2015: Don Regan

Don Regan infuses Premier Banks with the strength to survive the recession and come back to strong performance.True character is shown when times are tough. The same proved true for Premier Banks, headquartered in Maplewood, Minn., a northeastern suburb of St. Paul. The start of a downward spiral in the economy in 2006 showed Premier's exposure to the land development market. Yet, Premier didn't go down in the storm. Instead, its many strengths have brought it back recently to pre-recession performance. For the many virtues that carried it through, Premier Banks has Don Regan, its chairman and founder, to thank..Regan referred to his bank as a "one lung organization" when he described its lending focus prior to the recession. Like Regan, who has invested in real estate for half a century, Premier Banks has focused on land development for the past 40 years. Land development proved the bank's Achilles heel over the last eight years..Yet, even if Premier Banks had only one lung, it was still fit to run the marathon of the Great Recession. For building a bank that could weather the greatest storm in banking in the past quarter century and for returning it to performance above the industry average, Regan is NorthWestern Financial Review's Banker of the Year for 2015..An honest discourse.Regan saw in 2006 a coming tide of difficulties when one of Premier's largest land development customers began to struggle. "That large client told us they weren't alone in the looming challenge," Regan recounted. "That's when we invited the regulators to meet with us.".Regan organized a meeting attended by the boards of the three bank charters, the banks' senior staff and by every banking regulator that works with the Premier organization. "We took them through our watch list loan by loan," Regan said. "Our message was that something was wrong, seriously wrong, in the economy and that we would need to work together with regulators to salvage as many clients as we could.".The meeting won Regan and Premier Banks the goodwill of its regulators who now knew the organization was aware and ready to work through its issues. "Premier established mutual trust," said Bill Horlitz, who retired from his job as deputy assistant at the Minnesota Department of Commerce in January 2013 and joined Premier Banks' board later that year. "I joined Premier because I have known the Regan family my whole career. They have such integrity; that's what drew me to them. It took courage to invite every one of your banks' regulators in to show them their weak spots.".Horlitz said the meeting helped regulators see that Premier Banks was a survivor. The bank's leadership came away with a plan for survival. Part of that plan rested on the fact that while Premier Banks had one lung, its three charters gave it three legs. If not for the tenacity of Regan, the bank's geographic base would not have been so wide during the recent recession..A 'Hail Mary'.Regan made two key acquisitions in 1990. Both came from Midwest Federal Savings and Loan Association, the $2.4 billion thrift that regulators placed in conservatorship in May 1989. "I remember Don asking me how we could acquire a portion of Midwest Federal," said Jack Hillstrom, the now semi-retired banker who has helped Regan run the bank since 1974. "I told him the Resolution Trust Corporation was only going to sell Midwest Federal as one unit. Don's reply was, 'they can't do that.' That meant Don was going to find a way to get it done.".Regan and Hillstrom began writing letter after letter to elected officials urging Congress to change the laws governing RTC auctions to allow community banks to bid on parts of Midwest Federal's branch network. By July 30, 1990, Regan and Hillstrom were sitting in front of the House Committee on Banking, Finance and Urban Affairs. They argued that the nation's financial industry would be more competitive if branch sales were a part of the bidding process for the failed thrift..Their argument won Congress over. By October 1990, Regan, who owned a $70 million bank with one location at the time, purchased $185 million in deposits and eight Midwest Federal branches. The acquisition catapulted Premier Banks into the top 10 banks in Minnesota for branch network; it had been 87th..The Midwest Federal branches were the first locations of Premier Bank Minnesota and Premier Bank Rochester; the second two charters in Regan's three-charter organization. The acquisition gave Premier Banks locations in most of the major markets in the southern half of Minnesota..Today, Premier Bank has $593 million in assets and seven branches throughout the northern suburbs of the Twin Cities. Premier Bank Minnesota, which is based in Farmington, a southern suburb of the Twin Cities, has $174 million in assets and eight offices spread across the state from Monticello in the north to Owatonna in the south. Premier Bank Rochester has $149 million in assets with four locations in Rochester..Regan, who refers to himself as a casual Catholic, called his move for a piece of Midwest Federal a "Hail Mary play." Fellow leaders at Premier Banks say Regan is self-deprecating; they say he is anything but casual about his faith. It plays a role in how he runs his banks. President and CEO Mark Novitzki recalled the Midwest Federal transaction. "I remember it wasn't coming together the way we wanted. Don delayed the meeting and we all prayed," Novitzki explained. "After that, the pieces came together and we got it done.".Three legs to stand on .Call it providence; call it strength created by geographic diversification — a broad branch footprint proved pivotal to the bank's later survival..While construction, land development, and real estate loans were at the center of all three charters' asset quality issues, Premier Bank Rochester's and Premier Bank Minnesota's problems with loans weren't as severe or as long-lived as the Maplewood charter, according to the FDIC. Premier Bank Rochester's delinquent loan ratio, at its worst in 2010, peaked at 7.56 percent and dropped to 0 percent by the end of 2013. Premier Bank Minnesota's delinquent loans peaked at 8.62 percent of loans in 2010; they are at 0.31 percent as of Sept. 2014. The Maplewood charter's delinquent loans peaked at 8.68 percent in 2010, and they had dropped to 1.94 percent as of Sept. 30, 2014..Premier Bank Rochester and Premier Bank Minnesota also have brought new lending opportunities to the bank since 2006. Rochester has been a growing, attractive market for banks, even through the recession. The strength of the local economy and ag industry allowed Premier Bank Rochester to diversify lending into owner-occupied commercial real estate, hotels and farmland. As of Sept. 2014, Premier Bank Rochester had $46 million, $30 million and $6 million, respectively, in these new asset classes. That compares to zero dollars in the same assets classes in 2007..The story is similar for Premier Bank Minnesota which had $43.5 million in owner-occupied commercial real estate, over $30.5 million in hotel lending, and $5.5 million in farmland as of September. That's up from zero investment in owner-occupied commercial real estate and hotels in 2007, and up from just $1.3 million in farmland in 2007..The Maplewood charter also diversified into owner-occupied commercial real estate, hotels and farmland. In Sept. 2014, the Maplewood charter had $171 million, $88 million and $21 million, respectively, in these asset classes. It had just $55 million and $1.2 million, respectively, in owner-occupied commercial real estate and farmland in 2007. Growth in hotel lending began again in 2012, after a sharp decline to $59 million in the years leading up to 2011..Focused on people.Premier's markets played a big part in its recovery but they are not the only reason the bank made it through, Horlitz said. "They survived the recession because they have good people," he said..Often when a bank struggles, operational employees can leave the organization, taking with them efficiency and operational knowledge. Regan's emphasis on taking care of the bank's employees, particularly those with lower pay, has played an important role in keeping key people. One example of Regan's dedication to lower paid employees is the bank's unusual bonus structure. "We give a higher percentage of bonuses to those of lesser pay. This year we will pay 6 percent bonuses to higher paid people. Employees earning $60,000 or less will receive 10 percent bonuses," Regan said. "I think it should be that way.."I sometimes wonder how those with lower pay make due, the cost of living in this country is so high," he continued. "Maybe those who generate more profits deserve to make the most. My belief is that those who make the least need the largest bonuses.".Regan said he has been "inordinately blessed" by the talented people who continue to work with him. The average efficiency ratio for Regan's three charters was 47 percent in third quarter of 2014. That compares to the 67 percent average efficiency ratio for banks in Minnesota; and the 70 percent ratio for banks under $1 billion in assets. (Regan gave credit to his staff and family for rebuilding the bank.).Winning loyalty.Premier also came through the Great Recession because it worked with its borrowers, Horlitz said. "Even the ones on the fence were saved for the most part," he said, noting that Regan's generous donations and community involvement through his career are too long to list. "The integrity of the organization is part of the culture Don inspires. In spite of all the bank went through, Don always thought about the needs of his employees and the needs of his communities.".Customers have taken notice, Horlitz said. They see their relationship with Regan's bank as more than a commodity. Premier Banks competes in very competitive banking markets in the state. Yet, its net interest margin is at 3.91 percent next to an average for Minnesota banks of 3.81 percent and an average for banks under $1 billion of 3.69 percent..In third quarter, the bank had a return on assets and a return on equity not seen since before the recession. The average ROA for the three banks was 1.92 percent as of Sept. 30. That's more than the Minnesota bank average of 1.2 percent, and more than the average for banks under $1 billion of 0.98 percent. For ROE, Premier's average is 19.53 percent, far above the average 11.35 percent return of Minnesota banks, and more than double the average 8.8 percent ROE of banks under $1 billion..Now Premier Banks has its sights set on passing $1 billion in assets. Novitzki, Horlitz and Hillstrom agreed. Don Regan is the animating force who has infused the bank with a culture imbued by his faith, who diversified it into new markets and who had the vision to bring the banks through its problem assets. He is the compass and the soul of Premier Banks, who brought the organization back from hard times to its 40-year anniversary and success in 2014..Changing the rules of the Resolution Trust Corp.Editor's note: Premier Banks' Chairman Don Regan and Jack Hillstrom, then president and CEO of Premier Banks and vice-chairman of the Independent Community Bankers of Minnesota, argued before Congress that the Resolution Trust Corporation should auction branches of failed thrifts both on a branch-by-branch basis and as an entire network. The following are excerpts from their testimony before the House Committee on Banking, Finance and Urban Affairs on July 30, 1990. .I would like to make two main points. First, the nation's financial industry will be more competitive and the RTC may well gain more for the taxpayer if branch sales are an integral part of its bidding process. Second, branch sales are a feasible alternative to sales of entire institutions..We are concerned that the RTC's reluctance to sell thrift branch networks on a branch by branch basis will increase financial concentration. It also closes the process to community banks, and denies the taxpayer the opportunity to sell failed thrifts to willing buyers..This reluctance is apparently based on administrative concerns. We think these concerns are overstated, and are out-weighed by the competitive and financial arguments. In many cases, the failed thrifts are simply too large for all but the largest commercial banks to acquire as a complete branch network..Local communities and small businesses lose an opportunity to do business with a local bank. The RTC should offer failed thrifts both on a branch basis and as an entire network. This would give all bidders large and small an opportunity to bid..Local banks like ours bring something to those markets that the statewide banks and out-of-state banks just do not have: Intimate knowledge of local market needs and a personal interest in the economic health of that particular market. We do not simply hope that our community will be healthy; it is essential to us..The credit goes to his team.Regan said most of the credit for Premier Banks' return to strong performance goes to his staff. Much credit, he said, goes to nonfamily managers like Premier Banks President and CEO Mark Novitzki; Jack Hillstrom, the semi-retired banker who still helps Regan manage his banks and has since 1974; President and CEO of Premier Bank Rochester Corey Heimer; Market President Mike Ruther, White Bear Lake; and Tom Kern, Northeast Area President..Regan also said he is grateful to his children and other family who help to lead the bank. Much credit, he said, goes to his son in-law, Andrew Nath, executive vice president and director who plays a major role in the bank's loan growth; President and CEO of Premier Bank Minnesota Casey Regan (grandson); Sean Regan (son), Roseville Market president and the bank's vice-chairman; Marketing Director Kelly Regan (daughter), and Katie Nath (daughter), the bank's legal counsel. Regan's children Mike, Pat, Dan and Colleen Espana-Regan have contributed as well, he said.."We founded Maplewood State Bank, now Premier Banks, with $1.5 million dollars in capital and no clients. Our first location was a doublewide trailer," Regan said. "From 2007 through 2011, we almost lost everything. Today we are generating record profits, the most in 40 years of banking. May the Good Lord, all the saints, and our loyal clients preserve us.".Buses before banking.Don Regan opened Maplewood State Bank, the bank that became Premier Bank, in 1974. Before that he built "the largest school bus company between Chicago and the West Coast.".Regan said his childhood created in him the strong work ethic that helped in his entrepreneurial endeavors. He characterized his youth in LeRoy, Minn., as one of genteel, abject poverty. "In a small community you've got to work hard to survive and prosper," he said. If a capacity for hard work is the birthright of a small town boy, Regan's was strengthened and stretched by the death of his father in a hunting accident in 1932, when he was 3 years old. His mother was expecting her seventh child at the time..Don is the fifth child and the oldest son. From an early age he and his siblings strove to help their widowed mother as much as they could. "That required long, hard hours of work and diligence," he said. "It just became a habit and continues to be.".In 1955, some farmer friends asked Regan to transport their kids to school while they finished the harvest. Regan reluctantly agreed to what he thought was only a two-week obligation. Today, the sixth generation of the Regan family owns and operates 1,400-plus school and charter buses..It was busing that brought Regan to the Minneapolis-St. Paul area, where from 1959 to 1986 he founded and concentrated on building St. Paul and Suburban Bus Company..When Regan opened his bank in 1974, he was used to dividing his time between two businesses. During the early years of his bus company, he also ran "star mail," a contractor for the U.S. Postal Service. "We thought we could run the bus company during the day and the mail company at night," he said. But "you've got to get some sleep sometime.".Perhaps with a similar line of reasoning, Regan sold the bulk of his bus company in 1986 to his son, Pat, owner of several bus operations..Regan and his wife, Jean, have lived in the same house in North St. Paul since 1959 — the same house they bought when they moved to the Twin Cities 55 years ago. They have seven children, 26 grandchildren and six great grandchildren.