15 Minutes With…Mike Gay

Mike Gay, with his quarter horse Magic, enjoys horseback riding and other outdoor pursuits. Photo by Steve Woit

Mike Gay, with his quarter horse Magic, enjoys horseback riding and other outdoor pursuits. Photo by Steve Woit

Cloquet-Market President for the $1.6 Billion-Asset Frandsen Bank & Trust in Arden Hills, Minn.

IB: Describe Frandsen Bank & Trust.

Gay: We have 33 offices in different markets, so we’re a diverse company. Every bank office is run according to the needs of its market. What is really nice about Frandsen is the upper management gives each market president a lot of leeway to meet his or her market’s needs.

I’m the president of the Cloquet office. Our market in Cloquet is quite different from a lot of our markets that are in smaller agricultural communities. We’re probably one of the bigger population centers because Cloquet is fairly close to Duluth, about 20 miles away.

Frandsen Bank is a large-enough bank to handle pretty much any size credit transaction, but we function like a small community bank where you still have good turnaround time, quick decision-making. We have bankers out on the street who understand financial statements and how to structure a loan. Our bankers actually talk to people and get to know them. We are a resource for our communities. We’re not trying to sell people a product and run the credit decision through some out-of-town process.

IB: So you have a lot of flexibility and autonomy in running the Cloquet office.

Gay: Every Frandsen Bank market president has a lending authority, and that’s based on experience. I have a $500,000 lending limit. Any credit transaction up to that amount can be made here at this office. It doesn’t have to flow through to some credit committee in the Twin Cities or San Francisco or wherever. So I think that’s a big part of it.

The other thing is, if I have a good customer who slips in managing his or her accounts, I can waive an overdraft charge or other fee. I don’t have to get somebody’s permission. Or I can special-price somebody’s savings account, or I can put them on a no service charge if they’re a high-value loan customer. I can tailor individual decisions to be successful in the market that I’m in.

IB: Tell us about your marketplace.

Gay: We have a big paper mill that is the heart and soul of this community, so logging has been a big part of the tradition in this region. There are certainly some other nice manufacturing businesses in town, and we have a regional hospital that does extremely well and a community college.

We’re also right off of the interstate heading up to the North Shore of Minnesota, so we get a significant amount of traffic coming through here, in particular during the summer vacation season, for people involved with hunting and fishing and snowmobiling and for people who are going to their weekend cabins.

Our local economy could be described as either slightly depressed or slightly growing. We don’t see a lot of wild fluctuations of growth in this region. North of here, about an hour up on the Iron Range, they’re going through some more serious challenges with the iron ore plants being shut down. They’re struggling up there.

IB: The Cloquet office is one of Frandsen Bank’s top-performing offices. Why is that?

Gay: That’s one of those tough questions. We’ve grown our loan assets from about $25 million in 2009 to about $65 million, and without having to add significant overhead. We don’t have a lot of staff compared to some of our other offices, but we have earning assets that are comparable. That allows us to be more efficient.

We also haven’t had a foreclosure or repossession in three years, and that makes a huge difference in our bottom line.

IB: Where is your office’s loan generation coming from?

Gay: We’re just working hard. We have regular sales meetings, and we’re networking extremely well with the accountants and the attorneys in Cloquet, but we’re also reaching into the Duluth market and building those connections. We compete well with the big-box banks. In our small neck of the woods up here, those banks aren’t really in favor with the business community.

IB: So you’re taking away customers from competitors.

Gay: Yes, we are doing quite a bit of the calling on existing customers who are at other banks, and they’re not real happy.

IB: Why aren’t they happy?

Gay: The big banks in particular are heavy on fees, and their service level is not very good. Those are the two primary reasons. In Cloquet, in particular, the big banks don’t have seasoned commercial bankers to talk to. So that’s a big advantage for us. We’re doing extremely well on the residential real estate side, really for the same reason.

It’s not that our products are any better. We’re a community bank. People can still talk to us and have decisions made quickly, and we do a lot more hand-holding than you’re going to get at some of the bigger banks.

IB: What lending trends do you see?

Gay: With the low interest rates, we’re definitely seeing a strong housing market right now. In the last two years, we’ve seen more residential construction than the previous four or five years [since the Wall Street financial crisis]. People are building new homes and turning over their existing homes.

The other thing that’s been real positive for us is that Duluth is a strong college-university community and there’s a robust demand there for rental housing. We’ve financed a lot of rental housing.

Another thing that has helped us grow our assets and be successful is the use of the SBA 504 loan program. We’ve grown about $5 million to $6 million in assets using that program. It’s pretty low-risk credit, but really nice volume.

IB: Any new activities in Cloquet?

Gay: A little over a year ago, we hired a mortgage lender. Our goal is for him to be not just a mortgage lender but a mortgage manager. We’re trying to put together a mortgage team. With the market we’re in, and with Duluth being so close, I envision having two additional mortgage lenders by the end of this year, and maybe up to eight in the near future. This mortgage team can generate good volume and make valuable customer connections for the bank.

Our target is to continue to grow our presence in the Duluth market through calling efforts and being involved with their chamber of commerce and in marketing and getting to know their attorneys and accounts and Realtors and other centers of influence.

IB: What’s most challenging about your job?

Gay: It’s really the compliance. A year ago I was involved in the residential real estate side and as a result of all of the compliance changes, we brought in a specialist to focus on residential real estate. Two years ago, our lenders were kind of jacks-of-all-trades doing a little bit of everything. Now our lenders have had to specialize. The bigger Frandsen gets, the more layers of compliance regulations we need to be cognizant of.

The other challenge is just keeping the momentum and keeping an eye on the economy to make sure we’re not stepping out of the bounds of good credit decision-making. Fortunately, collections haven’t been a challenge.

IB: Why haven’t collections been a challenge?

Gay: We have been disciplined about making good credit decisions and not stretching too far in too many areas. This is my 20th year in banking and I have a commercial lender that’s been in banking 30 years, and two other bankers. We have 90 years of experience between four lenders here, so we have a lot of experience on the collection side.

IB: What’s the secret to collecting on loans?

Gay: It starts with underwriting, but once a loan is past due it’s all about getting on top of it right away by analyzing financial statements and negative trends. It’s also important to meet with those clients to see how they’re going to reverse the negative trends or find a possible solution. It’s also good for the bank to have an exit strategy before the deal blows up.

Most of the problems the banks in Minnesota have had were residential real estate loans that went bad as a result of poor underwriting or over advance rates. We’ve been very disciplined about not doing that.

IB: How do you do your job so well?

Gay: I think having a real team culture has been the most important thing here. The whole team is involved in goal setting, and we’re all working towards those goals, as a team. We meet on a regular basis to gauge our progress. We also have weekly sales meetings to celebrate our successes and to challenge each other to continue doing the things that we’re doing.

The other thing is our staff is extremely well invested in the community. We have two officers in two different Rotaries, and we have people on the chamber of commerce board and the hospital foundation board. Another was involved with the Boy Scouts, and we have another one involved with the Girl Scouts. We’re not seeing that kind of investment in the local community from our competing banks.

IB: Tell us about yourself. What do you do outside of work for fun?

Gay: I enjoy the outdoors. I golf and hunt and consider myself an avid deer hunter, both bow and rifle. My wife and I have a little hobby farm. We live out in the country, and we have a couple horses. We enjoy spending time with the horses, doing a little bit of horseback riding.