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EPHRAIM - The math was simple: Bad loans plus embezzlement brought down a small-town bank.

The loans were made for hasty business ventures in a 9,000-strong polygamist enclave that believed the world was about to end.

The insider's fraud was 24 years in the making and involved cash-filled suitcases and Las Vegas gambling sprees.

But in this farming community in one of Utah poorest counties, where many are struggling to hold their own, resentment runs deep against regulators who shut down the 99-year-old Bank of Ephraim.

They complain government examiners, fooled by phony bank statements, never detected the fraud. They accuse state regulators of tolerating risky loans to the Mormon fundamentalist sect halfway down the state - until the buildup to the Salt Lake 2002 Winter Olympics ushered a renewed war on the polygamists.

One of the loans was made for a watermelon farm that never planted a single watermelon. The bank foreclosed on the farm. Another was made to an outfit that salvaged military barracks for motel conversions; that venture went bankrupt when the barracks turned out to have lead paint, asbestos and other hazards.

'Like stink on poop': The loans reached $18 million, 90 percent of the Bank of Ephraim's portfolio, said former bank President Keith Church.

Regulators ''allowed it to happen and then closed it when we were trying to fix it,'' said Church, who took over in 2000. ''They were like stink on poop on us.''

Afterward, Church learned from business owners that they had been instructed by Rulon Jeffs, former leader of the Fundamentalist Church of Jesus Christ of Latter-day Saints, to ''go out and borrow as much money as they could'' because civilization was about to collapse.

State Banking Supervisor Jim Thomas said the Bank of Ephraim was cleaning its balance sheet of the bad loans when embezzlement delivered the knockout punch. He said the bank was irredeemable.

Federal officials say it underscores a shift to outright fraud for bank failures, which used to fail more often because of economic downturns.

A handful of banks still fail each year. ''A lot of them, which tend to be small, don't make a big splash until they happen in your backyard. That's the hard way to find out about it,'' said David Barr, a spokesman for the Federal Deposit Insurance Corp. in Washington.

Last June's closing of the Bank of Ephraim made instant losers of 50 people and groups ranging from turkey farmers to the local Chevrolet dealer and state college. Together they had $3.6 million in uninsured deposits.

Rebuffed by regulators: Stockholders who lost millions more insisted they had investors lined up to rescue the bank, but were rebuffed by regulators, who sold the deposits to a bank unwittingly instrumental in its looting, the Far West Bank of Provo.

Now, attorneys are fighting the federal agency charged with salvaging failed banks over restitution for losers. Many of the losers are small-business owners who learned too late that deposits in any single bank over $100,000 were uninsured, an amount unchanged since 1952.

A bank failure was ''the last thing in my mind,'' said Chevy dealer Ron Greene, who sometimes kept millions at the Bank of Ephraim but through the luck of timing lost only about $100,000 in uninsured deposits. ''I thought of it as the rock of Gibraltar.''

The FDIC is taking the position that it alone is the victim of the failed bank and responsible for distributing the banks' remaining assets, infuriating townsfolk. In court papers the FDIC says it has sole authority over depleted bank assets, including any restitution recovered from former head cashier Randy K. McArthur and Dean Johnson, an outsider who drew up counterfeit bank statements. Both pleaded guilty in September to looting the bank for two dozen years.

By the time they were done, authorities say, they drained the bank's earnings of nearly $5 million.

''I've never seen an embezzlement gone on like this for so long. This is an aberration. Most embezzlers are caught quickly,'' said FBI agent Todd Argyle.

''It's gone,'' McArthur told a Salt Lake City television station outside the federal courthouse last summer.

McArthur, 50, whose sentencing has been put off until Jan. 14 pending the fight over restitution, refused to be interviewed for this story. Church said McArthur told him he drafted Bank of Ephraim cashier's checks and drove them to a nearby Far West Bank branch in Mount Pleasant, claiming he needed cash ''for the vault.''

Church said the bank's cash flow was strong, and he was stunned Far West Bank never was suspicious. It never called to inquire about McArthur's withdrawals. Far West Bank officials insist rural banks borrow cash from one another routinely to avoid the expense of armored-car deliveries.

Consistent thievery: Nearly every month for 24 years McArthur took out sums exceeding $20,000, keeping bills from $5 to $100 stuffed in suitcases and buying a house and expensive cars and leading a double life in St. George, his gateway to Las Vegas casinos.

In his plea deal, McArthur said he divided the loot with Johnson.

For a small town, the bank's failure dealt a staggering toll. Bank of Ephraim employees lost jobs and pensions and some are selling their houses.

At Moroni Feed Co., which sells the Norbest brand of turkey, a $250,000 loss ''comes right out of the pocket'' of 65 family farms already struggling under depressed prices, cooperative President David P. Bailey said.

Small-business owners mourn the passing of a friendly bank that gave them easy terms. Ernest ''Gus'' Augustus, who opened a new restaurant on Main Street here, said ''you can't get a dime'' out of other Utah banks. He said his income can fluctuate like a farmer's, but he no longer has a $15,000 line of credit to tide him over.

Broken dreams: ''It's gone - our retirement,'' said Terrie Green, co-owner with her husband of Central Utah Title, which held sometimes astronomical sums at the Bank of Ephraim for real-estate deals.

The Bank of Ephraim's chairman said the bank got caught in Utah's battle against polygamists straddling the Utah-Arizona border. The community, wholly owned and controlled by a church run by autocrat Warren Jeffs, is buying ranches in Colorado and west Texas for what authorities believe may be an exodus.

Jeffs, whose Hildale compound was surrounded by a 10-foot wall, is a recluse who doesn't give interviews. He presides over Hildale-Colorado City astride the Utah-Arizona border, a jumble of unfinished houses on dirt streets, where men have multiple wives and dozens of children, who supply cheap labor for business.

For years, the Bank of Ephraim made money off higher-interest business loans using leaseholds on church-owned land as collateral, opening a branch in Hildale that was recently shut down. They were ''not your vanilla loans'' but generated healthy bank returns, said Carl Barton, the Bank of Ephraim's chairman.

Eventually the Bank of Ephraim ''got in too deep,'' and while the community was paying back some loans, the bank ended up invested heavily in too many speculative deals with polygamists who ''didn't have much to lose,'' said Thomas, the banking supervisor.

''They were locked into a community that is - not normal,'' Thomas said.

The Bank of Ephraim underwrote one construction company that so underbid municipal sewer and street contracts it couldn't pay for materials or supplies, let alone labor, he said.

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