Bank of Fayetteville acquired by Farmers and Merchants Bank of Stuttgart

Bank of Fayetteville, Fayetteville’s oldest hometown bank, is being acquired by Farmers and Merchants Bankshares of Stuttgart to form a $1 billion financial institution with equity capital exceeding $142 million.

The announcement was made in a press released issued after 10 p.m. Thursday (July 30) by Farmers and Merchants Bank President and CEO Gary Hudson and The Bank of Fayetteville President and CEO Mary Beth Brooks.

“This is an important event for our bank,” Brooks said in the statement. “It will ensure that our customers continue to enjoy their relationship with their community bank and will allow them access to a broader choice of products and services and improved technology. This transaction will also provide growth opportunities for our employees, maximize value for our shareholders, and ensure a continued investment in our community. These are two like-minded, community-focused institutions joining together to make a greater impact not only on our local communities but also in the level of service and technology that we can offer our customers.”

Hudson noted in the statement: “We are very pleased with the opportunity to add The Bank of Fayetteville to the Farmers and Merchants Bank family. We 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,” he added.

The statement from the two banks did not indicate if Brooks or other members of the management team for Bank of Fayetteville would remain. However, the Bank of Fayetteville will keep its name and continue to operate all of its branch locations.

Farmers and Merchants Bank, with approximately $701 million in total assets, currently operates in seven Arkansas communities: Stuttgart (headquarters), DeWitt, Marianna, Hazen, Des Arc, Perryville and Morrilton.

The Bank of Fayetteville, with assets of approximately $350 million, has five branches in Fayetteville as well as branches in Farmington, Prairie Grove and West Fork.

This deal, subject to regulatory approval would give Farmers Merchants an instant deposit marketshare in the highly competitive Northwest Arkansas region. But it’s not just deposits that look attractive. There is a great deal more loan demand in Northwest Arkansas than in farming regions like Stuttgart, according to John Dominick, banking expert with the University of Arkansas. (Dominick is a shareholder of Fayetteville Bancshares).

“All the banks in Arkansas want to be here, even though we are overbanked per capita. Buying up a local bank is one way for an outside institution to get an instant foothold,” he said.

How overbanked is Northwest Arkansas? The region has 39 bank institutions active in a market with $8.552 billion in deposits, compared to a central Arkansas market with $14.778 billion in deposits among 35 active banks.

The merger is not really a surprise to an industry analyst given the regulatory burdens from Dodd Frank legislation that is taxing smaller banks profits. Dominick said each of these banks have sound balance sheets and strong presences in their respective communities. 

He expects more mergers to come from the Dodd Frank regulatory requirements that tax smaller banks that don’t have as many loans to spread out the costs. Dominick agreed there would likely be substantial synergies in the back office compliance area of this pro forma bank.

Gaines Dittrich, an independent banking consultant, told The City Wire in 2014 that bank mergers, particularly small community banks, would become more common as Dodd Frank regulations are being implemented. 

Founded in 1945, Farmers Merchants Bank has assets of $680 million through June. It has grown assets 4.9% from a year ago. It’s also a profitable bank earning $3.195 million through the first half of this year. Earnings rose 3% from the same period last year. 

For the full year of 2014 Farmers Merchants reported earnings of $7.602 million, down from $8.896 million in 2013. The decrease in earnings relates to a 32% decline in investment income year-over-year. Income on loans rose 7.4% but not enough to combat the lower income from the bank’s investment securities.

The Bank of Fayetteville has returned to profits after the real estate correction and falling prices that impacted all of the Northwest Arkansas banks between 2007 and 2011.

“CEO and president Mary Beth Brooks and her team have done a great job getting back to profits and the bank is in sound shape,” Dominick said. 

In the first half of 2015, Bank of Fayetteville reported net profits of $1.266 million, up 0.95% from the same period last year. While earnings were flat the bank grew total assets by 2.78% to $345.162 million as of June 30.

In 2014, the bank had net income of $2.502 million, up 7% from the prior year. The Fayetteville bank’s balance sheet is flush and it reports $234 million in loans as of June. The bank had $473,000 in non-performing loans and it was still hanging on to $3.296 million in other real estate owned. 

This deal is not the first east-west merger among local banks, First Security Bank of Searcy acquired the First National Bank of Springdale in 2003 and has since expanded its footprint across Benton and Washington counties. In 2006 Signature Bank of Fayetteville merged with Bank of Brinkley, with both retaining their names and management teams. Dominick, a director for Signature Bank, said that deal provided more loan demand for the Bank of Brinkley which was flush with deposits and it provided capital liquidity for Signature Bank as it worked through problem real estate loans.

The Bank of Fayetteville was founded in 1986 by the late John Lewis and Dominick remembers Lewis as “Mr. Fayetteville.” He said the bank has been a cornerstone on the Fayetteville Square for nearly three decades.

“He would have never sold the bank as long as long as he was healthy. But things change and John Lewis would have changed with the times. He would be 76 years old now and it’s hard to say if he would approve of this deal, but he would want what’s best for the bank, it’s customers and shareholders,” Dominick said.