Here's the 3Q11 Texas Scoreboard of community banks $500MM – $2 Billion Assets More…

Western National Bank’s financial results for 2009 were considerably different from their historic standards.
Pretax earnings of .83% of average assets were negatively affected by an $8.6 million provision and a $13 million increase in other expenses. Was this hit to other expenses a one-time event?

The bank’s liquidity was stable, with the net non-core funds dependence only .53% over the Bank Scores standard of 25%.  The bank took positive steps to reduce the loans/assets ratio from 71% to 62%.  The bank’s loans/assets ratio was in the mid-fifties for 2 years and then climbed to 70% for 2007 and 2008—is the bank returning to its more conservative balance sheet?

As for asset quality, WNB’s non-performing assets as a percent of capital plus reserves quadrupled to 37%.  However, the bank’s 24 month loan growth slowed to 14% as a result of a 10% reduction in 2009.
WNB had been a high performing bank for many years.  Their capital strength is very formidable and therefore Bank Scores would be very surprised if the bank does not make the necessary adjustments.

***UPDATE 3/31/10   WNB has made significant improvement in its earnings, which returned to historically solid levels.  The bank also reduced its loan portfolio by almost 20% since 3/09. 

However, the bank has not reduced its level of noncore funding, with a total of $152 million coming from Fed funds purchased, FHLB advances and brokered CD's.  I see no reason to continue these unreliable sources of funding.  Also, WNB was not able to reduce its nonperforming assets as a percentage of equity plus reserves from 38%.  If the nonperforming loans are large and few, this ratio could improve quickly if aggressive collection efforts are successful.  We'll see.

UPDATE 6/30/10  WNB scored 65 points as of 2Q10, an improvement of 20 points based on an outstanding increase in pre-tax earnings to 1.97% of assets.  The most impressive action taken by WNB has been the significant reduction in loans–from $681 million in 2008, $618 million in 2009 and $569 million as of 6/30/10.   The loans/assets ratio has fallen from 71% in 2008 to 53% at 6/30/10.  I commend WNB management and its board for taking this bold action to address the worrisomely high non-performing assets ratio at 36% of equity plus reserves.  I would  hope the bank attacks will equal vigor the continued elevated use of non-core funding sources.  With the bank's $700 million in core deposits, it should be able to payoff the brokered CD's and return to a conservative liquidity position.

UPDATE 9/30/10  While WNB's score did not improve from the previous 65 points, most of the key financial metrics did.  The management has moved consistently and forcefully to reduce the size of the loan portfolio by 16% over the past 12 months. That decision helped liquidity by driving the loans/assets ratio to 55% from a high of 71%.  Pre-tax ROA of 2.07% is a fantastic turnaround, particularly in light of net interest income falling 73 bp's over the past 12 months.  Other banks might take note of overhead at only 206 bp's!  Perhaps the most important improvement has been the reduction of non-performing assets from 38% to 24% of equity plus reserves.  The 3Q10 provision of only 7 basis points on assets indicates that management is very comfortable with the size of the allowance.  Overall, Bank Scores salutes WNB for taking these bold actions to restore the bank to its accustomed condition.