December 29, 2012

Hutch bank keeping it rural

First National Bank of Hutchinson has made only two acquisitions in its 136-year history, and both of them came in the past three years.

First National Bank of Hutchinson has made only two acquisitions in its 136-year history, and both of them came in the past three years.

In 2010 it acquired BankHaven in Haven. And in September it acquired First National Bank of Southern Kansas in Mount Hope.

The latter of the two made First National, a $616 million bank, a player in the Wichita metro area.

But the recent acquisitions don’t reflect a new strategy by the bank, whose history extends back to a time when it printed its own currency.

While the bank keeps open the possibility of acquisitions, that’s more of a secondary consideration, said First National CEO Keith Hughes. What the strategy doesn’t include is an intentional expansion into Wichita, a common move over the past couple of decades by banks based in outlying communities.

First National, he said, has traditionally concentrated on agriculture and correspondent services to small, rural banks located primarily in southwest Kansas.

Those two areas are where the bank has found considerable success. And they are the primary drivers of the bank’s plan for the future.

First National was founded in 1876 by a partnership that included E.L. Meyer. Its eight-story headquarters building was constructed in 1974 and sits on the spot in downtown Hutchinson where Meyer operated his drugstore in the 1870s, Hughes said.

The Meyer family remains the majority shareholder in the bank, and E.L. Meyer’s descendants sit on the bank’s board, Hughes said. Hughes assumed the bank’s CEO post from R.A. Edwards in 2010.

The bank operates 10 offices in Reno and Sedgwick counties. Three of those branches — in Mount Hope, Andale and Goddard — came with the acquisition of Southern Kansas.

The acquisitions of BankHaven and Southern Kansas weren’t indicative of a plan to grow by buying other banks.

“On the Haven transaction it was a bit of a distress situation and it was in Reno County, and it was also a family that had been (correspondent) customers of ours for many, many years,” Hughes said.

He said BankHaven’s presence not only in the home county but also in an agricultural area increased First National’s interest. First National also viewed the BankHaven acquisition as a way to prevent new competition from entering the county, he said.

In the case of Southern Kansas, First National again had had a long-standing correspondent relationship with a family-owned bank – one operating in a largely agricultural community along the K-96 highway corridor, Hughes said.

“We see great potential in the rural parts of … Kansas with the services we have,” he said.

Correspondent banking is big business for First National, accounting for almost 40 percent of its loan portfolio. Correspondent banking is an industry term that generally describes services provided by one bank to another bank that might not have the size or ability to offer such services as credit card and merchant banking, participation loans and cash management services.

Hughes said First National has 60 full-service correspondent banking relationships and another 10 “close relationships” with smaller rural banks that use some of First National’s correspondent services.

First National Bank in Cimarron, in southwest Kansas, has used First National’s correspondent services for three generations of bank ownership, said CEO Kim Fairbank. She said when her bank went through tough times with the agriculture crisis in the 1980s, “they stood beside us throughout that difficult time.”

“(First National Bank of) Hutchinson is very important to us and we’ve got a great relationship,” Fairbank said.

An equally important part of its business is wealth management, which with more than $700 million in assets under management is a bigger business dollar-wise for First National than is banking.

Within First National’s wealth management business is farm management. An enterprise started 50 years ago, the business includes staff — including two employees in Garden City and one in Scott City — who oversee the operation of farms for absentee owners, including foundations, heirs who don’t want to farm and investors.

“We see great potential in the rural parts of the state of Kansas with the services we have,” Hughes said. “We do some things, particularly farm management, where there is little competition.”

Kenneth Friedel, a bank consultant for Kennedy and Coe who once worked for a competing bank in Hutchinson, said the farm management piece makes First National rare among Kansas-based banks. He doesn’t know of another bank in the state that offers farm management services.

“First National Bank has … carved out a niche” in that business, Friedel said.

Hughes said at a time when margins are tight from traditional banking services, income from correspondent and wealth and farm management services has been important.

“They really do help,” he said. “Non-interest income is very valuable in times when margin is very difficult to achieve.”

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