Prophet and losses.

• Position: First Wachovia Corp. and NCNB Corp., banks

Prophet and losses

John Medlin is not one to gloat.

But he could if he wanted to. The CEO of First Wachovia Corp. (FW-NYSE) for years has preached the gospel of cautious lending. The inevitable economic downturn, he said, would expose loose credit quality caused by too much money chasing too few good deals.

Well, the country has fallen into recession and pulled the North Carolina economy down with it. Many expansion-minded banks -- including Tar Heel rival NCNB Corp. (NCB-NYSE) -- are having to own up to their sins, while First Wachovia remains unscathed.

"Wachovia is pure as a lily," says John Mason, an analyst with Interstate/Johnson Lane in Atlanta. In the '80s, Wachovia resisted the temptation to expand widely from its North Carolina roots. Instead, the bank concentrated on its sole major acquisition, First Atlanta Corp., and developed a slow-growing, diverse portfolio that exposed the bank to relatively little risk. With $24.7 billion in assets in the third quarter, First Wachovia was the 29th-largest bank in the country. (NCNB, with $69.2 billion, was seventh.)

Since 1985, NCNB's loans have exploded 233 percent, to $35.9 billion in 1990, while First Wachovia's loans have grown a modest 62 percent, to $15.7 billion.

The go-slow approach has paid off in excellent credit quality for the Winston-Salem-based bank-holding company. Its non-performing assets were just 0.91 percent of total loans at the end of 1990. First Wachovia earned $4.20 a share, up 10 percent from $3.82 in 1989. Return on assets was a glowing 1.23 percent, and return on equity was 16.4 percent.

NCNB, meanwhile, followed the grand plan conceived by Thomas Storrs in the 1970s and executed by Hugh McColl Jr. in the '80s: go South and West to become the Citicorp of the Sun Belt. The reasoning: Florida and Texas were growing faster than North Carolina, and spreading the bank's loans over several regions would cut its overall risk.

As a result, investors have a clear choice when considering the two stocks: a multistate bank whose performance tends to mirror the national economy or a regional bank that continues to tie its fortunes far more closely to the South's.

But Citicorp hasn't shown much ability to run a national banking franchise, as its plummeting stock price indicates. And neither has NCNB, based on early signs of the first recession since its grand expansion began. While its attention was focused on expanding in Florida and Texas, Charlotte-based NCNB let the credit...