Kansas community banks' tie-up undeterred by tariff threats

Tescott Bancshares Inc. is not letting the possibility of tariff-related headwinds undermine its acquisition of First Bank of Beloit.

Tescott Bancshares, parent company of Bank of Tescott, and First Bank of Beloit, are both large agriculture lenders, an industry that stands to be disproportionately impacted by trade disputes. However, the Kansas community banks feel comfortable moving ahead with the deal in the face of agriculture headwinds thanks to their thorough due diligence process, distance from market volatility and similar lending philosophies, Tescott Bancshares President, CEO and COO Larry Fief said in an interview with S&P Global Market Intelligence.

"We're kind of in a flyover country here," Fief said. "Sometimes it's a year or two before we feel the results that ... the East or the West Coast feel. So our concern wasn't so much the volatility of the overall market. Our concern is more local — do we get enough rain? How are grain prices going to stay? Those types of things."

First Bank of Beloit's loan portfolio was 17.14% agricultural loans on March 31, and Bank of Tescott's was 14.88%, according to Market Intelligence data.

Agriculture is among the industries most impacted by an increase in tariffs.

In 2023, the US exported $173.4 billion worth of agricultural products worldwide, according to Food and Agriculture Organization statistics cited in a report by the International Food Policy Research Institute. Of those exports, 17% were to Canada, 16% to Mexico, 9% to Latin America and the remaining 57% to the rest of the world.

The potential for counter-retaliation tariffs stands to decrease US exports to Canada by 66.3% and to Mexico by 68.6%, according to the International Food Policy Research Institute analysis.

On Feb. 2, American Farm Bureau President Zippy Duvall warned farmers about the harm tariffs and potential retaliation could cause.

"We know from experience that farmers and rural communities will bear the brunt of retaliation," the statement said. "The uncertainty hits just as operating loans are being secured and spring planting approaches, leaving farmers in a tough spot."

Tescott will support its clients through any potential hardship, the CEO said.

"We're not going to back out of the ag industry. That's where we're going to plant our flag. And we're going to be with our producers through the good and bad, and we've been with them through the good and the bad," Fief said. "But if we can't control it, we're going to do the best we can with everything else."

Tescott landed on M&A after mulling over what to do with the excess cash it had on hand.

"We were in such a position that we needed to either dividend a bunch of capital out or make an acquisition or open another office," Fief said.

The Bank of Beloit deal was the right fit, both strategically and geographically, as Tescott will expand its physical presence into Mitchell County, where it already had about $40 million in loans between $5 million and $6 million in deposits, Fief said.

First National Bankshares of Beloit Inc. ranked No. 2 in deposit market share in the county at June 30, 2023, with $85.8 million in deposits, according to summary of deposits data from the Federal Deposit Insurance Corp.

Another acquisition could be in the works in another three years, with targets in the $150 million to $200 million-asset range, Fief said. Ideal targets would remain nearby, within one to two hours driving distance of Tescott's footprint.

"I don't want to say we would always stay rural, but at the same time, ag and small business is our comfort zone. So moving to more of a metropolitan [area] ... wouldn't be on our radar today unless they had the expertise," Fief said. "It's just going to be a slow creeping out for us."