2008: Randy Newman

A decade after a devastating flood and fire nearly shuttered the company, Randy Newman has built North Dakota-based Alerus Financial Corporation into a burgeoning financial services company poised to make the most of the country's demographic and consumer trends..Newman is leveraging the company's trust services heritage by offering retiring baby boomers reliable investment products and services. Non-interest income already makes up more than half the company's revenue, and Newman hopes to beef up the fee-for-services side of the income stream as competition continues to commoditize credit. Retirement planning, property management, brokerage fees and insurance commissions are all part of the plan..The bank, which traces its Grand Forks roots back to 1879, is making a name for itself as a regional player, having set up shop in the Twin Cities in 2006.Newman said he expects the $708 million bank to double in size by 2011..Newman is NorthWestern Financial Review's Banker of the Year for 2008..The floodwaters of April 1997, which destroyed three of the bank's buildings along with most of downtown Grand Forks, tested Newman's resolve but didn't break his spirit. With local systems wiped out, Newman directed a temporary shift in operations to the bank's facilities in Fargo. The remote location allowed the bank to offer services uninterrupted, despite the local catastrophe..As the floodwaters receded and the extent of the damage became apparent, Newman had to make a number of crucial decisions; many people, for example, were encouraging him to re-establish elsewhere. Newman ultimately decided to remain in Grand Forks. He used resources within the company's property management subsidiary to facilitate home repair and rebuilding for employees. The bank eventually moved back into downtown, leasing space in a new building owned by the city..During the aftermath, Newman served on a mayor's task force that helped local small companies get back into business. The rebuilding process took years and the emotional nature of the deliberations was taxing. "For three or four years, Grand Forks was not a nice place to live," Newman recounted. Today, there are large tracts of land featuring new homes for displaced residents. A dike, capable of containing a flood-level river crest, was finally completed in 2007..Newman said he is a changed man as a result of the experience; the bank and the town, he said, nearly didn't make it. Newman's dedication to Grand Forks, however, had been established years earlier, and his ethic for hard work went back to childhood; ultimately, that combination proved to be enough.The early years.Newman and his wife, Anita, both from Cando, N.D., went to the University of North Dakota and then moved to Chicago, where he had a job at Osco Drug. Their honeymoon years were marred by a series of upsetting personal incidents, including an accident Anita had with a commuter train and a fire that destroyed their apartment complex. They decided to return to Grand Forks where he studied for an MBA at UND and they both felt safer raising a family. "I left for Chicago at age 21 and came back two and a half years later feeling like I was 35," Newman said..While looking for a job in the state, Newman taught a course in strategic planning and corporate finance at UND and met Dick Wold, president of First National Bank in Grand Forks. In an effort to manage challenges brought about by deregulation and fluctuating interest rates, Wold offered Newman a job as the bank's first chief financial officer..In six years as CFO, Newman helped the bank through several important transitions. In 1982, the bank registered with the Securities and Exchange Commission as its number of shareholders had grown beyond 500. Two years later, he helped institute an employee stock ownership program, investing $500,000 which today is worth $20 million. And in 1987, the year Newman was named president, the bank acquired the West Fargo State Bank, which would prove a life-saver 10 years down the line..By the early 1990s, the bank's number of shareholders had grown to 1,300. Newman said that 85 percent of them had an investment of less than $25,000 in the bank, and that 500 of the shareholders held fewer than 100 shares. The public company format was proving to be more expensive than any of its perceived benefits so the decision was made to take the company private. The board unanimously approved an effort to buy out 1,000 shareholders. "We actually paid a premium above the appraised value to the minority shareholders," Newman said. Allegations that management was setting the company up for sale for personal gain proved unfounded..Newman said he wanted to maintain the same level of public disclosure the bank provided when it was publicly held. Each year, the company publishes a detailed annual report. Last year, for example, when other banks refused to talk about a large, regional loan participation that went bad, Newman publicly acknowledged it..The 1990s turned out to be a very difficult time to do business in Grand Forks. In addition to devastation from the flood and subsequent downtown fire, the area's Air Force base was significantly downsized. At one time, the base was a hub of more than 15,000 people. During the nineties, the mission of the base was redefined and personnel was streamlined. About 2,000 people remain on the base, which is being retooled as a center for unmanned aerial vehicles. Teaming with researchers at UND's famed avionics school, civic boosters hope to leverage technology to build the base again into a thriving operation.."During the 1990s, it wasn't a recession around here," Newman said. "It was a depression.".A new era.Ushering in a new era, First National Bank North Dakota changed its name to Alerus Financial in 2000. Aleria is a Latin word which means "to take flight." A month after it announced the name, the company said it had purchased the naming rights to the brand new indoor football and events arena Grand Forks had built..Emboldened by the flood recovery and the company's new image, in 2002 the board of directors committed to "taking the company to the next level.".Newman is implementing that commitment. So far, that has meant buying several companies, including two property management firms, a trust administration business in St. Paul, Minn., and a registered investment advisor in Minneapolis, plus setting up a bank in Minnetonka, a swank Minneapolis suburb. Although the bank has $708 million assets, Newman likes to point to the company's trust assets, which include $1.5 billion under management and another $5.5 billion under administration..Twenty years ago, the company set out to increase fee income to a level equal to interest income, and the company is finally there. In 2007, about 55 percent of the company's revenue came from fees and 45 percent from interest. "We expect to be sixty-forty next year," Newman said..The fee income, Newman notes, is coming from value-added services that are likely to become even more valuable. Decades of diligently exercising fiduciary responsibility gives banks like his a tremendous opportunity to market to consumers who will need trusted partners to manage their retirement funds. Newman thinks a demographic tidal wave of retiring boomers will be looking for an expert they can trust.."The next big fraud after the subprime mortgage mess dissipates, I predict, will be retirement funds management," Newman said. "The 401(k) laws which gave people responsibility for managing their own retirement funds went into effect in 1986. Many of those people will be retiring and a lot of characters will be wanting to help them roll over their retirement accounts. We saw what happened with the mortgage brokers. I think it is going to be worse with the retirement fund managers.."Banks have fiduciary experience," Newman continued. "Our bank in particular, with its strong trust background, has a legacy of putting the customer first. We provide services that fit our background as a trust company. There is going to be a huge need for that.".During the 1980s, "re-invention" was a popular theme in much of the business literature. It is a concept that appealed to Newman, who says the main quality he brings to his company's business mix is "a healthy skepticism about the status quo." To make the point, he compared banking to the restaurant business. "In the restaurant business, they say you need to remodel every seven years to keep the clientele coming back," Newman said. "Is there a lesson there for banks? I think so.".One way Newman is reinventing his own bank is through regionalization. His trust administration division already serves businesses located in 49 states. For years, he had considered opening an office in the Twin Cites. "We looked at the ZIP codes from our customer list and the No. 2 area for us turns out to be the Twin Cities," he said. So, a year ago, Alerus opened a bank branch in the area's western suburbs..Under the direction of Dave Latta, a 26-year industry veteran, the Minnetonka bank is building a franchise, leveraging the back office services provided by the staff in Grand Forks. Newman admits growth has been slower than anticipated but he sees the office making progress. "We are working to get long-term relationships, not transactional business," he said..An appealing company.During a discussion about success at Alerus, Newman is quick to credit his colleagues, particularly Kris Compton, his chief operating officer; Eric Carlson, CFO; Karl Bollingberg, banking division manager, and John Flesch, wealth management manager. He also credits his board, which includes Chairman Emeritus Wold, his old mentor. The board, meeting four times per year, focuses solely on strategic issues, leaving the day-to-day functions such as loan review to a team of internal managers..Newman said the quality of people who have recently joined the company impresses him. "We have a good story to tell and people want to be a part of it," he said..An important part of that story is the customer base. The company surveys customers all the time; results are compiled and studied during individual employee reviews. "We ask customers to rate their experience with their particular relationship manager," Newman explained. "If a rating comes in consistently low, we work with the manager to figure out what needs to happen to increase the rating and better serve their clients.".Newman has injected an important recognition component into the Alerus culture, where those surveys play an important role. Employees remain aware of results from both external customers, and internal ones – that is, colleagues within the company. Since the flood, the bank has annually honored employees who stand out for extraordinary service. With a certain amount of fanfare, the bank hands out annual "Newmie Awards.".Candidates are nominated by peers, and winners are selected by senior managers. Recipients are featured in the bank's annual report..Although Newman said he likes the award program, he hints at uncertainty about the name of it. Newman, however, is an apt moniker for the program, given his own level of unwavering dedication to his community, customers, shareholders and colleagues. Last February, the Grand Forks business community awarded Newman its highest honor, the "Henry Havig Award" for Community Service..The personal challenges and triumphs, the flood experience and community response, and the company metamorphosis of the last three decades have forever shaped Newman's life. "I do well under pressure," he summarized. "I am who I am because of my experiences and the people who have had an impact on my life."