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Farm Management: A Huge Niche for a Kansas Bank

By: Bill Poquette

At a time when many resourceful banks are seeking profitable niches to supplement profits squeezed by low rates and the Great Recession’s aftereffects, the First National Bank of Hutchinson in central Kansas continues to enjoy success in a specialized business it began serving 50 years ago: farm management.

What began with the bank’s trust department managing farm assets exclusively for customers morphed into managing land for noncustomer absentee landowners and has grown steadily to where Farm Management Services is a separate arm of First Wealth Management. It oversees more than 230,000 acres in 73 of Kansas’ 105 counties and in nearby Colorado, Nebraska, Oklahoma and Texas. It is the sixth-largest farm management business in the nation and the largest in Kansas, according to the bank’s website, and involves a group of seven farm management professionals plus support staff.

For owners including individuals, families, investors, trusts, universities and foundations, this team, employing more than 1,000 farm operators, manages a wide variety of operations, including field crops (wheat, milo, corn, soybeans, alfalfa, sunflowers, cotton, canola and other specialty crops), dryland and irrigated crops, pasture, rangeland and cattle herds, oil and gas leases, wildlife management and government farm programs.

According to Tedd Kimmel, who heads up Farm Management Services, the largest farm managed for one landowner is approximately 40,000 acres with several hundred farm tenants. “However, this is not the norm, as the average size of the farm we manage would range from 80 acres up to 320 acres,” he adds. “In contrast, the smallest farm under management is a nine-acre tract of farmland.”
Kimmell, a senior vice president of First National, joined the bank in 1981 and was promoted to manager of Farm Management Services in 1995. He manages farms in central and southwest Kansas for the bank, and owns and manages a diversified family farm with cow/calf and stocker cattle operations.

Four new farm management professionals were added to the team during the farm boom years from 2008–2012, and Kimmel points out that since 1962 Farm Management Services has had consistent growth and added staff as needed. “As more generations are removed from the actual farming we are seeing them turn to professional farm management for help with their farms,” he says. “It is a growing business for us.”

The unit’s marketing approach is essentially word of mouth through satisfied customers. “We provide the same service whether you own a small farm or a multi-thousand acre irrigated farm,” he explains. There is competition from other banks and independent farm managers, but he suggests most bank trust and wealth management departments do not have professional farm managers on staff that are trained in the specific area of farm management. “It also takes economies of scale to make this a profitable venture,” he says.

Other banks have been in it, notes Keith Hughes, CEO of First National, which is majority owned by descendants of one of the founders, drugstore operator E. L. Meyer, and has assets of $580 million as of Sept. 30. “I would say that up until the last few years it was a fairly low-margin business, just as farming for the most part has been kind of a low-margin business when you had wheat at $3, corn at $2 or $2.25,” he says. “And so some actually exited the business or they turned it over to somebody else.”

More might think about getting into it with the farm climate being much better today than it was a few years ago, Hughes concedes. “But it’s also a fairly hard, difficult business to enter if you haven’t been in it for some time,” he adds. Essentially, Farm Management Services works for a 10 percent fee on gross farm income. But additional revenue is derived from managing oil and gas, appraisals and consulting, according to Kimmel.

When a landowner contracts with the First National unit, a long list of services is available, including the following: select top-qualified operators; execute individual annual leases with each operator; determine individual cropping system; develop grain marketing plan; maintain farm compliance with FSA and NRSC; develop and maintain conservation plans; develop high-efficiency, low-pressure irrigation systems; evaluate most-efficient energy-input cost; utilize crop insurance for risk management; insure buildings and provide liability insurance; maintain and provide income and expense records; direct management of custom farms; pay real estate taxes; analyze expenses to ensure lowest input cost; make personal visits to the farm followed by written reports with photographs; evaluate pasture stocking and rental rates; provide continued education in the latest farming technology.

Looking ahead, Hughes sees “a business we really like and want to continue to develop as much as we possibly can.” He believes there is going to be strength in the farm sector for the foreseeable future, not only in terms of the revenue side, but also because of the aging farm population. “Every year they get a little older,” he says. “It just means that every year there are probably going to be a few more acres that will come into that absentee ownership space where they are going to need solutions. We’re glad we have a department that can handle that.”

Bill Poquette is editor-in-chief of BankNews.

Copyright (c) December 2013 by BankNews Media