2012 Annual Report

Transcription

2012 Annual Report

Your Full-service Neighborhood Bank
ANNUAL REPORT 2012
Statement of Purpose
We strive to be your trusted provider
of financial services, supporting
your lifetime goals.
Table of Contents
Letter to Shareholders ............................................................................. 1
Board of Directors .................................................................................... 4
Management’s Report on Internal Control
over Financial Reporting........................................................................... 5
Independent Auditor’s Report .................................................................. 6
Consolidated Financial Report . ............................................................... 8
Notes to Consolidated Financial Statements ........................................ 12
Bank Officers ......................................................................................... 32
Location Map ......................................................................................... 33
STANDARD BANCSHARES – Annual Report 2012
Letter to Shareholders
Fellow Shareholders:
2012 was a year of significant progress and a
return to profitability for Standard Bancshares, Inc.
Despite challenges in the form of increased industry
regulation, uneven economic recovery and lingering
credit quality issues, we were able to mark a number
of accomplishments during the year:
n
n
n
n
n
n
e reported improved financial results, generating
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net income of $5.8 million in 2012 versus the net
loss of $5.5 million posted in 2011
e significantly enhanced asset quality,
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decreasing past due and non-accrual loans by
32 percent, from $86.5 million at December 31,
2011 to $59.2 million at December 31, 2012, while
lowering net charge offs from $42.9 million in 2011
to $11.1 million in 2012
e upgraded our product and service offerings
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to better meet the needs of our consumer and
commercial clients
e continued to invest in and strengthen our
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relationships with our clients and our communities
fter significant efforts by our senior management
A
team and outside advisors over the past two years,
in November 2012 we announced a strategic
recapitalization through which we would raise
nearly $140 million in new capital
he proceeds from the capital raise, which was
T
completed in early 2013, materially improved the
Company’s balance sheet and capital position, and
facilitated the repayment of our TARP obligation
and our notes payable.
We believe that the momentum we created during
the year, punctuated by the strategic recapitalization
completed in early 2013, will facilitate continued
growth and improved earnings performance for
Standard Bancshares, Inc. in the years ahead.
Financial Recapitalization
In November, 2012, we announced a strategic
recapitalization through which we raised $138.9
million in new capital. The new capital, which we
received in February 2013, significantly improved our
Timothy J. Gallagher, Chairman, and Lawrence P. Kelley,
President, Chief Executive Officer and Vice Chairman
balance sheet and capital position. Furthermore, as
part of the transaction, our TARP obligation was repaid
in full. We incurred additional charges associated
with the strategic recapitalization, including the write
off of goodwill and further building of our provision
for loan losses. Thus, we anticipate these one-time,
nonrecurring charges will temper the 2013 first quarter
and full year reported financial results.
This improved financial position will not only enable us
to better meet the needs of our retail and commercial
banking customers, it will allow Standard Bancshares
to take advantage of anticipated growth opportunities
in the consolidating Midwestern banking market. This
capital strength will also enable us to continue our
longstanding commitments to the civic and charitable
organizations in the neighborhoods and communities
that Standard serves, as detailed below.
Improving Financial Performance
Although we are not yet satisfied with the overall level
of financial performance achieved in 2012, we are
pleased to report that during the year, we increased
net income to $5.8 million, from the $5.5 million loss
reported in 2011, an improvement of $11.3 million.
Earnings growth was driven primarily by a lower
provision for loan losses and higher other income.
1
Letter to Shareholders (Continued)
A primary focus in 2012 was improving asset quality,
and by every metric, Standard Bancshares was
successful in achieving this goal. Every key asset
quality metric showed material improvement during
2012; as a result, we were able to lower our loan loss
provision from $38.2 million in 2011 to $16.1 million in
2012. At year-end 2012, our allowance for loan losses
was $42.0 million, or 71 percent of past due and nonaccrual loans of $59.2 million, versus an allowance
for loan losses of $37.0 million, or 43 percent of past
due and non-accrual loans of $86.5 million at yearend 2011.
Net interest income for 2012 was down by roughly
5 percent from 2011 levels, as a $7.7 million decline
in interest income more than offset a $3.9 million
decline in interest expense. The materially lower
loan loss provision led to net interest income after
provision for credit losses increasing by $18.2 million,
or 48 percent, to $56.0 million in 2012, from the $37.8
million reported in 2011.
Overall asset growth was modest, with total assets
reaching $2.19 billion at year-end 2012, up from
$2.14 billion at the end of 2011. Total loan growth in
2012 was a modest 1.5 percent; however, key loan
portfolio composition changes occurred during the
year. During the year, we increased our commercial
loans outstanding by $78.4 million, or 44 percent,
while we decreased our construction and land
development loans by $28 million, or 18 percent, and
our consumer loans by $36.8 million, or 14 percent.
At December 31, 2012, the loan portfolio totaled
$1.57 billion.
Deposit growth was more robust, with total deposits
for 2012 increasing by $49.4 million, or 2.6 percent,
reaching $1.92 billion at year-end. Again, important
changes in deposit base composition occurred during
the year. Demand deposits were up by $100.4 million,
or 11 percent, during the year, with non-interest
bearing demand deposits comprising four-fifths of
that growth. Core savings deposits were up by $41.0
million, or 14 percent. Higher cost brokered deposits
declined by $60.7 million, or 37 percent, during 2012.
The changes in loan and deposit base composition
are reflective of our consumer and commercial
business centric community banking strategy at
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work, and lead us to believe that as our asset quality
challenges are put behind us, we will be able to
facilitate enhanced organic growth in our core banking
operations.
Other income increased by $2.0 million, or 12 percent,
in 2012 to reach $19.3 million. The primary drivers of
this increase were higher secondary mortgage income
and higher cash management fees.
At the same time, tight expense controls were
maintained. Total 2012 other expense of $66.7 million
was a mere $1.4 million higher than 2011 expenses of
$65.3 million.
Operational Progress
Throughout the course of 2012, we added or
enhanced a number of product and service offerings
to better meet the needs of our consumer and
commercial banking customers.
We launched a branded mobile banking app for our
retail online banking customers in September. This
app, available on both the iPhone® and Android™
mobile platforms, allows our customers a wide range
of functionality, including the ability to check balances,
review transactions, locate branches/ATMs, pay
bills and transfer funds, via their mobile devices. We
expanded our core deposit product line, adding two
new offerings – Student eChecking and SB@Work –
targeted to specific market segments.
To capitalize on the mortgage refinancing boom, we
added the Federal Home Loan Bank of Chicago as
a primary source of funding for our 15, 20 and 30
year fixed-rate mortgage loans. As an FHLB member
bank, we are able to enjoy unique pricing and
servicing benefits, while increasing our loan origination
profitability.
Our commercial banking team continued to expand its
focus on meeting a wide variety of small- and middlemarket commercial customer lending needs. One area
of renewed focus at Standard is SBA lending. While
we have extensive experience in this arena, many
of our customers do not realize that we are an ideal
source for SBA loans for both the start-up of new small
businesses and to finance the growth of existing
small businesses.
Community Leadership and Commitment
Corporate Governance
We continue to increase our engagement in the
community. In 2012, Standard Bank employees
volunteered over 3,700 hours to 400+ different
education, fraternal and social service organizations
in our communities, through a variety of programs.
During 2012, as part of the recapitalization, we
announced that veteran Chicago area bankers
Robert A. Rosholt and Allen Koranda would join the
Company’s board once the transaction was completed.
Mr. Rosholt, who will become lead independent
director, formerly served as Executive Vice President
and Chief Financial Officer at First Chicago, First
Chicago NBD, and Bank One, and is currently
Chairman of the Board of HCC Insurance Holdings,
Inc. Mr. Koranda is the former Chairman and CEO of
MAF Bancorp, Inc., which was the holding company
for MidAmerica Bank. We welcome their guidance
and counsel.
Our Annual Holiday Giving campaign benefitted
four local charities: Park Lawn, Toys for Tots™,
Lakeview Pantry, and Operation St. Nick, and
was augmented by food and clothing drives. This
campaign encompassed multiple specific initiatives:
for instance, the employees and customers of seven
Standard Bank branches made the holiday season
a little brighter for Chicago southland non-profit Park
Lawn and the people it serves by raising over $5,800
through the sale of ornaments.
Our fundraising efforts during the year also
encompassed an employee fitness-based campaign
as well. Last summer, over 400 employees walked
more than 98,000 miles during our President’s
Challenge. Funds raised helped to support the
American Heart Association and other local charities
in our footprint.
We believe it is a core part of our mission to not only
support our communities, but to help our community
members help themselves. As an example, our
growing Financial Literacy programs throughout
our six hubs allow our knowledgeable teams, in
partnership with nearly three dozen organizations
including churches, schools and social service
groups, to educate those who are underserved and
under banked about financing basics. Many branches
participated in “Teach the Children to Save” week
by providing financial education classes to a variety
of schools.
As a locally-managed institution, our ties to the
community represent more than just financial and
volunteer support. Our employees generally live in
the areas in which they work, and comprise essential
“threads” in the fabric of the communities we serve.
Looking Ahead
2012 was a challenging year for Standard Bancshares,
but our accomplishments during the year clearly
delineate the struggles of the past from the promise
of the future. We set out to address our credit
quality issues, improve our financial performance
and strengthen our balance sheet. Importantly, we
accomplished all of these objectives. The combination
of the performance improvement and strategic
recapitalization will position Standard Bancshares as
a key player in the consolidating Midwestern banking
market, while providing capital to fuel renewed organic
growth in our current markets.
As always, we appreciate the hard work and
dedication of our employees, the valuable counsel of
our Board and the continued support of our customers
and our fellow shareholders.
Sincerely,
Timothy J. Gallagher
Chairman
Lawrence P. Kelley
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Board of Directors
The Board of Directors of the bank holding company, Standard Bancshares, Inc., and its wholly owned subsidiary, Standard Bank and Trust Co.,
are, from left, seated: Patrick Mulchrone; Robin Purdy; Alfred O’Malley, chairman emeritus; Lawrence Kelley, president, chief executive officer
and vice chairman; Mary Laraia; standing: Howard Priess; David O’Keeffe; Bonnie Balko, secretary; Thomas Mertens, Fredric DiPaolo; Timothy
Gallagher, chairman; John Gallagher; Martin Tew.
The Southern Region Advisory Board of Directors
consists of business leaders from communities served
by Standard Bank locations in Coal City, Gardner,
Joliet, Morris, Shorewood, South Wilmington and
Wilmington, IL.
Members are, from left, seated: Louis Naretto;
Joseph Schmitz; Kelly Beaty, Southern Region
president, Standard Bank; Julious Shell;
standing: Guy Christensen; Bart Singletary; Ron Dibble;
Ray Rub; Theodore Smith
The Eastern Region Advisory Board of Directors is
made up of business leaders from the southeastern
Chicago suburbs and northwestern Indiana. Both
advisory boards work to further the bank’s growth in
their geographic markets.
Members are, from left, seated: James Laskowski;
Thomas Zic, Advisory Board chairman and senior
vice president, Standard Bank; Nicholas Christy;
standing: Thomas Collins, Jr.; David Stevens; James
Betkowski; Frederick Olthof; J. Matthew Chambers
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Management’s Report on Internal Control
over Financial Reporting
MANAGEMENT REPORT REGARDING STATEMENT
OF MANAGEMENT’S RESPONSIBILITIES, COMPLIANCE
WITH DESIGNATED LAWS AND REGULATIONS,
AND MANAGEMENT’S ASSESSMENT OF INTERNAL
CONTROL OVER FINANCIAL REPORTING
Statement of Management’s Responsibilities
The management of Standard Bank and Trust Company
(the “Institution”) is responsible for preparing the Institution’s
annual financial statements in accordance with generally
accepted accounting principles; for establishing and
maintaining an adequate internal control structure and
procedures for financial reporting, including controls over the
preparation of regulatory financial statements in accordance
with the instructions for the Federal Financial Institutions
Examination Council Instructions of Consolidated Reports
of Condition and Income (“Call Report Instructions”); and for
complying with the Federal laws and regulations pertaining
to insider loans and the Federal and, if applicable, State laws
and regulations pertaining to dividend restrictions.
Management’s Assessment of Compliance
With Designated Laws and Regulations
The management of the Institution has assessed the
Institution’s compliance with the Federal laws and regulations
pertaining to insider loans and the Federal and, if applicable,
State laws and regulations pertaining to dividend restrictions
during the fiscal year that ended on December 31, 2012.
Based upon its assessment, management has concluded
that the Institution complied with the Federal laws and
regulations pertaining to insider loans and the Federal and, if
applicable, State laws and regulations pertaining to dividend
restrictions during the fiscal year that ended on December
31, 2012.
Management’s Assessment of Internal Control
Over Financial Reporting
The Institution’s internal control over financial reporting
is a process effected by those charged with governance,
management, and other personnel, designed to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of reliable financial statements
in accordance with accounting principles generally accepted
in the United States of America and financial statements for
regulatory reporting purposes, i.e., Call Report Instructions.
The Institution’s internal control over financial reporting
includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions
of the assets of the Institution; (2) provide reasonable
assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with
accounting principles generally accepted in the United States
of America and financial statements for regulatory reporting
purposes, and that receipts and expenditures of the Institution
are being made only in accordance with authorizations of
management and directors of the Institution; and (3) provide
reasonable assurance regarding prevention, or timely detection
and correction of unauthorized acquisition, use, or disposition of
the Institution’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent, or detect and correct misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the
degree of compliance with the policies and procedures may
deteriorate.
Management assessed the effectiveness of the Institution’s
internal control over financial reporting, including controls over
the preparation of regulatory financial statements in accordance
with the instructions for the Call Report Instructions, as of
December 31, 2012, based on the framework set forth by
the Committee of Sponsoring Organizations of the Treadway
Commission in Internal Control—Integrated Framework. Based
upon its assessment, management has concluded that, as
of December 31, 2012, the Institution’s internal control over
financial reporting, including controls over the preparation
of regulatory financial statements in accordance with the
instructions for the Call Report Instructions is effective based
on the criteria established in Internal Control—Integrated
Framework.
Management’s assessment of the effectiveness of internal
control over financial reporting, including controls over the
preparation of regulatory financial statements in accordance
with the instructions for the Call Report Instructions, as of
December 31, 2012, has been audited by Bansley and Kiener,
LLP, an independent public accounting firm, as stated in their
report dated February 21, 2013.
Standard Bank and Trust Company
Lawrence P. Kelley
Patrick J. Hunt
Executive Vice President and Chief Financial Officer
5
Independent Auditor’s Report
To the Board of Directors and Shareholders
Standard Bancshares, Inc.
statements that are free from material misstatement,
whether due to error or fraud, and for its assertion
about the effectiveness of internal control over financial
We have audited the accompanying consolidated
financial statements of Standard Bancshares, Inc.
and subsidiaries (an Illinois corporation), which
comprise the consolidated balance sheets as of
December 31, 2012 and 2011, and the related
consolidated statements of income, comprehensive
income (loss), changes in shareholders’ equity,
and cash flows for the years ended December 31,
2012, 2011, and 2010 and the related notes to the
consolidated financial statements. We also have
audited management’s assertion, included in the
accompanying Management Report Regarding
Statement of Management’s Responsibilities,
Compliance with Designated Laws and Regulations,
and Management’s Assessment of Internal Control
Over Financial Reporting that Standard Bank and
Trust Company, a wholly owned subsidiary of
Standard Bancshares, Inc., maintained effective
internal control over financial reporting, including
controls over the preparation of regulatory financial
statements in accordance with the Federal Financial
Institutions Examination Council Instructions for
Consolidated Reports of Condition and Income (call
report instructions), as of December 31, 2012 based
reporting, included in the accompanying Management
Report Regarding Statement of Management’s
Responsibilities, Compliance with Designated Laws
and Regulations, and Management’s Assessment of
Internal Control Over Financial Reporting.
Auditor’s Responsibility
Our responsibility is to express an opinion on these
consolidated financial statements and an opinion on
management’s assertion regarding the effectiveness
of Standard Bank and Trust Company’s internal
control over financial reporting based on our audits.
We conducted our audits of the consolidated financial
statements in accordance with auditing standards
generally accepted in the United States of America and
our audit of internal control over financial reporting in
accordance with attestation standards established by
the American Institute of Certified Public Accountants.
Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether
the consolidated financial statements are free from
material misstatement and whether effective internal
control over financial reporting was maintained in all
material respects.
on criteria established in Internal Control-Integrated
An audit of the consolidated financial statements
Organizations of the Treadway Commission (COSO).
evidence about the amounts and disclosures in the
Framework issued by the Committee of Sponsoring
Management’s Responsibility for the Financial
Statements and Internal Control Over Financial
Reporting
involves performing procedures to obtain audit
consolidated financial statements. The procedures
selected depend on the auditor’s judgment, including
the assessment of the risks of material misstatement of
the consolidated financial statements, whether due to
Management is responsible for the preparation and
fraud or error. In making those risk assessments, the
statements in accordance with accounting principles
preparation and fair presentation of the consolidated
for maintaining internal control over financial
that are appropriate in the circumstances. An audit
maintenance of controls relevant to the preparation
obtaining an understanding of internal control over
fair presentation of these consolidated financial
auditor considers internal control relevant to the entity’s
generally accepted in the United States of America,
financial statements in order to design audit procedures
reporting including the design, implementation and
of internal control over financial reporting involves
and fair presentation of these consolidated financial
financial reporting, assessing the risk that a material
6
weakness exists, and testing and evaluating the
design and operating effectiveness of internal control
based on the assessed risk. Our audits also included
performing such other procedures as we considered
necessary in the circumstances. We believe that
the audit evidence we obtained is sufficient and
appropriate to provide a basis for our audit opinions.
Definition and Inherent Limitations of Internal Control
An entity’s internal control over financial reporting
is a process effected by those charged with
governance, management, and other personnel,
designed to provide reasonable assurance regarding
the preparation of reliable consolidated financial
statements in accordance with accounting principles
generally accepted in the United States of America.
Because management’s assessment and our audits
were conducted to meet the reporting requirements
of Section 112 of the Federal Deposit Insurance
Corporation Improvement Act (FDICIA), our audit of
Standard Bank and Trust Company’s internal control
over financial reporting included controls over the
preparation of consolidated financial statements
in accordance with accounting principles generally
accepted in the United States of America and with the
Federal Financial Institutions Examination Council
Instructions for Consolidated Reports of Condition
and Income (call report instructions). An entity’s
internal control over financial reporting includes
disposition of the entity’s assets that could have a
material effect on the consolidated financial statements.
Because of its inherent limitations, internal control
over financial reporting may not prevent, or detect
and correct misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate
because of changes in conditions, or that the degree
of compliance with the policies or procedures may
deteriorate.
Opinions
In our opinion, the consolidated financial statements
referred to in the first paragraph present fairly, in all
material respects, the financial position of Standard
Bancshares, Inc. and subsidiaries as of December
31, 2012 and 2011, and results of their operations
and their cash flows for each of the three years ended
December 31, 2012, 2011, and 2010, in accordance
with accounting principles generally accepted in
the United States of America. Also, in our opinion,
management’s assertion that Standard Bank and
Trust Company maintained effective internal control
over financial reporting as of December 31, 2012 is
fairly stated, in all material respects, based on criteria
established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO).
those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and
dispositions of the assets of the entity; (2) provide
reasonable assurance that transactions are recorded
as necessary to permit preparation of consolidated
financial statements in accordance with accounting
principles generally accepted in the United States
of America, and that receipts and expenditures of
the entity are being made only in accordance with
Certified Public Accountants
February 21, 2013
Bansley and Kiener, L.L.P.
Certified Public Accountants
8745 W. Higgins Road
Chicago, IL 60631-2704
312.263.2700
authorizations of management and those charged
with governance; and (3) provide reasonable
assurance regarding prevention, or timely detection
and correction of unauthorized acquisition, use, or
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Consolidated Balance Sheets
December 31, 2012 and 2011 (in thousands, except per share data)
ASSETS20122011
Cash and due from banks
$
40,625 $
37,663
Interest bearing deposits in other banks
222,818
214,027
Federal funds sold
5,382
2,440
TOTAL CASH AND CASH EQUIVALENTS
268,825
254,130
Investment securities
Securities held-to-maturity
1,969
2,118
Securities available for sale, at fair value
175,791
142,399
Loans held for resale
2,069
7,264
Loans—net
1,523,191
1,505,544
Bank premises and equipment—net
68,380
69,795
Foreclosed real estate
19,184
11,496
Federal Home Loan Bank stock—at cost
5,664
18,195
Goodwill
23,987
23,987
Other assets
103,257
107,039
TOTAL ASSETS
$
2,192,317 $
2,141,967
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits
Non-Interest bearing
$
490,894 $
410,094
Interest bearing
1,428,075
1,459,444
TOTAL DEPOSITS
1,918,969
1,869,538
Advances from Federal Home Loan Bank
23,466
32,081
Note payable
16,100
16,100
Accrued expenses and other liabilities
21,641
14,189
TOTAL LIABILITIES
1,980,176
1,931,908
Shareholders’ equity
Preferred stock, Series A, $.01 par value;
Preferred stock, Series B, $.01 par value;
Common stock, $.238 par value; 25,200,000 shares authorized;
60,000
60,000
2,160
1,533
18,757,921 shares issued
4,464
4,464
Capital surplus
39,208
39,208
Retained earnings
105,176
103,497
Accumulated other comprehensive income
1,133
1,357
TOTAL SHAREHOLDERS’ EQUITY
212,141
210,059
6,000 shares authorized; 6,000 shares issued
300 shares authorized; 300 shares issued
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
2,192,317 $
The accompanying notes are an integral part of the consolidated financial statements.
8
2,141,967
Consolidated Statements of Income
Years ended December 31, 2012, 2011 and 2010 (in thousands, except per share data)
INTEREST INCOME
Interest and fees on loans
$
2012
2011
2010
80,553 $
87,260 $
98,680
Interest and dividends on investment securities
Taxable
2,078
3,086
3,304
Exempt from federal income tax
5
97
122
Interest on interest bearing deposits in other banks
626
568
613
Interest on federal funds sold
3
2
5
TOTAL INTEREST INCOME
83,265
91,013
102,724
INTEREST EXPENSE
Interest on deposits
8,837
13,105
18,256
to repurchase and short-term borrowings
247
448
1,773
Interest on notes payable
2,080
1,539
1,811
TOTAL INTEREST EXPENSE
11,164
15,092
21,840
NET INTEREST INCOME
72,101
75,921
80,884
Provision for credit losses
16,135
38,150
79,282
55,966
37,771
1,602
Interest on securities sold under agreements
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES
OTHER INCOME
Investment security gains
–
–
9
Other
19,272
17,254
17,052
TOTAL OTHER INCOME
19,272
17,254
17,061
OTHER EXPENSES
Salaries 26,096
25,297
24,809
Employee benefits
7,911
6,194
6,690
Net occupancy expense
12,636
12,056
14,141
FDIC assessment
3,240
2,980
5,000
Data processing
2,424
2,436
2,378
Professional services
3,941
3,270
3,208
Advertising and promotion
1,715
953
1,137
Amortization 644
695
750
Other
8,121
11,423
7,116
TOTAL OTHER EXPENSES
66,728
65,304
65,229
INCOME (LOSS) BEFORE INCOME TAXES
8,510
(10,279)
(46,566)
Provision for income taxes
2,741
(4,810)
(18,089)
NET INCOME (LOSS)
$
5,769 $
(5,469) $
(28,477)
EARNINGS PER SHARE
$
0.31 $
(0.29) $
(1.52)
9
Consolidated Statements of Comprehensive Income (Loss)
Years ended December 31, 2012, 2011 and 2010 (in thousands)
Net income (loss)
2012
2011
5,769 $
(5,469) $
$
2010
(28,477)
Other comprehensive loss, net of tax:
Unrealized gain (loss) on securities available-for-sale
Unrealized holding gains during the period
(360)
(61)
(1,313)
Reclassification to net income
—
—
(9)
Other comprehensive loss
(360)
(61)
(1,322)
Income tax (benefit) related to other comprehensive loss
(136)
(24)
(507)
Other comprehensive loss after tax
(224)
Comprehensive income (loss)
5,545 $
$
(37)
(5,506) $
(815)
(29,292)
Consolidated Statements of Changes in Shareholders’ Equity
Years ended December 31, 2012, 2011 and 2010 (in thousands, except per share data)
ACCUMULATED
OTHER
PREFERREDCOMMON CAPITAL RETAINED COMPREHENSIVE
STOCK STOCK SURPLUSEARNINGS INCOME (LOSS)TOTAL
BALANCE, DECEMBER 31, 2009
$
60,392
$
4,464 $
39,208 $ 145,330 $
2,209 $ 251,603
Net loss
—
—
—
(28,477)
—
(28,477)
Other comprehensive income, net of tax
—
—
—
—
(815)
(815)
Charge for preferred stock
552
—
—
(552)
—
—
Cash dividends—preferred stock
—
—
—
(3,270)
—
(3,270)
Cash dividends declared ($.127 per share)
—
—
—
(188)
—
(188)
60,944
4,464
39,208
112,843
1,394
218,853
Net loss
—
—
—
(5,469)
—
(5,469)
—
—
—
—
(37)
(37)
589
—
—
(589)
—
—
Dividends declared—preferred stock
—
—
—
(3,288)
—
(3,288)
61,533
4,464
39,208
103,497
1,357
210,059
Net Income
—
—
—
5,769
—
5,769
—
—
—
—
(224)
(224)
627
—
—
(627)
—
—
Dividends declared—preferred stock
—
—
—
(3,463)
—
(3,463)
$
62,160
$
4,464 $
39,208 $ 105,176 $
10
1,133 $ 212,141
Consolidated Statements of Cash Flows
Years ended December 31, 2012, 2011 and 2010 (in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)
$
2012
2011
5,769 $
(5,469) $
5,624
5,335
2010
(28,477)
Adjustments:
Depreciation and amortization
5,312
Provision for credit losses
16,135
38,150
79,282
Provision for deferred income taxes
1,435
(4,810)
(11,980)
Amortization of premium on investment securities, net
334
73
(6)
Investment security (gains) losses
—
—
(9)
(Gain) loss on sale of foreclosed real estate
136
(334)
837
Write down of foreclosed real estate
65
4,452
535
(Increase) decrease in other assets
529
7,144
(2,872)
Increase (decrease) in accrued expenses and other liabilities
4,268
(715)
631
TOTAL ADJUSTMENTS
28,526
49,295
71,730
NET CASH PROVIDED BY OPERATING ACTIVITIES
34,295
43,826
43,253
CASH FLOWS FROM INVESTING ACTIVITIES
Available-for-sale securities
Proceeds from sale of investment securities
—
—
38
Proceeds from maturities of investment securities
99,963
279,788
47,982
Purchase of investment securities
(134,057)
(284,000)
(106,508)
Held-to-maturity securities
Proceeds from maturities of investment securities
157
3,380
924
Redemption of Federal Home Loan Bank stock 12,531
—
—
Net (increase) decrease in loans
(40,572)
84,283
105,411
Purchases of bank premises and equipment (2,534)
(2,620)
(5,949)
Proceeds from sale of foreclosed real estate
4,096
3,412
3,149
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
(60,416)
84,243
45,047
Net increase (decrease) in deposits
49,431
(82,934)
(25,697)
Decrease in advances from Federal Home Loan Bank
(8,615)
(14,909)
(66,694)
Repayment of note payable
—
(1,500)
(7,400)
Dividends paid—preferred stock
—
(1,635)
(3,270)
Dividends paid—common stock
—
—
(188)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
40,816
(100,978)
(103,249)
Net increase (decrease) in cash and cash equivalents
14,695
27,091
(14,949)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash and cash equivalents—beginning of year
254,130
227,039
241,988
CASH AND CASH EQUIVALENTS—END OF YEAR
$
268,825 $
254,130 $
227,039
Supplemental cash flow information:
Interest paid on deposits and other borrowings
$
9,316 $
16,261 $
22,683
Income taxes paid
$
138 $
3,267 $
430
Supplemental schedule of non-cash investing activities:
Change in unrealized gain (loss) on investment securities
$
(360) $
(61) $
(1,313)
Transfer to foreclosed real estate
$
11,985 $
6,850 $
4,852
$
627 $
589 $
552
Supplemental schedule of non-cash financing activities:
11
Notes to Consolidated Financial Statements
(in thousands)
Note 1 – Summary of Significant Accounting Policies
The accompanying financial statements are prepared in accordance with generally accepted accounting principles and conform to general
practices within the banking industry. A summary of the significant accounting policies follows.
Nature of Operations
Standard Bancshares, Inc. (the “Company”) is a bank holding company whose principal activity is the ownership and management of its
wholly-owned subsidiary Standard Bank and Trust Company (the Bank). The Bank generates commercial, mortgage and consumer loans
and receives deposits from customers located primarily in the Chicago Metropolitan, Northwest Indiana and surrounding areas. The Bank
operates under a state bank charter and provides full banking services. As a state bank, the Bank is subject to regulation by the Illinois
Department of Financial and Professional Regulation and the Federal Deposit Insurance Corporation.
Principles of Consolidation
The consolidated financial statements include the accounts of Standard Bancshares, Inc. and its wholly owned subsidiaries, after elimination
of all material intercompany transactions and balances.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those
estimates.
The determination of the adequacy of the allowance for credit losses is based on estimates that are particularly susceptible to significant
changes in the economic environment and market conditions. In connection with the determination of the estimated losses on loans,
management obtains independent appraisals for significant collateral.
The Bank’s loans are generally secured by specific items of collateral including real property, consumer assets, and business assets.
Although the Bank has a diversified loan portfolio, a substantial portion of its debtors’ ability to honor their contracts is dependent on local
economic conditions.
While management uses available information to recognize losses on loans, further reductions in the carrying amounts of loans may be
necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process,
periodically review the estimated losses on loans. Such agencies may require the Bank to recognize additional losses based on their
judgments about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the
estimated losses on loans may change materially in the near term. However, the amount of the change that is reasonably possible cannot
be estimated.
Investment Securities
Debt securities are classified as held-to-maturity when the Bank has the positive intent and ability to hold the securities to maturity. Securities
held-to-maturity are carried at amortized cost. The amortization of premiums and accretion of discounts are recognized in interest income
using methods approximating the interest method over the period to maturity.
Debt securities not classified as held-to-maturity are classified as available-for-sale. Securities available-for-sale are carried at fair value with
unrealized gains and losses reported in other comprehensive income. Realized gains (losses) on securities available-for-sale are included
in other income (expense) and, when applicable, are reported as a reclassification adjustment, net of tax, in other comprehensive income.
Gains and losses on sales of securities are determined on the specific-identification method.
Declines in the fair value of individual held-to-maturity and available-for-sale securities below their cost that are other than temporary result in
write-downs of the individual securities to their fair value. The related write-downs are included in earnings as realized losses. In estimating
other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been
less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its
investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
Loans Held for Sale
Mortgage loans originated and intended for sale in the secondary market are carried at the lower of the aggregate cost, or fair value, as
determined by outstanding commitments from investors.
Mortgage loans held for sale are generally sold with servicing rights retained. Gains and losses on sales of mortgage loans are based on the
difference between the selling price and the carrying value of the related loan.
12
(in thousands)
Note 1 – Summary of Significant Accounting Policies (Continued)
Loans
The Bank grants mortgage, commercial and consumer loans to customers. A substantial portion of the loan portfolio is represented by loans
to commercial businesses, generally secured by business assets and real estate, throughout the Chicago Metropolitan, Northwest Indiana
and surrounding areas. The ability of the Bank’s debtors to honor their contracts is dependent on the real estate and general economic
conditions in this area.
Loans are stated at unpaid principal balances, less unearned income and the allowance for credit losses.
Unearned income on installment loans are recognized as income over the term of the loans using a method that approximates the interest
method.
Loan origination and commitment fees, as well as certain direct origination costs, are deferred and amortized as a yield adjustment over the
lives of the related loans using the interest method. Amortization of deferred loan fees is discontinued when a loan is placed on nonaccrual
status.
The accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 90 days past due unless the credit is wellsecured and in process of collection. Personal loans are typically charged off when management believes the collectibility of the principal
balance is unlikely. Past due status is based on contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged off at
an earlier date if collection of principal or interest is considered doubtful.
All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. The interest
on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual
status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Allowance for Credit Losses
The allowance for credit losses is established as losses are estimated to have occurred through a provision for credit losses charged to
earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed.
Subsequent recoveries, if any, are credited to the allowance.
The allowance for credit losses is evaluated on a regular basis by management and is based upon management’s periodic review of the
collectibility of the loans in the light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect
the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently
subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
The allowance consists of specific, general, and unallocated components. The specific component relates to loans that are classified as
impaired. For such loans that are impaired, an allowance is established when the discounted cash flows (or collateral value or observable
market price) of the impaired loan is lower than the carrying value of that loan. The general component covers loans that are not classified
as impaired and is based on historical loss experience by portfolio segment and is adjusted for qualitative factors. The historical loss
experience is determined by portfolio segment and is based on a three year rolling net-charge off history. This actual loss experience is
supplemented with other economic factors based on risks present in each portfolio segment. These factors include delinquency and noncurrent trends in addition to local and national economic trends. An unallocated component is maintained to cover uncertainties that could
affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in
the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.
The Bank evaluates commercial, construction and land development, commercial real estate, and consumer loans quarterly for impairment.
A loan is considered impaired when, based on current information and events, it is probable that the Bank will be unable to collect the
scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Loans for which the terms
have been modified and for which the borrower is experiencing financial difficulties are considered to be troubled debt restructurings (“TDRs”)
and are classified as impaired. Factors considered by management in determining impairment include payment status, collateral value,
and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays
and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment
shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the
length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal
and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of the
expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral
if the loan is collateral dependent.
Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, the Bank does not separately
identify individual consumer and residential loans for impairment disclosures, unless such loans are the subject of a restructuring agreement.
13
(in thousands)
Note 1 – Summary of Significant Accounting Policies (Continued)
Bank Premises and Equipment
Land is carried at cost. Other premises and equipment are carried at cost net of accumulated depreciation. Depreciation is computed using
the straight-line method based principally on the estimated useful lives of the assets. Maintenance and repairs are expensed as incurred
while major additions and improvements are capitalized. Gains and losses on dispositions are included in current operations.
Other Real Estate Owned
Real estate properties acquired through or in lieu of loan foreclosures are initially recorded at the fair value less estimated selling cost at
the date of foreclosure. Any write-downs based on the asset’s fair value at the date of acquisition are charged to the allowance for credit
losses. After foreclosure, valuations are periodically performed by management and property held for sale is carried at the lower of the
new cost basis or fair value less cost to sell. Impairment losses on property to be held and used are measured as the amount by which the
carrying amount of a property exceeds its fair value. Costs of significant property improvements are capitalized, whereas costs relating to
holding property are expensed. The portion of interest costs relating to development of real estate is capitalized. Valuations are periodically
performed by management, and any subsequent write-downs are recorded as a charge to operations, if necessary, to reduce the carrying
value of a property to the lower of its cost or fair value less cost to sell.
Federal Home Loan Bank Stock
The Bank is a member of the FHLB Chicago. Members are required to own a certain amount of stock based on the level of borrowings and
other factors, and may invest additional amounts. FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated
for impairment based on ultimate recovery of par value. When declared, cash and stock dividends are recorded as income.
Income Taxes
Income taxes are provided for the tax effects of the transactions reported in the financial statements and consist of taxes currently due plus
deferred taxes related primarily to differences between the basis of the allowance for credit losses, purchase accounting adjustments, basis
in stock dividends, and accumulated depreciation. The deferred tax assets and liabilities represent the future tax return consequences of
those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred tax assets and
liabilities are reflected at income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or
settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.
The Company files consolidated income tax returns with its subsidiaries.
Earnings Per Share
Earnings per share are calculated on the weighted average number of shares outstanding during each year.
Trust Assets and Fees
Assets held in a fiduciary or agency capacity are not included in the consolidated balance sheets, since such items are not assets of the
Company. Income from trust fees is recorded when received. This income does not differ materially from trust fees computed on an accrual
basis.
Cash Flows
The Company considers all cash and due from banks, cash advanced under ATM funding agreements, interest-bearing deposits in other
banks, and federal funds sold to be cash equivalents for the purposes of the statements of cash flows.
Date of Management’s Review
Management has evaluated subsequent events through February 21, 2013, the date the financial statements were available to be issued.
Reclassification
Certain reclassifications have been made in the prior year financial statements to conform with the current year presentation.
New Accounting Pronouncements
The Financial Accounting Standards Board (FASB) amended accounting guidance to provide additional guidance to creditors for evaluating
whether a modification or restructuring of a receivable is a troubled debt restructuring (TDR). For nonpublic entities, the amendments are
effective for annual periods ending on or after December 15, 2012, including interim periods within those annual periods.
The Financial Accounting Standards Board (FASB) amended existing guidance and eliminated the option to present the components of other
comprehensive income as part of the statement of changes in shareholders’ equity. The amendment requires that comprehensive income be
presented in either a single continuous statement or in separate consecutive statements.
Note 2 – Cash and Due from Banks
The Company’s banking subsidiary is required by the Federal Reserve to maintain certain average cash reserve balances. The required
reserve balance at December 31, 2012 and 2011 amounted to $16,584 and $12,599 respectively.
14
(in thousands)
Note 3 – Investment Securities
Investment securities at December 31, 2012 and 2011 consist of securities held-to-maturity of $1,969 and $2,118 and securities available-forsale of $175,791 and $142,399, respectively. The amortized cost of securities and their approximate fair values are as follows:
DECEMBER 31, 2012
Gross
Gross
Gains
Losses
Carrying Unrealized Unrealized
Value
Fair
Value
DECEMBER 31, 2011
Carrying
Value
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
HELD-TO-MATURITY
Participation certificates
567 $
44 $
— $
611 $
699 $
54 $
— $
753
Obligations of states and
political subdivisions
$
25
—
—
25
50
—
—
50
Other bonds and securities
1,377
—
—
1,377
1,369
—
—
1,369
TOTAL HELD-TO-MATURITY
1,969
44
—
2,013
2,118
54
—
2,172
U.S. Agency obligations 155,260
423
(4) 155,679
112,127
326
(176)
112,277
Participation certificates 16,468
1,374
—
17,842
25,705
2,071
—
27,776
AVAILABLE-FOR-SALE
Obligations of states and
political subdivisions
—
—
—
—
144
—
—
144
2,235
93
(58)
2,270
2,235
74
(107)
2,202
TOTAL AVAILABLE-FOR-SALE 173,963
1,890
(62) 175,791
140,211
2,471
(283)
142,399
TOTAL INVESTMENT SECURITIES
1,934 $
(62) $ 177,804 $ 142,329 $
2,525 $
(283) $ 144,571
$175,932 $
The carrying value and fair value of investment securities at December 31, 2012, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or
prepayment penalties.
SECURITIES
HELD-TO-MATURITY
SECURITIES
AVAILABLE-FOR-SALE
Carrying
Value
Carrying
Value
AMOUNTS MATURING IN:
One year or less
After one year through five years
After five years through fifteen years
After fifteen years 98
TOTAL
1,969
—
TOTAL
$
$
Fair
Value
Fair
Value
1,402 $
1,402 $ 14,673 $ 14,773
—
— 140,982 141,318
469
1,969 $
505
10,098
11,008
106
5,975
6,421
2,013 171,728 173,520
—
2,235
2,271
2,013 $ 173,963 $ 175,791
Proceeds from sale of equity securities were $38 in 2010. Gains of $9 in 2010 were realized on these sales. There were no sales of
investment securities in 2012 or 2011.
Investment securities with a carrying value of 140,190 and $126,356 at December 31, 2012 and 2011, respectively, were pledged to secure
public deposits, securities sold under agreements to repurchase, short-term borrowings, and for other purposes required or permitted by law.
15
(in thousands)
Note 3 – Investment Securities (Continued)
Information pertaining to securities with gross unrealized losses at December 31, 2012 and 2011 aggregated by investment category and
length of time that individual securities have been in a continuous loss position, follows:
LESS THAN 12 MONTHS 12 MONTHS OR GREATER
Gross
FairUnrealized
Value Losses
TOTAL
Gross Gross
FairUnrealized
Value Losses
Fair
Unrealized
Value Losses
DECEMBER 31, 2012:
U.S. Agency obligations
$
Other securities
TOTAL
16,039 $
161
(4) $
— $
— $
(58)
—
—
16,039 $
161
(4)
(58)
$
16,200 $
(62) $
— $
— $
16,200 $
(62)
$
50,394 $
(176) $
— $
— $
50,394 $
(176)
(107)
—
—
(283) $
— $
— $
DECEMBER 31, 2011:
U.S. Agency obligations
Other securities
TOTAL
$
111
50,505 $
111
50,505 $
(107)
(283)
Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic
or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been
less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its
investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
At December 31, 2012, the unrealized losses on two investments in U.S. Government obligations and direct obligations of U.S. government
agencies were generally related principally to current interest rates for similar types of securities. In analyzing an issuer’s financial condition,
management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating
agencies have occurred, and the results of reviews of the issuer’s financial condition. As management has the ability to hold debt securities
until maturity, or for the foreseeable future if classified as available-for-sale, no declines are deemed to be other-than-temporary.
The unrealized losses on a marketable equity security are related to economic conditions affecting the financial services industry.
Management has evaluated the prospects of the issuer in relation to the severity and duration of the impairment. Based on that evaluation
and management’s ability and intent to hold those investments for a reasonable period of time sufficient for a forecasted recovery of fair value,
management does not consider those investments to be other-than-temporarily impaired at December 31, 2012.
Note 4 – Loans
Major classifications of loans are as follows:
2012 2011
Commercial
$
Construction and land development
Commercial real estate
Consumer
256,628 $
178,248
949,901
941,135
125,856
233,526
153,854
270,324
TOTAL
1,565,911
1,543,561
Allowance for credit losses
(41,957)
(36,960)
Unearned income
LOANS—NET
(763)
(1,057)
$ 1,523,191 $ 1,505,544
Construction and land development loans are primarily expected to be paid from proceeds from the sale of developed properties and are
collateralized by such real estate. The remainder of the portfolio is diversified, is generally secured by real estate, and is expected to be
repaid from cash flow or proceeds from the sale of selected assets of the borrowers.
At December 31, 2012 and 2011, certain officers, directors, and companies in which they have beneficial ownership were indebted to
the Bank in the aggregate amount of $38,377 and $40,862 respectively. During 2012 and 2011, new loans made to such related parties
amounted to $7,185 and $1,470, respectively, and payments amounted to $9,670 and $4,463, respectively.
16
(in thousands)
Note 4 – Loans (Continued)
Following is a summary of the activity in allowance for credit losses:
Construction
and landCommercial
Commercialdevelopment real estate Consumer
Balance, December 31, 2011
$
Provision for credit losses charged to income
3,214 $
13,016 $
16,895 $
3,208
7,068
2,347
3,835
$
3,512
Recoveries of amounts previously charged off
278
3,177
149
70
Construction
Loans charged off
(3,937)
(6,354)
(1,319)
(3,202)
and landCommercial
BALANCE,
DECEMBER
31,
2012
$
2,763
$
16,907
$
18,072
$
4,215 $
Balance, December 31, 2010
$
36,960
16,135
3,674
(14,812)
41,957
Total
2,647 $
20,817 $
14,986 $
3,265
Provision for credit losses charged to income
6,211
4,733
22,567
4,639
38,150
Recoveries of amounts previously charged off
448
600
539
1,890
Loans charged off
(6,092)
(13,134)
(4,608)
(44,795)
$
3,214 $
13,016 $
303
(20,961)
16,895 $
3,835
$
Total
$
41,715
36,960
The following table presents the balance of the allowance for loan losses and the recorded investment in loans by portfolio segment and
based on impairment method.
Construction
and landCommercial
Total
DECEMBER 31, 2012
ALLOWANCE FOR LOAN LOSSES:
Ending balance individually evaluated for impairment
1,111 $
21,398
Ending balance collectively evaluated for impairment
$
2,493
4,548
10,414
3,104
20,559
TOTAL
2,763 $
16,907 $
18,072 $
4,215 $
41,957
$
270 $
12,359 $
7,658 $
LOANS:
Ending
balance individually evaluated for impairment $
Ending
balance collectively evaluated for impairment
1,680 $
41,464 $
21,858
68,328
Construction
$
3,326 $
254,948
84,392
928,043
230,200
1,497,583
and landCommercial
TOTAL
$
256,628
$
125,856
$
949,901
$
233,526
Commercialdevelopment real estate Consumer$ 1,565,911
Total
DECEMBER 31, 2011
ALLOWANCE FOR LOAN LOSSES:
$
65 $
5,694 $
2,770 $
1,307 $
9,836
3,149
7,322
14,125
2,528
27,124
TOTAL
$
3,214 $
13,016 $
16,895 $
3,835 $
36,960
$
1,764 $
42,844 $
24,836 $
7,991 $
77,435
LOANS:
176,484
111,010
916,299
262,333
TOTAL
178,248 $
153,854 $
941,135 $
270,324 $ 1,543,561
$
1,466,126
17
(in thousands)
The following tables present loans individually evaluated for impairment by class of loans:
Unpaid
Average Interest
Recorded Principal Related Recorded Income
Investment Balance Allowance InvestmentRecognized
DECEMBER 31, 2012
WITH NO RELATED ALLOWANCE RECORDED:
Commercial
$
1,410 $
1,763 $
— $
1,931 $
7
1,819
2,711
—
3,600
346
3,686
10,084
—
12,256
75
Consumer
498
1,895
—
1,903
—
WITH AN ALLOWANCE RECORDED:
Commercial
$
270 $
270 $
270 $
276 $
—
39,645
43,736
12,359
45,048
455
18,172
12,210
7,658
12,240
150
Consumer
2,828
6,709
1,111
6,740
121
1,680 $
2,033 $
TOTAL
Commercial
$
41,464
46,447
270 $
12,359
2,207 $
48,648
7
801
21,858
22,294
7,658
24,496
225
Unpaid
Average Interest
Consumer
3,326
8,604 Related
1,111 Recorded
8,643
Recorded
Principal
Income121
$Investment
68,328 $ Balance
79,378 $Allowance
21,398 $InvestmentRecognized
83,994 $
1,154
DECEMBER 31, 2011
WITH NO RELATED ALLOWANCE RECORDED:
Commercial
$
1,559 $
2,085 $
— $
2,155 $
8
20,233
35,202
—
43,934
626
8,804
13,684
—
14,856
206
Consumer
2,355
3,608
—
3,639
28
WITH AN ALLOWANCE RECORDED:
Commercial
$
205 $
205 $
65 $
368 $
—
22,611
23,825
5,964
24,214
747
16,032
25,822
2,770
25,874
233
Consumer
5,636
5,663
1,307
5,663
169
1,764 $
2,290 $
TOTAL
Commercial
$
42,844
59,027
24,836
Consumer
7,991
77,435 $
$
65 $
2,523 $
8
5,964
68,148
1,373
39,506
2,770
40,730
439
9,271
1,307
9,302
197
110,094 $
10,106 $
120,703 $
2,017
Interest income recognized includes interest accrued and collected on the outstanding balances of accruing impaired loans as well as interest
cash collections on nonaccruing loans and impaired loans for which the ultimate collectability of principal is not certain.
18
(in thousands)
The following is an analysis of the age of the recorded investment in past due and nonaccrual loans:
Construction
and landCommercial
Total
DECEMBER 31, 2012
30-59 days past due
$
4 $
88 $
670 $
1,859 $
2,621
60-89 days past due
112
394
2,375
723
3,604
Nonaccural
1,858
24,478
17,445
7,358
51,139
186
—
215
1,514
1,915
2,160
24,960
20,705
Construction
254,468
100,896
929,196
and landCommercial
11,454
222,072
59,279
90 or more days past due and accruing
TOTAL
PAST DUE AND NON ACCRUAL
Current
1,506,632
TOTAL
LOANS
$
256,628 $
125,856 $real 949,901
233,526 $ 1,565,911
Commercialdevelopment
estate$Consumer
Total
DECEMBER 31, 2011
30-59 days past due
$
262 $
17,988 $
5,154 $
736 $
24,140
60-89 days past due
61
—
4,143
1,092
5,296
Nonaccural
1,900
21,038
23,324
8,396
54,658
381
—
250
1,770
2,401
TOTAL PAST DUE AND NON ACCRUAL
2,604
39,026
32,871
11,994
86,495
Current
175,644
114,828
908,264
258,330
1,457,066
TOTAL LOANS
178,248 $
153,854 $
941,135 $
270,324 $ 1,543,561
90 or more days past due and accruing
$
Credit Quality Indicators
The Bank categorized its non-homogenous loans into risk categories based on relevant information about the ability of borrowers to service
the debt such as, among other factors: current financial information; historical payment experience; credit documentation; public information;
and current economic trends. The Bank analyzes loans individually by classifying the loan as to credit risk. This analysis is done annually on
a loan by loan basis. The Bank uses the following definitions for classified risk ratings:
Substandard: Loans designated as substandard are inadequately protected by the current net worth and paying capacity of the obligor
or the collateral pledged, if any. Loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are
characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.
Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that
the weaknesses make collection or liquidation in full, on the basis currently existing facts, conditions and values, highly questionable and
improbable.
19
(in thousands)
Loans not meeting the criteria above are analyzed individually as part of the above described process and are considered to be unclassified
loans. Based on the most recent analysis performed, the risk categories are as follows:
ClassifiedUnclassified
December 31, 2012
Commercial $
Construction and land development Commercial real estate
Consumer Total
6,896$ 249,732$ 256,628
44,516
60,482
11,285
$ 123,179
65,079
Consumer
12,669
$ 10,592
Total
125,856
222,241
233,526
889,419
$ 167,656
60,914
$ 149,254
81,340
$1,442,732
December 31, 2011
Commercial
Total
949,901
$1,565,911
$ 178,248
88,775
153,854
257,655
270,324
880,221
$1,394,307
941,135
$1,543,561
The Bank considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential and consumer loan
classes, the Bank evaluates credit quality based on the payment and aging status of the loan. Payment status is reviewed on a quarterly basis
with respect to determining adequacy of the allowance for loan losses.
Troubled Debt Restructurings
The Bank has allocated $872 and $265 in specific reserves to customers whose loan terms have been modified in troubled debt restructurings
as of December 31, 2012 and 2011. The Bank has not committed to lend additional amounts as of December 31, 2012 and 2011 to customers
with outstanding loans that are considered to be troubled debt restructurings.
During the years ended December 31, 2012 and 2011, the terms of certain loans were modified as troubled debt restructurings.
The modification of terms included a reduction in the interest rate and/or deferment of principal payments.
20
(in thousands)
The following table presents loans by class modified as troubled debt restructurings that occurred during the years ended December 31,
2012 and 2011:
Pre-modificationPost-modification
outstanding outstanding
Number recorded recorded
of loans investment investment
2012
2
$
710
$
710
TOTAL
3
$
794
$
794
Consumer
3
$
1,054
$
1,054
Consumer
2011
1
84
84
The troubled debt restructurings modified in 2012 described above increased the allowance for loan loss by $145 and did not result in any
charge offs during the year ended December 31, 2012.
The troubled debt restructurings modified in 2011 described above did not increase the allowance for loan loss and did not result in any
charge offs during the year ended December 31, 2011.
The following table presents loans by class modified as troubled debt restructurings for which there was a payment default within twelve
months following the modification during the years ended December 31, 2012 and 2011:
Number Recorded
of loans investment
2012
2
$
710
–
–
Consumer
2011
Consumer
1
84
The troubled debt restructurings that subsequently defaulted in 2012 described above increased the allowance for loan losses by $145 and
did not result in any charge offs during the year ended December 31, 2012.
The troubled debt restructurings that subsequently defaulted in 2011 described above did not increase the allowance for loan losses and did
not result in any charge offs during the year ended December 31, 2011.
Note 5 – Mortgage Servicing Rights
The cost of acquiring the rights to service mortgage loans is capitalized and amortized in proportion to, and over the period of, estimated net
servicing income. During 2012 and 2011, $1,434 and $379 of such costs were capitalized, and the amount of amortization was $790 and
$180, respectively. Net mortgage servicing rights are included in other assets.
For measuring impairment, mortgage servicing rights are stratified based on one or more of the predominant risk characteristics of the
underlying loans. Such characteristics include loan type, loan size, interest rate, date of origination, loan term, and geographic region. For
the years ended December 31, 2012 and 2011, mortgage servicing rights were determined not to be impaired
The aggregate fair value of mortgage servicing rights is based on fundamental analysis and the present value of expected future cash inflows.
In estimating fair value, assumptions have been made regarding prepayment, default and interest rates. At December 31, 2012 and 2011, the
aggregate fair value of mortgage servicing rights is $2,169 and $1,652, respectively.
21
(in thousands)
Note 6 – Bank Premises and Equipment
Major classifications of these assets are summarized as follows:
20122011
Land
$
Bank premises
Furniture and equipment
TOTAL COST
Accumulated depreciation
NET BANK PREMISES AND EQUIPMENT
$
22,825 $
22,434
42,628
41,564
70,569
136,022
(67,642)
68,380 $
73,902
Depreciation expense amounted to
$3,949, $4,186, and $4,562 in 2012,
2011, and 2010, respectively.
137,900
(68,105)
69,795
Note 7 – Foreclosed Real Estate
Activity in foreclosed real estate is summarized as follows:
20122011
Beginning balance
$
11,496 $
12,176
Sales
(4,096)
(3,412)
Write down on foreclosed real estate
(65)
(4,452)
Acquired through or in lieu of foreclosure
Gain (loss) on sales
ENDING BALANCE
$
11,985
(136)
19,184 $
6,850
Operating expenses associated with
foreclosed real estate were $976, $444, and
$381 in 2012, 2011 and 2010, respectively.
334
11,496
Note 8 – Intangibles
Goodwill
Goodwill is assigned to specific reporting units and is reviewed for possible impairment at least annually or more frequently upon the
occurrence of an event or when circumstances indicate that the reporting unit’s carrying amount is greater than its fair value. For the years
ended December 31, 2012 and 2011, goodwill in the amount of $23,987 was determined not to be impaired.
Intangibles
20122011
Core deposits and acquisition costs
$
CORE DEPOSITS AND ACQUISITION COSTS, NET
$
Accumulated amortization
9,596 $
(6,966)
2,630 $
9,596
(6,081)
3,515
Amortization expense amounted to $885,
$969, and $750, in 2012, 2011, and 2010,
respectively. Core deposit intangibles are
amortized over an estimated deposit life of
fifteen years.
Note 9 – Bank Owned Life Insurance
The Bank acquired life insurance policies through prior bank acquisitions and by direct purchase. At December 31, 2012 and 2011, the cash
surrender value of these policies was $45,596 and $44,121, respectively. The cash value of these policies is included in other assets. No
additional life insurance was purchased during 2012, 2011 or 2010.
22
(in thousands)
Note 10 – Deposits
Deposits at December 31, 2012 and 2011, by major category, are as follows:
DEMAND DEPOSITS:
Non-Interest bearing
$
Interest bearing
2012
490,894 $
1,007,147
Time deposits
479,952
Brokered deposits
TOTAL DEPOSITS
410,094
516,253
TOTAL DEMAND DEPOSITS
Savings deposits
2011
496,670
906,764
328,730
287,688
511,209
103,140
163,877
$ 1,918,969 $ 1,869,538
The aggregate amount of deposits
reclassified as loans (overdrafts)
amounted to $1,876 and $1,778
at December 31, 2012 and 2011,
respectively.
The aggregate amount of short-term
jumbo certificates of deposit with a
minimum denomination of $100 was
$240,829 and $246,504 at December 31,
2012 and 2011, respectively.
At December 31, 2012, scheduled maturities of certificates of deposit are as follows:
2013
$ 362,161
2014
2015
2016
2017
2018 and thereafter
TOTAL DEPOSITS
80,418
15,701
Deposits from related parties totaled
$44,066 and $46,889 at December 31,
2012 and 2011, respectively.
8,953
12,717
2
$ 479,952
Note 11 – Advance from Federal Home Loan Bank
At December 31, 2012 and 2011, the Bank had indebtedness to the Federal Home Loan Bank for $23,466 and $32,081, respectively,
consisting of the following:
INTEREST
DUE DATE RATE 2012 2011
April 2, 2012
1.37% $
– $
3,006
April 2, 2012
1.24%
–
1,891
June 27, 2012
.33%
–
1,630
August 31, 2012
2.06%
–
2,088
February 25, 2013
.92%
10,701
10,701
June 24, 2013
.55%
397
397
June 24, 2013
.55%
4,600
4,600
June 24, 2013
.58%
3,309
3,309
June 24, 2013
.58%
67
67
August 31, 2013
1.02%
1,560
1,560
August 31, 2013
1.15%
2,832
2,832
TOTAL ADVANCES $
23,466 $
32,081
All advances from the Federal Home
Loan Bank are secured by a general lien
on residential mortgages of the Bank.
Note 12 – Note Payable
At December 31, 2012 and 2011, the Company has indebtedness to an outside bank in the amount of $16,100. The note is secured by Bank
stock and incurred interest at 12.25%. The note was due June 30, 2011. The Company continues to negotiate with the outside bank regarding
the disposition of the loan.
23
(in thousands)
Note 13 – Other Income
Other income consists of the following:
Investment security gains (losses)
$
2012
–
$
2011
—
$
2010
9
Gain (loss) on sale of foreclosed real estate
(136)
334
(837)
Deposit account income
4,421
4,646
5,411
Trust fees
1,611
1,612
1,537
932
708
653
Gain (loss) on sale of premises and equipment
Debit card/ATM fees
18
2,829
—
2,875
2,997
Secondary mortgage income
4,906
Cash management
2,020
1,621
1,471
Bank Owned Life Insurance income
1,469
1,459
1,459
Loan fees and commissions
Boulevard income
Miscellaneous fees
TOTAL OTHER INCOME
713
489
$ 19,272
2,860
—
690
449
$ 17,254
3,384
508
469
$ 17,061
Note 14 – Employee Benefit Plans
Profit Sharing
The Company’s bank subsidiary maintains a defined contribution 401(k) Plan. Under terms of the Plan, employees meeting age and service
requirements may elect to have their compensation reduced and have that amount contributed to the Plan as a salary deferral contribution.
The Bank, at its discretion, may make a matching contribution to the Plan equal to a uniform percentage of the salary deferral contributions.
Apart from any matching contribution, the Bank may also make a separate discretionary contribution to the Plan. The final liability for
matching contributions, if any, is determined after year-end requiring the Bank to estimate its discretionary contribution expense at year end.
Contribution expense recorded by the Bank amounted to approximately $1,685, $623, and $1,350 for 2012, 2011 and 2010, respectively.
Non-Qualified Plan
The Bank maintains a non-qualified deferred compensation plan for a select group of management and employees as determined by the
Board of Directors. Annual awards, if any, are based on pre-established performance criteria which are communicated to eligible employees.
Benefits under the Plan vest after a five year period. The liability under the Plan was $566 and $1,041 as of December 31, 2012 and 2011,
respectively.
Note 15 – Commitments
Operating Leases
The Bank leases property at various branch locations under terms that are considered to be an operating lease. The leases expire in various
years through 2019.
Other Commitments
The Bank extended its agreement with a computer service company to 2016.
Annual future minimum payments for these agreements are as follows:
YEAR ENDING DECEMBER 31
2013
$ 2,968
2014
2,843
2016
2,803
2015
2017 and thereafter
TOTAL OPERATING LEASES
24
2,858
522
$ 11,994
Office rent expense was $919, $950,
and $942 for 2012, 2011, and 2010,
respectively.
Data processing expense was $2,424,
$2,436, and $2,378 for 2012, 2011,
and 2010, respectively.
(in thousands)
Note 16 – Income Taxes
Income taxes, as presented in the consolidated statements of income, consist of the following components:
2012 20112010
Current
$
1,306 $
TOTAL
$
2,741 $
Deferred
1,435
— $
(4,810)
(4,810) $
(6,109)
(11,980)
(18,089)
At December 31, 2012, the Company has available federal net operating losses of approximately $3,407 expiring in various years through
2031. Realization of deferred tax assets is dependent upon sufficient future taxable income during the period that deductible temporary
differences and carryforwards are expected to be available to reduce taxable income.
The components of deferred income taxes relate principally to depreciation of bank premises and equipment, provision for credit losses, and
available net operating loss carry forward.
Amounts of deferred tax assets and liabilities are as follows:
2012 2011
Total deferred tax assets, no valuation allowance
Total deferred tax liabilities
$
32,705 $
$
2,161 $
31,302
2,193
The Company’s federal income tax returns for 2012, 2011, and 2010 are subject to examination by the IRS, generally for three years after
they are filed. In addition, the Company’s state tax returns for the same years are subject to examination by state tax authorities for similar
years.
Note 17 – Contingent Liabilities and Commitments
The Company does not reflect in its financial statements various commitments and contingent liabilities which arise in the normal course
of business and which involve elements of credit risk, interest rate risk and liquidity risk. These commitments and contingent liabilities
are commitments to extend credit, commercial letters of credit and standby letters of credit. A summary of the Bank’s commitments and
contingent liabilities at December 31 is as follows:
COMMITMENTS TO EXTEND CREDIT UNDER:
2012
Unused equity lines of credit
63,079
Unused commercial and other lines of credit
$
Standby letters of credit
195,459 $
50,775
2011
157,369
69,939
69,592
Commitments to extend credit, commercial letters of credit and standby letters of credit all include exposure to some credit loss in the event
of nonperformance of the customer. The Bank’s credit policies and procedures for credit commitments and financial guarantees are the same
as those for extension of credit that are recorded on the consolidated balance sheet. Because these instruments have fixed maturity dates,
and because many of them expire without being drawn upon, they do not generally present any significant liquidity risk to the Bank. The Bank
has not incurred any significant losses on its commitments in either 2012 or 2011.
The Bank is party to litigation and claims arising in the normal course of business. Management, after consultation with legal counsel,
believes that the liabilities, if any, arising from such litigation and claims will not be material to the Company’s consolidated financial position.
25
(in thousands)
Note 18 – Financial Instruments Fair Value Disclosure
The fair value measurement accounting literature establishes a fair value hierarchy which requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be
used to measure fair value:
Level 1- Unadjusted quoted market prices in active markets that are accessible at the measurement date for identical, unrestricted assets.
Level 2- Significant other observable inputs other than Level 1 prices such as quoted market prices for similar assets and liabilities; quoted
prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3 - Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants
would use in pricing an asset or liability.
A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
Fair values of assets measured on a recurring basis at December 31, 2012 and 2011 are as follows:
Fair Value
DECEMBER 31, 2012
FAIR VALUE MEASUREMENTS USING:
Quoted Prices in
Active Markets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Securities available-for-sale
$ 175,791
$ 188
$ 175,603
Securities available-for-sale
$ 142,399
$ 130
$ 142,269
DECEMBER 31, 2011
The fair values of marketable equity securities available-for-sale are generally determined by quoted market prices, in active markets, for
each specific security (Level 1 measurement inputs). If Level 1 measurement inputs are not available for a marketable equity security, the fair
value is determined by the quoted market price of a similar security traded in an active market (Level 2 measurement inputs). The fair values
of debt securities available-for-sale are generally determined by matrix pricing, which is a mathematical technique widely used in the industry
to value debt securities without relying exclusively on quoted market prices for the specific securities, but rather by relying on the securities’
relationship to other benchmark quoted securities (Level 2 measurement inputs).
26
(in thousands)
Note 18 – Financial Instruments Fair Value Disclosure (Continued)
Fair values of assets measured on a nonrecurring basis are as follows:
Fair Value
Quoted Prices in
Active Markets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs (Level 3)
DECEMBER 31, 2012
Foreclosed real estate, net
$ 19,184
$
—
$
Impaired loans
Commercial
$
1,410
$
—
$
—
$
$ 29,105
$
—
$
—
$ 29,105
$ 14,200
$
—
$
—
$ 14,200
—
$ 19,184
1,410
Consumer
$
2,215
$
—
$
—
$
Goodwill
$ 23,987
$
—
$
—
$ 23,987
2,215
Foreclosed real estate, net
$ 11,496
$
—
$
—
$ 11,496
Commercial
$
1,699
$
—
$
—
$
$ 22,066
$
—
$
—
$ 22,066
DECEMBER 31, 2011
Impaired loans
Consumer
Goodwill
$ 36,880
$
6,684
$ 23,987
$
$
$
—
—
—
$
$
$
—
—
—
1,699
$ 36,880
$
6,684
$ 23,987
Foreclosed real estate assets are initially recorded at fair value less costs to sell when acquired and are subsequently measured at the
lower of cost or fair value less estimated costs to sell. Fair values are based on third party appraisals of the property, resulting in a Level 3
classification. When the carrying value exceeds the fair value, less costs to sell, an impairment loss is recognized.
The fair value of impaired loans secured by real estate with specific allocations of the allowance for loan losses is generally based on recent
real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales
and the income approach.
Goodwill was valued using the income approach and the multiperiod excess earnings method.
27
(in thousands)
Note 18 – Financial Instruments Fair Value Disclosure (Continued)
The estimated fair value and carrying value of certain assets and liabilities are as follows:
Quoted Prices in Significant Other
Significant
Active Markets Observable Inputs Unobservable
(Level 1)
(Level 2)
Inputs (Level 3)
Carrying
Value
DECEMBER 31, 2012
Assets
Cash and cash equivalents
$ 268,825
$
Net loans
$
Federal Home Loan Bank stock
Accrued interest receivable
$
Liabilities
$
—
$
2,069
—
$
5,736
$
—
—
$ 1,587,731
N/A
$
$
$
N/A
—
$
268,825
$
2,069
—
$
5,736
—
—
N/A
$ 1,523,191
$
5,664
Deposits
$
—
$ 1,922,520
$
—
$ 1,918,969
Accrued interest payable
$
—
$
$
—
$
Advances from Federal Home Loan
Note payable
$
$
DECEMBER 31, 2011
Assets
—
—
$
23,466
$
16,100
4,724
$
$
—
—
$
23,466
$
16,100
4,724
Cash and cash equivalents
$ 254,130
$
—
$
—
$
254,130
$
$
7,264
$
—
$
7,264
—
$
6,356
$
Net loans
$
Federal Home Loan Bank stock
—
—
$ 1,567,220
N/A
N/A
Accrued interest receivable
$
Deposits
$
—
$ 1,872,710
Accrued interest payable
$
—
$
Liabilities
Advances from Federal Home Loan
Note payable
$
$
—
—
$
$
31,647
$
16,100
2,876
—
N/A
$ 1,505,544
$
18,195
—
$
$
—
$ 1,869,538
$
—
$
$
$
—
—
6,356
$
32,081
$
16,100
2,876
It is not practical to determine the fair value of Federal Home Loan Bank stock due to restrictions placed on its transferability.
In estimating the fair value of certain assets and liabilities, the following assumptions were made.
The carrying values of short-term maturing assets, i.e. cash, due from banks, federal funds sold and interest bearing deposits with financial
institutions, approximate fair values and are classified as Level 1.
Fair values of loans are estimated using discounted cash flows using interest rates currently offered for loans with similar terms and credit
quality resulting in a Level 2 classification.
Fair values of deposits are estimated using discounted cash flows using interest rates currently offered resulting in a Level 2 classification.
Fair asset and/or liability value of off-balance sheet financial instruments, as described in Note 17, may be estimated by applying fees
currently charged for comparable commitments. Based upon the quality of these commitments and their demand in the financial market, it
has been assumed that there is no material difference in the estimated fair value.
28
(in thousands)
Note 19 – TARP Capital Purchase Program
On April 24, 2009, the Company entered into a Letter Agreement with the United States Department of Treasury (the “Treasury”), pursuant
to which the Company sold to the Treasury, 6,000 shares of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A, for
$60 million and a warrant to acquire $3 million of Fixed Rate Cumulative Perpetual Preferred Stock, Series B, for a nominal exercise price.
Immediately upon consummation of the closing, the Treasury exercised the warrant and acquired the Series B Preferred Stock. The Preferred
Stock, Series A qualifies as Tier 1 capital and pays cumulative dividends quarterly at a rate of 5% per annum. The Preferred Stock, Series
B qualifies as Tier 1 capital and pays cumulative dividends quarterly at a rate of 9% per annum. The difference between the initial carrying
value that was allocated to the Series B Preferred Stock and its redemption value of $3 million will be charged to retained earnings (with a
corresponding increase in the carrying value of the Series B Preferred Stock) over the first five years of the contract as an adjustment to the
dividend yield using the level yield method. During 2011, the Company elected to suspend dividend payments. For the year ended December
31, 2012, total dividends of $3,463 have been declared but not paid. For the year ended December 31, 2011, total dividends of $3,288 were
declared of which $1,653 remain in arrears.
Note 20 – Regulatory Matters
The Bank is subject to various regulatory capital requirements administered by its primary federal regulator, the Federal Deposit Insurance
Corporation (FDIC). Failure to meet the minimum regulatory capital requirements can initiate certain mandatory and possible additional
discretionary actions by regulators, which if undertaken, could have a direct material affect on the Company and the consolidated financial
statements. Under the regulatory capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet
specific capital guidelines involving quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank’s capital amounts and classification under the prompt corrective action guidelines are also
subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of:
total risk-based capital and Tier 1 capital to risk-weighted assets (as defined in the regulations), and Tier 1 capital to adjusted total assets
(as defined).
As of December 31, 2012, the most recent notification from the FDIC, the Bank was categorized as well capitalized under the regulatory
framework for prompt corrective action. To remain categorized as well capitalized the Bank will have to maintain minimum total risk-based,
Tier 1 risk-based, and Tier 1 leverage ratios as disclosed in the table below. There are no conditions or events since the most recent
notification that management believes have changed the Bank’s prompt corrective action category.
29
(in thousands)
Note 20 – Regulatory Matters (Continued)
The Bank’s actual and required capital amounts and ratios are as follows:
FOR CAPITAL
ACTUAL
ADEQUACY PURPOSES
Amount
Ratio
Amount
Ratio
AS OF DECEMBER 31, 2012
Total Capital (to risk-based assets)
Company
$ 182,751
Bank
206,345
Company
161,115
Tier I Capital (to risk-based assets)
10.7% $ 137,064
≥ 8.0%
N/A
N/A
68,532
≥ 4.0%
≥ 4.0%
N/A
102,553
N/A
≥ 6.0%
85,949
≥ 4.0%
≥ 4.0%
N/A
107,400
N/A
≥ 5.0%
10.4% $ 133,438
≥ 8.0%
N/A
N/A
N/A
N/A
12.1%
136,738
9.4%
Bank
184,709
10.8%
Company
161,115
7.5%
Tier I Capital (to average assets)
Bank
AS OF DECEMBER 31, 2011
Total Capital (to risk-based assets)
Company
184,709
$ 174,162
Bank
190,440
Company
153,140
Tier I Capital (to risk-based assets)
Bank
Tier I Capital (to average assets)
Company
Bank
8.6%
66,369
85,918
≥ 8.0% $ 170,922 ≥ 10.0%
11.4%
133,269
169,418
9.2%
10.2%
66,719
≥ 4.0%
153,140
7.2%
85,225
≥ 4.0%
169,418
TO BE WELL
CAPITALIZED UNDER
PROMPT CORRECTIVE
ACTION PROVISIONS
Amount
Ratio
8.0%
66,634
85,126
≥ 8.0% $ 166,586 ≥ 10.0%
≥ 4.0%
≥ 4.0%
99,952
N/A
106,598
≥ 6.0%
N/A
≥ 5.0%
Note 21 – Capital Management
The overall objectives of the Company’s capital management are to have the availability of sufficient capital to support loan, deposit and other
asset and liability growth and to maintain capital to absorb unforeseen losses or write-downs that are inherent in the business risk associated
within the banking industry. The Company seeks to balance the need for higher capital levels to address growth and unforeseen risks and the
goal to achieve an adequate return on capital invested. The Company has been in the process of addressing the need to further increase its
capital ratios, and has announced in November 2012 that it had entered into definitive agreements with institutional investors in connection
with the placement of an aggregate of more than $130 million in newly issued common stock of the Company. Closing of the capital raise is
anticipated to be in the first quarter of 2013 and is subject to regulatory approvals and other customary closing conditions.
The Bank is subject to certain restrictions on the amount of dividends that it may pay without prior regulatory approval. The Bank normally
restricts dividends to a lesser amount.
Note 22 – Condensed Financial Statements
The Company was incorporated in Illinois on February 23, 1982. The Company accounts for its investment in subsidiaries under the equity
method. Under this method, the investment is recorded at cost, adjusted for the subsidiaries’ undistributed net income (loss). Presented
below are the condensed financial statements of Standard Bancshares, Inc. (Parent Company Only):
30
(in thousands)
Note 22 – Condensed Financial Statements (Continued)
Condensed Balance Sheets December 31, 2012 and 2011
ASSETS
Cash
Other assets
$
Investment in subsidiaries
TOTAL ASSETS
$
2012
610 $
Other liabilities
$
Shareholders’ equity
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
$
1,829
233,526
226,627
237,874 $
230,285
3,738
LIABILITIES AND SHAREHOLDERS’ EQUITY
2011
25,733 $
212,141
237,874 $
1,829
20,226
210,059
230,285
Condensed Statements of Income Years Ended December 31, 2012, 2011 and 2010
2012 20112010
INCOME
Dividends from subsidiaries
$
Other income
TOTAL INCOME
EXPENSES
— $
— $
—
1
1
1
1
1
1
2,399
1,899
2,149
Loss before income taxes and equity
in undistributed earnings of subsidiaries
(2,398)
(1,898)
(2,148)
Loss before equity in undistributed
earnings of subsidiaries
(1,381)
(1,262)
(1,410)
7,150
(4,207)
(27,067)
INCOME TAX BENEFIT
EQUITY IN UNDISTRIBUTED EARNINGS
(LOSS) OF SUBSIDIARIES
NET INCOME (LOSS)
$
1,017
5,769 $
636
(5,469) $
738
(28,477)
Condensed Statements of Cash Flows Years Ended December 31, 2012, 2011 and 2010
2012 20112010
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)
$
5,769 $
(5,469) $
(28,477)
Adjustments:
Equity in undistributed net (income) loss of subsidiaries
(7,150)
4,207
27,067
Increase in other assets
(1,909)
(1,796)
(33)
NET CASH USED IN OPERATING ACTIVITIES
(1,219)
(1,906)
(1,394)
Payment on note payable
–
(1,500)
(7,400)
NET CASH USED IN FINANCING ACTIVITIES
–
(3,135)
(10,858)
Amortization Increase in other liabilities
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends NET DECREASE IN CASH
CASH—BEGINNING OF YEAR
CASH—END OF YEAR
$
28
2,043
–
(1,219)
1,829
610 $
28
1,124
(1,635)
(5,041)
6,870
1,829 $
28
21
(3,458)
(12,252)
19,122
6,870
31
Bank Officers 2012
Standard Bancshares, Inc.
Chairman of the Board
Board Secretary
Bonnie E. Balko
President, Chief Executive Officer
and Vice Chairman of the Board
Lawrence P. Kelley
Assistant Vice President/
Assistant Secretary
Diane Scorzo
Executive Vice President/
Chief Financial Officer
Patrick J. Hunt
Standard Bank and Trust Co.
Chairman of the Board
President, Chief Executive Officer
and Vice Chairman of the Board
Lawrence P. Kelley
Executive Vice Presidents
John M. Blackburn
Thomas L. Dockweiler
Patrick J. Hunt
Robert G. Kelly
Scott A. Smits
Dave J. Spedale
Kelly L. Beaty
Southern Region President
Senior Vice Presidents
Bonnie E. Balko
Paul J. Beneturski
H. Patrick Berg
Joseph R. Bullington
Brian R. Burke
Thomas G. Clifford
Margaret P. Doyle
Paul M. Dzurovcik
Terrence P. Hackett
Michael J. Helsdingen
Tracey A. Levandoski
Michele L. Madia-Bradley
Daniel C. Nagle
Francis J. Paciga
Nick A. Parisi
Jeffrey T. Rzasa
Christopher T. Terzich
Jennifer L. Willis
Charla A. Wright
Thomas J. Zic
Vice Presidents
Keith M. Behrens
Lisa G. Brumbaugh
Stephen R. Clark
Ryan J. Cushing
JoAnn Duhon
William P. Evens
Daniel P. Faragoi
David J. Fedor
Robert E. Gallagher III
John F. Geary
Michael P. Geary
Deborah A. Grad
Renee M. Graykowski
Joann M. Halterman
Carl R. Helmuth
Anne K. Howaniec
Linda M. Koranda
Michael S. Lamonica
Anna Lurquin
Anthony Martino
Evamaria Mata
Donald J. McGary
Mary E. Morstadt
Tracy O. Mulhausen
Tuan P. Nguyen
Carl A. Nolting, Sr.
Mark P. Oganovich
Andrew M. Santangelo
Patricia M. Spears
Monica A. Tures
Special Information for Our Shareholders
Standard Bancshares, Inc., and its wholly owned subsidiary, Standard Bank and Trust Co., are pledged to a policy of equal employment
opportunity in accordance with the provisions of Executive Order 11246, as amended, and the Fair Employment Practice Act of the State of
Illinois. Our objective is to provide equal employment opportunity by prohibiting discrimination due to race, color, religion, sex, national origin,
age, disability, or covered veteran status.
32
3-5
A
34
25
17
18
23
14
1
31
30
24
8
6
7
26
29
15
11
10
16
32
27
28
2
37
39
12
42
19
21 20
B 22
35
9
13
36
38
41
40
33
Branch Locations
ILLINOIS
1. Bolingbrook
282 N. Weber Rd.
2. Calumet City
1968 Sibley Blvd.
3. Chicago
3747 N. Clark St.
4. Chicago
3434 N. Southport Ave.
5. Chicago
836 W. Irving Park Rd.
6. Chicago
10635 S. Ewing Ave.
7. Chicago
13336 S. Baltimore Ave.
8. Chicago
10535 S. Torrence Ave.
9. Coal City
20 S. Kankakee St.
10. Dolton
14076 Lincoln Ave.
11. Evergreen Park
2400 W. 95th St.
12. Frankfort
19997 S. La Grange Rd.
1 3. Gardner
128 Depot St.
14. Hickory Hills
7800 W. 95th St.
15. Joliet
2398 Essington Rd.
16. Lockport
16545 W. 159th St.
17. Lyons
7201 W. Ogden Ave.
18. Lyons
8601 W. Ogden Ave.
19. Minooka
515 US Route 6
20. Morris
1433 Lisbon St.
21. Morris
1111 W. Route 6
22. Morris
3525 N. Route 47
23. Naperville
1607 N. Aurora Rd.
24. New Lenox
456 Nelson Rd.
2 5. North Riverside
8380 W. Cermak Rd.
26. Oak Forest
15901 S. Central Ave.
27. Oak Lawn
4001 W. 95th St.
28. Oak Lawn
4700 W. 111th St.
29. Orland Park
15900 S. Wolf Rd.
30. Palos Park
11901 Southwest Hwy.
31. Palos Park
9700 W. 131st St.
32. Shorewood
970 Brook Forest Ave.
33. South Wilmington
125 S. 3rd Ave.
34. Villa Park
1 W. Roosevelt Rd.
35. Wilmington
1005 S. Water St.
Loan Production Office Locations
INDIANA
ILLINOIS
3 6. Chesterton
755 Indian Boundary Rd.
37. East Chicago
4518 Indianapolis Blvd.
38. Hammond
7007 Calumet Ave.
39. Highland
2930 Ridge Rd.
40. Lowell
2090 E. Commercial Ave.
41. Merrillville
579 W. Lincoln Hwy.
42. St. John
9321 Wicker Ave.
A. Chicago
3920 N. Sheridan Rd.
B. Morris
1400 Heritage Dr.
33
7800 West 95th Street
Hickory Hills, IL 60457
866.499.2265
standardbanks.com
MEMBER
FDIC

2012 Annual Report

Transcription

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