Institution Failure effective: 1/24/2014


Memorandum on findings


EL RENO, Oklahoma 73036

Predictive Indicator neutral
As of December 31, 2013
Federal Reserve System Identifier 535258


(Based on data from the previous quarter.)

This bank is not owned by a holding company.


U.S. commercial banks are chartered under either federal or state jurisdiction for the purposes of accepting funds for deposit and extending loans to either individual or business borrowers. Banks are subject to credit, interest rate, and operational risk, and, because of both their public purpose and their importance to the nation’s economy, banks become the object of intense regulatory scrutiny.

U.S. thrift institutions are chartered under either federal or state jurisdiction for the primary purpose of utilizing deposited funds to issue loans secured by real estate. Currently, real estate-backed loans account for approximately 44% of total thrift industry assets, and one-to-four family residential mortgages comprise nearly 63% of the industry’s real estate loan portfolio. Thrift institutions are subject to credit, interest rate, and operational risk, and, during the last twenty years, thrifts have made great strides toward reducing historic mismatches between asset and liability maturities.

The Bankrate proprietary commercial bank rating model analyzes capitalization, asset quality, earnings, and liquidity and produces composite and component "Star" ratings that can be used as a measure of the rated entity's financial safety and soundness. Additionally, early warning components of the model highlight operating characteristics of immediate concern and recommended follow-up actions. "The analyses are not adjusted for TARP funding and those institutions receiving funds may receive ratings that would differ were the TARP funds adjusted out of the analyses. You can check whether or not this institution has received TARP funding and whether or not they have paid it back at"

Institution Name BANK OF UNION, THE
Report Date December 31, 2013
Report Period 1 year
Star Composite Rating, Percentile Rank 1 /0.06
Predictive Indicator neutral
Earnings Rating, Percentile Rank 1 /1.47
Asset Quality Rating, Percentile Rank 1 /0.28
Capital Rating, Percentile Rank 1 /0.28
Liquidity Rating, Percentile Rank 2 /0.96
Institution Asset Size 317.1720 million
Deposits 315.8430 million
Loans 236.1510 million
Equity 1.2180 million
Net Profit/Loss -31,847.0000 thousand


Component star rating: 1 star
Earnings Highlights

Bank profitability is critical to building capital, establishing adequate loss reserves, and providing dividends to shareholders.

Key Earnings information and ratios:Ratio (%)Assessment
Return on Equity-170.03Substantially Below Average
Net Interest Margin0.62Substantially Below Average
Level of Non-interest Income (1)0.16Substantially Below Normal
Overhead (1)2.56Well Below Standard
(1) = As a percentage of average assets
Note: All ratios are based on the latest four quarters of income and expense

Component star rating: 1 star
Asset quality highlights

Asset quality is a major determinant of the viability of any banking institution. Poor asset quality will have a very direct impact upon the other components and bank regulators invest substantial amounts of time and resources in gauging the quality of a bank's loans and investments.

Key Asset Quality information and ratios:Ratio (%)Assessment
Nonperforming Asset Ratio (2)345.17Highly Problematic
Loss Reserve Coverage (3)28.18Substantially Below Normal
Loan Yield2.04Conservative
Asset Growth Rate-17.00Below Normal
(2) = Nonperforming Assets/Equity plus Loss Reserves
(3) = Loan Loss Reserves/Nonperforming Loans

Component star rating: 1 star
Capital highlights

Bank capitalization stands as a protection against loss for bank customers, creditors, shareholders, and the Federal Deposit Insurance Corporation (FDIC). Regulators place a high degree of importance upon assessments of capitalization and assign regulatory benchmarks as determinants of capital adequacy.

Key measures of Capital Adequacy:Ratio (%)Assessment
Net Worth to Total Assets0.38Significantly Below Norm
Regulatory Capital Ratio0.94Was Not In Compliance With Requirement

Component star rating: 2 starstar
Liquidity highlights

Liquidity provides funding for normal bank operations and represents a reserve for unanticipated disintermediation. Liquidity can be both an asset and a liability concept.

Key measures of Liquidity:Ratio (%)Assessment
Balance Sheet Liquidity22.05Better Than Normal
Purchased Liabilities7.36Seemingly Greater Than Prudent Dependence

Early warning highlights

Early warning indicators identify areas of potential concern, which may lead to financial deterioration and thus, require inquiry or in-depth investigation. For this bank we have noted:

  • Net Interest Margin
  • Non-Interest Income
  • Nonperforming Assets
  • Farm Loans
  • Commercial and Industrial Loans
  • Capital Adequacy
  • Purchased Liabilities

Institution Commentary

OVERVIEW of Institution
Organized in 1900, BANK OF UNION, THE is a state chartered banking institution, which, as of December 31, 2013, reported $317.1720 million in total assets. At that date, loans and deposits held by the bank amounted to $236.1510 million and $315.8430 million, respectively. The bank's December 31, 2013 equity base of $1.2180 million produced an Equity/Assets ratio of 0.38%, as of that date.

Bankrate believes that, as of December 31, 2013, this bank exhibited a significantly below average condition, characterized by substantially lower than normal overall, sustainable profitability, very questionable asset quality, well below standard capitalization and lower than normal liquidity.

For the twelve months ended December 31, 2013, the bank recorded a net loss of $-31,847.0000 thousand. The bank experienced a return on average assets (ROA) of -8.54% over the latest four quarters. Year earlier twelve month results amounted to a a net loss of $-38,289.0000 thousand, or a -9.30% ROA over the most recent four quarters at that time. An ROA of at least 1.0% is deemed satisfactory in accordance with banking industry standards, and the industry's annualized ROA for the twelve months of 2013 was approximately 1.07% for commercial banks and 1.08% for thrift institutions.

We have concluded that for the four quarters ending December 31, 2013, the bank achieved substantially below average return on equity , and, as noted, sustained an actual loss for that period . We deem net interest margin to have been substantially below average, and the reported percentage should cause inquiry into balance sheet composition, asset yields, and liability costs. Noninterest income was substantially below normal, and management should be questioned as to the outlook for this source of revenue. We also observed overhead ratios that were well below standard, a sign of strict expense control. Importantly, net interest margins, noninterest income components, and overhead expense levels represent operating factors that combine to impact overall operating results.

The bank revealed, as previously stated, very questionable asset quality. Our conclusion with respect to asset quality incorporates our analysis of data depicting regional economic conditions as well as our computations of a highly problematic December 31, 2013 nonperforming asset ratio, substantially below normal reserve coverage for nonperforming loans; and approximately average holdings of commercial real estate and construction loans, two categories that can intensify credit risk.

Farm loan exposure does warrant information regarding crop and livestock conditions as well as analyses of category performance and loss reserve adequacy.
We do advise, due to reported levels of business lending, a review of commercial loan underwriting and administrative practices.

Loan yield can measure financial reward versus credit risk. Excessive loan yield may be an indicator of existing or future problems. Our loan review indicates that the bank has assumed a seemingly prudent position between credit risk and financial reward.

For the one year period ended December 31, 2013, the bank reported a substantially below normal rate of growth in equity capital. Balance sheet structural changes, through the one year period of time ended December 31, 2013, have possibly had a negative impact upon the bank's capital position. Our analytical methodology does take into account the quantity, quality, and durability of net worth, and, as set forth above, we have determined, based upon our series of tests, that the bank demonstrates well below standard capitalization. We have calculated the bank's December 31, 2013 Total Risk-Based Capital position, a computation used by industry regulators, and have concluded that this bank was not in compliance with the requirement, set by regulation, for this test. Notwithstanding any of the information contained within this section, we believe, based upon our analysis of net worth to total assets, that the institution should consider plans for enhancing reported capitalization.

As of December 31, 2013, the bank displayed Better Than Normal balance sheet liquidity and a Seemingly Greater Than Prudent Dependence upon wholesale, or non-core liabilities, which include all borrowings, such as Federal Home Loan Bank Advances, and CD's greater than $250,000. Accordingly, an inquiry into funds acquisition strategies should be undertaken.

Accounting principles require some securities to be categorized as "Available-for-Sale." Changes in market value of these securities are reflected through the GAAP (Generally Accepted Accounting Principles) net worth of the institution. Based upon the bank's present balance sheet, changes in the value of the current level of securities reported as "Available-for-Sale" are almost certain to have a substantial impact upon future net worth of the bank.

This bank has been rated significantly below average.

Negative factors that impacted that rating follow:

  • Earnings
  • Asset Quality
  • Capitalization
  • Liquidity

As noted previously, early warning indicators, possibly requiring specific investigation include:

  • Net Interest Margin
  • Non-Interest Income
  • Nonperforming Assets
  • Farm Loans
  • Commercial and Industrial Loans
  • Capital Adequacy
  • Purchased Liabilities

As stated, we have determined a composite Star rating for this bank of 1 star , indicative of a significantly below average financial condition. At times, financial conditions of banks change rapidly and significantly. Hence, our Safe & Sound Star ratings should not be deemed predictive of likely future ratings. However, in view of early warning indicators set forth within this report, in combination with the institution's financial data, we believe that the Star rating for this institution is unlikely to change within the ensuing twelve month period.

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