Taking a Farr view of regional banking

Northern Colorado banking and Bill Farr are as intertwined as Weld County and agriculture.

But Farr didn’t get into banking officially until 1988, after selling the family cattle business, although he had served as a bank director. He started as a consumer lender at Greeley National Bank and quickly rose through the ranks. A few years later he became the owner of his own institution, Eaton Bank. Through a variety of acquisitions and organic growth, that bank came to be called Centennial Bank of the West. Over 11 years, it grew to $800 million in assets before selling to a California-based investor group in 2004.

Many of the top-level bankers in the region today have worked with or for Farr over the years. But Farr, who retired from his seat on the board of Guaranty Bank in 2008, is feeling pretty good about being out of the banking biz. He sat down in late February to discuss his concerns with where the industry is headed:

NCBR: After buying Centennial Bank of the West, the investor group moved quickly to purchase Denver-based Guaranty Bank. Was that a difficult transition for you?

Farr: It was an easy one, because I was 66 years old at the time and I wanted out. It didn’t bother me then and it still doesn’t.

NCBR: You stayed on the board for a few years. Was that part of the plan?

Farr: They wanted me to stay on to have some representation in Northern Colorado. There was no need for me to stay on. I resigned from the board for the reason that I had no more fire. The deal was over, and they were doing it their way. I didn’t have the fire and to be a good director you have to have some of those things.

NCBR: What was the condition of the banking industry when you got out?

Farr: It was doing OK, but there were some problems beginning to show up. But that wasn’t the reason I got out. I got out because I was tired.

NCBR: The bank has had some issues over the years, particularly with commercial real estate. Looking back now, do you think there was too much of a focus there for Centennial?

Farr: Most banks in Northern Colorado that were aggressive banks had a lot of commercial real estate lending because that’s where the demand was. Everyone wanted commercial loans. If you weren’t in that type of lending, you weren’t doing very much. Percentage-wise, we weren’t that far out of line. In general for banking, it was so competitive that some banks were lowering their standards in order to get business. The lenders and banks were fighting for the business, and they took on some they shouldn’t have. It wasn’t every bank, but it was several of the banks.

NCBR: There was a big change in Northern Colorado banking from when you got in to where it is now. Is that change surprising?

Farr: It’s hard to compare the differences in those two times. In the late ’80s, there were banking problems. When we got in, the bank was still in the recovery process. We had several years of really good growth and then it got almost too good. I didn’t expect it to topple like it has.

The banks that did well were pretty aggressive. There were banks that were very conservative and didn’t do as well then. Now, those banks aren’t in as much trouble but they never did make the money along the way, either. They were family-owned or closely held, and that’s fine. We looked at the bank like it was a business, and we ran it like a business that just happened to be a bank. That’s more easily said than done, nowadays; with all the regulations, you can’t run it like a business. The regulators are running a big percentage of it, and that’s complicated things a great deal.

NCBR: How has working with regulators changed over the years?

Farr: There’s no love lost there. They give (bank managers) grief, take up time and have these different things they make you look at. But then they come out with your ratings and your problems would be resolved. But today, it’s more one-sided. The regulators tell the banks what to do – increase capital, increase loan reserves, classify these loans… The problem is that the regulators are the examiners. They look for the problems, they set the standards. They are the judge and jury. It makes it much more difficult.

I think the regulators have caused a few of the bank problems right now. They say you can’t have as many real estate loans so a bank has to get rid of them. Well, who’s going to buy them? There aren’t that many people to buy them, so the value goes down. So then they have to get a reappraisal and write down more loans. It feeds upon itself – down, down, down. And you have to put up more capital, you have to put up more reserves, you have to pay more FDIC insurance. And then your profits go down or you have a loss, then they rate you down as a bank. What caused all that?

NCBR: So you’re pretty glad to not be dealing with this new era of banking?

Farr: Very much so. It’s very difficult to make profits. They talk about profits in general dollars, but the important thing is the return on investment. Those have been cut down next to nothing, so why would shareholders want to raise capital? It’s difficult for banks to make the money they did in the past and will continue to be. Also, when it’s time to sell a bank, it’s been on earnings – 15 to 20 times earnings. Well, earnings are half what they used to be, and the ratio now is seven, eight or nine times those reduced earnings. So the price is one-fourth what it might have been. They would sell at two times book value, and now the stocks are trading at less than book value. That’s all lost money – millions of dollars.

So the banking situation right now has cost not just a few people money, but all the stockholders have lost money. And since banks can’t make loans, they don’t need deposits. They’re paying 1 percent on them, so depositors aren’t making any money. So, I don’t know anyone who is happy with the situation.

Kristen Tatti covers the banking industry for the Northern Colorado Business Report. She can be reached at 970-221-5400, ext. 219 or ktatti@ncbr.com.

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