1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 1995
or
( ) Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from __________ to __________
Commission File Number 0-15580
St. Paul Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Delaware 36-3504665
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
6700 W. North Avenue
Chicago, Illinois 60635
(Address of principal executive offices) (Zip Code)
(312) 622-5000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding twelve months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 par value -- 18,643,721 shares, as of July 28, 1995
2
ST. PAUL BANCORP, INC.
AND SUBSIDIARIES
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements (Unaudited)
Consolidated Statements of Financial Condition
as of June 30, 1995 and Dec. 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Income for the Three and Six
Months Ended June 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Stockholders' Equity for the
Six Months Ended June 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
PART II. OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holder . . . . . . . . . . . . . . . . . . . . . . 40
Item 6 Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Signature Page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
2
3
ST. PAUL BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
June 30, Dec. 31,
Dollars in thousands 1995 1994
- -----------------------------------------------------------------------------------------------------
ASSETS:
Cash and cash equivalents
Cash and amounts due from depository institutions $ 96,539 $ 104,563
Federal funds sold 34,200 18,100
Short-term cash equivalent securities 21,557 37,285
------------------------
Total cash and cash equivalents 152,296 159,948
Marketable-debt securities
(Market: June 30, 1995-93,908; Dec. 31, 1994-$95,773) 94,894 99,643
Mortgage-backed securities
(Market: June 30, 1995-$1,030,871; Dec. 31, 1994-$1,066,793) 1,048,707 1,126,617
Loans receivable 2,632,435 2,610,577
Less: accumulated provision for loan losses 41,232 42,196
------------------------
Net loans receivable 2,591,203 2,568,381
Loans held-for-sale, at lower of cost or market
(Market: June 30, 1995-$15,079; Dec. 31, 1994-$10,157) 15,056 10,155
Accrued interest receivable 24,702 23,467
Foreclosed real estate
(Net of accumulated provision for losses: June 30, 1995-$1,405;
Dec. 31, 1994-$2,019) 13,280 16,484
Real estate held for development or investment 15,195 16,694
Investment in Federal Home Loan Bank stock 36,304 29,847
Office properties and equipment 44,444 44,112
Prepaid expenses and other assets 32,872 36,189
------------------------
TOTAL ASSETS $4,068,953 $4,131,537
========================
LIABILITIES:
Deposits $3,179,071 $3,232,903
Short-term borrowings
(FHLB advances: June 30, 1995-$125,285; Dec. 31, 1994-$120,275) 200,285 221,180
Long-term borrowings
(FHLB advances: June 30, 1995-$211,399; Dec. 31, 1994-$216,684) 266,558 271,747
Advance payments by borrowers for taxes and insurance 23,867 21,842
Other liabilities 32,546 32,468
------------------------
Total Liabilities 3,702,327 3,780,140
COMMITMENTS
STOCKHOLDERS' EQUITY:
Preferred stock (par value $.01 per share: authorized-10,000,000
shares; none issued) -- --
Common stock (par value $.01 per share: authorized-40,000,000 shares;
issued at June 30, 1995-19,853,767 shares;
outstanding at June 30, 1995-18,613,395 shares;
issued at Dec. 31, 1994-19,785,405 shares; 199 198
outstanding at Dec. 31, 1994-18,781,480)
Paid-in capital 139,072 138,039
Retained income, substantially restricted 254,204 238,929
Unrealized loss on securities, net of taxes (269) (3,531)
Borrowings by employee stock ownership plan (1,000) (1,000)
Unearned employee stock ownership plan shares (196,350 shares) (2,883) (2,883)
Treasury stock (June 30, 1995-1,240,372 shares;
Dec. 31, 1994-1,003,925 shares) (22,697) (18,355)
------------------------
Total stockholders' equity 366,626 351,397
------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $4,068,953 $4,131,537
========================
See notes to consolidated financial statements
3
4
ST. PAUL BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three months ended Six months ended
June 30, June 30,
----------------- -----------------
Dollars in thousands except per share amounts 1995 1994 1995 1994
- --------------------------------------------------------------------------------------------------------------------
INTEREST INCOME:
Loans receivable $50,463 $43,930 $ 99,633 $ 88,835
Mortgage-backed securities 16,416 15,135 33,600 25,279
Marketable-debt securities 1,260 1,624 2,529 3,402
Federal funds 454 307 897 764
Other investment income 980 895 1,966 2,759
------------------- --------------------
Total interest income 69,573 61,891 138,625 121,039
INTEREST EXPENSE:
Deposits 33,155 28,186 64,444 56,394
Short-term borrowings 2,715 331 6,030 337
Long-term borrowings 4,743 4,297 9,572 5,713
------------------- --------------------
Total interest expense 40,613 32,814 80,046 62,444
------------------- --------------------
Net interest income 28,960 29,077 58,579 58,595
Provision for loan losses 450 750 1,100 2,700
------------------- -------------------
Net interest income after provision for loan losses 28,510 28,327 57,479 55,895
OTHER INCOME:
Loan servicing fees 433 363 827 712
Other fee income 5,577 4,283 10,443 7,851
Net gain on assets sold 15 81 876 470
Discount brokerage commissions 728 933 1,436 2,167
Income from real estate development 714 564 1,160 1,231
Insurance and annuity commissions 963 983 1,677 1,939
Other (7) 80 22 244
------------------- --------------------
Total other income 8,423 7,287 16,441 14,614
GENERAL AND ADMINISTRATIVE EXPENSE:
Salaries and employee benefits 12,139 11,706 24,430 23,662
Occupancy, equipment and other office expense 5,589 4,873 11,293 10,106
Advertising 1,054 1,193 2,095 2,319
Federal deposit insurance 2,220 2,238 4,434 4,478
Other 1,503 1,368 2,814 2,601
------------------- ---------------------
General and administrative expense 22,505 21,378 45,066 43,166
Loss on foreclosed real estate 227 781 656 1,241
------------------- ---------------------
Income before income taxes 14,201 13,455 28,198 26,102
Income taxes 5,172 4,835 10,166 9,284
------------------- ---------------------
NET INCOME $ 9,029 $ 8,620 $18,032 $ 16,818
=================== =====================
EARNINGS PER SHARE:
Primary $ 0.46 $ 0.42 $ 0.93 $ 0.82
Fully diluted 0.46 0.42 0.93 0.82
=================== ====================
DIVIDENDS PER SHARE $ 0.075 $ 0.075 $ 0.150 $ 0.150
=================== ====================
See notes to consolidated financial statements.
4
5
ST. PAUL BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
Unrealized Borrowing Unearned
Gain/(Loss) by Employee Employee
Common Stock on Pension Stock Stock Total
------------------- Paid-In Retained Securities, Adjustment, Ownership Ownership Treasury Stockholders'
Shares Amount Capital Income Net of Tax Net of Tax Plan Plan Shares Stock Equity
----------------------------------------------------------------------------------------------------------
Balance at
December 31, 1993 19,683,981 $197 $136,609 $210,215 $4,594 ($46) ($4,240) $ -- $ -- $347,329
Stock option
exercises 76,774 1 1,031 -- -- -- -- -- -- 1,032
Net Income -- -- -- 16,818 -- -- -- -- -- 16,818
Cash dividends paid
to stockholders
($0.15 per share) -- -- -- (2,909) -- -- -- -- -- (2,909)
Change in unrealized
gain/(loss) on
securities,
net of tax (5,709) -- -- -- -- (5,709)
Repayment of ESOP
borrowing -- -- -- -- -- -- 357 -- -- 357
Adoption of SOP
93-6 -- -- -- -- -- -- 2,883 (2,883) -- --
Treasury stock
purchases (275,950) -- -- -- -- -- -- -- (4,911) (4,911)
- -----------------------------------------------------------------------------------------------------------------------------
Balance
June 30, 1994 19,484,805 $198 $137,640 $224,124 ($1,115) ($46) ($1,000) ($2,883) ($4,911) $352,007
=============================================================================================================================
Balance at
December 31, 1994 18,781,480 $198 $138,039 $238,929 ($3,531) $ -- ($1,000) ($2,883) ($18,355) $351,397
Stock option
exercises 68,362 1 1,033 -- -- -- -- -- -- 1,034
Net Income -- -- -- 18,032 -- -- -- -- -- 18,032
Cash dividends paid
to stockholders
($0.15 per share) -- -- -- (2,757) -- -- -- -- -- (2,757)
Change in unrealized
gain/(loss) on
securities,
net of tax -- -- -- -- 3,262 -- -- -- -- 3,262
Treasury stock
purchases (236,447) -- -- -- -- -- -- -- (4,342) (4,342)
- -----------------------------------------------------------------------------------------------------------------------------
Balance
June 30, 1995 18,613,395 $199 $139,072 $254,204 ($269) $ -- ($1,000) ($2,883) ($22,697) $366,626
=============================================================================================================================
See notes to consolidated financial statements
5
6
ST. PAUL BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six months ended June 30,
--------------------------
Dollars in thousands 1995 1994
- ------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income $ 18,032 $ 16,818
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 1,100 2,700
Provision for losses on foreclosed real estate 312 1,122
Provision for depreciation 3,068 2,516
Assets originated and acquired for sale (12,247) (37,181)
Sale of assets held for sale 7,648 54,534
Increase in accrued interest receivable (1,235) (2,636)
Decrease in prepaid expenses and other assets 3,318 3,893
Increase in other liabilities 77 5,712
Net amortization of yield adjustments 3,058 (571)
Other items, net (8,661) (6,803)
- ------------------------------------------------------------------------------------
Net cash provided by operating activities 14,470 40,104
- ------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Principal repayments on loans receivable 145,858 279,020
Loans originated and purchased for investment (170,359) (330,191)
Loans receivable sold 133 3,191
Principal repayments on available for sale mortgage-
backed securities 8,446 42,550
Principal repayments on held to maturity mortgage-
backed securities 57,575 83,400
Purchase of available for sale mortgage-backed securities (42,450) (27,127)
Purchase of held to maturity mortgage-backed securities -- (604,834)
Sale of available for sale mortgage-backed securities 56,887 15,459
Maturities of available for sale marketable-debt securities 6,000 11,000
Purchase of available for sale marketable-debt securities (236) (20,950)
Purchase of held to maturity marketable-debt securities -- (30,695)
Sale of available for sale marketable-debt securities -- 70,182
Additions to real estate (4,974) (5,276)
Real estate sold 14,811 15,083
(Purchase) sale of Federal Home Loan Bank stock (6,457) 1,443
Purchase of office properties and equipment (3,400) (3,710)
Proceeds from sales of office properties and equipment -- 606
- ------------------------------------------------------------------------------------
Net cash provided (used) by investing activities 61,834 (500,849)
- ------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from sales of certificates of deposit 165,944 143,257
Payments for maturing certificates of deposit (207,579) (240,405)
Net increase (decrease) in remaining deposits (12,197) 63,355
Increase in long-term borrowings 49 210,017
Repayment of long-term borrowings (5,238) (200)
Increase in short-term borrowings, net (20,895) 89,737
Dividends paid to stockholders (2,757) (2,909)
Net proceeds from exercise of stock options 1,034 1,032
Purchase of treasury stock (4,342) (4,911)
Increase in advance payments by borrowers
for taxes and insurance 2,025 919
- ------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (83,956) 259,892
- ------------------------------------------------------------------------------------
DECREASE IN CASH AND CASH EQUIVALENTS (7,652) (200,853)
Cash and cash equivalents at beginning of period 159,948 336,331
- ------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 152,296 $ 135,478
====================================================================================
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest credited on deposits $ 55,413 $ 49,562
Interest paid on deposits 5,744 4,998
- ------------------------------------------------------------------------------------
Total interest paid on deposits 61,157 54,560
Interest paid on borrowings 16,149 4,021
Income taxes paid, net 12,669 5,612
Real estate acquired through foreclosure 3,500 12,795
Loans originated in connection with real estate
acquired through foreclosure 6,248 7,840
=====================================================================================
See notes to consolidated financial statements
6
7
ST. PAUL BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying consolidated financial statements have been prepared
according to generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of Management, all necessary adjustments, consisting
only of normal recurring accruals, necessary for a fair presentation have been
included. The results of operation for the three- and six-month periods ended
June 30, 1995 are not necessarily indicative of the results expected for the
entire fiscal year.
2. The accompanying consolidated financial statements include the accounts of
St. Paul Bancorp, Inc. (the "Company" or "St. Paul Bancorp") and its
wholly-owned subsidiaries, St. Paul Federal Bank For Savings (the "Bank"),
Annuity Network, Inc. and St. Paul Financial Development Corporation. The
financial statements of St. Paul Federal include the accounts of its
subsidiaries. Certain prior year amounts have been reclassified to conform to
the 1995 presentation.
3. At June 30, 1995, the Bank had outstanding commitments to originate 1-4
family real estate loans of $17.0 million. Of these commitments, $12.7 million
were for adjustable-rate loans and $4.3 million were for fixed-rate loans.
Most of these commitments expire after sixty days. The Bank also had
commitments to originate $618,000 of adjustable rate 1-4 family construction
loans. At June 30, 1995, the Bank had outstanding commitments to originate
$6.1 million of adjustable rate mortgage loans secured by multifamily apartment
buildings. Unused home equity lines of credit totaled $49.3 million as of June
30, 1995. The Bank anticipates funding originations with liquidity.
The Bank held commitments, at June 30, 1995, to sell $4.3 million of
fixed-rate, 1-4 family real estate loans. The consolidated financial
statements contain market value losses, if any, related to these commitments.
7
8
MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
St. Paul Bancorp, Inc. (the "Company") is the holding company for St.
Paul Federal Bank For Savings (the "Bank"), Illinois' largest independent
savings institution. At June 30, 1995, the Company reported total assets of
$4.1 billion and the Bank operated 52 full-service branches in the Chicago
metropolitan area. The branch network comprises 35 full-size offices and 17
banking offices located in Omni(R) and Cub(R) superstores. In addition, the
Bank operated 176 automated teller machines (ATMs), the second largest network
in Chicago. The Bank also services 172,000 checking accounts and 28,000 loans
at June 30, 1995. The Federal Deposit Insurance Corporation ("FDIC") insures
the deposit accounts of the Bank.
Both the Company and the Bank continued to operate other wholly owned
subsidiaries during 1995, including St. Paul Financial Development Corporation,
Annuity Network, Inc., St. Paul Service, Inc. and Investment Network, Inc. As
of June 30, 1995, customers maintain $352 million of investments through
Investment Network, Inc. and $307 million in annuity contracts through Annuity
Network, Inc.
Generally, the Bank reinvests funds obtained from its retail banking
facilities in loans secured by mortgages on real estate, securities, and to a
lesser extent, consumer and commercial real estate loans. The Bank focuses
most of its current lending activities on the origination and purchase of
various mortgage products secured by 1-4 family residential properties through
its retail banking offices and local loan origination correspondents. During
the first half of 1995, the Bank began taking loan applications, on a test
basis, through a "loan by phone" banking program. Management hopes to expand
its banking services through the introduction of a telephone banking center in
the third or fourth quarter of 1995. The Bank also uses a correspondent loan
program to originate 1-4 family mortgages outside the Chicago metropolitan
area, primarily in the states of Illinois, Wisconsin, Indiana, Michigan, Ohio,
and Minnesota. The retail banking offices offer a variety of consumer loan
products, including home equity loans, secured lines of credit, education, auto
and credit card loans.(1)
__________________________________
(1) The credit card product is offered by the Bank through an agency
agreement with another lender.
8
9
The Bank also offers mortgage loans to qualifying borrowers to finance
apartment buildings with up to 120 units located within a 100 mile radius of
the Chicago metropolitan area. During 1995, the Bank began providing
construction financing to experienced residential land developers and home
builders in the Chicago metropolitan area. The Bank also originates mortgage
loans to facilitate the sale of multifamily, and occasionally, commercial real
estate owned by the Bank. Periodically, the Bank will also repurchase
multifamily loans sold with recourse.
Prior to 1990, the Bank originated, on a nationwide basis (primarily in
California), loans secured by multifamily real estate and to a lesser extent,
loans secured by commercial real estate. At June 30, 1995, $996.0 million or
24.5% of total assets were comprised of loans secured by multifamily real
estate properties, of which $555.5 million or 13.7% of total assets represented
multifamily loans secured by real estate located in California. Also, $61.5
million or 1.5% of the Company's total assets at June 30, 1995 included loans
secured by commercial real estate, other than multifamily.
The Bank also invests in mortgage-backed securities ("MBS"), government
and other investment-grade, liquid securities. The Bank classifies investment
securities as either available for sale or held to maturity under Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities."
Earnings of the Bank are susceptible to interest rate risk to the
extent that the Bank's deposits and borrowings reprice on a different basis and
in different periods than its securities and loans. Prepayment options
embedded in loans and MBS and varying demand for loan products due to changes
in interest rates creates additional operating risk for the Bank in matching
the repricing of its assets and liabilities. The Bank tries to structure its
balance sheet to reduce its exposure to interest rate risk and to maximize its
return on equity, commensurate with risk levels that do not jeopardize the
financial safety and soundness of the institution.
Changes in real estate market values also affect the Bank's earnings.
As changes occur in the forces of supply and demand for real estate, the
economic conditions of real estate markets, and interest rates, the risk of
actual losses in the Bank's loan portfolio will also change. See "CREDIT" for
further details.
9
10
In April 1995, St. Paul Bancorp filed an application with the Office
of the Comptroller of the Currency for a de novo commercial bank charter. This
application was precipitated by the scheduled decline in FDIC insurance rates
for members of the Bank Insurance Fund ("BIF"). Management's current intention
is to operate a national bank side by side with its federal savings bank.
Management hopes that legislative action will converge the FDIC premium rates
for the Savings Association Insurance Fund ("SAIF") and BIF, rendering the
additional bank charter unnecessary.
In July of 1995, a solution to the pending disparity between premium
rates paid by SAIF and BIF institutions was proposed by the Treasury Department
to Congress. The proposal would require SAIF members, such as St. Paul Federal
Bank, to pay a one-time premium of up to $0.85 per $100 of insured deposits to
recapitalize the SAIF. Annual premiums would then be reduced to a level that
would approximate the premiums paid by BIF members, with the SAIF and BIF
insurance funds merging at some time in the future.
10
11
STATEMENT OF FINANCIAL CONDITION
St. Paul Bancorp reported total assets of $4.07 billion at June 30, 1995
compared to $4.13 billion at Dec. 31, 1994, a decrease of $62.6 million or
1.5%. Lower MBS balances of $77.9 million and cash and cash equivalents of
$7.7 million were partly offset by a $21.9 million increase in loans
receivable.
Cash and cash equivalents totaled $152.3 million at June 30, 1995 compared
to $159.9 million at Dec. 31, 1994, a decrease of $7.7 million or 4.8%. See
"CASH FLOW ACTIVITY" for further detail.
Marketable-debt securities, comprised of U.S. Treasury and agency
securities, totaled $94.9 million at June 30, 1995, $4.8 million or 4.8% lower
than Dec. 31, 1994. Proceeds from maturities provided additional liquidity
during the first six months of 1995. The weighted average yield earned on the
marketable-debt security portfolio was 5.17% at June 30, 1995 compared to 5.04%
at Dec. 31, 1994. A step up in rate of tiered, fixed rate securities produced
the increase in the weighted average yield since year-end 1994. Most of the
marketable-debt securities are classified as held to maturity under SFAS No.
115. At June 30, 1995, the Company recorded an unrealized loss of $283,000 on
available for sale marketable-debt securities compared to an unrealized loss of
$1.6 million at Dec. 31, 1994. A decline in medium term market interest rates
since Dec. 31, 1994 provided most of the improvement in value on the available
for sale marketable-debt securities.
MBS totaled $1.05 billion at June 30, 1995, $77.9 million or 6.9% lower
than the $1.13 billion of MBS at Dec. 31, 1994. The sale of $56.9 million of
fixed rate, available for sale MBS and receipt of principal repayments produced
the decline in balance. The purchase of $42.5 million of adjustable rate,
available for sale MBS partly offset these declines. See "COMPARISON OF SIX
MONTHS ENDED JUNE 30, 1995 AND 1994" for further discussion of the $837,000
gain recorded on the sale of MBS. The weighted average yield on the MBS
portfolio was 6.27% at June 30, 1995 compared to 6.02% at Dec. 31, 1994.
Favorable repricing on adjustable rate MBS produced the higher weighted average
yield at June 30, 1995.
Similar to the marketable-debt securities portfolio, most of the MBS
portfolio is classified as held to maturity under SFAS No. 115. At June 30,
1995, the Company recorded an unrealized loss on its available for sale MBS of
$159,000 compared to an unrealized loss of $4.1 million at Dec. 31, 1994. The
decrease
11
12
in the unrealized loss was associated with lower intermediate medium term
market interest rates at June 30, 1995 compared to year-end 1994.
At June 30, 1995, 67% of the MBS portfolio had adjustable rate
characteristics (although some may be performing at initial fixed interest
rates). In comparison, 63% of the MBS portfolio had adjustable rate
characteristics at Dec. 31, 1994. Some securities may not fully reprice in
response to higher market interest rates because they contain periodic and
lifetime interest rate caps.
Loans receivable totaled $2.63 billion at June 30, 1995 compared to $2.61
billion at Dec. 31, 1994, an increase of $21.9 million or 0.8%. Loans
originated and purchased for investment outpaced loan repayments during the
first six months of 1995, allowing the increase in loans receivable balances
since year end 1994. See "CASH FLOW ACTIVITY" for further discussion.
The weighted average yield on loans receivable was 7.66% at June 30, 1995,
compared to 7.51% at Dec. 31, 1994, largely as a result of favorable repricing
of adjustable rate mortgages. At June 30, 1995, 80% of the loan portfolio had
adjustable rate characteristics, compared to 77% at Dec. 31, 1994.
Deposits totaled $3.18 billion at June 30, 1995, $53.8 million or 1.7%
lower than the deposit balances of $3.23 billion at Dec. 31, 1994. At June 30,
1995, the weighted average cost paid on deposits was 4.28% compared to 3.85% at
Dec. 31, 1994. Management has balanced its efforts to retain deposit balances
while holding down deposit interest costs. Although deposit interest costs
have increased significantly since year- end 1994, the Company's deposit costs
are significantly below its competitors, according to certain industry surveys.
Total borrowings, which include FHLB advances, totaled $466.8 million at
June 30, 1995, or $26.1 million lower than the $492.9 million of balances at
Dec. 31, 1994. Short-term borrowings declined $20.9 million while long-term
borrowings declined $5.2 million. The combined weighted average cost paid on
borrowings was 6.85% at June 30, 1995 compared to 6.68% at Dec. 31, 1994. A
large amount of the Bank's adjustable rate FHLB advances are tied to lagging
indices, which produced the increase in the borrowing weighted average cost
since year end 1994, despite generally lower market interest rates in 1995.
See "CASH FLOW ACTIVITY" for further discussion.
Stockholders' equity of the Company was $366.6 million at June 30, 1995 or
12
13
8.98% of average assets during the first six months of 1995. In comparison,
stockholders' equity at Dec. 31, 1994 was $351.4 million or 8.95% of average
assets for the year-ended Dec. 31, 1994. The $15.2 million growth in
stockholders' equity during the six months ended June 30, 1995 primarily
resulted from $18.0 million of net income, a $3.3 million improvement in value
of available for sale securities(2), and $1.0 million of equity provided by the
exercise of employee stock options. The growth in equity was partly offset by
the addition of $4.3 million of treasury stock and $2.8 million of dividend
payments to shareholders. See "REGULATORY CAPITAL REQUIREMENT" and
"CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY" for further analysis.
During the first six months of 1995, the Company acquired 236,447
shares of its outstanding common stock (at a weighted average cost per share of
$18.36) to complete a stock repurchase program that began in July 1994. As of
June 30, 1995, the number of shares acquired under all repurchase programs
totaled 1,240,372 shares (at a weighted average cost per share of $18.30).
Management's primary objective in reacquiring its shares was to increase return
on equity and earnings per share for those shares that remain outstanding.
Management continues to evaluate the feasibility of additional repurchase
programs. See "CASH FLOW ACTIVITY -- HOLDING COMPANY LIQUIDITY" for further
details.
See "CREDIT" for discussion of foreclosed real estate balances.
REGULATORY CAPITAL REQUIREMENT
Office of Thrift Supervision ("OTS") regulatory capital requirements for
federally-insured institutions such as the Bank include minimum ratios of core
and tangible capital to adjusted total assets of 3.0% and 1.5%, respectively.
Savings institutions also must maintain a ratio of total regulatory capital to
risk-weighted assets of 8.0%. Total regulatory capital for purposes of the
risk-based capital requirements consist of core capital and supplementary
capital (to the extent supplementary capital does not exceed core capital).
Supplementary capital includes such items as general valuation allowances
("GVAs") on loans receivable, subject to certain limitations.
__________________________________
(2) Under SFAS No. 115 "Accounting for Certain Investments in Debt and
Equity Securities", which the Company adopted in 1993, adjustments to the
market value of available for sale securities are recorded directly to
stockholders' equity, net of taxes.
13
14
During 1995, the Bank continued to exceed the core, tangible, and
risk-based capital requirements by wide margins. The following table presents
the Bank's regulatory capital position as of June 30, 1995 and Dec. 31, 1994:
=======================================================================
JUNE 30, 1995
- -----------------------------------------------------------------------
Dollars in Core Tangible Risk-Based
Thousands Capital Capital Capital
- -----------------------------------------------------------------------
Actual percentage 8.90% 8.90% 17.29%
Required percentage 3.00 1.50 8.00
- -----------------------------------------------------------------------
Excess percentage 5.90% 7.40% 9.29%
=======================================================================
Actual capital $357,623 $357,623 $385,607
Required capital 120,570 60,285 178,463
- -----------------------------------------------------------------------
Excess capital $237,053 $297,338 $207,144
=======================================================================
DEC. 31, 1994
- -----------------------------------------------------------------------
Dollars in Core Tangible Risk-Based
Thousands Capital Capital Capital
- -----------------------------------------------------------------------
Actual percentage 8.51% 8.51% 16.65%
Required percentage 3.00 1.50 8.00
- -----------------------------------------------------------------------
Excess percentage 5.51% 7.01% 8.65%
=======================================================================
Actual capital $347,837 $347,837 $376,201
Required capital 122,654 61,327 180,786
- -----------------------------------------------------------------------
Excess capital $225,183 $286,510 $195,415
=======================================================================
The following schedule reconciles stockholders' equity of the Company to
the components of regulatory capital of the Bank at June 30, 1995:
June 30,
Dollars in thousands 1995
- -----------------------------------------------------------------------
Stockholders' equity of the Company $366,626
Less: capitalization of the Company's
subsidiaries other than the Bank (10,380)
Less: capitalization of the Company 4,095
- -----------------------------------------------------------------------
Stockholder's equity of the Bank 360,341
Plus: unrealized loss on
available for sale securities 268
Less: investments in non-includable
subsidiaries (1,464)
Less: intangible assets (1,522)
- -----------------------------------------------------------------------
Tangible and core capital 357,623
Plus: allowable GVAs 27,984
- -----------------------------------------------------------------------
Risk-based capital $385,607
=======================================================================
During the first six months of 1995, the Bank's core and tangible
capital ratios increased 39 basis points, while the risk-based capital ratio
increased 64 basis points. The Bank's net income during the first half of
1995, net of dividends paid to St. Paul Bancorp, produced a large amount of the
improvement in the ratios. A decrease in regulatory assets and risk-weighted
assets also contributed to the higher ratios.
The OTS has issued notice of a proposed regulation that would require all
14
15
but the most highly-rated savings institutions to maintain a ratio of core
capital to total assets of between 4% and 5%. The Bank's excess core capital
would have been $196.9 million, if it had to meet a 4% core capital ratio as of
June 30, 1995, versus $237.1 million of excess core capital under current
requirements.
In 1993, the OTS issued a regulation that adds an interest rate risk
component to the risk-based capital requirement for "excess interest rate
risk." Under the new regulation, an institution is considered to have excess
interest rate risk if, based upon a 200-basis point change in market interest
rates, the market value of an institution's capital changes by more than 2%.
If a change greater than 2% occurs, one-half of the percent change in the
market value of capital in excess of 2% is added to the institution's
risk-based capital requirement. At June 30, 1995, the Bank does not have
"excess interest rate risk" as defined in the OTS regulation and currently is
not subject to an additional risk-based capital requirement. If the Bank would
become subject to an additional capital requirement for "excess interest rate
risk", then it has $207.1 million of excess risk-based capital at June 30, 1995
available to meet the higher capital requirement.
Under the Federal Deposit Insurance Corporation Improvement Act, the
OTS recently published regulations to ensure that its risk-based capital
standards take adequate account of concentration of credit risk, risk from
nontraditional activities, and actual performance and expected risk of loss on
multifamily mortgages. These rules allow regulators to impose, on a case by
case basis, an additional capital requirement above the current requirements
where an institution has significant concentration of credit risk or risks from
nontraditional activities.
The OTS may establish capital requirements higher than the generally
applicable minimum for a particular savings institution if the OTS determines
that the institution's capital was or may become inadequate in view of its
particular circumstances. Individual minimum capital requirements may be
appropriate where the savings institution is receiving special supervisory
attention, has a high degree of exposure to interest rate risk, or poses other
safety or soundness concerns. The Bank has no such requirements.
At June 30, 1995, the Bank is considered "well capitalized" under the
OTS' prompt corrective action regulations based upon ratios of Tier 1 leverage
capital, Tier 1 risk-based capital and total risk-based capital of 8.90%,
15.97%, and 17.29%, respectively.
15
16
CASH FLOW ACTIVITY
Sources of Funds. The major sources of funds during the six months ended June
30, 1995 included $211.9 million of principal repayments on loans receivable
and MBS, $165.9 million from the issuance of certificates of deposit ("CDs"),
and $56.9 million from the sale of fixed rate available for sale MBS.
Repayments of loans receivable and MBS were $211.9 million during the
first half of 1995 compared to $405.0 million in the same period in 1994, a
decline of $193.1 million or 47.7%. The rise in market interest rates during
1994 curtailed the level of loan refinancing activity, resulting in a steady
decline in loan repayments throughout 1994 and into early 1995. While
Management believes the repayment activity during 1995 will continue to be less
than that experienced in 1994, loan repayments during the second quarter of
1995 were slightly higher than the first quarter.
Management relied heavily on CD sales as a funding source during the
first six months of 1995. Promotional activities and an increase in offering
rates on new CD products have attracted depositors to CDs. As a result,
proceeds from the sale of CDs totaled $165.9 million in the first six months of
1995, or $22.7 million higher than the $143.3 million of proceeds received in
the same period of 1994.(3)
The slow down in fixed rate lending since the beginning of 1994
produced a decrease in loan sales, which totaled only $7.6 million in the first
half of 1995 compared to $54.5 million in the same period a year ago. A rise
in interest rates during 1994 curtailed the demand for fixed rate loans. The
demand remained low during the first half of 1995, resulting in the decline in
fixed rate originations and related sales during the first six months of 1995
as compared to the same period a year ago. Generally, the Bank's policy is to
sell conforming, fixed rate mortgage loans in the secondary market. See "NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS" for further details of loan origination
and sale commitments.
During the first six months of 1995, the Bank sold $56.9 million of fixed
__________________________________
(3) While the Bank has emphasized the sales of CDs, balances in savings
and money market accounts have decreased, resulting in a $12.2 million net
outflow in other deposit accounts during the first six months of 1995. In
contrast, during 1994, depositors preferred savings and money market accounts
while awaiting higher rate investment opportunities, resulting in a $63.4
million net inflow to non-CD deposit products during the first six months of
1994.
16
17
rate, available for sale MBS to provide additional liquidity. In comparison,
during the first six months of 1994, the Bank sold $15.5 million of available
for sale MBS and $70.2 million of available for sale marketable debt
securities, which provided additional liquidity for MBS acquisitions and loan
originations.
Uses of Funds. The major uses of funds during the six months
ended June 30, 1995 included $207.6 million of payments for maturing CDs,
$170.4 million of loans originated for investment, $42.5 million for the
purchase of available for sale MBS, and $26.1 million of repayments of short-
term and long-term borrowings.
Payments for maturing CDs decreased $32.8 million during 1995 to total
$207.6 million for the six months ended June 30, 1995. The Bank attempted to
retain more of its maturing CD balances by offering depositors higher rates and
other special promotions.
Loans originated for investment were $170.4 million during the first half
of 1995, or approximately 48% less than the $330.2 million of loan originations
during the same period in 1994. The Bank captured a significant amount of the
demand for adjustable rate mortgages in 1994 that resulted from the increase in
long-term market interest rates. Management expects loan origination volumes
during 1995 to be less than 1994. Although loan origination volumes have
declined, the origination of home equity and consumer loans during the first
six months of 1995 exceeded originations in 1994. Management hopes to continue
to increase these originations by expanding the Bank's telephone banking
center.
MBS purchases during the first six months of 1995 totaled $42.5
million, far less than the $632.0 million purchased during the same period in
1994. Management also purchased $50.7 million of marketable-debt securities
during the first half of 1994 compared to $236,000 in 1995. Management used
borrowings and liquidity to acquire MBS during the first six months of 1994 in
order to enhance investment income and net interest income.
During the first six months of 1995, liquidity was used to reduce
borrowing balances, as short-term and long-term borrowings were reduced by
$26.1 million. In contrast, during the first six months of 1994, borrowing
balances increased by $299.8 million. These borrowings were used to acquire
MBS and fund loan originations. See "COMPARISON OF THREE MONTHS ENDED JUNE 30,
1995 AND 1994 -- INTEREST EXPENSE" for further details.
17
18
Holding Company Liquidity. At June 30, 1995, St. Paul Bancorp, the holding
company, had $23.2 million of cash and cash equivalents, which included
amounts due from depository institutions, and marketable-debt securities with
original maturities of less than 90 days. St. Paul Bancorp also owned
$240,000 of marketable-debt securities at June 30, 1995, which collaterize
borrowings of the ESOP.
Sources of liquidity for St. Paul Bancorp during the first six months
of 1995 included $8.8 million of dividends from the Bank and $400,000 of
dividends from Annuity Network, Inc. Uses of St. Paul Bancorp's liquidity
during the first six months of 1995 included the acquisition of $5.4 million of
St. Paul Bancorp common stock under the stock repurchase program, the payment
of $2.8 million of dividends to shareholders, the payment of $1.4 million of
interest on the subordinated debt issued in February of 1993, and $350,000 to
fund the operations of St. Paul Financial Development Corporation. See
"STATEMENT OF CONDITION" for further discussion.
Regulatory Liquidity Requirements. Savings institutions must maintain average
daily balances of liquid assets equal to a specified percentage of the
institution's average net withdrawable deposits plus short-term borrowings.
Liquid assets include cash, certain time deposits, federal funds sold, certain
corporate debt securities, and securities of specified United States
government, state, or federal agency obligations. The Director of the OTS can
change this liquidity requirement from time to time to any amount within the
range of 4% to 10% of average deposits and short-term borrowings depending upon
the economic conditions and the deposit flows of savings institutions. The
current liquidity requirement is 5% of average deposits and short-term
borrowings. At June 30, 1995, the Bank had $225.5 million invested in liquid
assets, which exceeded the current requirement by $57.4 million. Up to certain
limits, the Bank can use FHLB advances, securities sold under agreements to
repurchase, and the issuance of mortgage-backed notes as additional sources of
liquidity.
18
19
RATE/VOLUME ANALYSIS
The following table presents the components of the changes in net interest
income by volume and rate(4) for the three months ended June 30, 1995 and 1994:
INCREASE/(DECREASE) DUE TO
---------------------------------
TOTAL
Dollars in thousands VOLUME RATE CHANGE
- ---------------------------------------------------------------------
CHANGE IN INTEREST INCOME:
Loans receivable $5,729 $ 804 $6,533
Mortgage-backed securities (1,410) 2,691 1,281
Marketable-debt securities (485) 121 (364)
Federal funds ( 28) 175 147
Other short-term investments (226) 311 85
--------
Total interest income 7,682
CHANGE IN INTEREST EXPENSE:
Deposits (297) 5,266 4,969
Short-term borrowings 2,210 174 2,384
Long-term borrowings 183 263 446
-------
Total interest expense 7,799
-------
NET CHANGE IN NET INTEREST INCOME
BEFORE PROVISION FOR LOAN LOSSES $(117)
========
__________________________________
(4) This analysis allocates the change in interest income and expense
related to volume based upon the change in average balances and prior periods
applicable yields or rates paid. The change in interest income and expense
related to rate is based upon the change in yields or rates paid and the prior
period average balances. Changes due to both rate and volume have been
allocated to volume and rate changes in proportion to the relationship of the
absolute dollar amounts of the change in each.
The effect of non-performing assets has been included in the rate variance.
19
20
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1995 AND 1994
General. Net income totaled $9.0 million during the three month period ended
June 30, 1995, or 5% higher than the $8.6 million net income during the same
period in 1994. The improvement in income was associated with a $1.1 million
increase in other income, a $554,000 decline in the loss on foreclosed real
estate, and a $300,000 decrease in the provision for loan losses. These
improvements were partly offset by a $1.1 million or 5% increase in general and
administrative expenses and slightly lower net interest income. The higher
level of pretax earnings in 1995 produced most of the $337,000 increase in
income tax expense.
While net income increased by 5% in the second quarter of 1995 as
compared to the same period in 1994, earnings per share increased 10% from
$0.42 during the second quarter of 1994 to $0.46 per share in 1995. The
acquisition of 1.2 million shares of Company stock through stock repurchase
programs provided a $0.03 or 7% improvement in earnings per share in 1995.
Net Interest Income. Net interest income totaled $29.0 million during the
three months ended June 30, 1995, nearly level with the same period in 1994.
Between the two periods, interest expense rose $7.8 million while interest
income improved by $7.7 million.
Although average interest earning asset levels expanded between the
two periods from $3.74 billion in the second quarter of 1994 to $3.88 billion
in the second quarter of 1995, net interest income declined slightly due to
contracting spreads. The net interest margin ("NIM") declined 13 basis points
from 3.11% for the second quarter of 1994 to 2.98% for the second quarter of
1995. Much of the decline in the NIM was associated with an increase in
deposit costs, as the Bank raised new offering rates on CDs in order to
maintain deposit balances. Also, Management leveraged the balance sheet in
recent periods by acquiring loans and MBS with borrowings. Management's goal
for these leveraged transactions was to preserve net interest income and return
on equity by expanding interest earning asset levels as the interest rate
spread contracted.
Interest Income. Interest income on loans receivable increased $6.5 million
over the second quarter of 1994. Both higher loan balances and yields produced
the increase in interest income. Average loan balances were $2.65 billion
during the three months ended June 30, 1995 up $301.7 million over $2.35
billion during the
20
21
same period in 1994. A record level of loan originations during 1994 and a
significant decrease in loan repayments since the beginning of 1994 allowed the
growth in the loan portfolio. The effective yield earned on loans increased 13
basis points to 7.61% during the second quarter of 1995 from 7.48% during the
second quarter of 1994. The higher effective yield was produced by upward
repricing of adjustable rate loans and lower interest reserves on delinquent
loans.
Despite higher short-term market interest rates since the beginning of
1994, the loan portfolio has been slow to reprice for several reasons. First,
approximately 27% of the loan portfolio were at their floors during the second
quarter of 1995. These assets will not reprice until their fully-indexed rates
exceed the floors. On average, the fully indexed rates of these loans were
below their floors by 74 basis points at June 30, 1995.(5) Second, cost of
funds indices comprise approximately 44% of the adjustable rate loan portfolio,
or 33% of the total loan portfolio. The movement in the cost of funds indices
lags behind movements in short-term market interest rates. Third, the
adjustable rate portfolio includes $536.7 million of loans (most of which were
originated in 1994) with initial fixed interest rate periods of three to five
years; most of these loans are not subject to repricing at this time.
Finally, at June 30, 1995 approximately $1.0 billion of loans receivable
contain interest rate cap provisions. Interest rate caps can limit upward
repricing on a periodic and life time basis. Most of the periodic interest
rate caps in the Bank's portfolio are 2%.
__________________________________
(5) The Bank derives a significant benefit from these interest
rate floors, although the size of the benefit has been substantially reduced as
market interest rates moved upward. Approximately 18 basis points of the 7.61%
effective loan yield, or approximately $1.2 million of interest income earned
during the second quarter of 1995, was attributable to interest rate floors on
Nationwide and 1-4 family loans. In comparison, during the second quarter of
1994, interest rate floors added 56 basis points to the loan yield, or $3.3
million to interest income.
At June 30, 1995, approximately $534.5 million of the Bank's
nationwide loans and approximately $30.5 million of the 1-4 family loans were
at their weighted average floor of 8.09%. Had the floors not been in effect on
these loans, their weighted average interest yield would have been 7.35%, or 74
basis point lower, which would have lowered the Bank's June 30, 1995 interest
rate spread by 11 basis points. In comparison, at Dec. 31, 1994, approximately
$613.4 million of nationwide loans and $41.9 million of 1-4 family loans were
at their weighted average floor of 7.94%. Had the floors not been in effect on
these loans, their weighted average interest yield would have been 6.65%, or
129 basis points lower, which would have lowered the Bank's interest rate
spread by 21 basis points.
21
22
Interest income from MBS increased $1.3 million from the second
quarter of 1994 to 1995. Higher effective yields on MBS was partly offset by
lower average balances. The average yield on MBS increased 100 basis points
from 5.30% in the second quarter of 1994 to 6.30% in second quarter of 1995.
In contrast to the loan portfolio, MBS yields benefited more substantially from
favorable repricing in the MBS portfolio. Most of the adjustable rate MBS
reprice with the six-month LIBOR and the one-year constant maturity Treasury
Bill. These indices track short-term interest rates better than the lagging
indices of the loans receivable portfolio. Average MBS balances decreased
$100.4 million during the second quarter of 1995 from the second quarter of
1994. The lower average MBS balances were effected by principal repayments and
the sale of $56.9 million of MBS during the first quarter of 1995. These
reductions in MBS balances were partly offset by the purchase of $42.5 million
of MBS during the first half of 1995.
Interest income from investments, which includes marketable
debt-securities, federal funds and other short-term investments, declined
$132,000 from the second quarter 1994 as the effect of lower average balances
was partly offset by the benefit of higher average yields. Average investment
balances declined from $248.4 million in the second quarter of 1994 to only
$189.7 million in 1995. The use of liquidity to acquire MBS and loans and to
fund net deposit outflows caused average balances to decline. The yield on
investments improved from 4.56% in the second quarter of 1994 to 5.70% in the
second quarter of 1995. Higher short-term market rates produced the higher
yield.
Interest Expense. Deposit interest expense increased $5.0 million, primarily
because of higher rates paid on deposits. The weighted average cost of
deposits jumped 71 basis points over the second quarter of 1994 and was the
single most significant cause for the contraction in net interest income and
the NIM. Interest rate movements during the past several years have affected
the Bank's current deposit interest costs. When interest rates declined in
1993, many depositors "parked" investment funds in savings accounts to wait for
more favorable rates for longer term investment. As expected, deposit balances
began to decline in 1994 as market interest rates increased, a trend that
continued into 1995. To help maintain deposit balances, Management focused its
marketing efforts on CDs. While special promotions and generally higher
offering rates on new CDs have limited the disintermediation of deposits to
other non-insured investments, it increased the relative size of the Bank's CD
portfolio and contributed to the increase in the weighted average cost of
deposits.
22
23
The use of borrowings to fund asset growth generated an additional
$2.8 million of interest expense on borrowings. Average borrowing balances
increased $154.5 million to total $439.8 million during the second quarter of
1995 as compared to $285.3 million during the second quarter of 1994. The use
of short-term borrowings to fund loan originations and deposit runoff produced
a $2.4 million increase in interest expense, while the slightly higher level of
long-term borrowing balances contributed $446,000 toward the increase in
borrowing interest expense. Most of the new borrowings were with the FHLB.(6)
Interest Rate Spread. The Bank's ability to sustain the current level of net
interest income during future periods is largely dependent upon the maintenance
of the interest rate spread (i.e., the difference between weighted average
rates on interest bearing assets and liabilities), the relative size of
interest earning assets compared to interest bearing liabilities, and asset
quality.
The interest rate spread was 2.58% at June 30, 1995 compared to 2.76% at
Dec. 31, 1994 and 2.98% at June 30, 1994. Rising interest costs of deposits,
partly offset by an increase in overall asset yields associated with favorable
repricing in the MBS and loan portfolios, produced the decline in the spread.
While the interest rate spread has decreased over the last twelve months, the
__________________________________
(6) To mitigate the interest rate risk on approximately $170 million of
fixed rate MBS, the Bank borrowed approximately $35 million of fixed rate FHLB
advances with put options and $135 million of floating rate borrowings hedged
by a $130 million notional amount interest rate exchange agreement with a
primary dealer. Under this agreement, the Bank receives a variable interest
rate, based upon a referenced index, and pays a fixed amount to the
counterparty. The Bank attempted to reduce its credit risk by obtaining an
unconditional guarantee from the parent company of the counterparty, which is
an A1/A+ rated securities dealer. The transaction was structured so as to
provide the Bank with an amortizing liability (comprised of specific borrowings
and the related interest rate exchange agreement) to match the duration of the
MBS, at a profitable spread for five years. If interest rates rise
significantly, the Bank may experience some contraction in the expected spread
on the transaction as discount accretion would slow. Any resultant imbalance
in funding would be provided by liquidity. If interest rates fall
significantly, the Bank should experience better than expected net interest
income on the transaction. The Bank can adjust the transaction by acquiring
additional assets or exercising its options to repay a portion of the debt
without penalty. In addition, the Bank acquired approximately $40 million of
adjustable rate MBS with variable rate FHLB advances. Caps and prepayment
rates experienced on those adjustable rate MBS (which were acquired at a
premium) impact the spread earned by the Bank on this transaction.
During 1995, the matched funding transaction described in this
footnote generated $2.0 million of net interest income and reduced the June 30,
1995 interest rate spread and NIM by approximately 6 basis points.
23
24
June 30, 1995 interest rate spread was level with the March 31, 1995 spread.
External forces, such as the performance of the economy, the actions
of the Board of Governors of the Federal Reserve System, and market interest
rates can significantly influence the size of the interest rate spread and are
beyond the control of Management. In response to these forces, Management
evaluates market conditions and deploys strategies that it believes will
produce a sustainable and profitable interest rate spread.
Management believes that several product related factors may continue
to pressure the Company's interest rate spread in the future. First, periodic
and lifetime interest rate caps on loans and MBS held in the Bank's portfolio
may limit repricing on loans and MBS. At June 30, 1995, approximately $1.0
billion of loans and $708 million of MBS contain interest rate cap provisions.
If interest rates remain at their current levels, approximately $369 million of
loans and $143 million of MBS are projected to hit their caps during the next
twelve months. Most of the periodic interest rate caps in the Bank's portfolio
are 2%.
Second, the Bank has $536.7 million of "adjustable" rate loans that
have initial fixed interest periods ranging from three to five years. Only a
nominal amount of these loans are scheduled to reprice during the next twelve
months.
Third, besides adjustable rate loans performing at initial fixed
interest rates, approximately $565.1 million of adjustable rate single family
and multifamily loans were at their interest rate floors at June 30, 1995.
While these floors provide a benefit to interest income by maintaining loan
rates at their floors, during periods of rising interest rates, the Bank's
interest expense could rise without a corresponding adjustment in interest
income from these loans until the floors are surpassed. Currently, loans at
their floors will not reprice until their fully indexed weighted average rates,
which was 7.35% at June 30, 1995, exceeds their weighted average floors of
8.05%.
Fourth, $1.0 billion of the Company's assets, including $559.7 million
of loans performing at their floors, are tied to indices whose movements lag
behind movements in market interest rates.
On the liability side, Management hopes that recent declines in
interest rates will slow net deposit outflows and decelerate the rise in
deposit costs
24
25
allowing deposit balances and costs to stabilize.(7)
Provision for Loan Losses. The Company recorded a $450,000 provision for loan
losses during the second quarter of 1995 compared to a $750,000 provision
recorded during the same period in 1994. See "CREDIT" for further discussion
of loss provisions and adequacy of the accumulated provisions for losses.
Other Income. Other income totaled $8.4 million during the three months ended
June 30, 1995, $1.1 million or 16% higher than other income of $7.3 million
recorded in the same period in 1994. Other servicing fees improved $1.3
million, primarily because of growth in the number of checking accounts,
introduction of new fees and general increases in existing fees, and the
expansion of the ATM network. Management expects other income in 1995 to
continue to exceed 1994.
Total revenues provided by the Company's other subsidiaries were about
the same during the two quarters. Revenues from real estate development
operations improved $150,000, primarily due to an increase in lot sales volume,
partly offset by a lower gross margin earned on the sales. Revenues from
discount brokerage activity declined $205,000 due to both a reduction in the
dollar volume of transactions and a decline in the average commission per
transaction. Also, lower transaction volumes, associated with an increase in
competition from other investment products, such as CDs, contributed to the
$20,000 decrease in insurance and annuity revenues.
General and Administrative Expense. General and administrative expenses
totaled $22.5 million during the second quarter of 1995, $1.1 million or 5%
higher than the same quarter in 1994. Most of the increases were associated
with a $716,000 or 15% increase in occupancy, equipment and other office
expense, and a $433,000 or 4% increase in compensation and benefits. The
increase in these costs largely resulted from annual salary increases, extended
hours at many Bank's branch facilities, and expanded of ATM operations.
As a retail depository institution emphasizing transaction accounts,
the Company's general and administrative expenses may be higher than other
institutions that do not provide such products. Nonetheless, Management of the
Company remains committed to controlling general and administrative costs to
help
__________________________________
(7) However, $389.5 million of checking account balances, which are mostly
noninterest bearing, help mitigate the overall effect of higher market interest
rates on the Bank's deposit interest costs.
25
26
protect against declines in net income. The Company was successful in holding
second quarter general and administrative expense at about the same level as
the first quarter expenses. Also, Management expects that the telephone
banking center will be a cost effective way of providing financial products to
consumers.
Operations of Foreclosed Real Estate. The Bank generated a net loss from its
foreclosed real estate operation of $227,000 during the second quarter of 1995,
$554,000 less than the loss during the same quarter in 1994. Lower provisions
for REO losses, partly offset by higher expenses to operate the properties,
produced the decrease between the two periods. See "CREDIT" for further
discussion of REO.
Income Taxes. Income taxes totaled $5.2 million or 36.4% of pretax income
during the second quarter of 1995 compared to $4.8 million or 35.9% of pretax
income during the same quarter in 1994. Most of the increase in income tax
expense was associated with the $746,000 increase in pretax income between the
two periods.
26
27
AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS
Three months ended June 30,
Dollars in thousands At June 30, 1995 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
Weighted Effective Effective
Yield/ Average Yield/ Average Yield/
Balance Rate Balance(a) Interest Rate Balance(a) Interest Rate
- ----------------------------------------------------------------------------------------------------------------------------
Investments:
Marketable-debt securities (b) $94,894 5.17% $98,081 $1,260 5.15% $136,483 $1,624 4.77%
Federal funds 34,200 6.14 30,093 454 6.05 32,884 307 3.74
Other investments (c) 57,861 6.18 61,554 980 6.39 78,985 895 4.54
- ----------------------------------------------------------------------------------------------------------------------------
Total investments 186,955 5.66 189,728 2,694 5.70 248,352 2,826 4.56
Mortgage-backed securities (b) 1,048,707 6.27 1,042,444 16,416 6.30 1,142,855 15,135 5.30
Loans receivable (d) 2,647,491 7.66 2,651,331 50,463 7.61 2,349,659 43,930 7.48
- ----------------------------------------------------------------------------------------------------------------------------
Total interest earning assets $3,883,153 7.19% $3,883,503 $69,573 7.17% $3,740,866 $61,891 6.62%
============================================================================================================================
Deposits:
Interest bearing checking $237,110 1.74% $233,088 $1,069 1.86% $240,669 $1,132 1.89%
Noninterest bearing checking 121,025 -- 118,788 -- -- 104,408 -- --
Other noninterest bearing accounts 31,995 -- 29,525 -- -- 39,307 -- --
Money market accounts 215,490 3.12 217,535 1,687 3.15 292,481 1,974 2.71
Savings accounts 726,275 2.41 727,523 4,396 2.45 828,686 5,187 2.51
Certificates of deposit 1,847,176 5.83 1,858,752 26,003 5.67 1,713,265 19,893 4.66
- ----------------------------------------------------------------------------------------------------------------------------
Total deposits 3,179,071 4.28 3,185,211 33,155 4.22 3,218,816 28,186 3.51
Borrowings:
Short-term borrowings (e) 200,285 6.50 173,194 2,715 6.29 29,304 331 4.53
Long-term borrowings (e) 266,558 7.11 266,621 4,743 7.14 255,993 4,297 6.73
- ---------------------------------------------------------------------------------------------------------------------------
Total borrowings 466,843 6.85 439,815 7,458 6.80 285,297 4,628 6.51
- ----------------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities $3,645,914 4.61% $3,625,026 $40,613 4.49% $3,504,113 $32,814 3.76%
============================================================================================================================
Excess of interest earning assets
over interest bearing liabilities $237,239 $258,477 $236,753
============================================================================================================================
Ratio of interest earning assets over
interest bearing liabilities 1.07 1.07 1.07
============================================================================================================================
Net interest income - $28,960 $29,077
============================================================================================================================
Interest rate spread 2.58% - -
============================================================================================================================
"Average" interest rate spread - 2.67% 2.86%
============================================================================================================================
Net yield on average earning assets - 2.98% 3.11%
============================================================================================================================
(a) All average balances based on daily balances.
(b) Average balances exclude the effect of unrealized gains or losses.
(c) Includes investment in Federal Home Loan Bank stock, deposits at Federal
Home Loan Bank, and other short-term investments.
(d) Includes loans held for sale and loans placed on nonaccrual.
(e) Includes FHL Bank advances, floating rate notes, other borrowings,
subordinated capital notes. The ESOP loan is excluded in periods prior to
1994.
27
28
RATE/VOLUME ANALYSIS
The following table presents the components of the changes in net interest
income by volume and rate(8) for the six months ended June 30, 1995 and 1994:
INCREASE/(DECREASE) DUE TO
----------------------------------
TOTAL
Dollars in thousands VOLUME RATE CHANGE
- ---------------------------------------------------------------------
CHANGE IN INTEREST INCOME:
Loans receivable $11,012 $ (214) $10,798
Mortgage-backed securities 3,633 4,688 8,321
Marketable-debt securities (1,258) 385 (873)
Federal funds (321) 454 133
Other short-term investments (2,035) 1,242 (793)
--------
Total interest income 17,586
CHANGE IN INTEREST EXPENSE:
Deposits (638) 8,688 8,050
Short-term borrowings 5,526 167 5,693
Long-term borrowings 3,854 5 3,859
-------
Total interest expense 17,602
-------
NET CHANGE IN NET INTEREST INCOME
BEFORE PROVISION FOR LOAN LOSSES $ (16)
========
__________________________________
(8) This analysis allocates the change in interest income and expense
related to volume based upon the change in average balances and prior periods
applicable yields or rates paid. The change in interest income and expense
related to rate is based upon the change in yields or rates paid and the prior
period average balances. Changes due to both rate and volume have been
allocated to volume and rate changes in proportion to the relationship of the
absolute dollar amounts of the change in each.
The effect of non-performing assets has been included in the rate variance.
28
29
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1995 AND 1994
General. Net income for the first six months of 1995 totaled $18.0 million,
or 7% higher than the $16.8 million of net income reported during the same
period in 1994. The higher level of income in 1995 was associated with higher
other income of $1.8 million, a $1.6 million lower provision for loan losses,
and a $585,000 reduction in operating expenses for foreclosed real estate.
These increases in income were partly offset by a $1.9 million increase in
general and administrative expenses. The higher level of pretax earnings in
1995 generated most of the $882,000 increase in income tax expense.
While net income increased by 7% in the first half of 1995 as compared
to the same period in 1994, earnings per share increased 13% from $0.82 during
the first six months of 1994 to $0.93 per share in 1995. The acquisition of
1.2 million shares of Company stock through stock repurchase programs provided
a $0.06 or 7% improvements in earnings per share in 1995.
Net Interest Income. Net interest income was level between the two year to
date periods at $58.6 million. A $17.6 million increase in interest income was
offset by a $17.6 million increase in interest expense. Although average
interest earning assets levels expanded between the two periods from $3.64
billion in the first six months of 1994 to $3.91 billion in the first six
months of 1995, net interest income remained relatively unchanged due to
contracting spreads. The net interest margin ("NIM") declined 22 basis points
from 3.22% for the first half of 1994 to 3.00% during the same period in 1995.
Much of the decline in NIM was associated with an increase in deposit costs, as
the Bank raised new offering rates on CDs to maintain deposit balances. Also,
Management leveraged the balance sheet in recent periods by acquiring loans and
MBS with borrowings. Management's goal for these leveraged transactions was to
preserve net interest income and return on equity by expanding interest earning
asset levels as the interest rate spread contracted. See "COMPARISON OF THREE
MONTHS ENDED JUNE 30, 1995 AND 1994" for discussion of the interest rate
spread.
Interest Income. Interest income on loans receivable increased $10.8 million
during the first six months of 1995 compared to the same period in 1994,
primarily due to higher average loan balances. Average loan balances rose
$291.9 million to total $2.64 billion for the six months ended June 30, 1995.
The record level of loan originations during 1994 and lower level of loan
repayments
29
30
allowed the growth in the loan portfolio. The effective yield earned on loans
decreased 2 basis points from 7.56% in the first half of 1994 to 7.54% during
the first half of 1995. The origination of loans at weighted average yields
below the yield of the entire portfolio and the payoff of older, higher
yielding loans eliminated most of the benefit from upward repricing in the
adjustable rate portion of the portfolio. Since most of the benefit to
interest income provided by upward repricing of the adjustable rate portfolio
occurred during the second quarter of 1995, the loan yield for the second
quarter of 1995 as compared to the second quarter of 1994 increased while the
loan yield for the six month period slightly declined.
Interest income from MBS increased $8.3 million because of both higher
effective yields and average balances. The average yield on MBS was 6.26%
during the first six months of 1995, or 92 basis points higher than the same
period in 1994. Upward repricing of adjustable rate securities generated most
of the improvement in yield. Average MBS balances increased $126.6 million
during the first half of 1995 over the same period in 1994. The purchase of
$632.0 million of MBS during 1994 (primarily in March and April of 1994),
partly offset by principal repayments and the sale of $56.9 million of MBS
during 1995 produced the higher average balances.
Interest income from investments declined $660,000 over the first half
of 1994 as a result of lower average balances, partly offset by higher average
yields. Average investment balances dropped $149.5 million from $342.5 million
during the first six months of 1994 to $193.0 million during the same period in
the current year. The use of liquidity to acquire MBS and originate loans and
to fund net deposit outflows caused average balances to decline. The yield on
investment improved to 5.63% in the six month period ended June 30, 1995 from
4.08% in the same period in 1994. The higher effective yield was produced by
an increase in short-term market rates since the beginning of 1994.
Interest Expense. Deposit interest expense rose $8.1 million during the first
six months of 1995, primarily as a result of higher rates paid on deposits.
The weighted average cost of deposits increased 55 basis points over the first
half of 1994 and was the single most significant cause for the contraction in
net interest income and the NIM. Management has used special promotions and
higher offering rates on new CDs to limit the disintermediation of deposits to
other non-insured investments. As a result, the relative size of the Bank's CD
portfolio has increased, which also has increased the weighted average cost of
30
31
deposits.
The use of borrowings to fund asset growth produced the $9.6 million
increase in interest expense on borrowings. Average borrowing balances rose
$289.1 million to total $464.9 million during the first six months of 1995 as
compared $175.8 million during the same period in 1994. The use of short-term
borrowings to fund loan originations and deposit runoff produced a $5.7 million
increase in interest expense, while the use of long-term borrowing balances to
fund MBS acquisitions contributed $3.9 million toward the increase in borrowing
interest expense.
Provision for Loan Losses. The Company recorded a provision for loan losses of
$1.1 million during the first half of 1995 compared to a $2.7 million provision
recorded during the same period in 1994. See "CREDIT" for further discussion
of loss provisions and adequacy of the accumulated provisions for losses.
Other Income. Other income totaled $16.4 million during the first six months
of 1995, $1.8 million or 13% higher than other income of $14.6 million recorded
in the same period in 1994. Other servicing fees improved $2.6 million,
primarily because of growth in the number of checking accounts, introduction of
new fees and general increases in existing fees, and the expansion of the ATM
network. Gains on asset sales increased $406,000 during the first six months
of 1995 as compared to the same period in 1994. Gains recorded in 1995
resulted from the sale of $56.9 million of available for sale MBS. In
comparison, gains recorded in 1994 resulted from the sale of $15.5 million of
available for sale MBS. See "CASH FLOW ACTIVITY" for further details.
Revenues from other subsidiaries were down substantially during the
six months ended June 30, 1995 as compared to the same period a year ago.
Revenues from discount brokerage operations declined $731,000, largely due a
decrease in transaction volume and lower average commission per transaction.
Insurance and annuity revenues declined $262,000 in 1995 as a result of a 25%
decrease in transaction volumes. Lower gross margins earned on lot and home
sales produced the $71,000 decrease in revenues from real estate development
operations.
The $227,000 decline in other income was associated with interest on
income tax refunds received during 1994.
General and Administrative Expense. General and administrative expenses
totaled
31
32
$45.1 million during the first half of 1995, $1.9 million or 4% higher than the
same period in 1994. A $1.2 million or 12% increase in occupancy, equipment
and other office expense and a $768,000 or 3% increase in compensation and
benefits produced most of the increase in general and administrative expenses.
The increase in these costs largely resulted from two additional branch
locations, annual salary increases, extended hours at branch facilities, and
expanded of ATM operations.
Operations of Foreclosed Real Estate. The Bank generated a net loss from its
foreclosed real estate operation of $656,000 during the first half of 1995,
almost half of the loss recorded during the same period in 1994. Lower
provisions for REO losses produced the decrease between the two periods. See
"CREDIT" for further discussion of REO.
Income Taxes. Income taxes totaled $10.2 million or 36.1% of pretax income
during the first six months of 1995 compared to $9.3 million or 35.6% of pretax
income during the same six month period in 1994. Most of the increase in
income tax expense was associated with the $882,000 increase in pretax income
between the two periods.
32
33
AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS
Six months ended June 30,
Dollars in thousands At June 30, 1995 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------
Weighted Effective Effective
Yield/ Average Yield/ Average Yield/
Balance Rate Balance(a) Interest Rate Balance(a) Interest Rate
- ----------------------------------------------------------------------------------------------------------------------------
Investments:
Marketable-debt securities (b) $94,894 5.17% $99,637 $2,529 5.12% $150,733 $3,402 4.55%
Federal funds 34,200 6.14 30,136 897 6.00 45,660 764 3.37
Other investments (c) 57,861 6.18 63,273 1,966 6.27 146,144 2,759 3.81
- ----------------------------------------------------------------------------------------------------------------------------
Total investments 186,955 5.66 193,046 5,392 5.63 342,537 6,925 4.08
Mortgage-backed securities (b) 1,048,707 6.27 1,073,991 33,600 6.26 947,367 25,279 5.34
Loans receivable (d) 2,647,491 7.66 2,641,536 99,633 7.54 2,349,597 88,835 7.56
- ----------------------------------------------------------------------------------------------------------------------------
Total interest earning assets $3,883,153 7.19% $3,908,573 $138,625 7.10% $3,639,501 $121,039 6.65%
============================================================================================================================
Deposits:
Interest bearing checking $237,110 1.74% $234,360 $2,134 1.84% $241,690 $2,246 1.87%
Noninterest bearing checking 121,025 -- 114,297 -- -- 100,225 -- --
Other noninterest bearing accounts 31,995 -- 28,984 -- -- 41,917 -- --
Money market accounts 215,490 3.12 226,101 3,492 3.11 295,605 3,966 2.71
Savings accounts 726,275 2.41 737,892 8,900 2.43 819,714 10,221 2.51
Certificates of deposit 1,847,176 5.83 1,849,537 49,918 5.44 1,728,105 39,961 4.66
- ----------------------------------------------------------------------------------------------------------------------------
Total deposits 3,179,071 4.28 3,191,171 64,444 4.07 3,227,256 56,394 3.52
Borrowings:
Short-term borrowings (e) 200,285 6.50 195,555 6,030 6.22 14,919 337 4.56
Long-term borrowings (e) 266,558 7.11 269,310 9,572 7.17 160,874 5,713 7.16
- ---------------------------------------------------------------------------------------------------------------------------
Total borrowings 466,843 6.85 464,865 15,602 6.77 175,793 6,050 6.94
- ----------------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities $3,645,914 4.61% $3,656,036 $80,046 4.42% $3,403,049 $62,444 3.70%
============================================================================================================================
Excess of interest earning assets
over interest bearing liabilities $237,239 $252,537 $236,452
============================================================================================================================
Ratio of interest earning assets over
interest bearing liabilities 1.07 1.07 1.07
============================================================================================================================
Net interest income - $58,579 $58,595
============================================================================================================================
Interest rate spread 2.58% - -
============================================================================================================================
"Average" interest rate spread - 2.68% 2.95%
============================================================================================================================
Net yield on average earning assets - 3.00% 3.22%
============================================================================================================================
(a) All average balances based on daily balances.
(b) Average balances exclude the effect of unrealized gains or losses.
(c) Includes investment in Federal Home Loan Bank stock, deposits at Federal
Home Loan Bank, and other short-term investments.
(d) Includes loans held for sale and loans placed on nonaccrual.
(e) Includes FHL Bank advances, floating rate notes, other borrowings,
subordinated capital notes. The ESOP loan is excluded in periods prior to
1994.
33
34
KEY CREDIT STATISTICS
June 30, 1995 Dec. 31, 1994 Dec. 31, 1993
Dollars in thousands Dollar % Dollar % Dollar %
- ---------------------------------------------------------------------------------------------
LOAN PORTFOLIO
- ---------------------------------------------------------------------------------------------
MORTGAGE LOANS
1-4 family units $1,548,459 60% $1,530,132 59% $1,190,273 51%
Multifamily units 995,979 38 993,122 38 1,057,571 46
Commercial 61,499 2 63,983 3 73,029 3
Land and land development 2,570 * 224 * 10,307 *
- ---------------------------------------------------------------------------------------------
Total mortgage loans $2,608,507 100% $2,587,461 100% $2,331,180 100%
=============================================================================================
CONSUMER LOANS
Secured by deposits $ 2,115 9% $ 1,928 8% $ 2,300 11%
Education (guaranteed) 197 1 584 3 2,166 11
Home improvement 759 3 832 4 1,110 6
Auto 20,643 86 19,392 83 13,971 71
Personal 214 1 380 2 166 1
- ---------------------------------------------------------------------------------------------
Total consumer loans $ 23,928 100% $ 23,116 100% $ 19,713 100%
- ---------------------------------------------------------------------------------------------
Total loans held for investment $2,632,435 $2,610,577 $2,350,893
=============================================================================================
Weighted average rate 7.66% 7.51% 7.88%
=============================================================================================
*Less than 1%
NONPERFORMING ASSETS
- --------------------------------------------------------------------------------------------
MORTGAGE LOANS
1-4 family units $ 5,721 27% $ 5,584 21% $ 11,202 23%
Multifamily units 1,098 5 3,813 14 12,908 26
Commercial 190 1 437 1 2,597 5
Land and land development --- -- --- -- 2,406 5
- ---------------------------------------------------------------------------------------------
Total mortgage loans 7,009 33 9,834 36 29,113 59
CONSUMER LOANS 122 1 101 * 555 1
REAL ESTATE OWNED
1-4 family units 4,397 21 4,585 17 4,925 10
Multifamily units 8,053 38 10,753 40 14,998 30
Commercial 1,507 7 1,818 7 --- --
Land and land development --- -- --- -- --- --
- ---------------------------------------------------------------------------------------------
Total real estate owned 13,957 66 17,156 64 19,923 40
- ---------------------------------------------------------------------------------------------
Total nonperforming assets $ 21,088 100% $ 27,091 100% $ 49,591 100%
=============================================================================================
*Less than 1%
June 30, Dec. 31, Dec. 31,
1995 1994 1993
- ---------------------------------------------------------------------------------------------
KEY CREDIT RATIOS
- ---------------------------------------------------------------------------------------------
Net loan charge-offs to average loans receivable 0.16% 0.39% 0.56%
Net California loan charge-offs to average California
loans receivable 0.49 1.21 1.52
Loan loss reserve to total loans 1.57 1.62 1.98
Loan loss reserve to nonperforming loans 578.21 424.72 156.99
Nonperforming assets to total assets 0.52 0.66 1.34
General valuation allowance to non-
performing assets 178.39 143.24 85.41
General valuation allowance to non-
performing assets, plus TDR's 178.39 143.24 64.92
- ---------------------------------------------------------------------------------------------
34
35
CREDIT
LENDING
At June 30, 1995, the loans receivable portfolio was primarily
comprised of mortgages on 1-4 family residences and multifamily dwellings. The
loan portfolio also included, but to a much lesser extent, commercial real
estate loans, land loans, and consumer loans. See "KEY CREDIT STATISTICS" for
further details.
At June 30, 1995, non-performing loans totaled $7.1 million compared
to $9.9 million at Dec. 31, 1994.(9) The repayment of $3.0 million of delinquent
loans, the transfer of $2.5 million of delinquent loans to REO, and charge-offs
of $962,000 primarily produced the lower level of non-performing loans. These
decreases were partly offset by the addition of $4.6 million of loans to a
non-performing status.
At June 30, 1995, the Bank had a net investment of $31.5 million in
loans considered impaired under the loan impairment accounting standards.(10)
In comparison, the Bank had a net investment of $24.8 million in impaired loans
at Dec. 31, 1994.(11) During the first half of 1995, the Bank classified an
additional $21.0 million of performing multifamily loans as impaired.
Offsetting this increase were the following reductions: 1) a recovery of
equity and removal from impaired loans of two multifamily loans totaling $8.1
million, 2) the payoff of a $2.7 million, impaired multifamily loan, and 3) the
transfer of $2.5 million of loans to REO. At June 30, 1995, all of the $31.5
million of impaired loans were performing loans, but were considered impaired
because it is probable, based upon current information and events, that the
Bank will be unable to collect all amounts due in accordance with the original
contractual agreement. In
__________________________________
(9) Of the $7.1 million of non-performing loans at June 30, 1995, $1.1
million were secured by multifamily real estate located in California. Of the
$9.9 million of non-performing loans at Dec. 31, 1994, $1.9 million were
secured by multifamily real estate located in California.
(10) Statement of Financial Accounting Standard ("SFAS") No. 114
"Accounting by Creditors for Impairment of a Loan", as amended by SFAS No. 118
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosure."
(11) At June 30, 1995, of the $31.5 million of loans considered impaired,
$19.2 million were loans secured by real estate located in California. At Dec.
31, 1994, of the $24.8 million of loans considered impaired, $11.3 million were
loans secured by real estate located in California.
35
36
comparison, of the $24.8 million of impaired loans at Dec. 31, 1994, $22.9
million were performing and $1.9 million were non-performing loans.
The accumulated provision for loan losses at June 30, 1995 was $41.2
million compared to $42.2 million at Dec. 31, 1994, a decrease of $1.0 million.
The following table provides activity in the accumulated provision for loan
losses from Jan. 1, 1994 through June 30, 1995:
1995 1994
-------------- ---------------------------
Six Months Six Months Year Ended
Dollars in thousands Ended June 30 Ended June 30 Dec. 31
- -------------------- -------------- ---------------------------
Beginning of Period $42,196 $46,574 $46,574
Provision for losses 1,100 2,700 5,150
Charge-offs (3,849) (7,743) (10,243)
Recoveries 1,785 176 715
---------------- ---------------------------
End of Period $41,232 $41,707 $42,196
=============== ===========================
General valuation allowances are evaluated based on a careful
evaluation of the various risk components that are inherent in each of the loan
portfolios, including off-balance sheet items. The risk components which are
evaluated include the level of non-performing and classified assets, geographic
concentrations of credit, economic conditions, trends in real estate values,
the impact of changing interest rates on borrower debt service, as well as
historical loss experience, peer group comparisons, and regulatory guidance.
The loan loss provision recorded during the six months ended June 30,
1995 was $1.1 million compared to $2.7 million during the six months ended June
30, 1994. Recoveries of $1.8 million during the first half of 1995 as well as
a 50% reduction in total charge-offs allowed the Bank to retain an adequate
level of valuation allowances while reducing provisions. The lower provision
also reflects a reduction in classified loans, lower non-performing assets,
and a lower multifamily portfolio balance. See "KEY CREDIT STATISTICS" for
further details.
As of June 30, 1995, the Bank's ratio of classified assets to tangible
capital and general valuation allowance was 48.4%, a significant drop from the
ratio reported at Dec. 31, 1994 of 56.1%.
36
37
The adequacy of the accumulated provision for loan losses is approved on a
quarterly basis by the Loan Loss Reserve Committee ("Reserve Committee") of the
Bank's Board of Directors. The accumulated provision for loan losses reflects
Management's best estimate of the reserves needed to provide for impairment of
multifamily and commercial real estate loans as well as other perceived credit
risks of the Bank. However, actual results could differ from this estimate and
future additions to the reserves may be necessary based on unforeseen changes
in economic conditions. In addition, federal regulators periodically review
the Bank's accumulated provision for losses on loans. Such regulators have the
authority to require the Bank to recognize additions to the reserves at the
time of their examinations.
Management continues to monitor events in particular submarkets of
California and Washington in which the Bank has substantial loan
concentrations. Although some softness persists in certain areas, Management is
not aware of any changes in those economies that would have a significant
adverse effect on the Bank's loan portfolio.
Approximately 75% of the Bank's multifamily and commercial loan
portfolio is scheduled to mature during the next three years. Management is
actively working with borrowers whose loans mature in 1995 to 1996 to either
refinance or repay the mortgage loans, depending upon the credit
characteristics. Management is also developing strategies for ensuring
repayment of those mortgage loans maturing after 1996.
Net loan charge-offs declined during the current year. During the
first six months of 1995, $2.1 million of net charge-offs were recorded
compared to $7.6 million during the same period in 1994. Most of these
charge-offs related to the Bank's nationwide multifamily and commercial real
estate loan portfolio. Net loan charge-offs to average loans receivable
totaled 0.16% during the first six months of 1995. In comparison, the
Company's net loan charge-offs in 1994 and 1993 were equivalent to 0.39% and
0.56% of average loans receivable, respectively. See "KEY CREDIT STATISTICS"
for further details.
The $2.1 million of net loan charge-offs in the first half of 1995
included $3.4 million of charge-offs on loans considered impaired under SFAS
No. 114, $220,000 of charge-off on 1-4 family and consumer loans, and $157,000
of early prepayment inducements. These charge-offs were partly offset by $1.7
million of recoveries on multifamily loans located in Colorado, California, and
Washington.
37
38
OTHER REAL ESTATE OWNED ("REO")
REO totaled $14.0 million at June 30, 1995 compared to $17.2 million
at the end of 1994.(12) During the six months ended June 30, 1995, three
multifamily properties totaling $7.3 million were sold while two multifamily
loans totaling $2.5 million were transferred to REO and $1.4 million of
capital improvements were made on existing REO assets.
The accumulated provision for real estate losses totaled $1.4 million at
June 30, 1995 compared to $2.0 million at Dec. 31, 1994. In accordance with
the Company's accounting policy, REO assets are initially recorded at the lower
of their net book value or fair value, less estimated selling costs. The
accumulated provision for loan losses is charged for any excess of net book
value over fair value at the foreclosure, or in-substance foreclosure, date.
After foreclosure, the accumulated provision for foreclosed real estate losses
is used to establish SVA on individual REO properties as declines in market
value occur and to provide general valuation allowances for possible losses
associated with risks inherent in the REO portfolio.
__________________________________
(12) At June 30, 1995, there were no properties located in California
included in REO. Of the $17.2 million of REO at Dec. 31, 1994, $4.1 million
were multifamily properties located in California.
38
39
ASSET/LIABILITY REPRICING SCHEDULE
at June 30, 1995
----------------------------------------------------------------------------------
Weighted More than 6
Average % of 6 Months months to Over
Rate Balance Total or less 1 year 1-3 years 3-5 years 5 years
-------------------------------------------------------------------------------------------------------------------------
RATE SENSITIVE ASSETS: (Dollars in thousands)
Investments:(a)
Adjustable rate 5.69% $56,923 1% $46,972 $9,951 - - -
Fixed rate 5.65 130,032 3 23,554 240 69,934 - 36,304
Mortgage-backed securities:(b)
Adjustable rate 5.85 707,143 18 399,077 308,066 - - -
Fixed rate 7.14 341,564 9 21,947 3,636 85,534 57,444 173,003
Mortgage loans:(b)
Adjustable and renegotiable rate 7.51 2,074,339 54 1,190,681 320,800 388,538 174,320 -
Fixed rate 8.23 534,168 14 41,918 77,429 133,379 104,159 177,283
Consumer loans (b) 7.76 23,928 1 3,719 2,256 7,205 5,383 5,365
Assets held for sale 8.74 15,056 * 15,056 - - - -
--------------------------------------------------------------------------------
Total rate sensitive assets 7.19% $3,883,153 100% $1,742,924 $722,378 $684,590 $341,306 $391,955
================================================================================
RATE SENSITIVE LIABILITIES:
Deposits:
Checking accounts 1.06% $389,547 11% $103,761 $22,304 $73,116 $52,827 $137,539
Savings accounts 2.41 726,416 20 239,646 45,981 144,403 97,096 199,290
Money market deposit accounts 3.12 215,932 6 215,932 - - - -
Fixed-maturity certificates 5.83 1,847,176 51 990,973 352,013 319,988 121,292 62,910
--------------------------------------------------------------------------------
4.28 3,179,071 88 1,550,312 420,298 537,507 271,215 399,739
Borrowings:
FHLB advances 6.61 336,684 9 335,000 285 314 - 1,085
Other borrowings 7.27 113,759 3 78,883 33,583 1,293 - -
Mortgage-backed note 8.82 16,400 * - - - 16,400 -
--------------------------------------------------------------------------------
6.85 466,843 12 413,883 33,868 1,607 16,400 1,085
--------------------------------------------------------------------------------
Total rate sensitive liabilities 4.61% $3,645,914 100% $1,964,195 $454,166 $539,114 $287,615 $400,824
================================================================================
Excess (deficit) of rate sensitive assets
over rate sensitive liabilities (GAP) 2.58% $237,239 $(221,271) $268,212 $145,476 $53,691 $(8,869)
================================================================================
Cumulative GAP $(221,271) $46,941 $192,417 $246,108 $237,239
Cumulative GAP to total assets without
regard to hedging transactions -5.44% 1.15% 4.73% 6.05% 5.83%
Cumulative GAP to total assets with
impact of hedging transactions -2.21% 4.38% 7.77% 6.05% 5.83%
* Less than one percent.
(a) Includes investment in FHLB stock.
(b) Excludes accrued interest and accumulated provisions for loan losses.
The mortgage loan repricing/maturity projections were based upon
principal repayment percentages in excess of the contractual amortization
schedule of the underlying mortgages. Multifamily mortgages were
estimated to be prepaid at a rate of approximately 8% per year;
adjustable rate mortgage loans on single family residences and loan
securities were estimated to prepay at a rate of 12% per year; fixed rate
loans and loan securities were estimated to prepay at a rate of 10% per
year. Loans with an adjustable rate characteristic, including loans with
initial fixed interest rate periods, are considered by Management to have
an adjustable rate. Checking accounts were estimated to be withdrawn at
rates between 15% and 21% per year. Most of the regular savings
accounts were estimated to be withdrawn at rates between 18% and 26% per
year, although for some of the accounts, Management assumed an even faster
rate. Except for multifamily loans, the prepayment assumptions included
in this schedule are based upon the Bank's actual prepayment
experience over the past year, as well as Management's future
expectations of prepayments. The Bank assumed a prepayment percentage
of 8% because of current market conditions and the nature of the
Bank's multifamily portfolio. The new decay assumption on passbook and
checking accounts is based on a historical regression analysis of the
Bank's growth in these accounts.
39
40
PART II. -- OTHER INFORMATION
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) On May 3, 1995, the Company held an Annual Meeting of Shareholders
(the "Annual Meeting") to elect four directors for a term of three
years, ratify the Company's 1995 Incentive Plan, and ratify the
appointment of the Company's independent auditors for the fiscal year
ending December 31, 1995.
(b) Set forth below is a description of each matter voted upon at the
Annual Meeting and the number of votes cast for and the number if
votes withheld as to each such matter.
1. Four directors were elected for a term of three years, or
until their successors have been elected and qualified. A
list of such directors, including the votes for and withheld
is set forth below:
Withhold
Authority
Nominees For To Vote
-------- --------------------------------
Patrick J. Agnew 15,653,570 485,139
William A. Anderson 15,773,598 405,111
Alan J. Fredian 15,743,431 395,278
Jean C. Murray, O.P. 15,732,916 405,793
2. The Company's 1995 Incentive Plan was approved. There were
13,876,309 votes cast for the proposal, 1,935,624 votes
against the proposal, and 246,186 votes abstained.
3. The appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31,
1995 was ratified. There were 15,847,938 votes cast for the
proposal, 189,855 votes against the proposal, and 100,916
votes abstained.
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 10, Material Contracts.
(i) 1995 Incentive Plan.
(ii) Amendments to Employment Agreements, dated
as of May 22, 1995, among St. Paul Bancorp, Inc.,
St. Paul Federal Bank For Savings, and Joseph C. Scully
and Patrick J. Agnew, respectively.
(iii) Amendments to Severance Payment Agreements,
dated as of May 22, 1995, among St. Paul Bancorp, Inc.,
St. Paul Federal Bank For Savings, and Thomas J. Rinella,
Donald G. Ross, Clifford M. Sladnick, and Robert N.
Parke, respectively.
40
41
(b) Exhibit 11, Statement re: Computation of Per Share Earnings.
(c) Exhibit 27, Financial Data Schedule.
(d) (i) The Company filed a current report on Form 8-K on April 18, 1995
announcing the Company's filing of an application with the Office of
the Comptroller of the Currency for a de novo commercial bank charter
and the completion of a stock repurchase program that begin in July
1994.
41
42
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ST. PAUL BANCORP, INC.
----------------------
(Registrant)
Date: August 11, 1995 By: /s/ Joseph C. Scully
--------------------------
Joseph C. Scully
Chairman of the Board and Chief Executive Officer
(Duly Authorized Officer)
Date: August 11, 1995 By: /s/ Robert N. Parke
-------------------------
Robert N. Parke
Senior Vice President and Treasurer
(Principal Financial Officer)
42
43
EXHIBIT 10 (i)
ST. PAUL BANCORP, INC.
1995 INCENTIVE PLAN
St. Paul Bancorp, Inc. (the "Company") sets forth herein the terms of
this 1995 Incentive Plan (the "1995 Plan") as follows:
1. PURPOSES
The 1995 Plan is intended to advance the interests of the Company and
align the interests of the Company's shareholders with those of the Company's
directors, officers and key employees by providing such recipients of awards
under the 1995 Plan with an opportunity to acquire or increase a proprietary
interest in the Company and by providing such individuals with personal
financial stakes in the growth and performance of the Company, which thereby
will create a stronger incentive to expend maximum effort for the growth and
success of the Company and its subsidiaries, and will encourage such eligible
individuals to remain in the employ or service of the Company or that of one or
more of its subsidiaries. Awards under the 1995 Plan may be granted in the form
of (i) options to purchase shares of the Company's Common Stock, par value $.01
per share (the "Stock"), (ii) shares of restricted stock, (iii) performance
shares or (iv) performance units. Options granted to officers or other key
employees of the Company or any "subsidiary corporation" thereof within the
meaning of Section 424(f) of the Code (a "Subsidiary") may be accompanied by
stock appreciation rights ("SARs") or limited stock appreciation rights
("LSARs"). An Option granted to officers or other key employees of the
Company or a Subsidiary under the Plan (an "Option") may be in the form of
(i) an "incentive stock option" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended, or the corresponding provision of
any subsequently-enacted tax statute, as amended from time to time (the
"Code") ("Incentive Stock Option"), except to the extent that any such
Option would exceed the limitations set forth in Section 6(b) below; or (ii) a
non-qualified stock option. Options granted to directors who are not officers
or other salaried employees of the Company or any of its Subsidiaries
("Non-Employee Directors") shall be in the form of non-qualified stock
options.
2. ADMINISTRATION
(a) Board. The Plan shall be administered by the Board of Directors of the
Company (the "Board"), which shall have the full power and authority to take
all actions, and to make all determinations required or provided for under the
Plan or any Option, SAR, LSAR, shares of restricted stock, performance unit or
performance share or any written agreement (an "Agreement") evidencing an
award hereunder between the Company and the recipient of such award (a
"Grantee") entered into hereunder and all such other actions and
determinations not inconsistent with the specific terms and provisions of the
1995 Plan deemed by the Board to be necessary or appropriate to the
administration of the 1995 Plan or any award granted hereunder or any Agreement
entered into hereunder. All such actions and determinations shall be by the
affirmative vote of a majority of the members of the Board present at a meeting
at which any issue relating to the 1995 Plan is properly raised for
consideration or by unanimous consent of the Board executed in writing in
accordance with the Company's Certificate of Incorporation and By-Laws, and
with applicable law. The interpretation and construction by the Board of any
provision of the 1995 Plan or of any award granted hereunder or
44
Agreement entered into hereunder shall be final and conclusive.
(b) Committee. The Board may from time to time appoint a Stock Option
Committee (the "Committee") consisting of not less than three members of the
Board, none of whom shall be an officer or other salaried employee of the
Company or any of its Subsidiaries, and each of whom shall qualify in all
respects as a "disinterested person" as defined in Rule 16b-3 of the
Securities and Exchange Commission under the Securities Exchange Act of 1934,
as amended (the "1934 Act") and as an "outside director" within the meaning
of Code Section 162(m). The Board, in its sole discretion, may provide that the
role of the Committee shall be limited to making recommendations to the Board
concerning any determinations to be made and actions to be taken by the Board
pursuant to or with respect to the 1995 Plan, or the Board may delegate to the
Committee such powers and authorities related to the administration of the 1995
Plan, as set forth in Section 2(a) above, as the Board shall determine,
consistent with the Certificate of Incorporation and By-Laws of the Company and
applicable law. To the extent of such authority or delegation, references
herein to the "Board" shall be deemed references to the Committee. The Board
may remove members, add members, and fill vacancies on the Committee from time
to time, all in accordance with the Company's Certificate of Incorporation and
By-Laws, and with applicable law. The majority vote of the Committee, or acts
reduced to or approved in writing by a majority of the members of the
Committee, shall be the valid acts of the Committee.
(c) No Liability. No member of the Board or of the Committee shall be
liable for any action or determination made in good faith with respect to the
1995 Plan or any award granted hereunder or any Agreement entered into
hereunder.
(d) Delegation to the Committee. In the event that the 1995 Plan or any
award granted hereunder or Agreement entered into hereunder provides for any
action to be taken by or determination to be made by the Board, such action may
be taken by or such determination may be made by the Committee if the power and
authority to do so has been delegated to the Committee by the Board as provided
for in Section 2(b) above. Unless otherwise expressly determined by the Board,
any such action or determination by the Committee shall be final and
conclusive.
3. SCOPE OF PLAN
(a) Amount of Stock. The amount of Stock which may be made subject to
awards granted under the 1995 Plan during the term thereof shall not exceed an
amount equal to 900,000 of the Company's authorized but unissued shares of
Stock. Stock issued hereunder may be such authorized or unissued shares of
Stock or may be issued shares acquired by the Company or its Subsidiaries on
the market or otherwise, or a combination thereof.
(b) Amount of Stock Available for Grant to Single Grantee. In any calendar
year, the amount of Stock which may be made subject to awards granted under the
1995 Plan to any single Grantee shall not exceed 90,000 shares.
(c) Adjustments. The aggregate number of shares of Stock, shares of Stock
subject to Options, shares of restricted stock, SARs, LSARs, performance shares
and performance units available under the 1995 Plan shall each be subject to
adjustment upon the occurrence of any of the events and in the manner set forth
in Section 18 hereof.
(d) Reuse. If, and to the extent:
2
45
(I) Options. An Option shall expire or terminate for any reason
without having been exercised in full (including, without limitation,
cancellation and re-grant), or in the event that such Options are
exercised or settled in a manner such that some or all of the shares of
Stock related to the Option are not issued to the Grantee (or beneficiary)
(including as the result of the use of shares for withholding taxes), the
shares of Stock subject thereto which have not become outstanding shall
(unless the 1995 Plan shall have terminated) become available for issuance
under the 1995 Plan; provided, however, that with respect to a
share-for-share exercise, only the net shares issued shall be deemed to
have become outstanding as a result thereof.
(ii) Restricted Stock, Performance Shares and Performance Units.
Shares of Stock granted as restricted stock, performance shares or
performance units under the 1995 Plan are forfeited for any reason, or are
settled in cash in lieu of Stock or in a manner such that some or all of
the shares of Stock related to the award are not issued to the Grantee (or
beneficiary), such shares of Stock shall (unless the 1995 Plan shall have
terminated) become available for issuance under the 1995 Plan; provided,
however, that if any dividends paid with respect to shares of restricted
stock were paid to the Grantee prior to the forfeiture thereof, such
shares shall not be reused for grants or awards;
(iii) SARs. SARs expire or terminate for any reason without having
been earned in full, an equal number of SARs shall (unless the 1995 Plan
shall have terminated) become available for issuance under the Plan;
(iv) LSARs. LSARs are exercised:
(1) If the LSARs were granted with respect to an Option, the
shares of Stock subject thereto which have not become outstanding
shall not again become available for issuance under the 1995 Plan; or
(2) If the LSARs were granted with respect to SARs, such SARs
shall not again become available for issuance under the 1995
Plan.
(e) Purchase of Stock and Issuance Under the 1995 Plan. The Board or such
committee of the Board that the Board shall specifically authorize or direct on
its behalf shall have the authority to cause the Company to purchase from time
to time, in such amounts and at such prices as the Board, in its discretion,
shall deem advisable or appropriate, shares of Stock to be held as treasury
shares and reserved and used solely for or in connection with grants under the
1995 Plan, at the discretion of the Board or the Committee.
4. ELIGIBILITY
(a) Employees. Options, SARs, LSARs, shares of restricted stock,
performance shares or performance units may be granted under the 1995 Plan to
any key employee of the Company or any Subsidiary (including any such key
employee who is an officer or director of the Company or any Subsidiary) as the
Board shall determine and designate from time to time prior to expiration or
termination of the 1995 Plan.
(b) Non-Employee Directors. An Option to purchase 7,500 shares of Stock,
at a purchase price per share equal to the Fair Market Value (as defined below)
of a share of Stock on the date of grant of such Option and upon the other
terms and conditions specified in the 1995 Plan, shall be granted under the
1995 Plan to each Non-Employee Director of the Company elected after the
Effective Date (as
3
46
defined below) upon the date of the initial election of each such Non-Employee
Director to the Company's Board. In addition, on the date of each annual
meeting of shareholders of the Company occurring on or after the Effective Date
of the 1995 Plan, each Non-Employee Director who is a Non-Employee Director
after such meeting of shareholders shall be granted an Option to purchase 1,200
shares of Stock at a purchase price per share equal to the Fair Market Value of
a share of Stock on the date of grant of such Option. Except as provided in
this Section 4(b), no Non-Employee Director shall be eligible to be granted
Options under the 1995 Plan. Non-Employee Directors of a Subsidiary who are not
also Non-Employee Directors of the Company may be granted Options at the
discretion of the Board. No SARs, LSARs, restricted stock, performance shares
or performance units shall be granted hereunder to any Non-Employee Director of
the Company or a Subsidiary. The maximum number of Options that may be granted
to all Non-Employee Directors shall not exceed 30% of the shares covered by the
1995 Plan.
(c) An individual may hold more than one Option, SAR, LSAR, award of
restricted stock, performance share or performance unit, subject to such
restrictions as are provided herein.
5. EFFECTIVE DATE AND TERM OF THE 1995 PLAN
(a) Effective Date. The 1995 Plan shall be effective as of May 3, 1995
(the "Effective Date"), subject to approval of the 1995 Plan within one year
of such effective date by an affirmative vote of the shareholders of the
Company holding at least a majority of the shares of Stock present, in person
or by proxy, at a duly called meeting of the shareholders; provided, however,
that upon approval of the 1995 Plan by the shareholders of the Company as set
forth above, all awards granted under the 1995 Plan on or after the Effective
Date shall be fully effective as if the shareholders of the Company had
approved the 1995 Plan on the Effective Date. If the shareholders fail to
approve the 1995 Plan within one year of such Effective Date, any award granted
hereunder shall be null and void and of no effect.
(b) Term. The 1995 Plan shall terminate on the date ten years from the
Effective Date.
6. STOCK OPTIONS
(a) Grant of Options. Subject to the terms and conditions of the 1995
Plan, the Board may, at any time and from time to time, prior to the date of
termination of the 1995 Plan, grant to such eligible individuals as the Board
may determine ("Optionees"), Options to purchase such number of shares of
Stock on such terms and conditions as the Board may determine, including any
terms or conditions which may be necessary to qualify such Options as Incentive
Stock Options. The date on which the Board approves the grant of an Option
shall be considered the date on which such Option is granted.
(b) Limitation on Incentive Stock Options. The aggregate Fair Market Value
(as defined below) (determined at the time the Option is granted) of the Stock
with respect to which Incentive Stock Options are exercisable for the first
time by any Optionee during any calendar year (under the 1995 Plan and all
other plans of the Optionee's employer corporation and its parent and
subsidiary corporations within the meaning of Section 422(d) of the Code) shall
not exceed $100,000. If an Option is granted which would exceed the limitation
of this Section 6(b), or, if as a result of other provisions of the 1995 Plan
or Option Agreement, Incentive Stock Options that become exercisable for the
first time in a calendar
4
47
year exceed $100,000, the excess Options (to be determined in the inverse order
of the date of grant of such Options) shall not be Incentive Stock Options.
(c) Option Price. The purchase price of each share of Stock subject to an
Option (the "Option Price") shall be fixed by the Board and stated in each
Agreement relating to the Option (an "Option Agreement") and shall be not
less than the greater of par value or 100% of the Fair Market Value of a share
of the Stock on the date the Option is granted; provided, however, that in the
event the Optionee would otherwise be ineligible to receive an Incentive Stock
Option by reason of the provisions of Sections 422(b)(6) and 424(d) of the Code
(relating to stock ownership of more than 10%), the Option Price of an Option
which is intended to be an Incentive Stock Option shall be not less than the
greater of par value or 110% of the Fair Market Value of a share of Stock at
the time such Option is granted. "Fair Market Value" shall mean the closing
price of the Stock on the National Association of Securities Dealers Automated
Quotation System on the trading date immediately before the date such value is
being determined (or, if there is no such closing price, then the Board shall
use the mean between the highest bid and lowest asked prices or between the
high and low prices on such date), or, if no sale of shares of Stock has been
made on such day, on the next preceding day on which any such sale shall have
been made.
(d) Term and Exercise of Options.
(I) Term. Each Option granted under the 1995 Plan shall terminate and
all rights to purchase shares thereunder shall cease upon the expiration
of 10 years (10 years and 30 days, in the case of an Option granted to an
employee of the Company or a Subsidiary which is not designated as an
Incentive Stock Option) from the date such Option is granted, or, with
respect to Options granted to persons other than Non-Employee Directors,
on such date prior thereto as may be fixed by the Board and stated in the
Option Agreement relating to such Option; provided, however, that in the
event the Optionee would otherwise be ineligible to receive an Incentive
Stock Option by reason of the provisions of Sections 422(b)(6) and 424(d)
of the Code (relating to stock ownership of more than 10%), an Option
granted to such Optionee which is intended to be an Incentive Stock Option
shall in no event be exercisable after the expiration of five years from
the date it is granted.
(ii) Option Period and Limitations on Exercise. Each Option granted to
persons other than Non-Employee Directors under the 1995 Plan shall be
exercisable, in whole or in part, at any time and from time to time, over
a period commencing on or after the date of grant and ending upon the
expiration or termination of the Option, as the Board shall determine and
set forth in the Option Agreement relating to such Option. Without
limiting the foregoing, the Board, subject to the terms and conditions of
the 1995 Plan, may in its sole discretion provide that an Option may not
be exercised in whole or in part for any period or periods of time during
which such Option is outstanding; provided, however, that any such
limitation on the exercise of an Option contained in any Option Agreement
may be rescinded, modified or waived by the Board, in its sole discretion,
at any time and from time to time after the date of grant of such Option,
so as to accelerate the time at which the Option may be exercised, and
provided, further, that unless otherwise provided in the Option Agreement
relating to an Option, each Option granted under the 1995 Plan to persons
other than Non-Employee Directors shall be exercisable in respect of 50%
of the shares covered by the Option after the expiration of one year from
the date of grant and shall be exercisable in respect of an additional
12.5% of the shares covered by the Option on each of the second, third,
fourth, and fifth anniversaries of the date of grant of the Option. Unless
otherwise provided in the Option
5
48
Agreement, each Option granted under the 1995 Plan to persons other than
Non-Employee Directors shall also become exercisable in respect of 100% of
the shares covered by the Option upon the later to occur of (i) the date
on which the Optionee completes five years of employment with the Company
or any Subsidiary or (ii) the date of grant. Except as provided in
Sections 13 and 14 below, each Option granted to a Non-Employee Director
shall be exercisable, in whole or in part, at any time and from time to
time, over a period commencing on the date one year after the date of
grant and ending upon the expiration of the Option. Notwithstanding any
other provisions of the 1995 Plan, no Option granted to an Optionee under
the 1995 Plan shall be exercisable in whole or in part prior to the date
the 1995 Plan is approved by the shareholders of the Company as provided
in Section 5 above.
(iii) Method of Exercise. An Option that is exercisable hereunder may
be exercised by delivery to the Company on any business day, at its
principal office, addressed to the attention of the Committee, of written
notice of exercise, which notice shall specify the number of shares with
respect to which the Option is being exercised. The minimum number of
shares of Stock with respect to which an Option may be exercised, in whole
or in part, at any time shall be the lesser of 100 shares or the maximum
number of shares available for purchase under the Option at the time of
exercise. Except as provided in the next following sentence, payment in
full of the Option Price of the shares for which the Option is being
exercised shall accompany the written notice of exercise of the Option and
shall be made either (i) in cash or in cash equivalents; (ii) through the
tender to the Company of previously owned whole shares of Stock (which, in
the case of an Optionee subject to the reporting requirements of Section
16 of the 1934 Act, the Optionee has held for at least six months prior to
delivery of such shares and for which the Optionee has good title, free
and clear of all liens and encumbrances), which shares shall be valued,
for purposes of determining the extent to which the Option Price has been
paid thereby, at their Fair Market Value on the date of exercise; (iii) by
authorizing the Company to withhold whole shares of Stock which would
otherwise be delivered upon exercise of the Option having a Fair Market
Value determined as of the date of exercise, equal to the aggregate
purchase price payable pursuant to such Option by reason of such exercise;
or (iv) by a combination of the methods described in (i), (ii) and (iii),
in each case to the extent determined by the Board at the time of grant of
the Option. In the case of any Option granted to an Optionee, the Board
may provide, by inclusion of appropriate language in an Option Agreement,
that payment in full of the Option Price need not accompany the written
notice of exercise provided the notice of exercise directs that the Stock
certificate or certificates for the shares for which the Option is
exercised be delivered to a licensed broker acceptable to the Company as
the agent for the individual exercising the Option and, at the time such
Stock certificate or certificates are delivered, the broker tenders to the
Company cash (or cash equivalents acceptable to the Company) equal to the
Option Price for the shares of Stock purchased pursuant to the exercise of
the Option plus the amount (if any) of federal and/or other taxes which
the Company may, in its judgment, be required to withhold with respect to
the exercise of the Option. In connection with the exercise of an Option,
the Optionee shall execute such documents as the Company may reasonably
request. An attempt to exercise any Option granted hereunder other than
as set forth above shall be invalid and of no force and effect. Promptly
after the exercise of an Option and the payment in full of the Option
Price of the shares of Stock covered thereby, the individual exercising
the Option shall be entitled to the issuance of a Stock certificate or
certificates evidencing his ownership of such shares. A separate Stock
certificate or certificates shall be issued for any shares purchased
pursuant to the exercise of an
6
49
Option which is an Incentive Stock Option, which certificate or
certificates shall not include any shares which were purchased pursuant
to the exercise of an Option which is not an Incentive Stock Option. An
individual holding or exercising an Option shall have none of the rights
of a shareholder until the shares of Stock covered thereby are fully paid
and issued to him and, except as provided in Section 18 below, no
adjustment shall be made for dividends or other rights for which the
record date is prior to the date of such issuance.
7. STOCK APPRECIATION RIGHTS (SARS)
(a) General. Subject to the terms and conditions of the 1995 Plan, the
Board may, in its sole and absolute discretion, grant to an eligible person
rights to surrender to the Company, in whole or in part, an Option, and to
receive in exchange therefor payment by the Company of an amount equal to the
excess of the Fair Market Value (as of the date the SARs are exercised) of the
shares of Stock subject to such Option, or portion thereof, so surrendered over
the Option Price of such shares. Such payment may be made, as determined by the
Board in accordance with Sections 7(d) and 7(e) below and set forth in the
Option Agreement, either in shares of Stock or in cash or in any combination
thereof. SARs may be granted to eligible persons only at the same time and with
respect to the same number of shares of Stock as such eligible persons are
granted Options under the 1995 Plan. All SARs shall be evidenced by provisions
in the Option Agreement pertaining to the related Option, which provisions
shall comply with and be subject to the terms and conditions set forth in this
Section 7.
(b) Grant. Each SAR shall relate to a specific Option granted under the
1995 Plan and shall be awarded to the Optionee concurrently with the grant of
such Option pursuant to Section 6 above. The number of SARs granted to an
Optionee shall be equal to the number of shares of Stock which such Optionee is
entitled to purchase pursuant to the related Option. The number of SARs held by
an Optionee shall be reduced by (i) the number of SARs exercised for Stock or
cash under the provisions of the Option Agreement pertaining to the related
Option, and (ii) the number of shares of Stock purchased pursuant to the
exercise of the related Option.
(c) Exercise. SARs that are exercisable hereunder and under the related
Option Agreement may be exercised by delivering to the Company on any business
day, at its principal office, addressed to the attention of the Committee,
written notice of exercise, which notice shall specify the number of SARs being
exercised. The date upon which such written notice is received by the Company
shall be the exercise date of the SARs. Except to the extent that SARs are
exercised for cash as provided in Section 7(e) below, the individual exercising
SARs shall receive, without payment therefor to the Company, the number of
shares of Stock determined under Section 7(d) below. Promptly after the
exercise of SARs, the individual exercising the SARs shall be entitled to the
issuance of a Stock certificate or certificates evidencing ownership of such
shares. An individual holding or exercising SARs shall have none of the rights
of a shareholder with respect to any shares of Stock covered by the SARs until
shares of Stock are issued to him or her, and, except as provided in Section 18
below, no adjustment shall be made for dividends or other rights for which the
record date is prior to the date of such issuance.
(d) Number of Shares. The number of shares of Stock which shall be issued
pursuant to the exercise of SARs shall be determined by dividing (i) the total
number of SARs being exercised, multiplied by the amount by which the Fair
Market Value of a share of Stock on the exercise date exceeds the Option Price
of the
7
50
related Option, by (ii) the Fair Market Value of a share of Stock on the
exercise date of the SARs; provided, however, that no fractional share shall be
issued on exercise of SARs, and that cash shall be paid by the Company to the
individual exercising SARs in lieu of any such fractional share.
(e) Exercise of SARs for Cash. The Board shall have sole discretion to
determine whether, and shall set forth in the Option Agreement pertaining to
the related Option the circumstances under which, payment in respect of SARs
granted to any Optionee shall be made in shares of Stock, or in cash, or in a
combination thereof. Promptly after the exercise of an SAR for cash, the
individual exercising the SAR shall receive in respect of said SAR an amount of
money equal to the difference between the Fair Market Value of a share of Stock
on the exercise date and the Option Price of the related Option.
(f) Limitations. SARs shall be exercisable at such times and under such
terms and conditions as the Board, in its sole and absolute discretion, shall
determine and set forth in the Option Agreements pertaining to the related
Options; provided, however, that an SAR may be exercised only at such times and
by such individuals as the related Option under the 1995 Plan and the Option
Agreement may be exercised; and provided, further, that an SAR may be exercised
only at such times as the Fair Market Value of a share of Stock on the exercise
date exceeds the Option Price of the related Option. Adjustments in the number,
kind, or Option Price of shares of Stock for which Options are granted pursuant
to Section 18 below shall also be made as necessary to the related SARs held by
each Optionee. Any amendment, suspension or termination of the 1995 Plan
pursuant to Section 17 below shall be deemed an amendment, suspension or
termination of SARs to the same extent.
8. LIMITED STOCK APPRECIATION RIGHTS (LSARS)
(a) Grant of LSARs. The Board, in its discretion, may grant LSARs to a
Grantee upon the grant of any Option (other than to Non-Employee Directors) or
SAR under the 1995 Plan. Each LSAR shall be identified with a share of Stock
subject to an Option or SAR of the Grantee and the number of LSARs granted to a
Grantee shall equal the sum of the number of shares of Stock subject to the
Option or the number of SARs with which such LSARs are identified. The Board
may also grant a LSAR with respect to any share of Stock subject to an Option
or SAR previously granted hereunder. Upon (i) the expiration, termination,
forfeiture, or cancellation of an Grantee's Option or SARs, or (ii) the
purchase of shares of Stock subject to such Option, as the case may be, the
Grantee's associated LSARs shall terminate.
(b) Exercise of LSARs.
(I) Notwithstanding the provisions of Section 18(c), but subject to
the provisions of Sections 13 and 14 hereof, each LSAR held by a Grantee
at the time of a Change in Control (as defined in Section 18(f)) of the
Company or St. Paul Federal Bank For Savings (the "Bank") shall become
exercisable. LSARs that are exercisable hereunder may be exercised within
60 days following the date of a Change in Control of the Company or the
Bank by delivering to the Company on any business day, at its principal
office, addressed to the attention of the Committee, written notice of
exercise. The date upon which such written notice is received by the
Company shall be the exercise date of the LSARs. Promptly after the
exercise of the LSARs, the individual exercising the LSARs shall be paid
in cash, the amount as determined below. The payment of LSARs which are
identified with an Option or SARs shall result in the cancellation or
forfeiture of such Option or
8
51
SARs, as the case may be.
(ii) Within five (5) days after receipt of a written notice of
exercise, the Company shall pay the Grantee, in cash, an amount equal to
the difference between:
(1) the Fair Market Value of one share of Stock on the date of
exercise of the LSAR; and
(2) the Option Price of the Option.
9. RESTRICTED STOCK
(a) Grant of Shares of Restricted Stock. The Board, in its discretion, may
grant shares of restricted stock to such eligible persons as may be selected by
the Board.
(b) Terms of Restricted Stock Awards. Grants of restricted stock shall be
subject to the following terms and conditions and shall contain such additional
terms and conditions, not inconsistent with the terms of the 1995 Plan, as the
Board shall deem advisable.
(I) Number of Shares and Other Terms. The number of shares of
Stock subject to a grant of restricted stock and the Performance Measures
(as defined below), if any, and Restriction Period applicable to such grant
shall be determined by the Board. "Restriction Period" shall mean a
period designated by the Board, during which the Stock subject to a grant
of restricted stock may not be sold, transferred, assigned, pledged,
hypothecated or otherwise encumbered or disposed of, except as provided in
the 1995 Plan or the Agreement relating to such grant. In the sole
discretion of the Board, the Board may amend or adjust the Performance
Measures, Restriction Period or other terms and conditions of a grant of
restricted stock in recognition of unusual or nonrecurring events affecting
the Company or its financial statements or changes in law or accounting
principles.
(ii) Vesting and Forfeiture. The Agreement relating to a grant of
restricted stock shall provide, in the manner determined by the Board, in
its discretion, and subject to the provisions of the 1995 Plan, for the
forfeiture of the shares of Stock subject to such grant, or portion
thereof, (i) to the extent specified Performance Measures (as defined
below in Section 9(d)) are not satisfied or met during the specified
Restriction Period or (ii) if the holder of such does not remain
continuously in the employment of the Company or a Subsidiary during the
specified Restriction Period. Upon the conclusion of a Restriction Period,
the Board shall certify the level of Performance Measures attained and the
portion of the award which shall become nonforfeitable as a result
thereof.
(iii) Share Certificates. During the Restriction Period, a certificate
or certificates representing a grant of restricted stock shall be
registered in the holder's name and a bear a legend, in addition to any
legend which may be required pursuant to applicable securities laws or
regulations, indicating that the ownership of the shares of Stock
represented by such certificate is subject to the restrictions, terms and
conditions of the 1995 Plan and the Agreement relating to the grant of
restricted stock. All such certificates shall be deposited with the
Company, together with stock powers or other instruments of assignment,
each endorsed in blank, which would permit transfer to the Company of all
or a portion of the shares of Stock subject
9
52
to the grant of restricted stock in the event such award is forfeited in
whole or in part. Upon termination of any applicable Restriction Period,
subject to the Company's right to require payment of any taxes, a
certificate or certificates evidencing ownership of the requisite number of
shares of Stock shall be issued to the holder of such grant.
(iv) Rights with Respect to Grants of Restricted Stock. Unless otherwise
determined by the Board at the time of grant, and subject to the terms and
conditions of a grant of restricted stock, the holder of such grant shall
have all rights as a stockholder of the Company, including, but not limited
to, voting rights, the right to receive dividends and the right to
participate in any capital adjustment of the Company. A distribution with
respect to shares of Stock, other than a distribution in cash, shall be
deposited with the Company and shall be subject to the same restrictions as
the shares of Stock with respect to which such distribution was made.
(c) The restrictions applicable to restricted stock granted pursuant to
the 1995 Plan shall provide that, if a Grantee's restricted stock is forfeited,
then:
(I) the Grantee shall be deemed to have resold such share of
restricted stock to the Company at the lesser of (1) the purchase price
paid by the Grantee (such purchase price shall be deemed to be zero
dollars ($0) if no purchase price was paid) or (2) the Fair Market Value
of a share of Stock on the date of such forfeiture;
(ii) the Company shall pay to the Grantee the amount determined under
clause (i) of this sentence; and
(iii) such share of restricted stock shall cease to be outstanding and
shall no longer confer on the Grantee thereof any rights as a stockholder
of the Company, from and after the date of such forfeiture and resale.
(d) ''Performance Measures'' shall mean the criteria and objectives,
determined by the Board pursuant to the 1995 Plan, which shall be satisfied or
met during the applicable Restriction Period, Performance Period or Performance
Cycle, as the case may be, as a condition to the holder's receipt, in the case
of a grant of the restricted stock or a grant of performance shares granted
pursuant to the 1995 Plan, of the shares of Stock subject to such grant, or in
the case of a performance unit award, of payment with respect to such award.
Such criteria and objectives may include, but are not limited to, return on
assets, return on equity, growth in net earnings, growth in earnings per share,
or any combination of the foregoing or any other criteria and objectives
determined by the Board.
10. PERFORMANCE SHARES
(a) Grant of Performance Shares. The Board, in its discretion, may grant
performance shares to such eligible persons as may be selected by the Board.
All performance share grants under the 1995 Plan shall be evidenced by
Agreements or certificates containing the term and conditions of the grant.
(b) Terms of Performance Share Grants. Performance share grants shall be
subject to the following terms and conditions and shall contain such additional
terms and conditions, not inconsistent with the terms of the 1995 Plan, as the
Board shall deem advisable.
(I) Number of Performance Shares and Performance Measures. The number
of
10
53
performance shares subject to any grant and the Performance Measures and
Performance Period (as defined below) applicable to such shall be
determined by the Board. In the sole discretion of the Board, the Board
may amend or adjust the Performance Measures, the Performance Period or
other terms and conditions of a performance share grant in recognition of
unusual or nonrecurring events affecting the Company or its financial
statements or changes in law or accounting principles.
(ii) Vesting and Forfeiture. The Agreement relating to a performance
share grant shall provide, in the manner determined by the Board in its
discretion, and subject to the provisions of the 1995 Plan, for the
vesting of such grant, or portion thereof, to the extent specified
Performance Measures are satisfied or met within the specified Performance
Period, and for the forfeiture of such award, or portion thereof, to the
extent specified Performance Measures are not satisfied or met within the
specified Performance Period. Upon the conclusion of a Performance Period,
the Board shall certify the level of Performance Measures attained and the
portion of the award which shall become nonforfeitable or payable as a
result thereof. ''Performance Period'' shall mean a period designated by
the Board during which the Performance Measures applicable to a
performance share grant shall be measured.
(iii) Settlement of Vested Performance Share Grants. The Agreement
relating to a performance share grant (i) shall specify whether such grant
may be settled in shares of Stock (including shares of restricted stock)
or cash, or a combination thereof, and (ii) may specify whether the holder
thereof shall be entitled to receive, on a deferred basis, dividend
equivalents, and, if determined by the Board, interest on such dividend
equivalents, with respect to the number of shares of Stock subject to such
grant. If a performance share grant is settled in shares of restricted
stock, a certificate or certificates representing such restricted stock
shall be issued and the holder of such restricted stock shall have such
rights of a stockholder of the Company. Prior to the settlement of a
performance share grant in shares of Stock, including restricted stock,
the Board may determine to award the holder of such award rights as a
stockholder of the Company with respect to the shares of Stock subject to
such award.
11. PERFORMANCE UNITS
(a) Grant of Performance Units. The Board, in its discretion, may grant
performance units to such eligible persons as may be selected by the Board. All
performance units granted under the Plan shall be evidenced by certificates
containing the terms and conditions of the grant.
(b) Terms of Performance Units. At or before the grant of any performance
unit, the Board shall:
(I) determine Performance Measures applicable to such grants;
(ii) designate a Performance Cycle (herein so called), of not less
than one (1) year nor more than three (3) years, for the measurement of
the extent to which the Performance Measures are attained; and
(iii) determine the value of a performance unit which shall be a
stated percentage (which may exceed 100%) of the Stock's Fair Market Value
on the date of such determination.
11
54
In all cases, the Performance Measures must include a minimum performance
standard below which no portion of the performance units shall become
nonforfeitable. In the sole discretion of the Board, the Board may amend or
adjust the Performance Measures, Performance Cycle or other terms and
conditions of a performance unit grant in recognition of unusual or
nonrecurring events affecting the Company or its financial statements or
changes in law or accounting principles. Upon the completion of the Performance
Cycle, the Board shall certify the level of Performance Measures attained and
the portion of award which shall become nonforfeitable or payable as a result
thereof.
(c) Payment of Performance Units. Subject to the provisions of Section 13
and such terms and restrictions as the Board may impose, the Board shall, at
the end of each Performance Cycle, evaluate the Company's performance in light
of the Performance Measures for such Performance Cycle and shall then determine
the number of performance units which, of the total number of such performance
units granted to such Grantee, have been earned. As soon as practicable
following such determination, the Board shall deliver to the Grantee a
certificate for the shares of Stock deemed earned. Payment to the Grantee may
be made in the form of cash if in the opinion of the Board, with respect to any
particular shares, it would be in the best interests of the Company that
benefits be paid, wholly or partly, in cash. The Board may, in its discretion,
permit the deferment of the payment provided that the election to defer is made
prior to the applicable Performance Cycle.
12. NON-TRANSFERABILITY
Except to the extent expressly provided by the Board in the Agreement
evidencing an award, no Option, SAR, LSAR, restricted stock award, performance
share or performance unit shall be transferable other than by will or the laws
of descent and distribution, and each Option, SAR, LSAR, restricted stock
award, performance share or performance unit may be exercised or settled during
the Grantee's lifetime only by the holder or the holder's guardian, legal
representative or similar person. Except as permitted by the preceding
sentence, no Option, SAR, LSAR, restricted stock award, performance share or
performance unit may be sold, transferred, assigned, pledged, hypothecated,
encumbered or otherwise disposed of (whether by operation of law or otherwise)
or be subject to execution, attachment or similar process. Upon any attempt to
sell, transfer, assign, pledge, hypothecate, encumber or otherwise dispose of
any Option, SAR, LSAR, restricted stock award, performance share or performance
unit in violation of this Section 12 or the terms of the award, such award and
all rights thereunder shall immediately become null and void.
13. TERMINATION OF SERVICE OR EMPLOYMENT
(a) Employees and Subsidiary Directors.
(I) Termination Other than by Reason of Retirement . Except as
provided in Section 14 below or as otherwise provided in the Agreement
relating to an award granted hereunder, upon the termination of the
service or employment with the Company or a Subsidiary of a Grantee who is
not a Non-Employee Director other than by reason of normal retirement in
accordance with the normal retirement policies of the Company or a
Subsidiary, as the case may be, or by reason of early retirement with the
consent of the Board of Directors of the Company or a Subsidiary, as the
case may be, (i) any Incentive Stock Option, granted to a Grantee pursuant
to the 1995 Plan shall terminate three months (or, although such Option
may no longer qualify as an
12
55
Incentive Stock Option, such longer period as may be determined by the
Board) after the date of such termination of service or employment, unless
earlier terminated; (ii) any non-qualified stock option granted to a
Grantee shall terminate three months (or such longer period as may be
determined by the Board) after the date of such termination of service or
employment, unless earlier terminated; (iii) any SAR or LSAR held by a
Grantee shall terminate on the date of such termination of employment;
provided, however, that the Board may extend the period of exercise of
such SAR or LSAR to a date not later than three months after the date of
such termination of employment or until the expiration of the term of such
SAR or LSAR, whichever period is shorter; (iv) shares of restricted stock
subject to an existing Restriction Period (or portion thereof) shall be
forfeited upon the Grantee's termination of employment; (v) the portion of
any performance share award which is then subject to a Performance Period
shall be forfeited as of the date of such termination, and such portion
shall be cancelled by the Company; and (vi) a performance unit relating to
an existing Performance Cycle (or portion thereof) shall be forfeited if
the Grantee's employment with the Company terminates before the end of the
Performance Cycle.
(ii) Termination by Reason of Retirement. If the termination of
service or employment is by reason of normal retirement in accordance with
the normal retirement policies of the Company or a Subsidiary, as the case
may be, or is by reason of early retirement with the consent of the Board
of Directors of the Company or a Subsidiary, as the case may be, (i) any
Incentive Stock Option may be exercised by the Grantee for a period of
three months (or, although such Option may no longer qualify as an
Incentive Stock Option, such longer period as may be determined by the
Board) after the date of such termination of service or employment, unless
earlier terminated; (ii) a non- qualified stock option shall not terminate
until the expiration of the award in accordance with the terms of the 1995
Plan; (iii) any SAR or LSAR may be exercised by the Grantee for a period
of three months (or such longer period as may be determined by the Board)
after the date of such termination of service or employment, unless
earlier terminated; (iv) unless otherwise determined by the Board, all
Performance Measures applicable to an award of restricted stock subject to
a Restriction Period shall be deemed to have been satisfied, whereupon the
Restriction Period shall terminate; (v) unless otherwise determined by the
Board at the time of grant of a performance share award, all Performance
Measures applicable to such award shall be deemed, as of the date of such
termination, to have been satisfied, and the Performance Period applicable
to such award shall thereupon terminate; and (vi) the holder of a
performance unit relating to an existing Performance Cycle shall be
awarded the same percentage, if any, of the performance unit which is
earned by other Grantees for such Performance Cycle, and payment shall be
made at the time payment is made to such other Grantees.
(iii) Exercisability Upon Termination. Unless otherwise provided in
the 1995 Plan or in the Agreement relating to an award granted hereunder,
after a termination of service or employment an award granted to a Grantee
who is not a Non-Employee Director shall be exercisable only to the extent
it was exercisable at the time of the Grantee's termination of service or
employment. In the case of any award, the Board may provide, by inclusion
of appropriate language in the related Agreement, that a Grantee may
(subject to the general limitations on exercise set forth in the 1995
Plan), in the event of termination of service or employment of the Grantee
with the Company or a Subsidiary, exercise an award, in whole or in part,
at any time subsequent to such termination of service or employment and
prior to termination of the award in accordance with the terms of the 1995
Plan, either subject to or without regard to any installment limitation on
exercise
13
56
imposed pursuant to the 1995 Plan. Whether a leave of absence or leave on
military or government service shall constitute a termination of service
or employment for purposes of the 1995 Plan shall be determined by the
Board, which determination shall be final and conclusive. For purposes of
the 1995 Plan, a termination of service or employment with the Company or
a Subsidiary shall not be deemed to occur if the Grantee is immediately
thereafter in the service or employ of the Company or any other
Subsidiary.
(b) Non-Employee Directors. Any award granted to a Non-Employee Director
shall not terminate until the expiration of the award in accordance with the
terms of the 1995 Plan, notwithstanding the Non-Employee Director's termination
of service on the Board.
14. RIGHTS IN THE EVENT OF DEATH OR DISABILITY
(a) Death of an Employee or Subsidiary Director. If a Grantee who is not a
Non-Employee Director dies while employed by or in the service of the Company
or a Subsidiary or within the period following the termination of service or
employment during which an award under the 1995 Plan is exercisable, the
executors, administrators, legatees or distributees of such Grantee's estate
shall have the right (subject to the general limitations on exercise set forth
in the 1995 Plan), (i) to exercise any Incentive Stock Option held by such
Grantee at the date of such Grantee's death at any time within one year (or
such longer period as may be determined by the Board) after the date of such
Grantee's death and prior to termination of the award; (ii) to exercise any
non-qualified stock option held by such Grantee at the date of such Grantee's
death at any time prior to termination of the award pursuant to the 1995 Plan;
(iii) to exercise any SAR or LSAR held by such Grantee at the date of such
Grantee's death at any time within one year (or such longer period as may be
determined by the Board) after the date of such Grantee's death and prior to
the termination of the award; (iv) unless otherwise determined by the Board,
with respect to an award of restricted stock subject to a Restriction Period,
to have all Performance Measures applicable to such award deemed satisfied,
whereupon the Restriction Period shall terminate; (v) unless otherwise
determined by the Board, with respect to an award of performance shares subject
to a Performance Period, to have all Performance Measures applicable to such
award deemed satisfied, whereupon the Performance Period shall terminate; and
(vi) to be awarded the same percentage of a performance unit which is earned by
other Grantees of performance units with respect to the same Performance Cycle,
and payment shall be made at the time payment is made to such other Grantees,
but only to the extent such Incentive Stock Option, non-qualified stock option,
SAR or LSAR was exercisable immediately prior to such Grantee's death. In the
case of any award granted hereunder, the Board may provide, by inclusion of
appropriate language in the related Agreement, that, in the event of the death
of the Grantee, the executors, administrators, legatees or distributees of such
Grantee's estate may exercise the award (subject to the general limitations on
exercise set forth in the 1995 Plan), in whole or in part, at any time
subsequent to such Grantee's death and prior to termination of the award,
either subject to or without regard to any installment limitation on exercise
imposed pursuant to the 1995 Plan.
(b) Disability of an Employee or Subsidiary Director. If a Grantee who is
not a Non-Employee Director terminates service or employment with the Company
or a Subsidiary by reason of the ''permanent and total disability'' (within the
meaning of Section 22(e)(3) of the Code) of such Grantee, then such Grantee
shall have the right (subject to the general limitations on exercise set forth
in the 1995 Plan), (i) to exercise, in whole or in part, any Incentive Stock
Option held by such Grantee at the date of such termination of service or
employment at any
14
57
time within one year (or, although such Option may no longer qualify as an
Incentive Stock Option, such longer period as may be determined by the Board)
after such termination of service or employment and prior to termination of the
award; (ii) to exercise any non-qualified stock option held by the Grantee at
the date of such termination of service or employment at any time prior to the
termination of the award; (iii) to exercise any SAR or LSAR held by such
Grantee at the date of such termination at any time within one year (or such
longer period as may be determined by the Board) after the date of such
termination and prior to the termination of the award; (iv) unless otherwise
determined by the Board, with respect to an award of restricted stock subject
to a Restriction Period, to have all Performance Measures applicable to such
award deemed satisfied, whereupon the Restriction Period shall terminate; (v)
unless otherwise determined by the Board, with respect to an award of
performance shares subject to a Performance Period, to have all Performance
Measures applicable to such award deemed satisfied, whereupon the Performance
Period shall terminate; and (vi) to be awarded the same percentage of a
performance unit which is earned by other Grantees of performance units with
respect to the same Performance Cycle, and payment shall be made at the time
payment is made to such other Grantees. Unless otherwise provided in the
Agreement relating to an Option, SAR or LSAR granted hereunder, after a
termination of service or employment by reason of ''permanent and total
disability'' (within the meaning of Section 22 (e)(3) of the Code), an Option,
SAR or LSAR granted to a Grantee who is not a Non-Employee Director shall be
exercisable only to the extent such award was exercisable immediately prior to
such termination of service or employment. In the case of any award, the Board
may provide, by inclusion of appropriate language in the related Agreement,
that the Grantee may (subject to the general limitations on exercise set forth
in the 1995 Plan), in the event of the termination of service or employment of
the Grantee with the Company or a Subsidiary by reason of the ''permanent and
total disability'' (within the meaning of Section 22(e)(3) of the Code) of such
Grantee, exercise an award, in whole or in part, at any time subsequent to such
termination of service or employment and prior to termination of the award,
either subject to or without regard to any installment limitation on exercise
imposed pursuant to the 1995 Plan. Whether a termination of service or
employment is to be considered by reason of ''permanent and total disability''
for purposes of the 1995 Plan shall be determined by the Board, which
determination shall be final and conclusive.
(c) Death or Disability of a Non-Employee Director. In the event of the
death or ''permanent and total disability'' (within the meaning of Section
22(e)(3) of the Code) of a Non-Employee Director, each award held by such
Non-Employee Director shall become immediately exercisable in full (subject to
the general limitations on exercise set forth in the 1995 Plan) and may be
exercised by the holder's guardian, legal representative, executor,
administrator or similar person. Any award granted to a Non-Employee Director
shall not terminate until the expiration of the award in accordance with the
terms of the 1995 Plan.
15. USE OF PROCEEDS
The proceeds received by the Company from the sale of Stock pursuant to
awards granted under the 1995 Plan shall constitute general funds of the
Company.
16. REQUIREMENTS OF LAW
(a) Violations of Law. The Company shall not be required to sell or issue
any shares of Stock under any award granted hereunder if the sale or issuance
of such shares would constitute a violation by the individual exercising the
award or the
15
58
Company of any provisions of any law or regulation of any governmental
authority, including without limitation any federal or state securities laws or
regulations. Specifically in connection with the Securities Act of 1933 (as now
in effect or as hereafter amended the ''1933 Act''), upon exercise of any award
granted hereunder, unless a registration statement under the 1933 Act is in
effect with respect to the shares of Stock covered by such award, the Company
shall not be required to sell or issue such shares unless the Board has
received evidence satisfactory to it that the holder of such award may acquire
such shares pursuant to an exemption from registration under the 1933 Act. Any
determination in this connection by the Board shall be final, binding, and
conclusive. The Company may, but shall in no event be obligated to, register
any securities covered hereby pursuant to the 1933 Act. The Company shall not
be obligated to take any affirmative action in order to cause the exercise of
an award or the issuance of shares pursuant thereto to comply with any law or
regulation of any governmental authority. As to any jurisdiction that expressly
imposes the requirement that an award shall not be exercisable unless and until
the shares of Stock covered by such award are registered or are subject to an
available exemption from registration, the exercise of such award (under
circumstances in which the laws of such jurisdiction apply) shall be deemed
conditioned upon the effectiveness of such registration or the availability of
such an exemption.
(b) Compliance with Rule 16b-3. The 1995 Plan is intended to comply with
the applicable provisions of Rule 16b-3 under the 1934 Act. Any provision
inconsistent with such Rule shall be inoperative and shall not affect the
validity of the 1995 Plan.
17. AMENDMENT AND TERMINATION OF THE 1995 PLAN
The Board may, at any time and from time to time, amend, suspend or
terminate the Plan as to any shares of Stock as to which awards have not been
granted without further approval of the shareholders of the Company, except to
the extent that approval of the shareholders of the Company holding at least a
majority of the shares of Stock present in person or by proxy at a duly called
meeting of shareholders may be required to maintain compliance with Rule 16b-3
under the 1934 Act or the rules of the National Association of Securities
Dealers Automated Quotation System; provided, however, that, to the extent
required to maintain compliance with the applicable provisions of Rule 16b-3,
the formula set forth in Section 4(b) shall not be amended more than once in
any six-month period, except as such amendment may be required to comport with
the Code or the Employee Retirement Income Security Act of 1974, as amended.
Except as permitted under Section 18 hereof, no amendment, suspension or
termination of the 1995 Plan shall, without the consent of the holder of the
award, alter or impair rights or obligations under any award theretofore
granted under the 1995 Plan.
18. EFFECT OF CHANGES IN CAPITALIZATION
(a) Changes in Stock. If the outstanding shares of Stock are increased or
decreased or changed into or exchanged for a different number or kind of shares
or other securities of the Company by reason of any recapitalization,
reclassification, stock split-up, combination of shares, exchange of shares,
stock dividend or other distribution payable in capital stock, or other
increase or decrease in such shares effected without receipt of consideration
by the Company, occurring after the effective date of the 1995 Plan, the number
and kinds of shares for which awards may be granted under the 1995 Plan shall
proportionately and accordingly by the Company. In addition, the number and
kind of shares for which awards are outstanding shall be adjusted
16
59
proportionately and accordingly so that the proportionate interest of the
holder of the award immediately following such event shall, to the extent
practicable, be the same as immediately prior to such event. Any such
adjustment in outstanding awards shall not change the aggregate consideration
payable with respect to shares subject to the unexercised portion of the award
outstanding but shall include a corresponding proportionate adjustment in the
consideration per share.
(b) Reorganization in Which the Company Is the Surviving Corporation.
Subject to Subsection (c) hereof, if the Company shall be the surviving
corporation in any reorganization, merger, or consolidation of the Company with
one or more other corporations, any award theretofore granted pursuant to the
1995 Plan shall pertain to and apply to the securities to which a holder of the
number of shares of Stock subject to such award would have been entitled
immediately following such reorganization, merger, or consolidation, with a
corresponding proportionate adjustment of the consideration per share so that
the aggregate consideration thereafter shall be the same as the aggregate
consideration of the shares remaining subject to the award immediately prior to
such reorganization, merger, or consolidation.
(c) Reorganization in Which the Company Is Not the Surviving Corporation
or Sale of Assets or Stock. Upon the dissolution or liquidation of the Company,
or upon a merger, consolidation or reorganization of the Company with one or
more other corporations in which the Company is not the surviving corporation,
or upon a sale of substantially all of the assets of the Company to another
corporation, or upon a Change in Control of the Company or the Bank (i) all
outstanding Options, SARs and LSARs shall immediately become exercisable in
full; (ii) the Restriction Period applicable to any outstanding grant of
restricted stock shall lapse; (iii) the Performance Cycle or Performance Period
applicable to any outstanding performance unit or performance share shall lapse
and terminate; (iv) the Performance Measures applicable to any outstanding
grant of restricted stock or performance share or performance unit shall be
deemed to be satisfied at the maximum level; and (v) there shall be substituted
for each share of Stock available under the 1995 Plan, whether or not then
subject to an outstanding award, the number and class of shares into which each
outstanding share of Stock shall be converted pursuant to such Change in
Control. In the event of any such substitution, the purchase or base price of
any award hereunder shall be appropriately adjusted by the Board, such
adjustments to be made in the case of outstanding awards without a change in
the aggregate purchase price or base price.
(d) Adjustments. Adjustments under this Section 18 related to stock or
securities of the Company shall be made by the Board, whose determination in
that respect shall be final, binding, and conclusive. No fractional shares of
Stock or units of other securities shall be issued pursuant to any such
adjustment, and any fractions resulting from any such adjustment shall be
eliminated in each case by rounding downward to the nearest whole share or
unit.
(e) No Limitations on Company. The grant of an award pursuant to the 1995
Plan shall not affect or limit in any way the right or power of the Company to
make adjustments, reclassification, reorganizations or changes of its capital
or business structure or to merge, consolidate, dissolve or liquidate, or to
sell or transfer all or any part of its business or assets.
(f) Change in Control. A "Change in Control" of the Company, for
purposes of the 1995 Plan, shall be deemed to have occurred if: (i) any person
becomes the beneficial owner of 25% or more of the total number of voting
shares of the Company; (ii) any person has received the approval of the Office
of Thrift
17
60
Supervision ("OTS") under Section 10 of the Home Owners' Loan Act, as
amended, or regulations issued thereunder, to acquire control of the Company;
(iii) any person has received approval of the OTS under Section 7(j) of the
Federal Deposit Insurance Act, as amended, or regulations issued thereunder, to
acquire control of the Company; (iv) any person has entered into a binding
agreement to acquire (by means of stock purchase, cash tender or exchange
offer, merger or other business combination) beneficial ownership of 25% or
more of the total number of voting shares of the Company, whether or not the
requisite approval for such acquisition has been received under the Home
Owners' Loan Act, as amended, the Federal Deposit Insurance Act, as amended, or
the respective regulations issued thereunder, provided that a Change in Control
will not be deemed to have occurred under this clause (iv) unless the Board has
made a determination that such action constitutes or will constitute a Change
in Control, and further provided that a Change in Control shall no longer be
deemed to have occurred upon the termination of such agreement for any reason
whatsoever; (v) any person becomes the beneficial owner of 10% or more, but
less than 25%, of the total number of voting shares of the Company, provided
that the OTS has made a determination that such beneficial ownership
constitutes a Change in Control of the Company under the Home Owners' Loan Act,
as amended, or the regulations promulgated thereunder; (vi) any person (other
than persons named as proxies solicited on behalf of the Board) holds
irrevocable proxies for 25% or more of the total number of voting shares of the
Company, provided that a Change in Control will not be deemed to have occurred
under this clause (vi) unless the Board has made a determination that such
action constitutes or will constitute a Change in Control; or (vii) as the
result of, or in connection with, any cash tender or exchange offer, merger, or
other business combination, sale of assets or contested proxy solicitation or
election, or any combination of the foregoing transactions, the persons who
were directors of the Company before such transaction shall cease to constitute
at least two-thirds of the Board or any successor institution. For purposes of
this Section 18, a "person" includes an individual, corporation, partnership,
trust or group acting in concert. A person for these purposes shall be deemed
to be a beneficial owner as that term is used in Rule 13d-3 under the 1934 Act.
For purposes of the 1995 Plan, a "Change in Control" of the Bank shall be
deemed to have occurred if the Company's beneficial ownership of the total
number of voting shares of the Bank is reduced to less than 50% of such shares.
Notwithstanding anything to the contrary contained herein, a Change in
Control shall no longer be deemed (as of the time of the determination of the
Board referred to below) to have occurred for the purposes of the 1995 Plan by
virtue of any transaction or event which terminates or ceases to exist, with
respect to which the Board by resolution adopted by the affirmative vote of at
least two-thirds (2/3) of the members of the Board in office immediately prior
to such transaction or event, shall specify that such transaction or event
shall no longer be deemed to constitute a Change in Control of the Company for
purposes of the 1995 Plan; provided that at the time of making a determination
under this subsection the Board may attach such terms and conditions to its
determination as it shall, in its discretion, deem appropriate; and provided
further that the provisions of this paragraph shall not be applicable to any
transaction or event pursuant to which any person becomes the beneficial owner
of 50% or more of the total number of voting shares of the Company.
19. TAX WITHHOLDING
The Company shall have the right to require, prior to the issuance or
delivery of any shares of Stock or the payment of any cash pursuant to an award
hereunder, payment by the holder of such award of any federal, state, local or
18
61
other taxes which may be required to be withheld or paid in connection with
such award. As determined by the Board at the time of grant of an award, an
Agreement may provide that (i) the Company shall withhold from the shares of
Stock or the amount of cash otherwise issuable or payable to a holder, the
number of whole shares of Stock having an aggregate Fair Market Value or the
amount of cash determined as of the date the obligation to withhold or pay
taxes arises in connection with an award (the "Tax Date") in the amount
necessary to satisfy any such obligation or (ii) the holder may satisfy any
such obligation by any of the following means: (A) a cash payment to the
Company, (B) delivery to the Company of previously owned whole shares of Stock
(which, in the case of a Grantee subject to the reporting requirements of
Section 16 of the 1934 Act, the Grantee has held for at least six months prior
to delivery of such shares and for which the holder has good title, free and
clear of all liens and encumbrances) having an aggregate Fair Market Value,
determined as of the Tax Date, equal to the amount necessary to satisfy any
such obligation, (C) authorizing the Company to withhold from the shares of
Stock or the amount of cash otherwise issuable or payable to the holder
pursuant to an award, the number of whole shares of Stock having an aggregate
Fair Market Value or the amount of cash determined as of the Tax Date, equal to
the amount necessary to satisfy any such obligation, (D) in the case of the
exercise of an Option, a cash payment by a broker-dealer acceptable to the
Company to whom the Optionee has submitted an irrevocable notice of exercise or
(E) any combination of (A), (B) and (C); provided, however, that the Board
shall have sole discretion to disapprove of an election pursuant to any of
clauses (B)--(E) and that in the case of a holder who is subject to Section 16
of the 1934 Act, the Company may require that the method of satisfying any such
obligation be in compliance with Section 16 and the rules and regulations
thereunder. An Agreement may provide for shares of Stock to be delivered or
withheld having an aggregate Fair Market Value in excess of the minimum amount
required to be withheld, but not in excess of the amount determined by applying
the holder's maximum marginal tax rate. Any fraction of a share of Stock, which
would be required to satisfy such an obligation shall be disregarded and the
remaining amount due shall be paid in cash by the holder. The Company may
require that any or all obligations to satisfy or pay taxes with respect to any
award shall be satisfied or paid by the holder prior to the issuance of shares
of Stock or the payment of cash by the Company.
20. DISCLAIMER OF RIGHTS
No provision in the 1995 Plan or in any award granted or Agreement entered
into pursuant to the 1995 Plan shall be construed to confer upon any individual
the right to remain in the employ or service of the Company or any Subsidiary,
or to interfere in any way with the right and authority of the Company or any
Subsidiary either to increase or decrease the compensation of any individual at
any time, or to terminate any employment or other relationship between any
individual and the Company or any Subsidiary.
21. AGREEMENTS
Unless otherwise provided herein, each award under the 1995 Plan shall be
evidenced by an Agreement, in such form or forms as the Board may from time to
time determine, applicable to such award. Agreements covering awards granted
hereunder from time to time or at the same time need not contain similar
provisions; provided, however, that all such Agreements shall comply with all
terms of the 1995 Plan. No award shall be valid until an Agreement is executed
by the Company and the Grantee and, upon execution by each party and delivery
of the Agreement to the Company, such award shall be effective as of the
effective
19
62
date set forth in the Agreement.
22. NONEXCLUSIVITY OF THE 1995 PLAN
Neither the adoption of the 1995 Plan nor the submission of the 1995 Plan
to the shareholders of the Company for approval shall be construed as creating
any limitations upon the right and authority of the Board to adopt such other
incentive compensation arrangements (which arrangements may be applicable
either generally to a class or classes of individuals or specifically to a
particular individual or individuals) as the Board in its discretion determines
desirable, including without limitation, the granting of stock options or stock
appreciation rights otherwise than under the 1995 Plan.
20
63
* * *
The 1995 Plan was duly adopted and approved by the Board of Directors of
the Company on February 27, 1995. The effective date of the 1995 Plan is May 3,
1995.
_________________________________
Secretary of the Company
The 1995 Plan was duly approved by the shareholders of the Company at a
meeting of the shareholders held on the day of May 3, 1995.
__________________________________
Secretary of the Company
21
64
EXHIBIT 10 (ii)
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement ("Amendment") is made and
entered into as of May 22, 1995, by and among ST. PAUL BANCORP, INC. (the
"Company"), ST. PAUL FEDERAL BANK FOR SAVINGS (the "Bank") and JOSEPH C. SCULLY
(the "Employee").
WHEREAS, the Company, the Bank and the Employee have entered into a
Restated Employment Agreement, dated as of December 19, 1994 (the "Agreement"),
setting forth the terms and conditions for the employment relationships of the
Employee with the Company and the Bank; and
WHEREAS, the parties hereto desire to amend the Agreement in certain
respects;
NOW, THEREFORE, it is AGREED as follows:
1. Section 9(a)(ii) of the Agreement is hereby amended to read in
its entirety as follows:
"(ii) If during the term of this Agreement there is a change
in control of the Company or of the Bank and the Employee
without Good Reason voluntarily terminates his employment or
this Agreement in connection with or within two years after
such change in control, the Employee shall be entitled to
receive from the Company, and the Company shall pay to the
Employee, as a severance payment, or in lieu of a severance
payment, for services previously rendered the Company and the
Bank, a lump sum cash payment equal to one year's current
compensation (as defined in Section 8(a)(ii) hereof), but not
less than such compensation calculated as of the end of the
fiscal year preceding such change in control."
2. Section 18 of the Agreement is hereby amended to read in its
entirety as follows:
"18. Allocation of Payments. Notwithstanding any other
provisions of this Agreement, the obligations of the Bank to
make payments hereunder shall be limited to the amount of such
payments permitted by Regulatory Bulletin 27a issued by the
OTS or any other applicable law or regulation in effect from
time to time during the term of this Agreement. All
additional payments contemplated under the terms of this
Agreement in excess of the amount indicated in the preceding
sentence, including but not limited to the payment
contemplated under Section 9(a)(ii) of this Agreement,
shall be an obligation of the Company only."
3. Except as amended hereby, the Agreement shall continue and
shall remain in full force and effect in all respects.
4. This Amendment may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all of such counterparts shall together constitute but one and
the same instrument.
65
IN WITNESS WHEREOF, the parties have executed this Amendment or have
caused this Amendment to be executed on their behalf, as of the date first
above written.
ATTEST: ST. PAUL BANCORP, INC.
____________________________ By__________________________________
Patrick J. Agnew
President
ATTEST: ST. PAUL FEDERAL BANK FOR SAVINGS
____________________________ By___________________________________
Patrick J. Agnew
President
EMPLOYEE
_____________________________________
Joseph C. Scully
2
66
AMENDMENT TO EMPLOYMENT AGREEMENT
This Amendment to Employment Agreement ("Amendment") is made and
entered into as of May 22, 1995, by and among ST. PAUL BANCORP, INC. (the
"Company"), ST. PAUL FEDERAL BANK FOR SAVINGS (the "Bank") and PATRICK J. AGNEW
(the "Employee").
WHEREAS, the Company, the Bank and the Employee have entered into a
Restated Employment Agreement, dated as of December 19, 1994 (the "Agreement"),
setting forth the terms and conditions for the employment relationships of the
Employee with the Company and the Bank; and
WHEREAS, the parties hereto desire to amend the Agreement in certain
respects;
NOW, THEREFORE, it is AGREED as follows:
1. Section 9(a)(ii) of the Agreement is hereby amended to read in
its entirety as follows:
"(ii) If during the term of this Agreement there is a change
in control of the Company or of the Bank and the Employee
without Good Reason voluntarily terminates his employment or
this Agreement in connection with or within two years after
such change in control, the Employee shall be entitled to
receive from the Company, and the Company shall pay to the
Employee, as a severance payment, or in lieu of a severance
payment, for services previously rendered the Company and the
Bank, a lump sum cash payment equal to one year's current
compensation (as defined in Section 8(a)(ii) hereof), but not
less than such compensation calculated as of the end of the
fiscal year preceding such change in control."
2. Section 18 of the Agreement is hereby amended to read in its
entirety as follows:
"18. Allocation of Payments. Notwithstanding any other
provisions of this Agreement, the obligations of the Bank to
make payments hereunder shall be limited to the amount of such
payments permitted by Regulatory Bulletin 27a issued by the
OTS or any other applicable law or regulation in effect from
time to time during the term of this Agreement. All
additional payments contemplated under the terms of this
Agreement in excess of the amount indicated in the preceding
sentence, including but not limited to the payment
contemplated under Section 9(a)(ii) of this Agreement, shall
be an obligation of the Company only."
3. Except as amended hereby, the Agreement shall continue and
shall remain in full force and effect in all respects.
4. This Amendment may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all of such counterparts shall together constitute but one and
the same instrument.
67
IN WITNESS WHEREOF, the parties have executed this Amendment or have
caused this Amendment to be executed on their behalf, as of the date first above
written.
ATTEST: ST. PAUL BANCORP, INC.
_____________________________ By___________________________________
Joseph C. Scully
Chairman of the Board
ATTEST: ST. PAUL FEDERAL BANK FOR SAVINGS
_____________________________ By___________________________________
Joseph C. Scully
Chairman of the Board
EMPLOYEE
______________________________________
Patrick J. Agnew
2