Integrity CEO Gary Childers: Farmers & Merchants Came Calling

Gary Hudson, CEO of Farmers & Merchants Bancshares, made the first move in the first Arkansas bank deal of 2019 — back in 2017.

Integrity First Bank of Mountain Home was not actively seeking a buyer when the CEO of Farmers & Merchants Bankshares in Stuttgart rang.

“Actually, Gary Hudson approached us about 18 months ago and inquired whether we would be interested in talking with them. And we agreed to visit,” said Gary Childers, chief executive of Integrity First and president of the bank’s holding company, Mountain Home Bancshares.

Last week, directors of both holding companies entered a definitive agreement under which Integrity First will be folded into Farmers & Merchants Bank sometime in the second quarter, assuming that shareholders and regulators approve the deal.

“We did take our time,” Childers told Arkansas Business on Wednesday. Hudson was not available for an interview.

It was about September before a letter of intent was signed, and the due diligence wrapped up in early December.

“People have approached us from time to time, but when Mr. Hudson approached us and we started looking at the two banks being mirror images of each other — except they were double our size.”

When the acquisition is completed, Farmers & Merchants Bank’s assets will grow from just over $1 billion to more than $1.5 billion. The parties did not reveal terms of the deal, other than that it is a cash transaction. First Integrity, which has more than 300 stockholders, had $53.4 million in equity capital as of Sept. 30, the most recent reporting available.

Like F&M, Integrity First is profitable. F&M reported net income of just under $7.5 million in the first three quarters of 2018 and $8.74 million in 2017. Integrity First earned $3.98 million through Sept. 30 last year, almost matching in nine months its net income of $4.09 million in 2017.

F&M’s footprint will also expand dramatically. It currently operates 19 offices — eight in its traditional Delta markets of Stuttgart, DeWitt, Des Arc and Hazen, and eight in Washington County, the result of its 2015 purchase of the Bank of Fayetteville. The acquisitions of Chart Bank of Perryville in 2008 and First National Bank at Marianna in 2009 brought branches in Morrilton, Perryville and Marianna.

One of Integrity First’s 10 offices is in Fayetteville. Otherwise there is no overlap in their markets. (Had Integrity First continued on its own, Hudson said, it would have been looking to build or acquire a new location for its one Fayetteville branch, currently in a strip center on North Gregg Avenue.)

Gary Childers

That was part of the appeal of the deal, Childers said. “Consideration was given to the impact on employees — very minimal if any impact on our employees,” he said. Integrity employed 127 as of Sept. 30.

“The joining of these two banks expands Farmers and Merchants’ outreach into Jonesboro, Bentonville, Mountain Home, Flippin, Gassville, Lakeview, and Pocahontas, vibrant communities with good things happening,” F&M CEO Hudson said in a news release announcing the agreement. “Our banks share similar values and business philosophies of community involvement and commitment. We have full faith that combining the financial strength of our organizations will serve the customers of both institutions well.”

Childers will remain with F&M after the acquisition closes. And while his new job duties have not been settled, he said he expects to remain involved with the former Integrity First branches. “I’m just glad I’m still going to have the opportunity to continue working with this great organization,” he said.

Childers said he personally owned less than 1 percent of the stock in First Integrity, which was founded as First National Bank & Trust Co. of Mountain Home in 1963. It has made no acquisitions since 2004, when it bought the $129 million-asset Bank of Pocahontas.

As of Dec. 31, Integrity First had assets of $525 million and Farmers & Merchants had assets of $1.06 billion, according to the news release. F&M had 243 employees as of Sept. 30.

OCC Loses Another
Their cultures may be similar, but the two banks have not had the same kind of charters. Integrity First has remained a national bank charter. Losing it to state-chartered F&M will reduce the number of Arkansas banks regulated by the federal Office of the Comptroller of the Currency to 13.

A combination of charter conversions and acquisitions has reduced that number from 22 in just three years:

Arkansas Institutions Currently Regulated by OCC
Ranked by assets (in thousands) as of Sept. 30, 2018

^*Announced acquisition by state-chartered Farmers & Merchants Bank of Stuttgart expected to close in second-quarter 2019    
^**Only remaining thrift chartered in Arkansas

Recent National to State Charter Conversion
In order of conversion date

^#Subsquently acquired by state-chartered Arvest Bank of Fayetteville on April 21, 2018

Recent National Charter Acquisitions
In order of acquisition closing date

Source: Federal Deposit Insurance Corp.