FDIC sues two former First National Bank executives

The Federal Deposit Insurance Corp. has sued two former banking executives over their role in the 2008 collapse of First National Bank, from which the agency is trying to recover $193 million.

Gary A. Dorris, former president, CEO and vice chairman, and Philip A. Lamb, executive vice president of Scottsdale, Ariz.-based First National Bank, which operated First National Bank of Nevada, are accused of sacrificing the company's safety and soundness by promoting shaky Alt-A loans.

Alt-A mortgages typically lacked proper underwriting, had no verification of borrower income or assets and carried terms that guaranteed high default rates, according to the FDIC's complaint filed in U.S. District Court in Phoenix.

"The directors and officers promoted this practice at the outset and continued to support the mortgage division's growth long after they should have known that the loans being made created a substantial risk of harm to the bank," the FDIC said in its 31-page complaint.

Although these "risky loans" returned record short-term profits, the FDIC claims that they produced losses when the real estate market softened and ultimately caused the bank's failure.

When real estate prices collapsed, First National Bank, with operations in Nevada, Arizona and California, was left holding "millions of dollars in bad loans it could not sell," the lawsuit said.

Ronald Glancz, a Washington, D.C., attorney who represents Dorris and Lamb, Friday declined comment on the lawsuit.

FNB Holding Co. was formed Sept. 24, 1997, as a Nevada corporation, the FDIC said. In September 1998, FNB Holding purchased Laughlin National Bank and changed its name to First National Bank of Nevada.

In September 1999, FNB Holding opened First National Bank of Arizona. It acquired Rocky Mountain Bank two years later. The company changed its name to First National Bank of Arizona in January 2001.

"FNB Arizona was relatively conservative until the early 2000s, when it began venturing into the purchase of high risk and low quality mortgage loans for resale," FDIC officials said. "As loan volume skyrocketed, the Wholesale Mortgage Division was created."

In 2006, the bank's Wholesale Mortgage Division's residential lending peaked at $7.2 billion.

"Instead of following a prudent policy of diversification, the directors and officers allowed (them) to invest 85 percent of its residential mortgage loans in these risky Alt-A loans," FDIC officials said.

First National in Arizona and Nevada were merged into one bank on June 30, 2008, less than a month before the Office of the Comptroller of the Currency closed First National Bank of Nevada at a cost of $900 million.

First Heritage Bank in Newport Beach, Calif., was not part of the merger. The OCC seized First National Bank of Nevada on July 25, 2008. The FDIC was named receiver.

Mutual of Omaha Bank took over 10 First National Bank locations in Nevada, including five branches in Las Vegas. At the time, First National was the first Nevada-based bank to fail in 18 years.

Contact reporter Chris Sieroty at csieroty@reviewjournal.com or 702-477-3893.