SAFE & SOUND® STAR RATINGS™

Memorandum on findings

STANDARD BANK AND TRUST COMPANY

7800 WEST 95TH STREET
HICKORY HILLS, Illinois 60457

STAR RATING: 3 starstarstar
Predictive Indicator neutral
As of December 31, 2013
Federal Reserve System Identifier 19730


HOLDING COMPANY INFORMATION

(Based on data from the previous quarter.)

Holding company data is in thousands and percent. Zero assets indicates that the data is not reported.

Holding company information

High Holder Ownership Assets Equity Equity to Assets Net Income
STANDARD BANCSHARES, INC.wholly-owned2,156,237249,29911.56-30,401

Please click on the holding company link to check the ratings of any affiliated institutions whose conditions could impact the bank about which you have inquired.

INTRODUCTION

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

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

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

INSTITUTIONAL HIGHLIGHTS
Institution Name STANDARD BANK AND TRUST COMPANY
Report Date December 31, 2013
Report Period 1 year
Star Composite Rating, Percentile Rank 3 /20.22
Predictive Indicator neutral
Earnings Rating, Percentile Rank 3 /37.52
Asset Quality Rating, Percentile Rank 2 /18.37
Capital Rating, Percentile Rank 4 /56.02
Liquidity Rating, Percentile Rank 4 /59.34
Institution Asset Size 2.1806 billion
Deposits 1.9213 billion
Loans 1.6254 billion
Equity 247.8570 million
Net Profit/Loss 9.6280 million

COMPONENT HIGHLIGHTS

Component star rating: 3 starstarstar
Earnings Highlights

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

Key Earnings information and ratios:Ratio (%)Assessment
Return on Equity3.96Good
Net Interest Margin3.71Mid-Range
Level of Non-interest Income (1)0.96Substantially Below Normal
Overhead (1)3.15Below Standard
(1) = As a percentage of average assets
Note: All ratios are based on the latest four quarters of income and expense

Component star rating: 2 starstar
Asset quality highlights

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

Key Asset Quality information and ratios:Ratio (%)Assessment
Nonperforming Asset Ratio (2)20.87Higher Than Standard
Loss Reserve Coverage (3)86.42Below Normal
Loan Yield4.86Conservative
Asset Growth Rate-0.11Below Normal
(2) = Nonperforming Assets/Equity plus Loss Reserves
(3) = Loan Loss Reserves/Nonperforming Loans

Component star rating: 4 starstarstarstar
Capital highlights

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

Key measures of Capital Adequacy:Ratio (%)Assessment
Net Worth to Total Assets11.37Approximates Peer Norm
Regulatory Capital Ratio13.76Exceeded Requirement

Component star rating: 4 starstarstarstar
Liquidity highlights

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

Key measures of Liquidity:Ratio (%)Assessment
Balance Sheet Liquidity10.90Substantially Below Normal
Purchased Liabilities6.87No Greater Than Average Dependence

Early warning highlights

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

  • Non-Interest Income
  • Commercial Real Estate and Construction Lending

Institution Commentary

OVERVIEW of Institution
Organized in 1947, STANDARD BANK AND TRUST COMPANY is a state chartered banking institution, which, as of December 31, 2013, reported $2.1806 billion in total assets. At that date, loans and deposits held by the bank amounted to $1.6254 billion and $1.9213 billion, respectively. The bank's December 31, 2013 equity base of $247.8570 million produced an Equity/Assets ratio of 11.37%, as of that date.

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

EARNINGS ANALYSIS
For the twelve months ended December 31, 2013, the bank recorded net income of $9.6280 million. The bank experienced a return on average assets (ROA) of 0.44% over the latest four quarters. Year earlier twelve month results amounted to a net income of $7.1500 million, or a 0.33% ROA over the most recent four quarters at that time. An ROA of at least 1.0% is deemed satisfactory in accordance with banking industry standards, and the industry's annualized ROA for the twelve months of 2013 was approximately 1.07% for commercial banks and 1.08% for thrift institutions.

We have concluded that for the four quarters ending December 31, 2013, the bank achieved a good return on equity. We deem net interest margin to have been mid-range. Noninterest income was substantially below normal, and management should be questioned as to the outlook for this source of revenue. We also observed overhead ratios that were below standard, a sign of good expense control. Importantly, net interest margins, noninterest income components, and overhead expense levels represent operating factors that combine to impact overall operating results. We have also noted that the bank's profitability improvement between the twelve months ended December 31 , 2012 and the twelve months ended December 31 , 2013 well exceeded the banking industry peer comparison.

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

Commercial real estate and construction loans should be examined for:

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


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

CAPITAL ANALYSIS
For the one year period ended December 31, 2013, the bank reported a better than normal rate of growth in equity capital. Balance sheet structural changes, through the one year period of time ended December 31, 2013, have highly improved the bank's capital position. Our analytical methodology does take into account the quantity, quality, and durability of net worth, and, as set forth above, we have determined, based upon our series of tests, that the bank demonstrates strong capitalization. We have calculated the bank's December 31, 2013 Total Risk-Based Capital position, a computation used by industry regulators, and have concluded that this bank exceeded the requirement, set by regulation, for this test.

LIQUIDITY ANALYSIS
As of December 31, 2013, the bank displayed Substantially Below Normal balance sheet liquidity and a No Greater Than Average Dependence upon wholesale, or non-core liabilities, which include all borrowings, such as Federal Home Loan Bank Advances, and CD's greater than $250,000.

Accounting principles require some securities to be categorized as "Available-for-Sale." Changes in market value of these securities are reflected through the GAAP (Generally Accepted Accounting Principles) net worth of the institution. Based upon the bank's present balance sheet, changes in the value of the current level of securities reported as "Available-for-Sale" might not have a substantial impact upon future net worth of the bank.

INSTITUTION SUMMARY
This bank has been rated generally satisfactory.

Negative factors that impacted that rating follow:

  • Asset Quality

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

  • Non-Interest Income
  • Commercial Real Estate and Construction Lending

PREDICTIVE INDICATOR
As stated, we have determined a composite Star rating for this bank of 3 starstarstar , indicative of a generally satisfactory financial condition. At times, financial conditions of banks change rapidly and significantly. Hence, our Safe & Sound Star ratings should not be deemed predictive of likely future ratings. However, in view of early warning indicators set forth within this report, in combination with the institution's financial data, we believe that the Star rating for this institution is unlikely to change within the ensuing twelve month period.

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