Five-Year Summary
At or for the years ended Dec. 31 -- Dollars in thousands, except per share
amounts
1994 1993 (a) 1992 1991 1990
------------------------------------------------------------------
Summary of Financial Condition
Assets:
Cash and cash equivalents.............................. $ 159,948 $ 336,331 $ 311,567 $ 314,623 $ 168,411
Marketable-debt securities............................. 99,643 142,051 107,732 25,410 40,435
Mortgage-backed securities............................. 1,126,617 733,649 643,941 717,354 689,066
Loans receivable-net of accumulated provision.......... 2,568,381 2,304,319 2,270,198 2,415,540 2,404,760
Other assets........................................... 176,948 189,026 166,822 190,316 143,561
------------------------------------------------------------------
Total assets......................................... $4,131,537 $3,705,376 $3,500,260 $3,663,243 $3,446,233
==================================================================
Liabilities and stockholders' equity:
Deposits............................................... $3,232,903 $3,252,618 $2,985,124 $3,004,419 $2,665,733
Short-term borrowings.................................. 221,180 620 134,509 135,775 139,724
Long-term borrowings................................... 271,747 63,350 51,899 198,753 357,747
Other liabilities...................................... 54,310 41,459 41,387 59,232 41,744
Subordinated capital notes............................. -- -- -- 12,176 11,951
Stockholders' equity................................... 351,397 347,329 287,341 252,888 229,334
------------------------------------------------------------------
Total liabilities and stockholders' equity........... $4,131,537 $3,705,376 $3,500,260 $3,663,243 $3,446,233
==================================================================
Summary of Operations
Interest income.......................................... $ 253,262 $ 256,937 $ 278,687 $ 321,291 $ 316,275
Interest expense......................................... 135,069 132,982 165,844 222,487 227,661
------------------------------------------------------------------
Net interest income.................................... 118,193 123,955 112,843 98,804 88,614
Provision for loan losses................................ 5,150 10,750 10,625 11,100 35,652
------------------------------------------------------------------
Net interest income after provision for loan losses.... 113,043 113,205 102,218 87,704 52,962
Net gain on assets sold.................................. 524 2,150 3,024 2,680 473
Income from real estate operations....................... 3,150 2,969 2,442 2,037 6,525
Other income............................................. 26,097 27,387 22,882 17,930 15,285
General and administrative expense....................... 87,166 82,747 71,240 64,754 62,797
Loss on foreclosed real estate........................... 2,145 2,516 1,316 1,898 2,266
Income taxes............................................. 18,991 19,061 20,325 16,507 3,252
------------------------------------------------------------------
Income before extraordinary item....................... 34,512 41,387 37,685 27,192 6,930
Extraordinary item, net of income taxes.................. -- -- -- -- 1,470
------------------------------------------------------------------
Net income............................................. $ 34,512 $ 41,387 $ 37,685 $ 27,192 $ 8,400
==================================================================
Earnings before extraordinary item per share: (b)
Primary................................................ $ 1.70 $ 2.03 $ 2.00 $ 1.48 $ 0.38
Fully diluted.......................................... 1.70 2.03 1.98 1.48 0.38
==================================================================
Earnings per share: (b)
Primary................................................ $ 1.70 $ 2.03 $ 2.00 $ 1.48 $ 0.46
Fully diluted.......................................... 1.70 2.03 1.98 1.48 0.46
==================================================================
Selected Financial and Other Data
Weighted average shares outstanding (b).................. 19,269,801 19,447,658 18,142,041 18,020,606 17,987,696
Common stock equivalents: (b)
Primary................................................ 976,260 907,938 674,957 319,828 156,537
Fully diluted.......................................... 976,260 979,948 849,864 359,851 171,832
Dividends per share (b).................................. $ 0.30 $ 0.27 $ 0.27 $ 0.27 $ 0.27
Dividend payout ratio (c)................................ 17.65% 13.15% 13.35% 18.04% 58.01%
Earning assets to interest bearing liabilities........... 1.06 1.07 1.06 1.06 1.06
Weighted average rate on loans, MBS and investments...... 6.98 6.96 7.74 8.91 9.72
Weighted average cost of money........................... 4.22 3.66 4.26 5.96 7.24
Interest rate spread..................................... 2.76 3.30 3.48 2.95 2.48
Return on average assets................................. 0.88 1.10 1.05 0.76 0.25
Average equity as a percentage of average assets......... 9.05 8.64 7.57 6.78 6.80
Return on average stockholders' equity (net worth)....... 9.72% 12.77% 13.88% 11.15% 3.66%
Number of full-time equivalent employees................. 1,103 1,046 883 829 804
Number of office locations............................... 52 50 40 37 34
(a) Includes the operations of Elm Financial Services as of the
acquisition date, Feb. 23, 1993.
(b) Restated for the three-for-two stock split on Jan. 4, 1994.
(c) Based upon primary earnings per share.
14 St.Paul Bancorp, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
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 Dec. 31, 1994, the Company reported total assets of $4.1 billion
and the Bank operated 52 full-service branches in the Chicago metropolitan area.
This branch network is comprised of 35 full-size offices and 17 banking offices
located in Omni(R) and Cub(R) super-markets. In addition, the Bank operated 178
automated teller machines (ATMs) and serviced 164,000 checking accounts and
27,000 loans at year-end 1994.
Both the Company and the Bank continued to operate other wholly owned
subsidiaries during 1994, including St.Paul Financial Development Corporation,
Annuity Network, Inc., St.Paul Service, Inc. and Investment Network, Inc. See
"Note A - Summary of Significant Accounting Policies" for descriptions of the
Company's affiliates and subsidiaries.
During 1994, the Company focused on originating single family real estate
loans with adjustable rate characteristics to hold for investment. As a result,
single family loan originations totaled $653 million, one of the highest levels
in the Company's 106-year history. A significant amount of 1994 originations
were accomplished through correspondent loan originators, resulting in more
loans secured by real estate in Indiana, Ohio, Wisconsin, Minnesota and
Michigan. In addition, the Company originated $47 million in loans secured by
5-120 unit apartment buildings in the Chicago metropolitan area and $26 million
of consumer loans (mostly auto loans). In 1995, Management plans to increase its
multifamily lending to $100 million in the Chicago metropolitan area, originate
a $25 million residential construction loan portfolio secured by real estate in
the Chicago area, and continue to emphasize consumer lending. Single family
origination goals are considerably lower for 1995 at approximately $450 million.
Purchases of mortgage-backed securities (MBS) totaled a record $632.0 million
during 1994. These purchases were funded with both excess liquidity and
borrowings from the Federal Home Loan Bank (FHLB) of Chicago. Most MBS purchases
in 1994 were privately issued securities.
The Bank is a consumer-oriented retail financial institution gathering
deposits from the neighborhoods and surrounding suburbs of the metropolitan
Chicago area with favorable savings patterns and high levels of home ownership.
Deposit balances, which are comprised of checking, savings, money market and
certificates of deposit (CDs), remained relatively level at year-end 1994 and
1993. Some depositors sought alternative investments in 1994 as Management held
deposit interest costs at low levels. In order to fund loan originations, the
Company introduced seven- to nine-month CD products, which contain interest rate
guarantees upon rollover at maturity, and borrowed from the FHLB and repo
market.
Despite purchasing and originating MBS and single family loans at near record
levels in 1994, interest income contracted modestly. The benefit of higher
average earning assets could not overcome the decline in asset yields. Assets
acquired during 1994 were generally at rates lower than the weighted average
rates of the respective portfolios at the beginning of the year. Downward
repricing of adjustable rate loans and the repayment of higher yielding loans
and MBS also contributed to the contraction in interest income. Interest rate
floors in effect on adjustable rate loans contributed to 1994 earnings, although
not as much as 1993.
Interest expense edged upward in 1994. The reduction in interest expense
associated with lower average interest costs on deposits was more than offset by
the additional interest expense on borrowings, which funded much of the 1994
asset growth.
1994 Annual Report/10-K 15
STATEMENT OF CONDITION
Total assets of the Company totaled $4.1 billion at Dec. 31, 1994, compared to
$3.7 billion at Dec. 31, 1993, an increase of $426.2 million or 12%. During
1994, loans receivable increased $260.0 million to $2.6 billion and MBS
increased $393.0 million to $1.1 billion. This growth was funded by a $218.8
million reduction in cash and marketable-debt securities and $430.6 million of
new borrowings from the FHLB and repo market.
Cash and cash equivalents totaled $160.0 million at Dec. 31, 1994, compared to
$336.3 million at Dec. 31, 1993. See "Cash Flow Activity" and "Consolidated
Statements of Cash Flows" for further detail.
Marketable-debt securities, comprised of U.S. Treasury and agency issues,
totaled only $99.6 million at Dec. 31, 1994, compared to $142.1 million at Dec.
31, 1993. The weighted average yield of these securities was 5.04% at year-end
1994, compared to 4.21% at the end of 1993. Most of these securities are
classified as held to maturity under Statement of Financial Accounting Standards
(SFAS) No. 115, Accounting for Certain Investments in Debt and Equity
Securities. At Dec. 31, 1994, the Company recorded an unrealized loss of $1.6
million on the available for sale marketable-debt securities portfolio, compared
to an unrealized gain of $182,000 at Dec. 31, 1993. Under SFAS No. 115,
unrealized gains and losses on available for sale securities are recorded in
stockholders' equity, net of the related taxes. See "Note C - Marketable-Debt
Securities" for further detail. Higher market interest rates during 1994
produced the market value swing and higher yield. The average maturity of the
marketable-debt securities was relatively unchanged at the end of the two years.
The largest category of the Company's asset growth occurred in the MBS
portfolio. See "Cash Flow Activity" for further detail. MBS totaled $1.1 billion
at Dec. 31, 1994, the highest year-end level ever held by the Company, compared
to $733.6 million at Dec. 31, 1993. During the year, Management used liquidity
to purchase MBS to improve interest income because these securities provide
higher yields than similar term government securities. Also, the Company
borrowed $210.0 million to acquire MBS at a fixed spread.
Similar to the marketable-debt securities portfolio, most of the MBS portfolio
has been classified as held to maturity under SFAS No. 115. At Dec. 31, 1994,
the Company recorded an unrealized loss on its available for sale MBS of $4.1
million, compared to an unrealized gain of $7.2 million at Dec. 31, 1993. Under
SFAS No. 115, unrealized gains and losses on available for sale securities are
recorded in stockholders' equity, net of the related taxes. Market interest rate
increases since Dec. 31, 1993 lowered the market value of available for sale
MBS, which are mostly fixed rate securities. See "Note D - MBS" for further
detail. The weighted average yield of the entire MBS portfolio was 6.02% at Dec.
31, 1994, up slightly from 5.91% at Dec. 31, 1993. Upward repricing of
adjustable rate MBS during 1994 was largely offset by the acquisition of
securities at rates lower than the weighted average rate of the portfolio at the
beginning of the year, which limited the improvement in the weighted average
yield.
At Dec. 31, 1994, 63% of the MBS portfolio had adjustable rate characteristics
(although some may be performing at low initial fixed interest rates). In
comparison, 57% of the MBS portfolio had adjustable rate characteristics at Dec.
31, 1993. Some securities may not fully reprice in response to the sharp
increase in market interest rates in 1994 because they contain periodic and
lifetime interest rate caps.
Loans receivable increased from $2.4 billion at Dec. 31, 1993 to $2.6 billion
at Dec. 31, 1994. Slowing prepayments and high demand for mortgage loans with
adjustable rate characteristics, which the Bank retains in its loan portfolio,
generated the $259.7 million increase in loans receivable. At year-end 1994, 77%
of loans receivable had adjustable rate characteristics, compared to 72% at
year-end 1993. See "Results of Operations - Comparison of Years Ended Dec. 31,
1994 and 1993 - Net Interest Income" for further discussion.
The weighted average yield on loans receivable was 7.51%, down from 7.87% at
Dec. 31, 1993. Many factors
16 St.Paul Bancorp, Inc.
contributed to this decline. First, the Bank originated $744.2 million of loans
during the year at a weighted average rate of 6.80%, or 107 basis points lower
than the weighted average loan rate at the beginning of the year. Second,
repayments during 1994 consisted mostly of higher yielding loans. Third, $865.2
million of loans were tied to "cost of funds" indices. Movements in these
indices have been lagging behind the sharp upward movements in market interest
rates.
Deposits totaled $3.2 billion at Dec. 31, 1994, relatively unchanged from
year-end 1993. The deposit portfolio's composition between checking, savings and
money market accounts (i.e., "core accounts") and CDs was relatively the same at
the end of 1994 and 1993. Core accounts totaled $1.4 billion or 44% of total
deposits at year-end 1994, while CDs totaled $1.8 billion or 56% of total
deposits. The weighted average cost of deposits was 3.85% at Dec. 31, 1994, up
from 3.56% at Dec. 31, 1993. Management raised new offering rates on CDs near
the end of the year in order to attract new deposits. The weighted average
maturity of the CD portfolio decreased slightly during the year from 16 months
at Dec. 31, 1993 to 14 months at Dec. 31, 1994. See "Cash Flow Activity,"
"Comparison of Results of Operations - Years Ended Dec. 31, 1994 and 1993," and
"Note N - Deposits" for further detail.
New borrowings funded a substantial amount of asset growth during 1994. Total
borrowings, including advances from the FHLB, increased $429.0 million to $492.9
million at Dec. 31, 1994. Most of the new borrowings consisted of short-term
reverse repurchase agreements and borrowings under the Bank's line of credit
with the FHLB. Long-term borrowings totaling $210.0 million were used during the
year to fund MBS purchases. The other new borrowings were primarily used to fund
loan growth. At Dec. 31, 1994, the weighted average cost of borrowings was
6.68%, down substantially from 9.12% at Dec. 31, 1993. The addition of short-
term borrowings lowered the Bank's average borrowing cost. See "Cash Flow
Activity," "Comparison of Results of Operations - Years Ended Dec. 31, 1994 and
1993," and "Note O - Borrowings" for further details.
Stockholders' equity totaled $351.4 million, or $18.71 per share, at Dec. 31,
1994, compared to $347.3 million, or $17.65 per share, at Dec. 31, 1993. The
acquisition of $18.4 million of the Company's common stock (1) and the payment
of $5.8 million of dividends to stockholders limited the growth in stockholders'
equity created by 1994's net income. The Company also experienced a reduction in
the market value adjustment for available for sale securities under SFAS No.
115.
The Company does not rely heavily on derivatives in its operations. The
notional amount of interest rate exchange agreements at Dec. 31, 1994 was $147.8
million, compared to $30.0 million at Dec. 31, 1993. During the year, the Bank
entered into $134.3 million notional amount of interest rate exchange
agreements, while $16.5 million matured. The only new interest rate swap
agreements entered into in 1994 were in connection with a matched funding
transaction. See "Cash Flow Activity - Sources of Funds" for further discussion.
Regulatory Capital Requirements: The OTS requires federally insured
institutions, such as the Bank, to have minimum ratios of core and tangible
capital to adjusted total assets of 3.0% and 1.5%, respectively. The Bank is
also required to 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 consists 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 on loans receivable, subject
to certain limitations.
The following schedule presents the Bank's regulatory capital ratios as of
Dec. 31, 1994.
DOLLARS IN THOUSANDS
---------------------------------------------------------
Core Tangible Risk-Based
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
=================================
(1) TREASURY STOCK IS CARRIED AS A REDUCTION IN STOCKHOLDERS' EQUITY.
1994 Annual Report/10-K 17
In an attempt to address interest rate risk inherent in the balance sheets of
insured institutions, the OTS issued a regulation which defines an interest rate
risk component to the risk-based capital requirement for those institutions with
excessive interest rate risk. Under the new regulation, an institution is
considered to have excessive 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. The new regulation became
effective on Jan. 1, 1994. At Dec. 31, 1994, the Bank did not have excessive
interest rate risk and was not subject to an additional capital requirement. As
of Sept. 30, 1994 (the most recent data available from the OTS' interest rate
risk model), the Bank's interest rate risk capital component cushion was $23.7
million, compared to $68.0 million at Dec. 31, 1993. See "Interest Rate Risk"
for further details.
Under the Federal Deposit Insurance Corporation Improvement Act, the OTS
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 has issued notice of a proposed regulation that would require all but
the most highly rated savings institutions to maintain a ratio of core capital
to total assets of between 4% and 5%. If the Bank were required to meet a 4%
core capital ratio as of Dec. 31, 1994, its excess core capital would have been
$184.3 million, versus $225.2 million under current requirements.
At Dec. 31, 1994, the Bank was 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 8.51%, 15.33%
and 16.65%, respectively.
See "Note Q - Stockholders' Equity" for further discussion and a
reconciliation of the Company's stockholders' equity to the regulatory capital
of the Bank. See "Annual Report on Form 10-K - Regulation" and "Credit Risk
Management" for further discussion of regulatory capital requirements.
CASH FLOW ACTIVITY
Sources of Funds: During 1994, the Company's major sources of funds included
$432.2 million of mortgage loan repayments, $362.4 million of CD sales, and
$429.4 million of new borrowings.
Although loan repayments were the Company's most significant source of cash
inflows in 1994, loan repayments were at the lowest level since 1991. Higher
mortgage interest rates starting in the fourth quarter of 1993 curtailed
mortgage refinancing activity, which had reached historically high levels in
1993. Management expects interest rates to increase further in 1995 and loan
prepayments to be even lower than 1994 levels.
CD sales provided a substantial level of new funds during 1994 and exceeded
1993 CD sales by 30%. Many depositors avoided investing in CDs during 1993 when
market interest rates were low, but returned to this investment product when
rates began to increase in 1994. During the year, Management focused on selling
CDs maturing at seven to nine months. Management believed these were the longest
maturities that would be attractive to depositors in light of the volatility of
short-term market interest rates.
During 1994, Management acquired $210 million of MBS with long-term advances
from the FHLB. In addition, $220.6 million of short-term borrowings were used
primarily to fund loan growth. Management will continue to rely on short-term
borrowings to fund operations until deposit growth or net loan repayments
generate sufficient liquidity. See "Uses of Funds" for further detail of matched
transactions and 1994 loan originations. In recent years prior to 1994, new
borrowings were nominal because asset growth was funded with deposit inflows.
Also, except for 1994, the Bank had not
18 St.Paul Bancorp, Inc.
LOAN ORIGINATIONS AND PURCHASES
Dollars in thousands
The following table sets forth loan originations and purchases for the years
ended Dec. 31, 1990 through 1994.
1994 % 1993 % 1992 % 1991 % 1990 %
-------------------------------------------------------------------------------------
1-4 family units:
Originations...... $652,808 86% $535,574 61% $520,572 85% $283,492 58% $175,047 38%
Purchases......... 3,253 * 13,860 2 7,194 1 151,625 31 189,835 41
Acquired from
Elm Financial..... -- -- 229,083 26 -- -- -- -- -- --
Multifamily units.. 72,886 10 69,962(A) 8 48,847(A) 8 29,623(A) 6 64,248(A) 15
Commercial......... 5,110 1 1,300(A) * 5,651(A) 1 -- -- 2,650(A) 1
Land loans......... 514 * -- -- 1,590 * -- -- 2,400 *
Consumer........... 26,408 3 25,016 3 32,322 5 24,495 5 25,142 5
-------------------------------------------------------------------------------------
Total............ $760,979 100% $874,795 100% $616,176 100% $489,235 100% $459,322 100%
=====================================================================================
*LESS THAN 1%
(A) IN YEARS 1990 THROUGH 1993, MULTIFAMILY AND COMMERCIAL REAL ESTATE
ORIGINATIONS AND PURCHASES WERE PRIMARILY TO FACILITATE THE SALE OF REO OR
REACQUIRE LOANS SOLD WITH RECOURSE.
entered into new matched funding transactions in recent years. In 1992 and
1993, the only significant new borrowing was the issuance of $34.5
million of subordinated debt by the Company. Part of the proceeds was used
by the Company to acquire St.Paul Financial Development from the Bank, and
for general corporate purposes, such as financing the operations of St. Paul
Financial Development and providing liquidity to finance future acquisitions
of other financial services companies.
See "Note O - Borrowings" for detail of the Company's borrowing facilities as
of Dec. 31, 1994.
Uses of Funds: During 1994, the Company used $700.8 million of funds to
originate loans for its loans receivable portfolio, $604.9 million to acquire
MBS and $362.4 million to repay maturing CDs.
In 1994, loan originations reached one of the highest levels in the Bank's
history. Management focused on originating single family loans with adjustable
rate characteristics through its 52 branches and its network of correspondent
loan originators. A combination of competitive pricing and rising mortgage
interest rates in 1994 increased the popularity of St.Paul's mortgages among
borrowers. The Bank's preferred product was the "5/1" product, which has a
fixed interest rate for the first five years and reprices annually beginning
in year six. This mortgage comprised $320.7 million of the Bank's $744.2
million of total originations during the year. See "Results of Operations
-- Comparison of Years Ended Dec. 31, 1994 and 1993" for further detail.
While loans receivable balances were substantially higher at year-end 1994
versus 1993, average loans receivable balances declined slightly. A significant
amount of 1994's new loans were originated in the latter half of 1994; the full
impact of those second half originations will not benefit average balances until
1995.
Management expects annual originations to return to more historic levels of
about $450 million in 1995 and does not plan to use correspondents to generate
significant loan volume. Most single family adjustable rate loans are expected
to be tied to the Treasury bill with only a modest amount of the 5/1 product
originated for portfolio. Included in 1995 loan origination goals are about
$100 million of multifamily lending in the Chicago metropolitan area and $25
million of residential construction loans.
During 1994, the Company acquired $604.9 million of MBS. A total of $210.0
million of MBS was acquired with the proceeds from matched maturity FHLB
advances. The matched funding transactions generated
1994 Annual Report/10-K 19
$1.3 million of net income in 1994. Generally, the Bank enters into matched
funding transactions when a 1% spread or better can be obtained. The remaining
MBS were acquired with liquidity. The Bank's strategy was to enhance investment
earnings with these purchases since MBS, at that time, offered higher yields
than federal funds and short-term government securities. See "Sources of Funds"
and "Results of Operations - Comparison of Years Ended Dec. 31, 1994 and 1993"
for further detail. Management expects 1995 MBS acquisitions to approximate MBS
repayments unless additional matched funding transactions can be executed.
Proceeds from maturing CDs in 1994 increased $105.5 million or 35% over 1993's
proceeds. During 1994, the Bank allowed some of its higher rate CD products to
run off, while emphasizing the sale of seven-to nine-month CDs and other
deposit products.
Holding Company Liquidity: At Dec. 31, 1994, St.Paul Bancorp had $21.1 million
of cash and cash equivalents and $979,000 of marketable-debt securities. A
portion of the marketable-debt securities is used to collateralize borrowings of
the Employee Stock Ownership Plan.
During 1994, St.Paul Bancorp's sources of liquidity included $30.1 million of
dividends from the Bank and $1.0 million of dividends from Annuity Network, Inc.
Uses of liquidity during 1994 included purchases of $18.4 million of Company
stock (reported as a reduction to stockholders' equity), payment of $5.8 million
of dividends to stockholders and $2.8 million of interest payments on the
subordinated debt. During January 1995, St.Paul Bancorp acquired an additional
$2.4 million of treasury stock, which brought the total stock acquired under the
Company's announced stock repurchase programs to about 5% of issued shares.
Dividend payments from the Bank to the holding company are regulated by the
OTS. Management plans to pay dividends to the Company from the Bank equal to 50%
of the Bank's net income in 1995. See "Note Q -- Stockholders' Equity" for
dividend restrictions. See "Regulatory Capital Requirements" and "Annual Report
on Form 10-K -- Regulation" for discussion of regulatory capital requirements.
Regulatory Liquidity: Savings institutions are required to 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, and
certain securities. This liquidity requirement may be changed from time to time
by the Director of the OTS to any amount within the range of 4% to 10% depending
upon economic conditions and the deposit flows of savings institutions. During
1994, the Bank held average regulatory liquidity of $288.7 million with
liquidity balances that ranged between $176.2 million and $491.3 million. At
Dec. 31, 1994, the Bank's regulatory liquidity of 7.2%, or $242.6 million,
exceeded the current regulatory liquidity requirement of 5% by $73.0 million.
Lower lending goals were established for 1995 to maintain liquidity next year.
See "Note O - Borrowings" for description of the Bank's available borrowing
facilities.
20 St.Paul Bancorp, Inc.
Average Balances, Interest and Average Yields
AT OR FOR THE YEARS ENDING DEC. 31 -- DOLLARS IN THOUSANDS
AT DEC. 31, 1994 1994 1993 1992
---------------- -------------------------- ------------------------------ ---------------------------
Weighted Effective Effective Effective
Yield/ Average Yield/ Average Yield/ Average Yield/
Balance Rate Balance (a) Interest Rate Balance (a) Interest Rate Balance (a) Interest Rate
Investments:
Marketable-debt
securities (B)......... $ 99,643 5.04% $ 127,778 $ 6,032 4.72% $ 147,546 $ 6,222 4.22% $ 73,025 $ 3,106 4.25%
Trading account........ -- -- 27 1 3.70 5,122 117 2.28 2,695 78 2.89
Federal funds.......... 18,100 5.00 27,151 986 3.63 49,360 1,491 3.02 30,685 1,058 3.45
Other investments (C).. 67,132 6.02 102,422 4,455 4.35 259,214 8,630 3.33 284,927 11,003 3.86
---------------- -------------------------- ---------------------------- --------------------------
Total investments....... 184,875 5.39 257,378 11,474 4.46 461,242 16,460 3.57 391,332 15,245 3.90
Mortgage-backed
securities (B)......... 1,126,617 6.02 1,060,833 59,276 5.59 664,812 42,269 6.36 657,331 50,453 7.68
Loans receivable (D).... 2,620,732 7.51 2,435,856 182,512 7.49 2,455,559 198,208 8.07 2,400,233 212,989 8.87
---------------- -------------------------- ---------------------------- --------------------------
Total interest earning
assets................. $3,932,224 6.98% $3,754,067 $253,262 6.75% $3,581,613 $256,937 7.17% $3,448,896 $278,687 8.08%
================ ========================== =========================== ==========================
Deposits:
Interest bearing
checking............... $ 249,505 1.80% $ 241,943 $ 4,481 1.85% $ 214,201 $ 4,833 2.26% $ 162,281 $ 4,585 2.83%
Noninterest
bearing checking....... 110,351 -- 101,700 -- -- 90,161 -- -- 72,328 -- --
Other noninterest
bearing accounts....... 36,457 -- 37,066 -- -- 43,923 -- -- 43,000 -- --
Money market
accounts............... 245,155 3.13 281,004 7,809 2.78 296,818 8,634 2.91 257,520 10,104 3.92
Savings accounts....... 769,925 2.43 809,480 20,246 2.50 770,183 21,601 2.80 600,534 22,828 3.80
Certificates of
deposit................ 1,821,510 5.14 1,736,898 82,426 4.75 1,804,386 87,205 4.83 1,852,196 107,716 5.82
---------------- -------------------------- ---------------------------- --------------------------
Total deposits.......... 3,232,903 3.85 3,208,091 114,962 3.58 3,219,672 122,273 3.80 2,987,859 145,233 4.86
Borrowings:
Short-term
borrowings (E)......... 221,180 6.24 92,273 4,829 5.23 71,264 4,805 6.74 148,117 11,336 7.65
Long-term
borrowings (E)......... 271,747 7.04 217,332 15,278 7.03 74,894 5,904 7.88 121,381 9,275 7.64
---------------- -------------------------- ---------------------------- --------------------------
Total borrowings........ 492,927 6.68 309,605 20,107 6.49 146,158 10,709 7.33 269,498 20,611 7.65
---------------- -------------------------- ---------------------------- --------------------------
Total interest bearing
liabilities............ $ 725,830 4.22% $3,517,696 $135,069 3.84% $3,365,830 $132,982 3.95% $3,257,357 $165,844 5.09%
================ ========================== ============================ ==========================
Excess of
interest earning
assets over
interest bearing
liabilities............ $ 206,394 $ 236,371 $ 215,783 $ 191,539
================ ========================== =========================== =========================
Ratio of interest
earning assets over
interest bearing
liabilities............ 1.06x 1.07x 1.06x 1.06x
================ ========================== =========================== =========================
Net interest income..... $118,193 $123,955 $112,843
================ ========================== =========================== =========================
Interest rate spread.... 2.76%
================ ========================== =========================== =========================
"Average" interest
rate spread............ 2.91% 3.22% 2.99%
================ ========================== =========================== =========================
Net yield on average
earning assets......... 3.15% 3.46% 3.27%
================ ========================== =========================== =========================
(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 FHLB ADVANCES, FLOATING RATE NOTES, OTHER BORROWINGS, AND
SUBORDINATED CAPITAL NOTES. THE ESOP LOAN IS EXCLUDED IN PERIODS PRIOR TO 1994.
1994 Annual Report/10-K 21
Rate/Volume Analysis
YEARS ENDED DEC. 31 -- DOLLARS IN THOUSANDS
1994 VS 1993 1993 vs 1992
INCREASE (DECREASE) DUE TO increase (decrease) due to
Total Total
Volume Rate Change Volume Rate Change
CHANGE IN INTEREST INCOME:
Loans receivable................... $(1,579) $(14,117) $(15,696) $ 4,819 $(19,600) $(14,781)
Mortgage-backed securities......... 22,644 (5,637) 17,007 568 (8,752) (8,184)
Marketable-debt securities......... (886) 696 (190) 3,143 (27) 3,116
Trading accounts................... (161) 45 (116) 58 (19) 39
Federal funds...................... (765) 260 (505) 578 (145) 433
Other short-term investments....... (6,282) 2,107 (4,175) (939) (1,434) (2,373)
-------- --------
Total interest income........... (3,675) (21,750)
CHANGE IN INTEREST EXPENSE:
Deposits........................... (439) (6,872) (7,311) 10,623 (33,583) (22,960)
Short-term borrowings.............. 1,236 (1,212) 24 (5,313) (1,218) (6,531)
Long-term borrowings............... 10,078 (704) 9,374 (3,656) 285 (3,371)
-------- --------
Total interest expense.......... 2,087 (32,862)
-------- --------
NET CHANGE IN NET INTEREST INCOME
BEFORE PROVISION FOR LOAN LOSSES... $ (5,762) $ 11,112
======== ========
THIS ANALYSIS ALLOCATES THE CHANGE IN INTEREST INCOME AND EXPENSE RELATED TO
VOLUME BASED UPON THE CHANGE IN THE AVERAGE BALANCE AND PRIOR PERIOD'S
APPLICABLE YIELD OR RATE PAID. THE CHANGE IN INTEREST INCOME AND EXPENSE RELATED
TO RATE IS BASED UPON THE CHANGE IN YIELD OR RATE PAID AND THE PRIOR PERIOD'S
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 ABOVE ALLOCATION PROCEDURES HAVE BEEN APPLIED
CONSISTENTLY IN 1994 AND 1993. THE EFFECT OF NONPERFORMING ASSETS HAS BEEN
INCLUDED IN THE RATE VARIANCE. AVERAGE BALANCES EXCLUDE THE EFFECT OF UNREALIZED
GAINS OR LOSSES.
RESULTS OF OPERATIONS - COMPARISON OF YEARS ENDED DEC. 31, 1994 AND 1993.
General: Net income during 1994 totaled $34.5 million, or $1.70 per share,
compared to $41.4 million, or $2.03 per share, during 1993. Earnings per share
in 1994 would have been $0.02 lower if not for the acquisition of 1,003,925
shares of the Company's common stock in 1994. See "Consolidated Statements of
Stockholders' Equity" for further detail. The lower level of income in 1994
compared to 1993 was associated with a $5.8 million reduction in net interest
income, a $4.4 million increase in G&A (general and administrative) expense, and
a $2.7 million decline in other income. These reductions were partly offset by a
$5.6 million decline in the provision for loan losses and a $371,000 improvement
in net operating expenses of foreclosed real estate. The provision for income
taxes remained relatively unchanged between the two periods; a decline in pre-
tax earnings was mostly offset by a higher effective income tax rate.
Net Interest Income: The net interest margin (NIM) for 1994 was 3.15%, or 31
basis points lower than the NIM of 3.46% during 1993. During 1994, earning asset
levels expanded while the net spread between interest earning assets and
interest bearing liabilities contracted. See "Cash Flow Activity" for a
discussion of asset and liability growth. Early in 1994 while rates were still
relatively low, the NIM was compressed as loans originated and securities
acquired were put on the books at lower average rates and higher yielding assets
were repaid. The Bank also acquired MBS with matched borrowings. While interest
rates continued to climb during the year, the Bank used short term borrowings to
finance its loan
22 St.Paul Bancorp, Inc.
production. The effect of these transactions compressed the Bank's margin
further. On the deposit side, the Bank successfully retained balances and kept
interest costs low during the year at a level only two basis points higher than
the 3.56% weighted average rate at year-end 1993.
During the year, the average yield on loans receivable declined 58 basis
points, which reduced the NIM by approximately 40 basis points. The origination
of loans at rates lower than the weighted average rate of the portfolio at the
beginning of the year, repayment of older, higher yielding mortgage loans and
downward repricing of older adjustable rate loans tied to lagging indices
lowered the loan yield in 1994. See "Consolidated Statements of Financial
Condition" for further discussion.
Average MBS balances increased by $396.0 million in 1994. During the year, the
Bank acquired $632.0 million of MBS with excess liquidity (2) and $210.0 million
of borrowings (3). These purchases contributed substantially to interest income
in 1994. Meanwhile, the yield earned on MBS declined 77 basis points between the
two periods, which reduced the NIM by 15 basis points. Purchases of securities
at rates lower than the weighted average rate of the portfolio at the beginning
of the year and repayment of higher yielding securities lowered the MBS yield in
1994. However, the overall decline in MBS yield in 1994 began to reverse toward
the end of the year through favorable repricing. Unlike loans receivable, MBS
repriced upward in 1994 because most of the MBS are tied to the six-month LIBOR
and the one-year constant maturity Treasury bill. These indices track short-term
market interest rates better than lagging indices.
Higher interest expense in 1994 was the net result of higher borrowing costs
partly offset by lower deposit interest expense. The use of short-term
borrowings to fund asset growth generated $14.5 million of additional borrowing
interest expense in 1994. New borrowings increased the weighted average
borrowing cost by 84 basis points during the year and lowered the NIM by three
basis points. In contrast, deposit interest costs declined $7.3 million during
the year. Most of the reduction in deposit interest expense was associated with
a 22 basis point decline in the weighted average interest rate paid on deposits
during the year, which benefited the NIM by 19 basis points. Lower average rates
paid on deposits in 1994 largely related to the maturity of higher cost CDs in
1993 and 1994 and reductions in the rate paid on savings accounts in 1993.
The Bank's ability to sustain current net interest income levels during future
periods is largely dependent on maintaining the interest rate spread. The
interest rate spread was 2.76% at Dec. 31, 1994, or 54 basis points lower than
the interest rate spread of 3.30% at Dec. 31, 1993. The specific reasons that
caused the decline in the NIM from 1993 to 1994 are significantly different than
reasons that caused the contractions in the spread. The spread represents the
difference in period end rates, whereas the NIM represents an income statement
view.
In contrast to the NIM, the Bank's interest rate spread--the difference
between weighted average rates on interest-bearing assets and liabilities--was
compressed
(2) THE BENEFIT TO MBS INTEREST INCOME ASSOCIATED WITH THE REINVESTMENT OF CASH
AND CASH EQUIVALENTS INTO MBS WAS PARTLY OFFSET BY LOWER INVESTMENT
INTEREST INCOME.
(3) 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. SEE "NOTE
T - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET CREDIT RISK" FOR FURTHER
DETAIL. 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 ON THOSE ADJUSTABLE RATE MBS IMPACT THE SPREAD EARNED BY THE
BANK ON THIS TRANSACTION.
DURING 1994, THE MATCHED FUNDING TRANSACTIONS DESCRIBED IN THIS FOOTNOTE
GENERATED $1.5 MILLION OF NET INTEREST INCOME AND CONTRACTED THE DEC. 31, 1994
INTEREST RATE SPREAD AND NIM EARNED DURING 1994 BY APPROXIMATELY 13 BASIS
POINTS. SEE "CASH FLOW ACTIVITY" FOR FURTHER DETAIL.
1994 Annual Report/10-K 23
because the Bank began to raise deposit rates more substantially at the end of
1994 in response to the sharp rise in short-term market interest rates.
Conversely, on the asset side, the average yields on the Bank's loans receivable
and securities also began to benefit from higher market rates, as new assets
began to be replaced at marginally higher yields and the Bank's MBS began to
reprice in the fourth quarter. Repricing on loans receivable turned neutral in
the second half of 1994.
Most of the contraction in the interest rate spread resulted from a 29 basis
point increase in deposit interest costs and a 37 basis point decline in the
weighted average rate earned on loans receivable. The benefit provided by
reinvesting liquidity into higher yielding MBS was largely offset by the use of
borrowings to fund asset growth.
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. See "Interest Rate Risk" for further
discussion.
Management believes that several product related factors may continue to
pressure the Company's interest rate spread in 1995. 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 Dec. 31, 1994, approximately $950 million
of loans receivable and $650 million of MBS contained interest rate cap
provisions. If interest rates remain at their current levels, approximately $550
million of loans and $350 million of MBS are projected to hit their caps in
1995. Even more of these assets will become subject to their interest rate caps
in 1995 if interest rates continue to rise. Interest rate caps limit the upward
amount adjustable rate loans can reprice. This does not mean that they will not
reprice, but that the amount of the adjustment permitted using the actual index
will be limited. Most of the periodic interest rate caps in the Bank's
portfolios are 2%.
Second, the Bank has $556.7 million of "adjustable" rate loans that have
initial fixed interest rate periods ranging from three to five years. None of
these loans are scheduled to reprice in 1995.
Third, in addition to adjustable rate loans performing at initial fixed
interest rates, approximately $655 million of adjustable rate single family and
multifamily loans were at their interest rate floor at Dec. 31, 1994. If rates
continue to rise, the Bank's interest expense could rise without a corresponding
adjustment in interest income from these loans until the floors are surpassed.
These loans will not reprice until their fully indexed weighted average rate,
which was 6.65% at Dec. 31, 1994, exceeds their weighted average floor of 7.94%.
During 1994, floors provided $12.2 million of interest income and 55 basis
points to the overall loan yield during the period. In comparison, floors
provided $15.0 million of interest income and 61 basis points to the overall
yield during 1993.
Fourth, $865.2 million of the Company's assets, including $644.1 million of
loans performing at their floor, are tied to indices whose movements lag behind
movements in market interest rates.
On the liability side, if market interest rates continue to increase in 1995,
Management may seek to curtail net deposit outflows by increasing the rate paid
on savings accounts or promoting certain CD products. (4) This rate was
significantly reduced in 1993 due to declining market rates. Similarly, $220.3
million of short-term borrowings used to fund general operations of the Bank may
become more expensive if interest rates rise prior to the funds being repaid.
Provision for Loan Losses: The Company recorded a $5.2 million provision for
loan losses during 1994, about one-half of the provision recorded during 1993.
Lower levels of nonperforming assets, classified assets, and multifamily loan
balances secured by real estate in California contributed to the reduction in
provisions.
(4) HOWEVER, $396.3 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.
24 St.Paul Bancorp, Inc.
Effective Jan. 1, 1994, the Company adopted 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. The
adoption of SFAS No. 114 had no impact on the Company's provision for loan
losses during 1994 because the Company previously valued loans considered to be
impaired under SFAS No. 114 at the fair value of the loans' collateral.
See "Credit Risk Management" and "Note A - Summary of Significant Accounting
Policies" for further discussion.
Other Income: Other income totaled $29.8 million during 1994, $2.7 million or
8.4% lower than other income recorded in 1993. Lower discount brokerage
commissions and gains on asset sales were partly offset by higher other fee
income. Discount brokerage revenues declined as a result of lower consumer
demand and resulting trading volumes. Gains on asset sales were reduced due to
both lower gains recorded on the sale of adjustable rate loans that converted to
fixed interest rates and lower fixed rate loan originations for resale in the
secondary market. Other fee income increased $2.3 million due to an expansion in
the number of checking accounts and ATM transactions.
In 1995, Management plans to increase other income substantially by
introducing new checking account fees and increasing ATM and other fees
currently charged by the Bank. The Bank will continue to originate for sale FHA,
VA and conventional mortgage loans in 1995, and in some circumstances, the
related servicing also will be sold. However, gains from loan sales are not
expected to increase significantly next year. See "Note G - Loans Held for Sale"
for further detail.
G&A Expense: G&A expense increased $4.4 million or 5.3% during 1994 compared to
1993. The increase was largely associated with a $4.0 million increase in
compensation and benefits and a $1.8 million increase in occupancy, equipment,
and other office expense. Compensation expense rose due to expansion of the
branch network, including eight branches acquired from Elm Financial in February
1993 and two in-store branches opened during 1994, and extension of hours at
many of the branch facilities. Also, the 13% growth in the Bank's checking
accounts contributed to higher servicing costs, although it has helped reduce
the Bank's overall interest costs on deposits. Higher G&A costs are also
attributable to higher pension, payroll taxes, and medical costs. Pension costs
increased in 1994 as a result of lower market interest rates which reduced the
rate used to measure the Bank's pension liability at Dec. 31, 1993. Increased
expenses were partly offset by lower adver- tising costs, deposit insurance
premiums, and other costs.
As a retail depository institution, the Company's G&A expenses may be higher
than other institutions. Nonetheless, G&A costs were tightly controlled during
1994 and Management remains committed to ongoing expense control. 1995's
expenses should also benefit from an increase in the interest rate used to
measure the Bank's pension liability (associated with higher market interest
rates) from 7.5% to 8.5%. See "Note S - Employee Benefit Plans" for further
detail. Despite these measures, continued expansion of the branch network and
its services, as well as general inflation, may push 1995 expenses above 1994
levels.
The Company adopted SFAS No. 112, Employers' Accounting for Post-Employment
Benefits, on a prospective basis beginning in the first quarter of 1994. This
statement requires that the projected future cost of providing post-employment
benefits (other than retirement), such as medical insurance, be recognized as an
expense as employees render service, instead of when the benefits are paid.
Since the Company offers few benefits accounted for under this statement, the
adoption of SFAS No. 112 had a minimal impact on the results of operations in
1994.
Additionally, the Company implemented the American Institute of Certified
Public Accountants Statement of Position (SOP) No. 93-6, Employers' Accounting
for Employee Stock Ownership Plans, beginning in the first quarter of 1994. SOP
93-6 requires the recognition of compensation expense for ESOP shares acquired
after
1994 Annual Report/10-K 25
1992 and not committed to be released before the beginning of 1994, to be
measured based on the fair value of those shares when committed to be released
to employees, rather than based on their original cost. At Dec. 31, 1994, the
ESOP had 196,350 shares acquired after Jan. 1, 1993 that are committed to be
released beginning in 1996. Implementation of SOP 93-6 had no effect on the
results of operations in 1994, although it increased earnings per share by $0.01
because unallocated ESOP shares are excluded from shares outstanding. The effect
of SOP 93-6 on net income in 1996 and beyond is not determinable because it is
based on future prices of St.Paul Bancorp stock.
Operations of Foreclosed Real Estate: The Bank generated a net loss from its
foreclosed real estate operation of $2.1 million during 1994, compared to a $2.5
million loss during 1993. The lower net loss during 1994 was associated with a
decrease in the provision for losses and higher gains on the sale of REO
properties. During 1994, the Bank recognized a large loss on an apartment
building scheduled to be sold in 1995. See "Credit Risk Management" and
"Note I - Foreclosed Real Estate" for further discussion of REO.
Income Taxes: Income taxes totaled $19.0 million or 35.5% of pre-tax income
during 1994, compared to $19.1 million or 31.5% of pre-tax income during 1993.
Higher effective federal and state income tax rates produced the 1994 rate
increase. See "Note P - Income Taxes" for a reconciliation of income tax expense
at the statutory rate to the effective tax rate.
In 1991, the Multi-State Tax Commission ("MTC") reactivated efforts to develop
a uniform allocation and apportionment methodology for the financial services
industry. In the fall of 1994, the MTC approved a methodology that, in part,
would tax income earned by out-of-state financial institutions on loans secured
by real estate in the taxing state. The MTC has recommended that states adopt
the methodology for the 1996 tax year. Management believes it is likely that the
majority of states will adopt the methodology and that some states, such as
California, may implement the methodology for the 1995 tax year. Management
estimates that the impact of adoption of the methodology (or similar
methodologies) by California and other states could increase the Bank's
effective tax rate in the range of 1% to 1.5%.
RESULTS OF OPERATIONS - COMPARISON
OF YEARS ENDED DEC. 31, 1993 AND 1992.
General: Net income during 1993 totaled $41.4 million or $2.03 per share,
compared to $37.7 million or $2.00 per share recorded in 1992. The benefit
provided by an $11.1 million improvement in net interest income and higher other
income of $4.2 million was partly offset by an $11.5 million increase in G&A
expenses and a $1.2 million increase in foreclosed real estate losses. A decline
in the effective income tax rate from 35.0% in 1992 to 31.5% in 1993 also
contributed to the higher level of net income in 1993.
Net Interest Income: The NIM increased from 3.27% in 1992 to 3.46% in 1993. This
growth was not surprising, because the interest rate spreads reported in 1993
were among the highest spreads ever reported by the Company. The drop in market
interest rates in 1993 allowed the Bank to lower the rate paid to depositors.
Lower rates offered by the Bank on its deposit products as well as the "parking"
of funds by consumers in low-cost regular savings accounts contributed to the
lower rate. The reduction in the Bank's deposit rates in 1993 occurred ahead of
the decline in asset yields. Lower asset yields in 1993 were attributable to
loan refinancing activity and downward repricing of adjustable rate loans and
MBS. Additionally, interest rate floors on single and multifamily loans in 1993
provided $15.0 million of net interest income (or 42 basis points of the NIM)
that otherwise would not have been realized.
26 St.Paul Bancorp, Inc.
26
Also benefitting net interest income in 1993 was the acquisition of Elm
Financial on Feb. 23, 1993. In connection with the acquisition, the Bank added
$228.8 million of loans receivable at a weighted average yield of 8.83% and
$312.2 million of deposits at a weighted average cost of 3.60%.
Excess liquidity generated by consumers who "parked" deposit funds in low-cost
deposit products allowed the Bank to reduce its level of borrowings. The
replacement of higher cost borrowed funds with low cost deposits also improved
NIM and net interest income.
The Company's interest rate spread was 3.30% at year-end 1993, 18 basis points
lower than the 3.48% interest rate spread at Dec. 31, 1992. At year-end 1993,
about $894.2 million of loans were at their weighted average floor of 8.07%. Had
floors not been in effect on these loans, their weighted average interest rate
would have been 6.35%, or 172 basis points lower.
Provision for Loan Losses: The Company recorded a provision for loan losses of
$10.8 million during 1993, relatively unchanged from the provision recorded
during 1992. See "Credit Risk Management" and "Note A - Summary of Significant
Accounting Policies" for further discussion of loss provisions and the adequacy
of the accumulated provision for loan losses.
Other Income: Other income totaled $32.5 million in 1993, up 14.7% or $4.2
million from $28.3 million in 1992. The most significant improvement occurred in
other fee income (including checking and ATM fees), which increased $4.5 million
or 44.2%. Increases in both the number of transactions and fees charged per
transaction contributed to the improvement. Higher discount brokerage
commissions and interest income received on a tax refund produced most of the
remaining increase in other income. Brokerage commissions increased because of
higher trading volumes and 1992's Investment Network expansion into all Bank
branches. The low interest rate environment and stock market performance also
encouraged retail investors to pursue alternative investments.
Net gains on asset sales totaled $2.1 million during 1993, compared to $3.0
million during 1992. Approximately two-thirds of the decrease was caused by a
reduction in the sale of adjustable rate loans (previously held by the Company
for investment) that converted to a fixed interest rate. The remaining decline
primarily was associated with lower originations of fixed rate loans that were
sold in the secondary market.
G&A Expense: G&A expense increased $11.5 million or 16.2% during 1993. Most of
the 1993 cost increase was associated with the acquisition of eight branch
offices from Elm Financial, the opening of two additional branches, installation
of 25 ATMs during 1993, additional costs for Omni(R) facilities opened during
1992, and an increase in the number of checking accounts serviced, from 110,000
at Dec. 31, 1992 to 146,000 at Dec. 31, 1993. Additional compensation and
benefit costs were also incurred in 1993 as a result of expanded hours and
services provided by other branches and support departments of the Bank.
Loss on Foreclosed Real Estate: The Company recorded a loss on foreclosed real
estate of $2.5 million during 1993, compared to $1.3 million during 1992.
Provisions for foreclosed real estate losses were relatively level between the
two periods. Generally, the higher loss in 1993 resulted from lower gains on the
sale of real estate. See "Credit Risk Management" and "Note I - Foreclosed Real
Estate" for further details.
Income Taxes: Despite higher 1993 pre-tax earnings of $2.4 million and a 1%
increase in the 1993 federal statutory rate, income taxes declined by $1.3
million. The recognition of $1.1 million of tax refunds and an increase in the
statutory rates used to value deferred tax assets allowed the effective tax rate
to decline from 35.0% in 1992 to 31.5% in 1993. See "Note P - Income Taxes" for
further details on the Company's effective income tax rate.
1994 Annual Report/10-K 27
KEY CREDIT STATISTICS
AT OR FOR THE YEARS ENDED DEC. 31 -- DOLLARS IN THOUSANDS
KEY CREDIT RATIOS
1994 1993 1992
--------------------------
Net charge-offs to average loans receivable and foreclosed real estate......................... 0.41% 0.69% 0.41%
Net California charge-offs to average California loans receivable and foreclosed real estate... 1.27 2.01 0.32
Loan loss reserve to total loans............................................................... 1.62 1.98 2.10
Loan loss reserve to nonperforming loans....................................................... 424.72 156.99 165.81
Nonperforming assets to total assets........................................................... 0.66 1.34 1.38
General valuation allowance to nonperforming assets............................................ 143.24 85.41 97.30
General valuation allowance to nonperforming assets, plus TDRs................................. 143.24 64.92 64.13
==========================
1994 1993 1992 1991 1990
---------------- ---------------- --------------- --------------- -----------------
LOAN PORTFOLIO
MORTGAGE LOANS
1-4 family units............ $1,530,132 59% $1,190,273 51% $1,080,374 47% $1,145,898 47% $1,093,571 45%
Multifamily units........... 993,122 38 1,057,571 46 1,141,002 50 1,223,759 50 1,257,101 52
Commercial.................. 63,983 3 73,029 3 66,725 3 65,129 3 71,758 3
Land and
land development........... 224 * 10,307 * 3,126 * 2,304 * 2,400 *
---------------- ---------------- ---------------- ---------------- ----------------
Total mortgage loans........ $2,587,461 100% $2,331,180 100.0% $2,291,227 100.0% $2,437,090 100.0% $2,424,830 100.0%
================ ================ ================ ================ ================
CONSUMER LOANS
Secured by deposits......... $ 1,928 8% $ 2,300 11% $ 2,374 9% $ 3,664 15% $ 4,203 16%
Education (guaranteed)...... 584 3 2,166 11 2,194 8 2,620 11 2,802 11
Home improvement............ 832 4 1,110 6 1,589 6 2,367 10 2,735 10
Auto........................ 19,392 83 13,971 71 9,704 35 5,198 21 6,062 23
Credit card and personal.... 380 2 166 1 11,791 43 10,765 43 10,365 40
---------------- ---------------- ---------------- ---------------- ----------------
Total consumer loans........ $ 23,116 100% $ 19,713 100.0% $ 27,652 100.0% $ 24,614 100.0% $ 26,167 100.0%
================ ================ ================ ================ ================
Total loans held
for investment............. $2,610,577 $2,350,893 $2,318,879 $2,461,704 $2,450,997
================ ================ ================ ================ ================
Weighted average rate....... 7.51% 7.88% 8.53% 9.52% 10.07%
================ ================ ================ ================ ================
*LESS THAN 1%
1994 1993
---------------------------------------------------------------------------------------------
Troubled Debt Nonperforming Troubled Debt Nonperforming
Restructuring Assets Restructuring Assets
---------------------------------------------------------------------------------------------
GEOGRAPHIC CONCENTRATION Amount Percent Amount Percent Amount Percent Amount Percent
OF NONPERFORMING ASSETS
STATE
California......................... $ -- --% $ 6,748 24.9% $ -- --% $18,043 36.4%
Illinois........................... -- -- 13,498 49.8 -- -- 21,343 43.1
Texas.............................. -- -- 47 0.2 -- -- 151 0.3
Washington......................... -- -- 6,623 24.4 15,646 100.0 5,974 12.0
Wisconsin.......................... -- -- -- -- -- -- 3,409 6.9
Other.............................. -- -- 74 0.3 -- -- 116 0.2
Consumer loans..................... -- -- 101 0.4 -- -- 555 1.1
---------------------------------------------------------------------------------------------
Total.............................. $ -- --% $27,091 100.0% $15,646 100.0% $49,591 100.0%
=============================================================================================
CREDIT RISK MANAGEMENT
At Dec. 31, 1994, the loans receivable portfolio was primarily comprised of
residential mortgages, secured by both single family and multifamily dwellings.
The loan portfolio also includes, but to a much lesser extent, commercial real
estate loans, land loans and consumer loans. See "Loan Portfolio" table for
further detail.
Nonperforming loans declined 66% to $9.9 million at Dec. 31, 1994.
Nonperforming multifamily and commercial loans declined $11.3 million, while
nonperforming
28 St.Paul Bancorp, Inc.
single family loans declined by $5.6 million. Other delinquent multifamily and
commercial loans declined by 69% and other delinquent single family loans
declined 4% during 1994. See "Nonperforming Loans" and "Delinquent Loans
Accounted for on an Accrual Basis" tables for further detail. Impaired loans
also declined during 1994 to total $24.8 million or 0.60% of total assets at
Dec. 31, 1994. See "Note E - Loans Receivable" for impaired loans detail. See
"Note A - Summary of Significant Accounting Policies" for a description of the
Company's policy for placing loans on nonaccrual.
Charge-offs also declined during the current year. In 1994, $9.5 million in
net charge-offs were recorded on loans, compared to $13.8 million during 1993
and $8.1 million during 1992. Of the $9.5 million of net charge-offs in 1994,
$2.2 million represented specific reserves established prior to 1994. Most of
these charge-offs related to the Bank's nationwide multifamily and commercial
real estate loan portfolio. Net charge-offs to average loans receivable totaled
0.39% during the current year, compared to ratios for 1993 and 1992 of 0.56% and
0.34%, respectively. See "Accumulated Provision for Loan Losses Activity" table
for further detail.
Toward the end of 1994, the Bank's research and analysis, along with the
Bank's portfolio trends, indicated the emergence of an overall improving
California economy. In large measure, these trends resulted in the level of loss
provisions determined by the Bank's loan loss reserve methodology to be below
net charge-offs. See "Note A -- Summary of Significant Accounting Policies" for
discussion of the Bank's loan loss reserve methodology.
The persistence of the California economic slump into 1994 was primarily
responsible for the net charge-offs recognized during the year. During the past
three years, changing demographics, the defense industry restructuring, high
unemployment and other weaknesses in the California economy have adversely
influenced, to varying degrees, the valuations of real estate throughout
California. Included in the 1994 charge-offs were $8.4 million of losses from
California loans. In comparison, $12.0 million and $2.3 million of loan charge-
offs on California loans were recorded in 1993 and 1992, respectively.
Nonperforming loans secured by real estate located in California totaled $1.9
million during the current year, compared to $7.5 million in 1993. During 1994,
Management aggressively dealt with the loans in the weakest markets. Although
these efforts contributed to most of the Bank's charge-offs, they also helped to
clean up the Bank's worst credits and strengthened the quality of the portfolio.
See "Note V - Concentration of Credit Risk" for further detail.
California contains many distinct real estate markets. Therefore, even though
the overall trends for the state appear favorable, particularly in northern
California, more localized problems can occur from time to time that affect
economies and can reduce real estate values. Because the Bank experienced some
slippage in portfolio quality in some parts of Orange County in 1994, and
because of the well-publicized securities losses of that local governmental
unit, Management plans to be particularly mindful and proactive in analyzing and
administering the loans in that portfolio.
During 1994, Management concentrated its lending efforts on single family
mortgage loan originations. A significant number of 1994 originations were
accomplished through correspondent loan originators, resulting in higher loan
balances secured by real estate in Indiana, Ohio, Wisconsin, Minnesota and
Michigan. At Dec. 31, 1994, the largest geographic concentration of collateral
supporting single family loans was in Illinois. See "Note V - Concentration of
Credit Risk" for further detail.
Originations in 1994 also included loans secured by five to 120 unit apartment
buildings in the Chicago metropolitan area. The Company originated $47 million
of multifamily loans in 1994 under this new lending program, which compared
favorably to Management's goal of $50 million. Generally, loans originated
though this new apartment loan origination program represent first mortgages
with a loan to value ratio less than 80% and a debt coverage ratio of more than
120%. Also, the typical loan is personally guaranteed by the borrower and does
not exceed $2.0 million. Independent appraisals and environmental evaluations
were obtained in accordance with federal regulations or as deemed warranted.
Annual inspections of the real estate, analysis of the property and borrower
operating statements, and evaluation of loan loss allowances are performed in
accordance with established Bank policies. For 1995, Management has expanded the
program to a 100-mile radius of Chicago and expects to originate as much as $100
million of new loans. Also, Management expects to originate a $25 million
portfolio of residential construction loans in the Chicago area.
1994 Annual Report/10-K 29
The Company no longer originates multifamily or commercial real estate loans
secured by collateral located outside the Midwest, except to facilitate the sale
of REO, or in connection with the repurchase of loans sold with recourse. Prior
to 1991, the Bank originated multifamily and commercial real estate loans on a
nationwide basis, which Management refers to as nationwide loans. The largest
geographic concentrations of collateral supporting multifamily real estate loans
were in California (54.0%), Washington State (10.3%), and Illinois (11.7%).
Principal repayments reduced the level of nationwide loans from Dec. 31, 1993 to
Dec. 31, 1994 by $140.7 million. Furthermore, nationwide loans secured by real
estate located in California declined by $87.2 million during 1994. Nationwide
loans sold with recourse also declined in 1994. See "Note V - Concentration of
Credit Risk" and "Note T - Financial Instruments with Off-Balance Sheet Credit
Risk" for further detail.
Approximately 75% of the nationwide loans are scheduled to mature in years
1996 through 1998. When these loans mature, the mortgages will either be repaid
or, depending upon the circumstances, be refinanced or foreclosed. Management is
currently preparing its strategy for each loan expected to mature between 1996
and 1998. In evaluating whether to refinance an existing multifamily or
commercial real estate loan, Management will consider, among other factors, the
current and anticipated economic climate, portfolio risks, prevailing real
estate market conditions, and the Bank's current underwriting standards.
Management hopes to retain the most desirable loans in this portfolio through
refinancing, including certain loans that had been sold with recourse. Under its
plan to refinance quality loans, Management is prepared not only to refinance
certain sold loans, but also to provide additional funds to improve the Bank's
priority regarding certain subordinated mortgages.
For loans of lesser quality that are scheduled to mature within the next few
years, Management will demand repayment or in some cases, negotiate concessions
from the borrowers with the intent of improving the credit quality of the loans
if the consequences of foreclosure would be less desirable. Depending upon the
strategy deployed, the amount of the Bank's charge-offs would be affected.
Management may also from time to time consider selling or securitizing small
parts of the multifamily portfolio, depending upon the terms and the value of
the resulting transaction. However, Management generally believes that a larger
bulk sale of loans would not provide an optimum repayment method at this time.
Management believes that, based on economic conditions known today, loan loss
reserves of the Bank are adequate to absorb the inherent losses in the portfolio
as it relates to current plans to refinance or liquidate the multifamily real
estate portfolio as it matures.
The Bank owns a $9.2 million note in a $940 million loan syndication to
partnerships controlled by Olympia and York (O&Y). The notes are secured by
three New York City office buildings. The loan is currently being renegotiated
with O&Y in the context of an overall bankruptcy. The loan is current and
performing under its payment terms, although there are nonmonetary events of
default as asserted by the Trustee for the Indenture that represents the
noteholders. This loan is considered "impaired" under SFAS No. 114, and has been
evaluated in connection with the Bank's loan loss reserve methodology.
Management has provided a substantial "specific valuation allowance" as well as
a general valuation allowance allocation to this credit. Depending on the
progress of the restructuring negotiations and collateral evaluation, Management
could begin to charge off some or all of these reserves in 1995. See "Note E -
Loans Receivable" for further detail.
As of Dec. 31, 1994, the Bank's ratio of classified assets to tangible capital
and general valuation allowance was 56.1%, considerably lower than the ratio
reported at Dec. 31, 1993 of 65.3%. The Bank has submitted a plan to the OTS to
reduce the ratio of classified assets to tangible capital and general loan loss
reserves to less than 50% by June 30, 1995.
Foreclosed Real Estate: Foreclosed real estate declined $2.6 million to total
$16.5 million at year-end. During the year, title was taken on $19 million of
real estate, while $22 million of real estate was sold or reduced through
valuation allowances and charge-offs.
At year-end 1994, the Company had a $10.8 million net investment in two
apartment buildings (located in Washington State and California) and $1.8
million invested in an Illinois commercial real estate building. The remaining
$4.6 million of foreclosed real estate was comprised of single family real
estate properties primarily located in the Chicago metropolitan area. See "Note
I - Foreclosed Real Estate" and "Results of Operations - Comparison of Years
Ended Dec. 31, 1994 and 1993 - Operations of Foreclosed Real Estate" for further
details.
30 St.Paul Bancorp, Inc.
ACCUMULATED PROVISION FOR LOAN LOSSES ACTIVITY
AT OR FOR THE YEARS ENDED DEC. 31 -- DOLLARS IN THOUSANDS
1994 1993 1992 1991 1990
-----------------------------------------------
Balance at beginning of period............... $46,574 $48,681 $46,164 $46,237 $14,919
Charge-offs:
Real estate loans:
1-4 family.................................. 444 187 52 282 34
Multifamily................................. 8,592 13,863 6,393 9,885 5,877
Commercial.................................. 813 -- 1,100 530 --
Land and land development................... 85 -- -- -- --
Consumer..................................... 309 306 695 507 61
-----------------------------------------------
Total charge-offs............................ 10,243 14,356 8,240 11,204 5,972
Recoveries:
Real estate loans:
1-4 family.................................. 26 9 -- 1 --
Multifamily................................. 644 512 127 28 1,638
Commercial.................................. -- -- -- -- --
Land and land development................... -- -- -- -- --
Consumer..................................... 45 49 5 2 --
_______________________________________________
715 570 132 31 1,638
-----------------------------------------------
Net charge-offs............................. 9,528 13,786 8,108 11,173 4,334
Acquired from Elm Financial.................. -- 929 -- -- --
Provisions for losses charged to operations.. 5,150 10,750 10,625 11,100 35,652
-----------------------------------------------
Balance at end of period..................... $42,196 $46,574 $48,681 $46,164 $46,237
===============================================
Ratio of net charge-offs to average loans:
Real estate loans:
1-4 family.................................. 0.02% 0.01% --% 0.01% --%
Multifamily................................. 0.33 0.54 0.26 0.40 0.18
Commercial.................................. 0.03 -- 0.05 0.02 --
Land and land development................... -- -- -- -- --
Consumer..................................... 0.01 0.01 0.03 0.02 --
-----------------------------------------------
0.39% 0.56% 0.34% 0.45% 0.18%
===============================================
ALLOCATION OF THE ACCUMULATED PROVISION FOR LOAN LOSSES
AT DEC. 31 -- DOLLARS IN THOUSANDS
1994 1993 1992 1991 1990
--------------------------------------------------------------------------------------------------
Percent Percent Percent Percent Percent
of Total of Total of Total of Total of Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
Balance at end of period
applicable to:
Real estate loans:
1-4 family............... $ 2,644 58.2% $ 2,354 50.9% $ 2,501 46.8% $ 4,108 47.0% $ 2,709 44.5%
Multifamily, land
and commercial.......... 38,840 40.5 43,628 48.0 45,018 51.8 40,575 51.8 42,316 54.2
Consumer................. 712 1.3 592 1.1 1,162 1.4 1,481 1.2 1,212 1.3
-------------------------------------------------------------------------------------------------
$42,196 100.0% $46,574 100.0% $48,681 100.0% $46,164 100.0% $46,237 100.0%
=================================================================================================
1994 Annual Report/10-K 31
NONPERFORMING LOANS
AT DEC. 31 -- DOLLARS IN THOUSANDS
1994 1993 1992 1991 1990
-----------------------------------------
Loans accounted for on a nonaccrual basis: (A)
Real estate loans:
1-4 family............................................................. $1,952 $ 6,045 $ 5,343 $ 4,988 $ 2,617
Multifamily............................................................ 3,813 12,907 15,559 33,712 10,547
Commercial............................................................. 437 2,598 -- 1,582 2,282
Consumer................................................................ 101 480 270 371 --
Other................................................................... -- 2,406 -- 60 973
------------------------------------------
Subtotal............................................................... 6,303 24,436 21,172 40,713 16,419
Loans delinquent 90 days or more accounted for on an accrual basis: (B)
1-4 family.............................................................. 3,632 5,157 7,416 3,895 3,419
Consumer................................................................ -- 75 771 878 577
------------------------------------------
Subtotal............................................................... 3,632 5,232 8,187 4,773 3,996
------------------------------------------
Nonperforming loans...................................................... $9,935 $29,668 $29,359 $45,486 $20,415
==========================================
Troubled debt restructuring.............................................. $ -- $15,646 $25,043 $25,976 $22,046
==========================================
(A) DURING 1994, THE BANK RECORDED $388,000 OF INTEREST INCOME ON LOANS
ACCOUNTED FOR ON AN NONACCRUAL BASIS AT DEC. 31, 1994. HAD LOANS BEEN
ACCOUNTED FOR ON AN ACCRUAL BASIS DURING ALL OF 1994, INTEREST INCOME
WOULD HAVE BEEN $2.5 MILLION HIGHER.
(B) SEE "Note A - Summary of Significant Accounting Policies" FOR DISCUSSION OF
POLICY FOR PLACING LOANS ON NONACCRUAL.
DELINQUENT LOANS ACCOUNTED FOR ON AN ACCRUAL BASIS (A)
AT DEC. 31 -- DOLLARS IN THOUSANDS
Percent of Percent of Percent of Percent of Percent of
Real Real Real Real Real
Estate Estate Estate Estate Estate
1994 Loans 1993 Loans 1992 Loans 1991 Loans 1990 Loans
------------------------------------------------------------------------------------------------------
Real estate loans
delinquent
30 to 59 days............. $42,297 1.64% $51,732 2.20% $39,469 1.72% $67,004 2.72% $33,983 1.40%
60 to 89 days............. 8,336 0.32 12,279 0.52 10,237 0.45 10,745 0.44 10,158 0.42
------------------------------------------------------------------------------------------------------
Total...................... $50,633 1.96% $64,011 2.72% $49,706 2.17% $77,749 3.16% $44,141 1.82%
------------------------------------------------------------------------------------------------------
Percent of Percent of Percent of Percent of Percent of
Consumer Consumer Consumer Consumer Cosumer
1994 Loans 1993 Loans 1992 Loans 1991 Loans 1990 Loans
------------------------------------------------------------------------------------------------------
Consumer loans delinquent
30 to 59 days............. $ 545 1.65% $ 327 1.20% $ 585 1.74% $ 896 2.91% $ 926 2.91%
60 to 89 days............. 155 0.47 103 0.38 141 0.42 211 0.69 340 1.07
------------------------------------------------------------------------------------------------------
Total...................... $ 700 2.12% $ 430 1.58% $ 726 2.16% $ 1,107 3.60% $ 1,266 3.98%
------------------------------------------------------------------------------------------------------
(A) SEE "Note A - Summary of Significant Accounting Policies" FOR DISCUSSION OF
POLICY FOR PLACING LOANS ON NONACCRUAL.
INTEREST RATE RISK
Interest rate risk represents a measure of the sensitivity of the Bank's
earnings and impact on stockholders' equity due to changes in market interest
rates. Interest rate risk generally exists because the Bank chooses to accept
this risk in connection with its profit motives and business objectives.
Management captures and measures the Bank's exposure to interest rate risk
using complex financial models. The OTS also measures the Bank's interest rate
risk using its own financial model to determine whether an interest rate risk
regulatory capital component is warranted. The results of both these models are
reported to the Bank's Board of Directors and reviewed to determine
32 St.Paul Bancorp, Inc.
that the risks assumed were in conformity with the Bank's policies for
interest rate risk. At the end of 1994, the Bank's interest rate risk exposure
was substantially more than it was at Dec. 31, 1993. The Bank's interest rate
position, as measured by the OTS at Sept. 30, 1994, did not require regulatory
capital allocation at that time. (5) See "Regulatory Capital Requirements" for
further detail.
Traditionally, financial institutions have used "GAP" analysis as a measure of
their interest rate sensitivity. GAP is the ratio of interest-rate sensitive
assets to interest-rate sensitive liabilities over specified time horizons,
expressed as a percent of total assets. A positive GAP indicates that cumulative
interest-rate sensitive assets exceed cumulative interest-rate sensitive
liabilities at the dates indicated, and suggests that net interest income would
increase if market rates increased. The GAP also assumes that volumes and
spreads are constants. The historical trend of the GAP at one, three and five
years is presented below. (6)
1994 1993 1992 1991 1990
-----------------------------------
One year..... 4.40% 16.79% 16.84% 12.47% 6.51%
Three years.. 3.93 10.94 4.06 2.02 8.50
Five years... 3.17 10.63 5.68 1.83 7.03
===================================
Management considers a range of plus or minus 15% to be a desirable one-year
GAP position. The Bank's one-year GAP declined from a positive 16.79% at Dec.
31, 1993 to a positive 4.40% at Dec. 31, 1994. The reduction in the positive GAP
position this year is reflective of the impact of additional interest rate risk
in the Bank primarily related to 1994's transactions. Under traditional GAP
theory, the Bank's positive GAP had put the Bank in a position to profit from
higher interest rates. However, as discussed in the "Results of Operations -
Comparison of Years Ended Dec. 31, 1994 and 1993 - Net Interest Income," the
Bank's NIM, net interest spread, and net interest income were reduced in 1994
compared to 1993, despite a positive GAP and rising interest rates during 1994.
The reasons for those reductions have been explained throughout "Management's
Discussion and Analysis." Although GAP analysis provides some narrow insights
into the repricing of the Bank's balance sheet, for various reasons, the GAP
analysis in recent years has not provided the Bank with a reliable measure of
its interest rate risk exposure because of its imprecision and inherent
limitations. Internally, Management relies on its models and financial
simulations to evaluate the Bank's interest rate risk. Management believes that
GAP analysis is of limited value in assessing the extent of interest rate risk
because it fails to account for interest rate floors and caps, (7) basis risk
(i.e., the divergent characteristics of different types of financial
instruments) when repricing occurs, and the interplay of the pricing of new
transactions upon the net interest spread, especially during a volatile interest
rate horizon, like 1994. GAP analysis also has other inherent problems. To
adjust for the limitations in traditional GAP analysis, Management makes
adjustments for floors and caps in its other analyses. Such other modeling and
simulation techniques have corresponded with the trend in the Bank's net
interest margin. See "Results of Operations - Comparison of Years Ended Dec. 31,
1994 and 1994 - Net Interest Income" for discussion of factors affecting the
Bank's interest rate spread.
(5) A TWO-QUARTER TIME LAG EXISTS BETWEEN WHEN INTEREST RATE EXPOSURES AS OF A
BALANCE SHEET DATE ARE REPORTED TO THE OTS AND WHEN ADDITIONAL CAPITAL
IS ASSESSED.
(6) PRIOR TO 1993, OTS ASSUMPTIONS FOR PREPAYMENT AND WITHDRAWAL RATES WERE
USED. ASSUMPTIONS USED FOR 1993'S AND 1994'S GAP WERE BASED UPON MANAGEMENT
ESTIMATES. DETAIL ASSUMPTIONS USED IN THE TABLE ARE PROVIDED IN THE NOTES TO THE
INTEREST RATE SENSITIVITY GAP ANALYSIS TABLE.
(7) INTEREST RATE FLOORS IN EFFECT ON $655.4 MILLION OF ADJUSTABLE RATE LOANS AT
DEC. 31, 1994 AND $894.2 MILLION AT DEC. 31, 1993 SHOULD BE CONSIDERED IN
EVALUATING THE GAP RESULTS. FLOORS ESTABLISH A MINIMUM RATE FOR ARMS, EVEN
THOUGH THE FULLY INDEXED RATE ON ARMS MAY BE LOWER. THESE LOANS WILL NOT REPRICE
UNTIL THE FULLY-INDEXED ARM RATE EXCEEDS THE EXISTING FLOOR RATE. AT DEC. 31,
1994, THE WEIGHTED AVERAGE DIFFERENCE BETWEEN THE FULLY-INDEXED RATE AND THE
LOAN FLOORS WAS 129 BASIS POINTS. THESE LOANS WILL NOT ACTUALLY REPRICE UNTIL
THE UNDERLYING INDICES INCREASE AN AVERAGE OF 129 BASIS POINTS.
CONSEQUENTLY, FLOORS CREATE AN ARTIFICIAL FIXED RATE LOAN FOR A PERIOD OF TIME
AND OVERSTATE THE POSITIVE GAP RESULTS UNLESS INTEREST RATES WERE TO INCREASE
PRECIPITOUSLY. INTEREST RATE CAPS IN EFFECT ON APPROXIMATELY $950 MILLION OF
LOANS AND $650 MILLION OF MBS SHOULD ALSO BE CONSIDERED IN UNDERSTANDING GAP
RESULTS. FOR THESE LOANS, THE AMOUNT OF REPRICING WOULD BE LIMITED BY THE
INTEREST RATE CAP. PERIODIC RATE CAPS LIMIT THE TOTAL RATE ADJUSTMENT ON A LOAN
EITHER ANNUALLY OR SEMI-ANNUALLY.
1994 Annual Report/10-K 33
INTEREST RATE SENSITIVITY GAP ANALYSIS (A)
AT DEC. 31 -- DOLLARS IN THOUSANDS
1994
---------------------------------------------------------------------------------------------------
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
Investments: (B)
Adjustable rate............. 4.85% $ 39,543 1% $ 30,390 $ 9,153 $ -- $ -- $ --
Fixed rate.................. 5.55 145,332 4 43,255 1,974 50,280 19,976 29,847
Mortgage-backed securities: (C)
Adjustable rate............. 5.27 717,476 18 352,206 365,270 -- -- --
Fixed rate.................. 7.33 409,141 11 21,873 2,859 89,096 63,313 232,000
Mortgage loans: (C)
Adjustable and renegotiable
rate....................... 7.27 1,980,835 50 1,077,747 400,237 278,471 224,380 --
Fixed rate.................. 8.28 606,626 15 46,810 36,716 184,682 106,967 231,451
Consumer loans (C)........... 7.93 23,116 1 3,931 2,146 6,823 5,117 5,099
Assets held for sale......... 7.56 10,155 * 10,155 -- -- -- --
---------------------------------------------------------------------------------------------------
Total rate sensitive assets 6.98% $3,932,224 100% $1,586,367 $818,355 $609,352 $419,753 $498,397
===================================================================================================
RATE SENSITIVE LIABILITIES
Deposits:
Checking accounts............ 1.13% $ 395,687 11% $ 105,767 $ 22,627 $ 74,174 $ 53,591 $139,528
Savings accounts............. 2.41 770,075 21 254,049 48,745 153,081 102,932 211,268
Money market deposit accounts 3.13 245,631 7 245,631 -- -- -- --
Fixed-maturity certificates
(D)......................... 5.15 1,821,510 48 907,325 341,528 353,565 147,876 71,216
---------------------------------------------------------------------------------------------------
3.85 3,232,903 87 1,512,772 412,900 580,820 304,399 422,012
Borrowings:
FHLB advances................ 6.39 336,959 9 330,275 -- 5,599 -- 1,085
Other borrowings............. 7.15 139,568 4 103,883 905 34,780 -- --
Mortgage-backed note......... 8.70 16,400 * -- -- -- 16,400 --
---------------------------------------------------------------------------------------------------
6.68 492,927 13 434,158 905 40,379 16,400 1,085
---------------------------------------------------------------------------------------------------
Total rate sensitive
liabilities............... 4.22% $3,725,830 100% $1,946,930 $413,805 $621,199 $320,799 $423,097
===================================================================================================
Excess (deficit) of rate
sensitive assets
over rate sensitive
liabilities (GAP)........... 2.76% $ 206,394 $ (360,563) $404,550 $(11,847) $ 98,954 $ 75,300
===================================================================================================
Cumulative GAP............... $ (360,563) $ 43,987 $ 32,140 $131,094 $206,394
Cumulative GAP to total
assets without
regard to hedging
transactions................ -8.73% 1.06% 0.78% 3.17% 5.00%
Cumulative GAP to total
assets with
impact of hedging
transactions................ -5.15% 4.40% 3.93% 3.17% 5.00%
*LESS THAN 1%.
(A) 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 10% PER YEAR; ADJUSTABLE RATE MORTGAGE LOANS ON SINGLE
FAMILY RESIDENCES AND LOAN SECURITIES WERE ESTIMATED TO PREPAY AT A RATE OF 10%
PER YEAR; FIXED RATE LOANS AND LOAN SECURITIES WERE ESTIMATED TO PREPAY AT A
RATE OF 8% 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 10% 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.
(B) INCLUDES INVESTMENT IN FHLB STOCK.
(C) EXCLUDES ACCRUED INTEREST AND ACCUMULATED PROVISIONS FOR LOAN LOSSES.
(D) THE FOLLOWING TABLE PRESENTS THE AMOUNT OF THE BANK'S TIME DEPOSITS IN
AMOUNTS OF $100,000 OR MORE AT DEC. 31, 1994 MATURING DURING PERIODS INDICATED.
MATURING AMOUNT
------------------------------------------
JAN. 1, 1995 TO MARCH 31, 1995 $ 22,415
APRIL 1, 1995 TO JUNE 30, 1995 45,462
JULY 1, 1995 TO DEC. 31, 1995 30,205
AFTER DEC. 31, 1995 46,136
--------
$144,218
34 St.Paul Bancorp, Inc.
LOAN MATURITY TABLE*
AT DEC. 31 -- DOLLARS IN THOUSANDS
2000 and
1995 1996-1999 thereafter Total
-----------------------------------------------
MORTGAGE LOANS
1-4 family units.............................................................. $28,796 $102,718 $1,398,618 $1,530,132
Multifamily and other......................................................... 31,421 719,622 306,286 1,057,329
-----------------------------------------------
Total mortgage loans......................................................... 60,217 822,340 1,704,904 2,587,461
Consumer loans................................................................ 6,077 11,939 5,100 23,116
-----------------------------------------------
Total loans receivable at Dec. 31, 1994....................................... $66,294 $834,279 $1,710,004 $2,610,577
===============================================
* EXCLUDES ASSETS HELD FOR SALE.
LOANS DUE AFTER DEC. 31, 1995*
AT DEC. 31 -- DOLLARS IN THOUSANDS
Fixed Adjustable
Rate Rate Total
-------------------------------------
MORTGAGE LOANS
1-4 family units.............................................................. $343,294 $1,158,042 $1,501,336
Multifamily and other......................................................... 224,863 801,045 1,025,908
-------------------------------------
Total mortgage loans......................................................... 568,157 1,959,087 2,527,244
Consumer loans................................................................ 17,039 -- 17,039
-------------------------------------
Total mortgage and consumer loans............................................. $585,196 $1,959,087 $2,544,283
=====================================
* EXCLUDES ASSETS HELD FOR SALE.
INVESTMENT PORTFOLIO
AT DEC. 31 -- DOLLARS IN THOUSANDS
1994 1993 1992
-------------------------------------------------------------------------------------------------------------------------
Federal funds sold............................................................ $ 18,100 $ 56,200 $ 49,000
Cash equivalent marketable-debt securities:
U.S. Treasury securities..................................................... 17,452 15,503 7,048
U.S. agency securities....................................................... 19,833 176,823 182,579
Marketable-debt securities of the U.S. government............................. 99,643 142,051 107,732
Mortgage-backed securities:
Federal Home Loan Mortgage Corporation (FHLMC)............................... 187,347 189,789 83,352
Federal National Mortgage Association (FNMA)................................. 131,735 167,480 121,331
Government National Mortgage Association (GNMA).............................. 1,679 2,312 6,368
Private...................................................................... 805,856(A) 374,068 432,890
---------------------------------------
Total MBS.................................................................... 1,126,617 733,649 643,941
---------------------------------------
1,281,645(B) $1,124,266 $990,300
=======================================
(A) THE FOLLOWING TABLE SUMMARIZES SECURITIES OF ISSUERS IN EXCESS OF 10%
OF STOCKHOLDERS' EQUITY AT DEC. 31, 1994.
ISSUER BOOK VALUE MARKET VALUE
----------------------------------------------------------------------------------------------------------
COUNTRYWIDE MORTGAGE-BACKED SECURITIES, INC. $157,552 $146,276
GREENWICH CAPITAL MARKETS, INC. 47,936 45,983
MERRILL LYNCH MORTGAGE INVESTORS, INC. 133,350 121,751
PRUDENTIAL HOME MORTGAGE SECURITIES, INC. 60,661 58,076
RESIDENTIAL FUNDING MORTGAGE SECURITIES I, INC. 63,403 61,162
SAXON MORTGAGE SECURITIES CORPORATION 139,938 134,391
----------------------
TOTAL $602,840 $567,639
======================
(B) SEE "NOTE B -- CASH AND CASH EQUIVALENTS," "NOTE C -- MARKETABLE-DEBT
SECURITIES" AND "NOTE D -- MBS" FOR CONTRACTUAL MATURITY INFORMATION.
1994 Annual Report/10-K 35
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AT DEC. 31 -- DOLLARS IN THOUSANDS
1994 1993
------------------------
ASSETS:
Cash and cash equivalents-Note B
Cash and amounts due from depository institutions...................................... $ 104,563 $ 87,805
Federal funds sold..................................................................... 18,100 56,200
Short-term cash equivalent securities.................................................. 37,285 192,326
------------------------
Total cash and cash equivalents........................................................ 159,948 336,331
Marketable-debt securities-Notes C and O
(Market: Dec. 31, 1994-$95,773; Dec. 31, 1993-$142,876)................................ 99,643 142,051
Mortgage-backed securities-Notes D and O
(Market: Dec. 31, 1994-$1,066,793; Dec. 31, 1993-$733,314)............................. 1,126,617 733,649
Loans receivable-Notes E and O.......................................................... 2,610,577 2,350,893
Less: accumulated provision for loan losses-Note F...................................... 42,196 46,574
------------------------
Net loans receivable................................................................... 2,568,381 2,304,319
Loans held for sale, at lower of cost or market-Note G
(Market: Dec. 31, 1994-$10,157; Dec. 31, 1993-$28,616)................................. 10,155 28,497
Accrued interest receivable-Note H...................................................... 23,467 20,247
Foreclosed real estate-Note I
(Net of accumulated provision for losses: Dec. 31, 1994-$2,019;
Dec. 31, 1993-$819)................................................................... 16,484 19,105
Real estate held for development or investment-Note J................................... 16,694 11,237
Investment in Federal Home Loan Bank stock-Notes K and O................................ 29,847 31,290
Office properties and equipment-Note L.................................................. 44,112 40,865
Prepaid expenses and other assets-Note M................................................ 36,189 37,785
------------------------
Total assets............................................................................. $4,131,537 $3,705,376
========================
LIABILITIES:
Deposits-Note N......................................................................... $3,232,903 $3,252,618
Short-term borrowings-Note O
(FHLB advances: Dec. 31, 1994-$120,275; Dec. 31, 1993-$263)............................ 221,180 620
Long-term borrowings-Note O
(FHLB advances: Dec. 31, 1994-$216,684; Dec. 31, 1993-$6,956).......................... 271,747 63,350
Advance payments by borrowers for taxes and insurance................................... 21,842 19,513
Other liabilities-Note P................................................................ 32,468 21,946
------------------------
Total liabilities....................................................................... 3,780,140 3,358,047
COMMITMENTS-Notes T and U
STOCKHOLDERS' EQUITY:-Notes Q and R
Preferred stock (par value $0.01 per share: authorized-10,000,000 shares; none issued) -- --
Common stock (par value $0.01 per share: authorized-40,000,000 shares;
issued at Dec. 31, 1994-19,785,405 shares;
outstanding at Dec. 31, 1994-18,781,480 shares;
issued and outstanding at Dec. 31, 1993-19,683,981 shares)............................. 198 197
Paid-in capital......................................................................... 138,039 136,609
Retained income, substantially restricted............................................... 238,929 210,215
Unrealized gain (loss) on securities, net of taxes-Notes B, C and D..................... (3,531) 4,594
Pension adjustment, net of taxes-Note S................................................. -- (46)
Borrowings by employee stock ownership plan-Notes O and S............................... (1,000) (4,240)
Unearned employee stock ownership plan shares (196,350 shares)-Note S................... (2,883) --
Treasury stock (1,003,925 shares)....................................................... (18,355) --
------------------------
Total stockholders' equity.............................................................. 351,397 347,329
------------------------
Total liabilities and stockholders' equity............................................... $4,131,537 $3,705,376
========================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
36 St.Paul Bancorp, Inc.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DEC. 31 -- DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
Unrealized
Gain
Common Stock (Loss) on
-------------------------- Paid-In Retained Securities,
Shares Amount Capital Income Net of Tax
---------------------------------------------------------------------------------
Dec. 31, 1991...................... 18,057,833 $181 $113,367 $141,126 $ --
Stock option exercises--
Note R........................... 200,325 2 1,886 -- --
Net income......................... -- -- -- 37,685 --
Cash dividends
($0.27 per share)................ -- -- -- (4,835) --
Repayments of ESOP
principal--Note O................ -- -- -- -- --
Additional ESOP
borrowing--Note O................. -- -- -- -- --
---------------------------------------------------------------------------------
Dec. 31, 1992...................... 18,258,158 $183 $115,253 $173,976 $ --
=================================================================================
Stock option exercises--
Note R........................... 134,513 $ 1 $ 1,625 $ -- $ --
Net income......................... -- -- -- 41,387 --
Issuance of common stock
to Elm Financial................. 1,292,313 13 19,753 -- --
Retirement of
fractional shares................ (1,003) -- (22) -- --
Cash dividends
($0.27 per share)................ -- -- -- (5,148) --
Unrealized gain on
securities, net of taxes--
Notes B, C, and D................ -- -- -- -- 4,594
Pension adjustment, net of
taxes--Note S.................... -- -- -- -- --
Repayments of ESOP
principal--Note O................ -- -- -- -- --
Additional ESOP
borrowings--Note O............... -- -- -- -- --
---------------------------------------------------------------------------------
Dec. 31, 1993...................... 19,683,981 $197 $136,609 $210,215 $ 4,594
=================================================================================
Stock option exercises--
Note R........................... 101,424 $ 1 $ 1,430 $ -- $ --
Net income......................... -- -- -- 34,512 --
Cash dividends
($0.30 per share)................ -- -- -- (5,798) --
Change in unrealized loss on
securities, net of taxes--
Notes B, C, and D................ -- -- -- -- (8,125)
Pension adjustment, net of
taxes--Note S.................... -- -- -- -- --
Repayments of ESOP
principal--Note O................ -- -- -- -- --
Adoption of SOP 93-6
--Notes A and S.................. -- -- -- -- --
Treasury stock purchases........... (1,003,925) -- -- -- --
---------------------------------------------------------------------------------
Dec. 31, 1994...................... 18,781,480 $198 $138,039 $238,929 $(3,531)
=================================================================================
Borrowings Unearned
Pension By Employee
Adjust- Employee Stock
ment, Stock Ownership Total
Net Ownership Plan Treasury Stockholders'
of Tax Plan Shares Stock Equity
------------------------------------------------------------------------------------------
Dec. 31, 1991...................... $ -- $(1,786) $ -- $ -- $252,888
Stock option exercises--
Note R........................... -- -- -- -- 1,888
Net income......................... -- -- -- -- 37,685
Cash dividends
($0.27 per share)................ -- -- -- -- (4,835)
Repayments of ESOP
principal--Note O................ -- 715 -- -- 715
Additional ESOP
borrowing--Note O................. -- (1,000) -- -- (1,000)
------------------------------------------------------------------------------------------
Dec. 31, 1992...................... $ -- $(2,071) $ -- $ -- $287,341
==========================================================================================
Stock option exercises--
Note R........................... $ -- $ -- $ -- $ -- $ 1,626
Net income......................... -- -- -- -- 41,387
Issuance of common stock
to Elm Financial................. -- -- -- -- 19,766
Retirement of
fractional shares................ -- -- -- -- (22)
Cash dividends
($0.27 per share)................ -- -- -- -- (5,148)
Unrealized gain on
securities, net of taxes--
Notes B, C, and D................ -- -- -- -- 4,594
Pension adjustment, net of
taxes--Note S.................... (46) -- -- -- (46)
Repayments of ESOP
principal--Note O................ -- 714 -- -- 714
Additional ESOP
borrowings--Note O............... -- (2,883) -- -- (2,883)
------------------------------------------------------------------------------------------
Dec. 31, 1993...................... $ (46) $(4,240) $ -- $ -- $347,329
==========================================================================================
Stock option exercises--
Note R........................... $ -- $ -- $ -- $ -- $ 1,431
Net income......................... -- -- -- -- 34,512
Cash dividends
($0.30 per share)................ -- -- -- -- (5,798)
Change in unrealized loss on
securities, net of taxes--
Notes B, C, and D................ -- -- -- -- (8,125)
Pension adjustment, net of
taxes--Note S.................... 46 -- -- -- 46
Repayments of ESOP
principal--Note O................ -- 357 -- -- 357
Adoption of SOP 93-6
--Notes A and S.................. -- 2,883 (2,883) -- --
Treasury stock purchases........... -- -- -- (18,355) (18,355)
------------------------------------------------------------------------------------------
Dec. 31, 1994...................... $ -- $(1,000) $ (2,883) $(18,355) $351,397
==========================================================================================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
1994 Annual Report/10-K 37
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DEC. 31 -- DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
1994 1993 1992
------------------------------
INTEREST INCOME
Loans receivable..................................... .$182,512 $198,208 $212,989
Mortgage-backed securities........................... 59,276 42,269 50,453
Marketable-debt securities........................... 6,032 6,222 3,106
Trading account...................................... 1 117 78
Federal funds........................................ 986 1,491 1,058
Other investment income.............................. 4,455 8,630 11,003
------------------------------
Total interest income............................... 253,262 256,937 278,687
INTEREST EXPENSE
Deposits............................................. 114,962 122,273 145,233
Short-term borrowings................................ 4,829 4,805 11,336
Long-term borrowings................................. 15,278 5,904 9,275
------------------------------
Total interest expense.............................. 135,069 132,982 165,844
------------------------------
Net interest income................................. 118,193 123,955 112,843
Provision for loan losses-Note F..................... 5,150 10,750 10,625
------------------------------
Net interest income after provision for loan losses.. 113,043 113,205 102,218
OTHER INCOME
Loan servicing fees-Note G........................... 1,444 1,694 3,643
Other fee income..................................... 17,065 14,794 10,258
Net gain on assets sold.............................. 524 2,150 3,024
Net trading account gain (loss)...................... (5) 65 (20)
Discount brokerage commissions....................... 3,725 6,298 4,935
Income from real estate development-Note J........... 3,150 2,969 2,442
Insurance and annuity commissions.................... 3,268 3,408 3,643
Other................................................ 600 1,128 423
------------------------------
Total other income.................................. 29,771 32,506 28,348
GENERAL AND ADMINISTRATIVE EXPENSE
Salaries and employee benefits....................... 46,538 42,551 36,989
Occupancy, equipment and other office expense........ 20,897 19,097 15,573
Advertising.......................................... 5,060 5,184 4,015
Federal deposit insurance............................ 8,943 9,521 7,317
Other................................................ 5,728 6,394 7,346
------------------------------
General and administrative expense.................. 87,166 82,747 71,240
Loss on foreclosed real estate-Note I................ 2,145 2,516 1,316
------------------------------
Income before income taxes........................... 53,503 60,448 58,010
Income taxes-Note P.................................. 18,991 19,061 20,325
------------------------------
Net income.......................................... $ 34,512 $ 41,387 $ 37,685
==============================
EARNINGS PER SHARE
Primary............................................. $ 1.70 $ 2.03 $ 2.00
Fully diluted....................................... 1.70 2.03 1.98
==============================
DIVIDENDS PER SHARE.................................. $ 0.30 $ 0.27 $ 0.27
==============================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
38 St.Paul Bancorp, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DEC. 31 -- DOLLARS IN THOUSANDS
1994 1993 1992
---------------------------------
OPERATING ACTIVITIES
Net income........................................................................... $ 34,512 $ 41,387 $ 37,685
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses.......................................................... 5,150 10,750 10,625
Provision for losses on foreclosed real estate..................................... 1,713 1,879 1,828
Provision for depreciation......................................................... 5,271 4,719 4,138
Assets originated and acquired for sale............................................ (52,087) (141,261) (164,039)
Sale of assets held for sale....................................................... 69,704 128,203 162,508
(Increase) decrease in accrued interest receivable................................. (3,220) 3,229 2,877
(Increase) decrease in prepaid expenses and other assets........................... 1,596 (4,047) (3,698)
Increase (decrease) in other liabilities........................................... 10,522 (4,102) (15,705)
Net amortization of yield adjustments.............................................. (911) (757) (5,434)
Other items, net................................................................... (10,674) (15,996) 115
---------------------------------
Net cash provided by operating activities........................................ 61,576 24,004 30,900
---------------------------------
INVESTING ACTIVITIES
Principal repayments on loans receivable............................................. 432,219 628,353 531,958
Loans originated and purchased for investment........................................ (700,792) (476,549) (427,293)
Loans receivable sold................................................................ 3,489 35,866 49,983
Principal repayments on available-for-sale mortgage-backed securities................ 62,506 -- --
Principal repayments on held-to-maturity mortgage-backed securities.................. 147,496 252,826 290,912
Purchase of available-for-sale mortgage-backed securities............................ (27,127) -- --
Purchase of held-to-maturity mortgage-backed securities.............................. (604,916) (282,896) (218,224)
Sale of available-for-sale mortgage-backed securities................................ 15,434 -- --
Sale of held-to-maturity mortgage-backed securities.................................. -- 2,940 --
Maturities of available-for-sale marketable-debt securities.......................... 21,000 -- --
Maturities of held-to-maturity marketable-debt securities............................ -- 137,523 82,399
Purchase of available-for-sale marketable-debt securities............................ (20,950) -- --
Purchase of held-to-maturity marketable-debt securities.............................. (30,695) (115,946) (164,588)
Sale of available-for-sale marketable-debt securities................................ 70,182 -- --
Additions to real estate held for investment......................................... (18,289) (6,053) (6,824)
Real estate sold..................................................................... 30,234 18,749 17,841
Sale (purchase) of Federal Home Loan Bank stock...................................... 1,443 1,897 (171)
Purchase of office properties and equipment.......................................... (9,124) (6,669) (5,076)
Proceeds from sale of office properties and equipment................................ 606 819 58
Acquisition of Elm Financial, net of cash and cash equivalents acquired of $11,002... -- (15,655) --
---------------------------------
Net cash provided (used) by investing activities................................. (627,284) 175,205 150,975
---------------------------------
FINANCING ACTIVITIES
Proceeds from sales of certificates of deposit....................................... 362,442 279,581 305,712
Payments for maturing certificates of deposit........................................ (409,365) (303,906) (380,138)
Net increase (decrease) in remaining deposits........................................ 27,208 (20,402) 55,131
New long-term borrowings............................................................. 210,000 33,422 675
Repayment of long-term borrowings.................................................... (1,201) (155,784) (149,080)
Increase in short-term borrowings, net............................................... 220,634 -- --
Repayment of subordinated capital notes.............................................. -- -- (12,434)
Interest credited on subordinated capital notes...................................... -- -- 146
Redemption bonus on subordinated capital notes....................................... -- -- 144
Dividends paid to stockholders....................................................... (5,798) (5,148) (4,835)
Net proceeds from exercise of stock options.......................................... 1,431 1,626 1,888
Purchase of treasury stock........................................................... (18,355) -- --
Increase (decrease) in advance payments by borrowers for taxes and insurance......... 2,329 (3,834) (2,140)
---------------------------------
Net cash provided (used) by financing activities................................. 389,325 (174,445) (184,931)
---------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..................................... (176,383) 24,764 (3,056)
Cash and cash equivalents at beginning of period..................................... 336,331 311,567 314,623
---------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........................................... $ 159,948 $ 336,331 $ 311,567
=================================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
1994 Annual Report/10-K 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A
Summary of Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements are comprised
of the accounts of St.Paul Bancorp, Inc. (the "Company") and its wholly owned
subsidiaries, St.Paul Federal Bank For Savings (the "Bank"), St.Paul Financial
Development Corporation ("St.Paul Financial"), and Annuity Network, Inc.
("Annuity Network").
The Bank is a consumer-oriented retail financial institution operating 52
banking offices throughout the Chicago, Illinois metropolitan area. St.Paul
Financial engages in single-family real estate development and investment in the
Chicago metropolitan area. Annuity Network sells annuity products to the Bank's
customers through the branch network.
The financial statements of the Bank include the accounts of its seven wholly
owned subsidiaries: St.Paul Service, Inc.; St.Paul Securities, Inc.; Managed
Properties, Inc.; MPI Illinois Inc.; Community Finance Corporation; EFS Service
Corporation and EFS/San Diego Service Corporation. These subsidiaries are
incorporated in the state of Illinois.
St.Paul Service, Inc. is an insurance agency providing a variety of insurance
products for property, automobile, life, disability income, special multi-peril,
commercial automobile, dwelling, fire, liability, bonds, workers' compensation,
and group health plans.
The Bank offers discount brokerage services directly to its customers through
Investment Network, Inc., a wholly owned subsidiary of St.Paul Securities, Inc.
Investment Network, Inc. provides a full line of investment brokerage services
through the Bank's branches. As a registered broker/dealer, the company is
subject to regulation under the Securities Exchange Act of 1934.
Managed Properties, Inc. and MPI Illinois, Inc. are engaged in the management
of real estate acquired by the Bank through foreclosure of multifamily and
commercial real estate loans.
Community Finance Corporation holds equity investments in companies which
acquire limited partnership interests in low income building development
projects that comply with the provisions of the Community Reinvestment Act.
EFS Service Corporation has participated, from time to time, in real estate
joint venture activities.
EFS/San Diego Service Corporation owns assets leased to others.
Cash and Cash Equivalents: Cash and cash equivalents in the Consolidated
Statements of Financial Condition and Cash Flows include cash and amounts due
from depository institutions, federal funds sold, and cash equivalent securities
with original maturities of three months or less.
Marketable-Debt Securities and Mortgage-Backed Securities ("MBS"): The Company
adopted Statement of Financial Accounting Standards ("SFAS") No. 115, Accounting
for Certain Investments in Debt and Equity Securities, at Dec. 31, 1993. The
ending balance of stockholders' equity at Dec. 31, 1993 was increased by $4.6
million (including a $2.8 million deferred income tax adjustment) to reflect the
net unrealized holding gains on securities classified as available for sale
previously carried at amortized cost. Under SFAS No. 115, the carrying amount of
securities is dependent upon their classification as held to maturity, trading,
or available for sale. The Company has not transferred assets between the
trading account, held to maturity, and available for sale categories. The
accounting for securities in each of the three categories is as follows:
Held to Maturity: Investment securities that are classified as held to maturity
are recorded at cost, net of unamortized premiums and discounts. Discounts and
premiums are amortized using the interest method over the contractual life of
marketable-debt securities and the estimated life of MBS. Interest income is
charged or credited for any adjustment to unamortized discounts and premiums
when actual MBS repayments differ substantially from estimates. Declines in
value judged to be other than temporary are included in gains on asset sales
based upon a specific identification method.
At Dec. 31, 1994 and 1993, Management classified only those securities that it
had the positive intent and ability to hold to maturity in this category.
Trading Account: Investment securities that are held in the trading account are
carried at fair value, with unrealized gains and losses included in earnings. At
Dec. 31, 1994 and 1993, the Company had no assets in its trading account.
Available for Sale: Investment securities classified as available for sale are
recorded at fair value, with unrealized gains and losses included as a separate
component of stockholders' equity. Discounts and premiums are amortized using
the interest method over the contractual life of marketable-debt securities and
the estimated life of MBS. Interest income is charged or credited for any
adjustment to unamortized discounts and premiums when actual MBS repayments
differ substantially from estimates. Realized gains and losses and declines in
value judged to be other than temporary are included in gains on asset sales,
based on a specific identification method.
Loans Receivable: Loans receivable that are classified as held to maturity are
recorded at cost, net of unamortized discounts and premiums and net deferred
loan origination fees. Net deferred loan origination fees are comprised of loan
origination and commitment fees and certain direct origination costs which are
deferred when loans are originated. Discounts,
40 St.Paul Bancorp, Inc.
premiums, and deferred loan origination fees are amortized using the interest
method over the remaining contractual life of the assets, adjusted for actual
prepayments as appropriate. Interest income is also charged or credited for any
unamortized discounts, premiums, and deferred loan origination fees (and costs)
when loans receivable are repaid prior to their contractual maturities.
Interest income on loans is credited to income when earned. The Bank provides
an allowance for accrued or capitalized interest on loans deemed potentially
uncollectible. The provision is accounted for as a reduction of interest income
and the allowance is netted against the accrued interest receivable or loan
balance. Whenever the accrual of interest is stopped, previously accrued but
uncollected interest income is reversed. Thereafter, interest is recognized as
income only as cash is received, unless the loan is reinstated. Multifamily and
commercial real estate loans are placed on nonaccrual status when they become 60
days delinquent or are considered impaired under SFAS No. 114, Accounting by
Creditors for Impairment of a Loan. The accrual of interest on government
insured loans and single family mortgages with original loan to value ratios of
80% or less is not discontinued regardless of delinquency. All other 1-4 family
and consumer loans are placed on nonaccrual status when they become 90 days
delinquent.
Interest income on troubled debt restructured loans ("TDRs") is recorded when
cash is collected, provided that prior charge-offs have been recovered. Any
interest capitalized to TDR loans, under the terms of the loan restructuring, is
fully reserved by reducing income.
Reserves for uncollectible loan principal are provided for through the Bank's
loan loss allowance. See discussion following.
Accumulated Provision for Loan Losses: The accumulated provision for loan losses
is comprised of specific and general valuation allowances. As of Jan. 1, 1994,
the Company adopted SFAS No. 114, as amended by SFAS No. 118, Accounting by
Creditors for Impairment of a Loan -- Income Recognition and Disclosure, which
provides guidance for establishing specific valuation allowances ("SVA") on
individual loans. Under SFAS No. 114, a loan is considered impaired (and a SVA
is warranted for an amount equal to the impairment) when the carrying amount of
the loan exceeds the present value of the expected future cash flows, discounted
at the loan's original effective interest rate. However, as a practical
expedient, Management measures impairment based upon the fair value of the
underlying collateral. Loans accounted under SFAS No. 114 consist of multifamily
and commercial real estate loans. Prior to the adoption of SFAS No. 114, the
Bank established SVA on individual loans when a portion of an asset was
classified as "loss" for regulatory accounting purposes.
General valuation allowances are evaluated based on a careful evaluation of
the various risk components which are inherent in each of the loan portfolios,
including off-balance sheet items. The risk components which are evaluated
include the level of nonperforming 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.
Additions to general and specific valuation allowances are reflected in
current operations. Management may transfer reserves between the specific and
general valuation allowances as considered necessary. Charge-offs of general and
specific valuation allowances are made when loan principal is considered
uncollectible. Recoveries are credited to the accumulated provision for loan
losses when realized.
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. See "Note E -- Loans Receivable" for further details.
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
examination.
The adoption of SFAS No. 114 had no impact on the "Consolidated Statements of
Income" or the "Consolidated Statements of Financial Condition," since loans
considered to be impaired under SFAS No. 114 were previously valued at the fair
value of the collateral and all of the Company's real estate in-substance at
Dec. 31, 1993 continued to be classified as real estate in-substance under SFAS
No. 114.
Loans Held for Sale: Loans classified "held for sale" are comprised of 1-4
family real estate loans originated for resale in the secondary market and
certain education loans. Loans are identified as held for sale before or soon
after origination or purchase.
Loans held for sale are accounted for at the lower of cost or market, with
each periodic lower of cost or market adjustment included in earnings. The lower
of cost or market values are determined on an individual loan basis. The fair
value of loans held for sale are based on actual sales contracts and bids
published by the secondary market.
Real Estate Owned ("REO") and REO In-Substance Foreclosures ("ISF"): REO and REO
ISF initially are recorded at the lower of net book value or fair value, less
estimated costs to sell. 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. As of Jan. 1, 1994, loans are classified as ISF
based upon SFAS No. 114. The Bank had no REO ISF as of Dec. 31, 1994.
1994 Annual Report/10-K 41
Subsequent to 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 reserves for possible losses
associated with risks inherent in the REO portfolio. In evaluating the adequacy
of the accumulated provision for foreclosed real estate losses, Management
considers the market value of specific real estate assets in relationship to
their book values, as well as the potential for further market value decline.
Loan Servicing Fees and Related Receivables: The Bank services mortgage loans
that have been sold to investors. Fees earned for servicing loans owned by
investors are reported as income when the related mortgage loan payments are
collected. Loan servicing costs are charged to expense as incurred.
When mortgage loans are sold, the gain or loss on the transaction is adjusted
to recognize an excess service fee receivable. In general, the excess service
fee receivable represents the present value of the interest rate spread (net of
normal servicing fees) inherent in the future payments to be serviced by the
Company over the estimated life of the underlying mortgage loans. The excess
service fee receivable is amortized as an adjustment to loan servicing fee
income using the interest method over the remaining contractual term.
The Bank owns the right to service loans for others. Purchased mortgage
servicing rights are being amortized in proportion to, and over the period of,
estimated net servicing income.
Office Properties and Equipment: Office properties and equipment, including
assets under capital leases, are carried at cost. Depreciation and amortization
are computed principally using the straight-line method over estimated useful
lives of the assets and the remaining term of capital leases, respectively.
Employee Benefits: Net pension costs are based on the provisions of SFAS No. 87,
Employers' Accounting for Pensions. The actuarially determined pension benefits
are based on the projected unit credit method.
During 1993, the Company adopted SFAS No. 106, Employers' Accounting for Post-
Retirement Benefits Other than Pensions. This statement requires that the
projected future cost of providing post-retirement benefits, such as health care
and life insurance, be recognized as an expense as employees render service,
instead of when benefits are paid. In addition, during 1994, the Company adopted
SFAS No. 112, Employers' Accounting for Post-Employment Benefits. This statement
requires that the projected future cost of providing post-employment benefits
(other than retirement), such as medical insurance, be recognized as an expense
as employees render service, instead of when the benefits are paid. The adoption
of SFAS No. 112 had a minimal impact on the results of operations during 1994.
The Company has established an Employee Stock Ownership Plan ("ESOP") for its
employees. During 1994, the Company prospectively adopted the American Institute
of Certified Public Accountants ("AICPA") Statement of Position No. 93-6,
Employers' Accounting for Employee Stock Ownership Plans. SOP 93-6 requires the
recognition of compensation expense for ESOP shares acquired after 1992 and not
committed to be released before the beginning of 1994, to be measured based on
the fair value of those shares when committed to be released to employees,
rather than based on their original cost.
As of Dec. 31, 1994, the ESOP had 196,350 shares acquired after Dec. 31, 1992
that are committed to be released beginning in 1996. The adoption of SOP 93-6
had no impact on net income for the year ending Dec. 31, 1994. The effect of SOP
93-6 on net income in 1996 and beyond is not determinable because expense will
be based on future prices of St.Paul Bancorp stock. Under SOP 93-6, the average
number of ESOP shares considered outstanding for earnings per share ("EPS")
purposes during the year ending Dec. 31, 1994 was lower than for the same
periods in prior years because unallocated shares are excluded from the EPS
calculation. Also, under SOP 93-6, dividends on the unearned ESOP shares are
accounted for as a reduction of accrued interest on the ESOP borrowings rather
than as a reduction of retained earnings.
Shares acquired by the ESOP prior to 1994 are accounted for in accordance with
the AICPA SOP No. 76-3, Accounting Practices for Certain Employee Stock
Ownership Plans. Compensation expense was charged for the contributions made by
the Bank to service the ESOP borrowings and other contributions approved by the
Company.
Income Taxes: The Company files a consolidated tax return with its wholly owned
subsidiaries. The Company provides for income taxes based upon the provisions of
SFAS No. 109, Accounting for Income Taxes. The provision for income tax expense
is determined using the liability method. Under this method, deferred tax assets
and liabilities are determined on differences between financial reporting and
tax bases of assets and liabilities and are measured using the enacted tax rates
and laws that will be in effect when the differences are expected to reverse.
Deferred taxes arise because certain transactions affect the determination of
taxable income for financial reporting purposes in periods different from the
period in which the transactions affect taxable income for tax return purposes.
Current tax expense is provided based upon the actual tax liability incurred for
tax return purposes.
Interest Rate Exchange Agreements: The Company enters into interest rate
exchange agreements to modify the interest characteristics of its outstanding
debt and deposits from a floating to a fixed rate basis. These agreements
involve the receipt of floating rate amounts in exchange for fixed rate interest
payments over the life of the agreement without an exchange of the underlying
notional amount. The differential to be paid or received is accrued as interest
rates change and recognized as an adjustment to interest expense related to the
debt and deposits. The related amount payable to or receivable from
counterparties is included in other liabilities or assets. The fair values of
the swap agreements are not recognized in the financial statements.
42 St.Paul Bancorp, Inc.
Earnings Per Share: Earnings per share are based on the weighted average number
of shares outstanding. Primary and fully diluted earnings per share are computed
using the treasury stock method. Stock options issued to employees of the Bank
represent the only common stock equivalent of the Company. Beginning in 1994,
unallocated ESOP shares are excluded from the calculation of EPS.
Fair Value of Financial Instruments: SFAS No. 107, Disclosures about Fair Value
of Financial Instruments, as amended by SFAS No. 119, Disclosures about
Derivative Financial Instruments and Fair Value of Financial Instruments,
requires disclosure of fair value information about financial instruments
whether or not recognized in the balance sheet, for which it is practicable to
estimate that value. In cases where quoted market prices are not available, fair
values are based upon estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions used,
including discount rate and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. SFAS No. 107 excludes certain financial
instruments and all non-financial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Company.
Reclassifications: Certain prior year amounts have been reclassified to conform
to the 1994 presentation.
NOTE B
Cash and Cash Equivalents
The following tables present the amortized cost and fair values of cash and
cash equivalent investments as of Dec. 31, 1994 and 1993. At Dec. 31, 1994 and
1993, all of the government securities classified as cash equivalents were
purchased with original maturities of 90 days or less.
DOLLARS IN THOUSANDS DEC. 31, 1994
--------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
By type:
Cash and amounts due from
depository institutions...... $104,563 $ -- $ -- $104,563
Federal funds sold............ 18,100 -- -- 18,100
Short-term cash equivalent
securities:
U.S. Treasury securities...... 17,446 6 -- 17,452
U.S. agency securities........ 19,839 -- 6 19,833
---------------------------------------------
37,285 6 6 37,285
---------------------------------------------
Total cash and cash
equivalent investments....... $159,948 $ 6 $ 6 $159,948
=============================================
DOLLARS IN THOUSANDS Dec. 31, 1993
------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
By type:
Cash and amounts due from
depository institutions...... $ 87,805 $-- $-- $ 87,805
Federal funds sold............ 56,200 -- -- 56,200
Short-term cash equivalent
securities:
U.S. Treasury securities...... 15,502 1 -- 15,503
U.S. agency securities........ 176,839 -- 16 176,823
---------------------------------------------
192,341 1 16 192,326
---------------------------------------------
Total cash and cash
equivalent investments....... $336,346 $ 1 $16 $336,331
=============================================
Included in "cash and amounts due from depository institutions" at Dec. 31,
1994 was a $30.0 million reserve requirement maintained with the Federal Reserve
Bank of Chicago.
NOTE C
Marketable-Debt Securities
The following tables present the amortized cost and fair values of marketable-
debt securities at Dec. 31, 1994 and 1993.
DOLLARS IN THOUSANDS DEC. 31, 1994
----------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Available for sale:
U.S. Treasury securities...... $ 8,022 $-- $ 78 $ 7,944
U.S. agency securities........ 22,989 10 1,556 21,443
-------------------------------------------
31,011 10 1,634 29,387
-------------------------------------------
Held to maturity:
U.S. Treasury securities...... 39,297 -- 2,564 36,733
U.S. agency securities........ 30,959 -- 1,306 29,653
-------------------------------------------
70,256 -- 3,870 66,386
-------------------------------------------
Total marketable-debt
securities................... $101,267 $10 $5,504 $ 95,773
===========================================
DOLLARS IN THOUSANDS.......... Dec. 31, 1993
------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Available for sale:
U.S. Treasury securities...... $ 33,418 $ 106 $ 60 $ 33,464
U.S. agency securities........ 68,205 150 14 68,341
---------------------------------------------
101,623 256 74 101,805
---------------------------------------------
Held to maturity:
U.S. Treasury securities...... 19,542 272 34 19,780
U.S. agency securities........ 20,704 587 -- 21,291
---------------------------------------------
40,246 859 34 41,071
---------------------------------------------
Total marketable-debt
securities................... $141,869 $1,115 $108 $142,876
=============================================
During 1994, $70.2 million of available for sale marketable-debt securities
were sold, resulting in a nominal net loss. No sales of marketable-debt
securities occurred in 1993 or 1992.
1994 Annual Report/10-K 43
The following table summarizes, by amortized cost and fair value, the maturity
distribution of marketable-debt securities at Dec. 31, 1994 based upon
contractual maturities:
DOLLARS IN THOUSANDS MATURITY SCHEDULE AS OF DEC. 31, 1994
-------------------------------------------------------------------------------
1 Year 1 Year to
or Less 5 Years Total
Amortized cost:
Available for sale................... $8,022 $22,989 $ 31,011
Held to maturity..................... -- 70,256 70,256
-----------------------------------
Total amortized costs................ $8,022 $93,245 $101,267
===================================
Fair value:
Available for sale................... $7,944 $21,443 $ 29,387
Held to maturity..................... -- 66,386 66,386
-----------------------------------
Total fair value..................... $7,944 $87,829 $ 95,773
===================================
Weighted average yield............... 4.23% 5.11% 5.04%
===================================
U.S. Treasury securities are used as collateral for tax deposits, credit
enhancements issued by the Bank, and ESOP borrowings. The amortized cost of U.S.
Treasury securities used as collateral at Dec. 31, 1994 and 1993 was $14.0
million and $989,000, respectively.
Note D
MBS
The following tables present the amortized cost and fair values of MBS at Dec.
31, 1994 and 1993.
DOLLARS IN THOUSANDS DEC. 31, 1994
--------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Available for sale:
FHLMC............... $ 59,995 $ 60 $ 2,537 $ 57,518
FNMA................ 51,795 84 1,511 50,368
GNMA................ 1,820 -- 141 1,679
Privately issued.... 19,687 31 43 19,675
------------------------------------------------------
133,297 175 4,232 129,240
Held to maturity:
FHLMC............... $ 129,829 $ 3 $ 7,179 $ 122,653
FNMA................ 81,367 -- 7,142 74,225
Privately issued.... 786,181 -- 45,506 740,675
------------------------------------------------------
997,377 3 59,827 937,553
------------------------------------------------------
Total MBS............. $1,130,674 $ 178 $64,059 $1,066,793
======================================================
DOLLARS IN THOUSANDS DEC. 31, 1993
--------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Available for sale:
FHLMC............... $ 54,964 $2,525 $ -- $ 57,489
FNMA................ 71,999 3,433 49 75,383
GNMA................ 2,283 32 3 2,312
Privately issued.... 54,885 1,330 43 56,172
------------------------------------------------------
184,131 7,320 95 191,356
Held to maturity:
FHLMC............... $ 132,300 $ 204 $ 233 $ 132,271
FNMA................ 92,097 2 361 91,738
Privately issued.... 317,896 640 587 317,949
------------------------------------------------------
542,293 846 1,181 541,958
------------------------------------------------------
Total MBS............. $ 726,424 $8,166 $ 1,276 $ 733,314
======================================================
The amortized cost of MBS used to collateralize certain deposits, securities
sold under agreements to repurchase, recourse arrangements, and various other
borrowings was $166.4 million at Dec. 31, 1994 and $56.6 million at Dec. 31,
1993.
MBS totalling $82.0 million and $109.0 million at Dec. 31, 1994 and 1993,
respectively, represent loans securitized and serviced by the Bank.
The following table summarizes, by amortized cost and fair value, the
contractual maturities of MBS held as of Dec. 31, 1994:
DOLLARS IN THOUSANDS MATURITY SCHEDULE AS OF DEC. 31, 1994
-----------------------------------------------------------------------------------------------
1 year 1 year to 5 years to More than
or less 5 years 10 years 10 years Total
Amortized cost:
Available for sale............ $ 3,164 $ 15,120 $ 25,953 $ 89,060 $ 133,297
Held to maturity.............. 18,082 84,964 141,598 752,733 997,377
-------------------------------------------------------------
$21,246 $100,084 $167,551 $841,793 $1,130,674
=============================================================
Fair value:
Available for sale............ $ 3,074 $ 14,693 $ 25,226 $ 86,247 $ 129,240
Held to maturity.............. 16,912 79,433 132,292 708,916 937,553
-------------------------------------------------------------
$19,986 $ 94,126 $157,518 $795,163 $1,066,793
=============================================================
Weighted average yield........ 6.08% 6.08% 6.09% 5.99% 6.02%
=============================================================
During 1994, $15.4 million of available-for-sale MBS were sold, resulting in a
net gain of $174,000 and a tax liability of $63,000. During 1993, $3.0 million
of MBS were sold, resulting in a net gain of $167,000 and a tax liability of
$53,000. No sales of MBS occurred during 1992.
NOTE E
Loans Receivable
Loans receivable as of Dec. 31, 1994 and 1993 are summarized as follows:
DOLLARS IN THOUSANDS 1994 1993
-------------------------------------------------------------------------------
Real estate loans:
1-4 family units..................................... $1,526,803 $1,187,210
Multifamily units.................................... 996,123 1,064,467
Commercial........................................... 63,983 73,094
Land and land development............................ 224 10,307
-----------------------
Real estate loans.................................... 2,587,133 2,335,078
=======================
Consumer loans:
Secured by deposits.................................. 1,928 2,300
Education (guaranteed)............................... 584 2,171
Home improvement..................................... 836 1,118
Automobile........................................... 19,222 13,816
Personal............................................. 380 167
-----------------------
Consumer loans..................................... 22,950 19,572
-----------------------
Contract amount of loans receivable.................. 2,610,083 2,354,650
Add (deduct):
Unearned premiums (discounts)........................ 48 (452)
Net deferred loan (fees) costs....................... 446 (3,305)
-----------------------
Loans receivable..................................... $2,610,577 $2,350,893
=======================
Combined weighted average yield of loans receivable.. 7.51% 7.88%
=======================
44 St.Paul Bancorp, Inc.
The following schedule provides a rollforward of the total recorded investment
in impaired loans during the year ending Dec. 31, 1994, which is comprised
primarily of multifamily loans:
DOLLARS IN THOUSANDS The Total Recorded Investment in the Impaired Loans
--------------------------------------------------------------------------------------------------------------------
Balance New Transfer Improvement Balance
1/1/94 Impairments to REO Charge-offs in Valuation Repayments 12/31/94
Performing loans........... $35,646 $33,728 $ -- $ (3,924) $(37,063) $(1,373) $27,014
Nonperforming loans........ 5,787 19,226 (18,885) (4,258) -- (3) 1,867
---------------------------------------------------------------------------------------
Total impaired loans....... $41,433 $52,954 $(18,885) $(8,182) $(37,063) $(1,376) $28,881
=======================================================================================
The following schedule provides a rollforward of the recorded investment in
impaired loans for which there is no specific allowance for credit losses
determined in accordance with SFAS No. 114, as amended by SFAS No. 118:
The Amount of the Recorded Investment for Which There
DOLLARS IN THOUSANDS Is No Related "Specific" Allowance for Credit Loss
---------------------------------------------------------------------------------------------------------------------
Balance New Transfer Improvement Balance
1/1/94 Impairments to REO Charge-offs in Valuation Repayments 12/31/94
Performing loans........... $31,095 $29,094 $ -- $ -- $(35,887) $(1,352) $22,950
Nonperforming loans........ 5,300 15,455 (19,025) -- 140 (3) 1,867
-------------------------------------------------------------------------------------
Total impaired balance..... $36,395 $44,549 $(19,025) $ -- $(35,747) $ (1,355) $24,817
=====================================================================================
The following schedule provides a rollforward of the amount of the recorded
investment in impaired loans for which there is a related SVA determined in
accordance with SFAS No. 114, as amended by SFAS No. 118. SVA represents the
amount of impairment on impaired loans.
The Amount of the Recorded Investment for Which
DOLLARS IN THOUSANDS There is a Related "Specific" Allowance for Credit Loss
------------------------------------------------------------------------------------------
Balance Decreases Improvements Balance
1/1/94 in Valuation in Valuation Charge-offs 12/31/94
Performing loans...... $4,551 $4,476 $(1,039) $(3,924) $4,064
Nonperforming loans... 487 4,069 (298) (4,258) --
----------------------------------------------------------------
Total impaired loans.. $5,038 $8,545 $(1,337) $(8,182) $4,064
================================================================
The following table presents the average recorded investment in impaired loans
during the year ending Dec. 31, 1994 and the amount of interest income recorded
on a cash basis during that same period. All interest income recorded on
impaired loans was from cash received.
DOLLARS IN THOUSANDS Impaired Loans
---------------------------------------------------
Interest
Average Income
Recorded Recorded on
Investment a Cash Basis
Performing loans...... $32,701 $2,795
Nonperforming loans... 10,313 42
-----------------------
Total................. $43,014 $2,837
=======================
The Bank also had $2.4 million of delinquent loans that Management did not
consider to be impaired under SFAS No. 114, but nevertheless were accounted for
on a cash basis. In addition, the Bank had $5.7 million of nonperforming loans
that were not subject to the provisions of SFAS No. 114 because they were
considered part of large, homogeneous loan portfolios.
As of Dec. 31, 1994, the Bank reported no TDRs. At Dec. 31, 1993, the
aggregate recorded investment in TDRs was $15.6 million. All loans reported as
TDRs at Dec. 31, 1993 were performing in accordance with the terms of the debt
restructurings. Total interest that would have been recorded in accordance with
the original terms was $1.2 million; however, no interest income was recorded on
TDRs during 1993.
NOTE F
Accumulated Provision for Loan Losses
Activity in the accumulated provision for loan losses is summarized as follows:
DOLLARS IN THOUSANDS
---------------------------------------------------------------
Real Estate Consumer Total
Loans Loans Loans
Balance at Dec. 31, 1991.... $ 44,743 $1,421 $ 46,164
Provision for losses......... 9,425 1,200 10,625
Charge-offs.................. (7,545) (695) (8,240)
Recoveries................... 127 5 132
Transfers.................... 769 (769) --
------------------------------
Balance at Dec. 31, 1992..... 47,519 1,162 48,681
Provision for losses......... 10,250 500 10,750
Acquired from Elm Financial.. 929 -- 929
Charge-offs.................. (14,050) (306) (14,356)
Recoveries................... 521 49 570
Transfers.................... 813 (813) --
------------------------------
Balance at Dec. 31, 1993..... 45,982 592 46,574
Provision for losses......... 5,080 70 5,150
Charge-offs.................. (9,934) (309) (10,243)
Recoveries................... 670 45 715
Transfers.................... (314) 314 --
------------------------------
Balance at Dec. 31, 1994..... $ 41,484 $ 712 $ 42,196
==============================
1994 Annual Report/10-K 45
NOTE G
Loans Held for Sale and Loans Serviced for Others
Loans held for sale as of Dec. 31, 1994 and 1993 are
as follows:
Dec. 31
-------------------------------------------------------------------------------------------------
DOLLARS IN THOUSANDS 1994 1993
-------------------------------------------------------------------------------------------------
Cost Fair Value Cost Fair Value
1-4 family real estate loans........................... $ 202 $ 204 $21,022 $21,141
Education loans........................................ 9,953 9,953 7,475 7,475
-------------------------------------
Loans held for sale.................................... $10,155 $10,157 $28,497 $28,616
=====================================
The following are related mortgage servicing portfolio statistics at and for
the years ended Dec. 31, 1994, 1993, and 1992:
Dec. 31
--------------------------------------------------------------------------------------------------
DOLLARS IN THOUSANDS 1994 1993 1992
--------------------------------------------------------------------------------------------------
Total mortgage servicing portfolio........................... $3,091,002 $2,933,865 $3,030,096
Loans serviced for others..................................... 611,978 719,747 894,400
Loans serviced and
held in MBS portfolio.................................... 81,997 109,000 179,000
NOTE H
Accrued Interest Receivable
Accrued interest receivable as of Dec. 31, 1994 and 1993 consisted of the
following:
Dec. 31
-------------------------------------------------------------------------------------------------
DOLLARS IN THOUSANDS 1994 1993
-------------------------------------------------------------------------------------------------
Accrued interest receivable:
Investments................................................................. $ 2,182 $ 2,068
MBS......................................................................... 6,699 4,493
Loans receivable............................................................ 14,586 13,686
------------------
Total accrued interest receivable........................................... $23,467 $20,247
==================
NOTE I
Foreclosed Real Estate
The components of foreclosed real estate are as follows:
Dec. 31
-------------------------------------------------------------------------------------------------
DOLLARS IN THOUSANDS 1994 1993
-------------------------------------------------------------------------------------------------
REO and REO in substance foreclosed......................................... $15,141 $16,334
Real estate in judgment..................................................... 3,362 3,590
------------------
18,503 19,924
Less accumulated provision for REO losses.................................. (2,019) (819)
------------------
$16,484 $19,105
==================
The following schedule provides a rollforward of the accumulated provision for
REO losses:
DOLLARS IN THOUSANDS 1994 1993 1992
-------------------------------------------------------------------------------------------------
Balance at Jan. 1.................................................. $ 819 $ 2,404 $ 2,228
Provision for losses............................................... 1,713 1,879 1,828
Charge-offs........................................................ (556) (3,510) (1,777)
Recoveries......................................................... 43 46 125
---------------------------
Balance at Dec. 31................................................. $ 2,019 $ 819 $ 2,404
===========================
The following schedule provides details of the results
of operations on foreclosed real estate for the years ended
Dec. 31, 1994, 1993, and 1992.
DOLLARS IN THOUSANDS 1994 1993 1992
-------------------------------------------------------------------------------------------------
Operating income on
foreclosed real estate............................................ $ 1,438 $ 1,749 $ 2,868
Operating expense on
foreclosed real estate............................................ 2,251 2,573 4,026
---------------------------
Net operating loss on foreclosed real estate....................... (813) (824) (1,158)
Gains on sale of foreclosed real estate............................ 381 187 1,670
Provision for losses on REO........................................ (1,713) (1,879) (1,828)
---------------------------
Loss on foreclosed real estate..................................... $(2,145) $(2,516) $(1,316)
===========================
NOTE J
Real Estate Held for Development or Investment
Income from real estate investment/development operations is summarized as
follows:
DOLLARS IN THOUSANDS 1994 1993 1992
-------------------------------------------------------------------------------------------------
Sale of real estate................................................ $16,379 $11,326 $ 6,843
Cost of sales...................................................... 13,229 8,357 4,401
---------------------------
Income from real estate development................................ 3,150 2,969 2,442
Other income....................................................... 117 97 139
General and administrative expense................................. (1,251) (1,096) (1,000)
Interest income, net of interest expense........................... 494 300 198
---------------------------
Income before income taxes......................................... $ 2,510 $ 2,270 $ 1,779
===========================
Interest capitalized to the balance of real estate held for development or
investment amounted to $620,000, $570,000 and $218,000 during 1994, 1993, and
1992, respectively.
46 St.Paul Bancorp, Inc.
NOTE K
Federal Home Loan Bank Stock
As a member of the Federal Home Loan Bank ("FHLB") system, the Bank is
required to maintain a specified level of investment in FHLB stock. The capital
stock is issued at $100 par, and the required amount of ownership is generally
calculated as a percentage of aggregate outstanding mortgages. The investment in
FHLB stock is carried on the Consolidated Statements of Financial Condition at
cost.
Dividends earned on FHLB stock were $1.8 million, $1.9 million, and $1.7
million in 1994, 1993, and 1992, respectively. Dividend income has been
classified as other investment income on the Consolidated Statements of Income.
FHLB stock is used as collateral for FHLB advances.
NOTE L
Office Properties and Equipment
Office properties and equipment are summarized as follows:
Dec. 31
---------------------------------------------------------------------
DOLLARS IN THOUSANDS 1994 1993
---------------------------------------------------------------------
Cost:
Land............................................... $ 8,410 $ 8,521
Buildings and improvements......................... 37,029 35,608
Furniture, fixtures and equipment.................. 29,997 23,410
Leasehold improvements............................. 2,924 2,305
----------------
78,360 69,844
Less allowances for depreciation and amortization.. 34,248 28,979
----------------
$44,112 $40,865
================
In connection with a branch acquisition in 1991, the Bank entered into a
capital lease agreement for the use of one branch facility. Although the lease
has a term of 25 years, the Bank has the option to purchase the facility during
1996, or any time after October 1999. The Bank also has operating leases on
certain office properties. Rent expense incurred in connection with these leases
was $2.3 million, $2.0 million, and $1.7 million for 1994, 1993, and 1992,
respectively.
Minimum future capital and operating lease commitments are summarized as
follows:
DOLLARS IN THOUSANDS Year Ending Dec. 31
-------------------------------------------------------------------------------
Capital Operating
Leases Leases
1995................................................... $ 458 $ 1,804
1996................................................... 459 1,608
1997................................................... 436 1,403
1998................................................... 468 1,164
1999................................................... 500 765
Later years............................................ 15,625 6,500
--------------------
Total.............................................. $ 17,946 $13,244
====================
Less amount representing interest...................... (16,670)
--------
Present value of net minimum lease
payments under capital lease....................... $ 1,276
========
NOTE M
Prepaid Expenses and Other Assets
Prepaid expenses and other assets are summarized as follows:
Dec. 31
-------------------------------------------------------------------------------
DOLLARS IN THOUSANDS 1994 1993
-------------------------------------------------------------------------------
Deferred tax asset (net)-Note P........................ $ 12,358 $11,258
Prepaid FDIC insurance premiums........................ 4,113 -
Excess of purchase price over fair value
of assets acquired................................. 1,572 1,792
Excess servicing fee receivable........................ 767 1,348
Purchased mortgage servicing rights.................... 94 99
Other prepaid assets and deferred charges.............. 17,285 23,288
--------------------
$ 36,189 $37,785
====================
The amortization of the excess of purchase price over fair value of assets
acquired (i.e., goodwill) amounted to $220,000, $270,000, and $308,000 for 1994,
1993 and 1992, respectively.
1994 Annual Report/10-K 47
NOTE N
DEPOSITS
Deposit balances are summarized as follows:
Weighted Average
Interest Rate
as of Dec. 31 Dec. 31
--------------------------------------------------------------
DOLLARS IN THOUSANDS 1994 1993 1994 1993
----------------------------------------------------------------------------------------------------------------------------------
Amount Percent Amount Percent
CORE ACCOUNTS:
Interest bearing checking........................................ 1.80% 1.78% $ 249,505 7.7% $ 252,854 7.8%
Noninterest bearing checking..................................... -- -- 110,351 3.4 81,579 2.5
Other noninterest bearing accounts............................... -- -- 36,457 1.1 51,811 1.6
Savings accounts................................................. 2.43 2.42 769,925 23.9 801,868 24.7
Money market accounts............................................ 3.13 2.71 245,155 7.6 300,994 9.3
-----------------------------------------------------------
Core accounts.................................................... 2.18 2.16 1,411,393 43.7 1,489,106 45.9
CERTIFICATES OF DEPOSIT: (A)
3 months and under.............................................. 3.35 2.75 34,707 1.1 59,015 1.8
6 months......................................................... 4.22 3.06 192,210 5.9 262,855 8.1
7 months......................................................... 5.87 3.00 214,510 6.6 5,962 0.2
8 months......................................................... 5.80 -- 13,155 0.4 -- --
9 months......................................................... 4.97 3.30 184,061 5.7 22,702 0.7
12 months........................................................ 4.09 3.47 244,186 7.6 315,380 9.7
15 months........................................................ 3.39 4.50 12,373 0.4 23,948 0.7
18 months........................................................ 4.56 3.95 90,078 2.8 144,615 4.4
24 months........................................................ 4.49 4.89 54,943 1.7 137,864 4.2
30 months........................................................ 4.73 4.80 242,448 7.5 196,376 6.0
36 months........................................................ 4.97 5.85 117,232 3.6 162,607 5.0
48 months........................................................ 6.10 6.85 12,413 0.4 16,558 0.5
60 months........................................................ 6.47 7.01 294,444 9.1 292,146 9.0
84-120 months.................................................... 6.44 6.53 56,996 1.8 45,342 1.4
Jumbo accounts................................................... 3.60 3.38 11,221 0.3 27,828 0.9
Other............................................................ 8.12 7.74 46,533 1.4 50,314 1.5
-----------------------------------------------------------
Certificates of deposit.......................................... 5.14% 4.73% $1,821,510 56.3% $1,763,512 54.1%
-----------------------------------------------------------
Total deposits (B)............................................... 3.85% 3.56% $3,232,903 100.0% $3,252,618 100.0%
-----------------------------------------------------------
Accrued interest................................................. $ 7,174 $ 3,057
--------------------------------
Total deposit-related liabilities................................ $3,240,077 $3,255,675
--------------------------------
(A) BASED UPON ORIGINAL MATURITIES.
(B) INCLUDES $246.8 MILLION OF DEPOSITS IN DENOMINATIONS OF $100,000 OR MORE.
Interest expense by category of deposit is summarized
as follows:
DOLLARS IN THOUSANDS 1994 1993 1992
---------------------------------------------------------------------------------------------------
Checking accounts................................................ $ 4,481 $ 4,833 $ 4,585
Savings accounts................................................. 20,246 21,601 22,828
Money market accounts............................................ 7,809 8,634 10,104
Certificates of deposit.......................................... 82,426 87,205 107,716
--------------------------------
$114,962 $122,273 $145,233
--------------------------------
48 St.Paul Bancorp, Inc.
NOTE O
Borrowings
Borrowings consisted of the following at Dec. 31, 1994 and 1993:
DOLLARS IN THOUSANDS DEC. 31, 1994 Dec. 31, 1993
-------------------------------------------------------------------------------
Weighted Weighted
Average Average
Amount Interest Amount Interest
Borrowed Rate Borrowed Rate
Short-term:
FHLB advances.................. $120,275 6.35% $ 263 6.95%
Securities sold under
agreements to repurchase...... 100,000 6.08 -- --
Mortgage loan.................. 905 9.50 -- --
St.Paul Bancorp ESOP........... -- -- 357 7.00
----------------------------------------------
221,180 6.24 620 6.98
Long-term:
FHLB advances.................. 216,684 6.41 6.956 7.96
Subordinated notes
(net of unamortized discount
1994-$996; 1993-$1,143)....... 33,504 8.96 33,357 8.95
Mortgage-backed notes.......... 16,400 8.70 16,392 8.80
Mortgage loan.................. -- -- 1,520 7.00
St.Paul Bancorp ESOP........... 3,883 8.50 3,883 6.00
Capital lease obligations...... 1,276 37.95 1,242 37.95
----------------------------------------------
271,747 7.04 63,350 9.15
----------------------------------------------
Total borrowings............... $492,927 6.68% $63,970 9.12%
==============================================
The following table presents the maturity distribution of borrowings at Dec. 31,
1994:
DOLLARS IN THOUSANDS Year-End 1994 Borrowings by Maturity
------------------------------------------------------------------------------------------------------------
After
1995 1996 1997 1998 1999 1999 Total
------------------------------------------------------------------------------------------------------------
Short-term:
FHLB advances............... $120,275 $ -- $ -- $ -- $ -- $ -- $120,275
Securities sold under
agreements to repurchase... 100,000 -- -- -- -- -- 100,000
Mortgage loan............... 905 -- -- -- -- -- 905
---------------------------------------------------------------------------
221,180 -- -- -- -- -- 221,180
Long-term:
FHLB advances............... -- 5,285 55,314 40,000 115,000 1,085 216,684
Subordinated notes.......... -- -- -- -- -- 33,504 33,504
Mortgage-backed notes....... -- -- -- -- 16,400 -- 16,400
St.Paul Bancorp ESOP........ -- 224 324 324 324 2,687 3,883
Capital lease............... -- -- -- -- -- 1,276 1,276
---------------------------------------------------------------------------
-- 5,509 55,638 40,324 131,724 38,552 271,747
---------------------------------------------------------------------------
Total borrowings............ $221,180 $5,509 $55,638 $40,324 $131,724 $38,552 $492,927
===========================================================================
1994 Annual Report/10-K 49
FHLB Advances: As a member of the FHLB system, the FHLB of Chicago is allowed to
extend credit to the Bank through advances and letters of credit up to 20% of
the Bank's total assets. The Bank maintains qualifying loans in its portfolio of
at least 170% of outstanding advances as collateral for notes payable to the
FHLB of Chicago. The FHLB stock is also pledged as collateral. During 1992, the
average month-end balance of short-term FHLB advances was $90,718 with an
average month-end rate of 8.80%. The highest month-end balance during 1992 was
$124,279.
Securities Sold Under Agreements to Repurchase: The Bank enters into sales of
securities under agreements to repurchase with nationally recognized primary
securities dealers and financial institutions. The average amount of securities
sold under agreements to repurchase during 1994 was $44.6 million. The highest
month-end balance for these borrowings during 1994 was $100.0 million.
Securities sold under agreements to repurchase can have varying maturities and
are secured by designated collateral which is held by an independent trustee. At
Dec. 31, 1994, the collateral securing these borrowings had a carrying value of
$111.1 million and a fair value of $104.4 million. As of Dec. 31, 1994, the Bank
had approximately $850.0 million of unused credit lines available to borrow
under agreements to repurchase.
Mortgage Loan: During 1992, St.Paul Financial obtained a $2.0 million mortgage
loan from another financial institution. The note matures on Dec. 31, 1995. At
Dec. 31, 1994 and 1993, real estate serving as collateral for the mortgage note
had carrying values of $1.2 and $2.5 million, respectively.
Subordinated Notes: In February 1993, the Company issued $34.5 million of 8.25%
subordinated notes that was used by the Company for general corporate purposes,
including the purchase of St.Paul Financial from the Bank. The notes will mature
on Jan. 31, 2000, but may be redeemed without penalty any time after Jan. 31,
1996. The Notes are unsecured general obligations of the Company and are
subordinated to all senior indebtedness. The notes limit the amount of
indebtedness the Company may incur in future periods as well as the payment of
dividends and other capital distributions. See "Note Q - Stockholders' Equity"
for description of dividend and capital distribution limitations.
Mortgage-Backed Notes: The Bank had $16.4 million of mortgage-backed notes
outstanding as of Dec. 31, 1994 and 1993. The mortgage-backed notes are secured
by MBS held by an independent trustee. Collateral agreements require maintaining
an aggregate market value of not less than the amount necessary to effect a
maturity collateral substitution if necessary. At Dec. 31, 1994 and 1993, the
collateral securing these notes had a carrying and fair value of approximately
$20.7 million and $22.0 million, respectively. As of Dec. 31, 1994, these notes
had a "AAA" rating from Moody's Investor Services. The Bank may issue up to an
additional $400.0 million of such notes with varying terms through an existing
underwriting agreement, subject to market conditions and collateral
availability.
ESOP Borrowings: A noncontributory, leveraged employee stock ownership plan was
established by the Bank in April 1987. The ESOP was originally funded by a $5.0
million loan at an interest rate of 7%, which matured in May 1994.
In 1991, the ESOP obtained a $5.0 million line of credit through another
financial institution, which was increased to $18.0 million in 1993. At Dec. 31,
1994, $3.9 million was outstanding under this line.
In January 1995, a state banking agency took over the operations of the
lender, which may affect the availability of the remaining credit line.
The line of credit is guaranteed by the Company and amounts drawn under the
arrangement are secured by shares of Company stock and partially by marketable-
debt securities owned by St.Paul Bancorp. The Company has confirmed that its
collateral is held in segregated custodial accounts.
At Dec. 31, 1994 and 1993, Company stock securing the borrowings had carrying
values of $3.9 million and $4.2 million and fair values of $5.0 million and $6.3
million, respectively. At Dec. 31, 1994 and 1993, the marketable-debt securities
securing the borrowings had a carrying value of $979,000 and $989,000,
respectively. The fair value of these securities approximated their carrying
value at Dec. 31, 1994 and 1993.
Capital Lease Obligations: In 1991, the Bank entered into a capital lease for
the use of a branch facility. While the term of this lease extends to 2016, the
Bank has the option to purchase the related facility at the end of 1996 or any
time after October 1999. See "Note L - Office Properties and Equipment" for
further details.
NOTE P
Income Taxes
The following schedule summarizes the components of income tax expense for
1994, 1993, and 1992. The amounts reported as current and deferred income tax
expense for 1993 have been restated to conform to the 1993 tax return, which was
filed several months after the end of the fiscal year. Total income tax expense
is not affected by the reclassification of current and deferred taxes.
For the Years Ended Dec. 31
----------------------------------------------------------
DOLLARS IN THOUSANDS 1994 1993 1992
----------------------------------------------------------
Federal income tax expense:
Current provision............ $13,949 $16,155 $21,099
Deferred expense (benefit)... 3,416 2,418 (932)
---------------------------
17,365 18,573 20,167
---------------------------
State income tax expense:
Current provision............ 1,222 239 225
Deferred expense (benefit)... 404 249 (67)
---------------------------
1,626 488 158
---------------------------
Total income tax expense:
Current provision............ 15,171 16,394 21,324
Deferred expense (benefit)... 3,820 2,667 (999)
---------------------------
Income taxes................. $18,991 $19,061 $20,325
===========================
50 St.Paul Bancorp, Inc.
A reconciliation from expected federal income tax expense to consolidated
effective income tax expense for the periods indicated is as follows:
Dec. 31
----------------------------------------------------------------
DOLLARS IN THOUSANDS 1994 1993 1992
----------------------------------------------------------------
Statutory federal income tax rate.. 35% 35% 34%
---------------------------
Federal income tax expense at
statutory rate.................... $18,726 $21,157 $19,724
State tax expense, net of
federal tax benefit............... 1,057 317 103
1% change in deferred tax rate..... -- (426) --
Federal income tax refunds......... -- (1,141) --
Other.............................. (792) (846) 498
---------------------------
Income taxes....................... $18,991 $19,061 $20,325
===========================
The sources of the differences in timing between items affecting the
recognition of income and expense for tax and financial statement purposes and
their resulting effect on income tax expense are as follows:
Dec. 31
-----------------------------------------------------------------------
DOLLARS IN THOUSANDS 1994 1993 1992
-----------------------------------------------------------------------
General loan loss allowance................ $ 807 $2,372 $ (393)
Excess of tax accumulated provision for
losses over base year amount.............. (76) (827) (1,779)
Yield adjustments on interest earning
assets and interest bearing liabilities... 1,377 1,129 822
Tax depreciation in excess
of book depreciation...................... 117 (260) (208)
Prepaid expenses........................... 1,440 93 220
Accrued compensation and benefits.......... (109) (147) (194)
Stock dividends on FHLB stock.............. (24) (31) 432
Change in deferred tax rates............... -- 426 --
Other, net................................. 288 (88) 101
--------------------------
Total...................................... $3,820 $2,667 $ (999)
==========================
The following schedule summarizes current income tax liabilities and deferred
income tax assets as of Dec. 31, 1994 and 1993, as restated to conform with tax
returns filed for the respective years.
DOLLARS IN THOUSANDS 1994 1993
------------------------------------------------------------------------
Income tax liabilities and (assets):
Income taxes currently payable
included in "other liabilities"............ $ 2,183 $ 1,506
======================
Deferred income tax assets................... $(20,027) $(20,259)
Deferred income tax liabilities.............. 7,669 9,001
----------------------
Net deferred income tax assets
included in "other assets"............... $(12,358) $(11,258)
======================
The sources of the deferred income tax assets and liabilities are as follows:
DOLLARS IN THOUSANDS 1994 1993
--------------------------------------------------------------------------
General loan loss allowance....................... $(15,238) $(16,045)
Unrealized loss on securities available for sale.. (2,150) --
Yield adjustments on interest earning assets
and interest bearing liabilities................. -- (1,251)
Accrued compensation and benefits................. (1,746) ( 1,665)
Other............................................. (893) (1,298)
----------------------
Total deferred assets............................. (20,027) (20,259)
Depreciation for tax purposes in excess of book... 3,295 3,178
Prepaid expenses.................................. 1,846 406
Stock dividends on FHLB stock..................... 1,280 1,304
Yield adjustments on interest earning assets
and interest bearing liabilities................. 126 --
Unrealized gain on securities available for sale.. -- 2,798
Excess of tax accumulated provision
for losses over base year amount................. -- 76
Other............................................. 1,122 1,239
----------------------
Total deferred liabilities........................ 7,669 9,001
----------------------
Net deferred tax asset............................ $(12,358) $(11,258)
======================
Retained earnings at Dec. 31, 1994 and 1993, included approximately $49.2
million and $51.1 million, respectively, of income for which no deferred federal
income tax liability has been recognized. This amount represents earnings
appropriated to bad debt reserves and deducted for federal income tax purposes
and is not available for payment of cash dividends or other distributions to
stockholders, including distributions on redemption, dissolution, or liquidation
of the Bank, without incurring a tax liability. If triggered, the tax liability
related to the appropriated earnings would have been $18.6 million and $19.3
million at Dec. 31, 1994 and 1993, respectively.
The Company and its subsidiaries file a consolidated federal income tax
return. The intercompany settlement of taxes paid is based on a tax sharing
agreement which generally allocates taxes to each entity based upon a separate
return basis. Subject to certain regulatory limits, the Bank qualifies as a
savings and loan for tax purposes and, accordingly, is allowed a special bad-
debt deduction based upon a percentage of taxable income (presently 8%) or on
specified experience formulas.
NOTE Q
Stockholders' Equity
Holding Company: The Company's Certificate of Incorporation authorizes up to 40
million shares of common stock and up to 10 million shares of preferred stock.
Such preferred may rank prior to the common stock as to dividend rights,
liquidation preferences, or both, and may have full or limited voting rights.
In 1992, the Company's Board of Directors adopted a Shareholders Rights Plan
which is designed to strengthen the Board's ability to act for the stockholders
in the event of an unsolicited bid to acquire control of the Company. Each
outstanding share of common stock currently is attached to one Right under the
Plan. If the Rights become exercisable, each
1994 Annual Report/10-K 51
Right initially would entitle the holder (except the acquiring person or
entity referred to below) to purchase from the Company, 0.7% of a share of
Series A junior participating preferred stock, par value $0.01 per share, at a
price of $80.00, subject to adjustment as provided in the Plan. If a person or
entity becomes a 10% beneficial owner of the Company's common stock (other than
through the acquisition of newly issued shares directly from the Company), each
holder of a Right would be entitled to receive, in lieu of the preferred stock,
at the then-current exercise price of the Right, common stock (or, in certain
circumstances, cash, property, or other securities of the Company) having a
value equal to two times the exercise price.
In general, the Rights become exercisable if another person or entity without
Board approval acquires 10% or more of the Company's outstanding common stock,
makes a tender offer for that amount of stock, or files a regulatory application
for approval of a change in control of the Company. The acquiring person or
entity would not be entitled to exercise the Rights. These Rights expire at the
earliest of Nov. 13, 2002, redemption of the Rights by the Company at a price of
$0.01 per Right, or exchange of the Rights in accordance with the Plan. The
Rights will cause substantial dilution to a person or entity attempting to
acquire the Company without conditioning the offer on the Rights being redeemed
or a substantial number of Rights being acquired.
At Dec. 31, 1994 and 1993, 139,025 and 144,551 shares of preferred stock were
reserved for future exercise of the Rights, respectively.
Dividends and other distributions of St.Paul Bancorp stock are subject to
restrictions agreed upon by the Company in connection with the issuance of $34.5
million of subordinated notes in 1993. Cumulative dividends and other
distributions subsequent to Dec. 31, 1992 are limited to the sum of: (a) $22.0
million plus (b) 75% of the Company's aggregate consolidated net income
subsequent to Dec. 31, 1992, less (c) 100% of the amount of consolidated net
loss incurred by the Company during any fiscal year subsequent to Dec. 31, 1992
plus (d) 100% of the net proceeds received by the Company from any equity
securities issued by the Company (other than to a subsidiary) subsequent to Dec.
31, 1992.
During 1994, the Company repurchased 1,003,925 shares of its outstanding
common stock under two consecutive stock repurchase programs. On Jan. 12, 1995,
the Company announced its intention to continue the current repurchase program
and repurchase up to an additional 236,447 shares of its common stock over the
first six months of 1995 through open market and privately negotiated
transactions.
Bank: New capital standards were imposed on all federally insured depository
institutions as a result of the Financial Institutions Reform, Recovery and
Enforcement Act of 1989. Regulations impose the following capital requirements:
a risk-based capital standard expressed as a percent of risk-adjusted assets, a
leverage ratio of core capital to total adjusted assets, and a tangible capital
ratio expressed as a percent of total adjusted assets. As of Dec. 31, 1994, the
Bank exceeded all regulatory capital requirements.
The following schedule presents the Bank's regulatory capital ratios as of
Dec. 31, 1994.
DOLLARS IN THOUSANDS
-------------------------------------------------------------------
Core Tangible Risk-Based
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 each
of the components of regulatory capital of the Bank at Dec. 31, 1994 and 1993:
1994 1993
-------------------------------------------------------------------
Stockholders' equity of the Company....... $351,397 $347,329
Less: capitalization of the Company's
subsidiaries other than the Bank......... (10,227) (8,393)
Less: capitalization of the Company....... 6,300 12,156
-----------------------
Stockholders' equity of the Bank.......... 347,470 351,092
Plus: unrealized loss on
available for sale securities............ 3,531 --
Less: investment in non-includable
subsidiaries............................. (1,459) (880)
Less: intangible assets................... (1,705) (2,223)
-----------------------
Tangible and core capital................. 347,837 347,989
Plus: allowable general valuation
allowances............................... 28,364 28,366
-----------------------
Risk-based capital........................ $376,201 $376,355
=======================
The payment of dividends from the Bank to the Holding Company is regulated by
the OTS.
NOTE R
Stock Option Plan
The Board of Directors of the Company has a stock option plan (the "Option
Plan") for the benefit of directors, officers, and other key employees of the
Company or its subsidiaries. The Option Plan was approved by the Company's
stockholders at its 1988 annual meeting. Under the original terms of the Option
Plan, 1,770,000 shares of authorized but unissued common stock were reserved for
issuance. At subsequent annual stockholders' meetings, an additional 925,000
shares of authorized but unissued common stock were added to the Option Plan.
The Option Plan authorizes the Stock Option Committee of the Board of
Directors to administer the plan and make recommendations to award stock options
to key officers, directors and employees. Stock options are granted at the
discretion of the Stock Option Committee, with grants generally made
52 St.Paul Bancorp, Inc.
based upon individual performance or promotions. Stock options are granted at an
option price equal to the fair market value of the Company's common stock on the
date of grant and have a 10-year term. The amount of stock option grants
increases according to salary and position within the Company. Options granted
under the Option Plan are exercisable in respect of 50% of the number of shares
on the first anniversary of the date of grant and are exercisable in respect of
an additional 12.5% on each of the second, third, fourth, and fifth
anniversaries of the date of grant, provided that the options are 100%
exercisable for any employee who has completed five years of employment with the
Company. The options also become exercisable upon any merger or consolidation of
the Company in which the Company is not the surviving entity.
The following table sets forth activity relating to the number of shares
covered by stock options:
1994 1993 1992
-----------------------------------------------------------------------
Options outstanding at Jan. 1.... 1,950,338 1,868,925 1,543,425
Granted.......................... 12,000 217,500 526,500
Exercised........................ (101,424) (134,513) (200,325)
Canceled......................... (7,500) (1,574) (675)
------------------------------------
Options outstanding at Dec. 31... 1,853,414 1,950,338 1,868,925
Options exercisable at Dec. 31... 1,763,782 1,814,400 1,737,225
Shares available for future
grant at Dec. 31................ 218,874 48,374 264,300
Weighted average option price
of options exercised during
the year........................ $ 8.51 $ 7.59 $ 6.81
Weighted average option price
of options outstanding
at Dec. 31...................... 9.59 9.47 8.51
====================================
NOTE S
Employee Benefit Plans
Pension Plans: The Bank sponsors a defined benefit pension plan ("the Plan")
covering substantially all employees of the Company. Benefits are based on years
of service and the employee's highest 60 consecutive months of compensation.
Contributions to the Plan are designed to fund current service costs on a
current basis, and to fund over 40 years the liability for benefits arising from
qualifying service prior to Jan. 1, 1976, and to fund subsequent amendments over
30 years.
Additionally, the Bank sponsors supplemental retirement plans ("the
Supplemental Plans"). The Supplemental Plans are non-qualified defined benefit
plans established to provide retirement benefits (as determined by provisions of
the Plans) that cannot be provided from the Plans because of limitations under
Internal Revenue Code Sections 415 and 401(a)(17). The Bank also sponsors a non-
qualifying, defined benefit retirement plan for the Company's directors ("the
Directors' Plan"). Payments due under the Supplemental Plans and the Directors'
Plan are made from the Bank's general assets when due.
Total pension cost for 1994, 1993, and 1992 was $3.6 million, $2.7 million,
and $2.1 million, respectively. Pension expense was comprised of the following
components:
Dec. 31
----------------------------------------------------------------------------
DOLLARS IN THOUSANDS 1994 1993 1992
----------------------------------------------------------------------------
THE PLAN
Service cost benefits earned
during the period............................. $ 1,748 $ 1,399 $ 1,130
Interest cost on projected benefit obligation.. 1,630 1,509 1,310
(Return) loss on plan assets................... 300 (2,125) (1,943)
Net amortization and deferral.................. (1,533) 1,119 1,126
---------------------------
Pension cost................................... $ 2,145 $ 1,902 $ 1,623
===========================
SUPPLEMENTAL PLANS
Service cost benefits earned
during the period............................. $ 344 $ 215 $ 150
Interest cost on projected benefit obligation.. 441 269 186
Net amortization and deferral.................. 321 183 133
---------------------------
Pension cost................................... $ 1,106 $ 667 $ 469
===========================
THE DIRECTORS' PLAN
Service cost benefits earned
during the period............................. $ 127 $ 34 $ 33
Interest cost on projected benefit obligation.. 81 31 7
Net amortization and deferral.................. 144 32 --
---------------------------
Pension cost................................... $ 352 $ 97 $ 40
===========================
TOTAL
Service cost benefits earned
during the period............................. $ 2,219 $ 1,648 $ 1,313
Interest cost on projected benefit obligation.. 2,152 1,809 1,503
(Return) loss on plan assets................... 300 (2,125) (1,943)
Net amortization and deferral.................. (1,068) 1,334 1,259
---------------------------
Total pension cost........................... $ 3,603 $ 2,666 $ 2,132
===========================
1994 Annual Report/10-K 53
The following table sets forth the plans' funded status and amounts recognized
in the Company's Consolidated Statements of Financial Condition at Dec. 31:
DOLLARS IN THOUSANDS 1994 1993
---------------------------------------------------------------------------------------------------------------
Supplemental Directors' Supplemental Directors'
Plan Plans Plan Plan Plans Plan
---------------------------------------------------------------------
Plan assets at fair value............... $15,454 $ -- $ -- $16,797 $ -- $ --
---------------------------------------------------------------------
Accumulated Benefit Obligation (ABO):
Vested................................... $11,109 $ 1,492 $ 1,082 $12,461 $ 1,288 $ 414
Non-vested............................... 1,665 481 28 1,569 459 --
---------------------------------------------------------------------
$12,774 $ 1,973 $ 1,110 $14,030 $ 1,747 $ 414
=====================================================================
Overfunded (unfunded) ABO................ $ 2,680 $(1,973) $(1,110) $ 2,767 $(1,747) $(414)
=====================================================================
Projected benefit obligation (PBO)....... $18,788 $ 5,040 $ 1,110 $22,910 $ 4,108 $ 452
=====================================================================
Unfunded PBO............................. $(3,334) $(5,040) $(1,110) $(6,113) $(4,108) $(452)
=====================================================================
Comprised of:
Accrued pension cost..................... $(1,050) $(2,434) $(1,110) $ (415) $(1,747) $(413)
Unrecognized net gain (loss)............. (3,637) (779) 130 (5,611) (2,264) (113)
Unrecognized prior service costs......... 862 (1,659) (684) (649) (224) (135)
Unrecognized net obligation (asset) at
Jan. 1, 1987, net of amortization....... 491 (168) -- 562 (194) --
---------------------------------------------------------------------
Adjustment required to recognize minimum
liability............................... $ -- $ -- $ 554 $ -- $ 321 $ 209
=====================================================================
The following actuarial assumptions were used in calculating net pension cost
and benefit obligations:
1994 1993 1992
-------------------------------------------------
Discount rate................ 8.50% 7.50% 8.25%
Long-term rate of
return on assets............ 8.50 8.50 8.00
Rate of increase in
future compensation levels.. 5.00 5.50 7.50
-------------------
At Dec. 31, 1994, the Plans' assets consisted of short-term Treasury notes and
bonds, long-term corporate and government bonds, and various equity securities.
Included in the equity securities is $3.1 million of Company stock.
Employee Stock Ownership Plan: The Board of Directors of the Company has adopted
an employee stock ownership plan ("ESOP") designed to invest in the common stock
of the Company for the benefit of employees of the Company. All employees who
have completed at least one year of credited service at the Bank are eligible to
participate in the ESOP. The ESOP is subject to the Employee Retirement Income
Security Act of 1974 and is intended to constitute a qualified stock bonus plan
for income tax purposes.
The ESOP is authorized to borrow money to finance the acquisition of Company
common stock and to pledge the stock acquired to secure payment of the loan. The
Bank does not provide financing for the ESOP. During 1987, the ESOP borrowed
$5.0 million to purchase 750,000 shares of Company common stock. As of Dec. 31,
1994, this loan was paid in full. During 1991, the ESOP obtained a $5.0 million
line of credit, which was increased to $18.0 million in 1993. As of Dec. 31,
1994, $3.9 million of this line of credit was outstanding. Outstanding ESOP
borrowings are guaranteed by the Company and are included in other borrowings
and stockholders' equity in the Consolidated Statements of Condition.
In addition to the acquisition of Company stock through proceeds from
borrowings, the ESOP also purchases additional shares if ESOP contributions are
in excess of debt service requirements.
Leveraged shares of Company stock are held by the ESOP trustee as collateral
on the loan. As the loans are repaid, shares held as collateral are released.
The ESOP loans are being repaid from Bank contributions and dividends on the
unallocated shares of Company stock. Payment of the ESOP loans is guaranteed by
the Company. The ESOP borrowings are also partially secured by marketable-debt
securities owned by St.Paul Bancorp.
Contributions to the ESOP are made at the sole discretion of the Board of
Trustees of the ESOP, but may not exceed 15% of the aggregate compensation of
all participants. Since the inception of the ESOP, contributions have been
sufficient to service the ESOP debt and, in certain years, have allowed the ESOP
to acquire additional shares of Company stock. ESOP expense totaled $281,000,
$846,000, and $1.1 million for 1994, 1993 and 1992, respectively.
54 St.Paul Bancorp, Inc.
The following table presents the ESOP contributions and loan activity.
DOLLARS IN THOUSANDS 1994 1993 1992
-------------------------------------------------------------------------------------------------------
Total contributions to ESOP................................................ $484 $844 $1,075
Less: contributions used to purchase stock................................. -- 170 425
--------------------------
Contributions used to repay loan........................................... 484 674 650
Dividends received on company stock........................................ 164 262 224
--------------------------
Total ESOP loan payments................................................... 648 936 874
Less: interest............................................................. 291 222 160
--------------------------
Amortization on ESOP borrowing............................................. $357 $714 $ 714
==========================
The following table summarizes shares of Company stock held by the ESOP:
Dec. 31 1994 1993 1992
-------------------------------------------------------------------------------------------------------------
Shares allocated to participants........................................... 729,951 710,670 612,875
Unallocated shares:........................................................ 339,999 250,792
Grandfathered under SOP 93-6............................................... 90,078 N/A N/A
Unearned ESOP shares....................................................... 196,350 N/A N/A
--------------------------------
Total...................................................................... 1,016,379 1,050,669 863,667
Fair value of unearned
ESOP shares............................................................... $3,436,125 $ N/A $ N/A
================================
NOTE T
Financial Instruments With Off-Balance Sheet Credit Risk
Loans Sold With Recourse: At Dec. 31, 1994 and 1993, the Bank serviced $94.8
million and $138.6 million, respectively, of multifamily loans sold with
recourse. The Bank's credit exposure with respect to these loans sold with
recourse at Dec. 31, 1994 totaled $26.1 million and was collateralized by $23.7
million of MBS. In comparison, at Dec. 31, 1993 the Bank's credit exposure for
these loans totaled $37.9 million and was collateralized by $36.3 million of MBS
and letters of credit.
The multifamily loans were originated by the Bank based upon its normal
underwriting standards and continue to be serviced and analyzed by the Bank. The
maximum loss related to multifamily loans sold with recourse which would be
recognized by the Bank in the event of complete default by the borrowers and
worthlessness of the collateral at Dec. 31, 1994 and 1993 is $26.1 million and
$37.9 million, respectively. Under the recourse provisions, the Bank generally
repurchases the underlying loans that default.
The following schedule presents the geographical distribution of the real
estate collateral of multifamily loans sold with recourse as of Dec. 31, 1994
and 1993:
DOLLARS IN THOUSANDS 1994 1993
--------------------------------------------------------
Amount % Amount %
California............ .$36,702 38.7% $ 60,885 43.9%
Washington............ 21,156 22.3 36,030 26.0
Minnesota............. 19,266 20.3 19,543 14.1
Illinois.............. 2,079 2.2 2,108 1.5
Other................. 15,575 16.5 20,034 14.5
--------------------------------
$94,778 100.0% $138,600 100.0%
================================
Management evaluates loans sold with recourse in connection with its review of
the adequacy of the general valuation allowance to insure that reserves are
adequate to absorb potential losses on these loans. For further discussion,
which is not included as part of these financial statements, see the "Credit
Risk Management" section in "Management's Discussion and Analysis."
Loan Origination Commitments: At Dec. 31, 1994, the Bank had outstanding loan
commitments to originate 1-4 family, first mortgage loans of $51.2 million and
$9.3 million of commitments to originate multifamily, land and land development
loans. These commitments consisted of adjustable rate loan commitments totaling
$59.3 million and fixed rate loan commitments of $1.2 million. Most of these
commitments expire after 60 days. As of Dec. 31, 1994, the Bank had forward
sales contracts for $684,000 of the $1.2 million of fixed rate loan commitments.
See "Forward Commitments" following.
At Dec. 31, 1993, the Bank had outstanding loan commitments to originate 1-4
family, first mortgage loans of $52.4 million. These commitments consisted of
adjustable rate loan commitments totaling $26.3 million and fixed rate loan
commitments of $26.1 million. Most of these commitments expired after 60 days.
As of Dec. 31, 1993, the Bank had forward sales contracts for $17.5 million of
the $26.1 million of fixed rate loan commitments. See "Forward Commitments"
following.
The Bank enters loan commitments after a determination is made regarding the
borrower's ability to repay the loan and the adequacy of the property as
collateral. Generally, loan commitments are limited to 80% of the collateral
value unless private mortgage insurance is obtained. The Bank attempts to
fulfill loan commitments as long as no violations of conditions established in
the contract occur. Historically, approximately 90% of the loan commitments have
been fulfilled.
Forward Commitments: As of Dec. 31, 1994, the Bank had forward loan sale
commitments of $775,000, including $684,000 of forward contracts on loan
disbursement commitments. As of Dec. 31, 1993, the Bank had forward loan sale
commitments of $38.1 million, including $17.5 million of forward contracts on
loan commitments. All market value losses on forward commitments have been
reflected in the consolidated financial statements.
1994 Annual Report/10-K
55
Unused Credit Lines: The Bank had unused home equity lines of credit of $42.8
million and $33.5 million, respectively, as of Dec. 31, 1994 and 1993. Home
equity lines of credit represent junior mortgages. The Bank applies similar
underwriting standards to equity lines of credit as it does on first mortgage
loans. Home equity lines of credit have fixed expiration dates. Because many of
the line of credit commitments will expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
maximum loss that would be recognized by the Bank as of Dec. 31, 1994 and 1993,
in the event that borrowers used 100% of their outstanding credit limits and,
subsequently, a complete default by the borrowers and worthlessness of
underlying collateral occurred, is $42.8 million and $33.5 million,
respectively.
Letters of Credit: At Dec. 31, 1994 and 1993, the Company had issued $6.5
million and $6.1 million, respectively, of standby letters of credit. The Bank
has issued letters of credits to various counties and villages as a performance
guarantee of land development and improvements and to a commercial bank as
collateral for a loan on a land development project. Most of the letters of
credit at Dec. 31, 1994 and 1993 have been issued on behalf of St.Paul
Financial. The credit risk involved in issuing letters of credit is essentially
the same as that involved in lending. As of Dec. 31, 1994 and 1993, the maximum
loss that would be recognized by the Company in the event of a complete default
by the creditors and worthlessness of the underlying collateral was $6.5 million
and $6.1 million, respectively.
Management evaluates letters of credit in connection with its review of the
adequacy of the general valuation allowance to insure that reserves are adequate
to absorb potential losses on these guarantees. For further discussion, which is
not included as part of these financial statements, see the "Credit Risk
Management" section in "Management's Discussion and Analysis."
Guarantees of Indebtedness of Others: In connection with the Elm Financial
acquisition, the Bank has assumed two agreements to guarantee the repayment of
$4.9 million of principal and related interest on municipal revenue bonds. These
bonds are secured by multifamily real estate.
As of Dec. 31, 1994, MBS and U.S. Treasury securities with carrying values of
$3.7 million and $3.0 million, respectively, and fair values of $3.6 million and
$3.0 million were pledged as collateral on the guarantees. As of December 31,
1993, MBS and U.S. Treasury securities with carrying values of $5.6 million and
$3.0 million, respectively, and fair values of $5.7 million and $3.0 million
were pledged as collateral on the guarantees. The Bank does not own any of the
bonds, nor have there have been any defaults on the bonds.
As of Dec. 31, 1994 and 1993, the maximum loss that would be recognized by the
Company in the event of a complete default by the creditors and worthlessness of
the underlying collateral was $5.1 million.
Management evaluates the guarantees of indebtedness of other in connection
with its review of the adequacy of the general valuation allowance to insure
that reserves are adequate to absorb potential losses on these guarantees. For
further discussion, which is not included as part of these financial statements,
see the "Credit Risk Management" section in "Management's Discussion and
Analysis."
Interest Rate Exchange Agreements: The Bank used interest rate exchange
agreements in 1994 and 1993 to help reduce certain interest rate exposures. At
Dec. 31, 1994 and 1993, the Bank had $147.8 million and $30.0 million,
respectively, in notional amount interest rate exchange agreements outstanding
on which the Bank pays a fixed interest rate and receives a floating interest
rate, based on a referenced index, from the counterparty. These exchange
agreements are held for purposes other than trading. The Bank minimized credit
and market risk by receiving an unconditional guarantee from the parent company
of the counterparty.
The following table provides a rollforward of the notional amount of interest
rate exchange agreements:
DOLLARS IN THOUSANDS 1994 1993
---------------------------------------------------
Balance at beginning of year $ 30,000 $ 50,000
Additions..................... 134,311 -
Maturities.................... (12,500) (20,000)
Amortization.................. (4,032) -
-------------------
Balance at year-end........... $147,779 $ 30,000
===================
The following table presents a summary of interest rate exchange agreements at
Dec. 31, 1994 (dollars in thousands):
Original Current Fixed
Notional Notional Payment
Amount Amount Rate Variable Receipt Rate Maturity Date Purpose
------------------------------------------------------------------------------------------------------------------------------
$ 10,000 $ 10,000 7.03% 11th District cost of funds (4.19%) 11/08/95 Hedge general deposit portfolio
7,500 7,500 7.32% 11th District cost of funds (4.19%) 11/08/96 Hedge general deposit portfolio
50,526* 49,464 6.34% 6 month LIBOR (7%) 03/24/99 Hedge matched funding used to acquire MBS
49,100* 47,250 6.63% 6 month LIBOR (7%) 03/24/99 Hedge matched funding used to acquire MBS
34,685* 33,565 6.54% 6 month LIBOR (7%) 04/01/99 Hedge matched funding used to acquire MBS
---------------------
$151,811 $147,779
=====================
* NOTIONAL AMOUNT AMORTIZES SEMI-ANNUALLY.
Included in interest expense in 1994 was $3.1 million of expense on interest
rate exchange agreements. In comparison, only $1.2 million of interest expense
was incurred in 1993 on interest rate exchange agreements.
56 St.Paul Bancorp, Inc.
NOTE U
Legal Proceedings
Although the Bank is a defendant in various legal proceedings arising in the
ordinary course of its business, there are no legal proceedings which, in the
opinion of counsel, may result in a material loss to the Bank.
NOTE V
Concentration of Credit Risk
By law, savings institutions are required to concentrate their lending
primarily in loans secured by residential real estate. For single family
mortgage loans, the Bank generally requires borrowers to obtain mortgage
insurance on the portion of the loan that exceeds 80% of the appraised value of
the real estate. The Bank does not fund single family mortgage loans that exceed
95% of the appraised value of the real estate collateral. For multifamily real
estate loans, the Bank's original underwriting procedures require loan-to-value
ratios ranging from 25% to 86%, with average loan-to-value ratios of 72% at the
time of origination.
Although most of the loans are secured by first mortgages, the Bank also
carries some junior mortgages in its portfolios. Consumer loans are secured by
savings accounts maintained at the Bank, automobiles, or contain guarantees of
the federal government.
The following schedule presents the geographical distribution of the Bank's
collateral on real estate loans as of Dec. 31, 1994 and 1993:
DOLLARS IN THOUSANDS 1994
-----------------------------------------------------------------------------------------
1-4 All Other
Family Real Real Estate
Estate Loans Loans Total
---------------------------------------------------------------------
Amount % Amount % Amount %
California......... $ 68,304 4.5% $ 575,026 54.2% $ 643,330 24.9%
Colorado........... 357 0.1 36,994 3.5 37,351 1.4
Florida............ 1,676 0.1 18,030 1.7 19,706 0.8
Illinois........... 1,174,977 77.0 118,418 11.2 1,293,395 50.0
Indiana............ 80,086 5.2 7,929 0.7 88,015 3.4
Maryland........... -- -- 21,828 2.1 21,828 0.8
Michigan........... 22,288 1.4 18,952 1.8 41,240 1.6
Minnesota.......... 16,128 1.1 23,627 2.2 39,755 1.5
Nevada............. -- -- 23,000 2.2 23,000 0.9
Ohio............... 52,181 3.4 1,256 0.1 53,437 2.1
Washington......... -- -- 103,727 9.8 103,727 4.0
Wisconsin.......... 95,379 6.3 32,105 3.0 127,484 4.9
Other.............. 15,427 0.9 79,438 7.5 94,865 3.7
----------------------------------------------------------------------
Total.............. $1,526,803 100.0% $1,060,330 100.0% $2,587,133 100.0%
======================================================================
DOLLARS IN THOUSANDS 1993
------------------------------------------------------------------------------------------
1-4 All Other
Family Real Real Estate
Estate Loans Loans Total
-----------------------------------------------------------------------
Amount % Amount % Amount %
California........ $ 86,175 7.3% $ 662,270 57.7% $ 748,445 32.1%
Colorado.......... 377 0.1 53,423 4.7 53,800 2.3
Florida........... 2,086 0.2 20,807 1.8 22,893 1.0
Illinois.......... 978,607 82.4 91,128 7.9 1,069,735 45.8
Indiana........... 11,501 0.9 8,040 0.7 19,541 0.8
Maryland.......... -- -- 22,153 1.9 22,153 0.9
Michigan.......... 6,798 0.6 19,504 1.7 26,302 1.1
Minnesota......... 478 0.1 23,761 2.1 24,239 1.0
Nevada............ -- -- 23,295 2.0 23,295 1.0
Ohio.............. 10,817 0.9 1,269 0.1 12,086 0.5
Washington........ -- -- 95,788 8.3 95,788 4.1
Wisconsin......... 70,362 5.9 43,507 3.8 113,869 4.9
Other............. 20,009 1.6 82,923 7.3 102,932 4.5
---------------------------------------------------------------------
Total............. $1,187,210 100.0% $1,147,868 100.0% $2,335,078 100.0%
=====================================================================
See "Note T--Financial Instruments With Off-Balance Sheet Credit Risk" for
geographical concentration of loans sold with recourse.
1994 Annual Report/10-K 57
NOTE W
Parent Company Only Financial Information
STATEMENTS OF FINANCIAL CONDITION
Dec. 31
---------------------------------------------------------------------------------
DOLLARS IN THOUSANDS 1994 1993
---------------------------------------------------------------------------------
ASSETS:
Cash and cash equivalents................................ $ 21,109 $ 17,628
Marketable-debt securities............................... 979 989
Investment in St.Paul Federal Bank....................... 347,470 351,092
Investment in other subsidiaries......................... 10,227 8,394
Advances to other subsidiaries........................... 11,375 7,200
Prepaid expenses and other assets........................ 20 57
--------------------
Total assets............................................. $391,180 $385,360
====================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Borrowings by employee stock ownership plan.............. $ 3,883 $ 4,240
Other borrowings......................................... 33,504 33,357
Other liabilities........................................ 2,396 434
-------------------
Total liabilities........................................ 39,783 38,031
Preferred stock......................................... -- --
Common stock............................................. 198 197
Paid-in capital.......................................... 138,039 136,609
Retained income.......................................... 238,929 210,215
Unrealized gain (loss) on securities, net of taxes....... (3,531) 4,594
Pension adjustment, net of taxes......................... -- (46)
Borrowings by employee stock ownership plan.............. (1,000) (4,240)
Unearned employee stock ownership plan shares............ (2,883) --
Treasury stock........................................... (18,355) --
-------------------
Total stockholders' equity............................... 351,397 347,329
-------------------
Total liabilities and stockholders' equity............... $391,180 $385,360
===================
STATEMENTS OF OPERATIONS
Dec. 31
------------------------------------------------------------------------------------------------
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 1994 1993 1992
------------------------------------------------------------------------------------------------
Equity in earnings of
St.Paul Federal Bank................................. $ 34,076 $ 41,798 $ 36,561
Equity in earnings of other subsidiaries................. 1,759 975 1,442
St.Paul Bancorp loss..................................... (1,323) (1,386) (318)
--------------------------------
Net income............................................... $ 34,512 $ 41,387 $ 37,685
================================
Earnings per share:
Primary.............................................. $ 1.70 $ 2.03 $ 2.00
Fully diluted........................................ 1.70 2.03 1.98
================================
STATEMENTS OF CASH FLOWS
Dec. 31
----------------------------------------------------------------------------------------------
DOLLARS IN THOUSANDS 1994 1993 1992
----------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income.............................................. $ 34,512 $ 41,387 $ 37,685
Earnings of St.Paul Federal Bank
not providing cash................................... (34,076) (41,798) (36,561)
Earnings of other subsidiaries
not providing cash................................... (1,759) (975) (1,442)
Other sources, net....................................... 1,651 77 316
--------------------------------
Net cash provided (used) in
operating activities.................................... 328 (1,309) (2)
INVESTING ACTIVITIES:
Maturities of marketable-debt securities................. 1,000 13,250 --
Purchase of marketable-debt securities................... (950) (14,062) (1,774)
Dividends received from
St.Paul Federal Bank................................. 30,125 25,910 5,000
Dividends received from
other subsidiaries................................... 1,000 300 1,350
Acquisition of Elm Financial............................. -- (26,104) --
Investments in St.Paul Federal Bank...................... (50) -- --
Investments in other subsidiaries........................ (1,075) (9,720) --
Advances made to other subsidiaries...................... (4,175) (7,200) 50
--------------------------------
Net cash provided (used) by
investing activities................................. 25,875 (17,626) 4,626
FINANCING ACTIVITIES:
Purchase of treasury stock............................... (18,355) -- --
Dividends paid........................................... (5,798) (5,148) (4,835)
Net proceeds from issuance of
subordinated notes................................... -- 33,422 --
Net proceeds from issuance of stock...................... 1,431 1,021 1,362
--------------------------------
Net cash provided (used) by
financing activities................................. (22,722) 29,295 (3,473)
--------------------------------
Total cash provided...................................... 3,481 10,360 1,151
Cash and cash equivalents
at beginning of year................................. 17,628 7,268 6,117
-------------------------------
Cash and cash equivalents
at end of year....................................... $ 21,109 $ 17,628 $ 7,268
================================
The parent company's current primary activity is that of a unitary,
nondiversified savings and loan holding company.
58 St.Paul Bancorp, Inc.
NOTE X
Fair Value of Financial Instruments
The following table presents the carrying amount and fair values of the
Company's financial instruments at Dec. 31, 1994 and 1993. SFAS No. 107,
Disclosures about Fair Value of Financial Instruments, defines the fair value of
a financial instrument as the amount at which the instrument could be exchanged
in a current transaction between willing parties, other than in a forced or
liquidation sale.
DOLLARS IN THOUSANDS 1994 1993
--------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
Cash and cash equivalents....................... $ 159,948 $ 159,948 $ 336,331 $ 336,331
Marketable-debt securities:
Available for sale............................. 29,387 29,387 101,805 101,805
Held to maturity............................... 70,256 66,386 40,246 41,071
------------------------------------------------
99,643 95,773 142,051 142,876
Mortgage-backed securities:
Available for sale............................. 129,240 129,240 191,356 191,356
Held to maturity............................... 997,377 937,553 542,293 541,958
------------------------------------------------
1,126,617 1,066,793 733,649 733,314
Loans receivable:
1-4 family units............................... 1,526,803 1,462,471 1,187,210 1,224,414
Multifamily units.............................. 996,123 983,979 1,064,467 1,085,118
Commercial..................................... 63,983 59,596 73,094 70,871
Land and land development...................... 224 224 10,307 10,307
Consumer loans................................. 22,950 21,590 19,572 19,572
Loans held for sale............................ 10,155 10,157 28,497 28,616
Net deferred costs and (fees).................. 494 -- (3,757) --
Allowance for loan losses...................... (42,196) -- (46,574) --
------------------------------------------------
2,578,536 2,538,017 2,332,816 2,438,898
Accrued interest receivable..................... 23,467 23,467 20,247 20,247
FHLB stock...................................... 29,847 29,847 31,290 31,290
Other financial assets.......................... 767 5,859 1,348 1,348
------------------------------------------------
Total financial assets.......................... $4,018,825 $3,919,704 $3,597,732 $3,704,304
================================================
Deposits:
Core accounts with no stated maturity........... $1,411,393 $1,411,393 $1,489,106 $1,489,106
Certificates of deposit......................... 1,821,510 1,814,219 1,763,512 1,784,205
------------------------------------------------
3,232,903 3,225,612 3,252,618 3,273,311
Borrowings:
FHLB advances................................... 336,959 334,407 7,219 7,699
Securities sold under agreements to repurchase.. 100,000 98,521 -- --
Subordinated notes.............................. 33,504 32,666 33,357 34,024
Mortgage-backed notes........................... 16,400 16,270 16,392 18,276
St.Paul Bancorp employee stock ownership plan... 3,883 3,883 4,240 4,240
Mortgage loan................................... 905 905 1,520 1,520
------------------------------------------------
491,651 486,652 62,728 65,759
Accrued interest payable........................ 10,442 10,442 3,732 3,732
Other financial liabilities..................... -- 647 -- 2,020
------------------------------------------------
Total financial liabilities..................... $3,734,996 $3,723,353 $3,319,078 $3,344,822
================================================
1994 Annual Report/10-K 59
The following are the major methods and assumptions used in estimating the
fair value of financial instruments.
Cash and cash equivalents: The fair value of cash and amounts due from
depository institutions approximates their carrying amount. The fair value of
short-term investments was determined based on bid prices published in financial
newspapers or bid quotations received from securities dealers.
Marketable-debt securities: The fair value of marketable-debt securities was
determined based on bid prices published in financial newspapers or bid
quotations received from securities dealers.
Mortgage-backed securities: The fair value of MBS was determined based on bid
quotations received from securities dealers.
Loans receivable: The fair value of 1-4 family mortgages was based upon quotes
received from the secondary market, and in certain instances, future cash flows
discounted at a rate that reflects an estimate of current market rates for the
underlying mortgage loans.
The fair value of multifamily, commercial real estate, land and consumer loans
was calculated based on an estimate of the timing of future cash flows,
discounted at a rate that reflects an estimate of current market rates for these
types of loans. The discount rate for the Bank's classified loans was adjusted
for the inherent credit risk in those assets. The estimate of the timing of cash
flows was based on the same prepayment assumptions used for regulatory interest
rate risk reporting. Most of the Bank's multifamily and commercial real estate
and land loans are adjustable rate mortgages, and currently benefit from rate
floors above existing market rates.
Accrued interest receivable: The carrying amount of accrued interest receivable
is a reasonable estimate of its fair value because its maturity is short-term
and potentially uncollectible amounts have been reserved.
Federal Home Loan Bank stock: The fair value of FHLB stock equals its book value
because the shares can be resold to the FHLB or other member banks at its par
value of $100 per share.
Deposits: The fair value of deposits with no stated maturity, such as savings,
checking, and money market accounts, is considered to be equal to the amount
payable on demand. The fair value of certificates of deposit was computed as the
present value of future cash outflows, based on contractual maturities,
discounted at rates equivalent to those offered by the Bank at Dec. 31, 1994 and
1993 for certificates of deposit with similar maturities.
Borrowings: The fair value of FHLB advances was determined based upon a
discounted cash flow analysis using a discount rate commensurate with rates
currently offered by the FHLB for similar remaining maturities. The fair value
of the repurchase agreements, subordinated notes and the mortgage-backed note
was based upon quotes received from securities dealers. The fair values of the
ESOP borrowing and mortgage loan approximate their carrying amount because the
borrowings reprice frequently at market interest rates.
Accrued interest payable: The carrying amount of accrued interest payable is a
reasonable estimate of its fair value because its maturity is short-term.
Other financial assets and liabilities: Other financial assets and liabilities
include the excess servicing fee receivable, loan origination and sales
commitments, letters of credit and other credit related guarantees, recourse
provisions on loans sold with recourse and interest rate exchange agreements.
The fair value of excess servicing fee receivable was determined based upon
the present value of anticipated loan servicing cash flows, discounted at a
market rate of interest for assets with similar risk.
The fair value of commitments to originate mortgage loans was estimated using
the fees currently charged to enter into similar agreements, taking into account
the remaining terms of the agreements and the present creditworthiness of the
borrowers. For fixed rate loan commitments, fair value also considers the
difference between current interest rates and the committed rates.
The fair value of forward loan sale commitments represents the loss the Bank
would incur to enter into an offsetting agreement and was determined from quotes
received from securities dealers.
The fair value of the letters of credit and the guarantee of indebtedness of
others represents the amount the Company would have to pay a third party to
assume the related liability.
It is not practicable to estimate the fair value of the Company's liability
with respect to loans sold with recourse because of the significance of the cost
to obtain external quotes. The fair value of the liability for loans sold with
recourse would represent the amount the Bank would have to pay a third party to
assume the recourse obligation.
The fair value of interest rate exchange agreements was obtained from a dealer
quote and represents the estimated amount the Bank would receive or pay to
terminate the contract, taking into account current interest rates and the
creditworthiness of the counterparties.
60 St.Paul Bancorp, Inc.
NOTE Y
Acquisition of Elm Financial
On Feb. 23, 1993, the Company acquired ("the Acquisition") Elm Financial
Services, Inc. ("Elm Financial"). The operations of Elm Financial are included
in the Company's "Consolidated Statements of Income" from the acquisition date
and reflect the application of the purchase method of accounting. Under this
method of accounting, the aggregate cost to the Company of the Acquisition was
allocated to the assets acquired and liabilities assumed, based on their
estimated fair values as of Feb. 23, 1993. No goodwill was recorded by the Bank
in connection with the Acquisition. The cost to the Company for the Acquisition
was $48.2 million, which included the payment of cash and the issuance of
1,292,313 shares of the Company's common stock. The following schedule details
the net effect during 1993 of the Acquisition on cash and cash equivalents:
DOLLARS IN THOUSANDS
-----------------------------------------------------
Purchase price.............................. $48,194
Less: issuance of St.Paul stock............. 19,766
Less: Elm stock acquired in 1992............ 1,771
-------
Cash paid for acquisition................... 26,657
Cash and cash equivalents acquired.......... 11,002
-------
Acquisition of Elm Financial,
net of cash and cash equivalents acquired.. $15,655
=======
The "Unaudited Pro Forma Combined Statements of Income" presented below report
the combined results of operations of the Company and Elm Financial for the year
ended Dec. 31, 1993 and 1992 as if the Acquisition had been effective on Jan. 1,
1993 and Jan. 1, 1992, respectively, after giving effect to the purchase
accounting adjustments.
The "Unaudited Pro Forma Condensed Combined Statements of Income" are intended
for informational purposes and are not necessarily indicative of the future
results of operations of the combined company, or results of operations of the
combined company that would have actually occurred had the Acquisition been
consummated as of the periods presented.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
Year Ended Dec. 31
----------------------------------------------------------------------------------
DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 1993 1992
----------------------------------------------------------------------------------
Interest income.............................................. $260,895 $308,065
Interest expense............................................. 134,828 182,028
------------------
Net interest income.......................................... 126,067 126,037
Provision for loan losses.................................... 11,176 10,865
------------------
Net interest income after provision for loan losses.......... 114,891 115,172
Other income................................................. 32,255 29,277
Other expense................................................ 83,942 79,431
Loss on foreclosed real estate............................... 2,516 1,316
------------------
Pre-tax income............................................... 60,688 63,702
Income taxes................................................. 19,149 22,378
------------------
Net income................................................... $ 41,539 $ 41,324
==================
Earnings per share:
Primary..................................................... $ 2.02 $ 2.05
Fully diluted............................................... 2.01 2.04
==================
1994 Annual Report/10-K 61
NOTE Z
Selected Quarterly Information (Unaudited)
INCOME STATEMENT
For the Quarters Ended
-----------------------------------------------------------------------------------------------------------------------------------
Dec. 31 Sept. 30 June 30 March 31
-----------------------------------------------------------------------------------------------------------------------------------
DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS 1994 1993 1994 1993 1994 1993 1994 1993
-----------------------------------------------------------------------------------------------------------------------------------
Interest income............ $67,445 $60,588 $64,778 $63,985 $61,891 $67,345 $59,148 $65,019
Interest expense........... 37,557 31,109 35,068 33,067 32,814 34,490 29,630 34,316
---------------------------------------------------------------------------------------------------
Net interest income........ 29,888 29,479 29,710 30,918 29,077 32,855 29,518 30,703
Provision for loan losses.. 1,250 1,500 1,200 2,500 750 2,750 1,950 4,000
Net gain on assets sold.... 30 776 24 464 81 745 389 165
Other income............... 7,662 8,469 7,441 8,235 7,206 7,274 6,938 6,378
G&A expense................ 22,251 21,964 21,749 20,913 21,378 20,790 21,788 19,080
Loss on foreclosed real
estate.................... (557) (1,527) (347) (318) (781) (344) (460) (327)
---------------------------------------------------------------------------------------------------
Income before income taxes. 13,522 13,733 13,879 15,886 13,455 16,990 12,647 13,839
Income taxes............... 4,840 4,216 4,867 4,781 4,835 5,468 4,449 4,596
---------------------------------------------------------------------------------------------------
Net income................. $ 8,682 $ 9,517 $ 9,012 $11,105 $ 8,620 $11,522 $ 8,198 $ 9,243
===================================================================================================
Earnings per share:
Primary................... $ 0.44 $ 0.46 $ 0.44 $ 0.54 $ 0.42 $ 0.56 $ 0.40 $ 0.47
Fully diluted............. 0.44 0.46 0.44 0.54 0.42 0.56 0.40 0.47
---------------------------------------------------------------------------------------------------
Cash dividends per share... $ 0.075 $ 0.067 $ 0.075 $ 0.067 $ 0.075 $ 0.067 $ 0.075 $ 0.067
===================================================================================================
AVERAGE BALANCE SHEET
For the Quarters Ended
-----------------------------------------------------------------------------------------------------------------------------------
Dec. 31 Sept. 30 June 30 March 31
-----------------------------------------------------------------------------------------------------------------------------------
DOLLARS IN THOUSANDS 1994 1993 1994 1993 1994 1993 1994 1993
-----------------------------------------------------------------------------------------------------------------------------------
Total assets............... $4,071,082 $3,722,444 $4,007,582 $3,779,587 $3,913,017 $3,843,479 $3,706,939 $3,648,523
MBS........................ 1,152,331 663,115 1,198,922 667,737 1,142,855 684,759 749,756 643,388
Loans receivable........... 2,577,753 2,411,138 2,463,666 2,472,817 2,349,659 2,517,015 2,349,415 2,424,819
Deposits................... 3,185,541 3,240,690 3,192,934 3,258,708 3,218,816 3,284,393 3,235,814 3,092,843
Borrowings................. 478,299 88,497 404,172 125,649 285,297 174,565 63,832 197,342
Stockholders' equity....... 357,134 340,570 357,890 330,790 352,945 321,889 352,670 301,108
One year GAP to total
assets.................... 4.40% 16.79% 9.19% 15.06% 12.92% 19.38% 15.90% 16.64%
======================================================================================================
NOTE AA
Supplemental Cash Flow Disclosures
DOLLARS IN THOUSANDS 1994 1993 1992
-------------------------------------------------------------------
Interest credited on deposits........ $100,584 $108,832 $132,100
Interest paid on deposits............ 10,742 11,336 14,371
----------------------------
Total interest paid on deposits...... $111,326 $120,168 $146,471
============================
Interest paid on borrowings.......... $ 17,578 $ 11,232 $ 21,345
Income taxes paid, net............... 13,925 17,141 22,247
Common stock issued in acquisition
of Elm Financial.................... -- 19,766 --
Real estate acquired
through foreclosure................. 21,219 42,770 36,494
Loans originated in connection with
real estate acquired
through foreclosure................. 11,361 26,491 34,581
62 St.Paul Bancorp, Inc.
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
St.Paul Bancorp, Inc.
We have audited the accompanying consolidated statements of financial condition
of St.Paul Bancorp, Inc. as of December 31, 1994 and 1993, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of St.Paul Bancorp,
Inc. at December 31, 1994 and 1993, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.
As disclosed in Note A, the Company changed its method of accounting for
investment securities at December 31, 1993.
Ernst & Young LLP
Chicago, Illinois
January 20, 1995
1994 Annual Report/10-K 63
ANNUAL REPORT ON FORM 10-K
Securities and Exchange Commission
Washington, D.C. 20549
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended Dec. 31, 1994.
Commission File Number 0-15580
ST.PAUL BANCORP, INC.
Incorporated in the State of Delaware
IRS Employer Identification #36-3504665
Address: 6700 West North Avenue
Chicago, Illinois 60635
Telephone: (312) 622-5000
Securities registered pursuant to Section 12(g) of the Act: Common Stock, Par
Value $0.01; Preferred Stock Purchase Rights.
As of Jan. 31, 1995, St.Paul Bancorp, Inc. had 18,561,067 shares of common
stock outstanding. The aggregate market value of common stock held by non-
affiliates as of Jan. 31, 1995, was $357,669,572. (1)
St.Paul Bancorp, Inc. has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months and has been subject to such filing requirements for the past 90 days.
No disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
is contained in the Company's definitive proxy statement incorporated by
reference herein.
This Annual Report and Form 10-K incorporates into a single document the
requirements of the accounting profession and the Securities and Exchange
Commission. Only those sections of the Annual Report referenced in the
following cross-reference index are incorporated in the Form 10-K.
(1) SOLELY FOR THE PURPOSE OF THIS CALCULATION, ALL EXECUTIVE OFFICERS AND
DIRECTORS OF THE REGISTRANT ARE CONSIDERED TO BE AFFILIATED. ALSO INCLUDED ARE
THE SHARES HELD BY VARIOUS EMPLOYEE BENEFIT PLANS WHERE TRUSTEES ARE DIRECTORS
OF ST.PAUL BANCORP, INC.
Cross-Reference Page
----------------------------------------------------------------------------
PART I
Item 1 Business
General.............................................15, 40, 65-66
Distribution of Assets, Liabilities
and Stockholder's Equity;
Interest Rates and Interest Differential....................21-22
Investment Portfolio....................................35, 43-44
Loan Portfolio.............................28, 32, 35, 41, 45, 57
Summary of Loan Loss Experience.........................31-32, 41
Deposits...............................................21, 34, 48
Return on Equity and Assets....................................14
Short-Term Borrowings.......................................49-50
Item 2 Properties.....................................................65
Item 3 Legal Proceedings............................................none
Item 4 Submission of Matters to a Vote of Security Holders..........none
PART II
Item 5 Market for the Registrant's Common Equity and Related
Stockholder Matters...............17-18, 20, 30, 51-52, 64-66, 70
Item 6 Selected Financial Data........................................14
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................15-35
Item 8 Financial Statements and Supplemental Data..................36-63
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures.........................none
PART III
Item 10 Directors and Executive Officers of the Registrant..........68, *
Item 11 Executive Compensation..........................................*
Item 12 Security Ownership of Certain Beneficial Owners
and Management..................................................*
Item 13 Certain Relationships and Related Transactions..................*
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports
on Form 8-K....................................................67
*ST.PAUL BANCORP'S DEFINITIVE PROXY STATEMENT FOR THE 1995 ANNUAL MEETING OF
SHAREHOLDERS IS INCORPORATED HEREIN BY REFERENCE, OTHER THAN THE SECTIONS
ENTITLED "REPORT OF THE ORGANIZATIONAL PLANNING AND STOCK OPTION COMMITTEES ON
EXECUTIVE COMPENSATION" AND "COMPARATIVE PERFORMANCE GRAPH."
64 St.Paul Bancorp, Inc.
COMPETITION
St.Paul Federal experiences substantial competition in attracting and
retaining deposit accounts, in making mortgage and other loans and in selling
investment products. Competition for deposit accounts comes primarily from other
federally insured financial institutions, such as other savings institutions,
commercial banks and credit unions, money market funds and other investment
alternatives. Competition for origination of loan products comes primarily from
mortgage brokers, other savings institutions, mortgage banking firms, commercial
banks, insurance companies and finance companies. Competition for investment
products sales comes primarily from other brokerage operations, insurance
companies and mutual funds. Many of St.Paul's competitors are unregulated and
are not subject to the same restrictions as the Bank.
St.Paul Federal's market area is experiencing increased competition from the
acquisition of local financial institutions by out-of-state commercial banking
and savings institutions.
PROPERTIES
All of the office properties and most of the equipment appearing in the
Consolidated Statements of Financial Condition and "Note L - Office Properties
and Equipment" are owned by the Bank. As of Dec. 31, 1994, the Bank had 52
banking offices located throughout the greater Chicago metropolitan area.
Seventeen of the branches were located in Omni(R) and Cub(R) food stores in the
Chicago area. All branch locations, except for three drive-up facilities, are
full-service offices that provide a full range of banking services. Of the 52
banking offices, 27 were owned and 25 were leased. Also, the Bank owned five
administrative buildings and leases administrative office space in an office
complex near the Bank's home office. At Dec. 31, 1994, the aggregate net book
value of St.Paul Federal's banking and administrative offices owned and the
leasehold improvements at the offices leased was $30.5 million. Management
believes that all of these properties are in good condition.
In addition to its land, buildings and leasehold improvements, the Bank had an
aggregate net investment in equipment of $13.5 million at Dec. 31, 1994.
Included in the equipment owned by the Bank are mainframe, hardware, teller
platforms, desktop computers, ATMs and furnishings.
REGULATION
The Company, as a savings and loan holding company, and the Bank, as a
federally chartered savings bank, are subject to regulation, supervision and
examination by the Office of Thrift Supervision ("OTS") as their primary federal
regulator. The Bank also is subject to regulation, supervision and examination
by the Federal Deposit Insurance Corporation ("FDIC"), and as to certain matters
by the Board of Governors of the Federal Reserve System.
Federal deposit insurance is required for all federally chartered savings
institutions such as the Bank. The Bank's deposits are insured to applicable
limits by the Savings Association Insurance Fund ("SAIF"), as administered by
the FDIC. National and state-chartered banks generally are insured by the Bank
Insurance Fund ("BIF"), also administered by the FDIC. The FDIC sets the annual
rates for insurance premiums, which currently are between 0.23% and 0.31% of
deposits (based on an institution's supervisory evaluations and capital level)
for both the SAIF and the BIF. The FDIC, however, has proposed reducing BIF
premiums to as low as 0.04% of deposits for the healthiest rated banks. Because
SAIF premiums may be unaffected by the FDIC proposal, SAIF insured institutions
like the Bank could be at a competitive disadvantage to BIF insured institutions
if the FDIC proposal is promulgated as proposed.
As a FDIC-insured institution and a federal savings bank, the Bank is required
to maintain specified levels of minimum capital, including: (i) "core capital"
in an amount not less than 3% of total assets, (ii) "tangible capital" in an
amount not less that 1.5% of total assets, and (iii) "risk-based" capital not
less than 8.0% of risk-weighted assets. During 1994, the federal bank regulatory
agencies revised the method for calculating risk-based capital such that the
Bank now must identify the concentration of credit risk and the risks arising
from nontraditional activities, as well as the Bank's ability to manage such
risks. Furthermore, the OTS revised its risk-based capital requirement to
implement a standard of actual performance and expected risk of loss of
multifamily mortgages as well as a calculation for intangible assets, including
purchased mortgage servicing rights and purchased credit card relationships.
These changes had no significant impact on the Bank's required regulatory
capital.
During 1994, the OTS implemented a final rule for calculating an interest rate
risk component of capital. Under the final rule, savings institutions with
"above normal" interest rate risk exposure are subject to a deduction from total
capital for purposes of calculating their risk-based capital requirements. A
savings institution's interest rate risk is measured by the decline in the net
portfolio value of its assets (i.e., the difference between incoming and
outgoing discounted cash flows from assets, liabilities and off-balance sheet
contracts) that would result from a hypothetical 200 basis point increase or
decrease in market interest rates (except when the three-month Treasury bond
equivalent yield falls below 4%, then the decrease will be equal to one-half of
that Treasury rate) divided by the estimated economic value of the association's
assets. That dollar amount is deducted from the institution's total capital in
calculating risk-based capital. At Dec. 31, 1994, the Bank was not required to
deduct any amount from capital as a result of interest rate risk exposure.
1994 Annual Report/10-K 65
The OTS also has proposed to increase the minimum required core capital ratio
from the current 3% level to a range of 4% to 5% for all but the most highly
rated financial institutions. While the OTS has not taken final action on such
proposal, it has adopted a prompt corrective action ("PCA") regulation that
classifies any savings institution with a core capital ratio of less than 4% (3%
for the most highly rated institutions) as "undercapitalized." At Dec. 31, 1994,
the Bank met the requirements for a "well capitalized" institution. See "Note Q
-- Stockholders' Equity" for a summary of regulatory capital position at Dec.
31, 1994.
The OTS currently imposes limitations on all capital distributions by savings
institutions, including dividends, stock repurchases and cash-out mergers. Under
the current rule, institutions are grouped into three classifications depending
upon their level of regulatory capital both before and after giving effect to a
proposed capital distribution. Under a proposed rule, the OTS would conform the
three classifications to the five capital classifications set forth under the
PCA regulations. Under the OTS proposal, a savings institution which is a
subsidiary of a holding company (such as the Bank) could make a capital
distribution following notice to the OTS if, after the capital distribution, the
institution would remain at least "adequately capitalized" under the PCA
regulations. In making the proposal, the OTS stated that it intends to use net
income to date during the calendar year plus 50% of surplus capital above the
adequately capitalized level as the general rule of thumb for determining the
permissible amount of a capital distribution. In recent quarters, the Bank
generally has paid dividends of 50% of net income to the Company.
During 1994, certain legislation was enacted that could affect the operations
of the Bank and Company. Among other things, the Community Development Banking
and Financial Institutions Act (the "CDB Act") requires the federal banking
agencies to streamline and harmonize regulatory, reporting and examination
requirements, expedite the processing of regulatory applications and reduce
regulatory burdens with respect to the operations of financial institutions and
the protection of the deposit insurance funds. The CDB Act also requires that
regulations which impose additional reporting, disclosure or other new
requirements must become effective only on the first day of a calendar quarter.
Also enacted during 1994, the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "IBBEA") authorized the acquisition of banks in any
state by bank holding companies, subject to compliance with federal and state
antitrust laws, the Community Reinvestment Act ("CRA") and specific deposit
concentration limits. The IBBEA removes most state law barriers to interstate
acquisitions of banks and ultimately will permit multi-state banking operations
to merge into a single bank. Although the Bank, as a federal savings bank,
already has interstate branching authority, enactment of the IBBEA may result in
increased competition and financial institution acquisition activity from out-
of-state financial institutions and their holding companies.
During 1994, various regulations were promulgated that could impact the
operations of the Bank and Company. Consistent with the requirements of the CDB
Act, the federal bank regulatory agencies have attempted to conform many of
their regulations to eliminate the disparity that has developed among the four
financial institution regulators. For example, the OTS amended its internal
rating system for savings associations by adopting the "CAMEL" (Capital, Assets,
Management, Earnings and Liquidity) system developed by the FDIC, in lieu of
"MACRO" (Management, Asset Quality, Capital Adequacy, Risk Management and
Operating Results). The Bank's CAMEL rating is used to determine, in part, FDIC
insurance assessments. The OTS also revised its regulations concerning mergers,
transfers of assets, and combinations with other depository institutions to
facilitate the acquisition of savings institutions by other FDIC-insured
institutions, as well as the acquisition of such institutions by savings
associations.
During 1994, the federal bank regulatory agencies also jointly issued proposed
changes to the rules and regulations implementing the CRA that could impact how
the Bank's CRA performance is measured. Pursuant to the CRA, the Bank is
required to demonstrate how its deposit facilities serve the convenience and
needs of the communities in which it is chartered to do business, including the
credit needs of low- and moderate-income populations within such communities.
The Bank's CRA rating is a factor reviewed in connection with mergers,
acquisitions, and other regulatory applications. The proposed revision would
adopt a performance-based evaluation system, measuring the Bank's lending,
investment and service to its delineated lending community, in lieu of the
current process-based system of evaluation. The Bank's current CRA rating is
outstanding, and the Bank believes that it can continue to receive comparable
CRA ratings if the new evaluation system is adopted as proposed.
Legislation has been introduced in Congress to merge the Bank's primary
federal regulator, the OTS, with the Office of the Comptroller of the Currency,
the primary federal regulator of national banks, and to create a new bank
regulatory agency, the Federal Banking Agency. There can be no assurance that
this legislation or similar legislation will be enacted, or the impact on the
Bank and Company of such legislation.
66 St.Paul Bancorp, Inc.
EXHIBITS (c)
Financial Statements Filed Page
--------------------------------------------------
St.Paul Bancorp, Inc.
Consolidated Financial Statements 36
Notes to Consolidated Financial Statements 40
Report of Independent Auditors 63
Schedules to the consolidated financial statements required by Article 9 of
Regulation S-X are omitted, since the required information is included in the
footnotes or is not applicable.
No reports on Form 8-K were filed during the last quarter of fiscal 1994.
The following Exhibit Index lists the Exhibits to Annual Report on Form 10-K.
EXHIBIT NUMBER 3
Certificate of Incorporation and Bylaws.
I Restated Certificate of Incorporation (A).
II Bylaws of Registrant, as amended (A).
III Amendments to Bylaws of Registrant dated as of Dec. 18,
1989, July 18, 1992, Sept. 27, 1993, Oct. 25, 1993 and Feb.
28, 1994, respectively (A).
EXHIBIT NUMBER 10
Material Contracts.
I Stock Option Plan, as amended (A)(B).
II Amendment to Stock Option Plan dated May 13, 1992 (A)(B).
III Amendment to Stock Option Plan dated May 4, 1994 (B).
IV Employment Agreement dated as of Dec. 19, 1994 among
St.Paul Bancorp, Inc., St.Paul Federal Bank For Savings and
Joseph C. Scully (B).
V Employment Agreement dated as of Dec. 19, 1994 among
St.Paul Bancorp, Inc., St.Paul Federal Bank For Savings and
Patrick J. Agnew (B).
VI St.Paul Federal Bank For Savings Deferred Compensation
Trust Agreement dated April 21, 1987 (A)(B).
VII First Amendment to Agreements in Trust dated as of Dec. 31,
1989 by and between St.Paul Federal Bank For Savings; and
Alan J. Fredian, Michael R. Notaro and Faustin A. Pipal,
as trustees (A)(B).
VIII Indenture dated as of July 1, 1989 between St.Paul Federal
Bank For Savings and Bankers Trust Company, Trustee (A).
IX St.Paul Federal Bank For Savings and St.Paul Bancorp, Inc.
Nonqualified Retirement Plan for Directors, as amended and
restated as of March 28, 1994 (B).
X Agreement in Trust, dated as of Jan. 28, 1991 between
St.Paul Federal Bank For Savings; and Alan J. Fredian,
Michael R. Notaro and Joseph C. Scully, as trustees (A)(B).
XI St.Paul Federal Bank For Savings Supplemental Retirement
Plan and Excess Benefit Plan (A)(B).
XII St.Paul Federal Bank For Savings Supplemental Retirement
Trust (A)(B).
XIII Term Loan Agreement, dated as of Nov. 21, 1991, among
St.Paul Federal Bank For Savings Employee Stock Ownership
Trust, St.Paul Bancorp, Inc. and Nationar (A).
XIV Shareholders Rights Plan dated Oct. 26, 1992 (A).
XV Severance Agreements, dated as of Dec. 21, 1992, among
St.Paul Bancorp, Inc., St.Paul Federal Bank For Savings and
Thomas J. Rinella, Robert N. Parke, and Clifford M.
Sladnick, respectively (A)(B).
XVI Severance Agreement, dated as of Dec. 21, 1992, among
St.Paul Bancorp, Inc., St.Paul Federal Bank for Savings and
Donald G. Ross (B).
XVII Amendments to Severance Agreements, dated as of Dec. 19,
1994, among St.Paul Bancorp, Inc., St.Paul Federal Bank For
Savings and Thomas J. Rinella, Robert N. Parke, Donald G.
Ross, and Clifford M. Sladnick, respectively (B).
XVIII Indenture for Subordinated Notes dated Feb. 1, 1993 between
St.Paul Bancorp, Inc. and Harris Trust and Savings Bank (A).
XIX St.Paul Bancorp, Inc. and St.Paul Federal Bank For Savings
Employee Severance Compensation Plan, executed Dec. 20, 1993
(A)(B).
XX First Amendment to Term Loan Agreement, dated as of June 30,
1993 (but effective as of May 5, 1993) by and among St.Paul
Federal Bank For Savings Employee Stock Ownership Trust,
St.Paul Bancorp, Inc., and Nationar (A).
EXHIBIT NUMBER 13
1994 Annual Report to Shareholders.
EXHIBIT NUMBER 21
Subsidiaries of Registrant.
EXHIBIT NUMBER 23
Consent of Ernst & Young LLP.
EXHIBIT NUMBER 27
Financial Data Schedule.
(A) EXHIBIT HAS HERETOFORE BEEN FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION AND IS INCORPORATED HEREIN BY REFERENCE.
(B) MANAGEMENT CONTRACT OR COMPENSATION PLAN OR ARRANGEMENT REQUIRED
TO BE FILED AS AN EXHIBIT.
(C) COPIES OF THE EXHIBITS WILL BE FURNISHED UPON REQUEST AND PAYMENT
OF THE COMPANY'S EXPENSES IN FURNISHING THE FINANCIAL STATEMENT SCHEDULE AND
EXHIBITS.
1994 Annual Report/10-K 67
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on March
27, 1995 on its behalf by the undersigned thereunto duly authorized.
St.Paul Bancorp, Inc.
Joseph C. Scully
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on March 27, 1995, by the following persons on behalf of
the registrant and in the capacities indicated.
JOSEPH C. SCULLY ALAN J. FREDIAN
Chairman and Chief Executive Officer Director
PATRICK J. AGNEW KENNETH J. JAMES
President and Chief Operating Officer Director
ROBERT N. PARKE DR. JEAN C. MURRAY, O.P.
Senior Vice President and Treasurer Director
(principal financial officer)
PAUL J. DEVITT MICHAEL R. NOTARO
First Vice President and Controller Director
(principal accounting officer)
WILLIAM A. ANDERSON JOHN J. VIERA
Director Director
JOHN W. CROGHAN JAMES B. WOOD
Director Director
ST.PAUL BANCORP OFFICERS
JOSEPH C. SCULLY,
54, has been Chairman since 1989 and Chief Executive Officer since 1982. He
joined the company in 1963 and has also served as President, Senior Vice
President, Corporate Secretary and Vice President.
PATRICK J. AGNEW,
52, was appointed President in 1989. Previously General Counsel for the company,
he also has been a partner in the law firm of Righeimer, Martin and Cinquino.
ROBERT N. PARKE,
50, became Senior Vice President of Finance and Chief Financial Officer in 1981.
Previously, he served as Treasurer. He also has been responsible for savings and
loan and mortgage banking audits as a certified public accountant with Ernst &
Young LLP.
THOMAS J. RINELLA,
50, Senior Vice President, was named Director of Community Lending in 1987.
Previous positions include Marketing Director, Human Resources Director, Loan
Department Manager and Systems Analyst.
DONALD G. ROSS,
46, has been Senior Vice President -- Retail Banking since 1986. He also has
held the positions of First Vice President, Vice President and Assistant Vice
President with the company.
CLIFFORD M. SLADNICK,
38, has been Senior Vice President, General Counsel and Corporate Secretary
since 1991. Before joining St.Paul in 1990, he was a partner with the law firm
of McDermott, Will & Emery. He also is a certified public accountant.
DIRECTORS
JOSEPH C. SCULLY
Chairman and Chief Executive Officer, St.Paul Bancorp, Inc. and St.Paul Federal
-- A D F G H I
PATRICK J. AGNEW
President and Chief Operating Officer, St.Paul Bancorp, Inc. and St.Paul Federal
-- A D F G H I
MICHAEL R. NOTARO
Retired Chairman of the Board and Chief Executive Officer, Computer Data
Processing Corp. -- data processing -- C* D E* F*
JAMES B. WOOD
President, Equity Builders of Illinois, Inc. -- construction -- B F G* H I
DR. ALAN J. FREDIAN
Professor, Institute of Human Resources and Industrial Relations, Loyola
University -- C D* E
JOHN J. VIERA
Retired Corporate Vice President, Commonwealth Edison Company -- public
utility -- A* B C E
WILLIAM A. ANDERSON
Retired Partner, Ernst & Young LLP -- B* H I
KENNETH J. JAMES
Chairman, James Investment Co., and J.S. James & Co., Inc. -- real estate
development, brokerage and management -- G H*
DR. JEAN C. MURRAY, O.P.
Retired President, Rosary College -- A
JOHN W. CROGHAN
Chairman, Lincoln Capital Management -- investment counseling -- I*
(A) MEMBER OF THE CORPORATE RESPONSIBILITY COMMITTEE OF THE BANK
(B) MEMBER OF THE AUDIT AND ACCOUNTING COMMITTEE OF THE COMPANY AND
THE BANK
(C) MEMBER OF THE ORGANIZATIONAL PLANNING COMMITTEE OF THE COMPANY AND
THE BANK
(D) MEMBER OF THE PROFIT SHARING AND PENSION TRUST COMMITTEE OF THE BANK
(E) MEMBER OF THE STOCK OPTION COMMITTEE OF THE COMPANY
(F) MEMBER OF THE EXECUTIVE COMMITTEE OF THE COMPANY AND THE BANK
(G) MEMBER OF THE LOAN COMMITTEE OF THE BANK
(H) MEMBER OF THE LOAN LOSS RESERVE COMMITTEE OF THE BANK
(I) MEMBER OF THE INVESTMENT COMMITTEE OF THE BANK
* COMMITTEE CHAIRMAN
68 St. Paul Bancorp. Inc.
INVESTOR INFORMATION
Corporate Offices
6700 W. North Ave., Chicago, IL 60635
(312) 622-5000
COMMON STOCK
St.Paul Bancorp common stock is listed under the symbol "SPBC" on the NASDAQ
National Market System. Newspaper stock tables often list the stock as
"StPaulB" or "StPaulBncp."
As of Dec. 31, 1994, St.Paul Bancorp had 18,781,480 shares of common stock
outstanding. At that date, there were 7,510 shareholders of record.
As of the close of business on Feb. 23, 1995, St.Paul Bancorp's stock price
was $22.
STOCK PRICE INFORMATION
The table below shows the quarterly price range of SPBC common stock and
dividends paid over the past two years, as adjusted for a three-for-two stock
split on Jan. 4, 1994.
STOCK PRICES 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
-------------------------------------------------------------------------------------------------------
1993......................... $ 14 7/8-19 $13 1/4-19 1/8 $15 3/4-20 5/8 $ 17-20 1/2
1994......................... 16 1/4-19 5/8 17 1/8-24 1/8 19 7/8-22 5/8 16 5/8-21 1/8
DIVIDENDS PER SHARE DECLARED: 1994 1993
-------------------------------------------------------------
First Quarter.................. $ 0.075 $ 0.067
Second Quarter................. 0.075 0.067
Third Quarter.................. 0.075 0.067
Fourth Quarter................. 0.075 0.067
Independent Auditors
Ernst & Young LLP
233 S. Wacker Drive
Chicago, IL 60606-6301
Corporate Counsel
Clifford M. Sladnick
Senior Vice President
and General Counsel
St. Paul Bancorp, Inc.
STOCKHOLDER INQUIRIES
The company's annual report on Form 10-K is on file with the Securities and
Exchange Commission and is included in this report. To obtain additional
information on St.Paul Bancorp free of charge, contact the Investor Relations
Department at St.Paul's corporate office address or call (312) 804-2283. Other
inquiries may be directed to Investor Relations Manager Maryellen T. Thielen,
(312) 804-2284, or Chief Financial Officer Robert N. Parke, (312) 804-2360.
Inquiries about stockholder records, stock transfers, ownership changes,
address changes, dividend payments or the dividend reinvestment plan should be
directed to:
Transfer Agent and Registrar
First National Bank of Boston
Investor Relations Department
Mail Stop 45-02-09
P.O. Box 644
Boston, MA 02102-0644
toll-free: (800) 730-4001
ANNUAL MEETING
You are cordially invited to St.Paul Bancorp's annual meeting of stockholders,
to be held at 10 a.m. Wednesday, May 3, 1995 at Drury Lane Oakbrook, 100 Drury
Lane, Oakbrook Terrace, IL. Mark your proxy card if you wish to attend; you'll
receive an admission card and directions. The record date for voting at the
meeting is Friday, March 17, 1995.
70 St.Paul Bancorp, Inc.
[MAP OF LOCATIONS]
*HOME OFFICE Oak Park (2)
6700 W. North Ave. Rolling Meadows
Chicago, IL 60635 Skokie
(312) 622-5000 Villa Park
Westchester
BRANCHES Wood Dale
Chicago (7) Woodridge
Addison
Berkeley IN-STORE BRANCHES
Berwyn Chicago (3)
Blue Island Arlington Heights
Buffalo Grove Aurora (2)
Carol Stream Bridgeview
Downers Grove Cicero
Elmhurst (2) Crestwood
Elmwood Park (2) Elgin
Evanston Glendale Heights
Franklin Park McHenry
Hanover Park Melrose Park
Harwood Heights Niles
Lombard Orland Park
Morton Grove Round Lake Beach
Mount Prospect Waukegan
Oak Lawn