MNB Hunts Market Share

From its perch atop the 40-story Metropolitan Tower in Little Rock, a raptor eyed opportunity.
Now Metropolitan National Bank’s talons have a firm grasp on Northwest Arkansas’ economic engine, and executives say they won’t let go until it’s one of the top five banks in the market.
Less than two years after executives announced plans to build full-fledged deposit taking offices in Northwest Arkansas, there are nine MNB locations in Benton and Washington counties. Another is set to open in early May and the bank has 12 independent ATMs. Three more branches — which cost about $3 million each — will be completed by the end of the year. And the bank has been steadily building offices in central Arkansas as well.
MNB’s northern migration has cost it more than $30 million. But the return has been about $50 million in deposits as of mid-April, said Wyley Elliott, Northwest Arkansas regional president. That’s a 221 percent increase from June 30 market share data.
“It’s been hard work and high interest rates,” said Lunsford Bridges, president and CEO, about garnering deposits in the two-county market.
MNB had business ties in Northwest Arkansas prior to its move, notably a $32 million loan to John Q. Hammons to partially fund the Embassy Suites hotel and adjacent Hammons Convention Center in Rogers.
Loans for the bank in Northwest Arkansas have increased 260 percent since MNB started branching into the market, Elliott said.
As for residential mortgage loans, the bank has seen a 235 percent increase in volume from 2005 to 2006, said Justin Moore, vice president of mortgage lending.
“Every month we break records,” he said.
The number of employees in the mortgage division has increased from two at the end of 2005 to seven. Moore would like to see that number double, and said the bank is seeking originators and processors in both counties.
The size and holdings of the home office have allowed for such an extraordinary increase, said Washington County president Larry Olson.
“Because of the Little Rock bank, we’ve been able to do a lot more,” he said.
This means MNB has been able to expand aggressively, without taking the chances that some startup banks must, such as risky loans or brokered deposits.
The bank is after what Olson called “controlled growth.”

MNB Nests
The Benton County headquarters at Pinnacle Hills is quite a step up from the first temporary office the crew shared in Fayetteville, which was outfitted with furnishings scavenged from the bank’s Little Rock headquarters.
The new building has two conference rooms, as well as a training room. The two-story structure is 24,000 SF, of which 10,000 SF is currently finished and occupied, with the rest set aside for future needs.
Much of the space will likely be used for a future private banking division. There is a wealth management team in Little Rock that can work with customers in this area. But when the asset-base in the region dictates it, MNB will open a private banking office, ideally within five years, Olson said.
The Washington County headquarters is a one-story, 9,000 SF building on Joyce in Fayetteville. Space in that building is filled, with one half dedicated to retail business and the other for mortgage and commercial banking.
Phase I of MNB’s plan was to open 12 branches in 18 months. However, the bank hit an “unexpected snag” with the Fayetteville Mission Boulevard and Crossover Road location, Olson said. That snag came in the form of an underground vault of telephone cables, which forced changes in the building plans and took months to resolve.
The branch should be open by the end of the year, or by early 2008.
The trio of executives also hinted at possible surprises on the horizon.
There’s talk of “non-traditional” branches, or offices that aren’t freestanding structures. The bank is eyeing a few sites around Northwest Arkansas, but no one is talking about it yet.
“We’re looking at growth areas with opportunities to serve the financial needs of people in those areas,” said Drew Davidson, retail executive and senior vice president.

Spending and Earning
For the most part, MNB is right on target with the project budget and branch openings. By the time all of the branches are open, the bank will have spent about $35 million, which is in line with their expectations, Elliott said. The bank’s executives haven’t been shy when it comes to disclosing how much money they’ve spent on the move. So it’s clear that they aren’t in the area to merely dip their toes into the financial waters.
However, such ambitious and expeditious development doesn’t come without a price.
While the bank’s net income was up by $250,000 — an increase of 2.2 percent — it’s year-over-year return on asset ratio dipped from just under one percent to 0.77 percent from 2005 to 2006, according to the Federal Deposit Insurance Corp.
“That is the more obvious impact that it’s having,” Bridges said of the expansion.
This wasn’t unexpected. When MNB decided to move into the region, execs knew the speed with which they wanted to do this would affect their ratios for ROA and return on equity.
Had they stretched the process out over several years, it would’ve been less expensive up front. But it was decided the best idea was to move quickly.
All of the hard work and sacrifice should start paying off soon, though.
“We expect to be back up to our prior earnings levels in two to two-and-a-half years,” Bridges said.
The cost of the Northwest Arkansas campaign wasn’t the only factor that affected MNB’s performance ratios. During roughly the same time span, the bank opened an additional 10 branches in central Arkansas, with at least one more on the way before the end of the year. That puts the tally at close to 20 offices constructed in about 18 months.
Regarding long-term goals for the region, MNB has its sights set high.
“We want to be a major player in that market,” Bridges said. “There’s room for us to be [in Northwest Arkansas] and when we made our decision three years ago, we felt that the market was sufficient for us to get in and get some good business.”
But MNB isn’t the only Little Rock bank that had its eye on Northwest Arkansas.
Bank of the Ozarks also has ambitions in the region. BOZ is a public bank with more than $2.5 billion in assets and $2.1 billion in deposits, according to the FDIC.
The bank has opened eight branches in Washington and Benton counties since early 2005.
As of June 2006, BOZ had one office in Washington County and three in Benton County, with retail and commercial deposits of $27 million and $34 million respectively. Total bank deposits accounted for about one percent of overall bank market share in the area, which outpaced expectations, said executive vice president Susan Blair.
“While we’ve made some important gains, there are still tremendous opportunities for growth in those markets,” Blair said.
In 2006, BOZ replaced two branch locations and opened 11 new offices, five of which were in the two-county market. This contributed to higher expenses, but BOZ “is a growth company” and has been adding branches each year for the past 12 years, Blair said.
Performance ratios for BOZ were down in 2006, likely because of the price of opening new branches. The bank’s ROA was down to 1.48 percent from 1.78 percent, while ROE was down from 22.8 percent to 19.9 percent. However, net income for BOZ was up from $33.9 million in 2005 to $34.8 million in 2006, an increase of 2.7 percent.
The banking business in the region, while fiercely competitive, has also been interesting to compete in, Blair said. It is a market in which customers are looking at deposit interest rates as much as they are looking for services, products and convenience.
The deposit rates in Northwest Arkansas area are among the highest in the country, and Blair thinks it will lead to greater consumer awareness and become a major factor when customers choose banks.
Blair said, in this region, pricing and deposit rates are almost as important as relationships.
A large percentage of the population in Northwest Arkansas is new to the area, so building on relationships is harder. And despite being a factor when choosing a bank, attractive deposit rates alone aren’t enough to woo customers. Convenience will always be a concern.

Saturation
MNB purchased Triad Title Co., of Springdale in January. A title company is a good product for banks to have available, Bridges said.
“The people involved, Dick Levin and his team, are exceptional title people. It was a group around which could be built an exceptional title company [for MNB],” he said.
Another facet of convenient banking is plentiful ATM locations. MNB has dotted the countryside with ATMs to earn retail business.
The location of MNB’s off-site machines fits into what Bridges called a “hub and spoke” pattern, with ATMs spreading from the main branches into outlying areas where customers and potential customers live. The machines themselves are hard to miss, with blue lights and big stars. This is one type of visibility that is important to MNB.
Another is of a more human sort. MNB executives make a priority of attending city, chamber of commerce and other civic events throughout the area. One look at Elliott’s calendar would reveal that much of his time is dedicated to getting out and meeting people, as opposed to being chained to his desk all day.
Community awareness and involvement is one of the principles MNB applies to doing business, and that is something that attracted Elliott to the bank.
MNB is “family-owned and committed to fostering good relationships with their customers and the community, and the leadership of the bank has emphasized that since Doyle Rogers started the bank in 1970,” Elliott said.
Despite the fact that MNB moved to the area quickly, when it came time to put together the team to do this, the process was measured. The bank’s executives wanted to hire the very best people they knew of. Davidson had formerly worked for Bank of America, and was actually retired when he got the call to work for MNB.
Olson was at The Bank of Fayetteville prior to starting with MNB in June 2005. He was chief credit officer and executive vice president at BOF.
Elliott was with Bank of America for several years, serving as president in Camden and Hot Springs. He was president of Summit Bank in Hot Springs before getting the call from MNB.
“We’re really proud of our Northwest Arkansas team,” said Susan Smith, senior executive vice president and chief financial officer.
Click here to see a chart of MNB’s assets vs. deposits.