(FORTUNE Magazine) – WHEN FEDERAL auctioneers lay down their gavels and call an end to the great sell-off of failed financial institutions, the world of banks and thrifts will be vastly changed. Once prosperous firms will be gone, new alliances will exist, and a fresh generation of powerful bankers will have emerged. Hugh McColl, 55, combative leader of NCNB Corp., aims to be at the head of that pack. He sure has momentum. NCNB has been on a buying spree since the day it was created in 1960 by a merger of two North Carolina banks. It quickly rose from a distant No. 2 to become the biggest bank in the state, mainly by buying up smaller banks. Under McColl, CEO since 1983, the pace of acquisitions has quickened, with 26 takeovers in just the past three years. None have done so much to change NCNB's down-home image, and to make the Charlotte bank into a financial powerhouse, as McColl's acquisition of First RepublicBank Corp., the largest and most troubled bank in Texas. First Republic failed with $32.5 billion in assets and potential losses of $3 billion. When the Federal Deposit Insurance Corp. auctioned First Republic off in 1988, NCNB offered the FDIC a deal that was $700 million better than the next bid, from Wells Fargo Corp. But with tax breaks figured in -- breaks that only McColl and his troops knew how to tap -- NCNB managed to buy the sprawling Texas franchise for a song. And because the FDIC agreed to take responsibility for most of First Republic's bad loans, NCNB sidestepped the biggest risks. Little wonder bankers are calling McColl's Texas takeover the deal of the century. McColl also bought 18 other prostrate savings and loans and banks in the Lone Star State, doubling the number of branches there. By March 1990, NCNB's Texas operations claimed a share of the retail banking market 1 1/2 times that of its nearest rival. In its first year under NCNB management, the Texas subsidiary churned out $300 million in pretax profits, or 50% of the bank's total earnings. As a result of the deals, NCNB's assets have shot from $30 billion in 1988 to $66 billion. That's just about the right pace for McColl, America's boldest banker. ''I like growth, I like change, I like excitement,'' he says. ''Once you stop growing, you start dying.'' A tough boss who served in the Marines in the late Fifties, McColl has a quick wit, an even quicker temper, and a long memory for slights. He sees banking as war, thrives on the fight, and hates to lose. Until a few years ago, when it started getting too much press attention, he kept a dummy hand grenade symbolically perched on his desk as a paperweight. He says: ''One of my jobs is bringing chaos to order.'' CHAOS pretty well describes the world of commercial banking. Inefficient banks and thrifts are failing in record numbers. Industry giants are hobbled by a decade of bad loans to real estate moguls, oil barons, and Latin American countries. Meanwhile, a handful of healthy super-regionals like NCNB are buying assets at bargain prices and challenging their bigger brethren. Not surprisingly, many of the fast growers are establishing beachheads in Texas, where assets are cheap and expansion comes quickly. The No. 3 bank in the state is owned by Banc One of Columbus, Ohio, which in the past five years has bought 46 banks, both in and out of Texas. Either by preying on fallen thrifts and banks or through mergers with other financial titans, these up-and-comers see rapid expansion as the key to prosperity. Bigger empires, these bankers argue, provide a larger deposit base and loan network that will enable them to deliver banking services the way McDonald's delivers hamburgers: inexpensively and efficiently. As they see it, huge banks will be safe banks too. They will be so broadly diversified across the country that neither a depression in Texas nor a collapse in New York City will mortally wound them. McColl may be banking's biggest booster of bigness. He believes that a major consolidation is under way, and that aggressive growth is the only way to survive. Says he: ''What I see happening in America is what has already happened in Europe and Canada. There will be very few players.'' The message: Buy or be bought. The First Republic acquisition combined with 21 other deals has given NCNB a dominant market position in four Sunbelt states (see map), where economic growth in the 1990s is likely to be far above the national average. It is the only bank outside New York and California that is among the nation's top ten, ranking sixth in deposits and seventh in assets. ''We've always been big talkers,'' says McColl. ''But reality is catching up to our rhetoric.'' Still, concerns linger that NCNB and some of its peers may be reaching for too much too fast. Some past dealings of NCNB's staff do nothing to allay those fears. The strategist behind the First Republic coup, and for six years NCNB's chief financial officer, is Timothy Hartman, formerly the top financial executive at another highflying financial company, Baldwin-United, which went bust in 1983. During Hartman's tenure at Baldwin-United, the company rose like a rocket on swelling sales of single-premium deferred annuities and the aggressive use of tax shelters. It ultimately ran into problems because it took on too much debt, and it was later charged by the Securities and Exchange Commission with overstating its earnings. Hartman temporarily stepped down from his NCNB post in 1985 to face an SEC investigation into whether he knowingly helped Baldwin- United doctor its books. He vehemently denied the charges and in 1986 settled with the SEC, accepting a court order that he not violate the securities laws. In banking it is almost axiomatic that rapid growth brings problems, usually a rush of bad loans. That's just what happened when NCNB went on its buying spree. In the second quarter, NCNB's nonperforming assets, mostly bad loans and foreclosed real estate, doubled over last year. Even so, nonperforming assets are only 1.12% of total assets, below the industry average. What has kept NCNB away from disaster is McColl, who, despite his go-go attitudes, knows the nuts and bolts of banking and has a talent for making good loans out of bad. He grew up in a small town in South Carolina. His ''Daddy'' was a cotton merchant, a farmer, and also worked as the president of the local bank. An indifferent student at the University of North Carolina, McColl learned about management as an officer in the Marines. ''They've got the best management training of anybody,'' he says. ''We were always told to feed the troops first and to lead from in front.'' A bank in North Carolina -- one of the predecessors of NCNB -- where his father sent him to gain experience taught him about lending. McColl won special attention in the 1974-75 recession when he took charge of NCNB's most troubled loans and kept them from dragging the bank under. NCNB could be growing even faster were it not for McColl's reputation as a marauder. In the early 1980s he incensed Floridians when he bought up a string of banks around the state, got rid of many of their executives, and then criticized local bankers for being lazy. His irreverent humor hasn't helped either. He riled Georgians by joking he wasn't going to go down ''every pig path'' in the state to build a big bank there. His reputation as banking's bad boy twice played a part in foiling acquisitions. He bid for First National Bank of Atlanta in 1985, but lost when its board decided to accept a slightly lower offer from well-mannered Wachovia Corp. Last March, eight months after he agreed to buy his bank in Texas, McColl made a bid to buy Citizens & Southern Corp., Georgia's largest bank. He was rebuffed, after which C&S agreed to merge with Sovran Financial Corp., a Virginia bank, at a market price lower than the one offered by NCNB. Whatever qualms bankers have about McColl, they don't expect him to get his comeuppance anytime soon. The reason: the strength of the deal in Texas. It was a most unlikely acquisition, by some measures too big a deal for McColl's bank to handle: First Republic's assets were $4 billion more than NCNB's. Says McColl: ''No one took us seriously.'' To overcome the size handicap, McColl looked for a way to offer the FDIC a bid it couldn't refuse. With the help of Hartman, he found it. When First Republic came up for sale, Hartman focused immediately on a critical asset -- $5 billion of tax-loss carry-forwards. Normally when a bank fails, the tax losses expire with the company. But Hartman built an argument that those tax benefits should be bequeathed to the depositors. The IRS agreed. Since depositors couldn't receive the tax benefits directly, the easy solution was to allow NCNB's new Texas subsidiary -- the old First Republic -- to inherit them. That was the edge NCNB needed. Knowing that it could use the tax benefits to shelter future earnings, NCNB was able to outbid Wells Fargo Corp. handily. Congress closed this loophole in 1988. Better still for McColl and his forces, the generous purchase price he offered for Republic didn't cost his bank much at all. Faced with a rising number of failed thrifts and a shortage of qualified buyers, the FDIC settled for a commitment that NCNB would invest the bulk of the purchase price, some $1.3 billion, in its new subsidiary instead of giving it to the FDIC, in effect allowing NCNB to transfer money from one of its pockets to another. McColl still marvels at what a terrific deal he got. ''Candidly, I think we paid zero for First Republic.'' EVEN ZERO might be too much to pay for a portfolio of troubled loans. But NCNB made sure that it could shift its most risky loans back to the FDIC. It set up a special asset division to be a halfway point between the bank and the FDIC, and transferred bad loans with a face value of $10.6 billion into this division. Once loans are moved into the special asset division, they remain on NCNB's books, but the bank may put them back to the FDIC, no questions asked, at any time between November 1991 and November 1993. The bank shipped $1.2 billion of bad loans over to the division last year. It also has the right to shift another $750 million of troubled loans back to the FDIC if necessary in addition to the $10.6 billion. The only thing the First Republic acquisition didn't provide was an extensive branch network. McColl fixed that by buying up enough banks and thrifts in the state to double the size of its Texas branch network to 252 branches. The transactions left NCNB Texas, as the amalgamation of acquisitions is called, the leading bank in four of the state's five biggest urban markets: Austin, Dallas, Fort Worth, and San Antonio. NCNB's worst headache, short term, is a backlash of borrowers. Though the FDIC assumed ultimate responsibility for First Republic's troubled loans in the special asset division, it hired NCNB to manage all the loans, that is, to collect interest and principal payments from the borrowers. Hartman, who now heads NCNB Texas, must play the heavy to local businesses. As a result, NCNB is suffering a wave of bad publicity. Texas business people have singled it out as the out-of-state bank that isn't giving back its fair share. They call it ''No Cash for Nobody.'' One commercial loan that NCNB Texas foreclosed on actually led to a demonstration by factory workers outside the parent bank's Charlotte headquarters. Reflecting the bank's growing unpopularity, a flurry of ''anti-NCNB'' legislation has been drafted and is expected to be introduced when the Texas legislature next meets in January 1991. Says McColl: ''They have to have somebody to be angry at. We are the holders in due course of that anger.'' As NCNB sees it, the bank has had little choice in dealing with most borrowers. ''One of the first things ((FDIC chairman)) Bill Seidman made clear,'' says McColl, ''is that he wanted us to take the heat on the loans in Texas.'' NCNB's mandate was to collect what was owed to the FDIC as fast as possible. The collection effort has been a success. Says Hartman: ''We think we'll be getting about 60 cents on the dollar.'' That compares with some recent thrift failures where recoveries have run closer to 30 cents on the dollar. The difference, says Hartman, is that NCNB has been working hard with the original borrowers. In exchange for getting either more cash or collateral from the original borrower, NCNB may forgive some of the debt and knock down the interest payments. As an added incentive, it also gives the borrower a chance to profit if the workout goes well. Congress may want sterner treatment of defaulted borrowers, but in the end, Hartman argues, the deals he works out are much cheaper for the FDIC than foreclosing on the loans and having to sell off the properties to new buyers. The criticism of NCNB's loan policies, though widespread in Texas, is not fair. Like other bankers operating in troubled territory, NCNB Texas is an extremely cautious lender. But the bank is still making loans. NCNB put out some $2.2 billion of new loans in Texas in 1989, a 20% increase over 1988. That's in a state where overall loan growth has been flat (see following story). Kenneth Lewis, president of NCNB Texas Bancorp, which oversees the bank's Texas operations, would like to lend much more, but high-quality borrowers who are not already overextended are scarce. SOME ANALYSTS worry that in its eagerness to grow, NCNB will go on an injudicious lending spree. Despite the new loans, NCNB Texas is getting backed up with deposits, which continue to flow in as depositors seek the safety of an FDIC-member bank. The company has added to its investments in Treasury securities, which are safe but not as profitable as loans. One possible solution: another deal. NCNB could tie up with a bank that is short on deposits but has plenty of demand for loans. Likely candidates include banks with big credit card operations. Before he can make a bid to go national, McColl must first cope with the Southeast banking compact, a reciprocal regional agreement backed by legislation in 13 states, which requires that 80% of NCNB's deposits be from the Southeast. (Takeovers of failed banks, like First Republic, are exempt from the Compact's restrictions.) But McColl doesn't worry much about those barriers. His team has a way of getting around obstacles. Besides, if not next year, then a few years down the road he figures that the restriction will tumble along with other barriers to interstate banking. Looking ahead, McColl sees even more intriguing possibilities. ''At some point we're going to be joined with a company that doesn't look like us,'' he says. ''It might be a big generator of consumer loans or an organization with special talents like investment banking.'' One idea bouncing around the halls in Charlotte: a merger of NCNB, BankAmerica, and Bankers Trust. By 1995 the result could be a $280 billion behemoth with a show-stopping retail franchise and investment banking clout, a company big enough to kick some sand in the face of the giant Japanese banks. Make no mistake: That's a Nineties banker talking.

CHART: NOT AVAILABLE CREDIT: NO CREDIT CAPTION: NCNB'S SOUTHERN ROUTE TO BIG LEAGUE BANKING First Republic helped make NCNB the only top ten banker outside New York and California.

CHART: NOT AVAILABLE CREDIT: NO CREDIT CAPTION: A BANK THAT LOOKS LIKE A GROWTH COMPANY Profits and assets are up fourfold in six years.