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"Nonfarm-Nonresidential" Loans Take Down Kansas Bank

Aug. 15, 2011 2:04 PM ET
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Internet, Long/Short Equity, Portfolio Strategy, Banks

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Christopher "Kit" Menkin is of editor LeasingNews.org (http://www.leasingnews.org/), an internet trade publication for the finance/leasing industry. He has 46 years experience in the finance/leasing industry as well as being a founder of a commercial regional bank and serving on several company board of directors. He was a syndicated business columnist in news from Silicon Valley, California, for 12 commercial newspapers in the 1970's and early 1980's. Prior to getting into the financial business, he was a West Coast News Producer for ABC-TV News, Managing Editor KGO-TV News, San Francisco, California, and news editor at KFRC News, San Francisco, California. His three times a week news edition posted at www.leasingnews.org is read by over 175,000 in the trade and by related entities each month.


The six branches of First National Bank of Olathe, Olathe, Kansas were closed with Enterprise Bank & Trust, Clayton, Missouri, to assume all of the deposits. The bank was founded Jun 7, 1887 and went from a high of 179 full time employees in 2007 to 111 full-time employees March, 31, 2011, with six offices in Olathe and one in Scottsdale Arizona, according to March 31, 2011 filings.

March 31, 2011 Tier 1 risk-based capital ratio: 2.77%.
June 30, 2011 Tier 1 risk-based capital ratio 1.8%

First National Bank is the third failed bank acquisition by Enterprise Bank. In December 2009, Enterprise Bank & Trust acquired Valley Capital Bank of Mesa, Arizona, and in January 2011, acquired Legacy Bank of Scottsdale, Arizona. The three failed banks acquired by Enterprise Bank & Trust had total assets of $728 million. In addition, Enterprise Bank also acquired a pool of failed bank assets from the FDIC in July 2010.

According to Wikipedia, Olathe (meaning beautiful in Indian language) is the fourth largest city in the Kansas City Metropolitan Area. In the 1800's, "Olathe served as a stop on the Oregon Trail, the California Trail, and the Santa Fe Trail...After the construction of the transcontinental railroad, the trails to the west lost importance, and Olathe faded into obscurity and remained a small, sleepy prairie town.

"In the 1950s, the construction of the Interstate Highway system and, more directly, I-35, linked Olathe directly to nearby Kansas City. The result was tremendous residential growth as Olathe became a part of the Kansas City Metro Area. In the 1980s, Olathe experienced tremendous commercial growth, which also drew more residents. It is estimated that Olathe's population surpassed 100,000 in 2001..."

It is obvious from the numbers the demise of the bank is the real estate bubble hit the bank hard, particularly what are known as nonfarm nonresidential loans, as well as construction and land loans.

Here is a definition to better understand what happened to First National Bank of Olathe:

“Loans secured by other nonfarm nonresidential properties” are those nonfarm nonresidential property loans where the primary source of repayment is derived from rental income associated with the property (i.e., loans for which 50 percent or more of the source of repayment comes from third party, nonaffiliated, rental income) or the proceeds of the sale, refinancing, or permanent financing of the property. Include loans secured by hotels, motels, dormitories, nursing homes, assisted-living facilities, mini-storage warehouse facilities, and similar properties in this item as loans secured by other nonfarm nonresidential properties."

Charge Offs
2006 $77,000 ($21,000 L&C, $46,000 loans to individuals)
2007 $1.5 ($1.5 Land and Construction loans)
2008 $3.2 ($3.1 Land and Construction loans, $116,000 commercial and industrial loans)
2009 $38.9 ($24.3 L&C, $10.7 nonfarm, nonresidential, $4.2 commercial and industrial)
2010 $29.2 ($20.2 L&C, $4.9 nonfarm, $2.1 1-4 family, $1.9 commercial/industrial)
3/31 $6.9 ($4.7 nonfarm, $1.6 L&C, $223,000 1-4 family)
6/30 $8.9 ($5.1 nonfarm nonresidential, $2.1 L&C, $1.2 1-4 family residential loans, $395,000 commercial)

You can see how the charge offs and noncurrent loans closed the once successful bank:

(in millions, unless otherwise)

Net Equity




Non-Current Loans


As of June 30, 2011, First National Bank of Olathe had approximately $538.1 million in total assets and $524.3 million in total deposits. Enterprise Bank & Trust will pay the FDIC a premium of 1.5 percent to assume all of the deposits of First National Bank of Olathe. In addition to assuming all of the deposits of the failed bank, Enterprise Bank & Trust agreed to purchase essentially all of the assets.

The FDIC and Enterprise Bank & Trust entered into a loss-share transaction on $419.6 million of First National Bank of Olathe's assets. Enterprise Bank & Trust will share in the losses on the asset pools covered under the loss-share agreement.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $116.6 million.


Tracking Bank Failures Map:

List of Bank Failures:

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