UPDATE 1-S. Colorado Natl Bank closed by regulators-FDIC

(Adds details of closure, background in paragraphs 4-7)

WASHINGTON Oct 2 (Reuters) - Bank regulators said on Friday they closed Southern Colorado National Bank, the third closure of the day and the 98th bank to fail this year as the financial crisis continues to take its toll.

The Federal Deposit Insurance Corp said the bank had $39.5 million in assets and $31.9 million in deposits.

Legacy Bank in Colorado agreed to assume all deposits of the shuttered institution whose two branches will reopen on Saturday as branches of Legacy, the agency said.

Legacy Bank agreed to acquire essentially all the assets of Southern Colorado National Bank whose customers can continue to access their money through checks, debit cards or automated tellers, the FDIC said.

The failure is expected to cost the FDIC deposit insurance fund an estimated $6.6 million and is the third in Colorado this year, the agency said.

The insurance fund's balance dipped to $10.4 billion at the end of the second quarter, but that level does not include the additional $32 billion that the FDIC has set aside to cover the cost of bank failures over the next year.

In 2008, 25 U.S. banks were seized by officials, up from only three in 2007. The FDIC insures up to $250,000 per account.

(Reporting by Jeremy Pelofsky; Editing by Richard Chang)