As it prepares to report an anomalous quarterly loss, West Bancorp. Inc. in West Des Moines is searching for a new chief executive officer.
"We are not used to taking losses," said Jack Wahlig, the $1.5 billion-asset company's new chairman. "This was an unusual quarter for us."
Wahlig, a former national managing partner with the accounting firm McGladrey & Pullen LLP, was brought in after Thomas Stanberry resigned as West Bancorp's chairman, president and CEO last week.
"We are looking for someone who has a nose for credit," Wahlig said, "someone who knows what a high-performance bank is like and can take us back there."
In the meantime West Bancorp has brought its former leader back. David R. Milligan, a director who served as the company's chairman and CEO until 2004, has stepped in as interim president and CEO.
Milligan said the board plans to spend six months searching for a permanent replacement. But the management team will get started immediately on returning West Bancorp. to profitability.
"My job is not to come up with a vision for the next 10 years. My primary focus has to be on credit quality," Milligan said. "One theme I plan to see is a significant reduction of problem assets." (In the first quarter nonperformers totaled $44 million, up 228% from a year earlier, and made up 2.73% of total assets.)
The next priority is to cut costs. In the first quarter, operating expenses rose 12% from a year earlier. "We haven't lasered in on one area" for cuts, Milligan said. "But we are taking a hard look at expense controls."
In conjunction with the announcement of Stanberry's departure, the company reported a preliminary second-quarter loss of $5.3 million, compared with earnings of $4.5 million a year earlier. The company said it expects to report full second-quarter results on July 30.
West Bancorp had managed to remain profitable through most of the downturn. Except for a $360,000 loss in last year's third quarter because of a customer that had been hurt by fraud and a hit on Lehman Brothers securities one would have to go back more than five years to find another quarter in the red.
But credit quality has started to sour as the residential real estate bust has taken its toll. The preliminary second-quarter loss was primarily driven by a provision for credit losses of $15 million up fifteenfold from a year earlier. And the net loss could swell by as much as $25 million, the amount the company has in goodwill, which an outside valuation firm is checking for impairment.
Wahlig said asset-quality problems are tied to the broader downturn. "We track the successes and struggles of our markets," he said. "So in order for us to improve we are going to need a little help from the economy."
Milligan said the company has its arms around the problems and is focusing on working through the nonperformers. Completed homes that it has repossessed are being sold in short order, he said. The challenge will be dealing with the vacant lots determining if they can be sold as is, or if construction must be completed to move the property off the books. "We are confident enough that when it is built they will come," Milligan said.
West Bancorp. would not discuss Stanberry's departure. He told American Banker that he left because of a difference of opinion with the board on strategy, but he would not say what they disagreed about. He did say the board wanted faster results. "The direction that they wanted to go and the direction that I wanted to go were different, so it made sense to resign," he said.
John Rodis, an analyst with Howe Barnes Hoefer & Arnett, cited the preliminary results and Stanberry's resignation in downgrading West Bancorp shares to "sell," from "neutral," last week. "Other than the challenging operating environment we are unaware of any other operational issues that might have caused the resignation," Rodis wrote to clients. "The added uncertainly surrounding the company's chairman/CEO departure should have a negative impact on the stock's valuation."
Anita Gentle Newcomb, of A.G. Newcomb & Co., a bank consulting firm, said West Bancorp. could control the damage by acting swiftly. Milligan's return could bring some stability, she said. "The impact will be determined by how quickly the board can move to instill confidence in the market," Newcomb said. "Bringing in the former CEO could be a good step, especially if the Street viewed him favorably."