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| By Gavin Magor |
A nearly unprecedented event has taken place in the banking industry this past week regarding a bank that failed.
We know that banks occasionally fail, and we’ve seen several regional banks shutter this year. But this one, the first community bank failure of 2023, is highly unusual in another way.
And no matter where you live or bank, I believe it’s worth your while to hear its story ...
An Early Red Flag
Last Friday night, the FDIC announced that Heartland Tri-State Bank in Elkhart, Kansas, had failed.
There was a recent red flag that suggested something was amiss. At Weiss Ratings, we review the financials of nearly 9,500 financial institutions every quarter. Heartland has not released its financial data for the quarter ended on June 30, 2023.
This four-branch rural bank did release its financial data in March. Based on that, we had rated the bank as a “B-.”
But something big happened between then and now. I made several phone calls to discover what exactly went wrong. And what I found may surprise you ...
A Multimillion-Dollar Scam
There was a clue in the Kansas Office of the State Bank Commissioner’s press release. It stated that the bank “became insolvent due to an isolated event.”
I called Kansas Bank Commissioner David Herndon, as he was responsible for closing down the bank and calling in the FDIC after the event. He told me that “the bank was scammed out of enough money to completely wipe out its capital.”
As of March, this was between $8 million and $12 million dollars.
Incredible!
He went on to explain that this was not an inside job. Rather, “The bad guys are not discriminating. This could have happened to anyone, not just a bank.”
The local police department, less than half a mile away from the bank, confirmed that the FBI in Kansas City was handling the investigation.
So, I called the FBI, too.
Dick Land from the FBI press department advised me several times that the FBI and DOJ policy is not to confirm or deny the existence of any investigation.
He did confirm that the U.S. Attorney’s office should handle any announcements if there was anything to say after an investigation was completed.
I’ll be watching like a hawk to see what unfolds.
What I can confirm for you now after my calls and research is that this was ...
Not Like Other Bank Failures This Year
Heartland Tri-State Bank was a small institution with only around $139 million in assets. And due to its small size, it worries me that this event didn’t seem to get the news coverage that it should have.
Heartland Tri-State didn’t have a high share of uninsured deposits like Silicon Valley Bank. More than 70% of deposits were covered by the FDIC.
The bank also did not have many unrealized securities losses. With only $6.7 million in unrealized security losses at the end of March, I highly doubt this played any role in what unfolded.
It was not a deposit run situation, as the bank had $130 million in deposits when it closed on Friday, the same figure from its data in March, which at the time, was its all-time high.
This was a highly unique failure.
How This Affects You
If you banked with Heartland, the FDIC has posted instructions here about managing your deposit accounts or loans.
As for the rest of us, we must all remember that an “isolated event” like this can happen again anywhere, at any time.
If a bank can be scammed out of millions of dollars, then we need to know how it happened … how it can be prevented in the future … and how we, as consumers and businesses, can try to secure our finances.
This is why, despite everything, you need to be cautious about where you invest and which bank you use.
What’s worse is that the FDIC estimates that the cost to the Deposit Insurance Fund, financed by the banks, is going to be $54.2 million.
Guess who pays the banks to put that money into the Fund?
We do!
Here’s what we — Weiss Ratings, that is — also do …
We tell it like it is about any financial institution or instrument that we collect data on.
Keep Your Guard Up
We all need to keep our guard up, and one of the smartest ways is with the Weiss Ratings.
While the ratings on our site provide the average consumer with a highly accurate and unbiased rating, one of the best ways to take a step further in terms of capital preservation is with my service, All-Weather Portfolio, where I first shared this story.
The All-Weather Portfolio is put together following millions of calculations and years of experience. These give us the opportunity to show you how to create an investment portfolio that will give you returns in good times and in bad.
Can we predict the future? Of course not, nobody can. But with our ratings experience, we can tell you that we stand behind our ratings.
This is why I was so surprised when I heard about the bank failure. It’s incredibly disappointing that the reason was that the bank had in some way failed to do enough to protect the customers.
Beyond building and maintaining a portfolio that includes stocks with high safety ratings, it also pays to check your bank ratings regularly.
As a consumer, if you see something that you don’t like or that concerns you in our ratings, then ask your bank or credit union to explain.
We live in a world with scammers, some even pretending to be from the IRS trying to give you money.
Now that should make YOUR Spidey senses tingle!
Cheers!
Gavin
P.S. Banking shenanigans are only the tip of the iceberg of what’s coming. There’s another — even larger — problem awaiting millions in the U.S. We’re calling it “America’s Great Income Emergency.” Click here to hear about it and seek protection.
