Former bank examiner achieves success by focusing on lending fundamentals

Northwestern Financial Review, Jun 15-Jun 30, 2003 by Hilgert, Jackie

For Stephen Daggett, Midwest Bank's 1998 entrance into the Detroit Lakes, Minn., market was a dream come true. The native of nearby Frazee, Minn., had had Detroit Lakes on his mind ever since joining the bank in 1995 when it was called Farmers State Bank of Waubun. The bank had just changed hands back then and the new owners wanted growth. Before they could get it, though, they faced a daunting task - cleaning up the bank's assets.

Daggett, a former FDIC field examiner, had already decided to trade life on the road for marriage and was looking for a home in banking when he learned of the opening 25 miles to the north. "The FDIC was a great environment to learn," said Daggett, a 2003 North [middot] Western Financial Review Rising Star. Getting inside upwards of 100 banks revealed a lot to the aspiring banker. "Id be examining a bank and think, 'if I worked for a bank, this is how I'd like to see things run' or 'if I ever have those options, this is what I'd do,'" he said. Daggett got his chance to test those theories; he met with the bank's new owners and was hired on the spot.

It was time to clean and Daggett came prepared. So impressed with his performance were the bank's owners, they promoted the lender twice within 18 months, the second time to president of the then-$25 million bank. Since taking the helm in 1997, the 34-year-old Daggett has steered the bank through logistical challenges and regulatory channels en route to: a change in bank name, a charter move, the addition of three branches, and the construction of a new bank facility. He's also grown the bank to $86 million.

Dennis Lind, president of Parkers Prairie Bancshares, the holding company for Midwest Bank, recalled the decision to hire Daggett. "When we learned of his desire we knew we were not going to find a better candidate," Lind said. "There are a lot of caretakers in the banking business, and a few rainmakers and he's clearly a rainmaker."

While Daggett enjoyed his years spent as an examiner, he said he didn't fit the stereotype - he was friendly. "I was pretty open to listening to bankers when discussing loans," he said. Now on the banking side, Daggett boasts that examiners love his files. Not that the examinerturned-banker wants to open his books every six months. "They [examiners] still get on my nerves."

Making the switch from examiner to banker, or vice-versa, isn't an open road to success. "Steve has a very unique set of talents," said Bryan Rude, friend, former FDIC colleague and president of Midwest Bank, N.A., Parkers Prairie, Minn., a bank affiliate of Midwest Bank, Detroit Lakes. "He's a very good salesperson and yet he's a very strong underwriter; that's not a very common combination." Rude and Daggett became friends while working out of the Grand Forks, N.D, district of the FDIC.

For former examiner Daggett, everything in the bank centers on loan quality. "If I had gone into an operation where the philosophy was 'we'll sacrifice loan quality for volume,' it wouldn't have been a good fit," he said. He still preaches loan quality and points to the quality of Midwest Bank's portfolio as the fuel for recent growth.

Getting into the Detroit Lakes market was something of a homecoming for Daggett, who grew up 10 miles east of the town located in the heart of northwestern Minnesota's resort country. His grandfather served on the board of the First National Bank of Detroit Lakes (now a Wells Fargo office) and his father, uncle and cousins jointly operate the family trucking business. Those connections were good enough to open some doors, but not enough to garner the newcomer to banking new business. "If I didn't know anything about banking," he said, "they weren't going to do business with me because I'm Steve Daggett."

Fishing without a depth finder, Daggett said the bank planned to give the Detroit Lakes expansion five years before committing assets to a permanent banking facility. "We budgeted that we'd break even in 18 months to two years in Detroit Lakes," Daggett said. It took only six months for them to realize they were in a workable market. "We were in a very unattractive building. We had no drive-up, no Saturday hours, no turn lane into the lot and parking was limited, yet we grew from zero to $36 million in five years," he said.

They grew, Daggett said, because they're responsive. They responded to him. "Steve's our lead business developer," Lind said. "He has the largest lending portfolio in the organization." Rude echoed that assessment, adding that Daggett doesn't just develop business, he develops very good business.

The Detroit Lakes area, with 412 lakes within a 25-mile radius of town, is growing as well. "There are good opportunities here," Daggett said of the town he and wife, Michelle, have chosen to raise their two children, Adam, 4, and Maren, 2. Daggett is active in the community to the level allowed a parent of two young children. He serves on the finance and foundation boards of St. Mary's Hospital and is active in Rotary.