Contents to Financial Pages
Eight-Year Summary..................................... 18
Management's Discussion and Analysis
Overview............................................... 20
Statement of Financial Condition....................... 21
Cash Flow Activity..................................... 23
Results of Operations.................................. 26
Credit Risk Management................................. 33
Interest Rate Risk..................................... 37
Financial Statements and Notes
Consolidated Financial Statements...................... 40
Notes to Consolidated Financial Statements............. 44
Report of Independent Auditors......................... 65
10-K
Annual Report on Form 10-K............................. 66
Officers and Directors................................. 70
Investor Information................................... 72
17
Eight-Year Summary
At or for the years ended Dec. 31 -- Dollars in thousands, except per share amounts
1995 1994 1993(b)
---------------------------------------
SUMMARY OF FINANCIAL CONDITION
Assets:
Cash and cash equivalents............................................................ $ 186,621 $ 159,948 $ 336,331
Marketable-debt securities........................................................... 92,778 99,643 142,051
Mortgage-backed securities........................................................... 975,422 1,126,617 733,649
Loans receivable -- net of accumulated provision..................................... 2,683,890 2,568,381 2,304,319
Other assets......................................................................... 177,968 176,948 189,026
---------------------------------------
Total assets........................................................................ $ 4,116,679 $ 4,131,537 $ 3,705,376
=======================================
Liabilities and Stockholders' Equity:
Deposits............................................................................. $ 3,231,810 $ 3,232,903 $ 3,252,618
Short-term borrowings................................................................ 175,368 221,180 620
Long-term borrowings................................................................. 266,059 271,747 63,350
Other liabilities.................................................................... 59,245 54,310 41,459
Subordinated capital notes........................................................... -- -- --
Stockholders' equity................................................................. 384,197 351,397 347,329
---------------------------------------
Total liabilities and stockholders' equity.......................................... $ 4,116,679 $ 4,131,537 $ 3,705,376
=======================================
SUMMARY OF OPERATIONS
Interest income...................................................................... $ 278,750 $ 253,262 $ 256,937
Interest expense..................................................................... 162,116 135,069 132,982
---------------------------------------
Net interest income................................................................. 116,634 118,193 123,955
Provision for loan losses............................................................ 1,900 5,150 10,750
---------------------------------------
Net interest income after provision for loan losses................................. 114,734 113,043 113,205
Other income......................................................................... 33,721 29,771 32,506
General and administrative expense................................................... 90,165 87,166 82,747
Loss on foreclosed real estate....................................................... 1,159 2,145 2,516
Income taxes......................................................................... 20,737 18,991 19,061
---------------------------------------
Income before extraordinary item.................................................... 36,394 34,512 41,387
Extraordinary item, net of income taxes.............................................. -- -- --
---------------------------------------
Net income.......................................................................... $ 36,394 $ 34,512 $ 41,387
=======================================
Primary earnings per share before extraordinary item................................. $ 1.87 $ 1.70 $ 2.03
Fully diluted earnings per share before extraordinary item........................... 1.86 1.70 2.03
=======================================
Primary earnings per share........................................................... $ 1.87 $ 1.70 $ 2.03
Fully diluted earnings per share..................................................... 1.86 1.70 2.03
=======================================
SELECTED FINANCIAL AND OTHER DATA
Weighted average shares outstanding.................................................. 18,458,343 19,269,801 19,447,658
Primary common stock equivalents..................................................... 1,052,833 976,260 907,938
Fully diluted common stock equivalents............................................... 1,125,976 976,260 979,948
Dividends per share.................................................................. $ 0.30 $ 0.30 $ 0.27
Dividend payout ratio (a)............................................................ 16.04% 17.65% 13.15%
Earning assets to interest bearing liabilities....................................... 1.07x 1.06x 1.07x
Weighted average rate on loans, MBS and investments.................................. 7.28% 6.98% 6.96%
Weighted average cost of money....................................................... 4.56% 4.22% 3.66%
Interest rate spread................................................................. 2.72% 2.76% 3.30%
Nonperforming assets to total assets................................................. 0.71% 0.66% 1.34%
Return on average assets............................................................. 0.90% 0.88% 1.10%
Average equity as a percentage of average assets..................................... 9.10% 9.05% 8.64%
Return on average stockholders' equity (net worth)................................... 9.86% 9.72% 12.77%
Number of full-time equivalent employees............................................. 1,060 1,103 1,046
Number of office locations........................................................... 52 52 50
(a) Based upon primary earnings per share.
(b) Includes the operations of Elm Financial Services since the acquisition date
of Feb. 23, 1993.
18 St.Paul Bancorp, Inc.
1992 1991 1990 1989 1988(c)
-----------------------------------------------------------------
$ 311,567 $ 314,623 $ 168,411 $ 241,544 $ 186,896
107,732 25,410 40,435 691 14,274
643,941 717,354 689,066 643,870 464,947
2,270,198 2,415,540 2,404,760 2,320,371 2,350,499
166,822 190,316 143,561 166,205 114,627
-----------------------------------------------------------------
$3,500,260 $3,663,243 $3,446,233 $3,372,681 $3,131,243
=================================================================
$2,985,124 $3,004,419 $2,665,733 $2,581,769 $2,394,528
134,509 135,775 319,271 46,108 79,003
51,899 198,753 178,200 437,174 356,903
41,387 59,232 41,744 68,594 67,783
-- 12,176 11,951 14,745 15,582
287,341 252,888 229,334 224,291 217,444
-----------------------------------------------------------------
$3,500,260 $3,663,243 $3,446,233 $3,372,681 $3,131,243
=================================================================
$ 278,687 $ 321,291 $ 316,275 $ 302,308 $ 274,598
165,844 222,487 227,661 221,239 196,929
-----------------------------------------------------------------
112,843 98,804 88,614 81,069 77,669
10,625 11,100 35,652 21,656 4,178
-----------------------------------------------------------------
102,218 87,704 52,962 59,413 73,491
28,348 22,647 22,283 17,612 17,482
71,240 64,754 62,797 56,309 52,731
1,316 1,898 2,266 4,631 503
20,325 16,507 3,252 5,450 14,536
-----------------------------------------------------------------
37,685 27,192 6,930 10,635 23,203
-- -- 1,470 -- (712)
-----------------------------------------------------------------
$ 37,685 $ 27,192 $ 8,400 $ 10,635 $ 22,491
=================================================================
$ 2.00 $ 1.48 $ 0.38 $ 0.57 $ 1.29
1.98 1.48 0.38 0.57 1.29
=================================================================
$ 2.00 $ 1.48 $ 0.46 $ 0.57 $ 1.25
1.98 1.48 0.46 0.57 1.25
=================================================================
18,142,041 18,020,606 17,987,696 17,925,833 17,871,383
674,957 319,828 156,537 535,046 102,618
849,864 359,851 171,832 546,759 132,352
$ 0.27 $ 0.27 $ 0.27 $ 0.25 $ 0.18
13.35% 18.04% 58.01% 44.16% 14.89%
1.06x 1.06x 1.06x 1.05x 1.06x
7.74% 8.91% 9.72% 9.75% 9.40%
4.26% 5.96% 7.24% 7.50% 7.12%
3.48% 2.95% 2.48% 2.25% 2.28%
1.38% 2.17% 1.07% 0.93% 1.26%
1.05% 0.76% 0.25% 0.33% 0.72%
7.57% 6.78% 6.80% 6.76% 6.63%
13.88% 11.15% 3.66% 4.82% 10.88%
883 829 804 845 849
40 37 34 33 29
(c) St. Paul Bancorp became a publicly held company on May 15, 1987.
[GRAPH APPEARS HERE]
Assets at Year-End 1995
a) Loans Receivable............... $2.7 billion
b) MBS............................$975.4 million
c) Cash and Cash Equivalents......$186.6 million
d) Other Assets...................$178.0 million
e) Marketable-Debt Securities......$92.8 million
[GRAPH APPEARS HERE]
Deposits at Year-End 1995
a) CDs............................. $1.9 billion
b) Savings........................$694.5 million
c) Checking and Other.............$408.8 million
d) Money Market...................$198.9 million
[GRAPH APPEARS HERE]
88.................................1.26%
89.................................0.93%
90.................................1.07%
91.................................2.17%
92.................................1.38%
93.................................1.34%
94.................................0.66%
95.................................0.71%
Nonperforming Assets to Total Assets at year-end
[GRAPH APPEARS HERE]
88.................................2.28%
89.................................2.25%
90.................................2.48%
91.................................2.95%
92.................................3.48%
93.................................3.30%
94.................................2.76%
95.................................2.72%
Weighted Average Interest Rate Spread at year-end
1995 Annual Report/10-K 19
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, 1995, the Company reported total assets of $4.1
billion. Also at year-end 1995, the Bank operated 52 branches in the Chicago
metropolitan area, consisting of 35 full-size offices and 17 banking offices in
Omni(R) and Cub(R) supermarkets. In addition, the Bank operated 183 automated
teller machines ("ATMs") and serviced approximately 174,000 checking accounts
and 27,000 loans at year-end 1995.
Both the Company and the Bank continued to operate other wholly owned
financial services companies during 1995, including St. Paul Financial
Development Corporation, Annuity Network, Inc., St. Paul Service, Inc., and
Investment Network, Inc. As of Dec. 31, 1995, customers maintained $450 million
of investments through Investment Network, Inc. and $318 million of annuity
contracts through Annuity Network, Inc. See Note A -- Summary of Significant
Accounting Policies for descriptions of affiliates and subsidiaries.
In general, the business of the Bank is to reinvest funds obtained from its
retail banking facilities into interest yielding assets, such as loans secured
by mortgages on real estate, securities, and to a lesser extent, consumer and
commercial real estate loans. The Bank has focused its lending activities on the
origination and purchase of various mortgage products secured by 1-4 family
residential properties through its retail banking offices and local loan
origination correspondents. The Bank also uses a correspondent loan program to
originate 1-4 family mortgages outside the Chicago metropolitan area, primarily
in the states of Illinois, Wisconsin, Indiana, Michigan and Ohio. The retail
banking offices offer a variety of consumer loan products, including home equity
loans, secured lines of credit, education, auto and credit card loans. During
1995, the bank originated $75.5 million of consumer and home equity/line of
credit loans. Management expanded its banking services through the introduction
of a telephone banking center in October 1995. The center provides telephone
customer service, takes loan applications, transfers funds between accounts and
handles other banking transactions, improving customer convenience and
efficiency.
Originations of 1-4 family loans declined to $261 million during 1995 from
a record level of $653 million of originations during 1994. During 1995, the
Bank supplemented its loan originations with the purchase of $200 million of 1-4
family whole loans. The Bank also originated $42 million of loans secured by 5-
120 unit multifamily real estate located in the Chicago metropolitan area.
Management plans to increase originations under this program to $105 million
during 1996 and has increased the size of the geographic area covered by the
program to a 150-mile radius from the Bank's home office. Management also
expects to continue emphasizing originations of home equity and line of credit
loans, which typically offer higher yields than first mortgage loans.
As a consumer-oriented retail financial institution, the Bank gathers
deposits from the neighborhoods and surrounding suburbs of the metropolitan
Chicago area, which largely have favorable savings patterns and high levels of
home ownership. Deposit balances, which consist of checking, savings, money
market accounts and certificates of deposit ("CDs"), remained relatively level
at year-end 1995 and 1994. During 1995, the Bank increased rates paid on new CDs
and relied on special promotions, both to maintain deposit balances and to
provide depositors alternatives to other investment opportunities available.
After expanding earning asset levels during 1994, Management focused its
attention on stabilizing the interest rate spread during 1995. Rising deposit
costs put downward pressure on net interest income. However, favorable repricing
in the mortgage-backed securities ("MBS") and loan portfolios partly offset the
higher level of interest expense. While Management plans to use special
promotions and attractive product features on CDs during 1996, the Bank will
continue to look for means of increasing asset yields and will pursue bulk
purchases of loans and MBS if favorable yields are available.
During 1995, the Federal Deposit Insurance Corporation ("FDIC") lowered the
deposit insurance assessment for all but the riskiest commercial banks that are
members of the Bank Insurance Fund ("BIF"). The drop in premiums created a large
disparity between premiums paid by commercial banks and members of the Savings
Association Insurance Fund ("SAIF"), such as the Bank. A legislative solution to
the disparity was proposed to Congress in 1995. The solution would require SAIF
members to pay a one-time special assessment of $0.80 to $0.85 per $100 of
insured deposits to recapitalize the SAIF. The one-time assessment would result
in a $26 million to $27 million pre-tax charge to earnings for the Bank. After
the special assessment recapitalizes the SAIF to its designated reserve ratio,
SAIF premium rates would become the same as BIF rates. A future possibility is a
merger of the SAIF into the BIF, which would require separate legislation. The
Bank is unable to predict whether this legislation will be enacted; the amount
or applicable retroactive date of any one-time assessment; or the rates that
would then apply to SAIF-insured deposits. See Annual Report on Form 10-K --
Regulation for further details.
[GRAPH APPEARS HERE]
Loan Portfolio at Year-End 1995
a) Single Family.................. $1.7 billion
b) Multifamily/Commercial......... $1.0 billion
c) Consumer.......................$23.3 million
20 St.Paul Bancorp, Inc.
STATEMENT OF FINANCIAL CONDITION
Total assets of the Company were $4.1 billion at Dec. 31, 1995, relatively
unchanged from total assets at Dec. 31, 1994. During 1995, growth in loans
receivable and cash and cash equivalents was mostly offset by lower MBS
balances. On the liability side, the Company was able to reduce borrowing
balances, while deposits remained relatively unchanged.
Cash and cash equivalents totaled $186.6 million at Dec. 31, 1995, compared
to $159.9 million at Dec. 31, 1994. See Cash Flow Activity and Consolidated
Statements of Cash Flows for further details.
Marketable-debt securities, comprised of U.S. Treasury and agency issues,
totaled $92.8 million at Dec. 31, 1995, compared to $99.6 million at Dec. 31,
1994. The weighted average yield of these securities was 5.34% at year-end 1995,
compared to 5.04% at the end of 1994. A step up in rate in tiered, fixed rate
securities produced the increase in the weighted average yield since year-end
1994. The average maturity of the marketable-debt securities declined from 31
months at Dec. 31, 1994 to 27 months at Dec. 31, 1995. At year-end 1995, all
marketable-debt securities were classified as available for sale under Statement
of Financial Accounting Standards ("SFAS") No. 115, Accounting for Certain
Investments in Debt and Equity Securities. At Dec. 31, 1995, the Company
recorded an unrealized loss of $62,000 on the available for sale portfolio,
compared to an unrealized loss of $1.6 million at Dec. 31, 1994. A decline in
market interest rates during 1995 produced the increase in market value.
The MBS portfolio decreased $151.2 million, or 13.4%, to total $975.4
million at Dec. 31, 1995. The decline in MBS balances was associated with
principal repayments received during the year and the sale of $56.9 million of
available for sale MBS. The purchase of $84.0 million of adjustable rate MBS
partly offset this decline. See Cash Flow Activity for further details. The
weighted average yield of the entire MBS portfolio was 6.49% at Dec. 31, 1995,
up from 6.02% at Dec. 31, 1994. Upward repricing of adjustable rate MBS during
1995 generated the increase in the weighted average yield since the beginning of
the year. In addition, a portion of the adjustable rate MBS portfolio did not
fully reprice during the increase in market interest rates during 1994 due to
periodic and lifetime interest rate caps. At Dec. 31, 1995, 66% of the MBS
portfolio had adjustable rate characteristics. In comparison, 63% of the MBS
portfolio had adjustable rate characteristics at Dec. 31, 1994. At Dec. 31,
1995, approximately one-third of the MBS balances were classified as available
for sale under SFAS No. 115. At Dec. 31, 1995, the Company recorded an
unrealized loss on its available for sale MBS of $1.4 million, compared to an
unrealized loss of $4.1 million at Dec. 31, 1994. A decrease in market interest
rates since 1994 produced the decrease in the unrealized loss during 1995.
Under SFAS No. 115, unrealized gains and losses on available for sale
investment securities are recorded in stockholders' equity, net of the related
taxes, and transfers between investment categories are allowed only in limited
circumstances. However, during 1995, the Company transferred $69.6 million of
marketable-debt securities, with an unrealized loss of $7,200, and $190.7
million of MBS, with an unrealized loss of $3.0 million, from the held to
maturity category to the available for sale category under the provisions of A
Guide to Implementation of Statement No. 115 on Accounting for Certain
Investments in Debt and Equity Securities issued by the Financial Accounting
Standards Board ("FASB") in November 1995. This guide permitted a one-time
transfer of securities between investment categories without calling into
question prior or subsequent portfolio classifications. See Note A -- Summary of
Significant Accounting Policies, Note C -- Marketable-Debt Securities and
Note D -- MBS for further details.
Loans receivable totaled $2.7 billion at Dec. 31, 1995, or $111.9 million
higher than at year-end 1994. During 1995, loan originations and purchases
outpaced loan repayments, allowing for growth in the loans receivable portfolio.
While loan repayments remain lower than the levels experienced in 1994 and 1993,
the amount of loan repayments steadily increased during 1995 and is expected to
increase during 1996. At year-end 1995, 80% of loans receivable had adjustable
rate characteristics, compared to 76% at year-end 1994. See Results of
Operations -- Comparison of Years Ended Dec. 31, 1995 and 1994 -- Net Interest
Income for further discussion.
The weighted average yield on loans receivable was 7.69% at Dec. 31, 1995,
or 18 basis points higher than the 7.51% weighted average yield at Dec. 31,
1994. Most of the increase was caused by upward repricing in the adjustable rate
portfolio. Approximately 36% of loans receivable are tied to "cost of funds"
indices. These indices rose throughout most of 1995 and lagged behind the
increase in market interest rates during 1994.
Deposits totaled $3.2 billion at Dec. 31, 1995, relatively unchanged from
year-end 1994. Although total deposit balances remained relatively unchanged,
the composition shifted toward CDs and away from checking, savings and money
market accounts (i.e., "core accounts"). Core accounts totaled $1.3 billion or
40% of total deposits at year-end 1995, compared to $1.4 billion or 44% of the
total deposits at year-end 1994. CDs totaled $1.9 billion or 60% of total
deposits at year-end 1995, compared to $1.8 billion or 56% of the total deposits
at year-end 1994. The weighted average cost of deposits was 4.29% at Dec. 31,
1995, up from 3.85% at Dec. 31, 1994. While the deposit rate increased during
1995, the rate was still lower than rates at many of the Bank's peers, according
to certain industry surveys. Management raised new offering rates on CDs to
attract new deposits and limit the disintermediation of balances to other
investment products. Since the Bank emphasized shorter-term CD products, the
weighted average maturity of the CD portfolio decreased slightly during the
1995 Annual Report/10-K 21
year from 14 months at Dec. 31, 1994 to 12 months at Dec. 31, 1995. See Cash
Flow Activity, Results of Operations -- Years Ended Dec. 31, 1995 and 1994 and
Note N -- Deposits for further details.
During 1995, the Company reduced borrowing balances with the use of
liquidity. Borrowings decreased $51.5 million during 1995 to total $441.4
million at Dec. 31, 1995. Short-term borrowings consist of advances from the
Federal Home Loan Bank ("FHLB") and borrowings under agreements to repurchase.
Although these balances declined during 1995, the Bank used $75 million of
borrowings to fund the acquisition of whole loans during the fourth quarter of
1995. At Dec. 31, 1995, the weighted average cost of borrowings was 6.55%, down
from 6.68% at Dec. 31, 1994. Lower short-term borrowing costs associated with
modest declines in short-term interest rates in 1995 produced the decline in the
weighted average cost of borrowings. See Cash Flow Activity, Results of
Operations -- Years Ended Dec. 31, 1995 and 1994 and Note O -- Borrowings for
further details.
Stockholders' equity grew by $32.8 million during 1995 to total $384.2
million, or $20.49 per share, at Dec. 31, 1995. In comparison, stockholders'
equity totaled $351.4 million, or $18.71 per share, at Dec. 31, 1994. Net income
for 1995 of $36.4 million generated most of the increase in stockholders'
equity. The Company also experienced a $2.6 million reduction in the unrealized
loss on available for sale securities accounted for under SFAS No. 115.
Dividends paid to shareholders of $5.5 million and the acquisition of $4.3
million of the Company's common stock partly offset the growth in stockholders'
equity.
Except for certain interest rate exchange agreements used in connection
with interest rate risk management activities, the Company does not use
derivatives in its operations. The notional amount (off-balance sheet) of
interest rate exchange agreements at Dec. 31, 1995 was $122.5 million, compared
to $147.8 million at Dec. 31, 1994. During the year, amortization of $15.3
million of notional amounts and the maturity of $10.0 million of interest rate
exchange agreements produced the decline. No new interest rate exchange
agreements were entered into during 1995. See Results of
Operations -- Comparison of Years Ended Dec. 31, 1995 and 1994 -- Net
Interest Income for further details.
Regulatory Capital Requirements: The Office of Thrift Supervision ("OTS") sets
regulatory capital requirements for federally insured institutions such as the
Bank that include minimum ratios of core and tangible capital to adjusted total
assets of 3.0% and 1.5%, respectively. Savings institutions also must maintain a
ratio of total regulatory capital to risk-adjusted 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 ("GVAs") on loans receivable, subject to certain
limitations. See Note Q -- Stockholders' Equity for the Bank's actual regulatory
capital ratios and a reconciliation of the Company's stockholders' equity to the
regulatory capital of the Bank.
At Dec. 31, 1995, the Bank was considered "well capitalized" under the OTS'
prompt corrective action regulations, based upon its ratios of 8.95% in Tier I
leverage capital, 16.18% in Tier I risk-based capital, and 17.47% in total risk-
based capital. The Bank's ratios significantly exceed those required to be
considered "well capitalized" of 5% for Tier I leverage capital, 6% for Tier I
risk-based capital, and 10% for total risk-based capital. See Note
Q -- Stockholders' Equity for further details.
In an attempt to address the interest rate risk inherent in the balance
sheets of insured institutions, the OTS has issued a regulation that adds an
interest rate risk component to the risk-based capital requirement for excess
interest rate risk. Under this regulation, an institution is considered to have
excess interest rate risk if, based upon a 200 basis point change in market
interest rates, the market value of an institution's capital changes by more
than 2%. If a change greater than 2% occurs, one-half of the percent change in
the market value of capital in excess of 2% is added to the institution's risk-
based capital requirement. At Dec. 31, 1995, the Bank did not have "excess
interest rate risk" for risk-based capital purposes and was not subject to an
additional capital requirement. As of Sept. 30, 1995 (the most recent data
available from the OTS' interest rate risk model), the Bank's interest rate risk
capital component cushion was $26.5 million, compared to $4.3 million at Dec.
31, 1994. See Interest Rate Risk for further details. In the event the Bank
would become subject to the additional capital requirement for excess interest
rate risk, it has $212.5 million of excess risk-based capital available to meet
the higher capital requirement.
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 the 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 the risks from
nontraditional activities. The Bank is currently not subject to any additional
capital requirements under these regulations.
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 adjusted total assets of between 4% and 5%. If the Bank were required
to meet a 4% core capital ratio as of Dec. 31, 1995, its excess core capital
would have been $201.3 million, versus $241.9 million under current
requirements.
22 St.Paul Bancorp, Inc.
The OTS may establish capital requirements higher than the generally
applicable minimum for a particular savings institution if the OTS determines
the institution's capital was or may become inadequate in view of its particular
circumstances. Individual minimum capital requirements may be appropriate where
the savings institution is receiving special supervisory attention, has a high
degree of exposure to interest rate risk, or poses other safety or soundness
concerns. The Bank has no such requirements.
See Note Q -- Stockholders' Equity for further discussion of regulatory
capital requirements.
Loan Originations and Purchases
The following table sets forth loan originations and purchases for the years
ended Dec. 31, 1991 through 1995.
Dollars in thousands 1995 % 1994 % 1993 % 1992 % 1991 %
- ----------------------------------------------------------------------------------------------------------------------------------
1-4 family units:
Originations............................... $260,982 43% $652,808 86% $535,574 61% $520,572 85% $283,492 58%
Purchases.................................. 200,063 33 3,253 * 13,860 2 7,194 1 151,625 31
Acquired from Elm Financial.................. -- -- -- -- 229,083 26 -- -- -- --
Multifamily units (a)........................ 112,055 19 72,886 10 69,962 8 48,847 8 29,623 6
Commercial (a)............................... 4,225 1 5,110 1 1,300 * 5,651 1 -- --
Land loans................................... 2,166 * 514 * -- -- 1,590 * -- --
Consumer..................................... 24,277 4 26,408 3 25,016 3 32,322 5 24,495 5
-----------------------------------------------------------------------------------
Total...................................... $603,768 100% $760,979 100% $874,795 100% $616,176 100% $489,235 100%
===================================================================================
*Less than 1%
(a) During 1995 and 1994, multifamily and commercial originations and purchases
included loans originated under the Midwest multifamily lending program, the
refinancing of maturing loans, loans to facilitate the sale of REO, and loans to
reacquire loans sold with recourse. During years 1991 through 1993, multifamily
and commercial originations and purchases were primarily to facilitate the sale
of REO and reacquire loans sold with recourse.
CASH FLOW ACTIVITY
Sources of Funds: During 1995, the Company's major sources of funds included
$419.2 million of mortgage loan repayments, $322.4 million from the issuance of
CDs, $176.8 million of MBS repayments, and the sale of $56.9 million of
available for sale MBS.
Loan repayments during 1995 totaled $419.2 million during 1995, down
slightly from the $432.2 million of repayments during 1994. Although the level
of repayments was less than 1994, the amount of loan repayments steadily
increased throughout 1995. After an increase in market interest rates during
1994, mortgage interest rates began to slowly decline during 1995, resulting in
an increase in loan refinancing activity. Management expects 1996 loan
repayments to exceed 1995 levels.
The issuance of CDs provided $322.4 million of new funds during 1995,
compared to $362.4 million during 1994. During 1994 and 1995, Management focused
on short-term CD products to maintain deposits and mitigate the net deposit
outflows in the core accounts. Management expects to continue to offer
attractive rates on new CDs and use special CD product features during 1996 to
attract deposit balances to provide funds for asset expansion.
MBS repayments totaled $176.8 million during 1995, down from the $210.0
million of repayments received during 1994. Similar to loan repayments, the
amount of MBS repayments steadily increased throughout 1995. In addition, $56.9
million of available for sale MBS were sold during 1995, compared to $15.4
million of MBS sales in 1994.
During 1994, borrowings were used to fund a substantial amount of the
growth in interest earning assets. Approximately $220.6 million of loan
originations and $210.0 million of MBS acquisitions were funded with borrowings
during 1994. In contrast, the Company used excess liquidity to reduce borrowings
by $51.2 million during 1995. See Uses of Funds following for further details.
See Note O -- Borrowings for details of the Company's borrowing facilities
as of Dec. 31, 1995.
Uses of Funds: During 1995, the Company used $583.8 million of funds to
originate and purchase loans, $328.3 million to repay maturing CDs, $84.0
million to acquire MBS, and $51.2 million to repay borrowings.
Loans originated and purchased during 1995 totaled $583.8 million, or 22%
less than the $752.9 million of originations and purchases during 1994. During
1994, loan originations reached one of the highest levels in the Bank's history,
as Management focused on originating adjustable rate 1-4 family loans through
the Bank's branches and its network of correspondent loan originators. Loan
originations were $261.0 million in 1995, as declining mortgage interest rates
during the year made fixed rate loans more attractive than the adjustable rate
products that the Bank emphasizes. To supplement loan originations, the Bank
pur-
1995 Annual Report/10-K 23
chased $200.0 million of 1-4 family loans during 1995, including $185.0 million
of whole loans during the fourth quarter. Management expects total loan
origination levels in 1996 to approximate levels in 1995. In addition, the Bank
will purchase 1-4 family whole loans to supplement loan originations if loan
yields are attractive and quality transactions are available. Included in 1995
originations beyond first mortgages on 1-4 family homes were $51.2 million of
home equity/line of credit loans and $41.8 million of loans originated under the
Bank's Midwest multifamily lending program. Management expects that the
origination of these products, which typically earn higher yields than 1-4
family loans, will comprise a greater percentage of total originations during
1996.
Repayments of maturing CDs in 1995 totaled $328.3 million, or 19.8% less
than the $409.4 million of repayments of maturing CDs in 1994. Increasing
interest rates in 1994 caused many depositors to move their money to other
investment products. During 1995, the Bank continued to raise offering rates on
new CD products to maintain deposits and provide attractive alternatives to
other investment products. Management expects to continue to offer attractive
rates during 1996 to maintain deposit balances. Management also anticipates that
higher asset yields will offset some of the pressure on margins that will result
from higher deposit costs during 1996.
During 1995, the Bank acquired $84.0 million of adjustable rate available
for sale MBS. In comparison, during 1994, the Bank acquired $604.9 million of
MBS with matched maturity FHLB advances and liquidity. The Bank's strategy in
1994 was to enhance investment earnings with these purchases because at that
time, MBS offered higher yields than short-term government securities. See
Sources of Funds and Results of Operations -- Comparison of Years Ended Dec. 31,
1994 and 1993 for further details. Management will consider MBS acquisitions in
the future if matched funding transactions can be executed at an attractive
spread.
During 1995, the Bank used liquidity to reduce short-term borrowings by
$45.9 million and long-term borrowings by $5.3 million. In contrast, the Bank
increased borrowings by $429.4 million during 1994 to fund loan originations and
MBS acquisitions. See Sources of Funds and Results of Operations -- Comparison
of Years Ended Dec. 31, 1995 and 1994 for further details.
Holding Company Liquidity: At Dec. 31, 1995, St. Paul Bancorp had $39.1 million
of cash and cash equivalents and $247,000 of marketable-debt securities. A
portion of the marketable-debt securities collateralize borrowings of the
Employee Stock Ownership Plan ("ESOP"). During 1995, the Company obtained a $2.0
million revolving line of credit from another financial institution, under which
no funds had been borrowed as of Dec. 31, 1995.
During 1995, St. Paul Bancorp's sources of liquidity included $17.8 million
of dividends from the Bank, $7.8 million in repayment of advances to St. Paul
Financial Development Corporation, and $400,000 of dividends from Annuity
Network, Inc. Uses of liquidity during 1995 included $5.5 million of dividends
paid to shareholders, the purchase of $4.3 million of Company stock (reported as
a reduction to stockholders' equity), and $2.8 million of interest payments on
subordinated debt.
During January 1996, St. Paul Bancorp announced its intention to acquire up
to 925,000 additional shares (or approximately 5%) of its outstanding common
stock during the first six months of 1996 through open market or privately
negotiated transactions. Management's intention is to use the stock repurchase
program to increase return on equity and earnings per share. St. Paul Bancorp
also announced its intention to raise the quarterly dividend paid to
shareholders from 7.5 cents per share to 10 cents, a 33% increase.
Dividend payments from the Bank to the holding company are regulated by the
OTS. Management plans to pay dividends to the holding company from the Bank
equal to 50% of the Bank's net income in 1996. See Note Q -- Stockholders'
Equity for further details.
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 the economic conditions and the deposit flows of savings
institutions. During 1995, the Bank held average regulatory liquidity of $229.0
million, with liquidity balances that ranged between $193.2 million and $249.0
million. At Dec. 31, 1995, the Bank's regulatory liquidity of 7.5%, or $246.3
million, exceeded the current 5% regulatory liquidity requirement by $82.5
million. See Note O -- Borrowings for a description of the Bank's available
borrowing facilities.
24 St.Paul Bancorp, Inc.
Average Balances, Interest and Average Yields
At or for the years ending Dec. 31 -- Dollars in thousands
At Dec. 31, 1995 1995 1994 1993
---------------- ----------------------------- --------------------------- ----------------------------
Weighted Effective Effective Effective
Yield/ Average Yield/ Average Yield/ Average Yield/
Balance Rate Balance(a) Interest Rate Balance(a) Interest Rate Balance(a) Interest Rate
------------------------------------------------------------------------------------------------------------
Investments:
Marketable-debt
securities (b).......$ 92,778 5.34% $ 96,551 $ 5,015 5.19% $ 127,778 $ 6,032 4.72% $ 147,546 $ 6,222 4.22%
Federal funds and
interest bearing
bank balances........ 41,706 5.08 40,846 2,386 5.84 27,151 986 3.63 49,360 1,491 3.02
Other investments (c). 69,483 6.26 62,823 3,996 6.36 102,449 4,456 4.35 264,336 8,747 3.31
------------------------------------------------------------------------------------------------------------
Total investment....... 203,967 5.60 200,220 11,397 5.69 257,378 11,474 4.46 461,242 16,460 3.57
Mortgage-backed
securities (b)........ 975,422 6.49 1,047,704 65,723 6.27 1,060,833 59,276 5.59 664,812 42,269 6.36
Loans receivable (d)... 2,738,092 7.69 2,633,455 201,630 7.66 2,435,856 182,512 7.49 2,455,559 198,208 8.07
------------------------------------------------------------------------------------------------------------
Total interest
earning assets........$3,917,481 7.28% $3,881,379 $278,750 7.18% $3,754,067 $253,262 6.75% $3,581,613 $256,937 7.17%
============================================================================================================
Deposits:
Interest bearing
checking.............$ 246,054 1.73% $ 237,826 $ 4,218 1.77% $ 241,943 $ 4,481 1.85% $ 214,201 $ 4,833 2.26%
Noninterest bearing
checking............. 129,230 -- 114,105 -- -- 101,700 -- -- 90,161 -- --
Other noninterest
bearing accounts..... 34,079 -- 29,642 -- -- 37,066 -- -- 43,923 -- --
Money market accounts. 198,495 3.13 215,128 6,703 3.12 281,004 7,809 2.78 296,818 8,634 2.91
Savings accounts...... 694,401 2.41 721,848 17,502 2.42 809,480 20,246 2.50 770,183 21,601 2.80
Certificates of
deposit.............. 1,929,551 5.77 1,863,205 104,318 5.60 1,736,898 82,426 4.75 1,804,386 87,205 4.83
------------------------------------------------------------------------------------------------------------
Total deposits......... 3,231,810 4.29 3,181,754 132,741 4.17 3,208,091 114,962 3.58 3,219,672 122,273 3.80
Borrowings: (e)
Short-term
borrowings........... 175,368 5.88 168,675 10,389 6.16 92,273 4,829 5.23 71,264 4,805 6.74
Long-term borrowings.. 266,059 7.00 267,931 18,986 7.09 217,332 15,278 7.03 74,894 5,904 7.88
------------------------------------------------------------------------------------------------------------
Total borrowings....... 441,427 6.55 436,606 29,375 6.73 309,605 20,107 6.49 146,158 10,709 7.33
------------------------------------------------------------------------------------------------------------
Total interest bearing
liabilities...........$3,673,237 4.56% $3,618,360 $162,116 4.48% $3,517,696 $135,069 3.84% $3,365,830 $132,982 3.95%
============================================================================================================
Excess of interest
earning assets over
interest bearing
liabilities...........$ 244,244 $ 263,019 $ 236,371 $ 215,783
============================================================================================================
Ratio of interest
earning assets over
interest bearing
liabilities........... 1.07x 1.07x 1.07x 1.06x
============================================================================================================
Net interest income.... $116,634 $118,193 $123,955
============================================================================================================
Interest rate spread... 2.72%
============================================================================================================
"Average" interest
rate spread........... 2.70% 2.91% 3.22%
============================================================================================================
Net yield on average
earning assets........ 3.01% 3.15% 3.46%
============================================================================================================
(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, securities sold under agreements to repurchase, and
other borrowings. The ESOP loan is excluded in 1993.
1995 Annual Report/10-K 25
Rate/Volume Analysis
Years ended Dec. 31 -- Dollars in thousands
1995 vs. 1994 1994 vs. 1993
increase/(decrease) due to increase/(decrease) due to
-----------------------------------------------------------
Total Total
Volume Rate Change Volume Rate Change
-----------------------------------------------------------
Change in Interest Income:
Loans receivable................ $15,060 $ 4,058 $19,118 $(1,579) $(14,117) $(15,696)
Mortgage-backed securities...... (742) 7,189 6,447 22,644 (5,637) 17,007
Marketable-debt securities...... (1,579) 562 (1,017) (886) 696 (190)
Federal funds and interest
bearing bank balances.......... 634 766 1,400 (765) 260 (505)
Other short-term investments.... (2,085) 1,625 (460) (6,443) 2,152 (4,291)
-----------------------------------------------------------
Total interest income.......... 11,288 14,200 25,488 12,971 (16,646) (3,675)
Change in Interest Expense:
Deposits........................ (951) 18,730 17,779 (439) (6,872) (7,311)
Short-term borrowings........... 4,581 979 5,560 1,236 (1,212) 24
Long-term borrowings............ 3,585 123 3,708 10,078 (704) 9,374
-----------------------------------------------------------
Total interest expense......... 7,215 19,832 27,047 10,875 (8,788) 2,087
-----------------------------------------------------------
Net change in net interest
income before provision for
loan losses.................... $ 4,073 $(5,632) $(1,559) $ 2,096 $ (7,858) $ (5,762)
===========================================================
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 effect of nonperforming assets has been
included in the rate variance. Average balances exclude the effect of unrealized
gains and losses.
RESULTS OF OPERATIONS--
COMPARISON OF YEARS ENDED
DEC. 31, 1995 AND 1994
General: Net income during 1995 totaled $36.4 million, or $1.87 per share,
compared to $34.5 million, or $1.70 per share, during 1994./(1)/ The higher
level of income in 1995 compared to 1994 was associated with a $4.0 million
increase in other income, a $3.3 million reduction in the provision for loan
losses, and a $986,000 decrease in the net loss from foreclosed real estate
operations. Partly offsetting these increases in income were a $3.0 million
increase in general and administrative ("G&A") expenses and a $1.6 million
reduction in net interest income. The provision for income taxes also increased
$1.7 million, largely due to the higher level of pre-tax income and an increase
in the effective income tax rate during 1995.
Net Interest Income: Net interest income totaled $116.6 million during 1995,
$1.6 million or 1.3% lower than 1994. The decrease in net interest income was
produced by a $27.0 million increase in interest expense, partly offset by a
$25.5 million increase in interest income. The net interest margin ("NIM") for
1995 was 3.01%, 14 basis points lower than the 1994 NIM of 3.15%. During 1994,
the Company leveraged the balance sheet in an effort to increase interest
earning assets and enhance net interest income during a period in which the
interest rate spread was compressing. MBS balances were acquired with matched
borrowing transactions and liquidity, and the Bank originated a record level of
loans, funded with both borrowings and liquidity. During 1995, the Company
looked for ways to stabilize the interest rate spread and improve asset yields.
Much of the decline in the NIM was produced by rising deposit costs, as the Bank
continued to offer higher rates on new CDs to maintain deposit balances.
Favorable repricing in the MBS and loan portfolios partly offset this decline.
See Cash Flow Activity for a discussion of changes in interest earning assets
and interest bearing liabilities.
Interest income from loans receivable improved significantly during 1995,
primarily due to a $197.6 million increase in average balances. Most of the
increase was associated with the record level of loan originations during 1994.
Because most originations occurred during the middle
(1) The earnings per share comparison benefited from 1,003,925 shares of Company
common stock bought through stock repurchase programs in 1994 and 236,447 shares
repurchased during 1995. See Consolidated Statements of Stockholders' Equity for
further details.
26 St.Paul Bancorp, Inc.
and end of 1994, the full impact on average balances was not realized until
1995. The timing of these originations also caused the improvement in average
balances to be greater than the increase in period-end balances. Period-end
balances also benefited from the acquisition of $185 million of whole loans
during the fourth quarter of 1995. The full impact of this acquisition on
average balances and interest income will not occur until 1996. Interest income
also benefited from a 17 basis point increase in the average yield earned on
loans receivable during 1995. Much of the increase, which caused the NIM to
expand by 11 basis points, was associated with favorable repricing on adjustable
rate loans. Approximately 45% of the adjustable rate loans were tied to lagging
indices. These indices rose throughout most of 1995 and lagged behind the
general increase in interest rates that occurred during 1994.
The MBS portfolio also benefited significantly from favorable repricing
during 1995. The average yield on MBS increased 68 basis points, and allowed the
NIM to expand by 19 basis points during the year. Most of the MBS are tied to
the six-month LIBOR and the one-year constant maturity Treasury bill indices,
and although these indices have declined slightly since year-end 1994, they were
generally at higher levels during 1995 than during 1994. Also, repricing on
certain MBS was deferred until 1995 due to periodic and lifetime caps that
limited repricing during the rising interest rate environment of 1994. Average
MBS balances declined $13.1 million to total $1.0 billion during 1995. During
1994, the Company built up MBS balances by acquiring $632.0 million of MBS with
excess liquidity and $210.0 million of borrowings./(2)/ While average balances
declined only slightly, period-end MBS balances declined $151.2 million from
Dec. 31, 1994, due to principal repayments received during 1995. See Cash Flow
Activity for further details.
The increase in interest expense in 1995 was produced by an increase in the
effective cost of deposits and higher average borrowing balances. The effective
cost of deposits, which jumped 59 basis points during 1995, caused the NIM to
contract by 48 basis points. Beginning in late 1994 and continuing into 1995,
the Company offered higher rates on CD products and provided special incentives
and attractive product features to maintain deposit balances. The higher rates
and an increase in the relative size of CD products to other deposit products
produced the increase in the effective cost during 1995. Management expects to
continue to offer attractive rates on CDs during 1996 to attract additional
funds for asset expansion. Management also expects to increase asset yields to
offset the heavier reliance on CDs and preserve the Bank's interest rate spread.
While deposit rates have increased, the Company's weighted average cost of
deposits is still below that of many of its competitors, according to certain
industry surveys.
The use of borrowings to fund asset expansion during 1994 produced higher
borrowing expense during 1995. Average borrowing balances increased $127.0
million to total $436.6 million during 1995. Because the Company increased
borrowing balances during middle and late 1994, the full impact of these
borrowings on average balances was not realized until 1995. In contrast to
average borrowing balances, period-end balances actually declined $51.5 million
from Dec. 31, 1994 to Dec. 31, 1995, as the Company was able to reduce
borrowings during 1995 through the use of liquidity provided by loan and MBS
repayments.
The Bank's ability to sustain current net interest income levels during
future periods is largely dependent on maintaining the interest rate spread,
which is the difference between weighted average rates on interest earning
assets and interest bearing liabilities. The interest rate spread was 2.72% at
Dec. 31, 1995, or 4 basis points lower than the interest rate spread of 2.76% at
Dec. 31, 1994. Many of the same factors that impacted the NIM also impacted the
Bank's interest rate spread. A 44 basis point increase in the weighted average
cost of deposits from year-end 1994 put pressure on the interest rate spread.
However, favorable repricing caused the weighted average rates on MBS and loans
to increase by 47 basis points and 18 basis points, respectively. The interest
rate spread also benefited from reinvestment of MBS repayments back into the
loan portfolio and a reduction in borrowings, which are the highest-cost
interest bearing liability. See Cash Flow Activity for a discussion of changes
in interest earning assets and interest bearing liabilities.
(2) To mitigate interest rate risk on approximately $164 million of fixed rate
MBS purchased during 1994, the Bank borrowed $35 million of fixed rate FHLB
advances with put options and $135 million of floating rate borrowings hedged by
a $115 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
details. In an effort to reduce its credit risk, the Bank obtained 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.
In addition, the Bank acquired approximately $40 million of adjustable rate
MBS at a premium, funded with variable rate FHLB advances. The advances have a
four-year fixed maturity and adjust to the same index as the MBS. If the Bank
experiences higher than anticipated prepayments, the premium amortization would
accelerate and cause the yield on this transaction to be less than expected.
Conversely, if prepayments are less than anticipated, the yields earned could be
more than expected.
During 1995, the matched funding transactions described in this footnote
generated $4.0 million of net interest income, although it contracted the Dec.
31, 1995 interest rate spread and NIM earned during 1995 by approximately 14
basis points. See Cash Flow Activity for further details.
1995 Annual Report/10-K 27
External forces, such as the performance of the economy, 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.
The interest rate spread is generally regarded by Management as a precursor
for movements in the NIM. While the interest rate spread has declined since Dec.
31, 1994, it has increased between the second and fourth quarters of 1995.
Management believes that several product-related factors may continue to impact
the Company's interest rate spread in the future. First, periodic and lifetime
interest rate caps on loans and MBS held in the Bank's portfolio may limit
upward repricing on loans and MBS. At Dec. 31, 1995, interest rate caps on $281
million of loans receivable have kept the adjustable interest rate on these
loans below their fully indexed rate./(3)/ The Bank also has $650 million of MBS
that contain interest rate cap provisions. However, no MBS were at their
lifetime interest rate cap at year-end 1995. Most of the annual interest rate
caps in the Bank's loan and MBS portfolios are 2%.
Second, the Bank has $629.8 million of "adjustable" rate loans that have
initial fixed interest rate periods ranging from three to five years. The
weighted average rate on these loans is 7.35%, or 34 basis points below the
weighted average rate of the entire loan portfolio at Dec. 31, 1995. Only a
nominal number of these loans are scheduled to reprice during 1996.
Third, in addition to adjustable rate loans performing at initial fixed
interest rates, approximately $531.0 million of adjustable rate 1-4 family and
multifamily loans were at their interest rate floors. These loans will not
reprice until the fully indexed rate exceeds the floor rate. At Dec. 31, 1995,
the weighted average fully indexed rate was 7.51% and the weighted average floor
rate was 8.07%. Increases in interest rates since the beginning of 1994 have
caused the size of the benefit from these floors to erode and the Bank's
interest expense to rise without a corresponding adjustment in interest income
from these loans until the floors are surpassed. During 1995, floors provided
$4.5 million of interest income and added 17 basis points to the overall loan
yield during the period. In comparison, floors provided $12.2 million of
interest income and added 55 basis points to the overall yield during 1994.
Fourth, $984.2 million of the Company's assets are tied to indices whose
movements lag behind movements in market interest rates.
On the liability side, Management expects that heavier reliance on CDs and
attractive offering rates may increase deposit costs./(4)/ However, Management
also expects higher asset yields to preserve the Bank's interest rate spread. In
addition, the Company has $175.4 million of short-term borrowings used to fund
general operations which are sensitive to movements in interest rates.
Provision for Loan Losses: The provision for loan losses recorded during 1995
was $1.9 million, or 63% lower than the provision recorded during 1994. The
reduction in the provision for loan losses reflects lower classified assets, the
continued low level of nonperforming assets, and a reduction in the outstanding
loan balances of the Bank's nationwide multifamily lending program.
See Credit Risk Management and Note A -- Summary of Significant Accounting
Policies for further discussion.
Other Income: Other income increased $4.0 million or 13.3% during 1995 to $33.7
million, compared to $29.8 million during 1994. Most of the increase in other
income was associated with higher checking and ATM fees, which improved $4.7
million during the year. Growth in the number of checking accounts, introduction
of new fees and general increases in existing fees generated the increase. This
increase was partially offset by a decline in revenues contributed by the
Company's subsidiaries, and included a $548,000 decrease in discount brokerage
revenues and $343,000 less in income from real estate development operations.
While discount brokerage revenues in 1995 were less than in 1994, primarily
associated with lower customer demand and resulting trading volumes, revenues
increased steadily throughout the year. The decline in income from real estate
operations was largely associated with lower margins realized on sales.
In 1996, Management expects other income to increase at a much slower pace
than during 1995. While 1995's growth came primarily through changes to the fee
structure, growth in 1996 is expected to come from increased transaction volumes
and increased contributions from discount brokerage, insurance and annuity
sales. During 1996, the Bank plans to offer Money Connection, a package of
accounts including a checking account, savings/money market account and an ATM
[CHART APPEARS HERE]
Components of Other Income in 1995
a) Other Fee Income....................$21.8 million
b) Brokerage, Insurance, Annuity....... $6.3 million
c) Real Estate Development............. $2.8 million
d) Other............................... $1.8 million
e) Gain on Asset Sales................. $1.1 million
(3) Had these loans been allowed to adjust to their fully indexed rate, the loan
yield at Dec. 31, 1995 would have been 21 basis points higher and the interest
rate spread would have been 15 basis points higher.
(4) However, $163.3 million of noninterest bearing account balances helps
mitigate the overall effect of an increase in the relative size of CDs as
compared to other deposit products.
28 St.Paul Bancorp, Inc.
card. The program's goal is to attract new customers and increase fee-based
transaction volumes. Management also plans to continue expanding its ATM network
during 1996. In March 1996, the Company agreed to install ATMs in 256 White Hen
convenience stores, more than doubling the size of its network.
In May 1995, the FASB issued SFAS No. 122, Accounting for Mortgage
Servicing Rights. This Statement requires the capitalization of costs to
originate loans that will be sold or securitized with servicing rights retained,
as originated mortgage servicing rights. Costs are allocated between the
originated mortgage servicing rights and loans based upon their relative fair
values. The originated mortgage servicing rights would be amortized in
proportion to, and over the period of, estimated net servicing income.
Currently, these origination costs are included in the basis of loans that are
sold, thereby reducing the net gain on asset sales included in other income.
Management estimates that the adoption of SFAS No. 122 will have a minimal,
albeit favorable, impact on the results of operations and will apply the new
rules on a prospective basis beginning in the first quarter of 1996.
G&A Expense: G&A expense increased $3.0 million or 3.4% to total $90.2 million
during 1995, compared to $87.2 million during 1994. The increase was largely
associated with a $2.4 million increase in occupancy, equipment, and other
office expense, and an additional $1.8 million in compensation and benefits.
Higher G&A costs were associated with the addition of two branches during mid-
1994, expansion of the ATM network, and annual merit increases. These increases
were partly offset by a $993,000 decline in advertising costs caused by a
reduction in planned advertising expenditures.
During 1996, G&A expenses should benefit from a reduction in the FDIC
insurance premium assessment paid by the Bank, which will amount to a savings of
approximately $1.0 million annually. G&A expense also may be affected by the
anticipated recapitalization of the SAIF and further reductions in insurance
assessments. See Overview and Annual Report on Form 10-K -- Regulation for
further details. Management also expects pension costs to rise as a result of a
decrease in the interest rate used to measure the Bank's pension liability
(associated with lower market interest rates) from 8.50% to 7.25%. See Note
S -- Employee Benefit Plans for further details.
Introduction of the Tele-Banking Center ("TBC") in the fourth quarter of
1995 also impacted G&A expenses. The TBC was designed to handle those banking
transactions that require human intervention but not necessarily a trip to a
branch. While the TBC will contribute to an increase in G&A, Management hopes it
will be a cost-effective way to improve customer service and provide another
avenue to market and sell products, such as home equity and consumer loans.
Because of fee-based products and services offered, the Company's G&A
expenses may be higher than other institutions. Nonetheless, the Company
continued to tightly control G&A costs during 1995 and was able to reduce the
number of full-time equivalent employees from 1,103 at year-end 1994 to 1,060 at
year-end 1995. Management remains committed to ongoing expense control. Despite
these measures, continued expansion of the ATM network, more services offered,
and general inflation may cause 1996 G&A expense to exceed 1995 levels. At the
same time, Management hopes the introduction of new technology, such as check
imaging, a digital phone system and the TBC, can provide a cost-effective means
of handling more transactions.
In March 1995, the FASB issued SFAS No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. This Statement
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present, and when the undiscounted
cash flows estimated to be generated by those assets are less than the asset's
carrying amount. This Statement also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company will adopt SFAS No. 121
during the first quarter of 1996 and does not expect the effect of the adoption
to be material.
In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation. This Statement requires that compensation expense be recorded for
stock-based compensation awards, such as stock options, as the fair value of the
award at the date of grant. The Statement also permits an employer to continue
to account for stock-based compensation using Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees, but requires
the pro forma disclosure of the results of operations as if the fair value
method were used. Under APB No. 25, the Company records no compensation expense
for stock option awards, because the exercise price of the award equals the fair
market value of the underlying stock at the date of grant. Because the Company
expects to continue using APB No. 25 for accounting for stock-based compensation
and to provide the pro forma disclosures, adoption of this Statement, which will
occur during the first quarter of 1996, will have no impact on the results of
operation. See Note A -- Summary of Significant Accounting Policies for further
details.
Operations of Foreclosed Real Estate: The Bank generated a net loss from its
foreclosed real estate operation of $1.2 million during 1995, compared to a $2.1
million loss during 1994. A decrease in the provision for losses on real estate
owned ("REO") produced the reduction in the net loss. Fewer REO properties
managed during 1995 as compared to 1994 caused the decline. See Credit Risk
Management and Note I -- Foreclosed Real Estate for further discussion of REO.
1995 Annual Report/10-K 29
Income Taxes: Income taxes during 1995 totaled $20.7 million or 36.3% of pre-tax
income, compared to $19.0 million or 35.5% of pre-tax income during 1994. A $3.6
million increase in pre-tax income and higher effective federal and state income
tax rates produced the higher level of income tax expense during 1995. See Note
P -- Income Taxes for a reconciliation of income tax expense at the federal
statutory rate to the Company's effective tax rate.
During 1996, the Company's effective state income tax rate could increase
by as much as 2.5% as a result of the enactment of recommendations made by the
Multi-State Tax Commission ("MTC"). The MTC was formed to develop a uniform
allocation and apportionment methodology for the financial services industry.
This methodology would tax income earned by out-of-state financial institutions
on loans secured by real estate in the taxing state. The MTC is expected to be
adopted by many states, including California, for the 1996 tax year. The Company
could see a higher effective tax rate and tax expense, and is reviewing state
tax planning strategies that could mitigate some of the effects of the changes
in the state tax laws.
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./(5)/ 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, 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 reduction 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 for 1994 was 3.15%, or 31 basis
points lower than the 1993 NIM of 3.46%. The decrease in the NIM was associated
with the rising interest rate environment experienced during 1994 as the net
spread between interest earning assets and interest bearing liabilities
contracted. In an effort to enhance net interest income and offset the declining
interest rate spread, the Bank expanded earning asset levels during 1994. 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. During 1994, the Bank acquired $210
million of MBS with matched borrowings and $422 million with excess liquidity.
In addition, while interest rates continued to climb during the year, the Bank
borrowed funds to finance its loan production, which reached the highest level
in the Bank's history. The effect of these transactions compressed the Bank's
margin further, but increased net interest income. On the deposit side, the Bank
successfully retained balances and kept interest costs low, as declines in
deposit costs earlier in the year were offset by higher costs later in the year,
resulting in a modest increase in the weighted average deposit rate since year-
end 1993.
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 interest rate
spread was compressed because the Bank began to raise deposit rates more
substantially at the end of 1994 in response to a sharp rise in short-term
market interest rates. In addition, the weighted average interest rate of the
loans receivable portfolio declined substantially due to a record level of loan
originations at rates generally lower than the weighted average rate of the
entire loan portfolio. In addition, higher rate loans continued to be repaid
during the year. The benefit provided by reinvesting liquidity into higher
yielding MBS was largely offset by the use of borrowings to fund asset growth.
Provision for Loan Losses: The Company recorded a $5.2 million provision for
loan losses during 1994, about one-half 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.
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 a decrease in gains on asset sales produced the decline in other
income. Declines in discount brokerage revenues resulted from lower consumer
demand for brokerage products and resulting trading volumes. Lower gains on
asset sales were caused by a decrease in gains recorded on the sale of
adjustable rate loans that converted to fixed interest rates, as well as lower
fixed rate loan originations. Higher other fee income partially offset these
decreases. Fee income improved in part due to expansion in the number of
checking accounts and ATM transactions.
G&A Expense: G&A expense increased $4.4 million or 5.3% during 1994 compared to
1993. Most of the increase was largely associated with higher compensation and
benefits
(5) The earnings per share comparison benefited from the repurchase of 1,003,925
shares of the Company's common stock in 1994. See Consolidated Statements of
Stockholders' Equity for further details.
30 St.Paul Bancorp, Inc.
and occupancy, equipment, and other office expense. The increase was associated
with the expansion of the branch network, including eight branches acquired from
Elm Financial in February 1993 and two in-store branches opened during 1994, as
well as extension of hours at many of the branch facilities. In addition, a 13%
growth in the Bank's checking accounts contributed to higher servicing costs. An
increase in pension costs during 1994, which resulted from lower market interest
rates that reduced the rate used to measure the Bank's pension liability at Dec.
31, 1993, also contributed to the higher G&A expense.
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. 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 federal statutory rate to the effective tax rate.
1995 Annual Report/10-K 31
Key Credit Statistics
At or for the years ended Dec. 31 - Dollars in thousands
Key Credit Ratios
1995 1994 1993
----------------------------
Net loan charge-offs to average loans receivable.............................. 0.21% 0.39% 0.56%
Net California loan charge-offs to average California loans receivable........ 0.48 1.21 1.52
Loan loss reserve to total loans.............................................. 1.42 1.62 1.98
Loan loss reserve to nonperforming loans...................................... 216.62 424.72 156.99
Loan loss reserve to impaired loans........................................... 120.37 170.03 N/A
Nonperforming assets to total assets.......................................... 0.71 0.66 1.34
General valuation allowance to nonperforming assets........................... 123.94 143.24 85.41
============================
N/A -- Not applicable
Loan Portfolio
1995 1994 1993 1992 1991
-------------------------------------------------------------------------------------------
Mortgage Loans
1-4 family units.................. $1,663,228 62% $1,530,132 59% $1,190,273 51% $1,080,374 47% $1,145,898 47%
Multifamily units................. 979,017 36 993,122 38 1,057,571 46 1,141,002 50 1,223,759 50
Commercial........................ 54,981 2 63,983 3 73,029 3 66,725 3 65,129 3
Land and land development......... 1,940 * 224 * 10,307 * 3,126 * 2,304 *
-------------------------------------------------------------------------------------------
Total mortgage loans............ $2,699,166 100% $2,587,461 100% $2,331,180 100% $2,291,227 100% $2,437,090 100%
===========================================================================================
Consumer Loans
Secured by deposits............... $ 2,307 10% $ 1,928 8% $ 2,300 11% $ 2,374 8% $ 3,664 15%
Education......................... 261 1 584 3 2,166 11 2,194 8 2,620 11
Home improvement.................. 576 2 832 4 1,110 6 1,589 6 2,367 10
Auto.............................. 20,034 86 19,392 83 13,971 71 9,704 35 5,198 21
Credit card and personal.......... 165 1 380 2 166 1 11,791 43 10,765 43
-------------------------------------------------------------------------------------------
Total consumer loans............ $ 23,343 100% $ 23,116 100% $ 19,713 100% $ 27,652 100% $ 24,614 100%
===========================================================================================
Total loans held for investment... $2,722,509 $2,610,577 $2,350,893 $2,318,879 $2,461,704
===========================================================================================
Weighted average rate 7.69% 7.51% 7.88% 8.53% 9.52%
===========================================================================================
*Less than 1%
Geographic Concentration of Nonperforming Assets
1995 1994
Amount Percent Amount Percent
-----------------------------------
State
California........................................ $ 6,723 23.0% $ 6,748 24.9%
Illinois.......................................... 11,079 37.9 13,498 49.8
Washington........................................ 8,206 28.1 6,623 24.4
Wisconsin......................................... 3,092 10.6 - -
Other............................................. 24 0.1 121 0.5
Consumer loans.................................... 81 0.3 101 0.4
-----------------------------------
Total............................................. $29,205 100.0% $27,091 100.0%
===================================
32 St.Paul Bancorp, Inc.
CREDIT RISK MANAGEMENT
At Dec. 31, 1995, the loans receivable portfolio was primarily comprised of
residential mortgages, secured by both 1-4 family and multifamily dwellings. To
a much lesser extent, the loan portfolio also includes commercial real estate
loans, land loans and consumer loans. See Loan Portfolio table for further
details.
Nonperforming loans rose $7.9 million during 1995 to total $17.8 million at
Dec. 31, 1995./(6)/ An additional $5.8 million in multifamily and commercial
nonperforming loans and a $2.1 million increase in 1-4 family nonperforming
loans comprised the increase. See Nonperforming Loans following for the
composition of nonperforming loans. See Note A -- Summary of Significant
Accounting Policies for a description of the Company's policy for placing loans
on nonaccrual. Although nonperforming loans increased since year-end 1994, the
levels are still among the lowest in recent years. Delinquent real estate loans
accounted for on an accrual basis (i.e., still considered performing loans) also
increased to $63.4 million at year-end 1995, compared to $50.6 million at year-
end 1994./(7)/ Delinquent multifamily and commercial loans increased by 47%
while delinquent 1-4 family loans increased by 23%. See Delinquent Loans
Accounted for on an Accrual Basis for further details. Impaired loans, as
defined by SFAS No. 114, Accounting by Creditors for Impairment of a Loan,
increased during 1995 to total $32.1 million or 0.78% of total assets at Dec.
31, 1995./(8)/ In comparison, impaired loans at Dec. 31, 1994 totaled $24.8
million or 0.60% of total assets. See Note E -- Loans Receivable for impaired
loans detail.
[CHART APPEARS HERE]
--------------------------------
Net Charge-Offs to Average Loans
1991 0.45%
1992 0.34%
1993 0.56%
1994 0.39%
1995 0.21%
--------------------------------
In 1995, $5.5 million in net charge-offs were recorded on loans, compared
to $9.5 million recorded during 1994 and $13.8 million recorded during 1993. Of
the $5.5 million of net charge-offs in 1995, $3.1 million represented specific
reserves established prior to 1995. The decline in charge-offs reflects lower
classified assets, the continued decline in nonperforming assets in recent
years, and a reduction in outstanding balances of the Bank's nationwide
multifamily lending program. Included in the net charge-off was a $3.1 million
charge-off on the sale of a purchased loan participation secured by three high-
rise office buildings located in New York City. The Bank owns no other purchased
commercial loan participations. The remainder of the charge-offs primarily
related to the Bank's nationwide multifamily real estate loan portfolio. Net
charge-offs to average loans receivable totaled 0.21% during 1995, compared to
ratios for 1994 and 1993 of 0.39% and 0.56%, respectively. Excluding the New
York City loan participation, the 1995 net charge-off ratio would have been only
0.09%. See Accumulated Provision for Loan Losses Activity table for further
details.
The Company no longer originates multifamily or commercial real estate
loans secured by collateral located outside the Midwest, except to refinance
loans which are maturing, 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 are in California
(52.6%), Illinois (13.9%), and Washington State (9.5%). Principal repayments
reduced the level of nationwide loans from Dec. 31, 1994 to Dec. 31, 1995 by
$116.8 million. Furthermore, nationwide loans secured by real estate located in
California declined by $28.2 million during 1995. Nationwide loans sold with
recourse also declined in 1995. See Note V -- Concentration of Credit Risk and
Note T -- Financial Instruments With Off-Balance Sheet Credit Risk for further
details.
Within the next four years, more than 65% of the Bank's multifamily and
commercial real estate loan portfolio is scheduled to mature. Management is
actively working with borrowers whose loans mature in 1996 to either refinance
or repay the mortgage loans, depending upon credit characteristics. Management
is currently developing strategies for 1997 maturities to ensure repayment of
these mortgage loans. 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
refinancings, 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, if the
consequences of foreclosure would be less desirable, negotiate concessions from
the borrowers with the intent of improving the credit quality of the loans.
(6) Of total nonperforming loans at Dec. 31, 1995, $6.7 million and $1.9 million
at Dec. 31, 1995 and Dec. 31, 1994, respectively, were secured by real estate
located in California.
(7) Of total delinquent loans accounted for on an accrual basis, $8.9 million
and $9.8 million at Dec. 31, 1995 and 1994, respectively, were secured by real
estate located in California.
(8) Of total impaired loans accounted for on an accrual basis, $26.0 million and
$9.4 million at Dec. 31, 1995 and 1994, respectively, were secured by real
estate located in California.
1995 Annual Report/10-K 33
Depending upon the strategy deployed, the amount of the Bank's charge-offs and
REOs could be affected.
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.
Management continues to monitor events in the submarkets in which the Bank
has substantial loan concentrations, particularly California. During 1995, the
Bank's California real estate portfolio performed better than in earlier years
as charge-offs and the amount of California classified assets have declined. The
Bank's continued research and analysis, along with the Bank's portfolio trends,
indicate the emergence of an overall improving California economy. 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. Although some softness persists in certain areas of
California, Management is not aware of any changes in those economies that would
have a significant adverse effect on the Bank's loan portfolio.
These trends, combined with the reduction in the outstanding nationwide
multifamily lending portfolio, have resulted in the level of loss provisions
determined by the Bank's loan loss reserve methodology to be below net charge-
offs and caused the accumulated provision for loan losses to decrease from $42.2
million at Dec. 31, 1994 to $38.6 million at Dec. 31, 1995. During 1996,
Management expects to continue recognizing charge-offs in connection with
certain weak loans in the portfolio. See Note A -- Summary of Significant
Accounting Policies for a discussion of the Bank's loan loss methodology.
Most of the 1995 loan originations and purchases were 1-4 family loans.
During the year, the Bank originated $75.5 million of home equity/line of credit
and consumer loans. Management plans to continue emphasizing these products
during 1996 in order to improve asset yields. The Bank also plans to introduce
higher, risk-adjusted prices for 1-4 family and home equity loans to otherwise
qualified borrowers who have relatively minor exceptions to the Bank's
conservative loan underwriting standards. The Bank may sell lower quality
consumer loans to another lender, rather than hold these loans in portfolio.
The Bank also originated $41.8 million of mortgage loans secured by 5-120
unit apartment buildings located within a 100-mile radius of the Bank's home
office. In 1996, Management hopes to increase originations under this program to
$105 million and expand the geographic area covered by the program to within a
150-mile radius of Chicago. During 1995, the Bank also began offering
construction lending to experienced residential land developers and home
builders in the Chicago metropolitan area. However, due to competitive
conditions, the Bank discontinued this program in late 1995, and at year-end
1995, had only $2.9 million of construction loans outstanding under this
program.
During the fourth quarter of 1995, the Bank purchased $185 million of whole
loans from a Midwest lending institution. All of these loans are secured by 1-4
family real estate located in Missouri. During the due diligence procedures, the
Bank selected those loans with good credit quality that presented no greater
risks than the Bank's own originated 1-4 family portfolio. These loans will be
reviewed as part of the Bank's periodic review of the adequacy of the general
valuation allowance.
From time to time, Management also may 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.
As of Dec. 31, 1995, the Bank's ratio of classified assets to tangible
capital and general valuation allowance was 42.2%, considerably lower than the
56.1% ratio reported at Dec. 31, 1994. Classified assets include REO and loans
considered "substandard," "doubtful" or "loss" under regulatory accounting
purposes and the Bank's loan rating system. The Bank has submitted a plan to the
OTS to reduce this ratio to less than 32% by the end of 1996.
Foreclosed Real Estate: Foreclosed real estate declined $5.8 million to total
$11.4 million at year-end. During the year, title was taken on $10 million of
real estate, while $16 million of real estate was sold or reduced through
valuation allowances and charge-offs.
At year-end 1995, the Company had an $8.2 million net investment/(9)/ in
three apartment buildings located in Washington State and a $1.0 million
investment in an Illinois commercial real estate building. The remaining $2.2
million of foreclosed real estate was comprised of 1-4 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, 1995 and 1994 -- Operations of Foreclosed Real Estate for further
details. REO balances also may be affected by the strategy deployed to deal with
the multifamily and commercial loans scheduled to mature within the next few
years.
(9) At Dec. 31, 1995, the Bank had committed to repurchase, at a discount, $3.4
million of participating interests in this asset.
34 St.Paul Bancorp, Inc.
Accumulated Provision for Loan Losses Activity
At or for the years ended Dec. 31 -- Dollars in thousands
1995 1994 1993 1992 1991
-----------------------------------------------
Balance at beginning of year.................. $42,196 $46,574 $48,681 $46,164 $46,237
Charge-offs:
Real estate loans:
1-4 family.................................. 506 444 187 52 282
Multifamily................................. 4,167 8,592 13,863 6,393 9,885
Commercial.................................. 3,081 813 -- 1,100 530
Land and land development................... -- 85 -- -- --
Consumer...................................... 125 309 306 695 507
-----------------------------------------------
Total charge-offs............................. 7,879 10,243 14,356 8,240 11,204
Recoveries:
Real estate loans:
1-4 family.................................. 103 26 9 -- 1
Multifamily................................. 2,243 644 512 127 28
Commercial.................................. -- -- -- -- --
Land and land development................... -- -- -- -- --
Consumer...................................... 56 45 49 5 2
-----------------------------------------------
Total recoveries.............................. 2,402 715 570 132 31
-----------------------------------------------
Net charge-offs............................. 5,477 9,528 13,786 8,108 11,173
Acquired from Elm Financial................... -- -- 929 -- --
Provisions for losses charged to operations... 1,900 5,150 10,750 10,625 11,100
-----------------------------------------------
Balance at end of year........................ $38,619 $42,196 $46,574 $48,681 $46,164
===============================================
Ratio of net charge-offs to average loans:
Real estate loans:
1-4 family.................................. 0.02% 0.02% 0.01% --% 0.01%
Multifamily................................. 0.07 0.33 0.54 0.26 0.40
Commercial.................................. 0.12 0.03 -- 0.05 0.02
Land and land development................... -- -- -- -- --
Consumer...................................... * 0.01 0.01 0.03 0.02
-----------------------------------------------
0.21% 0.39% 0.56% 0.34% 0.45%
===============================================
*Less than 0.01%.
Allocation of the Accumulated Provision for Losses
At Dec. 31 -- Dollars in thousands
1995 1994 1993 1992 1991
------------------------------------------------------------------------------------------
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 year
applicable to:
Real estate loans:
1-4 family.......... $ 3,163 61.0% $ 2,644 58.2% $ 2,354 50.9% $ 2,501 46.8% $ 4,108 47.0%
Multifamily, land
and commercial.... 34,861 37.8 38,840 40.5 43,628 48.0 45,018 51.8 40,575 51.8
Consumer.............. 595 1.2 712 1.3 592 1.1 1,162 1.4 1,481 1.2
---------------------------------------------------------------------------------------
$38,619 100.0% $42,196 100.0% $46,574 100.0% $48,681 100.0% $46,164 100.0%
=======================================================================================
1995 Annual Report/10-K 35
Nonperforming Loans
At Dec. 31 -- Dollars in thousands
1995 1994 1993 1992 1991
------------------------------------------
Loans accounted for on a nonaccrual basis: (a)
Real estate loans:
1-4 family.................................... $ 3,741 $1,952 $ 6,045 $ 5,343 $ 4,988
Multifamily................................... 8,665 3,813 12,907 15,559 33,712
Commercial.................................... 1,360 437 2,598 -- 1,582
Consumer........................................ 81 101 480 270 371
Other........................................... -- -- 2,406 -- 60
------------------------------------------
Subtotal...................................... 13,847 6,303 24,436 21,172 40,713
Loans delinquent 90 days or more
accounted for on an accrual basis: (b)
1-4 family..................................... 3,981 3,632 5,157 7,416 3,895
Consumer....................................... -- -- 75 771 878
------------------------------------------
Subtotal....................................... 3,981 3,632 5,232 8,187 4,773
------------------------------------------
Nonperforming loans............................. $17,828 $9,935 $29,668 $29,359 $45,486
==========================================
Troubled debt restructuring..................... $ -- $ -- $15,646 $25,043 $25,976
==========================================
(a) During 1995, the Bank recorded $626,000 of interest income on loans
accounted for on a nonaccrual basis at Dec. 31, 1995. Had loans been accounted
for on an accrual basis during all of 1995, interest income would have been $2.0
million higher.
(b) The Bank continues to accrue interest on government insured and 1-4 family
loans with original loan-to-value ratios of 80% or less that are 90 days or more
delinquent. While these loans are still accruing interest, they are reported as
nonperforming. See Note A -- Summary of Significant Accounting Policies for
further discussion of the Bank's policy for placing loans on a nonaccrual
status.
Delinquent Loans Accounted for on an Accrual Basis (a)
At Dec. 31 -- Dollars in thousands
Percent Percent Percent Percent Percent
of of of of of
Real Real Real Real Real
Estate Estate Estate Estate Estate
1995 Loans 1994 Loans 1993 Loans 1992 Loans 1991 Loans
--------------------------------------------------------------------------------------------------------
Real estate loans
delinquent
30 to 59 days............$56,554 2.09% $42,297 1.64% $51,732 2.20% $39,469 1.72% $67,004 2.72%
60 to 89 days............ 6,847 0.25 8,336 0.32 12,279 0.52 10,237 0.45 10,745 0.44
--------------------------------------------------------------------------------------------------------
Total......................$63,401 2.34% $50,633 1.96% $64,011 2.72% $49,706 2.17% $77,749 3.16%
========================================================================================================
Percent Percent Percent Percent Percent
of of of of of
Consumer Consumer Consumer Consumer Consumer
1995 Loans 1994 Loans 1993 Loans 1992 Loans 1991 Loans
--------------------------------------------------------------------------------------------------------
Consumer loans
delinquent
30 to 59 days............$ 485 1.44% $ 545 1.65% $ 327 1.20% $ 585 1.74% $ 896 2.91%
60 to 89 days............ 89 0.26 155 0.47 103 0.38 141 0.42 211 0.69
--------------------------------------------------------------------------------------------------------
Total......................$ 574 1.70% $ 700 2.12% $ 430 1.58% $ 726 2.16% $ 1,107 3.60%
========================================================================================================
(a) See Note A -- Summary of Significant Accounting Policies for a discussion of
policy for placing loans on nonaccrual.
36 St.Paul Bancorp, Inc.
INTEREST RATE RISK
Interest rate risk represents a measure of the sensitivity of the Bank's
earnings and the 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 that the
risks assumed were in conformity with the Bank's policies for interest rate
risk, based on its models. At the end of 1995, the Bank's exposure to interest
rate risk was less than it was at Dec. 31, 1994. The Bank's interest rate
position does not require regulatory capital allocation at this time./(10)/ See
Regulatory Capital Requirements for further details.
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./(11)/
1995 1994 1993 1992 1991
------------------------------------
One year..... 5.38% 4.40% 16.79% 16.84% 12.47%
Three years.. 10.87 3.93 10.94 4.06 2.02
Five years... 7.32 3.17 10.63 5.68 1.83
Generally, the Bank's policy is to maintain a balanced GAP. Management
considers a range of plus or minus 15% to be a desirable one-year GAP position.
The Bank's one-year GAP increased from a positive 4.40% at Dec. 31, 1994 to a
positive 5.38% at Dec. 31, 1995. The increase in the positive GAP position this
year reflects the continued emphasis on the origination and purchase of
adjustable rate loans and MBS.
Although GAP analysis provides some narrow insights into the repricing of
the Bank's balance sheet, for various reasons, GAP analysis in recent years has
not provided the Bank with a reliable measure of its interest rate risk exposure
because of its inherent limitations./(12)/ Internally, Management relies on its
models and financial simulations to evaluate the Bank's interest rate risk by
determining the net change in the value of the Bank's assets and liabilities due
to changes in interest rates. The models indicated that at year-end 1995,
substantial changes in interest rates will have less of an impact on the Bank's
net worth than at year-end 1994. Changes in interest rates that affect the slope
of the yield curve have little impact on GAP analysis, but cause significant
changes in the Bank's interest rate risk as measured by changes in the value of
assets and liabilities. See Statement of Condition -- Regulatory Capital
Requirements for further details.
(10) 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.
(11) Prior to 1993, OTS assumptions for prepayment and withdrawal rates were
used. Assumptions used for 1993, 1994 and 1995's GAP were based upon
Management estimates. Details of assumptions used in the table are provided in
the notes to the Interest Rate Sensitivity GAP Analysis table.
(12) 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; 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 that of 1994 and 1995. GAP analysis also
has other inherent problems. For example, an institution's assets could
theoretically reprice on the first day of the year and the institution's
liabilities could reprice on the last day of the year but be perfectly matched
under GAP. In this example, the institution actually would be exposed to
interest rate risk the entire year because of the repricing differences. GAP
also assumes that the interest rate spread between interest earning assets and
liabilities is constant and that the "GAP" represents the only risk. However, in
reality, the interest rate spread is constantly changing, sometimes
significantly, as transactions occur or instruments reprice. See Results of
Operations -- Comparison of Years Ended Dec. 31, 1995 and 1994 -- Net Interest
Income for a discussion of factors affecting the Bank's interest rate spread.
Interest rate floors in effect on $531.0 million of adjustable rate loans
at Dec. 31, 1995 and $655.4 million at Dec. 31, 1994 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,
1995, the weighted average difference between the fully-indexed rate and the
loan floors was 56 basis points. These loans will not actually reprice until the
underlying indices increase an average of 56 basis points.)
Consequently, the 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 $956
million of loans and $650 million of MBS also should 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 over a 12-month period.
1995 Annual Report/10-K 37
Interest Rate Sensitivity Gap Analysis (a)
At Dec. 31, 1995 -- Dollars in thousands
Weighted More than
Average % of 6 Months 6 months Over
Rate Balance Total or less to 1 year 1-3 years 3-5 years 5 years
---------------------------------------------------------------------------------------
Rate Sensitive Assets:
Investments: (b)
Adjustable rate........................... 5.27% $ 64,645 2% $ 54,658 $ 9,987 $ -- $ -- $ --
Fixed rate................................ 5.75 139,322 4 33,426 20,289 49,303 -- 36,304
Mortgage-backed securities: (c)
Adjustable rate........................... 6.15 648,615 17 342,990 305,625 -- -- --
Fixed rate................................ 7.17 326,807 8 24,859 9,052 88,723 58,921 145,252
Mortgage loans: (c)
Adjustable and renegotiable rate.......... 7.57 2,177,141 55 1,185,168 508,771 408,937 74,265 --
Fixed rate................................ 8.20 522,025 13 91,388 36,775 147,726 93,105 153,031
Consumer loans (c)......................... 7.53 23,343 1 3,691 2,197 6,993 5,241 5,221
Loans held for sale........................ 8.35 15,583 * 15,583 -- -- -- --
---------------------------------------------------------------------------------------
Total rate sensitive assets............... 7.28% $3,917,481 100% $1,751,763 $892,696 $701,682 $231,532 $339,808
=======================================================================================
Rate Sensitive Liabilities:
Deposits:
Checking and other deposit
accounts................................. 1.04% $ 408,839 11% $ 109,308 $ 23,377 $ 76,633 $ 55,367 $144,154
Savings accounts.......................... 2.41 694,482 19 229,111 43,960 138,055 92,828 190,528
Money market deposit accounts............. 3.12 198,938 5 198,938 -- -- -- --
Fixed-maturity certificates (d)........... 5.77 1,929,551 53 1,105,603 404,037 260,642 98,191 61,078
---------------------------------------------------------------------------------------
4.29 3,231,810 88 1,642,960 471,374 475,330 246,386 395,760
Borrowings:
FHLB advances............................. 6.23 336,684 10 310,285 25,000 314 -- 1,085
Other borrowings.......................... 7.43 88,343 2 87,034 1,309 -- -- --
Mortgage-backed note...................... 8.54 16,400 * -- -- -- 16,400 --
---------------------------------------------------------------------------------------
6.55 441,427 12 397,319 26,309 314 16,400 1,085
---------------------------------------------------------------------------------------
Total rate sensitive liabilities.......... 4.56% $3,673,237 100% $2,040,279 $497,683 $475,644 $262,786 $396,845
=======================================================================================
Excess (deficit) of rate sensitive
assets over rate sensitive
liabilities (GAP)......................... 2.72% $ 244,244 $(288,516) $395,013 $226,038 $(31,254) $(57,037)
=======================================================================================
Cumulative GAP............................. $(288,516) $106,497 $332,535 $301,281 $244,244
Cumulative GAP to total assets
without regard to hedging
transactions.............................. (7.01)% 2.59% 8.08% 7.32% 5.93%
Cumulative GAP to total assets with
impact of hedging transactions............ (4.03)% 5.38% 10.87% 7.32% 5.93%
*Less than 1%.
(a) 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 1-4 family
residences and loan securities were estimated to prepay at a rate of 20% per
year; fixed rate loans and loan securities were estimated to prepay at a rate of
12% 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, 1995 maturing during the periods
indicated.
Maturing Amount
- ---------------------------------------------------------------------------------
Jan. 1, 1996 to March 31, 1996......................................... $39,761
April 1, 1996 to June 30, 1996......................................... 37,741
July 1, 1996 to Dec. 31, 1996.......................................... 24,046
After Dec. 31, 1996.................................................... 15,124
--------
$116,672
========
38 St.Paul Bancorp, Inc.
Loan Maturity Table*
Based upon contractual maturities at Dec. 31, 1995 -- Dollars in thousands
1996 1997-2000 After 2000 Total
-----------------------------------------------------
Mortgage Loans
1-4 family units...............................................................$ 29,107 $107,102 $1,527,019 $1,663,228
Multifamily and other.......................................................... 152,893 558,792 324,253 1,035,938
-----------------------------------------------------
Total mortgage loans........................................................... 182,000 665,894 1,851,272 2,699,166
Consumer loans................................................................. 5,887 12,233 5,223 23,343
-----------------------------------------------------
Total loans receivable.........................................................$187,887 $678,127 $1,856,495 $2,722,509
=====================================================
*Excludes loans held for sale.
Loans Due After Dec. 31, 1996*
Based upon contractual maturities at Dec. 31, 1995 -- Dollars in thousands
Fixed Adjustable
Rate Rate Total
--------------------------------------
Mortgage Loans
1-4 family units..............................................................................$318,277 $1,315,844 $1,634,121
Multifamily and other......................................................................... 133,882 749,163 883,045
--------------------------------------
Total mortgage loans.......................................................................... 452,159 2,065,007 2,517,166
Consumer loans................................................................................ 17,456 -- 17,456
--------------------------------------
Total mortgage and consumer loans.............................................................$469,615 $2,065,007 $2,534,622
======================================
*Excludes loans held for sale.
Investment Portfolio
At Dec. 31 -- Dollars in thousands
1995 1994 1993
----------------------------------------
Federal funds sold and interest bearing bank balances.......................................$ 41,706 $ 18,100 $ 56,200
Cash equivalent marketable-debt securities:
U.S. Treasury securities................................................................... 33,179 17,452 15,503
U.S. agency securities..................................................................... -- 19,833 176,823
Marketable-debt securities of the U.S. government........................................... 92,778 99,643 142,051
MBS:
Federal Home Loan Mortgage Corporation (FHLMC)............................................. 157,099 187,347 189,789
Federal National Mortgage Corporation (FNMA)............................................... 135,399 131,735 167,480
Government National Mortgage Association (GNMA)............................................ -- 1,679 2,312
Private.................................................................................... 586,596(a) 708,219 364,163
Collateralized Mortgage Obligations (CMOs)................................................. 96,328(a) 97,637 9,905
----------------------------------------
Total MBS................................................................................... 975,422 1,126,617 733,649
----------------------------------------
$1,143,085(b) $1,281,645 $1,124,226
========================================
(a) The following table summarizes securities of issuers in excess of 10%
of stockholders' equity at Dec. 31, 1995.
Issuer Amortized Cost Fair Value
- ------------------------------------------------------------------------------------------------------------------------------------
Countrywide Mortgage-Backed Securities, Inc...................................................................$146,967 $148,150
Merrill Lynch Mortgage Investors, Inc......................................................................... 130,689 128,745
Prudential Home Mortgage Securities, Inc...................................................................... 68,812 67,647
Residential Funding Mortgage Securities I, Inc................................................................ 45,956 45,073
Saxon Mortgage Securities Corporation......................................................................... 107,253 105,542
----------------------
Total.........................................................................................................$499,677 $495,157
======================
(b) See Note B -- Cash and Cash Equivalents, Note C -- Marketable-Debt
Securities and Note D -- MBS for contractual maturity information.
1995 Annual Report/10-K 39
Consolidated Statements of Financial Condition
At Dec. 31 -- Dollars in thousands
1995 1994
------------------------
Assets:
Cash and cash equivalents -- Note B
Cash and amounts due from depository institutions..........................................$ 111,736 $ 104,563
Federal funds sold and interest bearing bank balances...................................... 41,706 18,100
Short-term cash equivalent securities...................................................... 33,179 37,285
------------------------
Total cash and cash equivalents............................................................ 186,621 159,948
Marketable-debt securities -- Notes C and O
(Market: Dec. 31, 1995--$92,778; Dec. 31, 1994--$95,773)................................... 92,778 99,643
Mortgage-backed securities -- Notes D and O
(Market: Dec. 31, 1995--$967,687; Dec. 31, 1994--$1,066,793)............................... 975,422 1,126,617
Loans receivable -- Notes E, O and V........................................................ 2,722,509 2,610,577
Less: accumulated provision for loan losses -- Note F...................................... 38,619 42,196
------------------------
Net loans receivable....................................................................... 2,683,890 2,568,381
Loans held for sale, at lower of cost or market -- Note G
(Market: Dec. 31, 1995--$15,638; Dec. 31, 1994--$10,157)................................... 15,583 10,155
Accrued interest receivable -- Note H....................................................... 25,354 23,467
Foreclosed real estate -- Note I
(Net of accumulated provision for losses: Dec. 31, 1995--$1,974; Dec. 31, 1994--$2,019).... 10,642 16,484
Real estate held for development or investment -- Note J.................................... 13,191 16,694
Investment in Federal Home Loan Bank stock -- Notes K and O................................. 36,304 29,847
Office properties and equipment -- Note L................................................... 44,720 44,112
Prepaid expenses and other assets -- Note M................................................. 32,174 36,189
------------------------
Total assets...............................................................................$4,116,679 $4,131,537
========================
Liabilities:
Deposits -- Note N.........................................................................$3,231,810 $3,232,903
Short-term borrowings -- Note O............................................................. 175,368 221,180
Long-term borrowings -- Note O.............................................................. 266,059 271,747
Advance payments by borrowers for taxes and insurance....................................... 20,610 21,842
Other liabilities........................................................................... 38,635 32,468
------------------------
Total liabilities.......................................................................... 3,732,482 3,780,140
Commitments -- Notes L, T and U
Stockholders' Equity: -- Notes Q and R
Preferred stock (par value $.01 per share: authorized--10,000,000 shares; none issued)..... -- --
Common stock (par value $.01 per share: authorized--40,000,000 shares;
issued: Dec. 31, 1995--19,990,106 shares; Dec. 31, 1994--19,785,405 shares
outstanding: Dec. 31, 1995--18,749,734 shares; Dec. 31, 1994--18,781,480 shares)........... 200 198
Paid-in capital............................................................................ 141,166 138,039
Retained income, substantially restricted................................................... 269,791 238,929
Unrealized loss on securities, net of taxes -- Notes B, C and D............................. (895) (3,531)
Borrowings by employee stock ownership plan -- Notes O and S................................ (485) (1,000)
Unearned employee stock ownership plan shares (196,350 shares) -- Note S.................... (2,883) (2,883)
Treasury stock (Dec. 31, 1995--1,240,372 shares; Dec. 31, 1994--1,003,925 shares)........... (22,697) (18,355)
------------------------
Total stockholders' equity.................................................................. 384,197 351,397
------------------------
Total liabilities and stockholders' equity.................................................$4,116,679 $4,131,537
========================
See notes to consolidated financial statements.
40 St.Paul Bancorp, Inc.
Consolidated Statements of Stockholders' Equity
For the years ended Dec. 31 -- Dollars in thousands, except per share amounts
Borrowings
By
Unrealized Employee Unearned
Gain/(Loss) Pension Stock Employee
Common Stock on Adjust- Owner Stock Total
----------------- Paid-In Retained Securities, ment, -ship Ownership Treasury Stockholders'
Shares Amount Capital Income Net of Tax Net of Tax Plan Plan Shares Stock Equity
---------------------------------------------------------------------------------------------------------------
Dec. 31, 1992.......18,258,158 $183 $115,253 $173,976 $ -- $ -- $(2,071) $ -- $ -- $287,341
Stock option
exercises --
Note R............. 134,513 1 1,625 -- -- -- -- -- -- 1,626
Net income.......... -- -- -- 41,387 -- -- -- -- -- 41,387
Issuance of common
stock to acquire
Elm Financial...... 1,291,310 13 19,731 -- -- -- -- -- -- 19,744
Cash dividends
($0.27 per share).. -- -- -- (5,148) -- -- -- -- -- (5,148)
Unrealized gain
on securities,
net of taxes --
Notes B, C and D... -- -- -- -- 4,594 -- -- -- -- 4,594
Pension adjustment,
net of taxes --
Note S............. -- -- -- -- -- (46) -- -- -- (46)
Net change in ESOP
borrowings --
Note O............. -- -- -- -- -- -- (2,169) -- -- (2,169)
---------------------------------------------------------------------------------------------------------------
Dec. 31, 1993.......19,683,981 $197 $136,609 $210,215 $ 4,594 $(46) $(4,240) $ -- $ -- $347,329
Stock option
exercises --
Note R............. 101,424 1 1,430 -- -- -- -- -- -- 1,431
Net income.......... -- -- -- 34,512 -- -- -- -- -- 34,512
Cash dividends
($0.30 per share).. -- -- -- (5,798) -- -- -- -- -- (5,798)
Change in
unrealized
gain/(loss)
on securities,
net of taxes --
Notes B, C and D... -- -- -- -- (8,125) -- -- -- -- (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.........(1,003,925) -- -- -- -- -- -- -- (18,355) (18,355)
---------------------------------------------------------------------------------------------------------------
Dec. 31, 1994.......18,781,480 $198 $138,039 $238,929 $(3,531) $ -- $(1,000) $(2,883) $(18,355) $351,397
Stock option
exercises --
Note R............. 204,701 2 3,127 -- -- -- -- -- -- 3,129
Net income.......... -- -- -- 36,394 -- -- -- -- -- 36,394
Cash dividends
($0.30 per share).. -- -- -- (5,532) -- -- -- -- -- (5,532)
Change in
unrealized loss
on securities,
net of taxes --
Notes B, C and D... -- -- -- -- 4,523 -- -- -- -- 4,523
Unrealized loss from
transfer of
securities --
Notes B and C..... -- -- -- -- (1,887) -- -- -- -- (1,887)
Repayments of ESOP
principal --
Note O............. -- -- -- -- -- -- 515 -- -- 515
Treasury stock
purchases.......... (236,447) -- -- -- -- -- -- -- (4,342) (4,342)
---------------------------------------------------------------------------------------------------------------
Dec. 31, 1995.......18,749,734 $200 $141,166 $269,791 $ (895) $ -- $ (485) $(2,883) $(22,697) $384,197
===============================================================================================================
See notes to consolidated financial statements.
1995 Annual Report/10-K 41
Consolidated Statements of Income
For the years ended Dec. 31 -- Dollars in thousands, except per share amounts
1995 1994 1993
----------------------------
Interest Income
Loans receivable............................................................... $201,630 $182,512 $198,208
Mortgage-backed securities..................................................... 65,723 59,276 42,269
Marketable-debt securities..................................................... 5,015 6,032 6,222
Federal funds and interest bearing bank balances............................... 2,386 986 1,491
Other investment income........................................................ 3,996 4,456 8,747
----------------------------
Total interest income......................................................... 278,750 253,262 256,937
Interest Expense
Deposits -- Note N............................................................. 132,741 114,962 122,273
Short-term borrowings.......................................................... 10,389 4,829 4,805
Long-term borrowings........................................................... 18,986 15,278 5,904
----------------------------
Total interest expense........................................................ 162,116 135,069 132,982
----------------------------
Net interest income........................................................... 116,634 118,193 123,955
Provision for loan losses -- Note F............................................ 1,900 5,150 10,750
----------------------------
Net interest income after provision for loan losses........................... 114,734 113,043 113,205
Other Income
Loan servicing fees............................................................ 1,560 1,444 1,694
Other fee income............................................................... 21,761 17,065 14,794
Net gain on loan sales......................................................... 217 365 1,983
Net gain on securities sales................................................... 837 159 167
Discount brokerage commissions................................................. 3,177 3,725 6,298
Income from real estate development -- Note J.................................. 2,807 3,150 2,969
Insurance and annuity commissions.............................................. 3,138 3,268 3,408
Other.......................................................................... 224 595 1,193
----------------------------
Total other income............................................................ 33,721 29,771 32,506
General and Administrative Expense
Salaries and employee benefits................................................. 48,292 46,538 42,551
Occupancy, equipment and other office expense.................................. 23,268 20,897 19,097
Advertising.................................................................... 4,067 5,060 5,184
Federal deposit insurance...................................................... 8,907 8,943 9,521
Other.......................................................................... 5,631 5,728 6,394
----------------------------
General and administrative expense............................................ 90,165 87,166 82,747
Loss on foreclosed real estate -- Note I....................................... 1,159 2,145 2,516
----------------------------
Income before income taxes.................................................... 57,131 53,503 60,448
Income taxes -- Note P......................................................... 20,737 18,991 19,061
----------------------------
Net income.................................................................... $ 36,394 $ 34,512 $ 41,387
============================
Earnings Per Share
Primary....................................................................... $ 1.87 $ 1.70 $ 2.03
Fully diluted................................................................. 1.86 1.70 2.03
============================
Dividends Per Share............................................................ $ 0.30 $ 0.30 $ 0.27
============================
See notes to consolidated financial statements.
42 St.Paul Bancorp, Inc.
Consolidated Statements of Cash Flows
For the years ended Dec. 31 - Dollars in thousands
1995 1994 1993
---------------------------------
Operating Activities:
Net income.......................................................................... $ 36,394 $ 34,512 $ 41,387
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses.......................................................... 1,900 5,150 10,750
Provision for losses on foreclosed real estate..................................... 821 1,713 1,879
Provision for depreciation......................................................... 6,458 5,271 4,719
Assets originated and acquired for sale............................................ (44,211) (52,087) (141,261)
Sale of assets held for sale....................................................... 39,682 69,704 128,203
(Increase) decrease in accrued interest receivable................................. (1,887) (3,220) 3,229
(Increase) decrease in prepaid expenses and other assets........................... 4,015 1,596 (4,047)
Increase (decrease) in other liabilities........................................... 6,167 10,522 (4,102)
Net amortization of yield adjustments.............................................. 4,865 (911) (757)
Other items, net................................................................... (15,217) (10,674) (15,996)
---------------------------------
Net cash provided by operating activities........................................ 38,987 61,576 24,004
---------------------------------
Investing Activities:
Principal repayments on loans receivable............................................ 419,232 432,219 628,353
Loans originated and purchased for investment....................................... (539,634) (700,792) (476,549)
Loans receivable sold............................................................... 6,537 3,489 35,866
Principal repayments on available for sale mortgage-backed securities............... 21,353 62,506 -
Principal repayments on held to maturity mortgage-backed securities................. 155,418 147,496 252,826
Purchase of available for sale mortgage-backed securities........................... (84,040) (27,127) -
Purchase of held to maturity mortgage-backed securities............................. - (604,916) (282,896)
Sale of available for sale mortgage-backed securities............................... 56,887 15,434 -
Sale of held to maturity mortgage-backed securities................................. - - 2,940
Maturities of available for sale marketable-debt securities......................... 8,000 21,000 -
Maturities of held to maturity marketable-debt securities........................... - - 137,523
Purchase of available for sale marketable-debt securities........................... (236) (20,950) -
Purchase of held to maturity marketable-debt securities............................. - (30,695) (115,946)
Sale of available for sale marketable-debt securities............................... - 70,182 -
Additions to real estate............................................................ (10,698) (18,289) (6,053)
Real estate sold.................................................................... 28,445 30,234 18,749
Sale (purchase) of Federal Home Loan Bank stock..................................... (6,457) 1,443 1,897
Purchase of office properties and equipment......................................... (7,069) (9,124) (6,669)
Proceeds from sales of office properties and equipment.............................. 3 606 819
Acquisition of Elm Financial, net of cash and cash equivalents acquired of $11,002.. - - (15,655)
---------------------------------
Net cash provided (used) by investing activities................................... 47,741 (627,284) 175,205
---------------------------------
Financing Activities:
Proceeds from sales of certificates of deposit...................................... 322,446 362,442 279,581
Payments for maturing certificates of deposit....................................... (328,287) (409,365) (303,906)
Net increase (decrease) in remaining deposits....................................... 4,748 27,208 (20,402)
New long-term borrowings............................................................ 195 210,000 33,422
Repayment of long-term borrowings................................................... (5,285) (1,201) (155,784)
Increase (decrease) in short-term borrowings, net................................... (45,895) 220,634 -
Dividends paid to stockholders...................................................... (5,532) (5,798) (5,148)
Net proceeds from exercise of stock options......................................... 3,129 1,431 1,626
Purchase of treasury stock.......................................................... (4,342) (18,355) -
Increase (decrease) in advance payments by borrowers for taxes and insurance........ (1,232) 2,329 (3,834)
---------------------------------
Net cash provided (used) by financing activities................................... (60,055) 389,325 (174,445)
---------------------------------
Increase (Decrease) in Cash and Cash Equivalents.................................... 26,673 (176,383) 24,764
Cash and cash equivalents at beginning of year..................................... 159,948 336,331 311,567
---------------------------------
Cash and Cash Equivalents at End of Year............................................ $ 186,621 $ 159,948 $ 336,331
=================================
See notes to consolidated financial statements.
1995 Annual Report/10-K 43
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.
During 1996, Investment Network, Inc. plans to provide investment planning
services for customers through a subsidiary, Investment Network Advisors, Inc.
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 that
acquire limited partnership interests in low income building development
projects which 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.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires Management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents: Cash and cash equivalents in the Consolidated
Statements of Financial Condition and Consolidated Statements of Cash Flows
include cash and amounts due from depository institutions, federal funds sold,
interest bearing bank balances, and cash equivalent securities with original
maturities of three months or less.
Marketable-Debt Securities and Mortgage-Backed Securities ("MBS"): The Company
accounts for investment securities under Statement of Financial Accounting
Standards ("SFAS") No. 115, Accounting for Certain Investments in Debt and
Equity Securities. Under SFAS No. 115, the carrying amount of securities is
dependent upon their classification as held to maturity, trading, or available
for sale. When the Company adopted SFAS No. 115 at Dec. 31, 1993, the ending
balance of stockholders' equity was increased by $4.6 million (net of a $2.8
million deferred income tax adjustment) to reflect the net unrealized gain on
securities classified as available for sale but previously carried at amortized
cost. In November 1995, the Financial Accounting Standards Board ("FASB") issued
A Guide to Implementation of Statement 115 on Accounting for Certain Investments
in Debt and Equity Securities (the "Guide"). The Guide allowed for a one-time
reclassification of securities between categories without calling into question
prior or subsequent portfolio classification. At Dec. 31, 1995, the Company
completed a one-time transfer of securities from the held to maturity category
to the available for sale category in accordance with the provisions of the
Guide. Other than the one-time transfer, 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:
1) 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 or 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.
Management classifies only those securities that it has the positive intent
and ability to hold to maturity in this category.
2) Trading Account: Investment securities that are held in the trading account
are carried at fair value, with unrealized gains and losses included in
earnings. The Company has had no activity in its trading accounts since 1993 and
at Dec. 31, 1995 and 1994, had no assets in its trading account.
3) 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 or 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.
44 St.Paul Bancorp, Inc.
Loans Receivable: Loans receivable that are classified as held to maturity are
recorded at cost, net of unamortized discounts and premiums and deferred loan
origination fees net of qualifying origination costs. 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, premiums, and net 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 charged or credited
for any unamortized discounts, premiums, and net 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 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 generally are placed on non-accrual status
when they become 90 days delinquent.
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 non-
homogeneous 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 for 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 based on an 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 of the Bank's Board of
Directors. The accumulated provision for loan losses reflects Management's best
estimate of the reserves needed to provide for impairment of multifamily and
commercial real estate loans as well as other perceived credit risks of the
Bank. However, actual results could differ from this estimate and future
additions to the reserves may be necessary based on unforeseen changes in
economic conditions. In addition, federal regulators periodically review the
Bank's accumulated provision for losses on loans. Such regulators have the
authority to require the Bank to recognize additions to the reserves at the time
of their examination.
The adoption of SFAS No. 114 at Dec. 31, 1993 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 as "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 value is determined on an individual loan basis. The fair
value of loans held for sale is 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. Loans are classified as ISF based upon SFAS No. 114.
The Bank had no REO ISF at Dec. 31, 1995 or 1994.
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 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 declines.
Loan Servicing Fees and Related Receivables: The Bank services mortgage loans
that have been sold to investors and also purchases mortgage servicing rights.
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
1995 Annual Report/10-K 45
incurred. Purchased mortgage servicing rights are being amortized in proportion
to, and over the period of, estimated net servicing income.
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 servicing fee
received, in excess of the normal servicing fees contained 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.
In May 1995, the FASB issued SFAS No. 122, Accounting for Mortgage
Servicing Rights. This Statement requires the capitalization of the costs to
originate loans, which will be sold or securitized with servicing rights
retained, as originated mortgage servicing rights. Costs will be allocated
between the originated mortgage servicing rights and the loan based upon their
relative fair values. The originated mortgage servicing would be amortized in
proportion to, and over the period of, estimated net servicing income.
Currently, these origination costs are included in the basis of loans that are
sold, thereby reducing the net gain on asset sales included in other income.
Management estimates that the adoption of SFAS No. 122 will have a minimal
impact on the results of operations and will apply the new rules on a
prospective basis beginning in the first quarter of 1996.
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 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 93-6,
Employers' Accounting for Employee Stock Ownership Plans. SOP 93-6 requires that
the recognition of compensation expense for ESOP shares acquired after 1992 and
not committed to be released before the beginning of 1994 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, 1995, the ESOP had 196,350 shares acquired after Dec. 31,
1992 that are committed to be released beginning in 1997. The effect of SOP 93-6
on net income in 1997 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 years ended Dec. 31, 1995 and 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 were
reported 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 borrowing and other contributions approved by the
Company.
The Company maintains two stock option plans for the benefit of directors,
officers and other key employees of the Company or its subsidiaries. The Company
accounts for stock options in accordance with Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees. Under APB No.
25, compensation expense is recorded for the difference, if any, between the
exercise price of the stock-based award and the market price of the underlying
stock at the date of grant. Since the Company grants stock options at an
exercise price that equals the market value of the Company stock on the date of
grant, no compensation expense is recorded.
In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation. This Statement requires that employers account for the issuance of
stock-based compensation to employees, such as employee stock options, based
upon the fair value of the award at the date of grant. The Statement allows an
employer to either continue using APB No. 25 or to use the fair value method
under SFAS No. 123 for recording all stock-based compensation. However, if the
employer continues to use APB No. 25, pro forma disclosure of the results of
operations must be made as if the fair value method of accounting for these
awards had been used. This Statement will be prospectively adopted during the
first quarter of 1996. Since Management expects to continue using APB No. 25 for
stock options and provide the required pro forma disclosures, adoption of the
Statement will have no impact on the results of operations in future years.
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 based 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 has entered 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
46 St.Paul Bancorp, Inc.
exchange for fixed rate interest payments over the life of the agreements
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 or deposit. The related
amount payable to or receivable from counterparties is included in other
liabilities or assets. The fair value of the swap agreements is not recognized
in the financial statements.
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 key employees represent
the only common stock equivalent of the Company. Beginning in 1994, unallocated
ESOP shares were excluded from the calculation of earnings per share.
Fair Value of Financial Instruments: SFAS No. 107, Disclosures about Fair Value
of Financial Instruments, as amended by SFAS No. 119, Disclosure 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 statement of financial condition, 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 rates 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.
Impact of Other Recently Issued Accounting Standards: In March 1995, the FASB
issued SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. This Statement requires impairment losses
to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amount. This Statement also
addresses the accounting for long-lived assets that are expected to be disposed
of. The Company will adopt SFAS No. 121 in the first quarter of 1996 and, based
on current circumstances, Management does not believe the effect will be
material.
Reclassifications: Certain prior year amounts have been reclassified to conform
to the 1995 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, 1995 and 1994. At Dec. 31, 1995 and 1994,
all of the government securities classified as cash equivalents were purchased
with original maturities of 90 days or less.
Dollars in thousands Dec. 31, 1995
- ---------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
By type:
Cash and amounts due from
depository institutions............ $111,736 $ -- $ -- $111,736
Fed funds sold and interest
bearing bank balances............. 41,706 -- -- 41,706
Short-term cash equivalent
securities:
U.S. Treasury securities.......... 33,173 7 1 33,179
-------------------------------------------
Total cash and cash
equivalent investments............ $186,615 $ 7 $ 1 $186,621
===========================================
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
Fed funds sold and interest
bearing bank balances............. 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
===========================================
Included in "cash and amounts due from depository institutions" at Dec. 31, 1995
was a $30.6 million reserve requirement maintained with the Federal Reserve Bank
of Chicago.
1995 Annual Report/10-K 47
NOTE C
MARKETABLE-DEBT SECURITIES
The following tables present the amortized cost and fair values of marketable-
debt securities at Dec. 31, 1995 and 1994.
Dollars in thousands Dec. 31, 1995
- -------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Available for sale:
U.S. Treasury securities............ $ 39,416 $ 40 $ 58 $39,398
U.S. agency securities 53,424 66 110 53,380
------------------------------------------------
Total marketable-debt
securities........................ $ 92,840 $106 $ 168 $92,778
================================================
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
===============================================
The following table summarizes, by amortized cost and fair value, the maturity
distribution of marketable-debt securities as of Dec. 31, 1995 based upon
contractual maturities:
Dollars in thousands Maturity Schedule as of Dec. 31, 1995
- -------------------------------------------------------------------------------------
1 Year 1 Year to
or Less 5 Years Total
Available for sale:
Amortized cost..................................... $23,585 $69,255 $92,840
Fair value......................................... $23,526 $69,252 $92,778
Weighted average yield............................. 5.07% 5.43% 5.34%
==================================
No sales of marketable-debt securities occurred in either 1995 or 1993. During
1994, $70.2 million of available for sale marketable-debt securities were sold,
resulting in a nominal net loss.
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, 1995 and 1994 was $8.8
million and $14.0 million, respectively.
In accordance with the Guide, the Bank reclassified $69.6 million of held
to maturity marketable-debt securities, with an unrealized loss of $7,200, to
the available for sale category at Dec. 31, 1995. As of Dec. 31, 1995, all
marketable-debt securities were classified as available for sale. See Note A --
Summary of Significant Accounting Policies for further details.
NOTE D
MBS
The following tables present the amortized cost and fair values of MBS at Dec.
31, 1995 and 1994, including securities issued by Federal Home Loan Mortgage
Corporation ("FHLMC"), Federal National Mortgage Association ("FNMA"),
Government National Mortgage Association ("GNMA"), as well as Collateralized
Mortgage Obligations ("CMOs").
Dollars in thousands Dec. 31, 1995
- -------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Available for sale:
FHLMC............................... $157,837 $ 930 $1,668 $157,099
FNMA................................ 135,224 1,179 1,004 135,399
Privately issued.................... 32,887 199 952 32,134
CMOs................................ 3,571 10 78 3,503
-----------------------------------------------
329,519 2,318 3,702 328,135
Held to maturity:
Privately issued.................... 554,462 1,590 6,694 549,358
CMOs 92,825 - 2,631 90,194
-----------------------------------------------
647,287 1,590 9,325 639,552
-----------------------------------------------
Total MBS........................... $976,806 $3,908 $13,027 $ 967,687
================================================
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.................... 688,544 - 36,559 651,985
CMOs................................ 97,637 - 8,947 88,690
----------------------------------------------
997,377 3 59,827 937,553
-------------------------------------------------
Total MBS........................... $1,130,674 $178 $64,059 $1,066,793
=================================================
The following table summarizes, by amortized cost and fair value, the
contractual maturities of MBS held as of Dec. 31, 1995:
Dollars in thousands Maturity Schedule as of Dec. 31, 1995
- -------------------------------------------------------------------------------------
1 Year 1 Year to 5 Years to More Than
or Less 5 Years 10 Years 10 Years Total
Amortized cost:
Available for sale.................. $6,569 $31,443 $54,085 $237,422 $329,519
Held to maturity.................... 11,643 55,787 96,146 483,711 647,287
-----------------------------------------------------
$18,212 $87,230 $150,231 $721,133 $976,806
======================================================
Fair value:
Available for sale.................. $6,553 $31,363 $ 53,947 $236,272 $328,135
Held to maturity.................... 11,548 55,329 95,350 477,325 639,552
-----------------------------------------------------
$18,101 $86,692 $149,297 $713,597 $967,687
======================================================
Weighted
average yield....................... 6.68% 6.68% 6.67% 6.43% 6.49%
======================================================
48 St.Paul Bancorp, Inc.
The amortized cost of MBS used to collateralize certain deposits, securities
sold under agreements to repurchase, recourse arrangements, and various other
borrowings was $101.5 million at Dec. 31, 1995 and $166.4 million at Dec. 31,
1994.
MBS totalling $31.6 million and $82.0 million at Dec. 31, 1995 and 1994,
respectively, represent loans securitized and serviced by the Bank.
During 1995, $56.9 million of available for sale MBS were sold, resulting in a
gain of $837,000 and a tax liability of $304,000. 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 1995 and 1994, no held to maturity MBS were sold.
During 1993, $3.0 million of MBS were sold, resulting in a net gain of $167,000
and a tax liability of $53,000.
In accordance with the Guide, the Bank reclassified $190.7 million of held to
maturity MBS, with an unrealized loss of $3.0 million, to the available for sale
category at Dec. 31, 1995. See Note A -- Summary of Significant Accounting
Policies for further details.
NOTE E
LOANS RECEIVABLE
Loans receivable as of Dec. 31, 1995 and 1994 are summarized as follows:
Dollars in thousands 1995 1994
- --------------------------------------------------------------
Real estate loans:
1-4 family units..................... $1,659,836 $1,526,803
Multifamily units.................... 982,017 996,123
Commercial........................... 54,981 63,983
Land and land development............ 1,940 224
-----------------------
Real estate loans.................... 2,698,774 2,587,133
-----------------------
Consumer loans:
Secured by deposits.................. 2,307 1,928
Education............................ 261 584
Home improvement..................... 578 836
Automobile........................... 19,856 19,222
Personal............................. 165 380
-----------------------
Consumer loans....................... 23,167 22,950
-----------------------
Contract amount of loans receivable.. 2,721,941 2,610,083
Add:
Unearned premiums.................... 372 48
Net deferred loan costs.............. 196 446
-----------------------
Loans receivable..................... $2,722,509 $2,610,577
=======================
Combined weighted average yield of
loans receivable................... 7.69% 7.51%
=======================
The following schedule provides a rollforward of the total recorded investment
in impaired loans during the year ending Dec. 31, 1995, which is comprised
primarily of multifamily loans:
Dollars in thousands The Total Recorded Investment in the Impaired Loans
- ----------------------------------------------------------------------------------------------------------------
Balance New Transfer Improvement Balance
12/31/94 Impairments to REO Charge-offs in Valuation Repayments 12/31/95
Performing loans...... $27,014 $30,796 $(5,707) $(5,652) $(6,413) $(8,973) $31,065
Nonperforming loans... 1,867 5,983 (2,768) (843) -- (63) 4,176
----------------------------------------------------------------------------------------
Total impaired loans.. $28,881 $36,779 $(8,475) $(6,495) $(6,413) $(9,036) $35,241
========================================================================================
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
12/31/94 Impairments to REO Charge-offs in Valuation Repayments 12/31/95
Performing loans...... $22,950 $25,186 $(5,707) $ -- $(5,504) $(8,852) $28,073
Nonperforming loans... 1,867 4,974 (2,768) -- -- (63) 4,010
----------------------------------------------------------------------------------------
Total impaired loans.. $24,817 $30,160 $(8,475) $ -- $(5,504) $(8,915) $32,083
========================================================================================
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 There
Dollars in thousands Is No Related "Specific" Allowance for Credit Loss
- -------------------------------------------------------------------------------------------------------------------
Balance Decreases Improvement Balance
12/31/94 in Valuation Charge-offs in Valuation 12/31/95
Performing loans............................ $4,064 $5,610 $(5,652) $(1,030) $2,992
Nonperforming loans......................... -- 1,009 (843) -- 166
-------------------------------------------------------------------
Total impaired loans........................ $4,064 $6,619 $(6,495) $(1,030) $3,158
===================================================================
1995 Annual Report/10-K 49
The following table presents the average recorded investment in impaired loans
during the years ending Dec. 31, 1995 and 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 1995 1994
- ----------------------------------------------------------------------
Interest Interest
Income Income
Average Recorded Average Recorded
Recorded on a Recorded on a
Investment Cash Basis Investment Cash Basis
Performing loans...... $35,817 $3,013 $32,701 $2,795
Nonperforming loans... 1,518 22 10,313 42
----------------------------------------------
Total................. $37,335 $3,035 $43,014 $2,837
==============================================
The Bank also had $6.0 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 $7.8 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, 1995 and 1994, the Bank reported no troubled debt restructured
loans.
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, 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
Provision for losses................. 1,900 -- 1,900
Charge-offs.......................... (7,754) (125) (7,879)
Recoveries........................... 2,346 56 2,402
Transfers............................ 48 (48) --
----------------------------------
Balance at Dec. 31, 1995............. $ 38,024 $ 595 $ 38,619
==================================
NOTE G
LOANS HELD FOR SALE AND LOANS SERVICED FOR OTHERS
Loans held for sale as of Dec. 31, 1995 and 1994 are as follows:
Dollars in thousands 1995 1994
- -----------------------------------------------------------------------------
Cost Fair Value Cost Fair Value
1-4 family real estate loans.... $ 5,187 $ 5,242 $ 202 $ 204
Education loans................. 10,396 10,396 9,953 9,953
-------------------------------------------
Loans held for sale............. $15,583 $15,638 $10,155 $10,157
===========================================
The following are related mortgage servicing portfolio statistics at
Dec. 31, 1995, 1994 and 1993:
Dollars in thousands 1995 1994 1993
- -------------------------------------------------------------------------------
Total mortgage servicing portfolio........ $2,960,382 $3,091,002 $2,933,865
Loans serviced for others................. 528,488 611,978 719,747
Loans serviced and held in
MBS portfolio........................... 31,635 81,997 109,000
NOTE H
ACCRUED INTEREST RECEIVABLE
Accrued interest receivable as of Dec. 31, 1995 and 1994 consisted of the
following:
Dollars in thousands 1995 1994
- -------------------------------------------------------------------------------
Accrued interest receivable:
Investments............................................... $ 2,329 $ 2,182
MBS....................................................... 6,506 6,699
Loans receivable.......................................... 16,519 14,586
-----------------
Total accrued interest receivable......................... $25,354 $23,467
=================
NOTE I
FORECLOSED REAL ESTATE
The components of foreclosed real estate at Dec. 31, 1995 and 1994 are as
follows:
Dollars in thousands 1995 1994
- -------------------------------------------------------------------------------
REO....................................................... $12,616 $15,141
Real estate in judgment................................... -- 3,362
-----------------
12,616 18,503
Less accumulated provision for REO losses................. (1,974) (2,019)
-----------------
$10,642 $16,484
=================
The following schedule provides a rollforward of the accumulated provision for
REO losses:
Dollars in thousands 1995 1994 1993
- -------------------------------------------------------------------------------
Balance at Jan. 1................................. $ 2,019 $ 819 $ 2,404
Provision for losses.............................. 821 1,713 1,879
Charge-offs....................................... (1,143) (556) (3,510)
Recoveries........................................ 277 43 46
---------------------------
Balance at Dec. 31................................ $ 1,974 $ 2,019 $ 819
===========================
The following schedule provides details of the results of operations
on foreclosed real estate for the years ended Dec. 31, 1995, 1994 and 1993.
Dollars in thousands 1995 1994 1993
- -------------------------------------------------------------------------------
Operating income on foreclosed real estate........ $ 1,491 $ 1,438 $ 1,749
Operating expense on foreclosed real estate....... 2,022 2,251 2,573
---------------------------
Net operating loss on foreclosed real estate...... (531) (813) (824)
Gains on sale of foreclosed real estate........... 193 381 187
Provision for losses on REO....................... (821) (1,713) (1,879)
---------------------------
Loss on foreclosed real estate.................... $(1,159) $(2,145) $(2,516)
===========================
50 St.Paul Bancorp, Inc.
NOTE J
REAL ESTATE HELD FOR DEVELOPMENT OR INVESTMENT
Income from real estate investment/development operations is summarized as
follows:
Dollars in thousands 1995 1994 1993
- ---------------------------------------------------------------------
Sale of real estate....................... $15,539 $16,379 $11,326
Cost of sales............................. 12,732 13,229 8,357
-------------------------
Income from real estate development....... 2,807 3,150 2,969
Other income.............................. 119 117 97
General and administrative expense........ 1,396 1,251 1,096
Interest income, net of interest expense.. 956 494 300
-------------------------
Income before income taxes................ $ 2,486 $ 2,510 $ 2,270
=========================
Interest capitalized to the balance of real estate held for development
or investment amounted to $720,000, $620,000 and $570,000 during 1995, 1994 and
1993, respectively.
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 $2.3 million, $1.8 million and $1.9
million in 1995, 1994 and 1993, respectively. Dividend income is included with
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 at Dec. 31, 1995 and 1994 are summarized as
follows:
Dollars in thousands 1995 1994
- ---------------------------------------------------------------------
Cost:
Land............................................... $ 8,410 $ 8,410
Buildings and improvements......................... 37,915 37,029
Furniture, fixtures and equipment.................. 32,434 29,997
Leasehold improvements............................. 3,153 2,924
----------------
81,912 78,360
Less allowances for depreciation and amortization.. 37,192 34,248
----------------
$44,720 $44,112
================
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 in both 1995 and 1994, and $2.0 million in 1993.
Minimum future capital and operating lease commitments are summarized as
follows:
Dollars in thousands Year ending Dec. 31
- --------------------------------------------------------------------
Capital Operating
Leases Leases
1996..................................... $ 459 $ 1,877
1997..................................... 436 1,709
1998..................................... 468 1,476
1999..................................... 500 993
2000..................................... 535 857
Later years.............................. 15,090 8,146
-------------------------
Total.................................... $ 17,488 $15,058
=========================
Less amount representing interest........ (16,179)
--------
Present value of net minimum lease
payments under capital lease........... $ 1,309
========
NOTE M
PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets at Dec. 31, 1995 and 1994 are summarized as
follows:
Dollars in thousands 1995 1994
- -------------------------------------------------------------
Deferred tax asset (net) -- Note P $13,241 $13,570
Prepaid FDIC insurance premiums............ 1,805 4,113
Excess of purchase price over fair value
of assets acquired....................... 1,369 1,572
Excess servicing fee receivable............ 525 767
Purchased mortgage servicing rights........ 94 94
Other prepaid assets and deferred charges.. 15,140 16,073
----------------
$32,174 $36,189
================
The amortization of the excess of purchase price over fair value of assets
acquired (i.e., goodwill) amounted to $203,000, $220,000 and $270,000 for 1995,
1994 and 1993, respectively.
1995 Annual Report/10-K 51
NOTE N
DEPOSITS
Deposit balances at Dec. 31, 1995 and 1994 are summarized as follows:
Weighted Average
Interest Rate
as of Dec. 31
----------------
Dollars in thousands 1995 1994 1995 1994
- -------------------------------------------------------------------------------------------------------------------------
Core Accounts: Amount Percent Amount Percent
Interest bearing checking............................... 1.73% 1.80% $ 246,054 7.6% $ 249,505 7.7%
Noninterest bearing checking............................ - - 129,230 4.0 110,351 3.4
Other noninterest bearing accounts...................... - - 34,079 1.1 36,457 1.1
Savings accounts........................................ 2.41 2.43 694,401 21.5 769,925 23.9
Money market accounts................................... 3.13 3.13 198,495 6.1 245,155 7.6
----------------------------------------------------------------
Core accounts........................................... 2.09 2.18 1,302,259 40.3 1,411,393 43.7
Certificates of Deposit: (a)
3 months and under...................................... 4.00 3.35 26,471 0.8 34,707 1.1
4 months................................................ 4.00 - 17,005 0.5 - -
5 months................................................ 5.72 - 106,926 3.3 - -
6 months................................................ 5.23 4.22 191,721 5.9 192,210 5.9
6--5--4 month (b)....................................... 6.28 - 197,660 6.1 - -
7 months................................................ 6.51 5.87 129,850 4.0 214,510 6.6
8 months................................................ 6.90 5.80 129,651 4.0 13,155 0.4
9 months................................................ 5.56 4.97 60,722 1.9 184,061 5.7
12 months............................................... 5.69 4.09 315,886 9.8 244,186 7.6
15 months............................................... - 3.39 - - 12,373 0.4
18 months............................................... 5.56 4.56 75,248 2.3 90,078 2.8
24 months............................................... 4.78 4.49 48,154 1.5 54,943 1.7
30 months............................................... 4.63 4.73 149,989 4.7 242,448 7.5
36 months............................................... 4.79 4.97 92,280 2.9 117,232 3.6
48 months............................................... 5.61 6.10 10,681 0.3 12,413 0.4
60 months............................................... 5.89 6.47 274,509 8.5 294,444 9.1
84--120 months.......................................... 6.09 6.44 55,981 1.8 56,996 1.8
Jumbo accounts.......................................... 4.62 3.60 4,112 0.1 11,221 0.3
Other................................................... 7.82 8.12 42,705 1.3 46,533 1.4
----------------------------------------------------------------
Certificates of deposit................................. 5.77 5.14 1,929,551 59.7 1,821,510 56.3
----------------------------------------------------------------
Total deposits (c)...................................... 4.29% 3.85% $3,231,810 100.0% $3,232,903 100.0%
================================================================
Accrued interest........................................ $ 13,124 $ 7,174
------------------------------------
Total deposit-related liabilities....................... $3,244,934 $3,240,077
====================================
(a) Based upon original maturities.
(b) Initial term six months, with option to renew for five months and then four
months at predetermined interest rates.
(c) Includes $244.5 million and $246.8 million of deposits in denominations of
$100,000 or more at Dec. 31, 1995 and 1994, respectively.
Interest expense by category of deposit is summarized as follows:
Dollars in thousands 1995 1994 1993
- ---------------------------------------------------------------
Checking accounts..................$ 4,218 $ 4,481 $ 4,833
Savings accounts................... 17,502 20,246 21,601
Money market accounts.............. 6,703 7,809 8,634
Certificates of deposit............ 104,318 82,426 87,205
----------------------------
$132,741 $114,962 $122,273
============================
The following table presents the scheduled maturity of certificates of deposit
in each of the next five years and thereafter:
Weighted
Scheduled Average
Year ending Dec. 31, Maturity Rate
- ---------------------------------------------------------------
1996......................................$1,484,897 5.70%
1997...................................... 159,124 5.72
1998...................................... 126,342 5.65
1999...................................... 60,577 5.77
2000...................................... 37,605 6.70
After 2001................................ 61,006 7.44
---------------------
$1,929,551 5.77%
=====================
NOTE O
BORROWINGS
Borrowings consisted of the following at Dec. 31, 1995 and 1994:
Dollars in thousands 1995 1994
- ----------------------------------------------------------------------------------------------
Weighted Weighted
Amount Average Amount Average
Borrowed Interest Rate Borrowed Interest Rate
Short-term:
FHLB advances............................ $125,285 5.90% $120,275 6.35%
Securities sold under
agreements to repurchase................ 50,000 5.83 100,000 6.08
Mortgage loan............................ - - 905 9.50
ESOP borrowings.......................... 83 8.62 - -
---------------------------------------------------
175,368 5.88 221,180 6.24
Long-term:
FHLB advances............................ 211,399 6.42 216,684 6.41
Subordinated notes (net of
unamortized discount in
1995--$834; 1994--$996)................. 33,666 8.79 33,504 8.79
Mortgage-backed notes.................... 16,400 8.54 16,400 8.54
ESOP borrowings.......................... 3,285 8.62 3,883 8.50
Capital lease obligations................ 1,309 33.73 1,276 37.95
---------------------------------------------------
266,059 7.00 271,747 7.04
---------------------------------------------------
Total borrowings......................... $441,427 6.55% $492,927 6.68%
===================================================
52 St.Paul Bancorp, Inc.
The following table presents the maturity distribution of borrowings
at Dec. 31, 1995:
Dollars in thousands Year-End 1995 Borrowings by Maturity
- --------------------------------------------------------------------------------------------------------------------------
After
1996 1997 1998 1999 2000 2000 Total
Short-term:
FHLB advances................................. $125,285 $ - $ - $ - $ - $ - $125,285
Securities sold under
agreements to repurchase..................... 50,000 - - - - - 50,000
ESOP borrowings............................... 83 - - - - - 83
---------------------------------------------------------------------------
175,368 - - - - - 175,368
Long-term:
FHLB advances................................. - 55,314 40,000 115,000 - 1,085 211,399
Subordinated notes............................ - - - - 33,666 - 33,666
Mortgage-backed notes......................... - - - 16,400 - - 16,400
ESOP borrowings............................... - 177 192 209 228 2,479 3,285
Capital lease obligations..................... - - - - - 1,309 1,309
---------------------------------------------------------------------------
- 55,491 40,192 131,609 33,894 4,873 266,059
---------------------------------------------------------------------------
Total borrowings.............................. $175,368 $55,491 $40,192 $131,609 $33,894 $4,873 $441,427
===========================================================================
Weighted average rate......................... 5.88% 6.48% 6.03% 6.78% 8.78% 14.23% 6.55%
===========================================================================
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 of 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 1995, the
average month-end balance of short-term FHLB advances was $109.0 million, with
an average month-end rate of 6.25%. The highest month-end balance during 1995
was $125.3 million. During 1994, the average month-end balance of short-term
FHLB advances was $58.4 million, with an average month-end rate of 6.84%. The
highest month-end balance during 1994 was $120.3 million.
Securities Sold Under Agreements To Repurchase: The Bank enters into sales of
securities sold under agreements to repurchase with nationally recognized
primary securities dealers and financial institutions.
Securities sold under agreements to repurchase can have varying maturities
and are secured by designated collateral held by an independent trustee. At Dec.
31, 1995, the collateral securing these borrowings had a carrying amount of
$53.2 million and a fair value of $52.5 million. As of Dec. 31, 1995, the Bank
had approximately $750.0 million of unused credit lines available to borrow
under agreements to repurchase. The average amount of securities sold under
agreements to repurchase during 1995 was $60.4 million, with an average month-
end rate of 6.17%. The highest month-end balance during 1995 for these
borrowings was $100.0 million. The average amount of securities sold under
agreements to repurchase during 1994 was $44.6 million, with an average month-
end rate of 5.25%. The highest month-end balance during 1994 for these
borrowings was $100.0 million.
Mortgage Loan: In 1992, St. Paul Financial obtained a $2.0 million mortgage loan
from another financial institution. The note was repaid during 1995.
Subordinated Notes: In February 1993, the Company issued $34.5 million of 8.25%
subordinated notes that were 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 a 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, 1995 and 1994. 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, 1995 and
1994, the collateral securing these notes had a carrying amount and fair value
of approximately $23.8 million and $20.7 million, respectively. As of Dec.
31, 1995, 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 Company in April 1987. The ESOP was originally funded by a
$5.0 million loan at an interest rate of 7%, which matured and was repaid in May
1994.
In 1991, the ESOP obtained, through another financial institution, a $5.0
million line of credit that was later increased to $14.0 million. At Dec. 31,
1995, $3.4 million was outstanding under this line.
The line of credit is guaranteed by the Company and amounts drawn under the
arrangement are secured by shares of Company stock owned by the ESOP and a
portion of the marketable-debt securities owned by the Company.
At Dec. 31, 1995 and 1994, Company stock securing the borrowings had an
original cost of $3.3 million and $3.9 million and fair values of $5.9 million
and $5.0 million, respectively. At Dec. 31, 1995 and 1994, the marketable-debt
securities securing the borrowings had a carrying amount, which approximated
their fair value, of $197,000 and $979,000, respectively.
Capital Lease Obligations: In 1991, the Bank entered into a capital lease for
the use of a branch facility. See Note L -- Office Properties and Equipment for
further details.
Line of Credit: During 1995, the Company obtained a $20.0 million revolving line
of credit from another financial institution, under which no funds had been
borrowed as of Dec. 31, 1995.
1995 Annual Report/10-K 53
NOTE P
INCOME TAXES
The following schedule summarizes the components of income tax expense for 1995,
1994 and 1993. The amounts reported as current and deferred income tax expense
for 1994 have been restated to conform to the 1994 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.
Dollars in thousands 1995 1994 1993
- -------------------------------------------------------------------------------
Federal income tax expense:
Current provision.............................. $20,182 $15,070 $16,155
Deferred expense (benefit)..................... (1,173) 2,295 2,418
-----------------------------
19,009 17,365 18,573
-----------------------------
State income tax expense:
Current provision.............................. 1,831 1,313 239
Deferred expense (benefit)..................... (103) 313 249
-----------------------------
1,728 1,626 488
-----------------------------
Total income tax expense:
Current provision.............................. 22,013 16,383 16,394
Deferred expense (benefit)..................... (1,276) 2,608 2,667
-----------------------------
Income taxes................................... $20,737 $18,991 $19,061
=============================
A reconciliation from expected federal income tax expense to consolidated
effective income tax expense for the periods indicated is as follows:
Dollars in thousands 1995 1994 1993
- -------------------------------------------------------------------------------
Federal income tax expense at statutory
rate (35%)................................... $19,996 $18,726 $21,157
State tax expense, net of federal tax benefit.. 1,123 1,057 317
1% change in deferred tax rate................. -- -- (426)
Federal income tax refunds..................... -- -- (1,141)
Other.......................................... (382) (792) (846)
-----------------------------
Income taxes................................... $20,737 $18,991 $19,061
=============================
Effective income tax rate...................... 36.3% 35.5% 31.5%
=============================
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:
Dollars in thousands 1995 1994 1993
- -------------------------------------------------------------------------------
General loan loss allowance.................... $ 1,028 $ 811 $ 2,372
Excess of tax accumulated provision for
losses over base year amount................. (89) 38 (827)
Yield adjustments on interest earning
assets and interest bearing liabilities...... (705) 1,180 1,129
Tax depreciation in excess of book
depreciation................................. 82 (96) (260)
Prepaid expenses............................... (874) 1,429 93
Accrued compensation and benefits.............. (951) (1,234) (147)
Stock dividends on FHLB stock.................. 231 (65) (31)
Change in deferred tax rates................... -- -- 426
Other, net..................................... 2 545 (88)
------------------------------
Total.......................................... $(1,276) $ 2,608 $ 2,667
==============================
54 St.Paul Bancorp, Inc.
The following schedule summarizes current income tax liabilities and deferred
income tax assets at Dec. 31, 1995 and 1994, as restated to conform with tax
returns filed for the respective years.
Dollars in thousands 1995 1994
- -------------------------------------------------------------------------------
Income Tax Liabilities and (Assets):
Income taxes currently payable included in
"other liabilities".................................... $ 3,266 $ 3,395
====================
Deferred income tax assets............................... $(19,008) $(20,969)
Deferred income tax liabilities.......................... 5,767 7,399
--------------------
Net deferred income tax assets included in
"prepaid expenses and other assets".................... $(13,241) $(13,570)
====================
The sources of the deferred income tax assets and liabilities at Dec. 31, 1995
and 1994 are as follows:
Dollars in thousands 1995 1994
- -------------------------------------------------------------------------------
General loan loss allowance.............................. $(14,205) $(15,233)
Accrued compensation and benefits........................ (3,826) (2,875)
Unrealized loss on available for sale securities......... (545) (2,150)
Other.................................................... (432) (711)
--------------------
Total deferred assets.................................... (19,008) (20,969)
Stock dividends on FHLB stock............................ 1,470 1,239
Tax depreciation in excess of book depreciation.......... 1,437 1,355
Prepaid expenses......................................... 964 1,838
Yield adjustments on interest earning assets and
interest bearing liabilities........................... 63 768
Excess tax accumulated provision for losses
over base year amount.................................. -- 89
Other.................................................... 1,833 2,110
--------------------
Total deferred liabilities............................... 5,767 7,399
--------------------
Net deferred tax asset................................... $(13,241) $(13,570)
====================
Retained earnings at Dec. 31, 1995 and 1994, included approximately $49.2
million 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 shareholders, 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 at Dec. 31, 1995 and 1994.
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 stock 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 Shareholder 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 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, 1995 and 1994, there were 144,166 and 139,025 shares of preferred
stock 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 1995 and 1994, the Company acquired 236,447 and 1,003,925 shares,
respectively, of its outstanding common stock under repurchase plans that began
during 1994. On Jan. 17, 1996, the Company announced its intention to repurchase
up to an additional 925,000 shares (or about 5%) of its outstanding common stock
over the first six months of 1996 through open market and privately negotiated
transactions.
Bank: The Bank is subject to various regulatory capital requirements
1995 Annual Report/10-K 55
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory (and possibly additionally
discretionary) actions by the regulators that, if undertaken, could have a
direct material effect on the Bank's (and the Company's financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that involve
quantitative measures of the Bank's assets, liabilities, and certain off-balance
sheet items calculated under regulatory accounting practices. The Bank's capital
amounts and classification also are subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the bank to maintain minimum amounts and ratios of core capital to total
adjusted assets, tangible capital to total adjusted assets, and total risk-based
capital to risk-adjusted assets. As of Dec. 31, 1995, Management believes that
the Bank meets all capital adequacy requirements to which it is subject.
The Bank's actual capital amounts and ratios as of Dec. 31, 1995 are presented
below. No amounts are required to be deducted from capital for interest rate
risk.
Dollars in thousands
- -------------------------------------------------------------------------------
Core Tangible Risk-Based
Capital Capital Capital
Actual percentage................... 8.95% 8.95% 17.47%
Required percentage................. 3.00 1.50 8.00
-----------------------------------------
Excess percentage................... 5.95% 7.45% 9.47%
=========================================
Actual capital...................... $363,918 $363,918 $392,033
Required capital.................... 121,975 60,897 179,527
-----------------------------------------
Excess capital...................... $241,943 $302,931 $212,506
=========================================
As of Dec. 31, 1995, the Bank meets the requirements of the Office of Thrift
Supervision ("OTS") to be categorized as "well capitalized" under the regulatory
framework for prompt corrective action. To be categorized as "well capitalized,"
the Bank must maintain minimum total risk-based capital ratios of 10%. Tier I
risk-based ratios of 6% and Tier I leverage ratios of 5%. At Dec. 31, 1995, the
Bank's actual ratios were 17.47%, 16.18% and 8.95%, respectively.
The following schedule reconciles stockholders' equity of the Company to each
of the components of regulatory capital of the Bank at Dec. 31, 1995 and 1994:
1995 1994
- -------------------------------------------------------------------------------
Stockholders' equity of the Company...................... $384,197 $351,397
Less: capitalization of the Company's subsidiaries
other than the Bank.................................... (11,328) (10,227)
Less: capitalization of the Company...................... (6,978) 6,300
--------------------
Stockholders' equity of the Bank......................... 365,891 347,470
Plus: unrealized loss on available for sale
investment securities.................................. 899 3,532
Less: investment in non-includable subsidiaries.......... (1,494) (1,460)
Less: intangible assets.................................. (1,378) (1,705)
--------------------
Tangible and core capital................................ 363,918 347,837
Plus: allowable general valuation allowances............. 28,115 28,364
--------------------
Risk-based capital....................................... $392,033 $376,201
====================
The OTS currently imposes limitations on all capital distributions by savings
institutions, including dividends stock repurchase 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
prompt corrective action regulation. 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 prompt corrective action 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 has paid dividends of 50% of net income to the
Company.
NOTE R
STOCK OPTION PLANS
The Company has two stock option plans for the benefit of directors, officers
and other key employees of the Company and its subsidiaries. The Stock Option
Plan (the "Option Plan") was first approved by the Company's stockholders at the
1988 annual meeting, and with shareholder approval at subsequent annual
meetings, a total of 2,695,000 shares of authorized but unissued common stock
were reserved for issuance. At the 1995 annual meeting, shareholders approved
the 1995 Incentive Plan (the "1995 Plan"), which reserved an additional 900,000
shares of authorized but unissued common stock for issuance. Under the 1995
Plan, the Company may grant non-qualified stock options, stock appreciation
rights, limited stock appreciation rights, restricted stock, performance shares
and performance units to key employee and non-employee directors. As of Dec. 31,
1995, the Company has issued only non-qualified stock options under the 1995
Plan.
56 St.Paul Bancorp, Inc.
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 1995, 1994 and 1993 was $3.0 million, $3.6 million and
$2.7 million, respectively. Pension cost was comprised of the following
components:
DOLLARS IN THOUSANDS 1995 1994 1993
- ----------------------------------------------------------------------------
THE PLAN
Service cost benefits earned
during the period............................. $ 1,491 $ 1,748 $ 1,399
Interest cost on projected benefit obligation.. 1,602 1,630 1,509
(Return) loss on plan assets................... (4,250) 300 (2,125)
Net amortization and deferral.................. 3,018 (1,533) 1,119
---------------------------
Pension cost................................... $ 1,861 $ 2,145 $ 1,902
===========================
SUPPLEMENTAL PLANS
Service cost benefits earned
during the period............................. $ 232 $ 344 $ 215
Interest cost on projected benefit obligation.. 362 441 269
Net amortization and deferral.................. 162 321 183
---------------------------
Pension cost................................... $ 756 $ 1,106 $ 667
===========================
THE DIRECTORS' PLAN
Service cost benefits earned
during the period............................. $ 113 $ 127 $ 34
Interest cost on projected benefit obligation.. 97 81 31
Net amortization and deferral.................. 144 144 32
---------------------------
Pension cost................................... $ 354 $ 352 $ 97
===========================
TOTAL
Service cost benefits earned
during the period............................. $ 1,836 $ 2,219 $ 1,648
Interest cost on projected benefit obligation.. 2,061 2,152 1,809
(Return) loss on plan assets................... (4,250) 300 (2,125)
Net amortization and deferral.................. 3,324 (1,068) 1,334
---------------------------
Total pension cost.......................... $ 2,971 $ 3,603 $ 2,666
===========================
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 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
Supplemental Directors' Supplemental Directors'
Plan Plans Plan Plan lans Plan
- ----------------------------------------------------------------------------------------------------------------------
Plan assets at fair value....................... $17,753 $ - $ - $15,454 $ - $ -
--------------------------------------------------------------------
Accumulated Benefit Obligation (ABO):
Vested.......................................... $12,793 $ 2,214 $ 1,333 $11,109 $ 1,492 $ 1,082
Non-vested...................................... 1,907 589 32 1,665 481 28
--------------------------------------------------------------------
$14,700 $ 2,803 $ 1,365 $12,774 $ 1,973 $ 1,110
====================================================================
Overfunded (unfunded) ABO....................... $ 3,053 $(2,803) $(1,365) $ 2,680 $(1,973) $(1,110)
====================================================================
Projected Benefit Obligation (PBO).............. $23,092 $ 5,429 $ 1,365 $18,788 $ 5,040 $ 1,110
====================================================================
Unfunded PBO.................................... $(5,339) $(5,429) $(1,365) $(3,334) $(5,040) $(1,110)
====================================================================
Comprised of:
Accrued pension cost............................ $(2,458) $(3,189) $(1,365) $(1,050) $(2,434) $(1,110)
Unrecognized net gain (loss).................... (4,091) (588) 85 (3,637) (779) 130
Unrecognized prior service costs................ 789 (1,509) (540) 862 (1,659) (684)
Unrecognized net obligation (asset) at Jan. 1,
1987, net of amortization...................... 421 (143) - 491 (168) -
--------------------------------------------------------------------
Adjustment required to recognize minimum
liability...................................... $ - $ - $ 455 $ - $ - $ 554
=====================================================================
1995 Annual Report/10-K 57
The following actuarial assumptions were used in calculating net pension cost
and benefit obligations:
1995 1994 1993
- -------------------------------------------------------------------------------
Discount rate.............................................. 7.25% 8.50% 7.50%
Long-term rate of return on assets......................... 8.50 8.50 8.50
Rate of increase in future compensation levels............. 5.00 5.00 5.50
At Dec. 31, 1995, the Plan's assets consisted of cash equivalents, corporate and
government bonds, and various equity securities. Included in the equity
securities is $4.5 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. This
loan was repaid in full during 1994. During 1991, the ESOP obtained a $5.0
million line of credit, which was later increased to $14.0 million. As of Dec.
31, 1995, $3.4 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 Financial Condition.
The ESOP borrowings are also partially secured by marketable-debt securities
owned by St. Paul Bancorp.
In addition to the acquisition of Company stock through proceeds from
borrowings, the ESOP can elect to purchase 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 principal and interest on the loan are paid, shares
held as collateral are released. The ESOP loan is being repaid from Bank
contributions and dividends on the unallocated shares of Company stock.
Dividends on allocated shares are used to purchase additional Company stock for
the ESOP.
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 ESOP's inception, contributions have been sufficient
to service the ESOP debt and, in certain years, have allowed the ESOP to acquire
additional shares of Company stock or reduce the outstanding loan amount.
The following table presents the ESOP contributions and loan activity.
Dollars in thousands 1995 1994 1993
- -------------------------------------------------------------------------------
Contributions to ESOP:
Compensation expense.................................. $ 577 $ 275 $ 844
Interest expense associated with shares
accounted for under SOP 93-6......................... 257 209 --
Dividends received on unallocated shares
acquired before SOP 93-6............................. 27 164 262
----------------------
Total contributions to ESOP............................. 861 648 1,106
Less: Interest expense.................................. (346) (291) (222)
Contribution used to purchase
additional shares.................................... -- -- (170)
----------------------
Amortization on ESOP borrowing.......................... $ 515 $ 357 $ 714
======================
The following table summarizes shares of Company stock held by the ESOP:
Dec. 31 1995 1994 1993
- -------------------------------------------------------------------------------
Beginning allocated shares................ 729,951 710,670 612,875
Shares allocated due to:
Debt service............................. 56,374 53,575 107,142
Contributions and dividends used
to purchase additional shares........... 6,787 4,474 10,598
Withdrawals.............................. (68,066) (38,768) (19,945)
- -------------------------------------------------------------------------------
Shares allocated to participants.......... 725,046 729,951 710,670
Unallocated shares:....................... -- -- 339,999
Grandfathered under SOP 93-6............. 33,704 90,078 N/A
Unearned ESOP shares..................... 196,350 196,350 N/A
------------------------------------
Total..................................... 955,100 1,016,379 1,050,669
====================================
Fair value of unearned
ESOP shares.............................. $5,006,925 $3,436,125 N/A
====================================
NOTE T
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET CREDIT RISK
Loans Sold With Recourse: At Dec. 31, 1995 and 1994, the Bank serviced $70.8
million and $94.8 million, respectively, of multifamily loans sold with
recourse. The Bank's credit exposure with respect to these loans sold with
recourse at Dec. 31, 1995 totaled $16.6 million and was collateralized by $12.3
million of MBS. In comparison, the Bank's credit exposure for these loans at
Dec. 31, 1994 totaled $26.1 million and was collateralized by $23.7 million of
MBS.
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, 1995 and 1994 was $16.6 million and
$26.1 million, respectively. Under the recourse provisions, the Bank generally
repurchases the underlying loans that default.
58 St.Paul Bancorp, Inc.
The following schedule presents the geographical distribution of the real estate
collateral of multifamily loans sold with recourse as of Dec. 31, 1995 and 1994:
Dollars in thousands 1995 1994
- -------------------------------------------------------------------------------
Amount Percentage Amount Percentage
California.......................... $30,533 43.1% $36,702 38.7%
Minnesota........................... 18,967 26.8 19,266 20.3
Washington.......................... 15,384 21.7 21,156 22.3
Illinois............................ 2,046 2.9 2,079 2.2
Other............................... 3,903 5.5 15,575 16.5
-----------------------------------------
$70,833 100.0% $94,778 100.0%
=========================================
Management evaluates loans sold with recourse in connection with its regular
loan administration and its periodic 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, 1995, the Bank had $11.4 million in
outstanding loan commitments to originate 1-4 family first mortgage loans, as
well as $15.3 million of commitments to originate multifamily, land and land
development loans. These consisted of adjustable rate loan commitments totaling
$23.5 million and fixed rate loan commitments of $3.2 million. Most of these
commitments expire after 60 days. As of Dec. 31, 1995, the Bank had forward
sales contracts for $1.5 million of the $3.2 million of fixed rate loan
commitments. See Forward Commitments following.
At Dec. 31, 1994, the Bank had $51.2 million in outstanding loan
commitments to originate 1-4 family first mortgage loans and $9.3 million of
commitments to originate multifamily, land and land development loans. These
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.
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 the borrower obtains private mortgage insurance. The Bank attempts
to fulfill loan commitments as long as no violations of conditions established
in the contract occur. Historically, approximately 90% of its loan commitments
have been fulfilled.
Forward Commitments: As of Dec. 31, 1995, the Bank had forward loan sale
commitments of $5.9 million, including $1.5 million of forward contracts on loan
disbursement commitments. As of Dec. 31, 1994, the Bank had forward loan sale
commitments of $775,000, including $684,000 of forward contracts on loan
commitments. All market value losses on forward commitments have been reflected
in the consolidated financial statements.
Unused Credit Lines: The Bank had unused home equity lines of credit of $55.4
million and $42.8 million, respectively, as of Dec. 31, 1995 and 1994. Home
equity lines of credit represent junior mortgages on 1-4 family homes. The Bank
applies similar underwriting standards to equity lines of credit as it does to
first mortgage loans. Home equity lines of credit have fixed expiration dates.
Since 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, 1995 and 1994, 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, was $55.4 million and $42.8
million, respectively.
Letters of Credit: At Dec. 31, 1995 and 1994, the Company had issued $6.8
million and $6.5 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, 1995 and 1994 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, 1995 and 1994, the maximum
loss that would be recognized by the Company in the event of a complete default
by the performing party and worthlessness of the underlying collateral was $6.8
million and $6.5 million, respectively.
Management evaluates letters of credit in connection with its periodic
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 had assumed two agreements to guarantee the repayment of
principal and related interest on municipal revenue bonds. These bonds are
secured by multifamily real estate, and the outstanding principal balance was
$4.8 million at Dec. 31, 1995 and $5.1 million at Dec. 31, 1994.
As of Dec. 31, 1995, MBS and U.S. Treasury securities with carrying amounts
of $3.1 million and $2.6 million, respectively, and fair values of $3.1 million
and $2.5 million, respectively, were pledged as collateral on the guarantees. As
of Dec. 31, 1994, MBS and U.S. Treasury securities with carrying amounts of $3.7
million and $3.0 million, respectively, and fair values of $3.6 million and $3.0
million, respectively, were pledged as collateral on the guarantees. The Bank
does not own any of the bonds, nor have there been any defaults on the bonds.
As of Dec. 31, 1995 and 1994, 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 $4.8 million and $5.1 million,
respectively.
Management evaluates the guarantees of indebtedness of others in connection
with its periodic 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.
1995 Annual Report/10-K 59
Interest Rate Exchange Agreements: The Bank used interest rate exchange
agreements in 1995 and 1994 to help reduce certain interest rate exposures. At
Dec. 31, 1995 and 1994, the Bank had $122.5 million and $147.8 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 attempted to
minimize 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 1995 1994
- -------------------------------------------------------------------------------
Balance at beginning of year.............................. $147,779 $ 30,000
Additions................................................. -- 134,311
Maturities................................................ (10,000) (12,500)
Amortization.............................................. (15,246) (4,032)
-------------------
Balance at year-end....................................... $122,533 $147,779
===================
Included in interest expense in 1995 and 1994 was $692,000
and $3.1 million of expense, respectively, on interest rate exchange agreements.
The following table presents a summary of interest rate exchange agreements at
Dec. 31, 1995 (dollars in thousands):
Original Current Fixed
Notional Notional Payment
Amount Amount Rate Variable Receipt Rate Maturity Date Purpose
- --------------------------------------------------------------------------------------------------------------------------------
$ 7,500 $ 7,500 7.32% 11th District cost of funds (5.11%) 11/08/96 Hedge general deposit portfolio
50,526* 44,543 6.34% 6-month LIBOR (5.81%) 03/24/99 Hedge matched funding used to acquire MBS
49,100* 40,950 6.63% 6-month LIBOR (5.81%) 03/24/99 Hedge matched funding used to acquire MBS
34,685* 29,540 6.54% 6-month LIBOR (5.98%) 04/01/99 Hedge matched funding used to acquire MBS
- -------------------
$141,811 $122,533
===================
*Notional amount amortizes semi-annually.
NOTE U
LEGAL PROCEEDINGS
Although the Company 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 Company.
60 St.Paul Bancorp, Inc.
NOTE V
CONCENTRATION OF CREDIT RISK
The following schedule presents the geographical distribution of the Bank's
collateral on real estate loans as of Dec. 31, 1995 and 1994:
Dollars in thousands 1995
- -------------------------------------------------------------------------------------------------
1-4 Family All Other
Real Estate Real Estate
Loans Loans Total
-------------------------------------------------------------------------
Amount % Amount % Amount %
- -------------------------------------------------------------------------------------------------
California............ $ 61,025 3.7% $ 546,823 52.6% $ 607,848 22.5%
Colorado.............. 310 * 36,763 3.5 37,073 1.4
Florida............... 1,467 0.1 20,011 1.9 21,478 0.8
Illinois.............. 1,127,296 67.9 144,214 13.9 1,271,510 47.1
Indiana............... 85,890 5.2 3,257 0.3 89,147 3.3
Maryland.............. - - 25,064 2.4 25,064 0.9
Michigan.............. 24,393 1.5 18,583 1.8 42,976 1.6
Minnesota............. 16,033 1.0 23,519 2.3 39,552 1.5
Missouri.............. 184,733 11.1 - - 184,733 6.8
Nevada................ - - 22,614 2.2 22,614 0.8
Ohio.................. 52,769 3.2 1,238 0.1 54,007 2.0
Washington............ - - 98,455 9.5 98,455 3.6
Wisconsin............. 89,690 5.4 31,428 3.0 121,118 4.5
Other................. 16,230 0.9 66,969 6.5 83,199 3.2
-------------------------------------------------------------------------
Total................. $1,659,836 100.0% $1,038,938 100.0% $2,698,774 100.0%
=========================================================================
Dollars in thousands 1994
- -------------------------------------------------------------------------------------------------
1-4 Family All Other
Real Estate Real Estate
Loans Loans Total
-------------------------------------------------------------------------
Amount % Amount % Amount %
- -------------------------------------------------------------------------------------------------
California............ $ 68,304 4.5% $ 575,026 54.2% $ 643,330 24.9%
Colorado.............. 357 * 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 77.1 118,418 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%
=========================================================================
*Less than 0.1%.
See Note T -- Financial Instruments With Off-Balance Sheet Credit Risk for
geographical concentration of loans sold with recourse.
1995 Annual Report/10-K 61
NOTE W
PARENT COMPANY-ONLY FINANCIAL INFORMATION
STATEMENTS OF FINANCIAL CONDITION
Dec. 31,
- ---------------------------------------------------------------------
Dollars in thousands 1995 1994
- ---------------------------------------------------------------------
Assets:
Cash and cash equivalents....................... $ 39,117 $ 21,109
Marketable-debt securities...................... 247 979
Investment in St. Paul Federal Bank............. 365,891 347,470
Investment in other subsidiaries................ 11,328 10,227
Advances to other subsidiaries.................. 3,500 11,375
Prepaid expenses and other assets............... 11 20
-------------------
Total assets.................................... $420,094 $391,180
===================
Liabilities and Stockholders' Equity:
Borrowings by employee stock ownership plan..... $ -- $ 3,883
Other borrowings................................ 33,666 33,504
Other liabilities............................... 2,231 2,396
-------------------
Total liabilities............................... 35,897 39,783
Preferred stock................................. -- --
Common stock.................................... 200 198
Paid in capital................................. 141,166 138,039
Retained earnings............................... 269,791 238,929
Unrealized loss on securities, net of taxes..... (895) (3,531)
Borrowings by employee stock ownership plan..... (485) (1,000)
Unearned employee stock ownership plan shares... (2,883) (2,883)
Treasury stock.................................. (22,697) (18,355)
-------------------
Total stockholders' equity...................... 384,197 351,397
-------------------
Total liabilities and stockholders' equity...... $420,094 $391,180
===================
STATEMENTS OF INCOME
Dollars in thousands, except per share amounts 1995 1994 1993
- -----------------------------------------------------------------------------
Equity in earnings of St. Paul Federal Bank..... $35,820 $34,076 $41,798
Equity in earnings of other subsidiaries........ 1,501 1,759 975
St. Paul Bancorp loss........................... (927) (1,323) (1,386)
---------------------------
Net income...................................... $36,394 $34,512 $41,387
===========================
Earnings per share:
Primary....................................... $ 1.87 $ 1.70 $ 2.03
Fully diluted................................. 1.86 1.70 2.03
===========================
STATEMENTS OF CASH FLOWS
Dollars in thousands 1995 1994 1993
- ----------------------------------------------------------------------------
Operating Activities:
Net income................................... $ 36,394 $ 34,512 $ 41,387
Earnings of St. Paul Federal Bank
not providing cash.......................... (35,820) (34,076) (41,798)
Earnings of other subsidiaries
not providing cash.......................... (1,501) (1,759) (975)
Other sources, net........................... (1,109) 1,651 (528)
------------------------------
Net cash provided (used) in
operating activities........................ (2,036) 328 (1,914)
Investing Activities:
Maturities of marketable-debt securities..... 1,000 1,000 13,250
Purchase of marketable-debt securities....... (236) (950) (14,062)
Dividends received from
St. Paul Federal Bank....................... 17,750 30,125 25,910
Dividends received from other subsidiaries... 400 1,000 300
Acquisition of Elm Financial................. -- -- (26,104)
Investments in St. Paul Federal Bank......... -- (50) --
Investments in other subsidiaries............ -- (1,075) (9,720)
Repayments (advances) made to other
subsidiaries................................ 7,875 (4,175) (7,200)
------------------------------
Net cash provided (used)
by investing activities..................... 26,789 25,875 (17,626)
Financing Activities:
Purchase of treasury stock................... (4,342) (18,355) --
Dividends paid............................... (5,532) (5,798) (5,148)
Net proceeds from issuance of
subordinated notes.......................... -- -- 33,422
Net proceeds from issuance of stock.......... 3,129 1,431 1,626
------------------------------
Net cash used (provided)
by financing activities..................... (6,745) (22,722) 29,900
------------------------------
Total cash provided.......................... 18,008 3,481 10,360
Cash and cash equivalents
at beginning of year........................ 21,109 17,628 7,268
------------------------------
Cash and cash equivalents at end of year..... $ 39,117 $ 21,109 $ 17,628
==============================
The parent company's current primary activity is that of a unitary, non-
diversified savings and loan holding company.
62 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, 1995 and 1994. 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.
Dec. 31
- -------------------------------------------------------------------------------
Dollars in thousands 1995 1994
- -------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
Cash and cash equivalents.... $ 186,621 $ 186,621 $ 159,948 $ 159,948
Marketable-debt securities:
Available for sale......... 92,778 92,778 29,387 29,387
Held to maturity........... - - 70,256 66,386
------------------------------------------------
92,778 92,778 99,643 95,773
Mortgage-backed securities:
Available for sale......... 328,135 328,135 129,240 129,240
Held to maturity........... 647,287 639,552 997,377 937,553
------------------------------------------------
975,422 967,687 1,126,617 1,066,793
Loans receivable:
1-4 family units........... 1,659,836 1,670,484 1,526,803 1,462,471
Multifamily units.......... 982,017 991,953 996,123 983,979
Commercial................. 54,981 55,540 63,983 59,596
Land and land development.. 1,940 2,018 224 224
Consumer loans............. 23,167 22,094 22,950 21,590
Loans held for sale........ 15,583 15,638 10,155 10,157
Net deferred costs......... 568 - 494 --
Allowance for loan losses.. (38,619) - (42,196) --
------------------------------------------------
2,699,473 2,757,727 2,578,536 2,538,017
Accrued interest receivable:. 25,354 25,354 23,467 23,467
FHLB stock................... 36,304 36,304 29,847 29,847
Other financial assets....... 525 941 767 5,859
------------------------------------------------
Total financial assets....... $4,016,477 $4,067,412 $4,018,825 $3,919,704
================================================
Deposits:
Core accounts with no
stated maturity............. $1,302,259 $1,302,259 $1,411,393 $1,411,393
Certificates of deposit...... 1,929,551 1,936,048 1,821,510 1,814,219
------------------------------------------------
3,231,810 3,238,307 3,232,903 3,225,612
Borrowings:
FHLB advances................ 336,684 337,384 336,959 334,407
Securities sold under
agreements to repurchase.... 50,000 50,000 100,000 98,521
Subordinated notes........... 33,666 33,498 33,504 32,666
Mortgage-backed notes........ 16,400 17,632 16,400 16,270
ESOP borrowings.............. 3,368 3,368 3,883 3,883
Mortgage loan................ - - 905 905
------------------------------------------------
440,118 441,882 491,651 486,652
Accrued interest payable..... 15,772 15,772 10,442 10,442
Other financial liabilities.. - 3,503 - 647
------------------------------------------------
Total financial liabilities.. $3,687,700 $3,669,464 $3,734,996 $3,723,353
================================================
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 values of MBS were 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 and 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.
ACCRUED INTEREST RECEIVABLE: The carrying amount of accrued interest receivable
is a reasonable estimate of its fair value since its maturity is short-term and
potentially uncollectible amounts have been reserved.
FHLB 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, 1995 and
1994 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 values
of the repurchase agreements, subordinated notes and the mortgage-backed note
were based upon quotes received from securities dealers. The fair value 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.
1995 Annual Report/10-K 63
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.
NOTE Y
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 1995 1994 1995 1994 1995 1994 1995 1994
- ---------------------------------------------------------------------------------------------------
Interest income............ $70,297 $67,445 $69,828 $64,778 $69,573 $61,891 $69,052 $59,148
Interest expense........... 40,890 37,557 41,180 35,068 40,613 32,814 39,433 29,630
----------------------------------------------------------------------
Net interest income........ 29,407 29,888 28,648 29,710 28,960 29,077 29,619 29,518
Provision for loan losses.. 500 1,250 300 1,200 450 750 650 1,950
Net gain on assets sold.... 87 30 91 24 15 81 861 389
Other income............... 8,480 7,662 8,622 7,441 8,408 7,206 7,157 6,938
G&A expense................ 22,635 22,251 22,464 21,749 22,505 21,378 22,561 21,788
Loss on foreclosed real
estate.................... 191 557 312 347 227 781 429 460
----------------------------------------------------------------------
Income before income taxes. 14,648 13,522 14,285 13,879 14,201 13,455 13,997 12,647
Income taxes............... 5,346 4,840 5,225 4,867 5,172 4,835 4,994 4,449
----------------------------------------------------------------------
Net income................. $ 9,302 $ 8,682 $ 9,060 $ 9,012 $ 9,029 $ 8,620 $ 9,003 $ 8,198
======================================================================
Earnings per share:
Primary.................. $ 0.47 $ 0.44 $ 0.46 $ 0.44 $ 0.46 $ 0.42 $ 0.46 $ 0.40
Fully diluted............ 0.47 0.44 0.46 0.44 0.46 0.42 0.46 0.40
----------------------------------------------------------------------
Cash dividends per share... $ 0.075 $ 0.075 $ 0.075 $ 0.075 $ 0.075 $ 0.075 $ 0.075 $ 0.075
======================================================================
AVERAGE BALANCE SHEET FOR THE QUARTERS ENDED
- ----------------------------------------------------------------------------------------------------------------------------------
DEC. 31 SEPT. 30 JUNE 30 MARCH 31
- ----------------------------------------------------------------------------------------------------------------------------------
DOLLARS IN THOUSANDS 1995 1994 1995 1994 1995 1994 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets............... $4,018,685 $4,071,082 $4,040,377 $4,007,582 $4,057,089 $3,913,017 $4,107,520 $3,706,939
MBS........................ 1,011,533 1,152,331 1,032,161 1,198,922 1,042,444 1,142,855 1,105,888 749,756
Loans receivable........... 2,629,836 2,577,753 2,621,175 2,463,666 2,651,331 2,349,659 2,631,631 2,349,415
Deposits................... 3,177,315 3,185,541 3,167,666 3,192,934 3,185,211 3,218,816 3,197,198 3,235,814
Borrowings................. 386,568 478,299 431,046 404,172 439,815 285,297 490,193 63,832
Stockholders' equity....... 382,257 357,134 373,249 357,890 364,616 352,945 356,030 352,670
One year GAP to total
assets.................... 5.38% 4.40% 5.41% 9.19% 4.38% 12.92% 2.29% 15.90%
======================================================================================================
NOTE Z
SUPPLEMENTAL CASH FLOW DISCLOSURES
DOLLARS IN THOUSANDS 1995 1994 1993
- -------------------------------------------------------------------------------
Interest credited on deposits..................... $115,537 $100,584 $108,832
Interest paid on deposits......................... 11,639 10,742 11,336
----------------------------
Total interest paid on deposits................... $127,176 $111,326 $120,168
============================
Interest paid on borrowings....................... $ 30,158 $ 17,578 $ 11,232
Income taxes paid, net............................ 20,991 13,925 17,141
Common stock issued in acquisition
of Elm Financial................................. - - 19,744
Real estate acquired through foreclosure.......... 8,505 21,219 42,770
Loans originated in connection with real
estate acquired through foreclosure.............. 11,885 11,361 26,491
64 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, 1995 and 1994, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1995. 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, 1995 and 1994, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, 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.
/s/ Ernst & Young LLP
Ernst & Young LLP
Chicago, Illinois
January 17, 1996
1995 Annual Report/10-K 65
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, 1995.
Commission File Number 0-15580
St. Paul Bancorp, Inc.
Incorporated in the State of Delaware
IRS Employer Identification #36-3504665
Address: 6700 W. North Ave.
Chicago, IL 60635
Telephone: (312) 622-5000
Securities registered to Section 12(g) of the Act: Common Stock, Par Value
$0.01; Preferred Stock Purchase Rights.
As of Jan. 31, 1996, St. Paul Bancorp, Inc. had 18,806,959 shares of common
stock outstanding. The aggregate market value of common stock held by non-
affiliates as of Jan. 31, 1996, was $408,105,328.60./(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......................................................................... 20, 44, 67-68
Distribution of Assets, Liabilities and Stockholders' Equity;
Interest Rates and Interest Differential............................................... 25-26
Investment Portfolio................................................................... 39, 48
Loan Portfolio...................................................... 32, 36, 39, 45, 49-50, 61
Summary of Loan Loss Experience................................................ 35, 36, 45, 50
Deposits........................................................................... 25, 38, 52
Return on Equity and Assets............................................................. 18-19
Short-Term Borrowings................................................................... 52-53
Item 2 Properties................................................................................. 67
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........................................... 22-23, 24, 34, 55-56, 66-68, 72
Item 6 Selected Financial Data................................................................. 18-19
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations........................................... 20-39
Item 8 Financial Statements and Supplemental Data.............................................. 40-65
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...................................... 70, *
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................................................................. 68-69
*St. Paul Bancorp's definitive proxy statement for the 1996 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.
66 St.Paul Bancorp, Inc.
COMPETITION
St. Paul Bancorp experiences substantial competition in attracting and retaining
deposit accounts, making mortgage and other loans, and selling investment
products. Competition for deposit accounts comes primarily from other federally
insured financial institutions, such as 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 product
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'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 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, 1995, 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 owns five
administrative buildings and leases administrative office space in an office
complex near the Bank's home office. At Dec. 31, 1995, the aggregate net book
value of St. Paul Federal's banking and administrative offices owned and the
leasehold improvements at the offices leased was $29.6 million. Management
believes all 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 $15.1 million at Dec. 31, 1995.
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 extensive 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 (the "Federal Reserve
Board"). See Management's Discussion and Analysis and Notes to Consolidated
Financial Statements as to the impact of certain laws, rules and regulations on
the operations of the Company and the Bank. Set forth below is a description of
certain recent regulatory developments.
Deposits in the Bank are insured to a maximum of $100,000 for each insured
depositor by the Savings Association Insurance Fund ("SAIF"), which is
administered by the FDIC. Deposit insurance premiums for the SAIF and the Bank
Insurance Fund ("BIF"), which insures deposits in national and state-chartered
banks, are set to facilitate each fund achieving its designated reserve ratio.
In August 1995, the FDIC determined that the BIF had achieved its designated
reserve ratio and lowered BIF deposit insurance premium rates for all but the
riskiest institutions. Effective Jan. 1, 1996, BIF deposit insurance premiums
for well-capitalized banks were further reduced to the statutory minimum of
$2,000 per institution per year. Because the SAIF remains significantly below
its designated reserve ratio, SAIF deposit insurance premiums were not reduced
and remain at 0.23% to 0.31% of deposits, based upon an institution's
supervisory evaluations and capital levels. The current discrepancy in deposit
insurance premiums between the BIF and the SAIF could place the Bank at a
competitive disadvantage to BIF-insured institutions.
The current financial condition of the SAIF has resulted in proposed
legislation to recapitalize the SAIF through a one-time special assessment on
SAIF deposits and for legislation to then merge the SAIF into the BIF. If the
special assessment is enacted, a special one-time assessment of approximately 80
cents to 85 cents per $100 of assessable SAIF deposits at the Bank would be
imposed. After the special assessment, it is expected that SAIF would achieve
its designated reserve ratio and that SAIF premium rates would then become the
same as BIF rates pending a merger of the SAIF into the BIF, which would require
separate legislation. The Bank is unable to predict whether this legislation
will be enacted, the amount or applicable retroactive date of any one-time
assessment, or the rates that would then apply to assessable SAIF deposits.
Legislation also has been proposed that could eliminate the federal savings
association charter. If such legislation is enacted, the Bank would be required
to convert its federal savings bank charter to either a national bank charter or
to a state depository institution charter. Pending legislation may provide
relief as to recapture of the bad debt deduction for federal tax purposes that
otherwise would be applicable if the Bank converted its charter, provided that
the Bank meets a proposed residential loan origination requirement. Pending
legislation also may result in the Company becoming regulated at the holding
company level by the Federal Reserve Board rather than by the OTS. Regulation by
the Federal Reserve Board could subject the Company to capital requirements that
are not currently applicable to the Company as a holding company under OTS
regulation and may result in statutory limitations on the type of business
activities in which the Company may engage at the holding company level, which
business activities currently are not restricted. The Bank is unable to predict
whether such legislation will be enacted or, if enacted, whether it will contain
relief as to bad debt deductions previously taken.
During 1995, the OTS, along with the other federal banking agencies,
adopted safety and soundness guidelines relating to (i) internal controls,
information systems and internal audit systems; (ii) loan documentation; (iii)
credit underwriting; (iv) interest rate exposure; (v) asset growth and (vi)
compensation and benefit standards for officers, directors, employees and
principal shareholders. Such guidelines set out standards that the agencies will
use to identify and address problems at institutions before capital becomes
impaired. Pursuant to such guidelines, the Bank is required to establish and
maintain a system to identify problem assets and prevent deterioration of those
assets in a manner commensurate with its size and the nature and scope of its
operations.
1995 Annual Report/10-K 67
The Bank also must establish and maintain a system to evaluate and monitor
earnings and ensure that earnings are sufficient to maintain adequate capital
and reserves in a manner commensurate with its size and the nature and scope of
its operations.
If the Bank does not meet one or more of the safety and soundness standards
set forth in the guidelines, it is required to file a compliance plan with the
OTS. In the event that the Bank fails to submit an acceptable compliance plan or
fails in any material respect to implement an accepted compliance plan within
the time allowed by the OTS, the Bank would be required to correct the
deficiency and the OTS would be authorized to: (i) restrict the Bank's asset
growth; (ii) require the Bank to increase its ratio of tangible equity to
assets; (iii) restrict the rates of interest that the Bank may pay; or (iv) take
any other action that would better carry out the purpose of the corrective
action. The Bank believes it currently is in compliance with the safety and
soundness standards set forth by the OTS.
During 1995, in accordance with changes mandated by the Community Development
and Regulatory Improvement Act of 1994 (the "Community Development Act"), the
OTS and the other federal banking agencies proposed certain amendments to the
regulations implementing the Depository Institutions Management Interlocks Act
(the "Interlocks Act"), which restricts management interlocks in order to foster
competition between unaffiliated institutions. The proposed amendments would
narrow the circumstances under which an exception to the prohibitions of the
Interlocks Act could be granted by agency order and would clarify certain
language as used within regulations. Management officials at the Company and the
Bank are in full compliance with the Interlocks Act.
The Community Development Act also requires that each banking agency implement
a comprehensive review of its regulations to eliminate duplicative, unduly
burdensome and unnecessary regulations. During 1995, the OTS announced that it
will review each of its regulations to determine if: (i) the regulations are
current; (ii) the regulation could be eliminated without endangering safety and
soundness, diminishing consumer protection or violating statutory requirements;
(iii) the regulation's subject matter is more suited for a policy statement or
handbook guidance; (iv) the regulation is consistent with the regulation of the
other federal banking agencies; and (v) the regulation is easily understood.
Based upon the first part of this review, the OTS formally deleted 8% of its
regulations including outdated, duplicative and otherwise unnecessary
regulations. The OTS also issued a notice of proposed rulemaking concerning a
comprehensive revision to its regulations and policy statements concerning
lending and investments. Under the proposal, certain loan documentation
requirements will be replaced by general safety and soundness standards;
commercial loans made by a service corporation will be exempted from an
institution's overall 10% limit on commercial loans; an institution will be able
to use its own cost-of-funds index in structuring adjustable rate mortgages; and
the 35% of assets limitation on credit card lending will be eliminated. The OTS
has announced that it expects to issue proposals that will reduce the burdens
imposed by its regulations governing, among other things, subsidiaries,
corporate governance and preemption. Similarly, the FDIC has issued a notice of
opportunity for comment with respect to its review of all of its regulations and
written policies.
EXHIBITS (c)
FINANCIAL STATEMENTS FILED Page
- -------------------------------------------------------------------------------
St. Paul Bancorp Inc.
Consolidated Financial Statements......................................... 40
Notes to Consolidated Financial Statements................................ 44
Report of Independent Auditors............................................ 65
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 1995.
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 (a)(b).
iv 1995 Incentive Plan (a)(b).
v Employment Agreements dated as of Dec. 19, 1994 among St. Paul Bancorp,
Inc., St. Paul Federal Bank For Savings and Joseph C. Scully and Patrick
J. Agnew, respectively (a)(b).
vi Amendments to Employment Agreements, dated as of May 22, 1995, among St.
Paul Bancorp, Inc., St. Paul Federal Bank For Savings and Joseph C. Scully
and Patrick J. Agnew, respectively (a)(b).
vii Amendments to Employment Agreements, dated as of Aug. 28, 1995, among St.
Paul Bancorp, Inc., St. Paul Federal Bank For Savings and Joseph C. Scully
and Patrick J. Agnew, respectively (a)(b).
viii Amendments to Employment Agreements, dated as of Dec. 31, 1995, among St.
Paul Bancorp, Inc., St. Paul Federal Bank For Savings and Joseph C. Scully
and Patrick J. Agnew, respectively (b).
ix Severance Agreements, dated as of Dec. 21, 1992, among St. Paul Bancorp,
Inc., St. Paul Federal Bank For Savings and Robert N. Parke, Thomas J.
Rinella, Donald G. Ross and Clifford M. Sladnick, respectively (a)(b).
68 St.Paul Bancorp, Inc.
x Amendments to Severance Agreements, dated as of Dec. 19, 1994, among St.
Paul Bancorp, Inc., St. Paul Federal Bank For Savings and Robert N. Parke,
Thomas J. Rinella, Donald G. Ross and Clifford M. Sladnick, respectively
(a)(b).
xi Amendments to Severance Agreements, dated as of May 22, 1995, among St.
Paul Bancorp, Inc., St. Paul Federal Bank For Savings and Robert N. Parke,
Thomas J. Rinella, Donald G. Ross and Clifford M. Sladnick, respectively
(a)(b).
xii Amendments to Severance Agreements, dated as of Aug. 28, 1995, among St.
Paul Bancorp, Inc., St. Paul Federal Bank For Savings and Robert N. Parke,
Thomas J. Rinella, Donald G. Ross and Clifford M. Sladnick, respectively
(a)(b).
xiii St. Paul Federal Bank For Savings Deferred Compensation Trust Agreement
dated April 21, 1987 (a)(b).
xiv First Amendment to Agreement 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).
xv 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 (a)(b).
xvi 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).
xvii St. Paul Federal Bank For Savings Supplemental Retirement Plan and Excess
Benefit Plan (a)(b).
xviii St. Paul Federal Bank For Savings Supplemental Retirement Trust (a)(b).
xix St. Paul Bancorp, Inc. and St. Paul Federal Bank For Savings Employee
Severance Compensation Plan, executed Dec. 20, 1993 (a)(b).
xx 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).
xxi 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).
xxii Shareholders Rights Plan dated Oct. 26, 1992 (a).
xxiii Indenture for Subordinated Notes dated Feb. 1, 1993 between St. Paul
Bancorp, Inc. and Harris Trust and Savings Bank (a).
xxiv Indenture dated as of July 1, 1989 between St. Paul Federal Bank For
Savings and Bankers Trust Company, Trustee (a).
EXHIBIT NUMBER 13
1995 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.
1995 Annual Report/10-K 69
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 Feb. 26,
1996 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 Feb. 26, 1996, by the following persons on behalf of
the registrant and in the capacities indicated.
JOSEPH C. SCULLY
Chairman and Chief Executive Officer
PATRICK J. AGNEW
President and Chief Operating Officer
ROBERT N. PARKE
Senior Vice President and Treasurer
(principal financial officer)
PAUL J. DEVITT
First Vice President and Controller
(principal accounting officer)
WILLIAM A. ANDERSON
Director
JOHN W. CROGHAN
Director
DR. ALAN J. FREDIAN
Director
KENNETH J. JAMES
Director
DR. JEAN C. MURRAY, O.P.
Director
MICHAEL R. NOTARO
Director
JOHN J. VIERA
Director
JAMES B. WOOD
Director
DIRECTORS
JOSEPH C. SCULLY
Chairman and Chief Executive Officer, St. Paul Bancorp, Inc. and
St. Paul Federal -- A B C D E H
PATRICK J. AGNEW
President and Chief Operating Officer, St. Paul Bancorp, Inc. and
St. Paul Federal -- A B C D E H
WILLIAM A. ANDERSON
Partner (Retired), Ernst & Young LLP -- A B I*
JOHN W. CROGHAN
Chairman, Lincoln Capital Management -- investment counseling -- A*
DR. ALAN J. FREDIAN
Professor (Retired), Institute of Human Resources and Industrial Relations,
Loyola University -- E* F G
KENNETH J. JAMES
Chairman, James Investment Co. and J.S. James & Co., Inc. --
real estate development, brokerage and management -- B* C
DR. JEAN C. MURRAY, O.P.
President (Retired), Rosary College -- H
MICHAEL R. NOTARO
Chairman and Chief Executive Officer (Retired),
Computer Data Processing Corp. -- data processing -- D* E F* G*
JOHN J. VIERA
Corporate Vice President (Retired),
Commonwealth Edison Company -- public utility -- F G H* I
JAMES B. WOOD
President, Equity Builders of Illinois, Inc. -- construction -- A B C* D I
ST. PAUL BANCORP OFFICERS
JOSEPH C. SCULLY, 55, 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, 53, 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.
JAMES R. LUTSCH, 48, has been Senior Vice President and Chief Information
Officer since 1986. He joined St. Paul in 1972 and has also served as a Vice
President and as a Manager in the company's systems department.
ROBERT N. PARKE, 51, became Senior Vice President of Finance and Chief Financial
Officer in 1981. He also serves as Chairman of the bank's Asset Classification
Committee. 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.
ROBERT N. PFEIFFER, 47, was named Senior Vice President of Human Resources in
1991. Previous positions include First Vice President,
Vice President, Branch Manager and Manager of St. Paul Service, Inc.,
the company's insurance subsidiary.
THOMAS J. RINELLA, 51, 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, 47, became Senior Vice President of Retail Banking in 1986. He
also has held the positions of First Vice President, Vice President and
Assistant Vice President with the company.
JOHN J. SCHUKAY, 61, has been Senior Vice President of Customer Operations since
1982. Since joining the company in 1959, he has held a variety of positions,
including Vice President, Director of Branch Operations and Manager of Systems
and Procedures.
CLIFFORD M. SLADNICK, 39, 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.
(A) MEMBER OF THE INVESTMENT COMMITTEE OF THE BANK
(B) MEMBER OF THE LOAN LOSS RESERVE COMMITTEE OF THE BANK
(C) MEMBER OF THE LOAN COMMITTEE OF THE BANK
(D) MEMBER OF THE EXECUTIVE COMMITTEES OF THE COMPANY AND THE BANK
(E) MEMBER OF THE PROFIT SHARING, PENSION AND ESOP TRUST COMMITTEE
OF THE BANK
(F) MEMBER OF THE ORGANIZATIONAL PLANNING COMMITTEES OF THE COMPANY AND THE
BANK
(G) MEMBER OF THE STOCK OPTION COMMITTEE OF THE COMPANY
(H) MEMBER OF THE CORPORATE RESPONSIBILITY COMMITTEE OF THE BANK
(I) MEMBER OF THE AUDIT AND ACCOUNTING COMMITTEES OF THE COMPANY
AND THE BANK
* COMMITTEE CHAIRMAN
70 St.Paul Bancorp, Inc.
Investor Information
CORPORATE OFFICES
6700 W. North Ave., Chicago, IL 60635
(312) 622-5000*
ST. PAUL NEWS HOTLINE
(312) 889-SPBC (7722)*
*Note: the area code will change to 773 in fall 1996
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, 1995, St. Paul Bancorp had 18,749,734 shares of common stock
outstanding. At that date, there were 6,831 shareholders of record.
As of the close of business on Feb. 15, 1996, St. Paul Bancorp's stock
price was $24.50.
Stock Price Information
The table below shows the quarterly price range of SPBC common stock and
dividends paid over the past two years. On Jan. 17, 1996, St. Paul Bancorp's
board of directors voted to increase the quarterly dividend 33% to 10 cents per
share.
Stock Prices 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
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
1995........... 17 3/8--25 3/4 21 1/2--23 3/8 22 3/8--28 3/8 23 3/8--26 7/8
Dividends Per Share Declared: 1995 1994
First Quarter............................................... $0.075 $0.075
Second Quarter.............................................. 0.075 0.075
Third Quarter............................................... 0.075 0.075
Fourth Quarter.............................................. 0.075 0.075
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, call the St. Paul News Hotline
at (312) 889-SPBC (7722) or the company's Investor Relations Department at (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
Bank of Boston c/o Boston EquiServe
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 15, 1996 at Drury Lane Oakbrook, 100 Drury
Lane, Oakbrook Terrace, IL. Mark your proxy card if you wish to attend. The
record date for voting at the meeting is Wednesday, March 27, 1996.
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.
72 St.Paul Bancorp, Inc.
ST. PAUL FEDERAL BANK BRANCHES
HOME OFFICE
6700 W. North Ave.
Chicago, IL 60635
(312) 622-5000*
* Note: the area code will change to 773 in fall 1996
BRANCHES
Chicago (7)
Addison
Berkeley
Berwyn
Blue Island
Buffalo Grove
Carol Stream
Downers Grove
Elmhurst (2)
Elmwood Park (2)
Evanston (2)
Franklin Park
Hanover Park
Harwood Heights
Lombard
Morton Grove
Mount Prospect
Oak Lawn
Oak Park (2)
Rolling Meadows
Skokie
Villa Park
Westchester
Wood Dale
Woodridge
IN-STORE BRANCHES
Chicago (3)
Arlington Heights
Aurora (2)
Bridgeview
Cicero
Crestwood
Elgin
Glendale Heights
McHenry
Melrose Park
Niles
Orland Park
Round Lake Beach
Waukegan
(back cover)
St. Paul Bancorp, Inc.
6700 W. North Ave.
Chicago, IL 60635
(312) 622-5000