SAFE & SOUND® STAR RATINGS™

Memorandum on findings

CBC NATIONAL BANK

1891 SOUTH 14TH STREET
FERNANDINA BEACH, Florida 32034

STAR RATING: 3 starstarstar
Predictive Indicator + (improve)
As of December 31, 2013
Federal Reserve System Identifier 2855914


HOLDING COMPANY INFORMATION

(Based on data from the previous quarter.)

This bank is not owned by a holding company.

INTRODUCTION

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 http://bailout.propublica.org/main/list/index."

INSTITUTIONAL HIGHLIGHTS
Institution Name CBC NATIONAL BANK
Report Date December 31, 2013
Report Period 1 year
Star Composite Rating, Percentile Rank 3 /24.61
Predictive Indicator + (improve)
Earnings Rating, Percentile Rank 4 /60.37
Asset Quality Rating, Percentile Rank 3 /22.36
Capital Rating, Percentile Rank 4 /67.86
Liquidity Rating, Percentile Rank 2 /6.60
Institution Asset Size 375.2050 million
Deposits 292.2620 million
Loans 272.5540 million
Equity 41.6620 million
Net Profit/Loss 1.8250 million

COMPONENT HIGHLIGHTS

Component star rating: 4 starstarstarstar
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 Equity4.27Good
Net Interest Margin4.33Higher Than Peer
Level of Non-interest Income (1)6.41Solid
Overhead (1)9.17Significantly 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: 3 starstarstar
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)28.89Higher Than Standard
Loss Reserve Coverage (3)247.71Much Better Than Normal
Loan Yield5.76Conservative
Asset Growth Rate-21.01Below Normal
(2) = Nonperforming Assets/Equity plus Loss Reserves
(3) = Loan Loss Reserves/Nonperforming Loans

Component star rating: 4 starstarstarstar
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 Assets11.10Approximates Peer Norm
Regulatory Capital Ratio23.12Substantially Exceeded 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 Liquidity7.59Substantially Below Normal
Purchased Liabilities14.54No 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
  • Commercial Real Estate and Construction Lending

Institution Commentary

OVERVIEW of Institution
Organized in 2000, CBC NATIONAL BANK is a nationally chartered banking institution, which, as of December 31, 2013, reported $375.2050 million in total assets. At that date, loans and deposits held by the bank amounted to $272.5540 million and $292.2620 million, respectively. The bank's December 31, 2013 equity base of $41.6620 million produced an Equity/Assets ratio of 11.10%, as of that date.

COMPOSITE SUMMARY
Bankrate believes that, as of December 31, 2013, this bank exhibited a generally satisfactory condition, characterized by normal overall, sustainable profitability, satisfactory asset quality, strong capitalization and lower than normal liquidity.

EARNINGS ANALYSIS
For the twelve months ended December 31, 2013, the bank recorded net income of $1.8250 million. The bank experienced a return on average assets (ROA) of 0.46% over the latest four quarters. Year earlier twelve month results amounted to a net income of $2.7110 million, or a 0.64% 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 a good return on equity. We deem net interest margin to have been meaningfully higher than peer. Noninterest income was solid. 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.

ASSET QUALITY ANALYSIS
The bank revealed, as previously stated, satisfactory 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 higher than standard December 31, 2013 nonperforming asset ratio, much better than normal reserve coverage for nonperforming loans; and much greater than average holdings of commercial real estate and construction loans, two categories that can intensify credit risk.

Commercial real estate and construction loans should be examined for:

  • Loan underwriting and appraisal standards that differ from normal bank guidelines.
  • Loan-to-value benchmarks deemed not in conformance with prudent underwriting requirements.
  • Speculative construction activity.
  • The deferral of interest payments during construction periods.
  • The funding of the entire amount of construction costs and land valuation.


Other asset categories, such as farm and consumer loans, which may carry more than usual default potential, should not have a substantial negative impact upon future results.

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.

CAPITAL ANALYSIS
For the one year period ended December 31, 2013, the bank reported an approximately normal rate of growth in equity capital. Balance sheet structural changes, through the one year period of time ended December 31, 2013, 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 strong 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 substantially exceeded the requirement, set by regulation, for this test.

LIQUIDITY ANALYSIS
As of December 31, 2013, the bank displayed Substantially Below 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" are almost certain to have a substantial impact upon future net worth of the bank.

INSTITUTION SUMMARY
This bank has been rated generally satisfactory.

Negative factors that impacted that rating follow:

  • Liquidity

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

  • Overhead
  • Commercial Real Estate and Construction Lending

PREDICTIVE INDICATOR
As stated, we have determined a composite Star rating for this bank of 3 starstarstar , indicative of a generally satisfactory 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 likely to improve within the ensuing twelve month period.

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