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Regulators Shut Two National Banks
By DAMIAN PALETTA
July 25, 2008 10:54 p.m.
WASHINGTON -- Federal regulators shut down two national banks late Friday in the latest chapter of the credit crisis, and the Federal Deposit Insurance Corp. successfully protected all depositors by selling the accounts to Mutual of Omaha Bank.

The Office of the Comptroller of the Currency, a division of the Treasury Department, revoked the charters of First National Bank of Nevada, based in Reno, Nev., and First Heritage Bank of Newport Beach, Calif. The FDIC was appointed receiver of both banks.

Both those banks were units of First National Bank Holding Co., based in Scottsdale, Ariz.

First National Bank of Nevada had $3.4 billion in assets and $3.0 billion of deposits, making it a relatively large failure by historical standards -- but much smaller than the $32 billion of assets that IndyMac Bank of Pasadena, Calif., had when it failed earlier this month. First National Bank of Nevada had 25 branches, some of which came from its June 30 merger with the First National Bank of Arizona.

The OCC said First National Bank of Nevada "was undercapitalized and had experienced substantial dissipation of assets and earnings due to unsafe and unsound practices."

According to regulatory filings, the Arizona-based bank that was folded into First National Bank of Nevada had a net loss of $131.3 million in the first quarter. The bank socked away $95.9 million in loan-loss provisions, a sign that it was being overwhelmed by problem loans. First National Bank of Nevada had a first-quarter net loss of $7.3 million, hurt by a loan-loss provision of $18 million.

First Heritage had a first-quarter net loss of $1.9 million, according to a regulatory filing.

During the housing boom, First National Bank of Arizona made mortgage loans throughout much of the U.S. Even as the housing market was weakening, the bank revved up its riskier mortgage lending, an analysis of lending data by The Wall Street Journal showed last year.

A bank executive said at the time that much of the jump reflected borrowers who got second mortgages. The bank subsequently scaled back that business.

First National Bank of Nevada had spent months trying to dig out of trouble. James Claffee, who recently joined the company as president and chief executive officer, told the Arizona Republic less than two weeks ago that he was hopeful the bank would be able to raise capital.

"We're working diligently to correct our capital situation, focusing on our customers and continuing to provide the same quality of good service they've had in the past," he told the newspaper.

On Friday night, the home page of the bank's Web site included a link to real-estate listings for more than 100 residential properties owned by the bank, likely as a result of foreclosures.

The second failed bank, First Heritage, was much smaller, with three branches, $254 million, of assets and $233 million of deposits. The OCC said it closed First Heritage Bank because it was undercapitalized.

"The OCC also found that the bank had incurred and is likely to incur losses that will deplete all or substantially all of its capital, and there is no reasonable prospect that the bank will become adequately capitalized without federal assistance," the OCC said.

A deal that would have essentially spun off First Heritage to a private-equity firm fell apart last December.

Seven banks have failed so far this year, including three having more than $1 billion of assets.

The number of failed banks this year has already surpassed the total from 2004 through 2007, but it is nowhere near the pace set during the savings and loan crisis in the 1980s and early 1990s, when several thousand banks failed.

Regulators have been preparing for more bank failures by adding staff, bringing on contractors, and intensifying training. The FDIC, which was created in 1933, has made a concerted push in recent months to educate bank customers about the deposit insurance rules. The FDIC insures accounts up to $100,000 per depositor, or $250,000 for some qualified retirement accounts.

The FDIC said Friday night's failures would likely cost the FDIC's deposit insurance fund roughly $862 million.

Mutual of Omaha Bank has more than $750 million in assets and operates 14 retail branches in Nebraska and Colorado, as well as commercial lending offices in Dallas and Des Moines, Iowa. The bank, a unit of insurer Mutual of Omaha, has said it plans to build a network of community banks in fast-growing U.S. markets where its parent has an existing base of insurance customers.

"We would first like to reassure all customers of First National Bank of Nevada and First Heritage Bank that all their deposits are safe and accessible," Jeffrey R. Schmid, Mutual of Omaha Bank's chairman and chief executive, said in a statement. "Their deposits will automatically transition to Mutual of Omaha Bank and we will be open for business on Monday morning."
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