Betting on the bank
Dave Nelson has faith in his 120-year-old bank, and his stock purchases show it
Friday, December 06, 2013 7:00 AM
Dave Nelson gets four months out of every year to show the banking company he leads just how fond he is of the operation.
Nelson is president and CEO of West Bancorporation Inc., owner of West Bank, where he also is chairman and CEO. Nelson is a company insider of the highest order, and as such, he is limited to a 30-day window at the end of each of the holding company’s financial quarters to buy company stock.
It is a time, he said, when the stock is “in season” for insiders, and since joining the West Des Moines institution on April Fools’ Day 2010, he has been an active player.
“You can’t be on the Wheaties box if you don’t eat the Wheaties, at least not on my Wheaties box,” Nelson said.
There’s some crunch to those words. In a little more than three years, Nelson is emerging as one of the banking operation’s leading individual shareholders, accumulating nearly 50,000 shares since being named president.
A lot has happened at West Bank under Nelson’s reign. For one thing, its stock price has more than tripled after bottoming at $4.40 a share in October 2009. On Nov. 27, the stock closed at $16.34 after reaching a one-year high of $16.35 during the day’s trading on the Nasdaq Stock Market. Its 52-week low was $9.91. West Bancorporation trades under the symbol WTBA.
Nelson was hired to reverse the fortunes of 120-year-old West Bank after it experienced record losses in 2009 at the height of the financial crisis.
Rebuilding a legacy
“We’re not just the oldest bank in West Des Moines; we’re the oldest business,” Nelson said. The bank’s history and reputation figure prominently in Nelson’s own interpretation of how well he has performed his responsibilities. It is clear he believes he has a legacy to carry on.
Among those achievements is building a surplus of capital that he plans to deploy in strategic ways. One example of that was West Bank’s foray into Rochester, Minn., where Nelson, a Greater Des Moines native, served 15 years as president of Wells Fargo & Co.’s banking operation in southeastern Minnesota.
In addition, West Bancorporation was quick to buy back the $36 million in preferred stock it sold to the U.S. Treasury Department in December 2008 under the Capital Purchase Program that was intended to stabilize banks during the financial crisis. West Bancorporation held the funds for three years and paid nearly $4.5 million in dividends.
West Bancorporation participated in the program “out of an abundance of caution” in order to preserve its own capital, Nelson said.
The stimulus program, as it pertained to banks, was one of the best investments the federal government made during the financial crisis, he said.
The company also had taken pride in paying dividends almost from its founding in 1893. After suspending the payments in 2008 and 2009, West Bancorporation has been paying dividends to shareholders at an average rate of slightly more than 3 percent per year, Nelson said.
According to its third-quarter financial statements, West Bancorporation had a net profit margin of 31.72 percent through October, compared with 30.68 percent last year. Its return on assets was 1.2 percent, up from 1.18 percent, and its return on equity was 14.42 percent, up from 12.41 percent. Its operating margin had climbed nearly 2.5 percentage points.
“We’re generating high profitability, high returns on assets, at a time when we have a lot of equity,” Nelson said.
In May, American Banker ranked West Bank No. 61 on its list of the country’s top 200 community banks, based on an average return on equity over three years of 11 percent.
A particular point of pride to Nelson is the nod West Bancorporation has received the last two years from banking industry analyst Sandler O’Neil + Partners L.P. The firm finds the top-performing publicly traded banks with a market capitalization of $2.5 billion or less, a threshold that covers 450 financial institutions. West Bancorporation comes in on the small side of that number, with a market capitalization of $210 million to $250 million and assets of about $1.5 billion, yet it has been ranked among the top 31 banks in the Sandler O’Neill review, what the firm calls its Sm-All Stars.
Other banking indexes also show West Bank tracking at least on par with its peers, noted Eric Lohmeier, managing partner and co-founder of investment banking firm NCP Inc. in Des Moines.
The Sandler O’Neil list is dominated by banks in the Northeast and Mid-Atlantic states. West Bancorporation was one of just three banking operations in the Midwest to make the list and the only one from Iowa to make the 2013 list, which is based on growth, profitability, credit quality and capital strength. Although Sandler O’Neill does not rank the banks, its median score for each metric would place West Bancorporation in the top half of the 2013 Sm-All Star list in most categories, including Tier 1 capital, growth of loans and deposits, and return on average assets.
Positioned for growth in familiar territory
What could play out as one of the biggest moves Nelson has engineered is the opening of a West Bank branch in his old stomping grounds in Rochester, which he likens to a “tourist town with no lake.”
It is a special kind of tourism that results from Mayo Clinic, its draw as the major employer in southeast Minnesota (many people drive 90 minutes one way to work), and a thriving business community that draws much of its traffic from people who work at or seek medical attention there.
“Mayo is the economic engine that drives southeastern Minnesota,” Nelson said. Rochester has more hotel rooms than downtown Minneapolis, he said, more doctors per capita and “certainly more geese.”
The West Bank branch opened this year on April 1. Nelson jokes that in his life, April Fools’ Day is a day to make big decisions, although this one had been at least a year in the planning.
The branch opened at roughly the same time Mayo was announcing a $3 billion expansion that is expected to cement its reputation as a destination medical center and double Rochester’s population over the next 20 years from its current level of 106,000 people.
All of that activity will generate a lot of potential business customers for West Bank, though probably none of it from Mayo itself.
“We just want to be the best at what’s important to someone running a business,” Nelson said. West Bank’s business customers might not include Mayo, with its huge capital requirements, but those businesses would include the doctors, retailers, hotels, restaurants, clothing stores and others who rely on the medical behemoth to generate customers.
However long it takes for a new bank with no customers to begin making money, “we’re going to do it in half that time,” Nelson said. “What Rochester is to West Bank right now is insignificant, but at some point, it could be very significant.”
West Bancorporation, along with much of the banking industry, “was in a pretty dark place three, four, five years ago,” Nelson said, and as a result, the expansion into Rochester was approached with some caution.
For one thing, Nelson said he understood the Rochester market and knew the right banking people to put in charge of the office.
“We didn’t want a repeat of the banks that had a bad experience after venturing out of their home markets and into places likes Arizona and Florida,” he said. “That was an idea that ended badly for some people.”
Nelson said he believes in what the bank is doing. The operation at company headquarters in West Des Moines is busy enough that Nelson has moved his office from the second floor to the third floor in order to accommodate the crew of commercial lenders on the second floor.
He literally is putting his money where his mouth is.
As of Nov. 7, Nelson owned 52,214 shares of West Bancorporation stock, ranking him No. 2 in stock ownership among the company’s 17 officers and directors – all considered insiders who must report their stock ownership to the U.S. Securities and Exchange Commission.
All told, that group holds about 2 percent of West Bancorporation stock.
Virtually all of the insiders own stock.
“When you’re part of the leadership team that sets the direction for the organization, would you not bet on the team?” Nelson said.
That team should demonstrate its confidence by taking an ownership stake in the company. He likens failure to do so to a business person who will not provide a guarantee on a loan.
“If you’re nervous, I’m nervous too,” Nelson said.
You can take this to the bank: Nelson is not nervous.