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Lessons Learned From the Fourth United States Bank Failure of 2023

broken piggy bank


On Friday, July 28, Heartland Tri-State Bank of Elkhart became the fourth U.S. bank to fail this year. A rather small bank, as of the end of its first quarter, the bank reported $139 million in total assets and $130 million in total deposits in its FDIC Call Report.

Heartland Tri-State began operations in 1985 under the name First National Bank of Elkhart. Mr. Shan Hanes, who served as the bank’s President and CEO until its closure, joined the firm in 1993 as an agricultural loan officer and Informational Technology Officer. He was promoted to President and CEO in 2008. In 2011, Hanes put together a local investment group that purchased the bank from its former holding company, and he became President and CEO of the new bank.

In 2017, the bank was converted from its National Charter to a Kansas state-chartered bank and renamed Heartland Tri-State Bank. In 2019, it expanded by buying its fourth branch from a competitor.

Bank Closed By Regulators

Almost all bank closures happen on a Friday so that regulators can work all weekend to reopen the bank on Monday. That is what happened in this particular case of failure, as the State of Kansas Banking Commissioner, Mr. ( David Herndon, closed the Southwest Kansas bank after it became insolvent due to, as he stated, “a huge scam.”

Mr. Herndon named the Federal Deposit Insurance Corporation (“FDIC”) as receiver, allowing the FDIC to take control of the Heartland Tri-State’s operations. The FDIC’s Division of Liquidation then brokered a deal for Dream First Bank, a National Association of Syracuse, Kansas, to take over the branches of Heartland Tri-State Bank. On Monday, July 31, 2023, all four branches of Heartland Tri-State Bank were reopened as Dream First Bank branches.

According to the FDIC, “Dream First Bank assumed all deposits and agreed to purchase essentially all of the failed bank’s assets.” The federal bank regulator and Dream First Bank also negotiated a shared-loss agreement on the loans purchased from Heartland Tri-State Bank to share the losses and potentially recover assets.

Lessons To Be Learned

While Heartland Tri-State Bank of Elkhart is, by far, the smallest to fail in the past year, with the next closest in size being Signature Bank in New York (Signature failed on March 12th, 2023 with $110 billion of assets and $88.6 billion in deposits), the failure still poses lessons for bank executives.

While Silicon Valley Bank showed bank executives the dangers of having a long-term fixed-rate securities portfolio and a short-term deposit structure, (7 Possible Causes of SVB Failure and Predicting the Impact on Regulatory Reporting) this bank failure reminds us that even a well-established firm can be brought down by fraud. Bank executives would be wise to review their internal controls and operations as well as the first, second, and third lines of defense their organizations employ.

Many of Perficient’s clients are now proactively utilizing a Risk and Control Self-Assessment (RCSA) approach to ensure their firms utilize an ounce of prevention to avoid a pound of regulatory cure, and avoid becoming headlines in the Wall Street Journal.

To speak to a Perficient consultant about RCSA or any of Perficient’s risk management and regulatory capabilities, click here.

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Carl Aridas

Carl is certified in the Scaled Agile Framework (SAFe), a Scrum Master, and a Six Sigma Green Belt project manager with more than 25 years of experience in financial services overseeing large-scale development global, multi-currency accounting, regulatory reporting, and financial reporting software platforms. He has hands-on experience completing, reviewing, and filing Federal Reserve, FFIEC, and IRS reports, including Call Reports, Y9C reports, 2900 reports, TIC reports, and arbitrage rebate reports.

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