The
But regulators and veteran industry observers cautioned against drawing correlations between Heartland and the demise of Silicon Valley Bank, Signature Bank and First Republic Bank. They said Heartland was a tiny rural bank with about $139 million of total assets — far from the multibillion-dollar size of the regionals. They also noted that community bank failures do occur over the course of typical years and often are the result of company-specific issues.
While there were none last year or the year before, four banks failed in each of 2019 and 2020, according to Federal Deposit Insurance Corp. data.
In a press release after it seized Heartland and appointed the FDIC as receiver, the Kansas Office of the State Bank Commissioner said the bank "became insolvent due to an isolated event. Overall, the Kansas banking industry is unaffected by this event and Kansas banks remain strong."
Kansas Banking Commissioner David Herndon said Monday Heartland Tri-State's failure was a "very sudden" event unrelated to the turmoil that roiled the industry in March and April.
"This wasn't about a loan failure or unrealized losses," Herndon said. "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."
The FDIC on Friday said that it had entered into a purchase and assumption agreement with Dream First Bank of Syracuse, Kansas, to assume all of the deposits of Heartland. Dream First did not immediately respond to an interview request, nor did Shan Hanes, the former CEO of Heartland, who was also a former chair of the Kansas Bankers Association. A representative of the association was not immediately available Monday.
As is customary, regulators were careful about expanding on the specifics of the challenges. But Michael Jamesson, a principal at the bank consulting firm Jamesson Associates, cautioned against ringing alarm bells or warning of more failures to come. While banks of all sizes are
Increased funding costs are contracting banks' net interest margins and eating into their bottom lines, but Jamesson said community banks on average are still posting profits along with robust capital levels, ample liquidity and excellent credit quality. Loan charge-offs and nonperforming assets, he said, continue to hover near historic lows, suggesting any flurry of failures "is a long way off."
Given regulators noted Heartland's issues were not systemic, Jamesson said, "I would be dumbfounded if it were related to an exodus of uninsured deposits or anything that would connect to the larger bank failures" earlier this year.
"I do not think this signals a cascade of community banks failing," Jamesson added. "Yes, I do think interest rates and deposit costs are at the headwind stage, but they are not at the threat stage" for the vast majority of banks. Heartland "is probably a one-off, and at $139 million in assets, its problems are certainly not a threat to the financial system overall."
Robert Bolton, president of bank investor Iron Bay Capital, agreed.
"We have to remember that the occasional failure is normal to see," he said. "From time to time, a small bank faces a balance sheet issue and regulators feel they have to step in" to safeguard depositors.
Bolton said that, from the outside looking in, the problem faced by Heartland could be something related to its rural footprint and focus on agriculture lending at a time when parts of Kansas are wrestling with a drought that could impact farmers and their ability to repay loans. But he also emphasized that, in the case of small, privately held banks such as Heartland, details are typically too scarce for meaningful assessment beyond speculation.
"But I do not see any reason to try to connect dots to the industry here," Bolton said. "I see nothing systemic … and overall, for most banks right now, earnings are actually pretty good, all things considered."
– John Reosti contributed reporting.
