Z. Sam Gault

Photo by Jeff Silker

Z. Sam Gault doesn’t own the biggest or by any means the most powerful bank in southern Minnesota, but his family has owned one in St. Peter, Minn., since the days of U.S. President Chester Arthur in the White House. He owns Nicollet County Bank, which in 2000 had nearly $100 million in assets. And Gault tenders an excellent interview: often his answers are sharper than Lizzie Borden’s axe.

He was baptized into a family of feisty pioneers. The original Gaults were French Huguenots who fled religious persecution by moving to Scotland in the late 1600s, and then Northern Ireland, and finally the American frontier. In 1853, his pioneer great-grandfather settled at Traverse Des Sioux, due north of present-day St. Peter, where his general store would be destroyed three times by arsonists. Thirty years later in 1883, Gault’s grandfather, Zuriel, gave up being Nicollet County auditor to pioneer the new Nicollet County Bank.

And in 1999, Z. Sam Gault carried on the family motif when he was named a “Pioneer Banker” by the Minnesota Bankers Association for his 50 years of active service to the banking industry.

He became a bank president in 1956 at age 25. (Recently, his son and daughter took over day-to-day management of the 118-year-old firm.) Gault has watched banking evolve from the mechanical adding machine era all the way through the Internet and Gramm-Leach-Bliley. He has the outspoken nature and depth of insight to place that dramatic evolution, which was really more a revolution, in perspective.

CONNECT: A St. Peter businessman told me once that anything of consequence — and of a positive importance to the city of St. Peter — had Sam Gault behind it.

GAULT: That’s an exaggeration. But I have been involved in the community. Years ago, in the ’60s, the gas company moved out of town. When that caused hardship for the community we began a development company, and for the first eight or ten years I was its president. We helped businesses such as ADC Telecommunications expand, and we built five new buildings for the community. We also brought a hockey stick manufacturer to St. Peter, and even put up a vocational school building for the school system.

Later, when the City of St. Peter began its own economic development authority, I sat on the board. It’s only good to stay on a board so many years before letting fresh blood take over, so I left last year. The city of St. Peter faces several challenges in economic development. Up until recently — before Onan said it was leaving — our major challenge was housing. We have a wonderful workforce, as does much of southern Minnesota. However, there are many people who want to live in St. Peter but can’t because there isn’t enough available land for expansion. What housing we do have is expensive. The City of St. Peter has asked for grants from various housing agencies and programs. It has also put in sewer and water and won’t be assessing the cost right away to make the land less-expensive for lower-income families. (Of course, lower-income housing is a misnomer because, if you look at the prices, it’s really moderate-income. There is no such thing as low-income housing anymore.)

Onan, which employs over 300, has announced it will leave town. Some have said this could become a problem for the city, but I think differently. Their buildings are worth quite a lot. I honestly feel Onan will find a buyer for the buildings. Hopefully, a new company siting there will hire the Onan people. It doesn’t seem possible that those attractive buildings could sit empty for long.

CONNECT: You’ve had a 52-year banking career, and are a firsthand witness to banking change. I’m going to take you through some of those changes, and I want you to tell me your opinion of each. First: the ATM.

GAULT: The ATM has been a wonderful addition to our bank because it enables us to stay open 24 hours. Banking hours usually are the same hours that people work. I’m an ATM user. Even though I work around money all day, sometimes I forget to put some in my pocket. Many times I’ve driven down to our bank’s ATM for money to treat my wife to dinner.

I’ve heard people squawk about ATM fees. Without ATM fees, there would be fewer ATMs, which would make cash less accessible. People would suffer. There are nine ATMs in St. Peter now, but without the fees there would be two, maybe. Banks wouldn’t be able to afford them. Politicians have always found ways to control banking. They love to pass laws that hinder banks, but they don’t pass as many laws that hinder other businesses. We’re an easy and politically safe target.

CONNECT: Online banking?

GAULT: It’s coming, but I still have my doubts. Many banks are into it, but we have dragged our feet because of security reasons, mainly. If you want to pay your bills through Internet banking it will cost you about 20-50 cents for each bill. I question if many customers will accept that. Personally, it’s easy for me to write out a check for a bill and mail it. Eventually we will have to do it, though.
CONNECT: The Gramm-Leach-Bliley Act of 1999?

GAULT: It undid much of the Glass-Steagell Act of 1933, and allows bank involvement in insurance and securities. Bankers are supposed to be conservative, but with this I feel very much like a liberal. I have been very much opposed to banks entering other industries because there is the potential for banks to acquire too much control. We’re seeing that with the news media. For instance, Dow Jones, which owns The Wall Street Journal, also owns a nearby local newspaper. And we’ve seen evidence of too much power in Washington recently, where political power has been abused.

Banks have a large degree of power now — and it’s almost unleashed. As I view it, the real danger with banking lies in the industry having consolidated down to about 15 banks nationwide. That scares me. Out-of-state bankers have too much power over farmers in Minnesota. An abuse of power may not have happened yet, but the potential certainly exists.

CONNECT: Too-big-to-fail?

GAULT: The concept of too-big-to-fail started with Continental Bank in Illinois when it was going under in the ’80s. All of a sudden the government learned there were hundreds of smaller banks holding accounts with Continental. Had that bank gone under many other banks may have gone broke. Because of the ripple effect, the federal government decided that Continental was “too-big-to-fail” and rescued it. If all those other banks had failed taxpayers would have been hit even harder. Since then, the federal government has changed its rules. All banks now have to keep their money, basically, in the Federal Reserve Bank. If a bank has to keep its money in the Federal Reserve Bank, in my opinion, there is no reason for it to fail. If a big bank does fail, though, a company such as IBM could have millions invested in it, and a failure could jeopardize the business.

I feel government regulation is needed. I question how some banks are regulated. I have to wonder what’s going on when a former Secretary of the Treasury can be hired immediately after leaving government service to help run one of the world’s largest banks. And sometimes I wonder if bank examiners, who are political appointees, are told to be “careful” with certain banks.

CONNECT: The 1985 law that allowed banks to cross state lines?

GAULT: That law made possible all the banking changes that have happened up to this day. Before 1985, Minnesota had its own banks. The law allowed banks to become bigger. Looking back at history, when an industry becomes top-heavy, in most cases everything goes down the drain. I hope that doesn’t happen in the banking system.

CONNECT: The future of community banks, like yours?

GAULT: As long as we work hard within our respective communities, and continue earning our communities’ respect and confidence — and if we do all that, in most cases they will stay with us. The last few years a robust stock market has hurt community banking. The feeling up until recently had been that no one ever loses money in stocks. But that feeling has changed. People may be revisiting their banks soon to build up their savings with money that had been earmarked for stocks. The stock market has pulled money out of local communities where it can be reinvested, and sent it off to Chicago and New York.

CONNECT: The gold standard?

GAULT: William Jennings Bryan said in the late 1800s, “We will not be crucified on the cross of gold.” Basically, I believe the gold standard is an unrealistic standard in this day and age. We are on a paper standard now, one that had its origins under Lincoln to finance the Civil War. There isn’t enough gold in the world for a gold standard to work. On one hand, I don’t believe in the gold standard, yet on the other, you can’t keep cheapening the dollar. The Federal Reserve must keep adequate currency in the markets but can’t have runaway inflation, either. It’s a delicate balancing act.

CONNECT: What are your bank’s assets?

GAULT: Ninety to 100 million. We have only one location, which was my choice, mainly. I have looked at other banks, but been most comfortable being a single bank location.

CONNECT: On a personal level, Sam, you’ve lived in St. Peter your entire life. You have friends in the business community. How do you handle a situation where you have to refuse a friend a loan?

GAULT: It’s rare, but it happens. Basically, I have to carefully explain to them why they can’t or shouldn’t do their particular project. Most businesspeople have enough financial experience in that they know the strength of their proposal long before they see me.
I feel our American system of housing that allows people to go up to 80 percent of debt to buy a home works well as long as the economy holds. In a case where people lose their jobs, such as with Onan, the cost of interest makes covering payments extremely difficult. But we haven’t yet lived here through such a dark situation. We may be looking at it now.

Agricultural loans constitute 45 percent of our business. We have an experienced, professional group of farmers in our area. Our good soil and land has attracted the best. The less-savvy farmers have trouble surviving, and other farmers take over from them. Since the 1930s the federal government has instituted a “cheap food” policy because Americans want cheap food. We don’t want to pay European prices for our groceries. The federal government does all it can to hold down commodity prices — in fact, they do such a superlative job that most farmers aren’t able to show a profit. Of course, the government realizes farmers aren’t showing a profit, so it subsidizes them with checks. What they do is necessary. Without federal subsidies the price of the average food basket would rise sky-high.

CONNECT: What ran through your mind the day after the St. Peter tornado?

GAULT: I was stunned. Our roof blew off in several spots. The worst of it was a lack of communication with the outside world. We had to buy cellular telephones. We had to rent emergency equipment to keep the bank open. We sent our employees to Minneapolis where computers for work were available, which kept the important day-to-day business running. We were closed only one day, though. Our Internet website beamed pictures of the tornado aftermath around the globe and for a while the site received 3000-4000 hits a day. We became a mini-post office for St. Peter because of the website. People in foreign lands were sending emails and letters to loved ones, and we’d relay them on.

I’ve heard many an old person say that the younger generation is going down the tubes. I’ve thought that on occasion, too. Quite honestly, after the tornado, I found out that it’s definitely not going down the tubes. The whole town of St. Peter was flooded with wonderful young people who helped with disaster clean-up. The atmosphere was very friendly. For the first few days after the tornado I would walk to work because it was nearly impossible to drive. It was a ten-minute walk that often lasted 45 minutes because I’d have to stop to talk with so many people. We had many customers whose homes vanished. We opened special, higher-yield accounts for the city residents that needed a temporary home for their insurance money. The town recovered quite well. The president of Gustavus Adolphus College was the hero of our community. The campus was demolished, and he was so determined that it was going to be fixed. When the rest of the community saw how quickly Gustavus Adolphus recovered, we knew a full recovery was possible.

CONNECT: How did you become president?

GAULT: Nicollet County Bank was chartered in 1883 by my grandfather, who left his job as county auditor to start the bank. My father took over, and he passed it on to me. The family never had absolute control of the bank until I secured that within the last twenty years. I am a third generation Gault at this bank, and my son and daughter are the fourth generation. I took over as president in 1956 at age 25. It was rather embarrassing at the time: at bank conventions I was the young kid and all the other bankers were much older. I felt out of place. Now at conventions I’m the oldest. (Laughter.)

I had other bankers for mentors. Mankato had a special banker named Pete Kenefik, who was president of National City Bank. Some people hated his guts, but he was a second father to me. I talked to him about my problems, and he always had time for me. John Carlander, a banker from Faribault, was another mentor. A St. Peter native, he was loaned his first dollar by my grandfather.

CONNECT: What does the “Z” in your name stand for?

GAULT: My great-grandfather settled around Traverse Des Sioux in 1853. In those days they lived in a way that would probably embarrass me today. They took baths once a month, at best, and likely smelled of smoke. He named his daughters Faith, Hope, Charity, Prudence and Joy. His sons’ names all began with a “Z.” They were Zenith, Zebuliah, Zuriel, etc. My birth name was Zuriel, after my uncle. That name has stopped with my generation.

CONNECT: What do you worry about?

GAULT: I worry that loans made in good faith will work out fine. In most cases there is enough collateral, so there isn’t too much to worry about. Of course, I always worry about the weather for the farmers, though over the years that worry has become less and less because the worry never seemed to help. Are we going to have an early frost? What’s the crop going to be like? I also worry about keeping good employees.
I worry about making sure that bank business is kept extremely confidential. That’s very important to any successful bank. If any confidential information were to leak into the community the responsible party would be let go immediately.
Sometimes I worry about community issues. At times it’s important to take a strong public stand, and at other times I have to hold my tongue. I took a strong position years ago when I challenged a city manager who ran the city as if he were a czar. I’ve taken strong positions supporting local education, including the local college. There are many citizens in this town who don’t care at all about the college and its future. Gustavus Adolphus College has been a great asset to this community. I’ve also taken positions on the EDA. Right now, the City has to fill the Onan and Phenix complexes.

CONNECT: How have you transitioned your bank to a fourth generation of Gaults?

GAULT: I have a son and daughter working at the bank. My son, Sam, as president, has picked up the ball and run with it. He took over for me about a year ago. He’s a “people” person, which translates to an excellent manager. To a certain extent I think he is doing a better job than I did. Lisa does very well with marketing, real estate mortgages, and with the senior citizens club. When customers who speak only Spanish walk in, she can help them because of her fluency in that language. My son and daughter are doing well. All I need do is periodically reassure and encourage them in their work.

CONNECT: Not many bankers have been in the industry 50 years. You were selected as a “Pioneer Banker” by the Minnesota Banker’s Association. Compare banking today with the industry 50 years ago.

GAULT: Everything about the industry has changed. In the ’50s we figured checking accounts with an adding machine, and then had to recheck the numbers for errors. Checks mailed out to other banks had to have the endorser’s name typed in. There was no such invention as microfiche or computers. Today, we don’t even file checks anymore. Each one is scanned and kept on an electronic file.

Today, the federal government has a plethora of regulations on loans and mortgages. Home mortgages used to require only a promissory note and a mortgage deed at closing. Now, with the federal government involved, a home mortgage closing has 20 sheets of required paperwork attached to it. There is an incredible amount of federal red tape. I understand it, but don’t like it.

© 2001 Connect Business Magazine. All Rights Reserved.