2011: Stephen J. Goodenow

While banks in urban and suburban markets wrestle with stressed real estate, Bank Midwest of Spirit Lake, Iowa is growing steadily by serving the needs of rural customers. Agriculture, which was the epicenter of difficulties during the last big financial crisis, is providing fertile ground for Bank Midwest in southwestern Minnesota and northwestern Iowa. Stephen J. Goodenow, the 45-year-old fifth-generation banker who has guided the steadily growing financial company through the last decade, is NorthWestern Financial Review's 2011 selection for Banker of the Year.."It is the people who came before me who created the platforms for our success, and it is the people around me who are maintaining that success," he says..Although quick to credit colleagues for the bank's reliable earnings prowess, it is Goodenow who has overseen the bank's near doubling during the last 10 years. Leveraging his people skills, Goodenow has poured his energy into ideas designed to strengthen the organization since 2001 when he was named president and CEO of the bank and its holding company, Goodenow Bancorporation. At the bank's annual meeting later this month, he is slated to be rechristened the bank's chairman, handing over the president's job to colleague Curtis Johnson..With weather and market conditions nearly perfect for growing crops last year, perhaps there has never been a better time to have 40 to 45 percent of the loan portfolio tied to agriculture. Goodenow says he and his management team have resisted temptations to expand into markets such as Omaha, Sioux Falls and the Twin Cities, preferring to stick with a business model they know..Goodenow joined the Wall Lake State Bank in west central Iowa in 1992, after having spent four years as a Chicago-based examiner with the Office of the Comptroller of the Currency. The day he told his father that he would be leaving the OCC to take a job with a major Chicago bank, John Goodenow convinced him to return home to Wall Lake instead. Stephen had grown up in Wall Lake, graduated from the local high school and went to the University of Iowa, graduating in 1988..Stephen Goodenow's timing — his career started at the tail end of the ag crisis — gave him enough experience to respect the regulators who today warn against over-concentration in farm loans. "Regulators are intensely focused on good management; they are very concerned about the ag sector," Goodenow observed. "The regulators are interested in concentration management; when the regulators come to visit, we better be ready to talk about our ag portfolio.".The extra scrutiny, however, doesn't make him nervous. John Goodenow said the bank should never apologize for concentrating on agriculture. "He said if we can get our customers to manage their risk then we will be okay, so we pay a lot of attention to our customers' cash flow," Stephen Goodenow said..While the bank's loan portfolio may include a concentration in agriculture, Bank Midwest has pursued other forms of diversification. In Okoboji and Spirit Lake, for example, the bank does a strong mortgage business with the owners of vacation property in the area. An insurance agency has been part of the operation for decades, and in 1991 a wealth management company was added. Furthermore in 1997, under the direction of the bank's previous president, James Hongslo, the company formalized a strategy of geographic diversification by combining the charters of several banks in the Goodenow family, including the Wall Lake State Bank. Today the organization includes offices in nine communities in two states..'One Place'.Stephen Goodenow worked to integrate the merger, as well as the organization's various businesses. His effort evolved under the moniker "One Place," which the bank includes on its marketing materials. The idea was to communicate the value of a one-stop financial center. Goodenow said the effort has generated mixed results.."In some communities, there is no way a customer is going to switch their insurance agent, no matter how convenient it might be to buy insurance and do banking in the same place," Goodenow said. With 30,000 bank customers, 9,000 insurance customers, and 3,000 wealth management customers, only a small number truly conduct all their financial business at Bank Midwest but Goodenow said those prized customers are among the organization's most valuable. Goodenow is seeking additional ways to further integrate the bank's distinct financial services, including trying to develop a universal customer statement that provides insurance information as well as information from the bank and wealth management operation..Although the bank invested more than $350,000 in a start-up equipment finance business in 2010, Goodenow calls most of the bank's moves classic community banking. He said the bank avoids loan participation deals unless his own loan officers get a chance to see the deal first-hand. And, while the bank uses Federal Home Loan Bank advances to match interest rate risk on long-term loans, Goodenow said for most of the bank's operations it relies on core deposits..Multiple business lines are essential to the bank's growth, Goodenow contends, given the compliance burden that continues to get heavier for traditional lending. The new Dodd-Frank Act, he said, adds compliance costs that will squeeze traditional spreads even narrower..Although consultants warned Goodenow about trying to be all things to too many people, Goodenow said the One Place name is an accurate way to describe employee interaction with customers. About a decade ago, the bank established an Employee Stock Ownership Program which makes employees owners. Goodenow said most of the employees have taken the ESOP to heart and reach out to customers like real owners, and the customers can tell the difference. Goodenow credits the ESOP for motivating his staff to provide a level of service that distinguishes Bank Midwest from competitors. The ESOP, he said, has helped him prove the consultants wrong..Eye on the future.Goodenow believes he has laid the foundation for an organization that could grow by three or four times in the next decade. Bank Midwest is constructing a 15,000 square-foot operations center in Fairmont, Minn., where it will soon handle backroom operations for all nine locations. Located on a major internet corridor along interstate highway 90, the new facility has rooms for training, computer operations and a call center. Initially, it offers more capacity than the bank needs, but Goodenow expects to grow into it. And should it outgrow the new building, the bank has purchased enough surrounding land to accommodate another building or other form of expansion..The bank's old operations center was located in the basement of its bank in Windom, Minn. Goodenow said for some time, regulators had been suggesting the organization move the center as the office is located in a flood plain. "They let us get away with it for years, but we are at a size now where this needed to be addressed," Goodenow said. "We figured we need to make the most of this opportunity, so we are building a facility that will accommodate us for at least a decade.".Goodenow said he can imagine the bank growing to as much as $2 billion in assets, based on the number of banks in the region that may be looking for an acquirer. With regulatory screws turning even tighter, Goodenow believes it will become very difficult for smaller banks to survive. He would like them to consider teaming up with him, even if they are located beyond the bank's current footprint..The ESOP difference.Goodenow already has an answer for the obvious question that comes up whenever a community bank bursts past the $1 billion mark – how to maintain the personal touch that defines the community banking experience? "As the bank grows larger, the ESOP becomes even more important," Goodenow said. "We have a bank of employee/owners. They are the important eyes and ears for the bank in their communities.."With the ESOP, it's your job to be involved in the community, to stay close to the customer. I am convinced people work harder as a result of being owners. It helps the employees become strong advocates for the bank.".Mary Kay Bates, executive vice president, echoed Goodenow, saying: "Banks always say it's their people who make the difference, but in our case it's really true. We put a lot of resources into our people. We hire good people. Good credit quality doesn't just happen by itself; it is the result of hiring good people.".Johnson said he and his colleagues take a "holistic approach, bringing meaning to the One Place approach. We can distinguish ourselves with this.".Goodenow said it pays to invest in employees and give them an opportunity to be invested in the bank. Years ago, when his family purchased a bank, the former owner immediately left the area to the disappointment of bank staff which had hoped to leverage his local knowledge and reputation. "Owners need to stay, not leave," Goodenow said. "We are giving our owners a reason to stay.".The commitment shows up in the bank's efficiency rating, currently hovering around 70 percent, which is high by industry standards. Ten percent of bank ownership is controlled by the ESOP, which employees can tap upon their retirement, in addition to the 401(k) plan the bank offers..Stephen Goodenow has been encouraging his colleagues for more than a decade, leading both by word and example. The bank is generous with the community, recently donating, for example, $15,000 for repairs at the Martin County Fairgrounds. Another recent donation went to the Wall Lake Farm Fest. A few years ago, the bank gained local acclaim when it donated its Wall Lake building to the community to use for a library..Goodenow serves on the Spirit Lake Community Foundation, in additional to industry service through his board work at the Graduate School of Banking at Boulder, Colo., and the Federal Reserve Bank of Chicago..As Goodenow transitions to chairman of the board of the bank (he will remain president/CEO of the holding company where his father will remain chairman), he will be looking for banks that may make a good fit to the Bank Midwest organization. In a future that is likely to include accelerated industry consolidation, Goodenow summarizes "we want to grow; we don't want to be purchased."