Regulator: Failed Kansas bank ‘victim of a rip-off’

The Federal Deposit Insurance Corp. stated that Kansas-based Dream First Bank was getting all deposits and the majority of the possessions of shuttered Tri-State Bank.

Al Drago/Bloomberg

The failure of Heartland Tri-State Bank in Elkhart, Kansas, was sped up by scams, according to a state authorities.

“The bank fell victim to a scam,” Kansas Banking Commissioner David Herndon informed American Banker Friday. 

Herndon stated that he was not privy to information such as who committed the rip-off, however it was his understanding that a federal examination was continuous. He stated Heartland self-reported the event. 

Kansas regulators took Heartland last Friday and selected the Federal Deposit Insurance Corp. as receiver. It marked the 4th failure of 2023. The FDIC participated in a purchase and presumption contract with Dream First Bank of Syracuse, Kansas, to presume all of the deposits and a number of the possessions of Heartland.

The FDIC on Friday decreased to discuss the reason for the failure. 

Herndon, in an earlier interview, stated that the $139 million-asset Heartland’s failure was a “very sudden” occasion unassociated to the failures of the much bigger Silicon Valley Bank, Signature Bank and First Republic Bank previously this year.   

“This wasn’t about a loan failure or unrealized losses,” Herndon stated. “There was no run on deposits. Unfortunately, businesses fail. This time it was a bank, but it wasn’t in the shadow of the banks that failed in March, or anything like that.”

Herndon repeated Friday that Heartland had actually traditionally been an economically sound bank and was not formerly in state regulators’ crosshairs.

The failures of the bigger local banks were triggered in part by deposit runs. The FDIC stated that, since late July, Heartland had $130 countless deposits. The bank reported the very same quantity in its most just recently published quarterly report with the FDIC, covering the very first quarter. That report likewise revealed no significant credit problems or outsized securities losses.

The call report with the FDIC “contained no indicators that the bank was on the verge of failing, much less such an expensive failure given the size of the bank,” stated Bert Ely, a principal at bank consulting company Ely & Co. 

Heartland’s failure cost the FDIC’s deposit insurance coverage fund $54.2 million — about 39% of the bank’s overall possessions.

“That is a very high loss percentage, which suggests that the bank had some serious financial issues that were not reflected in recent call reports or that some event occurred after March 31 that tanked the bank,” Ely stated.

Still, the failure was small relative to the local bank failures from previously this year. The Silicon Valley Bank and Signature failures represented an approximated $15.8 billion loss to the FDIC’s insurance coverage fund, while First Republic’s sale to JPMorgan Chase led to a $13 billion loss. 

Dream First Bank and previous Heartland CEO Shan Hanes did not react to talk to demands. The FDIC struck a loss-sharing contract with Dream First on the loans it bought from the now-dissolved bank.


A news media journalist always on the go, I've been published in major publications including VICE, The Atlantic, and TIME.

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