In 2003, right after Gold Banc Corp. announced that it wanted to sell 12 branches in central Kansas, Leonard Wolfe received two phone calls.
The callers, representing investor groups, asked the same question: If they bought some of the branches and turned them into a bank, would Mr. Wolfe, the regional president who managed them, run it?
It got him thinking: Why not unite the investor groups and buy all the branches?
Mr. Wolfe is a pretty good salesman. He persuaded more than 100 investors - including several banks - to put up $30 million to buy seven branches and then install him as the president and chief executive officer of the resulting United Bank and Trust of Marysville, Kan. (Gold, of Leawood, Kan., sold five of the branches to another bank.)
Mr. Wolfe, who is 47, said he believed that the branches he ran could be more profitable on their own than as part of a company 150 miles away.
Gold, which has $4.1 billion of assets, had already decided to focus its growth efforts on metropolitan markets. It was not seeking to make new loans in the largely agricultural communities Mr. Wolfe's branches served.
"They wanted the deposits in this area but not necessarily the loans," Mr. Wolfe said. "It was always kind of a fine line we walked."
Not so for United, which started in business in February 2004. Since then its assets have grown only 4%, to $376 million, but its loan portfolio swelled 18%, to $239 million, as it sold off investments and put the proceeds into loans.
John Blaylock, an associate director at Alex Sheshunoff Management Services Inc. in Austin, said that breaking groups of branches or subsidiary banks away from larger companies can often unlock hidden value. This is true, he said, particularly if the assets involved are not aligned with the bigger organization's strategic direction.
In such cases "it makes sense for a branch president or a city president and their friends to get together and propose a deal," Mr. Blaylock said.
Mick Aslin, Gold Banc Corp.'s president and CEO, agreed. He figured when selling the branches that United would thrive, he said.
"Banks in small communities like that are well served by local ownership."
Mr. Aslin said Gold has put the proceeds of the branch sales to good use, bolstering s capital and loan-loss reserves and scaling back borrowings. It urban-markets strategy has increased its growth rate and widened its net interest margin, he said.
Virgil Lair, who runs six small family-owned banks in southeastern Kansas, is one of the bankers who invested in United. He said that central Kansas, though growing slower than Kansas City and the other urban markets where Gold is expanding, has a lot of positives.
"It is the best farming area in the state," he said. "It's a good spot, and Leonard is a good banker. He probably knows more about banking than I do."
Mr. Lair gave Mr. Wolfe his start in management, hiring him to run one of his family's banks in 1986. Mr. Wolfe worked for Mr. Lair until 1998, when he joined Gold Banc.
Industry observers say management buyouts like Mr. Wolf's are a rarity. In the past few years there have been only a handful.
The most recent came in June, when the $2.5 billion-asset Midwest Bank Holdings Inc. in Melrose Park, Ill., agreed to sell one of its two banks, Midwest Bank of Western Illinois in Monmouth, to a management-led group for about $9 million.
In 2003, Sterling Bancshares Inc. of Houston sold three branches south of San Antonio for $2.8 million to a group led by the two managers who ran them. That sale resulted in the creation of the $38 million Capital Bank of Texas in May 2003.
The Midwest of Western Illinois sale is expected to close in the fourth quarter; the $282 million-asset bank would then become a stand-alone company.
Mr. Blaylock said management buyouts might become more frequent over the next few years as margin pressure prompted more banks to sell underperforming branches.
"It's very reasonable to assume that there will be a couple more of these over the next few years," he said. "Larger banks that have a presence in smaller, slower-growing markets are going to be looking for ways to get out."
Mr. Aslin said large publicly traded banks will continue to sell branches in slower-growing communities to achieve the double-digit growth their investors demand. And though he stopped short of predicting a spike in management buyouts, he said he hoped more would occur.
"It can be the best thing for all concerned when management teams get that opportunity to step up to the plate," he said.
Mr. Wolfe said two bankers recently contacted him seeking advice on how to buy their branches and start new banks, and Mr. Blaylock said that it would not be difficult to find willing investors. Many investors view management buyouts as more attractive than start-ups, since such buyouts usually achieve profitability in short order, he said.
United broke even quickly. It recorded a profit of $2.5 million for 2004 and is on pace to earn more than $3.6 million this year. Through June 30 it had produced a 1% return on assets, which is just about right, Mr. Wolfe said.
His target ROA is 1.1%, he said. "If we can hit that, we can keep everybody happy."
