2012: Richard and Michael Solberg

State Bank & Trust of Fargo, N.D., has won attention from customers and competitors as it has grown to a $2 billion enterprise under the leadership of Richard and Michael Solberg. Favoring growth over earnings, the 80-person shareholder group has empowered Solberg and Solberg to market aggressively, exploit markets others shun, lavish praise on employees and reach out generously to the communities they serve. In 1982, when Richard Solberg joined what was then State Bank of Fargo, it had $28 million in assets; today, the bank appears poised for additional growth as it leverages a recently acquired mortgage business in the Twin Cities..Richard and Michael Solberg are NorthWestern Financial Review's 2012 Bankers of the Year, the first time since the magazine initiated the honor in 1989 that it has selected a father-and-son team. Whether talking about the bank's Pay It Forward program, its Bell Mortgage operation, its "Happy Employees! Happy Customers!" motto, or its venture into Health Savings Accounts, the Solberg's infectious enthusiasm is winning over customers across North Dakota and Minnesota..Richard Solberg, avoiding the kinds of agricultural loans that got so many banks into trouble during the 1980s, focused on retail banking in north Fargo. The business grew strong enough to warrant the purchase of the First State Bank of West Fargo in 1989 and the launch of the State Bank of Moorhead (Minn.) in 1996. As the bank began to develop mortgage lending, branches were opened in the Central Minnesota communities of Detroit Lakes, Pelican Rapids and Alexandria to serve a burgeoning real estate market. Taking advantage of relaxed interstate branching rules, in 2003 the bank merged its three bank charters into one, and purchased North Dakota-based Northern Capital Trust. The entire operation was renamed State Bank & Trust; Michael Solberg, who had worked at Northern Capital, became the bank's chief operating officer with the acquisition..Since 2003, the bank has opened more offices in Minnesota's lake country, engaged a major health savings account effort and taken an ownership interest in a technology company. Last year, the company purchased Bell Mortgage of Minneapolis and the Solbergs see that business forging a path for the bank into the Twin Cities metro market.."Michael and I both have sales and growth in our DNA," Richard Solberg said, quick to acknowledge they didn't do it alone. "We have had a very supportive ownership group. If you don't have capital you really can't grow. The ownership group has enjoyed the growth process and has hardly had a dividend since I came in 1982. All of the earnings of the bank have, basically, been left in the bank." Richard Solberg is State Bank & Trust's chairman and chief executive officer..State Bank & Trust is primarily owned by Sharon, N.D. residents Thomas "Mickey" Snortland and his sister, Laura Snortland Fairfield, and the Solbergs. The Snortlands, whose father founded the bank in 1966, have proven to be the right counterparts to the outgoing Solbergs. Richard Solberg said they share an unwavering goal: "We have had a mission to stay private," he said, "to keep the bank privately owned, and it is my goal during my generation to keep ownership in the two families, for another generation.".Focus on people.Richard and Michael Solberg, in a Dec. 28 interview from a fourth-floor conference room in their Fargo headquarters, said the key to the organization is its employees. The Solbergs say their focus is on attracting and retaining great people.."I was good at hiring good employees; Michael is better," Richard Solberg said. "Seven or eight years ago, we developed a very simple mission statement: Happy Employees! Happy Customers! That means that if we focus on our employees as a company, and make sure they really like their jobs, we will end up with happy customers. That is certainly how it has turned out.".Recalling a seminar hosted by Alex Sheshunoff some years ago, Richard Solberg said the industry consultant urged bankers to focus on hiring good people rather than acquiring other banks. Solberg took the advice to heart, perhaps as a way to round out the State Bank & Trust's collective skill set. With the Solbergs strong in sales and marketing, others would need to provide heft on the credit side. "We are unusual bank executives. Most bankers come up through the lending side, we are on the sales side," Richard Solberg explained. "The art of banking is managing risk; we are in the risk business. We have credit risk and interest rate risk. If you take no credit risk you aren't going to make very much money. And yet if you take too much risk, you are going to get yourself in trouble. Knowing where the line is, is what I call the art of banking.".And you could argue the Solbergs treat their 640 employees like celebrated artists. Bonuses are generous, no one is forced to sign a non-compete, and the bank encourages employees to take time off for family..Michael Solberg says that with bank products across the industry being largely indistinguishable, the way for a bank to set itself apart is with its people. The way to attract great people, he says, is by creating the right culture. "Every business, every bank, every church, every group of people has a culture," commented Michael Solberg, the bank's president and chief operating officer. "We work very diligently to create a culture that isn't just talk. All banks call themselves the employer of choice. Our focus is to make sure we live that.".State Bank & Trust sets aside 5 percent of its annual earnings to fund year-end bonuses to every employee, from tellers up through executive ranks. Bonuses in 2011 came to 6.75 percent of salary for most employees. The bank also has a qualified retirement plan, determined by a performance-based sliding scale. That resulted in an additional 18 percent of salary. "These come with a serious cost but we know the benefits far outweigh the costs when it comes to investing in our people," Michael Solberg said..Pay it Forward.The bank's culture permeates its staff and ultimately reaches out into its community, most notably through its Pay it Forward project, which has resulted in more than $2.4 million in employee-directed donations over the last four years. At the bank's 2007 Christmas party – a historically festive affair where the bank has been known to give away exotic trips and cars – the Solbergs announced that every employee would be given $1,000 to give to any individual or group in need. The only restriction was the recipient couldn't be a member of their own family or another employee. The bank gave each employee a video camera so that the donor could record the impact of the donation..The idea came from Charleen Solberg, Michael's wife, who had seen Oprah Winfrey do something similar on her television show. When it came time to plan for the 2007 party, they decided to launch their own Pay it Forward program..Although the Solberg's say they never expected any attention from the press, soon after the program went public, calls came from CNN, the BBC, CBS News, People magazine, Good Morning America, and others. Oprah even contacted the bank about having the Solberg's on her show (although a day before a scheduled taping, they were bumped and never rebooked). Michael Solberg said the magic of the program is that employees can donate to anyone. "It doesn't have to be a recognized 501(c)3 charitable organization," he explained. "That means if an employee knows a family with kids who aren't going to get Christmas presents that year because the parents are down on their luck, they can donate the money to parents so they can buy some presents.".The bank produces a high-quality report that summarizes how the money is used. The reports feature individual photos of hundreds of the bank's employees. The 2011 report features several stories, including one about a man who repairs bicycles in his garage. He gives away many of the bikes to kids in need. When the city required him to put up a fence, State Bank & Trust employees donated money to cover the cost. The 2011 report says bank employees gave away a total of $480,000, with $20,000 going to churches, $167,000 going to organizations or projects, $216,700 going to individuals and families in need, and $1,500 going to the arts. The bank also recently announced a "fans' choice" component to the program where customers will be given the opportunity to direct bank giving..Health Savings Accounts.Although the Solbergs downplay the bank's earnings prowess, State Bank & Trust has been a consistent performer, even during recent years when other organizations have struggled through the financial crisis. In addition to the traditional banking business, its trust operation – with more than $3 billion under management – has contributed to earnings. Northern Capital Trust had a significant small claims adjudication business, which State Bank & Trust spun off into a separate business soon after its 2003 acquisition. It called the business Discovery Benefits. Only a year later, then-President Bush led an effort to link high-deductible health insurance plans to health savings accounts. That spurned a boon in HSAs; State Bank & Trust saw it as an opportunity to leverage the expertise at Discovery Benefits, as well as a way to gather low-cost deposits..A Minneapolis software company called Lighthouse1 provided backroom technology supporting all the transactions handled by Discovery Benefits. State Bank & Trust grew so close to the tech company that it ended up buying it. Over time, the tech/benefits company combo proved to be a mixed experience. Six months ago, the company sold Lighthouse1 to a venture capital firm in California, although State Bank & Trust retains some $40 million in 250,000 HSAs. Earlier, it sold half of Discovery Benefits to Blue Cross of North Dakota..State Bank & Trust also has a growing correspondent banking business – a business from which some competitors are retreating. The Solbergs say there is opportunity in correspondent banking, particularly in Wisconsin, where the acquisition of M&I Bank by Harris Bank has disrupted many long-standing correspondent relationships. The Solbergs say they also like their prospects for correspondent business in Minnesota and Iowa..One of the advantages of having correspondent bankers on the road is the relationships and contacts those bankers make throughout the region. In 2010, such contact ultimately led to the acquisition of Bell Mortgage, a 130-year-old Minneapolis-based company. The acquisition brought the region's largest independently owned bank together with the region's largest private mortgage company. Bell has 180 employees in 28 offices in the Twin Cities, Bozeman, Mont., and Phoenix, Ariz. Bell Mortgage Chairman and CEO Gary Kirt remains leader of the organization, which is now a robust division of State Bank & Trust. Michael Solberg said Bell Mortgage is a perfect cultural fit..In additional to enjoying a healthy refi business since the acquisition, State Bank & Trust sees Bell Mortgage's reach into the Twin Cities marketplace as an opportunity to build a banking presence in the Upper Midwest's biggest marketplace outside of Chicago. State Bank & Trust is in the process of making application to open a bank branch in the Minneapolis area. "We know we are not going to beat Wells Fargo, U.S. Bank or TCF in the Twin Cities where they have a big retail presence," commented Michael Solberg. "Our goal is to be a great commercial bank, a great mortgage bank, and a great private bank, ultimately wrapping our trust company around it.".Father and son.The uniqueness of the father-son leadership approach is not lost on the Solbergs. "We work well together," said Richard Solberg, age 65. "We have different strengths. Michael will not manage the bank exactly as I have done it, but he'll do it very well.."When Michael was named president and COO a few years ago, one of our directors made the comment that he supported Michael not because his name was Solberg, but because Michael has the ability to lead the company into the future. I thought that was a great compliment," Richard Solberg said.."It has been an awesome blessing to be able to come back and be able to work for my Dad," Michael Solberg, 39 years old, said. "We are very different and yet in the core way we look at business, we are very similar as far as how to treat people and to do the right thing."