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Pain in the assets: J.B. Hunt's OneBank Group will no longer suffer asset growth at the expense of profitability.


J.B. Hunt's OneBank Group Will No Longer Suffer Asset Growth At The Expense Of Profitability

Last month, One National Bancshares launched a new advertising campaign tailored around trucking magnate J.B. Hunt, the self-made multimillionaire who owns 97 percent of the three-bank holding company.

The chairman of J.B. Hunt Transport Services felt so strongly about conveying his message with maximum sincerity he decided to ad-lib his part in a television commercial instead of using a prepared script. He made his decision only minutes before the cameras were set to start rolling.

"Forty years ago, I came to Little Rock with $10 borrowed money and stayed at the YMCA. Got me a job driving a truck, and I found a banker that would listen to me. And he loaned me $35,000 to get started in my business, and that's how I got to where I am now.

"Are we listening to our customers?" Hunt asks the other bankers seated around him. "Are we building a bank where people want to hang their hats?"

It's a powerful scene that seems destined to transform J.B. Hunt's trademark Stetson into an icon for OneBank, the symbol of a successful banking network.

At this point, the flagship bank, OneBank in North Little Rock which recorded a $2.3 million loss in the first quarter of 1990, is struggling to erase a reputation as a bank with a declining asset base, revolving top executives and a money loser this year for Hunt.

Although OneBank executives admit the North Little Rock bank will finish in the red in 1990, they believe the bank is on a straight and narrow lending path toward consistent profitability, unlike the meandering course of ex-CEO M. David Howell who left the bank in April 1989.

Looking To The Future

"The Hunts in the past year have taken a much more active role in the bank. I've viewed that as a really positive step," says William C. Scholl, president and CEO of One National Bank in North Little Rock.

"The whole intent of those ads is to communicate the involvement of the owners in the banks. I've really kind of fostered that. I've encouraged them to be more visible and become more active in the banks."

And they have.

Dovetailing with Scholl's selection to head up the North Little Rock bank in March, Hunt's wife, Johnelle, took over as chairwoman of One National Bank in Hot Springs and son Bryan became chairman of One National Bank in North Little Rock. J.B. Hunt has served as chairman of the board at First National Bank in Fayetteville since 1985 when he bought it from Worthen Banking Corp. for $22 million.

The banks in Fayetteville and Hot Springs have shown a profit every year under the Hunt's ownership. Fayetteville has generated an average net income of $2.3 million each of the last five years. The much smaller Hot Springs bank has averaged $225,000 since 1986.

The underachieving North Little Rock bank has averaged only $375,000 in yearly profits.

The Hunts bought First American Bancshares in a $41 million deal, retaining the operations in North Little Rock, Little Rock and Hot Springs and spinning off the Bank of Mulberry in a $2.3 million sale to Lex Golden, former head of First American.

"I don't think we'll revolutionize the banking industry as we did with the trucking industry," notes Bryan Hunt. "If you ask me tonight, I'd say we're real happy to be in the banking business."

Bigger Role

Hunt's prominent role in two 30-second television spots marks a departure from the past when he and his family were more content to participate behind the scenes. In stepping forward, Hunt has delivered a two-pronged message in front of the TV camera.

First, he and his family are reaffirming their ownership commitment to One National Bank in North Little Rock, One National Bank in Hot Springs and First National Bank in Fayetteville despite past considerations to sell one or all of the banks. In fact, the Hunts have quietly looked at adding to their $511.6 million banking network through acquisitions.

And second, their involvement with the banks is not a passive investment or an expensive hobby. Regardless of the up-and-down performance of the North Little Rock operation, which posted a $2.3 million loss for the first quarter of 1990, they're proud to own it and the other two banks.

These days, the focus has shifted from asset growth to increased profitability. The Hunts will no longer suffer the kind of growing pains that result in million-dollar losses.

"The second and third quarters have both been profitable, but there's no question that we'll show a net loss for the year," reports Scholl.

According to his estimates, the North Little Rock bank will tally net incomes of $200,000 and $300,000 respectively for the second and third quarters this year.

Through March 31, 1990, One National Bancshares' three banks have generated a $13.9 million profit for the Hunts, who invested $60 million to cover acquisition costs as well as refinancing debt and infusing additional capital.

That profit picture was marred by cumulative losses of $3 million tallied by the North Little Rock operation. The red ink was an unwelcome companion to the aggressive growth program instituted by M. David Howell.

The bank's total assets should hover around $235 million through both quarters after registering $236.6 million in the first quarter. Overall, total assets have fallen about 14.6 percent in the last 21 months after climbing to $275.2 million in 1988.

In terms of total assets, the North Little Rock bank maintained its position as the fifth largest bank in Pulaski County, but fell from the ranks of the state's 10 biggest to No. 14 at year-end 1989.

A reduced asset base is part of a conscious effort to cut the bank's loan portfolio and represents a change in philosophy. The underlying message is clear: Bigger is not better unless it applies to the bottom line.

"Size is not important at this point; profitability is," Scholl states. "We're structuring the bank to be a profitable bank. We are not going to sacrifice profitability for the sake of growth."

Conservative Course

The North Little Rock bank is following a conservative course the Hunts and Scholl have charted for the next two years.

"What you really saw during the first quarter was our beefing up the loan loss reserves to our peer group level," Scholl reports. "The Hunts are not really worried about the numbers for this year, and the decision was made with an eye towards `91.

"I see 1991 to be a pretty good year for us. Our ROA (Return On Assets ratio) for the year should fall between 0.8 and 1.0. It should be a realistic target for the bank to have earnings of between $1.8 million and $2.3 million next year."

The decision to build up loan loss reserves stemmed in part from an Informal Commitment Letter agreement with the Comptroller of the Currency in November 1989. In addition to improving the financial soundness of the bank, the letter specifically addressed concerns about One National Investments, formerly known as Bowman and Co.

"The regulators were concerned about our investment banking operations," Scholl reveals. "The COC is a little leery of a commercial bank's control over investment banking operations. That became a moot point in December 1989 when we shut it down."

NLR Geographic Niche

The bank has narrowed its view of the market for the time being and will be devoting its attention to existing clientele. This will be the bank's primary source of growth and stands in contrast to its aggressive stance at gaining market share 18 months ago.

"The original focus of the banks back in 1986 was to grow the total assets, hence the Little Rock operations," Scholl remarks. "The reality of it is you can't maintain asset growth and profitability growth.

"If we continue to be good at what we do and continue our focus, we think we can improve our customer base. Our primary niche is a geographic niche in North Little Rock."

That conservative mantle overshadows any prospects for future expansions within the market as well. The bank is in the process of adding an automatic teller/oneman branch operation near Camp Robinson that will give it nine outlets in North Little Rock and four in Little Rock.

"Branches are an expensive proposition," Scholl points out. "There's typically $1 million of front-end costs. It takes two or three years to break even on service and deposit activity. We're not certain about how much brick and mortar we're looking at."

The execs at OneBank are watching the proposed merger of Worthen Bank and Trust and Twin City Bank with keen interest. If the deal goes through, there will be an awful lot of branch duplication. And that may create a less expensive growth option for OneBank. In any case, the merger will position the bank as the sole North Little Rock-based financial institution. [Graphs Omitted]

PHOTO : ICON IN THE MAKING: J.B. and Johnelle Hunt are taking a much more active role in their

PHOTO : trio of banks along with son Bryan. Renewed marketing efforts are trying to capitalize on

PHOTO : J.B. Hunt's name recognition and successful career in trucking while turning his trademark

PHOTO : Stetson into an icon for the OneBank group.

PHOTO : BANKER IN ASCENDANCY: Since 1986, William C. Scholl has risen from chief lending officer

PHOTO : to president and CEO of One National Bank of North Little Rock. "From a style standpoint,

PHOTO : I'm a little more laid back [than my predecessor]," observes Scholl.
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Article Details
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Author:Waldon, George
Publication:Arkansas Business
Article Type:company profile
Date:Oct 8, 1990
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