Farmer becomes "accidental banker"

By Larry Dreiling

Alan States is a farmer turned banker who still has farmers and ranchers very much in mind.

In 1984, States, a Phillips County, Kan., farmer, found himself buying partial control of a bank in a town near him, thinking it might be a good investment.

Because of tribulations over the next 10 years, he wound up having full control of the bank and moved the charter of the $8 million bank to a larger city. Today, the First National Bank of Hays and Plainville, Kan., has assets totaling over $81 million.

States, still very much a farmer, recalled the story while riding about his farm near Logan, Kan., checking rain gauges earlier this summer.

"It was an August afternoon. I was at home in my living room. I had my feet up on the coffee table," said States. "I thought to myself: 'This is one of the few times in my life that everything is in order. My bills are paid. I had had a good wheat crop. Life is good.'"

At that moment the phone rang and a friend called States and asked him if he wanted to buy a bank. States said he had two problems with that idea.

"First, I knew nothing about banking. Second, I don't have that much money in my checking account," States said. "What they wanted me for was as a silent partner in the bank with two other guys. I had been doing well and I thought it might be an interesting investment. The conditions were right at the time for me to help them out."

Not high finance

At the time, the First National Bank of Palco, Kan., had less than $8 million in total assets and less than $1 million in capital.

"We aren't talking high finance here. We are talking about one of the smallest nationally chartered banks in Kansas," States said.

States went ahead and joined the other two men in purchasing the bank. Then came the farm crash of the mid-1980s. Banks foreclosed on farms. Big banks absorbed small, struggling banks. States was asked by his partners to become president and majority owner of the bank.

To top it off, one of States' partners had to be foreclosed on in order to set the bank aright.

"This is a bit of a stretch, but it's a good one-liner," States said. "I'm one of the few farmers who ever foreclosed on a bank.

"I guess you can also say I'm one of the few accidental bankers, because I didn't anticipate the investment I made would go awry and I'd have to step in and decide what to do with it."

Changes in Kansas branch banking laws enabled States to leave the Palco market, move facilities to nearby Plainville, Kan., and open a new main bank 45 minutes away in Hays, Kan. It took four years of negotiation with a shopping mall, but States opened a branch in Hays at The Mall in 1994.

"By June 1990, I had the whole mess cleaned up, but it took me until 1994 before we could open a Hays location," States said. "During this whole period, I wasn't trading any farm equipment or doing really anything in farming, because I'm stealing everything on the farm to pay off these notes on the bank. It took me nearly 10 years until I could get everything straightened out."

Growing the bank

Once the branch in Hays opened, things began to go States' way. Adding staff familiar to a growing community was a way to build the bank.

"Loan officers like Randy Schmidtberger, Allen Leiker and Phyllis Schuster became available. Once they came on board, as a group, as a team, we built the bank," States said. "There's no way you can say this was me. It really was an accident with me. What made it work were great people in a great market."

States says the decision making process he uses to help him in business comes from varied experiences; from his education at Kansas State University in agricultural economics, U.S. Army duty in Vietnam and then returning to the farm and making that enterprise succeed.

"In this business, you have to have opinions," said States, who has also served as a director of the National Sunflower Association and president of the U.S. Canola Association. "You have to be able to evaluate things quickly based on your experience and knowledge and to operate under the theory of having no regrets. I've made a lot of dumb decisions, but you take me back to the day when I made that decision, based on the knowledge and experience I had at that time, I probably would have made the same decision over again."

States said he sees his new market not only of traditional commodity production, but what he calls "new entrepreneurial agriculture," where producers are no longer willing to look toward government commodity programs as a primary source of income, but where producers are willing to look for new sources of income through grid marketing, direct sales and closed cooperatives.

"What I really get excited about is when I see producers trying to create something new for themselves," States said. "Differentiating a product is where it's at. Most of us are in commodity ag. If you are in that line, you have to grow it faster, better and cheaper than everyone else. If you can differentiate your product somehow, you have a product you can make some money on."

Helping "sleeper" businesses

As he tries to capture this new venture capital-seeking type of producer into the bank, States also said he is looking to assist what he calls "sleeper" businesses in his area grow.

"These sleeper businesses have gone in and seen opportunities or had ideas for new products and services. They didn't have enough money in their checkbooks, too. We saw where they are going and we enjoy helping them out," States said.

"These aren't big businesses. . . they maybe have just 10 or 20 employees, tops. People hardly know they are here. It's our job to support these small startups. Of course, they have to be bankable loans, and that they're reasonably low risk. Most of these are beyond commodity agriculture."

Despite his busy new life as a banker, States still lives to farm and farms to live. The States family has been farming and ranching in the Logan area since 1878. His own operation now totals about 6,000 acres, most of it rented.

States takes care of most of the operation himself using limited hired workers and planting all of his crops in no-till, to reduce long-term costs and increasing production in moisture-limited growing seasons.

"I grew up on the farming side of the operation," States said. "My uncle's family had the cattle. When I came back from the service, I evolved into a farmer."

States recalls coming home from military service the very day, in July 1972, that the Nixon administration announced the beginning of three years of wheat sales to the Soviet Union.

"I had $10,000 in my pocket. I used it as a down payment on 400 acres and bought some more land on contract. If I had done all that in 1979, a few years later, it would have broken me."

No-till pioneer

States said he began experimenting with no-till in 1977, planting a half-section of milo directly into some stubble.

"I sprayed some atrazine on it first and planted it," States said. "It worked, so, the next year, I bought a Buffalo slot planter. That was in the days of wheat, sorghum and fallow. I did that for a while. It's what most of us out here could only do under no-till back then.

"The problem was in not having the equipment. We had to wait for the technology to catch up with the farmer's imagination."

Then came the John Deere 750 series planters, which States said was a revolution in the industry. It allowed him to do much of his planting labor himself.

"We had to really wait on the equipment to fit our needs so, when you really get down to it, it's only been a decade that we've been doing no-till, though we worked with it long before then."

Today, under no-till, States runs an operation that is planted one-third corn, wheat and soybeans each. States admits he's pushing his land.

"The problem is in getting wheat in a timely manner following beans," States said. "This year we are sort of in a wheat-wheat-corn-bean-corn-bean rotation. Next year it will be wheat, corn, beans and forget the stacked wheat. That's really pushing it."

After six years of drought, States celebrated his more than satisfactory wheat harvest of 2007 last month. His crop averaged 44 bushels per acre.

"We made some mistakes with our wheat," States said. "We overstayed our Jagalene. We saved some out from last year and it lost its rust resistance. It taught us to buy more certified seed."

Fall will be a big test

After abundant spring rains, States said his fall crops can always use some moisture to build on this crop and because of no-till, crops yet to come.

"This year will be a big test," States said. "We are going to see if no-till and spring rains conserved any moisture and see how long our fall crops will survive without rain. They can use a drink."

When you get down to it, States also has taken on a temporary expansion of his operation.

"My current tillable acreage is 7,000 acres. I've been taking care of some land that belonged to my brother, who died last year," States said. "His kids are getting out of high school soon and will be taking that work, so I'll be back to 6,000 acres fairly soon."

States said he looks back on all his work, since returning to farm, in amazement. From farmer to policy advocate to bank executive and community leader, he said he can't believe he's done what he's done.

"Through all this time of boom and bust and boom and bust and maybe boom again, we managed to make money," States said. "With marketing, good insurance, getting a yield when we can, we've done it."

By being successful in his own farming skills, States is able to particularly enjoy working with people in agriculture who come to his bank with new ideas and are willing to take risks in order for themselves to succeed.

"They are looking at that twist to what's always been around. It can be everything from small manufacturing to a franchise business," States said. "These are people who see opportunities in agriculture that aren't being served or have that new twist on production and again, they just don't have enough money in the checking account to get started."

One of the things States does not regret is answering the phone back in 1984 and the decisions he's made since. Again, he sees himself in a good place.

"We enjoy being a part of a growing community," States said, "as we continue to take care of farmers and ranchers."

Larry Dreiling can be reached by phone at 785-628-1117 or by e-mail at ldreiling@aol.com.

8/27/07

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