Bank not deep in hole
 
By Jenifer K. Nii
Deseret Morning News
 
Losses stemming from the failure of the Bank of Ephraim likely will be less than initial estimates, according to bank officials and regulators.

And the bank — now operating under the Far West Bank brand — is showing encouraging signs of customer confidence and growth.

Edward Leary, commissioner of the Utah Department of Financial Institutions, told the Legislature's Commerce and Revenue Appropriations Subcommittee Tuesday that the Federal Deposit Insurance Corp. has set a target date of Sept. 8 to make payments to 50 depositors of the former Bank of Ephraim, which was declared insolvent in June.

Of the bank's 9,000 depositors, all but about 50 were covered (in whole or in part) by the FDIC. Those remaining depositors, whose accounts exceeded the FDIC's deposit insurance limit, were issued "receiver certificates" representing $3.7 million, Leary said.

Total losses were initially feared to be about $11 million to $12 million. So, though $3.7 million is a lot of money, it is less than the first estimates.

"You hate to have anybody lose money, but where we're at is better than where we started," Leary said. "We are sensitive to anyone who lost even a penny. But, that said, the other scenarios at the time we started were much worse (than $3.7 million). We're grateful it was not."

It is unlikely depositors will get all of that money back. Historically, Leary said, the FDIC has paid 50 cents to 70 cents on the dollar on receiver certificates.

Three of the 50 depositors were public entities: Snow College, Ephraim City and Hildale City, Washington County. Ultimately, Leary estimated their combined loss was $571,000. But because the bank agreed to secure some deposits using its securities, the total loss for all three will be about $250,000, he said.

The Sept. 8 disbursement will be the first, and likely the largest, from the FDIC, but it probably won't be the last, Leary said. As the agency sells off the remainder of the Bank of Ephraim's assets, the FDIC will make additional distributions. The timing of those payments is unknown.

Meanwhile, the bank is getting back to business, said H. Don Norton, president and chief executive of Provo-based Far West Bank. Since Far West took over, deposits have grown by $2 million, Norton told the committee.

Of 28 Bank of Ephraim employees, 18 were retained by Far West. The former Bank of Ephraim branch in Mt. Pleasant, Sanpete County, was closed last week, because Far West already operated a branch there.

A new drive-up ATM was installed today at the North Ephraim branch, and online banking and other services will be available in the next few months, once the new branches are converted to Far West's computer system.

"We're expanding our banking services to them," Norton said.

In addition to new services and technology, former Bank of Ephraim customers now will have access to 16 bank branches "from Sandy to St. George," Norton said.

"The bid process was $3 million," Norton said. "That was the premium we paid to keep the bank, to have the facilities and take over the insured deposits. I think it can be said that we invested in the customer base."

Randy K. McArthur, the former Bank of Ephraim employee who allegedly embezzled $5 million from the bank over a period of decades, is scheduled for a "change of plea" hearing in U.S District Court for Utah on Sept. 13. Dean Johnson, who allegedly acted as McArthur's "outside accomplice," is scheduled to go to trial in federal court that same day. Each was charged with one count of bank fraud.

Leary called the alleged embezzlement "the knock-out punch" for the bank, which had been closely monitored — particularly in 2003 — when regulators noticed a deterioration in the loan quality at Bank of Ephraim's Hildale branch.
 
deseretnews.com
Originally published Wednesday, August 25, 2004
 
Back