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SALT LAKE CITY (AP) -- The Bank of Ephraim made high-risk business and consumer loans in the polygamist community on the Arizona border and lost more than three quarters of a million dollars last year, a Salt Lake newspaper reported.
The Sanpete County-based bank lost $778,000 last year after writing off slightly more than $1.3 million in bad loans, The Salt Lake Tribune said in a copyright story Wednesday.
As required by regulators, it placed $2 million in a reserve account to cover losses.
"They have done everything we have asked in that way," said Jim Thomas, supervisor of banks for the Utah Department of Financial Institutions. "They are closely watched."
Bank of Ephraim Chairman Carl Barton described its lending relationship with residents of the twin polygamist communities of Colorado City, Ariz., and Hildale, Utah, as "very unique."
"One of the messages we have been delivering for the past three or four years in Hildale and Colorado City is we have to make loans and we have to manage loans and enforce our loans in step with prudent business practices," Barton said.
In a letter to shareholders April 23, Barton said that because of the reserves the bank has been forced to hold, "we simply cannot pay dividends at this time or in the coming months. We continue to generate large amounts of income, but far too much of it must be placed into the bad loan reserve account due (to) the uncertainty in Hildale and Colorado City."
Barton said loan delinquencies have dropped dramatically in the twin cities since the first of the year.
The Bank of Ephraim, founded in 1905, has two offices in Ephraim. It opened a branch in Hildale in 1995, and, two years ago, it opened a branch in Mount Pleasant.
Bank officials declined to say how much of its loans were to residents of the twin cities.
"It is a much smaller percentage now than it used to be," said Keith Church, who took over as bank president in 2000. "Most of these bad loans were made several years ago and they are in the process of being cleaned up.
Church said the bank has tightened its credit standards and no longer accepts leaseholds on property as collateral for loans.
Most of the residents of the twin cities are members of Fundamentalist Church of Jesus Christ of Latter Day Saints and do not own their homes or buildings, but lease them from a church-controlled trust.
FLDS church attorney Rod Parker met recently with bank officials to discuss loans that used leaseholds as collateral -- deals made in some cases without consent of the trust.
"We'll work with them to clear those up if they were given assurances at the time" of the loan, he said, adding most of these loans are not in default.
Parker also said the bank has made money in the community and "on some loans it could have been hurt a lot worse if the church hadn't stepped up and helped get someone else" in leasehold.
(Copyright 2004 by The Associated Press. All Rights Reserved.)