Small Business Salon: Dan Ford, Community Banker

By Marc Tracy

"I think small banks felt like they were doing the honorable thing [in not taking TARP money], and their customers applauded them for not going to the government trough. But there were also some very logical reasons not to do it, including the unknown strings attached to it. The contract said you would comply with all present conditions and all future conditions imposed. Well, have you ever signed a contract where they said they'll tell you what the terms are later???"

Our guest today is Dan Ford, the President and CEO of, and shareholder in, Pine River Valley Bank, a small community institution in southwest Colorado. He also serves on the Colorado State Banking Board. We found Dan after he posted a comment insisting that, for all the troubled times, his community bank and many others like it were not going anywhere, a sentiment he reiterates below. In our interview, he also discusses why his bank didn't take the federal government's bank bailout money and how it is coping with a drop-off in deposits.

If you are a small business owner interested in being interviewed for Small Business Salon, or know one who would be (or should be!), please email us at bizboxonslate@gmail.com.

BizBox: Please tell us about Pine River Valley Bank.
Dan: We are a locally owned little bank, founded in 1977. We're located in the southwest corner of Colorado--the closest neighboring community you'd know is Durango--about ten miles from the New Mexico border. We are a $170 million bank--we recognize that's a pretty small bank by the scope of things. We have four branches, one as far away as 152 miles. All four are located in small towns. We have about 50 employees.

Our method has always been to provide banking services to small and rural places that just barely have the resources to support a bank in their towns. We're profitable. Sometimes we make the list of one of the best banks. Recently, we've devoted a lot of money to expansion. But we've been modestly successful and pleased. Our ownership is 20 people--20 families who helped start the bank, when we realized we needed one in our little town. And it's the same shareholders! No one's sold. We don't have one family or one group that controls the stock. The largest shareholder holds about 18%.

What were the circumstances of the bank's founding?
It was all merchants, the founders, because the closest bank was about ten miles away, and the story goes that one of the merchants typically ran around town and picked up all the deposits, and he went to the nearest bank one day, and he showed up, and it was right at two o'clock, and a woman was closing the shade and locking the door, and they wouldn't let him in. So he missed the two o'clock closing. And he came back and said, "We just gotta get our own bank here." With $300,000, they were able to start the bank, and that has turned out to be a pretty good investment, because that's now worth about $15 million. We have a lot of pride of ownership. We're glad to be recognized as someone who did something good for the town of Bayfield.

What's your role at the bank?
I have been here for 21 years, I live a mile from the bank. I'm 60 years old, and I'm the president and CEO. I took over for the first president, and now I've been president for five years. I was born and raised in the area.

What is the Pine River Valley like?
Our little town is of about 3,000 people, and we're about 20 miles outside Durango--which is only about 15,000. But Durango is kind of a rich, upper-scale place, much like the Aspens and Tellurides of the world. Lots of big, expensive second homes. So Bayfield has developed as more of a bedroom community.

In the last fifteen years, construction has been a big part of our economy, building those houses: either the upper-scale houses in the Durango area as second-homes, or the subdivisions with the more modest homes out here. Another big part of our economy is the oil and gas business. We're kind of a center of natural gas.

What sort of business is your bank primarily engaged in?
We do a lot of construction loans. We're heavily into real estate. We've done spec [speculation] lending in the past--and that's not in our future, that's for sure! A lot of small businesses. A little bit of agricultural, though not as much as people back East might suspect.

What types of small businesses do you tend to work with?
Mostly retail--small shops. I can't say that we've even had anything as big as a modest-sized grocery store. Mostly, someone will build a commercial building, we'll finance it, and then also the businesses that go in there--anything from a hair salon to a restaurant. A lot of financing of that type.

How is the current economy treating you?
We're coping. Our numbers look good. If you looked at our numbers today, you'd think there wasn't a recession going on, and you can say that about most of the little banks in our areas.

While we don't have any foreclosures going on right now, we do have other real-estate owned properties--homes in inventory. We probably don't foreclose on anybody but once every three years. But we can look down and see another house and speculation loans, and somewhere before the end of the year, maybe we'll own them--we hope not. I think bankers always try to put on a happy face, but in their darkest moments, they've gotta be thinking, "This could be a problem, that could be a problem."

Fortunately, when this economy hits in small towns, people don't buy houses, so rentals tend to be in demand. So the guy that built that spec home and hoped to sell it is now turning that into a rental. He's renting it, and he's at least making the interest payments and breaking even, and he's hoping that in a couple of years he can sell it and make some money. So rentals have been his salvation and ours too.

Do you also take deposits?
Yes. We are a regular retail bank. There's less money in circulation out there, that's for sure. In the '30s, one book I'm reading said, cash was so short in one community, they created scrip--your own internal economy. I can see our deposits are dwindling. We're trying to get a handle on why. We have the same customers, they just seem to have less money deposited--less money to deposit, I think. The town and the county bank with us--they collect taxes and bank with us and they seem to have less money than in the past.

We have one customer who boards horses--that's her business. And she's always been a good loan. But she came in one day and it turns out she's a bad loan now, because people aren't boarding horses any more, probably because they've seen their 401(k)s go to hell. There's a link to the stock market for you. So those banks that would tell you that they're insulated are sadly mistaken.

Have you been able to keep up your usual lending pace?
Not so much. We have less money to spend, to loan, because we have less deposits. We chose not to accept the TARP [Troubled Asset Relief Program] money, as most banks did, and for the right reasons.

What were your reasons?
I think small banks felt like they were doing the honorable thing, and their customers applauded them for not going to the government trough. But there were also some very logical reasons not to do it, including the unknown strings attached to it. The contract said you would comply with all present conditions and all future conditions imposed. Well, have you ever signed a contract where they said they'll tell you what the terms are later???

So we don't have excess funds. The FDIC [Federal Deposit Insurance Corporation] comes in and always fights with the banker and says, "I think this could be a bad loan". There's one side. And the other side is they say, "Take these millions from the government and go lend it out." Well. I always think of the eight restaurants in our little town. And I think of the worst one now--the one that's most likely to close. Imagine the owner coming to my desk and saying, "Dan, I need to borrow $10,000 to make payroll, and I understand you took the TARP money, so I think it was there just for me." Should I loan him the money? The TARP side says yes, the FDIC is saying, "No way".

What do you think the federal government should be doing to help small banks such as yours?
If you look back to the Depression, they protected the large urban banks more than the small rural banks. When you hear those stories, stuff like It's A Wonderful Life, it was always the little town bank that failed in 1929 or 1930. So my fear is that the folks in Washington are not in touch with Main Street and that they will do things that put us at a serious disadavantage, like nationalizing Citigroup or Bank of America. If the federal government owns one of my competitors, they don't have to make a profit or pay taxes, and anyone would probably want to put it in the national bank. That gives that bank a serious advantage over my bank. So I hope they honor the private industry.

You mentioned to me earlier that you serve on the Colorado State Banking Board. Could you tell us a bit about that?
I'm on the Board, a governor-appointed part of the state Division of Banking, which governs all state-chartered banks. The Colorado Division of Banking regulates 108 statewide banks. And I'm on that five-member board.

How are Colorado banks faring?
Probably a lot of banks north of Denver are struggling because they promoted in and were involved in overbuilding. They were a little bit larger, and got involved in entire subdivisions. I often tell people: banks as small as ours are just too small to be stupid. But these guys are a little bigger. I don't know that those people made bad decisions--they were rolling with the times. But now they're facing suck stock.

When will the banking industry finally seem out of the woods?
I think it's going to take some time, and I think it's going to weed out some good businesses, good people--some well-intentioned, good-hearted people. And through those failures, we will get down to the survival of the fittest, and ultimately that's where we'll start building back up again. I know the government can't let a huge bank fail: I trust there would be a trickle-down effect to all of us if we allow multibillion-dollar banks to go away. But there will need to be some blood-letting, and some folks are going to have to go away to make the rest of us survive.

Is Pine River Valley Bank going to survive?
We're going to survive. We've already kind of cut back on a lot of things. We told our employees we're putting more money into reserves, so we can't give them raises. We've cut back on our bonuses. Me, too. I tell my employees, "You can imagine: everyone's got 50% of what they got last year, and my bonus is bigger than yours!" We'll have to not make some of the loans people would like us to make. We're not going to be popular, and no banks will be.

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February 25, 2009 8:26 PM