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Board Report: 2024-SR-B-004 February 7, 2024

Material Loss Review of Heartland Tri-State Bank

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Heartland Tri-State Bank, based in rural Kansas, had about $139 million in assets before it failed in the summer of 2023. The bank's failure cost the Deposit Insurance Fund an estimated $54 million, prompting our review.

Heartland failed because of alleged fraud by its CEO, who initiated wire transfers totaling about $47.1 million of the bank's funds as part of an apparent cryptocurrency scheme. Under the CEO's influence, bank employees circumvented internal controls and processed the transfers. The wire transfers significantly impaired Heartland's capital and liquidity, and the bank became insolvent.

In earlier examinations, FRB Kansas City had determined that Heartland had adequate internal control policies for a bank of its size. When FRB Kansas City became aware of the wire transfers it promptly launched a target examination, but the bank's financial troubles were already beyond Heartland's ability to repair.

We are recommending that the Board raise awareness among banks of cryptocurrency scams and train examiners on such scams and relevant preventive and detective controls at banks.