Bank Failure in the Heartland

The south edge of Elkhart, Kansas (population 1,884) is the Kansas-Oklahoma state border, and the city is just 8.5 miles from the Kansas-Colorado border. As removed as Elkhart is, the Kansas Office of the State Bank Commissioner showed up Friday (July 28th) along with the FDIC to close Heartland Tri-State Bank. 

The deposit insurer estimates the Deposit Insurance Fund will lose $54.2 million by having Dream First Bank, National Association, of Syracuse, Kansas assume all the deposits and enter into a commercial shared-loss agreement with the FDIC on the loans it purchased of the former Heartland Tri-State Bank.

The bank had only $49 million in loans as of its 3/31 Call report. At the same time it held $55.6 million in securities held for sale. The vast majority of the bank’s $93 million of deposits were interest bearing. The bank’s equity capital would round up to just 6%. The Heartland Tri-State was $6 million underwater on its securities portfolio which would wipe out all but $2 million of its capital. As one would expect $36 million of the bank’s loans were related to agriculture. 

Heartland Tri-State is the first community bank to fail this year.  The estimated loss mentioned above doesn’t sound like much, but the Elkhart bank’s assets only totaled $139 million at March 31 with its deposits being $130 million. A loss of 39% of assets is considerable. Banking analyst Chris Whalen tweeted, “Let's watch the loss rate on these bank failures as the year progresses. Another reason why the Fed does NOT sell MBS…” 

During the March bank turmoil, Shan Hanes, who was the CEO of Heartland Tri-State Bank, posted a letter on Linkedin issued by the Kansas Bankers Association  saying the banks in their state were financially strong on every measure. 

What a difference four months makes.