Memorandum on findings


EASTMAN, Georgia 31023

Predictive Indicator neutral
As of June 30, 2014
Federal Reserve System Identifier 204237


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 62% 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 EASTMAN
Report Date June 30, 2014
Report Period 6 months
Star Composite Rating, Percentile Rank 1 /2.30
Predictive Indicator neutral
Earnings Rating, Percentile Rank 5 /95.32
Asset Quality Rating, Percentile Rank 1 /1.73
Capital Rating, Percentile Rank 2 /8.61
Liquidity Rating, Percentile Rank 5 /92.45
Institution Asset Size 193.4690 million
Deposits 167.9270 million
Loans 118.0740 million
Equity 12.1810 million
Net Profit/Loss 2.8250 million


Component star rating: 5 starstarstarstarstar
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 Equity17.91Very Healthy
Net Interest Margin3.59Mid-Range
Level of Non-interest Income (1)1.81Better Than Normal
Overhead (1)3.93Significantly Higher Than Average
(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)198.09Highly Problematic
Loss Reserve Coverage (3)17.33Substantially Below Normal
Loan Yield6.15Conservative
Asset Growth Rate-1.97Below Normal
(2) = Nonperforming Assets/Equity plus Loss Reserves
(3) = Loan Loss Reserves/Nonperforming Loans

Component star rating: 2 starstar
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 Assets6.30Significantly Below Norm
Regulatory Capital Ratio11.01Exceeded Requirement

Component star rating: 5 starstarstarstarstar
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 Liquidity22.36Better Than Normal
Purchased Liabilities8.74No Greater Than Average 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:

  • Overhead
  • Nonperforming Assets
  • Capital Adequacy

Institution Commentary

OVERVIEW of Institution
Organized in 1919, BANK OF EASTMAN is a state chartered banking institution, which, as of June 30, 2014, reported $193.4690 million in total assets. At that date, loans and deposits held by the bank amounted to $118.0740 million and $167.9270 million, respectively. The bank's June 30, 2014 equity base of $12.1810 million produced an Equity/Assets ratio of 6.30%, as of that date.

Bankrate believes that, as of June 30, 2014, this bank exhibited a significantly below average condition, characterized by very solid overall, sustainable profitability, very questionable asset quality, below standard capitalization and ample liquidity.

For the twelve months ended June 30, 2014, the bank recorded net income of $1.7510 million. The bank experienced a return on average assets (ROA) of 0.90% over the latest four quarters. Year earlier twelve month results amounted to a a net loss of $-383.0000 thousand, or a -0.18% 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 2014 was approximately 1.03% for commercial banks and 1.13% for thrift institutions.

We have concluded that for the four quarters ending June 30, 2014, the bank achieved a very healthy return on equity. We deem net interest margin to have been mid-range. Noninterest income was better than normal. We also observed overhead ratios that were significantly higher than average, and the composition of overhead should be thoroughly analyzed. Importantly, net interest margins, noninterest income components, and overhead expense levels represent operating factors that combine to impact overall operating results. We have also noted that the bank's profitability improvement between the twelve months ended June 30 , 2013 and the twelve months ended June 30 , 2014 well exceeded the banking industry peer comparison.

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 June 30, 2014 nonperforming asset ratio, substantially below normal reserve coverage for nonperforming loans; and apparently acceptable quality, or no greater than average, holdings of commercial real estate and construction loans, two categories that can intensify credit risk. The bank's current level of nonperforming assets could lead to sharp write-downs and consequent substantial loss provisions. Hence, careful monitoring and additional inquiry are warranted.

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 June 30, 2014, the bank reported a strong rate of growth in equity capital. Balance sheet structural changes, through the one year period of time ended June 30, 2014, have highly improved 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 below standard capitalization. We have calculated the bank's June 30, 2014 Total Risk-Based Capital position, a computation used by industry regulators, and have concluded that this bank somewhat exceeded 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 June 30, 2014, the bank displayed Better Than Normal balance sheet liquidity and a No Greater Than Average 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.

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" might not 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:

  • Asset Quality
  • Capitalization

Positive factors that impacted that rating follow:

  • Earnings
  • Liquidity

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

  • Overhead
  • Nonperforming Assets
  • Capital Adequacy

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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