diff --git a/src/regtech_user_fi_management/entities/models/dto.py b/src/regtech_user_fi_management/entities/models/dto.py
index b871b1a..9ad7bff 100644
--- a/src/regtech_user_fi_management/entities/models/dto.py
+++ b/src/regtech_user_fi_management/entities/models/dto.py
@@ -154,7 +154,7 @@ class FinancialInstitutionWithRelationsDto(FinancialInstitutionDto):
     primary_federal_regulator: FederalRegulatorDto | None = None
     hmda_institution_type: InstitutionTypeDto | None = None
     sbl_institution_types: List[SblTypeAssociationDetailsDto] = []
-    hq_address_state: AddressStateDto
+    hq_address_state: AddressStateDto | None = None
     domains: List[FinancialInsitutionDomainDto] = []
 
 
diff --git a/tests/api/routers/test_institutions_api.py b/tests/api/routers/test_institutions_api.py
index 6d40226..5f0f2ae 100644
--- a/tests/api/routers/test_institutions_api.py
+++ b/tests/api/routers/test_institutions_api.py
@@ -183,6 +183,35 @@ def test_create_institution_authed(self, mocker: MockerFixture, app_fixture: Fas
         assert res.status_code == 200
         assert res.json()[1].get("name") == "testName"
 
+    def test_empty_state_field(self, mocker: MockerFixture, app_fixture: FastAPI, authed_user_mock: Mock):
+        upsert_institution_mock = mocker.patch(
+            "regtech_user_fi_management.entities.repos.institutions_repo.upsert_institution"
+        )
+        upsert_institution_mock.return_value = FinancialInstitutionDao(
+            name="testName",
+            lei="1234567890ABCDEFGH00",
+            is_active=True,
+            hq_address_street_1="Test Address Street 1",
+            hq_address_city="Test City 1",
+            hq_address_zip="00000",
+        )
+        upsert_group_mock = mocker.patch("regtech_api_commons.oauth2.oauth2_admin.OAuth2Admin.upsert_group")
+        upsert_group_mock.return_value = "leiGroup"
+        client = TestClient(app_fixture)
+        res = client.post(
+            "/v1/institutions/",
+            json={
+                "name": "testName",
+                "lei": "1234567890ABCDEFGH00",
+                "is_active": True,
+                "hq_address_street_1": "Test Address Street 1",
+                "hq_address_city": "Test City 1",
+                "hq_address_zip": "00000",
+            },
+        )
+        assert res.status_code == 200
+        assert res.json()[1].get("hq_address_state") is None
+
     def test_create_institution_only_required_fields(
         self, mocker: MockerFixture, app_fixture: FastAPI, authed_user_mock: Mock
     ):