<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended Sept. 30, 1996
or
( ) Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from to
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Commission File Number 0-15580
St. Paul Bancorp, Inc.
---------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3504665
- -------------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
6700 W. North Avenue
Chicago, Illinois 60707
- ---------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
(773) 622-5000
------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding twelve months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
---- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 par value -- 18,157,846 shares, as of Nov. 1, 1996
<PAGE> 2
ST. PAUL BANCORP, INC.
AND SUBSIDIARIES
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements (Unaudited)
Consolidated Statements of Financial Condition
as of Sept. 30, 1996 and Dec. 31, 1995 ................... 3
Consolidated Statements of Income for the Three and Nine
Months Ended Sept. 30, 1996 and 1995 ..................... 4
Consolidated Statements of Stockholders' Equity for the
Nine Months Ended Sept. 30, 1996 and 1995 ................ 5
Consolidated Statements of Cash Flows for the
Nine Months Ended Sept. 30, 1996 and 1995 ................ 6
Notes to Consolidated Financial Statements ............... 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations ...................... 9
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K ......................... 42
Signature Page ........................................... 43
Exhibits ................................................. 44
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ST. PAUL BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
Dollars in thousands 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents
Cash and amounts due from depository institutions $ 91,305 $ 111,736
Federal funds sold and interest bearing bank balances 72,589 41,706
Short-term cash equivalent securities 48,095 33,179
-----------------------------
Total cash and cash equivalents 211,989 186,621
Marketable-debt securities
(Market: Sept. 30, 1996-$82,013; Dec. 31, 1995-$92,778) 82,013 92,778
Mortgage-backed securities
(Market: Sept. 30, 1996-$794,110; Dec. 31, 1995-$967,687) 799,227 975,422
Loans receivable, net of accumulated provision for loan losses
(Sept. 30, 1996-$36,280; Dec. 31, 1995-$38,619) 2,999,549 2,683,890
Loans held-for-sale, at lower of cost or market
(Market: Sept. 30, 1996-$11,398; Dec. 31, 1995-$15,638) 11,393 15,583
Accrued interest receivable 25,566 25,354
Foreclosed real estate
(Net of accumulated provision for losses: Sept. 30,1996-$439;
Dec. 31, 1995-$1,974) 5,491 10,642
Real estate held for development or investment 17,029 13,191
Investment in Federal Home Loan Bank stock 35,211 36,304
Office properties and equipment 47,783 44,720
Prepaid expenses and other assets 40,957 32,174
-----------------------------
Total Assets $ 4,276,208 $ 4,116,679
=============================
LIABILITIES:
Deposits $ 3,288,096 $ 3,231,810
Short-term borrowings 280,499 175,368
Long-term borrowings 260,754 266,059
Advance payments by borrowers for taxes and insurance 10,554 20,610
Other liabilities 64,674 38,635
-----------------------------
Total Liabilities 3,904,577 3,732,482
COMMITMENTS
STOCKHOLDERS' EQUITY:
Preferred stock (par value $.01 per share: authorized-10,000,000
shares; none issued) - -
Common stock (par value $.01 per share: authorized-40,000,000 shares;
Issued: Sept. 30,1996-20,247,218 shares; Dec. 31, 1995-19,990,106;
Outstanding: Sept. 30, 1996-18,081,846 shares;
Dec. 31, 1995-18,749,734 shares) 202 200
Paid-in capital 144,902 141,166
Retained income, substantially restricted 279,362 269,791
Unrealized loss on securities, net of taxes (4,393) (895)
Borrowings by employee stock ownership plan (441) (485)
Unearned employee stock ownership plan shares (196,350 shares) (2,883) (2,883)
Treasury stock (2,165,372 at Sept. 30, 1996;
1,240,372 shares at Dec. 31, 1995) (45,118) (22,697)
-----------------------------
Total stockholders' equity 371,631 384,197
-----------------------------
Total liabilities and stockholders' equity $ 4,276,208 $ 4,116,679
=============================
</TABLE>
See notes to consolidated financial statements
3
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<TABLE>
<CAPTION>
ST. PAUL BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Three months ended Nine months ended
Sept. 30, Sept. 30,
-------------------- ----------------------
Dollars in thousands except per share amounts 1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans receivable $ 58,833 $ 50,648 $ 169,479 $ 150,281
Mortgage-backed securities 13,354 16,150 42,063 49,750
Marketable-debt securities 1,157 1,238 3,423 3,767
Federal funds and interest-bearing bank balances 485 830 1,983 1,727
Other investment income 1,035 962 3,225 2,928
----------------------- -----------------------
Total interest income 74,864 69,828 220,173 208,453
INTEREST EXPENSE:
Deposits 34,767 33,911 103,763 98,355
Short-term borrowings 4,134 2,503 10,210 8,533
Long-term borrowings 4,566 4,766 13,354 14,338
----------------------- -----------------------
Total interest expense 43,467 41,180 127,327 121,226
----------------------- -----------------------
Net interest income 31,397 28,648 92,846 87,227
Provision for loan losses 500 300 1,500 1,400
----------------------- -----------------------
Net interest income after provision for loan losses 30,897 28,348 91,346 85,827
OTHER INCOME:
Loan servicing fees 279 374 1,082 1,201
Other fee income 5,962 5,821 16,392 16,264
Net gain on loan sales 132 91 568 130
Net gain on securities sales - - 855 837
Discount brokerage commissions 1,178 809 3,837 2,245
Income from real estate development 643 909 1,842 2,069
Insurance and annuity commissions 773 678 2,199 2,355
Other (50) 31 (115) 53
----------------------- -----------------------
Total other income 8,917 8,713 26,660 25,154
GENERAL AND ADMINISTRATIVE EXPENSE:
Salaries and employee benefits 13,033 11,918 38,676 36,348
Occupancy, equipment and other office expense 6,596 5,913 18,917 17,206
Advertising 1,475 1,036 3,937 3,131
Federal deposit insurance 2,042 2,229 6,014 6,663
SAIF recapitalization 21,000 - 21,000 -
Other 1,622 1,368 4,956 4,182
----------------------- -----------------------
General and administrative expense 45,768 22,464 93,500 67,530
Loss on foreclosed real estate 89 312 1,245 968
----------------------- -----------------------
Income (loss)before income taxes (6,043) 14,285 23,261 42,483
Income taxes expense (benefit) (2,501) 5,225 7,860 15,391
----------------------- -----------------------
NET INCOME (LOSS) $ (3,542) $ 9,060 $ 15,401 $ 27,092
======================= =======================
EARNINGS (LOSS) PER SHARE:
Primary $ (0.20) $ 0.46 $ 0.81 $ 1.39
Fully diluted (0.20) 0.46 0.80 1.38
======================= =======================
DIVIDENDS PER SHARE $ 0.120 $ 0.075 $ 0.320 $ 0.225
======================= =======================
</TABLE>
See notes to consolidated financial statements.
4
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ST. PAUL BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Borrowing Unearned
Unrealized by Employee Employee
Common Stock Loss on Stock Stock Total
----------------- Paid-In Retained Securities, Ownership Ownership Treasury Stockholders'
Shares Amount Capital Income Net of Tax Plan Plan Shares Stock Equity
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
Dec. 31, 1994 18,781,480 $198 $138,039 $238,929 ($3,531) ($1,000) ($2,883) ($18,355) $351,397
Stock option
exercises 160,676 1 2,388 - - - - - 2,389
Net Income - - - 27,092 - - - - 27,092
Cash dividends paid
to stockholders
($0.225 per share) - - - (4,141) - - - - (4,141)
Change in unrealized
loss on securities,
net of tax - - - - 3,312 - - - 3,312
Treasury stock
purchases (236,447) - - - - - - (4,342) (4,342)
------------------------------------------------------------------------------------------------
Balance at
Sept. 30, 1995 18,705,709 $199 $140,427 $261,880 ($219) ($1,000) ($2,883) ($22,697) $375,707
================================================================================================
Balance at
Dec. 31, 1995 18,749,734 $200 $141,166 $269,791 ($895) ($485) ($2,883) ($22,697) $384,197
Stock option
exercises 257,112 2 3,736 - - - - - 3,738
Net Income - - - 15,401 - - - - 15,401
Cash dividends paid
to stockholders
($0.320 per share) - - - (5,830) - - - - (5,830)
Change in unrealized
loss on securities,
net of tax - - - - (3,498) - - - (3,498)
ESOP Loan Repayment - - - - - 44 - - 44
Treasury stock
purchases (925,000) - - - - - - (22,421) (22,421)
------------------------------------------------------------------------------------------------
Balance at
Sept. 30, 1996 18,081,846 $202 $144,902 $279,362 ($4,393) ($441) ($2,883) ($45,118) $371,631
================================================================================================
</TABLE>
See notes to consolidated financial statements
5
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ST. PAUL BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended Sept. 30
Dollars in thousands 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 15,401 $ 27,092
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 1,500 1,400
Provision for losses on foreclosed real estate 943 568
Provision for depreciation 5,273 4,782
Assets originated and acquired for sale (33,552) (32,944)
Sale of assets held for sale 36,843 24,999
Increase in accrued interest receivable (212) (1,195)
(Increase) decrease in prepaid expenses and other assets (8,783) 918
Increase in other liabilities 26,039 7,195
Net amortization of yield adjustments 6,988 4,353
Other items, net (20,923) (14,586)
- -------------------------------------------------------------------------------------------
Net cash provided by operating activities 29,517 22,582
- -------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Principal repayments on loans receivable 465,488 268,114
Loans originated and purchased for investment (796,194) (258,226)
Loans receivable sold 13,014 2,984
Principal repayments on available for sale mortgage-
backed securities 52,258 13,452
Principal repayments on held to maturity mortgage-
backed securities 124,007 99,984
Purchase of available for sale mortgage-backed securities - (65,139)
Purchase of held to maturity mortgage-backed securities (38,041) -
Sale of available for sale mortgage-backed securities 27,542 56,887
Maturities of available for sale marketable-debt securities 30,250 8,000
Purchase of available for sale marketable-debt securities (20,191) (236)
Additions to real estate (14,167) (7,790)
Real estate sold 37,696 24,860
(Purchase) sale of Federal Home Loan Bank stock 1,093 (6,457)
Purchase of office properties and equipment (8,336) (5,221)
- -------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities (125,581) 131,212
- -------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from issuance of certificates of deposit 353,502 234,809
Payments for maturing certificates of deposit (269,050) (262,709)
Net decrease in remaining deposits (28,166) (8,401)
Increase in long-term borrowings 50,000 100
Repayment of long-term borrowings -- (5,238)
Increase (decrease)in short-term borrowings, net 49,715 (95,895)
Dividends paid to stockholders (5,830) (4,141)
Proceeds from stock options exercised 3,738 2,389
Purchase of Treasury Stock (22,421) (4,342)
Increase (decrease) in advance payments by borrowers
for taxes and insurance (10,056) 4,889
- -------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 121,432 (138,539)
- -------------------------------------------------------------------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS 25,368 15,255
Cash and cash equivalents at beginning of period 186,621 159,948
- -------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 211,989 $ 175,203
===========================================================================================
</TABLE>
See notes to consolidated financial statements
SUPPLEMENTAL CASH FLOW DISCLOSURES
<TABLE>
<S> <C> <C>
Interest credited on deposits $ 93,797 $ 83,289
Interest paid on deposits 8,507 8,704
- -------------------------------------------------------------------------------------------
Total interest paid on deposits 102,304 91,993
Interest paid on borrowings 22,702 24,093
Income taxes paid, net 12,649 16,006
Real estate acquired through foreclosure 21,555 8,505
Loans originated in connection with real estate
acquired through foreclosure 19,806 11,885
===========================================================================================
</TABLE>
6
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ST. PAUL BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying consolidated financial statements have been prepared
according to generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of Management, all necessary adjustments, consisting
only of normal recurring accruals, necessary for a fair presentation have been
included. The results of operation for the three- and nine-month periods ended
Sept. 30, 1996 are not necessarily indicative of the results expected for the
entire fiscal year.
2. The accompanying consolidated financial statements include the accounts of
St. Paul Bancorp, Inc. (the "Company" or "St. Paul Bancorp") and its
wholly-owned subsidiaries, St. Paul Federal Bank For Savings (the "Bank"),
Annuity Network, Inc. and St. Paul Financial Development Corporation. The
financial statements of the Bank include the accounts of its subsidiaries.
Certain prior year amounts have been reclassified to conform to the 1996
presentation.
3. At Sept. 30, 1996, the Bank had $12.5 million of commitments to originate
1-4 family real estate loans outstanding . Of these commitments, $10.4 million
were for adjustable-rate loans and $2.1 million were for fixed-rate loans.
Most of these commitments expire after sixty days. The Bank had commitments to
originate $503,000 of adjustable rate 1-4 family construction loans and $23.2
million of adjustable rate mortgage loans secured by multifamily apartments
outstanding. Unused home equity lines of credit totaled $75.9 million as of
Sept. 30, 1996. The Bank also had $10.1 million of commitments to originate
consumer loans, which primarily consist of unsecured lines of credit and
automobile loans. At Sept. 30, 1996, the Bank had commitments to purchase 1-4
family adjustable real estate loans of $101.7 million. The Bank anticipates
funding originations with normal cash flow and incremental borrowings as
necessary.
The Bank held commitments, at Sept. 30, 1996, to sell $3.2 million of
fixed-rate, 1-4 family real estate loans. The consolidated financial
statements contain market value losses, if any, related to these commitments.
At Sept. 30, 1996, the Company has issued $6.8 million of standby letters of
credit on behalf of its real estate development subsidiary and other borrowers
or customers to various counties and villages as a performance guarantee for
land development and improvements.
4. During the first quarter of 1996, the Company adopted SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of," which requires impairment of 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 is
less than the assets' carrying amount. This Statement also addresses the
accounting for long-lived assets that are expected to be disposed of. The
effect of the adoption of this Statement on the results of operation was
immaterial.
5. In the first quarter of 1996, the Company adopted Statement of Financial
7
<PAGE> 8
Accounting Standards No. 122, "Accounting for Mortgage Servicing Rights." This
Statement requires the recognition as a separate asset the right to service
loans for others, no matter how those servicing rights are acquired. Costs to
originate loans serviced for others are allocated between the mortgage
servicing rights and the loan based upon their relative fair values. The
mortgage servicing rights will be amortized in proportion to, and over the
period of, estimated net servicing income. Prior to adoption, the value of
mortgage servicing rights was included in the basis of the loans that were
sold, thereby reducing the net gain on asset sales included in other income.
This Statement also requires the Company to periodically assess the capitalized
mortgage servicing rights for impairment based upon the fair value of those
rights. During the first nine months of 1996, the Company capitalized $347,000
as mortgage servicing rights.
6. During the first quarter of 1996, the Company adopted 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 to use
Accounting Principles Board ("APB") No. 25, "Accounting for Stock Issued to
Employees" or use the fair value method under SFAS No. 123 for recording all
stock-based compensation. 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 date of grant. If the employer
continues to use APB No. 25, annual pro forma disclosure of the results of
operations must be made as if the fair value method of accounting for these
awards was used. Since Management will continue to use APB No. 25 for stock
options and provide the annual pro forma disclosures required, the adoption of
this statement will have no impact on the results of operations.
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
St. Paul Bancorp, Inc. (the "Company") is the holding company for St.
Paul Federal Bank For Savings (the "Bank"), Illinois' largest independent
savings institution. At Sept. 30, 1996, the Company reported total assets of
$4.3 billion and the Bank operated 52 branches in the Chicago metropolitan
area. The branch network is comprised of 35 free-standing offices and 17
banking offices located in Omni(R) and Cub(R) superstores. During the first
nine months of 1996, the Bank expanded its automated teller machine ("ATM")
network to 460 machines by installing 261 ATMs in White Hen Pantry(R) food
convenience stores in the eight- county Chicago area, including stores in
northwest Indiana. The Bank also services 179,000 checking accounts and over
29,000 loans at Sept. 30, 1996. In addition to checking accounts, the Bank
offers a variety of savings, money market, and certificate of deposit products.
The Federal Deposit Insurance Corporation's Savings Association Insurance Fund
("SAIF") insures the deposit accounts of the Bank. See discussion following
for details on the one-time charge to recapitalize SAIF.
Both the Company and the Bank continued to operate other wholly owned
subsidiaries during 1996, including St. Paul Financial Development Corporation,
Annuity Network, Inc., SPF Insurance Agency, Inc.(formerly known as St. Paul
Service, Inc.) and Investment Network, Inc. As of Sept. 30, 1996, customers
maintain $502 million of investments through Investment Network, Inc. and $341
million of annuity contracts through Annuity Network, Inc.
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. In the first nine months of 1996,
the Bank's Treasury operation purchased over $425 million of 1-4 family
adjustable rate mortgage loans in the market. These portfolios were priced to
provide better yields to the Bank than newly originated loans. The Bank has
focused its direct lending activities on the origination of various mortgage
products secured by 1-4 family residential properties through its retail
banking offices. The Bank also uses a correspondent loan program to originate
1-4 family mortgages in the Chicago metropolitan area, and in states such as
Wisconsin, Indiana, Michigan and Ohio. During 1996, the Bank is continuing to
emphasize a variety of consumer
9
<PAGE> 10
loan products offered through the retail banking offices, including home equity
loans, secured lines of credit, education, and automobile loans. The Bank has
entered into an agreement to sell lesser quality consumer loans to a third
party, rather than retaining them for portfolio. The Bank also offers mortgage
loans to qualifying borrowers to finance apartment buildings with up to 120
units and has directed its efforts in areas located in Illinois, Wisconsin,
Indiana, Minnesota, and Ohio. The Bank is considering expanding the
geographical area covered by this program to include other Midwestern
states.(1)
The Bank also invests in mortgage-backed securities ("MBS"), government
and other investment-grade, liquid securities. The Bank classifies investment
securities as either available for sale ("AFS") or held to maturity ("HTM")
under Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting
for Certain Investments in Debt and Equity Securities."
Earnings of the Bank are susceptible to interest rate risk to the
extent that the Bank's deposits and borrowings reprice on a different basis and
in different periods than its securities and loans. Prepayment options
embedded in loans and MBS and varying demand for loan products due to changes
in interest rates creates additional operating risk for the Bank in matching
the repricing of its assets and liabilities. The Bank tries to structure its
balance sheet to reduce its exposure to interest rate risk and to maximize its
return on equity, commensurate with risk levels that do not jeopardize the
financial safety and soundness of the institution.
Changes in real estate market values also affect the Bank's earnings. As
- -----------------
(1) In addition, the Bank will refinance multifamily and commercial loans,
depending on the credit characteristics, which are maturing during 1996 or are
scheduled to mature in the near future. The Bank also originates mortgage
loans to facilitate the sale of multifamily, and occasionally, commercial real
estate owned by the Bank. Periodically, the Bank will also repurchase
multifamily loans sold with recourse.
Prior to 1990, the Bank originated, on a nationwide basis
(primarily in California), loans secured by multifamily real estate and to
a lesser extent, loans secured by commercial real estate. At Sept. 30,
1996, $961.4 million or 22.5% of total assets were comprised of loans secured
by multifamily real estate properties, of which $499.7 million or 11.7% of
total assets represented multifamily loans secured by real estate located in
California. Also, $54.4 million or 1.3% of the Company's total assets at
Sept. 30, 1996 included loans secured by commercial real estate, other than
multifamily, located nationwide.
10
<PAGE> 11
changes occur in interest rates, the forces of supply and demand for real
estate, and the economic conditions of real estate markets, the risk of actual
losses in the Bank's loan portfolio will also change. See "CREDIT RISK
MANAGEMENT" for further details.
On Sept. 30, 1996, President Clinton signed legislation that mandated
the recapitalization of the SAIF and addressed the disparity in insurance
premiums paid by members of the SAIF and the Bank Insurance Fund ("BIF"). This
legislation required members of SAIF, such as St. Paul Federal Bank for
Savings, to pay a one-time special assessment of 65.7 cents per $100 of
deposits as of Mar. 31, 1995 to fully capitalize SAIF to the desired levels.
Beginning in 1997, annual SAIF insurance premiums will drop to about 6.4 cents
per $100 of deposits, while BIF premiums will be 1.3 cents per $100 of
deposits. The Company's third quarter operating results include a $21.0
million charge for the Bank's share of the special assessment. Management
expects that future general and administrative expenses will be lower by $5.5
million annually, based upon current deposit levels, for the lower annual SAIF
premium cost.
The legislation enacted also eliminated the availability of the
percentage-of-taxable income bad debt method for federal income tax purposes.
The Bank will be required to use the specific charge-off method in the future.
Previously, the Bank had been able to use either the percentage-of-taxable
income method or the specific charge-off method. The legislation also
eliminated the recapture of the base year tax reserve (i.e. tax bad debt
reserves established before 1988) if the Bank were to fail the qualified thrift
lender test. After the legislation, the base year tax reserve becomes subject
to recapture if St. Paul ceased to be a bank or made distributions of the tax
bad debt reserves to shareholders. However, the legislation does require the
Bank to recapture, into taxable income, $547,000 of additions made to the tax
bad debt reserve since 1988. This recapture will occur over a six year period
beginning in 1996, but can be delayed for two years if the Bank meets recently
developed loan origination tests.
11
<PAGE> 12
STATEMENT OF FINANCIAL CONDITION
St. Paul Bancorp reported total assets of $4.3 billion at Sept. 30, 1996,
or $159.5 million higher than total assets reported at Dec. 31, 1995. Higher
loans receivable balances, partly offset by lower MBS balances produced the
increase in total assets.
Cash and cash equivalents totaled $212.0 million at Sept. 30, 1996, $25.4
million higher than Dec. 31, 1995. See "CASH FLOW ACTIVITY" for further
details.
Marketable-debt securities, comprised of U.S. Treasury and agency
securities, totaled $82.0 million at Sept. 30, 1996, as compared to $92.8
million at Dec. 31, 1995. At both Sept. 30, 1996 and Dec. 31, 1995, all of the
Company's marketable-debt securities were classified as AFS under SFAS No. 115.
The Company recorded an unrealized loss of $293,000 on AFS marketable-debt
securities at Sept. 30, 1996, compared to an unrealized loss of $62,000 at Dec.
31, 1995. An increase in market interest rates since the beginning of 1996
produced the increase in the unrealized loss. Under SFAS No. 115, unrealized
gains and losses on AFS securities are recorded as an adjustment to
stockholders' equity, net of related taxes.
MBS totaled $799.2 million at Sept. 30, 1996, $176.2 million or 18.1% less
than the $975.4 million of MBS at Dec. 31, 1995. Principal repayments and the
sale of $27.5 million of AFS MBS produced the decline in balance. The purchase
of $38.0 million of adjustable rate, HTM MBS partly offset these declines. The
weighted average yield on the MBS portfolio was 6.57% at Sept. 30, 1996, or 8
basis points higher than the weighted average yield at Dec. 31, 1995.
Favorable repricing in the adjustable rate portfolio produced most of the
increase.
Approximately 30% of the MBS portfolio is classified as AFS under SFAS No.
115. At Sept. 30, 1996, the Company reported an unrealized loss on its AFS
MBS of $6.9 million compared to an unrealized loss of $1.4 million at Dec. 31,
1995. The increase in the unrealized loss was primarily associated with the
increase in market interest rates since year-end 1995. See "RESULTS OF
OPERATION -- COMPARISON OF NINE MONTHS ENDED SEPT. 30, 1996 AND 1995" for
further details of the $855,000 gain recorded on the sale of MBS.
12
<PAGE> 13
At Sept. 30, 1996, 64% of the MBS portfolio had adjustable rate
characteristics (although some may be performing at initial fixed interest
rates), compared to 66% of the portfolio at Dec. 31, 1995. See "RESULTS OF
OPERATION -- COMPARISON OF THREE MONTHS ENDED SEPT. 30, 1996 AND 1995" for
further details of interest rate caps on MBS.
Loans receivable totaled $3.0 billion at Sept. 30, 1996, $315.7 million or
11.8% higher than the $2.7 billion of loans receivable at Dec. 31, 1995. The
purchase of $428.5 million of 1-4 family whole loans during 1996 primarily
produced the increase. These purchases and $351.5 million of loans originated
for investment, were partly offset by $465.5 million of principal prepayments
and amortization received during the first nine months of 1996. See "CASH FLOW
ACTIVITY" for further discussion.
The weighted average rate on loans receivable decreased to 7.67% at Sept.
30, 1996 from 7.69% at Dec. 31, 1995. The repayment of higher yielding loans,
offset by a modest amount of upward repricing in the adjustable rate portfolio,
produced a slight decline in the weighted average rate. At Sept. 30, 1996, 84%
of the loan portfolio had adjustable rate characteristics as compared to 81% at
Dec. 31, 1995.
Deposits totaled $3.3 billion at Sept. 30, 1996, $56.3 million or 1.7%
higher than the deposit balances at Dec. 31, 1995. Most of the increase in
deposit balances since year-end 1995 occurred in certificates of deposit ("CD")
balances. During 1996, Management continued to promote the issuance of
short-term CDs as a source of funds. The weighted average cost of deposits
remained unchanged at 4.29% at both Sept. 30, 1996 and Dec. 31, 1995. While
the weighted average cost of CDs has remained flat since year-end 1995, the
rate has risen from the second quarter, and the Company's deposit costs
continue to be below certain of its competitors, according to industry surveys.
Total borrowings, which include FHLB advances, totaled $541.3 million at
Sept. 30, 1996, $99.8 million or 22.6% higher than the $441.4 million of
balances at Dec. 31, 1995. During 1996, the Bank used short term borrowing
balances to fund the acquisition of 1-4 family whole loans. These new
borrowings, which were at weighted average rates below the rate of the overall
borrowing portfolio, caused the combined weighted average cost paid for
borrowings to decline from
13
<PAGE> 14
6.55% at Dec. 31, 1995 to 6.44% at Sept. 30, 1996. See "CASH FLOW ACTIVITY"
for further discussion.
Other liabilities increased from $38.6 million at Dec. 31, 1995 to
$64.7 million at Sept. 30, 1996 largely due to the $21.0 million accrual for
the one-time SAIF charge. This assessment will be paid during the fourth
quarter of 1996. See "MANAGEMENT DISCUSSION AND ANALYSIS -- GENERAL" for
further details.
Stockholders' equity of the Company was $371.6 million at Sept. 30,
1996 or $20.55 per share. In comparison, stockholders' equity at Dec. 31, 1995
was $384.2 million or $20.49 per share. The $12.6 million decrease in
stockholders' equity during the nine months ended Sept. 30, 1996 resulted from
the repurchase of $22.4 million of the Company's common stock, a $3.5 million
increase in the unrealized loss on investment securities, and dividends paid to
shareholders of $5.8 million. These decreases were partly offset by $15.4
million of net income and $3.8 million of capital provided by the exercise of
employee stock options. See "REGULATORY CAPITAL REQUIREMENT" and "CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY" for further analysis.
During the first six months of 1996, the Company repurchased 925,000
shares of its outstanding common stock (at a weighted average cost per share of
$24.24) under a stock repurchase program announced in January 1996. In July
1996, the Company announced its intentions to acquire an additional 900,000
shares (or about 5%) of its outstanding common stock during the last six months
of 1996. As of Sept. 30, 1996, no additional Company shares were repurchased
under this program. Management's primary objective in reacquiring its shares
is to increase return on equity and earnings per share for those shares that
remain outstanding. In July 1996, the Company also increased the quarterly
dividend per share 20% from $0.10 per share to $0.12 per share. See "CASH FLOW
ACTIVITY -- HOLDING COMPANY LIQUIDITY" for further details.
See "CREDIT RISK MANAGEMENT" for discussion of foreclosed real estate
balances.
14
<PAGE> 15
REGULATORY CAPITAL REQUIREMENT
The Bank is subject to various regulatory capital requirements
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 financial statements (and the Company's).
Under capital adequacy guidelines and 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 total and
Tier I capital to risk-weighted assets, and of Tier I capital to average
assets. As of Sept. 30, 1996, Management believes that the Bank meets all
capital adequacy requirements to which it is subject.
As of Sept. 30, 1996 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,
Tier I risk-based ratios, and Tier I leverage ratios (2) as set forth in the
table below. The Bank's actual amounts and ratios are also presented in the
following table:
- ---------------------
(2) In addition to the Tier I leverage ratio, the Bank must maintain
a ratio of tangible capital to regulatory assets of 1.50%. As of Sept. 30,
1996, the Bank's tangible capital ratio of 8.65% exceeded the minimum
required ratio.
15
<PAGE> 16
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes: Action Provisions:
-------------- ---------------------- ----------------------
Dollars in thousands Amount Ratio Amount Ratio Amount Ratio
-------------- ---------------------- ----------------------
As of Sept. 30, 1996
<S> <C> <C> <C> <C> <C>
Total Capital
(to Risk Weighted Assets) $ 396,880 16.68% >$ 190,299 >$ 8.00% >$ 237,874 >$ 10.00%
- - - -
Tier I Capital
(to Risk Weighted Assets) $ 367,136 15.43% >$ 95,183 >$ 4.00% >$ 142,775 >$ 6.00%
- - - -
Tier I Capital (core)
(to Regulatory Assets) $ 367,136 8.65% >$ 169,832 >$ 4.00% >$ 212,289 >$ 5.00%
- - - -
As of Dec. 31, 1995
Total Capital
(to Risk Weighted Assets) $ 392,033 17.47% >$ 179,527 >$ 8.00% >$ 224,409 >$ 10.00%
- - - -
Tier I Capital
(to Risk Weighted Assets) $ 363,918 16.18% >$ 89,969 >$ 4.00% >$ 134,954 >$ 6.00%
- - - -
Tier I Capital (core)
(to Regulatory Assets) $ 363,918 8.95% >$ 162,633 >$ 4.00% >$ 203,291 >$ 5.00%
- - - -
</TABLE>
The following schedule reconciles stockholders' equity of the Company to
the components of regulatory capital of the Bank at Sept. 30, 1996:
<TABLE>
<CAPTION>
Sept. 30,
Dollars in thousands 1996
- ------------------------------------------------------------------------
<S> <C>
Stockholders' equity of the Company $371,631
Less: capitalization of the Company's
subsidiaries other than the Bank (10,665)
Plus: capitalization of the Company 4,638
- ------------------------------------------------------------------------
Stockholder's equity of the Bank 365,604
Plus: unrealized loss on
available for sale securities 4,393
Less: investments in non-includable
subsidiaries (1,544)
Less: intangible assets (1,317)
- ------------------------------------------------------------------------
Tangible and core capital 367,136
Plus: allowable GVAs 29,744
- ------------------------------------------------------------------------
Risk-based capital $ 396,880
========================================================================
</TABLE>
In an attempt to address the interest rate risk inherent in the
balance sheets of insured institutions, the OTS proposed a regulation that adds
an interest rate risk component to the risk-based capital requirement for
excess interest rate risk. Under this proposed 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
16
<PAGE> 17
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. This regulation has been
proposed, but not yet implemented by the OTS. As of June 1996 (the last
available measurement date), if the regulation was effective, the Bank would
have had excess interest rate risk and would have increased the Bank's
risk-based capital requirement by $5.6 million. At Sept. 30, 1996, the Bank
had $206.6 million of excess risk-based capital available to meet the higher
capital requirement.
Under the Federal Deposit Insurance Corporation Improvement Act, the
OTS recently published regulations to ensure that its risk-based capital
standards take adequate account of concentration of credit risk, risk from
nontraditional activities, and actual performance and expected risk of loss on
multifamily mortgages. These rules allow 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 risks from nontraditional activities. The Bank is currently not subject to
any additional capital requirements under these regulations.
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 safety
or soundness concerns. The Bank has no such requirements.
CASH FLOW ACTIVITY
Sources of Funds The major sources of funds during the nine months ended Sept.
30, 1996 included $641.8 million of principal repayments on loans receivable
and MBS, $353.5 million from the issuance of CDs, $154.7 million in additional
borrowings, $30.3 million from maturing AFS marketable debt securities, and
$27.5 million from the sale of AFS MBS.
During the first nine months of 1996, repayments of loans receivable
and
17
<PAGE> 18
MBS totaled $641.8 million, compared to $381.6 million of repayments during the
first nine months of 1995. Despite the rise in market interest rates since the
beginning of 1996, the dollar amount of repayments has steadily increased since
the start of 1995. Although repayments declined slightly during the third
quarter of 1996, as compared to the second quarter, the levels of repayments
are still higher than 1995. Management believes that repayments will
stabilize, but could increase in connection with a further decline in rates.
During the first nine months of 1996, the issuance of CDs continued to
be a significant funding source. The issuance of CDs during the first nine
months of 1996 totaled $353.5 million, compared to $234.8 million during the
same period in 1995. Management has continued emphasizing shorter-term CD
products, using attractive offering rates and products, to attract and maintain
deposit balances. While CD products increased, checking, savings and money
market account balances decreased $28.2 million during the first nine months of
1996. In comparison, during the first nine months of 1995, checking, savings
and money market account balances decreased by a net of $8.4 million.
During the first nine months of 1996, a net increase in short term
borrowings of $49.7 million and new long term borrowings of $50.0 million
provided liquidity to help fund a portion of the acquisition of 1-4 family
whole loans. During the same period in 1995, liquidity was used to reduce
total borrowings by $101.1 million.
The maturity of $30.3 million of AFS marketable debt securities also
provided liquidity during 1996.
Uses of Funds. The major uses of funds during the nine months ended Sept. 30,
1996 included $796.2 million of loans originated and purchased for investment,
$269.1 million of payments for maturing CDs, $38.0 million for the purchase of
HTM MBS, and $22.4 million for the purchase of treasury stock.
Loans originated and purchased for investment totaled $796.2 million during
the first nine months of 1996, compared to $258.2 million during the same
period of 1995. During the first nine months of 1996, the Bank purchased $435.1
million of loans, primarily 1-4 family whole loans, in an effort to increase
interest earning asset levels and enhance interest income. Management plans
additional
18
<PAGE> 19
purchases of 1-4 family loans, as available in the market, during 1996 to build
interest earning assets. Loans originated from retail operations and
correspondent operations were $246.2 million and $138.8 million, respectively.
The Bank has increased its efforts on originating loans that yield higher
spreads, such as consumer and home equity loans. The total originations of
home equity, 1-4 family mortgage loan, and consumer loan products have
increased over the same period during 1995, while originations under the Bank's
5 to 120 unit multifamily program have decreased from 1995. In addition to
purchasing 1-4 family whole loans to expand interest earning asset levels, the
Bank purchased $38.0 million of HTM MBS. MBS purchases during the first half
of 1995 totaled $65.1 million.
Payments for maturing CDs increased from $262.7 million during the nine
months ended Sept. 30, 1995 to $269.1 million during the first nine months of
1996. The Bank's emphasis on shorter-term CD products has resulted in an
increase in the amount of CDs maturing and total CD balances. Management has
been successful in retaining a large portion of these maturing balances.
The Company also used $22.4 million of funds to acquire 925,000 shares
(at an average price of $24.24) of its own common stock during the first six
months of 1996. See "HOLDING COMPANY LIQUIDITY" following for further details.
In comparison, the Company purchased $4.3 million to acquire 236,447 of its own
common stock (at an weighted average price of $18.36) during the first nine
months of 1995.
Holding Company Liquidity. At Sept.30, 1996, St. Paul Bancorp, the holding
company, had $27.8 million of cash and cash equivalents, which included amounts
due from depository institutions and marketable-debt securities with original
maturities of less than 90 days. The Company maintains a $20.0 million
revolving line of credit agreement from another financial institution. At
Sept. 30, 1996, no funds have been borrowed under this agreement. The Company
also issued $34.5 million of subordinated notes during 1993 for general
corporate purposes.
Sources of liquidity for St. Paul Bancorp during the first nine months
of 1996 included $14.0 million of dividends from the Bank and $1.3 million of
dividends from St. Paul Financial Development Corporation and Annuity Network,
19
<PAGE> 20
Inc. Uses of St. Paul Bancorp's liquidity during the nine months of 1996
included the acquisition of $22.4 million of St. Paul Bancorp common stock
under the stock repurchase program, $5.9 million of dividends paid to
stockholders, $3.8 million of advances to St. Paul Financial Development, and
$2.1 million of interest on the subordinated debt issued in February of 1993.
See "STATEMENT OF FINANCIAL CONDITION" for further discussion.
During July 1996, the Company announced its intentions to repurchase
up to 900,000 shares (or about 5%) of its outstanding common stock during the
last six months of the year. At September 30, 1996, no shares have been
repurchased under this program. In addition, the Company announced a 20%
increase in the quarterly dividend per share from $0.10 to $0.12 per share.
Regulatory Liquidity Requirements. Savings institutions must maintain average
daily balances of liquid assets equal to a specified percentage of the
institution's average net withdrawable deposits plus short-term borrowings.
Liquid assets include cash, certain time deposits, federal funds sold, certain
corporate debt securities, and securities of specified United States
government, state, or federal agency obligations. The Director of the OTS can
change this liquidity requirement from time to time to any amount within the
range of 4% to 10% of average deposits and short-term borrowings depending upon
the economic conditions and the deposit flows of savings institutions. The
current liquidity requirement is 5% of average deposits and short-term
borrowings. At Sept. 30, 1996, the Bank had $272.2 million invested in liquid
assets, which exceeded the current requirement by $94.0 million. Up to certain
limits, the Bank can use FHLB advances, securities sold under agreements to
repurchase, and the issuance of mortgage-backed notes as additional sources of
liquidity.
20
<PAGE> 21
RATE/VOLUME ANALYSIS
The following table presents the components of the changes in net
interest income by volume and rate (3) for the three months ended Sept. 30,
1996 and 1995:
<TABLE>
<CAPTION>
INCREASE/(DECREASE) DUE TO
----------------------------------
TOTAL
Dollars in thousands VOLUME RATE CHANGE
- ---------------------------------------------------------------------
<S> <C> <C> <C>
CHANGE IN INTEREST INCOME:
Loans receivable $ 8,653 $ (468) $ 8,185
Mortgage-backed securities (3,195) 399 (2,796)
Marketable-debt securities (187) 106 (81)
Federal funds and interest-bearing
bank balances (245) (100) (345)
Other short-term investments 130 (57) 73
------- ------- -------
Total interest income 5,156 (120) 5,036
CHANGE IN INTEREST EXPENSE:
Deposits 1,124 (268) 856
Short-term borrowings 1,773 (142) 1,631
Long-term borrowings (103) (97) (200)
------- ------ -------
Total interest expense 2,794 (507) 2,287
------- ------ -------
NET CHANGE IN NET INTEREST INCOME
BEFORE PROVISION FOR LOAN LOSSES $ 2,362 $ 387 $ 2,749
======= ====== =======
</TABLE>
- ------------------------
(3) This analysis allocates the change in interest income and expense
related to volume based upon the change in 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.
21
<PAGE> 22
RESULTS OF OPERATIONS -- COMPARISON OF THREE MONTHS ENDED SEPT. 30, 1996 AND
1995
General. The Company reported a net loss for the third quarter of 1996 of
$3.5 million, or $0.20 per share, mainly due to the $21.0 million charge to
recapitalize the SAIF. See "MANAGEMENT'S DISCUSSION AND ANALYSIS -- GENERAL"
for further details. Without this charge, net income would have been $10.4
million for the quarter, or 14.4% higher than the $9.1 million of net income
reported during the same quarter in 1995. Primary earnings per share would
have been $0.55 during the third quarter of 1996, compared to $0.46 per share
during the third quarter of 1995. (4) The higher level of net income was
primarily produced by a $2.7 million increase in net interest income and a
lower annual effective income tax rate. Partly offsetting these increases was
a $2.3 million increase in general and administrative expenses (excluding the
SAIF charge).
Net Interest Income. Net interest income totaled $31.4 million during the
third quarter of 1996, 9.6% or $2.7 million higher than the $28.6 million of
net interest income during the same quarter in 1995. The higher net interest
income was produced by a $5.0 million increase in interest income, partly
offset by a $2.3 million rise in interest expense between the two periods.
Between the two periods, the Bank expanded interest earning asset levels,
primarily through the acquisition of 1-4 family whole loans, and average
interest earning assets grew by $228.4 million between the two periods.
The net interest margin ("NIM") rose 10 basis points from 2.97%
during the third quarter of 1995 to 3.07% during the same quarter in 1996. A
lower effective cost of deposits and borrowings during the third quarter of
1996 compared to the same quarter in 1995 produced most of the improvement in
the NIM.
Interest Income. Interest income on loans receivable rose $8.2 million, or
16.2%, during the third quarter of 1996 compared to 1995. A $451.8 million
increase in average loan balances generated the increase in income. This
increase was partly offset by a 7 basis point decline in the effective loan
yield, which was 7.66% during the third quarter of 1996 compared to 7.73% in
the same quarter a year ago. The lower effective yield resulted from the
continued
- ---------------------
(4) The earnings per share comparison grew faster than net income due to
the stock repurchase programs executed during 1995 and 1996.
22
<PAGE> 23
repayment of higher rate loans which were replaced with the origination and
purchase of loans with lower rates.
The $2.8 million decline in MBS interest income primarily resulted
from a $199.7 million decline in average MBS balances. Average MBS balances
declined from $1.03 billion in the third quarter of 1995 to $832.5 million
during the current quarter due to principal repayments and the sale of $27.5
million of MBS during the first quarter of 1996. While average balances
declined, the effective yield on MBS rose 16 basis points to 6.42% during the
third quarter. The higher effective yield on the MBS portfolio primarily
resulted from upward repricing in the adjustable rate portfolio.
Interest income from investments, which includes marketable-debt
securities, federal funds, interest bearing bank balances, and other short-term
investments, declined $353,000 during the third quarter of 1996 compared to the
same quarter in 1995. The decline in investment income was produced by a $23.6
million decline in average balances, which totalled $186.4 million in the third
quarter of 1996. The effective yield earned on investments was 5.70% during the
three months ended Sept. 30, 1996 compared to 5.72% during the same period
during 1995.
Interest Expense. Deposit interest expense rose $856,000 during the three
month period ended Sept. 30, 1996 compared to the same period in 1995,
primarily due to a $105.6 million increase in average deposit balances. The
focus on attracting and maintaining short-term CD balances with higher offering
rates and promotions produced the increase in average balances, which totaled
$3.3 billion during the third quarter of 1996. Despite the heavier reliance on
higher costing CD products, the effective cost of deposits declined 4 basis
points to 4.21% during the third quarter of 1996. Deposit costs rose through
much of 1995 and peaked at the end of the third quarter of 1995, and then
declined during the first half of 1996. However, deposit costs have risen
since the second quarter of 1996. As a result, while deposit costs are higher
at Sept. 30, 1996 as compared to June 30, 1996, they are slightly lower than
the levels experienced during the third quarter of 1995.
Borrowing interest expense rose $1.4 million during the current
quarter compared to the year ago quarter primarily due to a $116.9 million
increase in
23
<PAGE> 24
average borrowing balances. Average borrowing balances rose to $547.9 million
during the third quarter of 1996, as Management used borrowings to help fund
the acquisition of 1-4 family whole loans throughout 1996. These new
borrowings, which were generally at rates below the weighted average rate of
the entire borrowing portfolio, contributed to the 39 basis point decline in
the effective cost of borrowings.
Interest Rate Spread. The Bank's ability to sustain the current level of net
interest income during future periods is largely dependent upon the maintenance
of the interest rate spread (i.e., the difference between weighted average
rates on interest bearing assets and liabilities), the relative size of
interest earning assets compared to interest bearing liabilities, and asset
quality.
The interest rate spread was 2.75% at Sept. 30, 1996, 2.80% at June 30,
1996, and 2.72% at Sept. 30, 1995. Several factors have led to the increase in
the interest rate spread since Sept. 30, 1995. First, upward repricing in the
adjustable rate MBS portfolio resulted in a 6 basis point increase in the
interest rate spread. Second, a decline in long-term borrowing costs and the
use of lower costing short-term borrowings caused the weighted average
borrowing rate to decline by 31 basis points, which allowed the interest rate
spread to expand by 3 basis points. Lastly, a decline in the weighted average
loan rate, primarily due to the repayment of higher rate loans which were
replaced with originations and purchases of loans with lower interest rates,
caused the spread to contract by 3 basis points. The 5 basis point decline in
the interest rate spread since June 30, 1996 was primarily due to a 10 basis
point increase in the deposit rate during that time.
External forces, such as the performance of the economy, the actions
of the Board of Governors of the Federal Reserve System, and market interest
rates can significantly influence the size of the interest rate spread and are
beyond the control of Management. In response to these forces, Management
evaluates market conditions and deploys strategies that it believes will
produce a sustainable and profitable interest rate spread.
Management also believes that several product related factors will
continue to impact the interest rate spread. First, nearly all adjustable rate
loans and MBS contain periodic and lifetime interest rate caps that limit the
amount of
24
<PAGE> 25
upward repricing on loans and MBS.(5) Most of the annual interest caps in the
Bank's loan and MBS portfolio are 2%.
Second, the Bank has $915.2 million of 1-4 family "adjustable" rate
loans that have initial fixed interest rate periods ranging from three to five
years. At Sept. 30, 1996, only a nominal amount of these loans are rescheduled
to reprice during the next twelve months. If interest rates remain at current
levels at the time of repricing, the Bank should experience an increase in the
yields, but could also experience higher prepayments.
Third, approximately $415.4 million of adjustable rate 1-4 family and
multifamily loans are at their interest rate floors. These loans will not
reprice until their fully indexed interest rate exceeds the floor rate. (6)
Lastly, $1.1 billion of the Company's assets are tied to movements
that lag behind the movements in market interest rates. In general, this
condition benefits the Bank's asset yields as market rates decrease, but
constrains repricing as interest rates increase.
On the liability side, the Company has $423.5 million of borrowings
that are scheduled to reprice during the next six months and a CD portfolio of
$2.0 billion that has a weighted average remaining maturity of 12 months. The
Company also has $1.3 billion of deposits in checking, savings, and money
market accounts that are considered core accounts and will help mitigate the
effect of a rapid change in interest rates. See "ASSET/LIABILITY REPRICING
SCHEDULE" following for further details.
- -------------------
(5) At Sept. 30, 1996, interest rate caps on $88.1 million of originated
loans have kept the adjustable rate on these loans below their fully
indexed rate. Had these loans been allowed to adjust to their fully
indexed rate, the loan yield at Sept. 30, 1996 would have been 3 basis
points higher and the interest rate spread would have been 2 basis points
higher. In contrast, the Bank's MBS portfolio was not adversely affected by
any of the contractual periodic or lifetime caps at Sept. 30, 1996.
(6) At Sept. 30, 1996, the weighted average fully indexed rate on these
loans was 7.23% and the weighted average floor was 8.04%. During the
third quarter of 1996, floors provided $835,000 of interest income and
added 11 basis points to the loan yield and 8 basis points to the interest
rate spread. At Sept. 30, 1995, the Bank had $556.2 million of adjustable
rate loans at their interest rate floors, which added $860,000 to interest
income during the third quarter of 1995 and 13 basis points and 9 basis
points to the loan yield and spread, respectively.
25
<PAGE> 26
Provision for Loan Losses. The Company recorded a $500,000 provision for loan
losses during the third quarter of 1996, compared to $300,000 during the same
quarter a year ago. See "CREDIT RISK MANAGEMENT" for further discussion of
loss provisions and adequacy of the accumulated provisions for losses.
Other Income. Other income totaled $8.9 million during the third quarter,
$204,000 or 2.3% higher than other income during the same period in 1995. The
higher level of other income was primarily associated with a $369,000 increase
in discount brokerage commissions, primarily due to higher transaction volumes,
and a $141,000 increase in other fee income, largely due to higher transaction
volumes at the Bank's ATMs. These increases were partly offset by lower income
from real estate development caused by a decline in sales volumes.
While most of the growth in other income during 1995 resulted from
changes to the fee structures, growth in 1996 has come from increased
transaction volumes and greater contributions from discount brokerage
operations. The installation of 261 ATMs in White Hen Pantry(R) food stores
during the second quarter of 1996 is expected to contribute to future growth in
other fee income.
General and Administrative Expense. General and administrative expenses
totaled $45.8 million during the three month period ending in Sept. 30, 1996.
Without the SAIF charge, these expenses would have been $24.8 million, or 10.3%
higher than during the same quarter in 1995. See "MANAGEMENT DISCUSSION AND
ANALYSIS -- GENERAL" for further details of the SAIF charge. The higher level
of expense was associated with higher compensation and benefits of $1.1
million, occupancy, equipment and office expense of $683,000, and advertising
of $439,000.
The increase in compensation and benefits was associated with annual
merit increases, higher payroll taxes, higher pension expense, and increased
medical costs. Higher occupancy, equipment and office expense was associated
with the addition of the Telephone Banking Center in the fourth quarter of 1995
and higher fixed asset depreciation associated with capital investments, such
as the telephone banking center, the digital telephone system, and the
installation of the White Hen ATMs. Higher planned advertising expenditures,
associated with special Chicago sports team checking account promotions, the
rollout of the White Hen ATMs, and the introduction of a combined package of
checking, savings, and
26
<PAGE> 27
money market accounts, produced the increase in advertising costs between the
two periods.
Despite the increases in general and administrative expenses,
Management remains committed to ongoing expense control. However, continued
expansion of the ATM network, additional capital investments, and general
inflation will continue to cause increases in general and administrative
expense. At the same time, Management expects that the introduction of new
technology, such as check imaging, a digital phone system, and the telephone
banking center, can provide a cost-effective means of handling more
transactions and enhancing other income. Management is also seeking to improve
back office workflows, in part through additional computerization, as a way
improving efficiencies. In addition, the lower SAIF insurance premium cost is
expected to lower general and administrative expenses by $5.5 million annually,
based upon current deposit levels. See "MANAGEMENT DISCUSSION AND ANALYSIS --
GENERAL" for further details.
Operations of Foreclosed Real Estate. The Bank generated a net loss from its
foreclosed real estate operation of $89,000 during the third quarter of 1996,
$223,000 lower than the net loss recorded during the same quarter a year ago.
Most of the decrease was produced by a lower provision for real estate owned
("REO") losses. See "CREDIT RISK MANAGEMENT" for further discussion of REO.
Income Taxes. Due to the net loss reported during the third quarter, the
Company recorded an income tax benefit of a $2.5 million. Because of the SAIF
charge and the implementation of certain tax planning strategies, the Company
was able to reduce the expected annual effective income tax rate during 1996
from 35.0% to 33.8%. The adjustment to record the lower annual effective
income tax rate during the third quarter also contributed to the lower
provision for income taxes. Management expects the annual effective income tax
rate during 1997 to be similar to 1996.
27
<PAGE> 28
AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS
<TABLE>
<CAPTION>
Three months ended Sept. 30,
Dollars in thousands At Sept. 30, 1996 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
Weighted Effective Effective
Yield/ Average Yield/ Average Yield/
Balance Rate Balance(a) Interest Rate Balance(a) Interest Rate
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investments:
Marketable-debt securities (b) $ 82,013 5.70% $ 80,654 $ 1,157 5.69% $ 94,086 $ 1,238 5.22%
Federal funds/interest
bearing balances 72,589 5.49 38,411 485 5.01 56,929 830 5.78
Other investments (c) 83,306 5.88 67,360 1,035 6.10 59,054 962 6.46
- ----------------------------------------------------------------------------------------------------------------------------
Total investments 237,908 5.72 186,425 2,677 5.70 210,069 3,030 5.72
Mortgage-backed securities (b) 799,227 6.57 832,458 13,354 6.42 1,032,161 16,150 6.26
Loans receivable (d) 3,047,222 7.67 3,072,933 58,833 7.66 2,621,175 50,648 7.73
- ----------------------------------------------------------------------------------------------------------------------------
Total interest earning assets $4,084,357 7.34% $4,091,816 $74,864 7.32% $3,863,405 $69,828 7.23%
============================================================================================================================
Deposits:
Interest bearing checking $ 228,139 1.75% $ 230,749 $ 1,033 1.78% $ 228,466 $ 1,046 1.82%
Noninterest bearing checking 132,045 -- 135,211 -- -- 125,900 -- --
Other noninterest bearing accounts 27,227 -- 30,863 -- -- 29,314 -- --
Money market accounts 210,179 3.53 211,860 1,849 3.46 209,112 1,639 3.11
Savings accounts 676,505 2.42 692,517 4,216 2.42 715,366 4,361 2.42
Certificates of deposit 2,014,001 5.62 1,972,063 27,669 5.57 1,859,508 26,865 5.73
- ----------------------------------------------------------------------------------------------------------------------------
Total deposits 3,288,096 4.29 3,273,263 34,767 4.21 3,167,666 33,911 4.25
Borrowings:(e)
Short-term borrowings 280,499 5.96 287,168 4,134 5.71 164,470 2,503 6.04
Long-term borrowings 260,754 6.96 260,779 4,566 6.95 266,576 4,766 7.09
- ----------------------------------------------------------------------------------------------------------------------------
Total borrowings 541,253 6.44 547,947 8,700 6.30 431,046 7,269 6.69
- ----------------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities $3,829,349 4.59% $3,821,210 $43,467 4.51% $3,598,712 $41,180 4.54%
============================================================================================================================
Excess of interest earning assets
over interest bearing liabilities $ 255,008 $ 270,606 $ 264,693
============================================================================================================================
Ratio of interest earning assets over
interest bearing liabilities 1.07 1.07 1.07
============================================================================================================================
Net interest income - $31,397 $28,648
============================================================================================================================
Interest rate spread 2.75% - -
============================================================================================================================
"Average" interest rate spread - 2.81% 2.69%
=============================================================================================================================
Net yield on average earning assets - 3.07% 2.97%
=============================================================================================================================
</TABLE>
(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 Bank advances, securities sold under agreements to
repurchase, and other borrowings.
28
<PAGE> 29
RATE/VOLUME ANALYSIS
The following table presents the components of the changes in net interest
income by volume and rate (7) for the nine months ended Sept. 30, 1996 and 1995:
<TABLE>
<CAPTION>
INCREASE/(DECREASE) DUE TO
-----------------------------
TOTAL
Dollars in thousands VOLUME RATE CHANGE
- ---------------------------------------------------------------------
<S> <C> <C> <C>
CHANGE IN INTEREST INCOME:
Loans receivable $17,501 $ 1,697 $19,198
Mortgage-backed securities (7,768) 81 (7,687)
Marketable-debt securities (634) 290 (344)
Federal funds and interest-bearing
bank balances 472 (216) 256
Other short-term investments 495 (198) 297
------- ------- -------
Total interest income 10,066 1,654 11,720
CHANGE IN INTEREST EXPENSE:
Deposits 2,556 2,852 5,408
Short-term borrowings 2,366 (689) 1,677
Long-term borrowings (750) (234) (984)
------- ------- -------
Total interest expense 4,172 1,929 6,101
------- ------- -------
NET CHANGE IN NET INTEREST INCOME
BEFORE PROVISION FOR LOAN LOSSES $ 5,894 $ (275) $ 5,619
======= ======= =======
</TABLE>
- ---------------------
(7) This analysis allocates the change in interest income and expense
related to volume based upon the change in 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.
29
<PAGE> 30
RESULTS OF OPERATIONS -- COMPARISON OF NINE MONTHS ENDED SEPT. 30, 1996 AND
1995
General. The Company's net income totaled $15.4 million, or $0.81 per primary
share, during the nine month period ended Sept. 30, 1996, which included the
$21.0 million SAIF charge. See "MANAGEMENT'S DISCUSSION AND ANALYSIS --
GENERAL" for further details. Without this charge, net income would have been
$29.3 million or 8.2% higher than the $27.1 million of net income during the
same period in 1995. Primary earnings per share would have been $1.54 per
share without the SAIF charge compared to $1.39 during the same nine month
period in 1995, an increase of $10.8%.(8) A $5.6 million increase in net
interest income, a $1.5 million increase in other income, and a lower annual
effective income tax rate primarily produced the higher level of income.
Partly offsetting these increases were a $5.0 million increase in general and
administrative expenses (without the SAIF charge) and a higher loss on
foreclosed real estate of $277,000.
Net Interest Income. Net interest income totaled $92.8 million during the nine
month period ended Sept. 30, 1996, $5.6 million or 6.4% higher than net
interest income during the same period a year ago. A $11.7 million rise in
interest income, partly offset by higher interest expense of $6.1 million
produced the increase in net interest income.
The NIM increased 8 basis points from 2.99% during the first nine
months of 1995 to 3.07% during the first nine months of 1996. An increase in
the effective loan yield, primarily due to higher amortization of deferred
fees, and a lower effective cost of borrowings contributed to the higher NIM.
Partly offsetting these increases was a 12 basis point increase in the
effective cost of deposits. See RESULTS OF OPERATIONS -- COMPARISON OF THREE
MONTHS ENDED SEPT. 30, 1996 AND 1995 for a discussion of the interest rate
spread.
Interest Income. Interest income on loans receivable increased $19.2 million,
or 12.8%, during the first three quarters of 1996 compared to the same period
in 1995. The higher level of income was associated with a $303.7 million
increase in average balances and, to a lessor extent, an 8 basis point increase
in the effective yield earned on loans. The higher average balances, which
totaled $2.9 billion during the first nine months of 1996, primarily resulted
from the recent
- ---------------------
(8) The earnings per share comparison grew faster than net income due to
the stock repurchase program executed during 1995 and 1996.
30
<PAGE> 31
acquisitions of 1-4 family whole loans. These purchases and loans originated
for investment were partly offset by loan repayments. The effective yield
earned on loans rose from 7.61% during the first nine months of 1995 to 7.69%
during the same period in 1996, primarily due to higher amortization of
deferred fees.
The $7.7 million decline in MBS interest income primarily resulted
from a $165.2 million decline in average MBS balances. Average MBS declined to
$894.7 million during the first nine months of 1996 compared to $1.1 billion
during the same period in 1995 Principal repayments and the sale of $27.5
million of MBS during the first quarter of 1996 produced the decline in average
balances. The average effective yield on MBS increased 1 basis point to 6.27%
during the first three quarters of 1996, largely due to upward repricing in the
adjustable rate portfolio.
Interest income from investments, which includes marketable-debt
securities, federal funds, interest bearing bank balances, and other short-term
investments, increased $209,000 over the first nine months of 1995. Most of
the increase in interest income was associated with a $7.0 million increase in
average investment balances, which totalled $205.8 million during the first
nine months of 1996. The effective yield earned on investment balances
declined 5 basis points from 5.66% during the year-to-date period in 1995 to
5.61% during the same period in 1996. While market interest rates have risen
since the beginning of 1996, the rates are lower than during the same period in
1995.
Interest Expense. Deposit interest expense rose $5.4 million between the first
nine months of 1995 and 1996 due to a 12 basis point increase in the effective
cost of deposits and a $81.6 million increase in average deposit balances. The
focus on shorter-term CDs during most of 1995 and into 1996 produced both the
increase in the effective cost of deposits and the higher average deposit
balances. The effective cost of deposits increased from 4.13% during the nine
month period ended Sept. 30, 1995 to 4.25% during the same period in the
current year. Higher offering rates on new CDs and an increase in the relative
size of CDs as compared to other deposit product balances caused the higher
effective cost of deposits. Average deposit balances totaled $3.26 billion
during the nine month period in 1996 compared to $3.18 billion during the same
period a year ago. While deposit costs have risen between periods, the Bank's
deposit costs are still lower than the costs of certain of its competitors,
according to certain
31
<PAGE> 32
surveys.
Borrowing interest expense rose $693,000 during the nine month period
ended Sept. 30, 1996 compared to the same period in 1995 primarily due to a
$40.4 million increase in average borrowing balances. Average borrowing
balances rose to $493.9 million during the first nine months of 1996 compared
to $453.5 million during the same period in 1995. During 1996, the Bank used
borrowing balances to help fund the acquisition of whole loans. The effective
cost of borrowings was 6.38% for the first three quarters of 1996 compared to
6.74% during the same period in 1995. The lower effective cost was produced by
the additional borrowings in 1996 which were at rates below the portfolio
average.
Provision for Loan Losses. The Company recorded a $1.5 million provision for
loan losses during the first three quarters of 1996 compared to $1.4 million
during the same period a year ago. See "CREDIT RISK MANAGEMENT" for further
discussion of loss provisions and adequacy of the accumulated provisions for
losses.
Other Income. Other income totaled $26.7 million during the nine month period
ended Sept. 30, 1996, $1.5 million or 6.0% higher than other income of $25.2
million during the same period in 1995. The higher level of other income was
associated with $1.6 million higher revenues from the Company's discount
brokerage subsidiary and a $438,000 increase in gains from loan sales The
higher gain on loan sales resulted from an increase in the sale of fixed rate
loans as well as the capitalization of certain costs to originate mortgage
loans held for sale in accordance with the first quarter 1996 adoption of SFAS
No. 122. See "NOTES TO CONSOLIDATED FINANCIAL STATEMENTS" for further details.
Other income also included an $855,000 gain on the sale of AFS MBS
during the first half of 1996. In comparison, the Bank recorded an $837,000
gain on the sale of AFS MBS during the first half of 1995.
General and Administrative Expense. General and administrative expense
totaled $93.5 million during the first nine months of 1996. Without the SAIF
charge, these expenses would have totaled $72.5 million, or 7.4% higher than
the $67.5 million of expenses during the same period in 1995. The higher
level of expense was primarily associated with higher compensation and benefits
of $2.3 million,
32
<PAGE> 33
higher occupancy, equipment and office expense of $1.7 million and increased
advertising expense of $806,000.
Operations of Foreclosed Real Estate. The Bank generated a net loss from its
foreclosed real estate operation of $1.2 million during the year-to-date 1996
period, $277,000 higher than the net loss recorded during the same period a
year ago. Most of the increase was produced by a higher provision for real
estate owned ("REO") losses. See "CREDIT RISK MANAGEMENT" for further
discussion of REO.
Income Taxes. Income taxes totaled $7.9 million or 33.8% of pre-tax income
during the first nine months of 1996 compared to $15.4 million or 36.2% of
pre-tax income during the same quarter in 1995. The SAIF charge and the
implementation of state tax planning strategies have allowed the Company to
maintain a lower effective income tax rate during 1996 as compared to 1995.
33
<PAGE> 34
AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS
<TABLE>
<CAPTION>
Nine months ended Sept. 30,
Dollars in thousands At Sept 30, 1996 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
Weighted Effective Effective
Yield/ Average Yield/ Average Yield/
Balance Rate Balance(a) Interest Rate Balance(a) Interest Rate
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investments:
Marketable-debt securities (b) $ 82,013 5.70% $ 82,141 $ 3,423 5.57% $ 97,766 $ 3,767 5.15%
Federal funds/interest bearing
balances 72,589 5.49 50,847 1,983 5.21 39,165 1,727 5.90
Other investments (c) 83,306 5.88 72,839 3,225 5.92 61,852 2,928 6.33
- ----------------------------------------------------------------------------------------------------------------------------
Total investments 237,908 5.72 205,827 8,631 5.61 198,783 8,422 5.66
Mortgage-backed securities (b) 799,227 6.57 894,663 42,063 6.27 1,059,894 49,750 6.26
Loans receivable (d) 3,047,222 7.67 2,938,392 169,479 7.69 2,634,674 150,281 7.61
- ----------------------------------------------------------------------------------------------------------------------------
Total interest earning assets $4,084,357 7.34% $4,038,882 $ 220,173 7.27% $3,893,351 $208,453 7.14%
============================================================================================================================
Deposits:
Interest bearing checking $ 228,139 1.75% $ 234,786 $ 3,077 1.75% $ 232,316 $ 3,180 1.83%
Noninterest bearing checking 132,045 -- 129,619 -- -- 118,266 -- --
Other noninterest bearing accounts 27,227 -- 31,237 -- -- 29,094 -- --
Money market accounts 210,179 3.53 203,942 5,018 3.29 220,375 5,131 3.11
Savings accounts 676,505 2.42 696,212 12,632 2.43 730,302 13,261 2.43
Certificates of deposit 2,014,001 5.62 1,969,081 83,036 5.64 1,852,897 76,783 5.54
- ----------------------------------------------------------------------------------------------------------------------------
Total deposits 3,288,096 4.29 3,264,877 103,763 4.25 3,183,250 98,355 4.13
Borrowings:(e)
Short-term borrowings 280,499 5.96 239,722 10,210 5.69 185,079 8,533 6.16
Long-term borrowings 260,754 6.96 254,166 13,354 7.02 268,389 14,338 7.14
- ----------------------------------------------------------------------------------------------------------------------------
Total borrowings 541,253 6.44 493,888 23,564 6.38 453,468 22,871 6.74
- ----------------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities $3,829,349 4.59% $3,758,765 $ 127,327 4.53% $3,636,718 $121,226 4.46%
============================================================================================================================
Excess of interest earning assets
over interest bearing liabilities $ 255,008 $ 280,117 $ 256,633
============================================================================================================================
Ratio of interest earning assets over
interest bearing liabilities 1.07 1.07 1.07
============================================================================================================================
Net interest income - $ 92,846 $ 87,227
============================================================================================================================
Interest rate spread 2.75% - -
============================================================================================================================
"Average" interest rate spread - 2.74% 2.68%
=============================================================================================================================
Net yield on average earning assets - 3.07% 2.99%
=============================================================================================================================
</TABLE>
(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 Bank advances, securities sold under agreements to
repurchase, and other borrowings.
34
<PAGE> 35
KEY CREDIT STATISTICS
<TABLE>
<CAPTION>
Sept. 30, 1996 Dec. 31, 1995 Dec. 31, 1994
Dollars in thousands Dollar % Dollar % Dollar %
- ---------------------------------------------------------------------------------------------
LOAN PORTFOLIO
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MORTGAGE LOANS
1-4 family units $2,000,072 66% $1,663,228 62% $1,530,132 59%
Multifamily units 961,354 32 979,017 36 993,122 38
Commercial 52,554 2 54,981 2 63,983 3
Land and land development 1,871 * 1,940 * 224 *
- ---------------------------------------------------------------------------------------------
Total mortgage loans $3,015,851 100% $2,699,166 100% $2,587,461 100%
=============================================================================================
CONSUMER LOANS
Secured by deposits $ 1,528 8% $ 2,307 10% $ 1,928 8%
Education (guaranteed) 186 1 261 1 584 3
Home improvement 343 2 576 2 832 4
Auto 17,100 85 20,034 86 19,392 83
Personal 821 4 165 1 380 2
- ---------------------------------------------------------------------------------------------
Total consumer loans $ 19,978 100% $ 23,343 100% $ 23,116 100%
- ---------------------------------------------------------------------------------------------
Total loans held for investment $3,035,829 $2,722,509 $2,610,577
=============================================================================================
Weighted average rate 7.67% 7.69% 7.51%
=============================================================================================
*Less than 1%
NONPERFORMING ASSETS
- --------------------------------------------------------------------------------------------
MORTGAGE LOANS
1-4 family units $ 7,490 36% $ 7,722 26% $ 5,584 21%
Multifamily units 6,797 33 8,665 30 3,813 14
Commercial 383 2 1,360 5 437 1
Land and land development --- -- --- -- --- --
- --------------------------------------------------------------------------------------------
Total mortgage loans 14,670 71 17,747 61 9,834 36
CONSUMER LOANS 42 * 81 * 101 *
REAL ESTATE OWNED
1-4 family units 1,780 9 2,174 8 4,585 17
Multifamily units 2,800 14 8,206 28 10,753 40
Commercial 1,351 6 997 3 1,818 7
Land and land development --- -- --- -- --- --
- ---------------------------------------------------------------------------------------------
Total real estate owned 5,931 29 11,377 39 17,156 64
- ---------------------------------------------------------------------------------------------
Total nonperforming assets $ 20,643 100% $ 29,205 100% $ 27,091 100%
=============================================================================================
*Less than 1%
<CAPTION>
Sept. 30, Dec. 31, Dec. 31,
1996 1995 1994
- ---------------------------------------------------------------------------------------------
KEY CREDIT RATIOS
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net loan charge-offs to average loans receivable 0.17% 0.21% 0.39%
Net California loan charge-offs to average California
loans receivable 0.75 0.48 1.21
Loan loss reserve to total loans 1.20 1.42 1.62
Loan loss reserve to nonperforming loans 246.60 216.62 424.72
Loan loss reserve to impaired loans 73.85 120.37 170.03
Nonperforming assets to total assets 0.48 0.71 0.66
General valuation allowance to non-
performing assets 154.82 123.94 143.24
- --------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE> 36
CREDIT RISK MANAGEMENT
LENDING
At Sept. 30, 1996, the loans receivable portfolio was primarily
comprised of mortgages on 1-4 family residences and multifamily dwellings. The
loan portfolio also included, but to a much lesser extent, commercial real
estate loans, land loans, and consumer loans. See "KEY CREDIT STATISTICS" for
further details.
At Sept. 30, 1996, non-performing loans totaled $14.7 million compared
to $17.8 million at Dec. 31, 1995. (9) Since Dec. 31, 1995, $19.4 million of
delinquent loans were transferred to REO, while charge-offs and repayments
totaled $3.0 million. These decreases were partly offset by the addition of
$18.7 million of loans to a non-performing status.
At Sept. 30, 1996, the Bank had a net investment of $49.1 million in
impaired loans. (10) In comparison, the Bank had a net investment of $32.1
million in impaired loans at Dec. 31, 1995.(11) During the first nine months of
1996, $39.6 million of loans were initially classified as impaired. Partly
offsetting this increase was the transfer of $18.0 million of impaired loans to
REO and the improvement in value of one multifamily property totaling $4.4
million. At Sept. 30, 1996, of the total net impaired loans, $1.4 million were
non-performing and $47.7 million were performing loans, but were considered
impaired because it is probable, based upon current information and events,
that the Bank will be unable to collect all amounts due in accordance with the
original contractual agreement. In comparison, of the $32.1 million of
impaired loans at Dec. 31, 1995, $28.1
- ------------------------
(9) Of the $14.7 million of non-performing loans at Sept. 30, 1996, $7.4
million was secured by real estate located in California. Of the $17.8
million of non-performing loans at Dec. 31, 1995, $6.7 million was secured by
real estate located in California.
(10) In accordance with SFAS No. 114 "Accounting by Creditors for
Impairment of a Loan", as amended by SFAS No. 118 "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosure."
(11) At Sept. 30, 1996, of the $49.1 million of loans considered
impaired, $47.3 million were loans secured by real estate located in
California. At Dec. 31, 1995, of the $32.1 million of loans considered
impaired, $30.0 million were loans secured by real estate located in
California.
36
<PAGE> 37
million were performing and $4.0 million were non-performing loans.
The accumulated provision for loan losses at Sept. 30, 1996 was $36.3
million compared to $38.6 million at Dec. 31, 1995, a decrease of $2.3 million.
The following table provides a rollforward of the accumulated provision for
loan losses from Jan. 1, 1995 through Sept. 30, 1996:
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------------------
Nine Months Nine Months Year Ended
Dollars in thousands Ended Sept. 30 Ended Sept. 30 Dec. 31
- --------------------------------------------- ---------------------------
<S> <C> <C> <C>
Beginning of Period $38,619 $42,196 $42,196
Provision for losses 1,500 1,400 1,900
Charge-offs (4,255) (6,693)
(7,879)
Recoveries 416 2,012 2,402
-------------- -------------------------
End of Period $36,280 $38,915 $38,619
============== =========================
</TABLE>
General valuation allowances are evaluated based on a careful
evaluation of the various risk components that are inherent in each of the loan
portfolios, including off-balance sheet items. The risk components which are
evaluated include the level of non-performing and classified assets, geographic
concentrations of credit, economic conditions, trends in real estate values,
the impact of changing interest rates on borrower debt service, as well as
historical loss experience, peer group comparisons, and regulatory guidance.
Gross charge-offs in the first nine months of 1996 totaled $4.3
million, or $2.4 million less than the same period a year ago. (12) Most of the
charge-offs during 1996 related to the Bank's nationwide multifamily and
commercial real estate loan portfolio. Annualized net loan charge-offs to
average loans receivable totaled 0.17% during the first nine months of 1996.
In comparison, the Company's net loan charge-offs in 1995 and 1994 were
equivalent to 0.21% and 0.39% of average loans receivable, respectively. See
"KEY CREDIT STATISTICS" for further details.
- -----------------
(12) The $4.3 million of gross loan charge-offs in the first nine months
of 1996 included $3.5 million of charge-offs on loans considered impaired
under SFAS No. 114, $321,000 of other charge-offs on multifamily loans, and
$294,000 of charge-offs on 1-4 family and consumer loans.
37
<PAGE> 38
The loan loss provision recorded during the nine months ended Sept.
30, 1996 was $1.5 million compared to $1.4 million during the nine months ended
Sept. 30, 1995. The trend of lower classified loans, the continued low level
of non-performing assets, a smaller multifamily portfolio balance, and the
stabilization of certain real estate markets have allowed the Bank to reduce
its level of valuation allowances by recording new loss provisions below net
charge-offs. See "KEY CREDIT STATISTICS" for further details.
As of Sept. 30, 1996, the Bank's ratio of classified assets to
tangible capital and general valuation allowance was 36.7% compared to 42.2% at
Dec. 31, 1995.
The adequacy of the accumulated provision for loan losses is approved on a
quarterly basis by the Loan Loss Reserve Committee ("Reserve Committee") of the
Bank's Board of Directors. The accumulated provision for loan losses reflects
Management's best estimate of the reserves needed to provide for impairment of
multifamily and commercial real estate loans as well as other perceived credit
risks of the Bank. However, actual results could differ from this estimate and
future additions to the reserves may be necessary based on unforeseen changes
in economic conditions. In addition, federal regulators periodically review
the Bank's accumulated provision for losses on loans. Such regulators have the
authority to require the Bank to recognize additions to the reserves at the
time of their examinations.
During the first nine months of 1996, the Bank purchased $428.5
million of 1-4 family whole loans, secured by real estate located nationally.
Prior to purchasing these loans, the Bank performs due diligence procedures.
As a result of that process, Management believes that the portfolios acquired
present no greater risk than the Bank's own originated 1-4 family portfolio.
During the third quarter, the Bank also purchased $6.6 million of loans secured
by multifamily real estate located in Wisconsin. The Bank applied its own
loan origination underwriting standards to the purchase of these loans. All
purchased loans are subject to the Bank's quarterly review of the adequacy of
the general valuation allowance.
Management continues to monitor events in the submarkets in which the
Bank has substantial loan concentrations, particularly California. Although
some
38
<PAGE> 39
weakness persists in certain areas, Management is not aware of any unfavorable
changes in those economies that would have a significant adverse effect on the
Bank's loan portfolio.
Approximately $478 million of the Bank's nationwide multifamily and
commercial loan portfolio is scheduled to mature by the end of 1998.
Management is actively working with borrowers whose loans mature in 1996 and
1997 to either refinance or repay the mortgage loans, depending upon the credit
characteristics. Management is also pursuing strategies for ensuring repayment
of those mortgage loans maturing after 1997. Depending on the strategies
deployed, the amount of the Bank's charge-offs, REO, impaired loans, and
nonperforming assets 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.
OTHER REAL ESTATE OWNED
REO totaled $5.9 million at Sept. 30, 1996 compared to $11.4 million
at the end of 1995. (13) The sale of eight REO assets totaling $25.3 million
produced the lower level of total REO assets. Partly offsetting this decrease
were new multifamily REOs of $22.8 million.
The accumulated provision for real estate losses totaled $439,000 at
Sept. 30, 1996 compared to $2.0 million at Dec. 31, 1995. During the first nine
months of 1996, the Bank recorded net charge-offs on REO properties of $2.5
million, compared to $931,000 of net charge-offs recorded during the same
period in 1995. The charge-offs primarily relate to the sale of an office
building and a multifamily property during 1996. The provision for REO losses
was $943,000 during the first nine months of 1996 compared to $566,000 in the
first nine months of 1995. This provision during 1996 was considered necessary
to reflect
- --------------------
(13) Of the $5.9 million of REO at Sept. 30, 1996, $3.1 million was
property located in California. At Dec. 31, 1995, there were no REO
properties located in California.
39
<PAGE> 40
an additional loss on the multifamily property sold during the second
quarter.(14) Since the loss on the commercial building was primarily provided
for during 1995, the provision for losses during 1996 was less than net
charge-offs.
In accordance with the Company's accounting policy, REO assets are
initially recorded at the lower of their net book value or fair value, less
estimated selling costs. The accumulated provision for loan losses is charged
for any excess of net book value over fair value at the foreclosure, or
in-substance foreclosure, date. After foreclosure, the accumulated provision
for foreclosed real estate losses is used to establish specific valuation
allowances on individual REO properties as declines in market value occur and
to provide general valuation allowances for possible losses associated with
risks inherent in the REO portfolio.
- -------------------
(14) The Bank had previously carried the REO at a value that was
supported by a current appraisal. The Bank entered into a subsequent sales
contract with a buyer at a lower value, principally due to high vacancy
levels. Management elected to accept the liquidation value rather than holding
this asset in an effort to achieve stabilization of occupancy.
40
<PAGE> 41
ASSET/LIABILITY REPRICING SCHEDULE (a)
<TABLE>
<CAPTION>
AT SEPT. 30, 1996
----------------------------------------------------------------------------------
WEIGHTED MORE THAN 6
AVERAGE % OF 6 MONTHS MONTHS TO OVER
RATE BALANCE TOTAL OR LESS 1 YEAR 1-3 YEARS 3-5 YEARS 5 YEARS
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RATE SENSITIVE ASSETS: (dollars in thousands)
Investments:(b)
Adjustable rate 5.49% $ 75,591 2% $ 75,591 - - - -
Fixed rate 5.82 162,317 4 74,394 12,978 19,755 10,000 45,190
Mortgage-backed securities:(c)
Adjustable rate 6.30 522,016 13 279,626 222,738 19,652 - -
Fixed rate 7.08 277,211 7 21,260 20,078 66,634 56,537 112,702
Mortgage loans:(c)
Adjustable and renegotiable rate 7.55 2,521,597 62 1,162,650 494,917 657,697 206,333 -
Fixed rate 8.20 494,254 12 51,116 67,930 145,633 111,813 117,762
Consumer loans (c) 8.38 19,978 * 3,122 1,882 6,007 4,490 4,477
Assets held for sale 8.27 11,393 * 11,393 - - - -
---------------------------------------------------------------------------------
Total Rate Sensitive Assets 7.34% $4,084,357 100% $1,679,152 $ 820,523 $915,378 $389,173 $ 280,131
=================================================================================
RATE SENSITIVE LIABILITIES:
Deposits:
Checking accounts 1.03% $ 386,856 10% $ 105,044 $ 21,994 $ 72,099 $ 52,092 $ 135,627
Savings accounts 2.42 676,578 18 223,203 42,827 134,495 90,435 185,618
Money market deposit accounts 3.53 210,661 6 210,661 - - - -
Fixed-maturity certificates 5.62 2,014,001 53 853,829 732,687 289,145 75,094 63,246
---------------------------------------------------------------------------------
4.29 3,288,096 87 1,392,737 797,508 495,739 217,621 384,491
Borrowings:
FHLB advances 6.19 436,399 11 335,000 50,314 50,000 248 837
Other borrowings 7.32 88,454 2 88,454 - - - -
Mortgage-backed note 8.54 16,400 * - - 16,400 - -
---------------------------------------------------------------------------------
6.44 541,253 13 423,454 50,314 66,400 248 837
----------------------------------------------------------------------------------
Total rate sensitive liabilities 4.59% $3,829,349 100% $1,816,191 $ 847,822 $562,139 $217,869 $ 385,328
==================================================================================
Excess (deficit) of rate sensitive
assets over rate sensitive liabilities 2.75% $ 255,008 (137,039) $ (27,299) $353,239 $171,304 $(105,197)
(GAP) =================================================================================
Cumulative GAP $ (137,039) $(164,338) $188,901 $360,205 $ 255,008
Cumulative GAP to total assets without
regard to hedging transactions -3.20% -3.84% 4.42% 8.42% 5.96%
Cumulative gap to total assets with
impact of hedging transactions -1.19% -1.82% 4.42% 8.42% 5.96%
</TABLE>
* 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.
41
<PAGE> 42
PART II. -- OTHER INFORMATION
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 10, Material Contracts.
(i) First Amendment to St. Paul Federal Bank for Savings And St. Paul
Bancorp, Inc. Nonqualified Retirement Plan for Directors dated
December 31, 1995.
(b) Exhibit 11, Statement re: Computation of Per Share Earnings.
(c) Exhibit 27, Financial Data Schedule.
(d) A current report on Form 8-K was filed on July 16, 1996 announcing the
Company's intentions to acquire up to 900,000 shares (or about 5%) of
the Company's outstanding common stock over the last six months of
1996 and the 20% increase in the quarterly dividend per share from
$0.10 to $0.12 per share.
42
<PAGE> 43
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ST. PAUL BANCORP, INC.
-----------------------------
(Registrant)
Date: November 14, 1996 By: /s/ Joseph C. Scully
---------------------------
Joseph C. Scully
Chairman of the Board and Chief Executive Officer
(Duly Authorized Officer)
Date: November 14, 1996 By: /s/ Robert N. Parke
---------------------------
Robert N. Parke
Senior Vice President and Treasurer
(Principal Financial Officer)
43
<PAGE> 1
EXHIBIT 10
FIRST AMENDMENT TO
ST. PAUL FEDERAL BANK FOR SAVINGS
AND ST. PAUL BANCORP, INC.
NONQUALIFIED RETIREMENT PLAN FOR DIRECTORS
WHEREAS, St. Paul Federal Bank For Savings (herein referred to as the
"Bank") and St. Paul Bancorp, Inc. (herein referred to as the "Bancorp")
adopted the St. Paul Federal Bank For Savings and St. Paul Bancorp, Inc.
Nonqualified Retirement Plan for Directors (herein referred to as the "Plan")
on July 21, 1989;
WHEREAS, the Bank and the Bancorp amended and restated the Plan
effective January 1, 1991 and March 28, 1994;
WHEREAS, the Bank and the Bancorp desire to amend Section 2 of Article
III of the Plan, effective January 1, 1996, to add additional situations which
will be deemed a "change in control of the Bancorp" for purposes of the Plan;
and
WHEREAS, under the terms of the Plan, the Board of Directors of the
Bancorp has the ability to amend the Plan.
NOW, THEREFORE, Section 2 of Article III of the Plan shall be amended,
effective January 1, 1996, to read as follows:
"2. DEFINITION OF CHANGE IN CONTROL.
A 'change in control of the Bancorp' for purposes of this Plan,
shall be deemed to have taken place if: (i) any person becomes the
benefit owner or 25 percent or more of the total number of voting
shares of the Bancorp; (ii) any person has received the approval of
the Office of Thrift Supervision ('OTS') under Section 10 of the Home
Owners' Loan Act, as amended, or regulations issued thereunder, to
acquire control of the Bancorp; (iii) any person has received
approval of the OTS under Section 7(j) of the Federal Deposit
Insurance Act, as amended; or (iv) any person has entered into a
binding agreement to acquire (by means of stock purchase, cash tender
or exchange offer, merger or other business combination) beneficial
ownership of 25 percent or more of the total number of voting shares of
the Bancorp, whether or not the requisite approval for such acquisition
has been received under the Home Owners' Loan Act, as amended, the
Federal Deposit Insurance Act, as amended, or the respective
regulations issued thereunder, provided that a change in control will
not be deemed to have occurred under this clause (iv) unless the Board
of Directors of the Bancorp has made a determination that such action
constitutes or will constitute a change in control, and further
provided that a change in control shall no longer be deemed to have
occurred upon the termination of such agreement for any reason
whatsoever; (v) any person becomes the beneficial owner of 10 percent
or more, but less than 25 percent, of the total number of voting shares
of the Bancorp, provided that the OTS has made a determination that
such beneficial ownership constitutes a change of control of the
Bancorp under the Home Owners' Loan Act, as amended, or the regulations
promulgated thereunder; (vi) any person (other than persons named as
proxies solicited on behalf
<PAGE> 2
of the Board of Directors of the Bancorp) holds irrevocable proxies for 25
percent or more of the total number of voting shares of the Bancorp, provided
that a change in control will not be deemed to have occurred under this clause
(vi) unless the Board of Directors of the Bancorp has made a determination that
such action constitutes or will constitutes a change in control; or (vii) as a
result of, or in connection with, any cash tender or exchange offer, merger or
other business combination, sale of assets or contested proxy solicitation or
election or any combination of the foregoing transactions, the persons who are
directors of the Bancorp before such transaction shall cease to constitute at
least two-thirds of the Board of Directors or the Bancorp or any successor
institution; or (viii) the Bank or the Bancorp enters into a binding agreement
with respect to any merger or consolidation of the Bank or the Bancorp other
than (A) a merger or consolidation which would result in the voting shares of
the Bancorp outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting shares of
the another person) more than 80% of the combined voting power of the voting
shares of the Bancorp (or such other person) outstanding immediately after such
merger or consolidation, or (B) a merger or consolidation effected to implement
a recapitalization of the Bancorp (or similar transaction) in which no person
acquires more than 25% of the combined voting power of the Bancorp's then
outstanding shares, provided that a change in control will not be deemed to
have occurred under this clause (viii) if the Board of Directors of the Bancorp
has made a determination (by resolution adopted by the affirmative vote of at
least two-thirds (2/3) of the members of the Board in office immediately prior
to such transaction) that such action does not or will not constitute a change
in control, and further provided that a change in control shall no longer be
deemed to have occurred upon the termination of such agreement for any reason
whatsoever; or (ix) the Bank or the Bancorp enters into a binding agreement
with respect to any merger or consolidation of the Bank or the Bancorp with any
other person (or a subsidiary of the person) having total consolidated assets
as of the date of its most recently prepared quarterly balance sheet in an
amount that is at least 60% of the Bancorp's total consolidated assets at such
date, provided that a change in control will not be deemed to have occurred
under this clause (ix) if the Board of Directors of the Bancorp has made a
determination (by resolution adopted by affirmative vote of at least two-thirds
(2/3) of the members of the Board in office immediately prior to such
transaction) that such action does not or will not constitute a change in
control shall no longer be deemed to have occurred upon the termination of such
agreement for any reason whatsoever.
For purposes of this Section 2, a 'person' includes an individual,
corporation, partnership, trust or group acting in concert. A person for these
purposes shall be deemed to be a beneficial owner as that term is used in Rule
13d-3 under the Securities Exchange Act of 1934. A 'change in control of the
Bank' for purposes of this Agreement, shall be deemed to have taken place if
the Bancorp's beneficial ownership of the total number of voting shares of the
Bank is reduced to less than 50 percent
Notwithstanding anything to the contrary contained herein, a change in
control shall no longer be deemed (as of the time of the determination of the
Board referred to below) to have occurred for the purposes of this
<PAGE> 3
Plan by virtue of any transaction or event which terminates or ceases to
exist, with respect to which the Board of Directors of the Bancorp, by
resolution adopted by the affirmative vote of at least two-thirds (2/3 of
the members of the Board of Directors in office immediately prior to such
transaction or event, shall specify that such transaction or event shall no
longer be deemed to constitute a change in control of the Bancorp for
purposes of this agreement; provided that at the time of making a
determination under this section, the Board of Directors may attach such
terms and conditions to its determination as it shall, in its discretion,
deem appropriate; and provided further that the provisions of this paragraph
shall not be applicable to any transaction or event pursuant to which any
persons becomes the beneficial owner of 50% or more of the total number of
voting shares of the Bancorp."
IN WITNESS THEREOF, the party or parties hereto have executed
the First Amendment by their duly authorized officers and have caused their
corporate seals to be hereunto affixed as of this 31st day of December, 1995.
ST. PAUL FEDERAL BANK FOR SAVINGS
By:
------------------------------
Joseph C. Scully
Title:
--------------------------------
Chairman/Chief Executive Officer
(Corporate Seal) Attest:
-------------------------------
ST. PAUL BANCORP, INC.
By:
------------------------------
Joseph C. Scully
Title:
--------------------------------
Chairman/Chief Executive Officer
(Corporate Seal) Attest:
-------------------------------
<PAGE> 1
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three months ended Nine months ended
Sept. 30, 1996 Sept. 30, 1996
-------------------- --------------------
<S> <C> <C>
1. Net income (loss) $(3,541,649) $15,401,230
2. Weighted average common
shares outstanding 17,846,322 18,121,181
----------- -----------
3. Earnings per
common share $ (0.20) $ 0.85
=========== ===========
4. Weighted average common
shares outstanding 17,846,322 18,121,181
5. Common stock equivalents
due to dilutive
effect of stock options --- 951,963
----------- -----------
6. Total weighted average
common shares and
equivalents outstanding 17,846,322 19,073,144
=========== ===========
7. Primary earnings per share $ (0.20) $ 0.81
=========== ===========
8. Total weighted average
common shares and
equivalents outstanding
(Line 6) 17,846,322 19,073,144
9. Additional dilutive shares
using end of period market
value versus average market
value for the computation of
stock options under the
treasury stock method --- 86,048
----------- -----------
10. Total shares for fully
diluted earnings per share 17,846,322 19,159,192
=========== ===========
11. Fully diluted earnings
per share $ (0.20) $ 0.80
=========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 91,305
<INT-BEARING-DEPOSITS> 51,889
<FED-FUNDS-SOLD> 20,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 323,701
<INVESTMENTS-CARRYING> 557,539
<INVESTMENTS-MARKET> 552,421
<LOANS> 3,047,222
<ALLOWANCE> 36,280
<TOTAL-ASSETS> 4,276,208
<DEPOSITS> 3,288,096
<SHORT-TERM> 280,499
<LIABILITIES-OTHER> 75,228
<LONG-TERM> 260,754
0
0
<COMMON> 202
<OTHER-SE> 371,429
<TOTAL-LIABILITIES-AND-EQUITY> 4,276,208
<INTEREST-LOAN> 169,479
<INTEREST-INVEST> 8,631
<INTEREST-OTHER> 42,063
<INTEREST-TOTAL> 220,173
<INTEREST-DEPOSIT> 103,763
<INTEREST-EXPENSE> 127,327
<INTEREST-INCOME-NET> 92,846
<LOAN-LOSSES> 1,500
<SECURITIES-GAINS> 855
<EXPENSE-OTHER> 93,500
<INCOME-PRETAX> 23,261
<INCOME-PRE-EXTRAORDINARY> 15,401
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,401
<EPS-PRIMARY> 0.81
<EPS-DILUTED> 0.80
<YIELD-ACTUAL> 3.07
<LOANS-NON> 10,410
<LOANS-PAST> 4,302
<LOANS-TROUBLED> 3,687
<LOANS-PROBLEM> 53,886
<ALLOWANCE-OPEN> 38,619
<CHARGE-OFFS> 4,255
<RECOVERIES> 416
<ALLOWANCE-CLOSE> 36,280
<ALLOWANCE-DOMESTIC> 36,280
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
