IRVING, Tex. - When Larry McNabb decided to leave then-prospering Republic Bank in Dallas a decade ago for then-struggling BankAmerica Corp., he got frank advice from colleagues about going west.

"They said, |Oh, you don't want to go there - they are going to fail,'" Mr. McNabb recalled with a broad grin.

BankAmerica, of course, recovered spectacularly, while Republic went bankrupt as the Texas economy crashed.

|100% Optimistic'

Now Mr. McNabb has returned to the Lone Star State as chief executive of Bank of America Texas. And just as his career gamble paid off when he left Republic, he is certain he will succeed in turning BankAmerica's $10.7 billion of Texas thrift assets into money-making commercial bank.

"I'm 100% optimistic about this," said Mr. McNabb, who is known both for his retail banking skill and his upbeat outlook.

But the task is enough to test even Mr. McNabb's optimism. He inherited a bank created from a patchwork of failed thrifts beginning in 1991. The core of the franchise is the failed Sunbelt Federal Savings purchased last year from the Resolution Trust Corp.

On top of failed thrifts, BankAmerica added a going concern: $7.5 billion in deposits and 130 branches of First Gibraltar Bank bought from financier Ronald O. Perelman for an estimated $110 million in cash and stock.

Making Bank of America Texas profitable depends on Mr. McNabb's ability to transform the book of business inherited from thrifts into a full-line commercial banking franchise.

That will not be easy. Bank of America purchased a portfolio heavy on rate-sensitive time deposits and thin on loans. Also, customers have traditionally viewed thrifts as savings institutions, not as the product-selling enterprise that Mr. McNabb wants to build.

Texas is the biggest proving ground yet for BankAmerica's strategy of interstate expansion through acquisition of sick thrifts. They previously used the strategy to enter Arizona, Oregon, and New Mexico.

The bank sees the strategy as inexpensive way to build a retail presence in new territories. But three years after setting out on this course, thrift acquisitions have yet to produce consistent profits.

So far, Mr. NcNabb says he would have done only one thing differently in Texas.

"I'd of bought everything we bought, but I would tried to buy a good commercial bank too," he said. To rumors that BankAmerica may yet buy just such a bank in Texas, he responded: "We're still looking to grow and expand, and what we are doing is looking at what is the most cost-effective way to do that."

Clearly, the eyes of his Texas competitors are upon him. Rival bankers cite the bank as the great unknown in a state where Banc One Corp., Chemical Banking Corp., and NationsBank Corp. have established profitable operations.

"Bank of America is the one factor in the equation that could change market share in Texas," said an executive at a competing bank. "Larry McNabb has a good reputation coming out of California in the retail area, and if he is half as successful as they have been in the lead bank, then we are going to have some tough competition."

Mr. McNabb is also being closely watched from the San Francisco headquarters, which one senior official recently said represents the company's main hope of growth and profits.

Analysts say the fact that BankAmerica is willing to wait until 1995 for Texas to make a profit contribution is evidence of the state's central in the company's future.

"Most of their projects have been given a six-to-12-month period for payback, but BankAmerica is willing to give it longer," said John Leonard, analyst with Salomon, Brothers. "That shows that the Texas bank is obviously of fairly high strategic importance."

For now, though, the Texas bank continues to be a drain. Through the first quarter of 1993, Bank of America reported a loss of $25.7 million or a negative 0.94% return on average assets. The company says the loss reflects acquisition costs and investments in building the bank.

Losses Seen Continuing

BankAmerica declines to say how much of an operating loss the bank has actually shown or to project future deficits.

Mr. Leonard "guesses" that the bank could lose $50 million to $75 million by yearend and half that in 1994. That comes at a time when commercial banks in the state are earning a 1.99% return on assets.

In a lengthy interview, Mr. McNabb outlined some of the steps BankAmerica is taking to build a profitable bank.

By yearend the bank expects to consolidate its three acquired deposit systems into one at a cost of up to $15 million. The bank is also spending heavily on training.

Bank of America Texas currently does business with one million households, but nearly 62% of customers hold time deposits accounts.

Corralling Customers

Mr. McNabb said his initial focus has been on expanding customer relationships by offering free checking and other services. Since January, the bank has added a net of 50,000 new checking accounts.

"We're not as interested in keeping those time deposits," he said.

BankAmerica has also geared up to build its Texas loan portfolio, despite a sluggish demand for credit. So far, success has been small.

In August, Bank of America Texas booked $11 million in mortgages with an average home loan of $49,000. Today, the bank is averaging up to 20 real estate loan applications per day and is working to speed up approval and closing times in a highly competitive market.

One restriction on growth was the failure of bank lobbyists this spring to legalize home equity lending. Industry officials believe such loans could generate up to $5 billion annually in new loans.

Building Businesses

BankAmerica has also been building on a healthy indirect car loan business it inherited from First Gibraltar, originating $8 million to $10 million a month through auto dealers.

At the same time, the Texas bank is beginning to market its 50-person BA Investment Services to sell mutual funds and other investments to customers.

The bank has just begun to promote lending to Texas' estimated 690,000 small and middle-market business, which is seen as a long-term growth area.

"I think they've done a reasonably good job in a short period of time," said Frank Anderson of Little Rock, Ark.-based Stephens Inc. "They appear to be going after the consumers now, but clearly they face challenges" from competition and reluctant borrowers.

It is a challenge that Mr. McNabb believes he is up to. Having directed the merger of BankAmerica and Security Pacific Corp. branch systems in California, he was a good choice to build the company's Texas operations, BankAmerica watchers say.

Return from Limbo

He inherited a bank where customers were in limbo for years while their former institutions were under federal control. Mr. McNabb said that his visits to more than half his Texas branches showed that bank's new customers are willing to give Bank of America a chance.

BankAmerica says its market research shows that the company's hallmark "Banking on America" advertising campaign has quickly built the franchise into the most recognize name in the state.

But the bank has a long way to go. It ranks only fourth in deposit share statewide.

In Bowie, Tex., he was greeted by customers who saw their branch change hands seven times over the past decade as successive thrift operators failed.

At one open house, a customer noted the new name and asked Mr. McNabb, "Bank of America? Do you think you'll keep that name?" the chairman recalled.

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