Bank failure grieves neighbors
 Clients, employees of the Bank of Ephraim 'stunned'
 
By Suzanne Dean and Sean Hales
For the Deseret Morning News
Lloyd Call
Customers at the former Bank of Ephraim

Customers line up at the teller windows at the former Bank of Ephraim, which reopened this week as Far West Bank.

EPHRAIM — For many residents of Sanpete County, the failure of the Bank of Ephraim is like a death in the family.

Sad as they are, some residents are blaming bank officials for not being more candid about the condition of the bank. And nearly everyone expresses concern about the 65 uninsured depositors who, cumulatively, could lose up to $4.3 million because of the failure.

"Tragic, tragic, terrible," Gwen McGarry, 76, of Ephraim, said of the bank's collapse. Her first husband, Rawlin Jacobson, worked for the bank for 23 years and was president for three years. He died in 1978. The Jacobson family had been involved with the bank since 1920. Rawlin Jacobson's father and grandfather had both been presidents of the bank.

For decades, the Bank of Ephraim "was a AAA bank, right at the top of the heap in Utah," says McGarry, who wrote a history of the bank several years ago. During the Depression, banks in nearby Moroni and Fountain Green failed, but the Bank of Ephraim survived.

"It's very difficult for me," McGarry said. "You see people going in (to the bank) and coming out in tears. It's heartbreaking. Maybe it was something that could have been avoided, maybe not."

The bank, founded in 1905, had been experiencing problems for some time because of loans it had made in Hildale, Washington County, and Colorado City, Arizona, to members of the Fundamentalist Church of Jesus Christ of Latter-day Saints. The FLDS Church advocates polygamy.

Then in April, the bank got an anonymous tip about possible embezzlement. In May, a federal grand jury in Salt Lake City indicted Randy McArthur, a bank cashier, and Dean Johnson, West Jordan, a former Sanpete County resident and an associate of McArthur's, for bank fraud.

In early June, DFI examiners put the amount of the embezzlement at $4.9 million. When the bank was forced to write off the loss, its capital fell below federal requirements and industry standards.

At that point, the Federal Deposit Insurance Corp. advertised for bidders to buy most of the bank's loans and accounts. On June 25, after obtaining a court order, DFI took over the bank. DFI appointed the FDIC as receiver, and the FDIC sold the bank's assets to Far West Bank of Provo. The bank opened the next day as Far West Bank.

Penny Cartright of Ephraim, a loan documentation specialist at the bank, said Friday that she and other employees were still "in shock."

She was taking a vacation day a week ago Friday when she got a call at home to come to a mandatory meeting just before 5 p.m. The bank president, Keith Church, turned the meeting over to an FDIC representative, who explained what had happened.

"Everybody was stunned," Cartright said. "A lot of tears were flowing. My heart sank to my stomach."

As of Friday, she hadn't heard whether she would be hired by Far West. But she had been told that if Far West didn't hire her, the FDIC would employ her for 30 to 60 days helping complete documentation of loans that Far West did not purchase. Those loans, she has been told, will be sold to other institutions.

Larry Hansen, owner of Hansen Lumber in Fairview, said that in the 1950s, his father went to several banks seeking a loan to start the business. All turned him down. He went to the Bank of Ephraim, and after a 15-minute conversation with the bank president, walked out with a check. A half-century later, the lumber company is still in business.

"They've been very good to work with over the years. It breaks my heart to see them go," Hansen said.

The bank "fit a really nice niche," said Gary Anderson, director of Utah State University Extension in Sanpete County. "They understood farming and made loans in that area."

Historically, Sanpete County has been one of the poorest counties in Utah. Currently, median family income is under $35,000. But at the Bank of Ephraim, people were more than a credit score or a debt-to-income ratio, said Greg Bailey, Fountain Green, who works for Moroni Feed. "It was the hometown bank. It's sad to see it fail," he said.

Beverly Call of Manti said that as a young married couple, she and her husband were banking at First Security, now Wells Fargo, which has a branch in Mt. Pleasant, about 10 miles north of Ephraim. First Security wouldn't give them overdraft protection, but the Bank of Ephraim would.

"There were personable, so easy to work with, a great little bank," she said.

When she saw a news report in May suggesting the bank might be in trouble, she thought, "Wow, should I worry?" But when the the local weekly newspaper ran an article containing assurances from Church, the bank president, she decided, "I'm not going to freak out. I know how things can get blown out of proportion. The people in the know say things are OK."

Last week, she drove by and saw "cops out in front and people carrying out boxes of records." She stopped and talked to Far West president Don Norton, who has been on site much of the past week. He told her what had happened.

Now she's angry. Bank of Ephraim officials "either knew it was coming and lied to us" or if they didn't know were "totally inept," she said. "If I felt toward Bank of Ephraim like I feel toward First Security, maybe I wouldn't care, but this was my hometown bank, and I loved it, and now I feel betrayed."

Torie Gibb, Sterling, who has banked at the Bank of Ephraim for 18 years, expressed similar sentiments. "I was very upset with bank officials for downplaying the bad loans. Yes, it was the embezzlement that finally brought the bank down, but if it hadn't been for the bad loans, it might have survived. I'm kind of upset with the higher-ups. They should have been more honest, more forthcoming."

Gibb hasn't decided whether to leave her account with Far West. But generally, the response to the much bigger, Provo-based bank seems to be positive.

Marla Frischknecht, Manti, says her relationship was with the people more than the bank. As long as the same people are at Far West, she won't move her account.

"It's sad that a 99-year-old institution would fail," says Rick Wheeler, a Snow College vice president. "For a long time, it was the only real option for people. That makes it institutional."

But, he says, "people seem to be responding to Far West and what they're trying to do here."
 
deseretnews.com
Originally published Saturday, July 3, 2004
 
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