The Gold Standard

Michael Gullion, chairman and CEO of Gold Banc Corp. of Leawood, Kansas, never intended to be a banker. Despite his acquisition of 15 banks in the past 20 years (with six deals pending); despite the fact that his bank holding company has swelled from $300 million in assets to an expected $2.75 billion in the last four years alone; and despite the fact that his company`s stated vision is to be The High Performance Community Bank of Choice, he still maintains that he is not a banker.

We`re not bankers, he says. We`re entrepreneurs.

That distinction might be making all the difference.

It might explain why, while banking leviathans have gobbled community banks like so many hors d`oeuvres, building name recognition and cheerily forcing customers into the New Order, Gold Banc has chosen a different route. To its acquired customers, it deliberately remains almost invisible until it earns their trust. Stealthily, it revamps back room operations, leaving everything that makes customers feel at home-the bank board, management, front office personnel, and the name-intact.

And it might explain why, when the big banks were forging early alliances with nonbank financial companies, $460 million Gold Banc jumped in and bought an investment company.

It also might explain why, when most community banks were just testing the waters of Internet banking, Gold Banc nabbed its own computer company.

When Gullion and his senior officers talk about Gold Banc, there`s an undercurrent of adventure, as if they were all on a grand expedition that had nothing to do with the buttoned-down world of finance.

The executive staff credits Gullion himself for creating that atmosphere. Says Executive Vice President of M&A Keith E. Bouchey, 48, who joined the company in 1995 and worked closely with Gullion for 20 years while at regional accounting firm GRA, Thompson, White & Co: He`s always doing things that would make other people say, u00c3″Hey, you can`t do that!`

Michael Gullion is a stoic-looking 45-year-old with a powder-dry wit and burgeoning skill as a diplomat. Though he insists he and the senior management team is making this up as we go along, he devises strategy constantly-in the shower, on airplane rides, in the car. According to Bouchey, he loves dragging people into the International Business Solutions Store on Fifth Avenue in New York and spending hours, just to see what`s new. He`s also been known to come up with high-tech banking services for which the technology has yet to be invented. Gullion says he manages by wandering-an idea he got from a book called Passion for Excellence. He believes in hiring strong decision makers and giving them room to work. The biggest challenge for us, he says, is to find a better way to do it differently. Not just a better way to do it.

Hence the plan to let acquired banks keep their own identities until they get comfortable with the new ownership. We didn`t want to be out there changing names, he says. Customers see that and think: u00c3″You`re going to sell to Boatmen`s; going to sell to Nations; going to sell to Bank of America.u00c3u2030`

What is a community bank? It`s local decision making. It`s having social, civic, economic responsibility in a community. It`s knowing the customers, talking to them, valuing those relationships. We wanted to keep those elements, to preserve that. Early on, we`ve had this philosophy.

At the same time, the company is aiming to grow to somewhere between $3 billion to $5 billion before January 2001, when new federal rules eliminating pooling of interest accounting are expected to make mergers somewhat less attractive. Bouchey fields roughly one inquiry per day from banks seeking to be bought by the company, and Gullion acknowledges that Gold Banc has a list of banks, industries, and locations it is eyeing.

But if we showed it to you, he jokes, we`d have to kill you.

Ironically, Gullion`s first bank acquisition was a stunning example of his failure to strategize. He intended to get out of the banking business that had helped support his education at the University of Nebraska at Lincoln. But when, in 1978, the 24-year-old Gullion started casting about for a business to buy, he was persuaded by a friend to buy a bank.

After borrowing money from his father-in-law and checking around for banks in his budget, he settled on $2.9 million Oketo State Bank in Oketo, Kansas. The small, stone building resembled a cavalry outpost in the Old West. Gullion realized too late that not only was there no growth potential for the bank in this town of 100 people, but that he was never going to be able to unload it. So he began investing in other Kansas banks with an eye to acquiring them. By the mid-1990s, the company had successfully picked up three banks, one branch, and a minority interest in another. Gullion`s franchise, not yet completely defined, was poised to take the next step in its growth.

For some time, Gold Banc watched the market warm up to community bank stocks, many of which were turning overnight profits, thanks to consolidation. The board made the decision to go public in 1996, raising $18.6 million in net proceeds and selling two million shares for $8.75 per share. Gold Banc currently has 17.2 million shares outstanding, and its strategy has consistently drawn praise from Wall Street: Robert W. Baird & Co. recently rated the company at market outperform for both the short and long term, predicting a stock price of $17 by the middle of 2000. (In early January it was trading at a little more than $9 per share.)

Soon after the IPO, the directors faced a new scenario that would lead to expansion of another kind. The principals of Midwest Capital Management Inc., a Kansas City investment firm that managed $3 billion in assets, sought Gullion`s advice on what to do about the financial service companies that were courting it. Gullion recalls countering: If you`re really interested in being bought, we should get together and chat.

They did. Months later, Gold Banc Corp. acquired the investment management company for $4.25 million in cash and stock. Throughout the whole industry, interest income was shrinking, Gullion says. We knew it was important that we focus on improving fee income. Buying Midwest Capital did it.

Customers would come in complaining about paying $5 or $6 for checking. We`d ask them, u00c3″How would you like us to manage your money for you?` They`d ask, u00c3″How much does it cost?` We`d say, u00c3″One percent.` And they`d say, u00c3″Sure!` The results have been dramatic: In two years, the company`s noninterest income has risen from just 17% to a healthily 41%. Now Gold Banc sets up money management services via teleconference to its banks in rural areas.

By 1999, Gold Banc had more than $1 billion in assets. But the rapid pace of acquisitions that had won it celebrity now began to bring criticism. Analysts and investors questioned whether the company had what it takes to grow from within. Meanwhile, the success of Gullion`s 1991 acquisition of Exchange National Bank of Shawnee in Johnson County, Kansas-a suburb of Kansas City rated as among the fastest-growing counties in the nation-inspired the company`s principals.

Bolstered by Exchange National`s success, Bouchey traveled to New York to look up records in the Federal Reserve to try to find some other banks for sale in high-growth areas. The result was last August`s announcement of Gold Banc`s intention to buy American Bancshares Inc. of Bradenton, Florida followed by a similar announcement a month later regarding Union Bankshares Ltd. and its subsidiary Union Bank & Trust, located in the high-growth city of Denver.

To some, the Florida deal seemed like a wild card. As Gullion says, Part of our stated mission is to buy banks that are number one or two in their market share in the county seat where they are located, in contiguous states. People say u00c3″But Florida-that`s not contiguous. You left out Alabama, Mississippi, and Tennessee!`

Here Gullion pauses. That`s right, he says. And he smiles.

The Florida deal came about, Bouchey says, partly because of a FEMA report he heard on the radio that said in the next millennium, 70% of the U.S. population would move to the coasts. The figure seemed outlandish, but it made sense to think that with so many Americans retiring to Florida, Gold Banc should have a presence where its customers would one day migrate.

Earlier last year, Gold Banc pulled another rare move by announcing its intention to acquire CompuNet Engineering, a Lenexa, Kansas company that specializes in networking computers and consolidating data processing centers for banks.

CompuNet was founded by Malcolm (Mick) Aslin and Joseph F. Smith, both of whom had come from UMB Bancshares Inc. in Kansas City. When Aslin, who had been president of UMB and associated with the institution for more than 22 years, left in 1994, Gullion asked him to consider joining Gold Banc. Mike contacted me and told me about his vision, and I thought he was crazy, laughs Aslin. At the time, Aslin was determined to go out on his own.

CompuNet became a vendor for Gold Banc. Aslin helped develop a computer infrastructure that would be broad enough to let the bank add acquirees as they came on board, rather than requiring Gold Banc to revamp the system every time it bought another bank.

Five years later, Gullion persuaded CompuNet`s partners to become a Gold Banc subsidiary, buying the company for $4.3 million in cash. By then, Gullion says, Aslin had built a company that was growing and felt that, together, the two burgeoning companies would make a good fit. Last February, Aslin, 51, became Gold Banc`s president and chief operating officer and Smith, 50, was named executive vice president and chief technology officer.

For Gold Banc, decentralized decision making may be a key to the survival of its marriages with companies like Midwest Capital and CompuNet. The banking industry is full of stories of bank/nonbank combinations that have resulted in bitter divorces because of differences in style. Securities companies embrace greater risk than most banks. High-tech companies move faster than most banks. The departure of Montgomery Securities` top executives after a battle with acquirer NationsBank over junk bonds is just one well-publicized example.

With Gold Banc, says Bouchey, the computer people are responsible for running their own shop. After all, he shrugs, we don`t know how to run a computer company. And when it comes to giving autonomy to bank presidents who are successful in their communities, the same principle applies. There are some [bank presidents] who work well in the system, and some who are a challenge to the system, Gullion says. But that`s okay. It`s more important how the community feels about the bank than how we feel.

Decentralization has made it easier for Gold Banc to assimilate many institutions in a short time since much of the basic structure of its acquired banks has been left intact. It also has made it possible for the company`s top executives to focus their energies on the entrepreneurial parts of the business-the vision, strategy, new products, and ideas.

But with such a vast assimilation of institutions, there has to be a balance. Gold Banc wants to offer its community bank customers the kind of sophistication they can get at big banks-but in a comfortable atmosphere. So when the company wants to bring in videoconferencing for money management, Internet banking, and call centers, it expects its community banks to facilitate that.

And when Gold Banc set up a curriculum at Johnson County Community College to turn its customer service representatives into financial planners, it fully expected its banks to embrace that. It`s all part of the company`s mission to be More than Money to its customers.

Of course, Gold Banc has declined acquiring some banks whose presidents demanded too much independence, Gullion says. And it has had to remove a few managers for the same reason. But only a few. Everybody`s happier and more productive, he believes, when the holding company seeks input from its community bankers.

I don`t like surprises, Gullion says. We don`t shoot messengers and we don`t have layers of management. Instead, Gold Banc has a small, cohesive team at the top that can brainstorm together. Director Allen D. Petersen describes the top team as collegial. Says Aslin, Mike can come up with something and I can say u00c3″Well, that`s a dumb idea!` and he can say the same to me.

Despite such egalitarianism, however, it is agreed that Gullion has the final say, allowing the company to turn on a dime when it`s time to turn. An inside joke has it that once, when the issue of a bloated, unprofitable loan department at one of its banks was broached, Gullion asked a few brief questions and quickly concluded: Sell it. Get rid of it. Problem solved. One officer present calculated the whole discussion took place in exactly 240 seconds. Lack of decisiveness is not an issue-in fact, once, the executive team decided to view the movie Patton in their respective homes because Aslin suggested it was a terrific primer on corporate management.

Corresponding with its tight management team, the company has a small, cohesive board. There are only four outside directors, among them businessman William Wallman, 75, Gullion`s father-in-law who lent him the money to buy his first bank in 1978 and has served as a director since 1989. Director Allen D. Petersen, 58, chairman and CEO of American Tool Companies in Hoffman Estates, Illinois, is a long-time colleague of Gullion-their relationship dates back to their youth in Nebraska. William F. Wright, 56, has been a director since 1996 and is chairman of Amcon Distribution Co, an Omaha-based wholesale distributor. Finally, there`s William R. Hagman Jr., 63, president of Hagman Companies Inc., a wholesale distribution business located in Pittsburg, Kansas. Hagman also serves as an advisory director of Pittsburg-based First State Bank & Trust, which Gold Banc purchased in 1998. Hagman`s a wily, old banker, says fellow director Petersen.

The directors say Gullion does a good job of keeping them well informed. According to Petersen, Gullion often calls just to run an idea past them to get a sense of their reactions. He keeps the board very tuned in to potential acquisitions.u00c3u2030 He tells us about them far enough in advance that we have time to think about them. Moreover, says Aslin, The directors can keep you from getting headed in directions you might not wish to be going in later on.

Aslin says Gold Banc`s directors bought into the concept of good communication early on-they serve as a sounding board for each of the plot twists that have taken place since the bank began its entrepreneurial mission. In recruiting directors, Gullion says they looked for people who had been successful in their own industries and had served on a number of boards.

They are a good board-a deep-thinking board, Aslin says. Gullion notes: They won`t tell us how to do something, but when a change comes up they will ask, u00c3″How are you going to handle it?`

Furthermore, the board helps keep management disciplined, focused on small business banking and focused on their non-urban banks as well as the urban ones. When Gullion told the board of his interest in the bank in Florida, for example, the board looked hard at that decision. When the Florida opportunity came up [Gullion] sniffed it, Petersen says. He brought it up to the board six months or more before it became reality. We discussed the issue. u00c3″What the hell does this have to do with anything? What does this have to do with our strategic plan?` Eventually they decided it was a fit.

Talking to Mike [Gullion] is like talking to a psychiatrist, Petersen explains. You answer your own questions-he just helps you think it through.

Gullion has his own view of strategic plans, which he believes should not be unnecessarily rigid: A strategic plan is not a set of handcuffs. It`s always somewhat of a work in progress. No strategic plan can be put in place that`s going to last for all time. Implicit in the plan is the understanding that we must adapt ourselves to changing conditions. Barry Goldwater once said, u00c3″If you want to shoot ducks, you have to go where the ducks are.` In the case of Florida, he says, [It] is a very rapidly growing market-that`s where the ducks are. And we had to ask ourselves, are we a midwestern community banking company, or are we a financial services company? Isn`t that what we need to be to survive in the changing landscape?

As Gold Banc grows as a financial services company, it is having to make adjustments. Succeeding as a public company necessitates name recognition. Up to now, all the company`s banks could only be identified as belonging to Gold by a tag line on their signs: Exchange National Bank. . . a Gold Bank. Now, having had the Kansas banks for some time without giving any cause for alarm to customers, the company has reorganized its Kansas bank holdings through a consolidation into one statewide charter. Ultimately, Gullion says, all its banks will be Gold Banks.

And ultimately, he hopes, Gold Banc will achieve a double-digit return on equity of 18% or better; a return on assets of 1.5 or more, and earnings-per-share return in the double digits.

You have to be cautiously ambitious, Gullion says. You have to know where the pitfalls are. You have to know that there are problems out there; it`s not a smooth road.

He smiles. On the highway of life, you`re either a driver, a passenger, or roadkill.

Clearly, Gold Banc plans to be in the fast lane. |BD|

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