One Abilene man spent nearly a year picketing NCNB branches after his business loan wound up in the collections pool.

NCNB's image problems don't end there. Community bankers charge that its tight lending practices are holding back Texas' fledgling recovery. The Independent Bankers Assn. recently asked the Federal Reserve Board and the comptroller of the currency to investigate NCNB's lending in the state.

Meanwhile, rivals complain that its hefty tax breaks allow NCNB to pay more for deposits, charge less for loans, and bid higher for acquisitions. "The subsidy makes it tough for us to compete," says Gary G. Jacobs, CEO of Laredo National Bank, with $1.1 billion in assets. The good news for the little guys: NCNB's tax benefits may run out in the next two years. The bad news: Even without the tax benefits, NCNB is among the fiercest competitors around.

Before it's here, it's on the Bloomberg Terminal.