WASHINGTON — State regulators have shut down a Mississippi community bank that they say lost $11 million because of bad loans and employee fraud.

Mississippi banking commissioner John S. Allison said he ordered the closure Friday of the Bank of Falkner, which had $88.8 million of assets, after the losses were disclosed. He said some of the losses were attributable to poor lending decisions, but that many were the fault of a bank official who had manipulated internal documents and accounts over a two-year period.

“A lot of loans at the bank were out-and-out fraud,” Mr. Allison said in an interview Monday. “This was a classic case of fraud coupled with a lack of proper bank management oversight.”

Authorities refused to release the name of the bank official suspected of fraud. Mr. Allison said he expected criminal charges to be filed in connection with the case.

Federal Deposit Insurance Corp. officials said they were unable to estimate the cost of the bank’s failure to the Bank Insurance Fund, because the extent of the scheme had not been fully identified. A precise figure may not be released until next year.

An FDIC spokesman said the average loss after a failure is between 10% and 12% of assets.

The Falkner failure was the fifth in the country this year, and the second that involved suspected fraud. Hartford-Carlisle Savings Bank of Iowa was closed in January because of $12 million of bad loans, almost half of which were allegedly fraudulent. That failure cost the bank fund $15.8 million, approximately 14% of Hartford-Carlisle’s $113.8 million of assets.

Fraud has been cited in several prominent closings over the past two years, including the failure of the First National Bank of Keystone, W.Va. Regulators closed that bank in September 1999 after discovering roughly half of its $1.1 billion of assets were missing. The FDIC accused four executives of massive fraud, including embezzlement of almost $20 million from the bank.

The cost of the Keystone’s closing is expected to be between $750 million and $850 million.

Mr. Allison said Falkner had been on the “problem” lists kept by his office and the FDIC for two years. In January the bank agreed to improve its loan review procedures after an FDIC exam noted deficiencies, he said. The fraud was detected by the bank as a result of the new procedures, Mr. Allison said.

After the closure, Citizens Bank and Savings Co. of Russellville, Ala., purchased all of Falkner’s $77.1 million of deposits, including $7.3 million of uninsured deposits, and $21.7 million of its assets for $2.5 million.

Citizens reopened the bank’s four offices Saturday.

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