COOPER, Texas — Teresa Thompson was less than two hours into her shift at the Dairy Queen when it happened.

The 58-year-old cook, hair slung into a long, blonde ponytail, had just returned from a smoke break when an employee of the Enloe State Bank next door rushed into the restaurant.

“The bank is on fire,” Brenda Miller, who cleans the bank with her husband, told Thompson. “Call 911.”

Thompson found her glittery purple iPhone and dialed. When the call wouldn’t go through, she resorted to Dairy Queen’s landline.

“The Enloe State Bank is on fire,” she told an emergency dispatcher.

The May 11 fire at Enloe State Bank set off a chain of events unlike anything the town's 2,000 residents had ever seen. Before the month ended, the Texas Department of Banking had closed the bank, citing "insider abuse and fraud by former officers."

It was the nation’s first bank failure in 17 months, and the first in Texas since 2013.

Federal investigators and loan experts swarmed the agricultural community about 80 miles northeast of Dallas. Within days, at least a dozen residents received letters telling them they had loans at the bank — shocking some who said they knew nothing about the debts.

“It hurt a lot of people here,” said Noel Bailey, the bank’s president more than 30 years ago. "You just see people’s faces, and it’s like, what’s going to happen now?”

The Federal Deposit Insurance Corporation, the Depression-era government agency set up to protect people who put their money in banks, estimates it’ll have to cover $27 million of the bank’s $36.7 million in assets.

That doesn’t include 10 bank customers with deposits over the FDIC’s insured limit of $250,000. About $500,000 total exceeded the cap, the agency said.

Federal agencies are investigating what led to the collapse, though local law enforcement authorities said no arrests have been made.

Former bank president Anita Moody declined to be interviewed about the bank’s failure. Moody, 56, had worked at the bank since she was a teenager and held the top job for more than 10 years.

An unexpected delivery

Pat Ainsworth discovered her letter bearing an FDIC seal after running errands in town on the first Saturday in June. Enloe State Bank was closed for good the previous day.

She’d heard rumors of people getting them, but thought she’d been spared.

“I drove in and there was a letter,” Ainsworth, 78, said. “I called my daughter and said, ‘We spoke too soon.’ ”

The letter was addressed to her late husband, Marion Ainsworth, who died of cancer almost five years ago. He was 74.

Two days later, Ainsworth drove to the bank with her daughter, Tricia Chalaire. A line of people snaked around the lobby. At least three FDIC representatives were there.

A white-haired FDIC contractor named George Bozzuti greeted the couple and led them into a private office. The carpet was partially pulled up, Ainsworth remembered, and the stench from the fire still lingered in it.

She recounted her conversation with Bozzuti, a seasoned loan review and fraud investigator. He’s helped manage the FDIC’s handling of failed-bank assets in the last 10 years.

“This is a fraudulent loan,” Buzzoti told them.

“How do you know?” Ainsworth asked.

“Because there’s nothing with it,” he said, meaning supporting documents and accompanying signatures.

Some loans Bozzuti and his team had sorted through were in perfect shape, she recalled him telling her. All the necessary documents had been stored together in a vault.

“But the fraudulent loans were all in here,” Buzzoti told her, patting a computer.

Teresa Thompson, a cook at the Dairy Queen in Cooper, witnessed the fire at the neighboring Enloe State Bank. (Lynda M. Gonzalez / Staff Photographer)

‘It really is on fire’

On that Saturday evening in May, two Delta County deputy sheriffs arrived within minutes of Thompson’s call. They approached the bank’s back door and gazed at the escaping smoke.

Thompson slipped outside the Dairy Queen to snap a photo. She posted it to Facebook, writing “Oh my it really is on FIRE!!!”

Smoke errupts from the doors of the Enloe State Bank On May 11, 2019. (Courtesy of Teresa Thompson)

Inside, papers burned on a conference room table. That’s where the blaze began, said Sheriff Ricky Smith. A lack of oxygen kept it from spreading to the rest of the building.

The state banking department had requested a set of financial records for a routine exam of the bank.

"Those items were piled on the board room table and set afire," Texas Department of Banking Commissioner Charles Cooper told a meeting of the state's finance commission in June, according to a recording of the meeting. "That was an indication something was wrong."

After the fire was put out, officers stayed through the night and into Mother’s Day. They called in the Bureau of Alcohol, Tobacco, Firearms and Explosives because the bank is federally insured. The FDIC’s Office of the Inspector General joined in later.

Deputies executed search warrants a few days later, though Sheriff Smith declined to provide details. The Dallas Morning News' request for the records was denied and referred to the attorney general's office for a decision.

Three days after the fire, state banking officials examined the bank. By May 31, it was out of business.

Cooper, the banking commissioner, called the timeline “very rapid.”

“We have a lot of gnashing of our teeth and a lot of evaluation to do before we enter into one of these,” he said in the recorded meeting. “I just wanted y’all to know it’s not something you just do — wake up one morning and close a bank.”

Washington Federal Bank for Savings in Chicago was the nation’s last bank failure, closing in December 2017 after widespread loan fraud was discovered.

Enloe State was the first Texas failure since 2013, when Texas Community Bank was shuttered in The Woodlands. The failure marks the first closure of a state-chartered bank since Plano’s First International Bank in 2011. Just 10 banks in the state have failed since the start of 2009.

Banks are closed when their assets, largely loans, are worth far less than their liabilities. If Enloe State Bank had sold all its assets, it still couldn’t have repaid its depositors.

The FDIC became the bank’s receiver, taking custody of its premises and records that’ll help the agency determine the real value of assets, including loans.

Legend Bank took over the bank’s insured deposits a few days after it closed. The Bowie-based bank bills itself as one of the largest cattle lenders in North Texas. It has 12 branches, from Wichita Falls to Fort Worth.

A new Legend Bank sign hangs over the former logo of the Enloe State Bank in Cooper, Texas, on Thursday, July 11, 2019. (Lynda M. Gonzalez / Staff Photographer)

‘It’s like Mayberry’

Cattle outnumber people in Delta County, 4-to-1. Agricultural roots run deep here, where cotton provided most of the county's income for decades.

In Cooper, families go back generations. Last names carry weight.

Locals Denise Spencer (left) and Bruce Aaron chat in evening light in Cooper, Texas, on Thursday, July 11, 2019. (Lynda M. Gonzalez/The Dallas Morning News) (Lynda M. Gonzalez / Staff Photographer)

Before football games each fall, the Cooper High School Bulldogs’ bus drives through the town square. Most of the town is there to cheer them on.

“It doesn’t matter if you have a kid on the team or not,” said Brenda Stewart, a Century 21 agent who’s lived in Cooper for 30 years. “You still wave the bus by.”

It’s difficult to stay off anyone’s radar in the town.

“It’s like Mayberry,” Stewart said. “You walk into the hair salon and know all the ladies getting their hair teased.”

Locals enjoy lunch at the Dairy Queen in Cooper, Texas, on Thursday, July 11, 2019. (Lynda M. Gonzalez / Staff Photographer)

Enloe State Bank wasn’t the first bank failure in the county. Two years before the Great Depression, The First National Bank closed.

Its doors stayed shut just two months. But Delta County’s economy was wounded. Many residents were in debt, with little access to loans. Falling cotton prices made the situation worse.

The next year, just before the Great Depression, Enloe State Bank opened in the town of Enloe, five miles northeast of Cooper. It was a fixture in Delta County for 91 years.

The bank built a Cooper branch in 1993 and closed its original location in 2008. Today, the empty building sits on the corner of a stretch of vacant storefronts.

The building that once housed the Enloe State Bank. Today, the empty building sits on the corner of a stretch of empty storefronts. (Orla McCaffrey / Staff)

Much of the town’s economic activity made its way through the bank over the years, too. Kids starting their first savings account. Newlyweds securing a mortgage for a first home. Longtime residents saving for retirement.

Enloe State Bank had a reputation of charitable giving.

It joined forces with the county sheriff and a local lumber yard to donate 20 air conditioners in 2015. Each fall, it covered the cost of the school district’s fish fry. The bank funded organizations from the Cooper FFA to Texas Dream Center, an addiction rehab center for men.

Disbelief, then relief

The loan made out to Ainsworth’s late husband was for $127,000. It dated back to November 2017, three years after his death. A payment of $25,000 was made on it as recently as April, Bozzuti told her.

The last loan Marion Ainsworth signed at the bank was for a beige Chevrolet pickup, Pat Ainsworth said. But he paid it off long before he died.

“I guess that’s where they got all of his information,” Ainsworth said.

At first, Ainsworth couldn’t believe something like this had happened.

“And then it was relief when I didn’t owe $127,000,” she said.

Phantom loans like Ainsworth’s are covered by the $27 million shelled out by the FDIC. The money comes from its deposit insurance fund, created by fees on insured banks and investment income. In 2017, bank failures cost the fund $1.1 billion. That’s up from $47 million in 2016.

No banks failed in 2018, for the first time since before the Great Recession.

The agency will do whatever it can to recover the money it pays out. Bank officers, directors, appraisers and attorneys who might have contributed to the loss are subject to claims from the agency.

Investigators camp out in Cooper

The small town played host to two investigations: one by the FDIC and a criminal one by the FDIC's Office of the Inspector General and ATF. The inspector general gets involved when fraud or other financial crimes are suspected.

It's not clear how the agencies are investigating the Cooper case. But some practices are common to all bank failures, former FDIC staffers told The News.

In the early days of an investigation, all officers and personnel who might be involved are interviewed one-on-one. Investigators comb bank records for irregularities, and ask bank employees to explain them.

After the third day, the FDIC fires officers they believe jeopardized the bank, said Terry Rouch, a former receiver in charge at the FDIC who now works for the U.S. Department of Housing and Urban Development. Regulators often freeze bank accounts of those involved.

“They will literally go through every single file,” Rouch said.

Most of that sifting happened in an unlikely setting in Cooper.

Bailey’s last year as president of the bank was 1989. He was surprised, then, to get a call from the FDIC the day the bank was closed.

The man on the line wanted Bailey’s permission to use his church’s parking lot. The church, where Bailey is pastor, sits a few hundred feet from the bank. As many as 50 FDIC staffers were headed to Cooper, the man told him.

“We’re taking [the bank] over tomorrow,” he said.

“Well, that’s not good,” Bailey, 70, said.

Cooper is an agricultural community in Delta County. (Lynda M. Gonzalez / Staff Photographer)

A few days later, the feds were on the phone again. The odor left over from the fire was making workers sick. They wanted to set up inside the church instead.

The congregation OK’d the move, and the FDIC insisted on paying $300 a day in rent. “That’s not the reason why we did it,” Bailey said.

Between wooden pews and hymn books, investigators sorted through years of loans. They set up desks and carried bank files across the blacktop. A state trooper guarded the locked front door.

On Wednesdays, the inspectors agreed to leave before 7 p.m. service. But they often appeared as soon as it ended, working into the night, Bailey said.

Investigators will also scrutinize what the bank's directors knew about the conditions that caused the failure. The board is tasked with overseeing bank operations and often doubles as a loan review committee.

A lack of separation between loan officers and the approval committee allowed loan fraud to thrive at Washington Federal Bank for Savings, according to a report from the U.S. Treasury Department's inspector general.

A new bank comes to town

Legend Bank beat out at least two other banks that wanted a shot at Enloe State’s customers. One of them was the only other bank in Delta County — First National, the one that failed in 1927.

Legend took on Enloe State’s insured deposits. But it steered clear of most of the failed bank’s assets. It scooped up roughly $5.2 million in assets, just a fraction of the $36.7 million the bank reported earlier this year.

The new bank likely took on liquid assets — cash, deposits at other banks and bonds in Enloe State’s name.

To regulators, Enloe State Bank was doing just fine. Bank filings and routine examinations through the years failed to uncover anomalies. Its focus was agricultural lending.

In the first three months of 2019, the bank reported more than $10 million in loans to finance farming, according to the website CompleteBankData. That's more than 16 times the amount held by First National in the same period.

The sun sets in Cooper. (Lynda M. Gonzalez / Staff Photographer)

Enloe State counted $368,000 in past-due loans last year. First National, the bank down the road with a similar focus, reported loans worth $585,000 in the same category.

Regulators pay attention when loans become delinquent. But Enloe State Bank reported just $47,000 in loans it likely couldn’t collect over the last five years.

Low numbers of bad loans also can be a red flag, past FDIC reviews of failed banks found.

The paper trail

Stricter banking regulations were implemented in the aftermath of the Great Recession. The new requirements focus regulators’ attention on multibillion-dollar banks rather than ones with less than $40 billion in assets, some experts say.

“You’re going to spend more time on the bigger banks and less time on the smaller banks,” said David Crowther, a former FDIC bank liquidation specialist who now works as vice president for finance at Amtrak.

The FDIC and state banking department took turns inspecting Enloe State Bank. Results of those exams aren’t made public.

Investigators have yet to say how anyone benefited from fraudulent loans. But loans always leave a paper trail — or a missing one.

“It’s never a matter of if you’re going to get caught,” Rouch said. “It’s when you’ll get caught.”