Faced with two options for attaining compliance with federal bank ownership laws, the board of InvestArk Bankshares chose both.

The Stuttgart, Ark., holding company converted one of its banks, First National Bank in Stuttgart, to a state-chartered institution, and then merged with First United Bancshares, EL Dorado, Ark.

The merger was initiated by members of the Stephens family, which owns 67% of InvestArk common stock as well as a controlling interest in Stephens Inc., one of the largest brokerage firms outside New York City.

Not in Compliance

Earlier this year, the Federal Reserve investigated the Stephenses' multibillion-dollar holdings and determined that they were not in compliance with the Glass-Steagall Act of 1933, which prohibits parties who control securities firms from ownign more than 50% of any national bank.

After First United acquires InvestArk, the families of the late W.R. Stephens Sr. and Jackson T. Stephens of Little Rock will control only 14% to 16.5% of First United's outstanding common stock.

Denies Pressure Was Factor

Stephens Inc. general counsel David Knight said that while looking for a merger partner, the family also had been pursuing the Fed's other recommendation -- converting First National to a state charter to avoid Glass-Steagall penalties.

Mr. Knight said approval for conversion came before the board of directors of InvestArk voted on First United's offer and was not made under regultory pressure.

"Although the initial contacts were made because the Fed had taken the position that there was a Glass-Steagall problem, it would be incorrect to say the board approved of the merger because of the regulatory problem," Mr. Knight said. "They agreed to it solely on the terms of the merger and whether it was good for the shareholders."

The conversion was completed Oct. 21, the same date the companies announced their intent to merge. First United will grow to about $1.1 billion of assets upon completion of the InvestArk purchase and of another acquisition currently under way.

Acquisition Program

James V. Kelley, First United's chairman, president, and chief executive, says crossing the $1 billion mark was only an intermediate goal. The bank's main purpose in acquiring InvestArk was "to increase shareholder value through acquiring community banks in solid markets with good earnings or earnings potential," he said.

First United is expected to close within 30 days its acquisition of Commercial Bank at Alma, a $41 million-asset bank that serves the same market area as one of First United's banks.

"We were looking for Arkansas banks that had the same commitment to community baking that we do." Mr. Kelley said. "As for the future, we're probably not finished with acquisitions."

Holders to Get $26.1 million

After approval by the respective boards of the holding companies as well as shareholders and regulatory agencies, First United's four banks in El Dorado, Magnolia, Camden, and Fort Smith will be joined by the Stuttgart bank and the Bank of North Arkansas in Melbourne.

Under the letter of intent, InvestArk shareholders will receive about $26.1 million in First United common stock in exchange for all outstanding InvestArk common shares, subject to adjustments. The deal is expected to close in April.

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