<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 March 31, 1997
or
( ) Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from to
------------ ------------
Commission File Number 0-15580
St. Paul Bancorp, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3504665
- --------------------------------- --------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
6700 W. North Avenue
Chicago, Illinois 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 -- 22,644,128 shares, as of May 1, 1997
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ST. PAUL BANCORP, INC.
AND SUBSIDIARIES
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements (Unaudited)
<TABLE>
<S> <C>
Consolidated Statements of Financial Condition
as of Mar. 31, 1997 and Dec. 31, 1996 3
Consolidated Statements of Income for the Three Months
Ended Mar. 31, 1997 and 1996 4
Consolidated Statements of Stockholders' Equity for the
Three Months Ended Mar. 31, 1997 and 1996 5
Consolidated Statements of Cash Flows for the
Three Months Ended Mar. 31, 1997 and 1996 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 38
Signature Page 39
Exhibits 40
</TABLE>
2
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ST. PAUL BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
<TABLE>
Mar. 31, Dec. 31,
Dollars in thousands 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents
Cash and amounts due from depository institutions $86,065 $98,137
Federal funds sold and interest bearing bank balances 117,440 75,572
Short-term cash equivalent securities 18,937 16,499
--------------- ---------------
Total cash and cash equivalents 222,442 190,208
Marketable-debt securities
(Market: Mar. 31, 1997-$62,374; Dec. 31, 1996-$49,103) 62,374 49,103
Mortgage-backed securities
(Market: Mar. 31, 1997-$1,101,948; Dec. 31, 1996-$1,158,171) 1,107,953 1,162,982
Loans receivable, net of accumulated provision for loan losses
(Mar. 31, 1997-$35,017; Dec. 31, 1996-$35,965) 2,919,866 2,782,116
Loans held for sale, at lower of cost or market
(Market: Mar. 31, 1997-$11,932; Dec. 31, 1996-$12,021) 11,931 11,992
Accrued interest receivable 26,327 25,745
Foreclosed real estate
(Net of accumulated provision for losses: Mar. 31,1997-$288;
Dec. 31, 1996-$284) 2,775 2,634
Real estate held for development or investment 17,730 15,783
Investment in Federal Home Loan Bank stock 35,211 35,211
Office properties and equipment 48,072 47,286
Prepaid expenses and other assets 30,201 34,110
--------------- ---------------
Total Assets $4,484,882 $4,357,170
================================
LIABILITIES:
Deposits $3,395,222 $3,337,055
Short-term borrowings 305,501 366,854
Long-term borrowings 308,937 194,390
Advance payments by borrowers for taxes and insurance 21,070 21,561
Other liabilities 62,252 49,200
--------------- ---------------
Total Liabilities 4,092,982 3,969,060
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: Mar. 31,1997-25,992,067 shares;
Dec. 31, 1996-25,595,206 shares;
Outstanding: Mar. 31, 1997-22,840,102 shares;
Dec. 31, 1996-22,775,991 shares) 260 256
Paid-in capital 153,563 148,393
Retained income, substantially restricted 297,124 288,065
Unrealized gain on securities, net of taxes 344 2,278
Borrowings by employee stock ownership plan (350) (396)
Unearned employee stock ownership plan shares (245,438 shares) (2,883) (2,883)
Treasury stock (3,151,965 at Mar. 31, 1997;
2,819,215 shares at Dec. 31, 1996) (56,158) (47,603)
----------------- ---------------
Total stockholders' equity 391,900 388,110
----------------- ---------------
Total liabilities and stockholders' equity $4,484,882 $4,357,170
================= ===============
</TABLE>
See notes to consolidated financial statements
3
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<TABLE>
ST. PAUL BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Three months ended
Mar. 31,
-------------------
Dollars in thousands except per share amounts 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME:
Loans receivable $ 53,553 $ 52,858
Mortgage-backed securities 19,612 14,981
Marketable-debt securities 1,001 1,141
Federal funds and interest-bearing bank balances 1,653 980
Other investment income 1,023 1,297
-------- -------
Total interest income 76,842 71,257
INTEREST EXPENSE:
Deposits 35,817 34,687
Short-term borrowings 4,207 2,223
Long-term borrowings 4,547 4,667
-------- ------
Total interest expense 44,571 41,577
-------- ------
Net interest income 32,271 29,680
Provision for loan losses --- 500
-------- ------
Net interest income after provision for loan losses 32,271 29,180
OTHER INCOME:
Loan servicing fees 454 485
Other fee income 7,186 4,945
Net gain on loan sales 117 320
Net gain on securities sales -- 855
Discount brokerage commissions 1,517 1,326
Income from real estate development 486 678
Insurance and annuity commissions 776 659
Other (52) (43)
-------- ------
Total other income 10,484 9,225
GENERAL AND ADMINISTRATIVE EXPENSE:
Salaries and employee benefits 13,879 12,834
Occupancy, equipment and other office expense 6,719 5,998
Advertising 1,428 1,170
Federal deposit insurance 685 1,968
Other 1,458 1,482
-------- ------
General and administrative expense 24,169 23,452
Loss on foreclosed real estate 44 1,136
-------- ------
Income before income taxes and extraordinary item 18,542 13,817
Income taxes 6,305 5,063
-------- ------
Income before extraordinary item 12,237 8,754
Extraordinary item:
Loss on early extinguishment of debt, net of tax 403 ---
-------- ------
NET INCOME $ 11,834 $ 8,754
======== ======
EARNINGS PER SHARE BEFORE EXTRAORDINARY ITEM:
Primary $ 0.51 $ 0.36
Fully diluted 0.51 0.36
======== ======
EARNINGS PER SHARE AFTER EXTRAORDINARY ITEM:
Primary $ 0.50 $ 0.36
Fully diluted $ 0.50 $ 0.36
======== ======
DIVIDENDS PER SHARE $ 0.120 $ 0.08
======== ======
See notes to consolidated financial statements.
</TABLE>
4
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ST. PAUL BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Unrealized Borrowings Unearned
Gain/(Loss) by Employee Employee
Common Stock 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, 1995 23,437,168 $250 $141,116 $269,791 ($895) ($485) ($2,883) ($22,697) $384,197
Stock option
exercises 106,125 1 1,255 - - - - - 1,256
Net Income - - - 8,754 - - - - 8,754
Cash dividends paid
to stockholders
($0.08 per share) - - - (1,861) - - - - (1,861)
Change in unrealized
loss on securities,
net of tax - - - - (2,444) - - - (2,444)
Treasury stock
purchases (356,250) - - - - - - (7,051) (7,051)
------------ ---- -------- -------- -------- ------ -------- --------- --------
Balance at
Mar. 31, 1996 23,187,043 $251 $142,371 $276,684 ($3,339) ($485) ($2,883) ($29,748) $382,851
============ ==== ======== ======== ======== ====== ======== ========= ========
Balance at
Dec. 31, 1996 22,775,991 $256 $148,393 $288,065 $2,278 ($396) ($2,883) ($47,603) $388,110
Retirement of
fractional shares (820) - (19) - - - - - (19)
Stock option
exercises 397,681 4 5,189 - - - - - 5,193
Net Income - - - 11,834 - - - - 11,834
Cash dividends paid
to stockholders
($0.12 per share) - - - (2,775) - - - - (2,775)
Change in unrealized
gain on securities,
net of tax - - - - (1,934) - - - (1,934)
Repayment of
ESOP principal - - - - - 46 - - 46
Treasury stock
purchases (332,750) - - - - - - ( 8,555) (8,555)
------------ ---- -------- -------- -------- ------ -------- --------- --------
Balance at
Mar. 31, 1997 22,840,102 $260 $153,563 $297,124 $344 ($350) ($2,883) ($56,158) $391,900
============ ==== ======== ======== ======== ====== ======== ========= ========
</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>
Three months ended Mar. 31
Dollars in thousands 1996 1997
- --------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income 11,834 $8,754
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses - 500
Provision for losses on foreclosed real estate - 993
Provision for depreciation 1,902 1,636
Assets originated and acquired for sale (8,990) (14,490)
Sale of assets held for sale 8,027 11,184
Increase in accrued interest receivable (582) (144)
(Increase) decrease in prepaid expenses and other assets 3,909 (2,279)
Increase in other liabilities 13,052 4,210
Net amortization of yield adjustments (109) 99
Other items, net 1,043 (2,762)
- --------------------------------------------------------------------------------------
Net cash provided by operating activities 30,086 7,701
- --------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Principal repayments on loans receivable 203,866 124,279
Loans originated and purchased for investment (343,066) (220,939)
Loans receivable sold 3,247 7,777
Principal repayments on available for sale mortgage-
backed securities 29,037 20,307
Principal repayments on held to maturity mortgage-
backed securities 23,153 49,009
Purchase of held to maturity mortgage-backed securities - (38,041)
Sale of available for sale mortgage-backed securities - 27,542
Maturities of available for sale marketable-debt securities 16,200 20,000
Purchase of available for sale marketable-debt securities (30,157) -
Additions to real estate (2,929) (7,873)
Real estate sold 1,261 8,292
Sale of Federal Home Loan Bank stock - 1,093
Purchase of office properties and equipment (2,688) (1,431)
- -------------------------------------------------------------------------------------
Net cash used in investing activities (102,076) (9,985)
- -------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from issuance of certificates of deposit 129,571 97,577
Payments for maturing certificates of deposit (92,727) (65,424)
Net increase in other deposit products 21,323 41,325
New long-term borrowings 148,538 -
Repayment of long-term borrowings (35,853) -
Decrease in short-term borrowings, net (60,000) (50,000)
Dividends paid to stockholders (2,775) (1,861)
Net proceeds from exercise of stock options 5,193 1,256
Purchase of treasury stock (8,555) (7,051)
Decrease in advance payments by borrowers
for taxes and insurance (491) (213)
- -------------------------------------------------------------------------------------
Net cash provided by financing activities 104,224 15,609
- -------------------------------------------------------------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS 32,234 13,325
Cash and cash equivalents at beginning of period 190,208 186,621
- -------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 222,442 $ 199,946
=====================================================================================
See notes to consolidated financial statements
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest credited on deposits $26,281 $31,183
Interest paid on deposits 3,318 2,803
------------------
Total interest paid on deposits 29,599 33,986
Interest paid on borrowings 7,611 7,484
Income taxes paid/(refund), net (1,985) 1,190
Real estate acquired through foreclosure 271 8,595
Loans originated in connection with real estate
acquired through foreclosure - 2,660
</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 operations for the three-month period ended Mar. 31,
1997 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 1997
presentation.
3. At Mar. 31, 1997, the Bank had $15.3 million of outstanding commitments to
originate 1-4 family real estate loans. Of these commitments, $12.7 million
were for adjustable-rate loans and $2.6 million were for fixed-rate loans.
Most of these commitments expire after sixty days. The Bank had commitments at
Mar. 31, 1997 to originate $504,000 of adjustable rate 1-4 family construction
loans and $1.8 million of adjustable rate mortgage loans secured by multifamily
apartments. Unused home equity lines of credit totaled $90.5 million as of
Mar. 31, 1997. The Bank also had $9.8 million of commitments to originate
consumer loans, which primarily consist of unsecured lines of credit and
automobile loans. Also, St. Paul Financial Development Corporation had a
commitment to originate $7.6 million of adjustable rate construction loans for
development of commercial real estate. At Mar. 31, 1997, the Bank had
commitments to purchase 1-4 family adjustable real estate loans of $100.3
million. The Company anticipates funding these commitments with cash flow from
operations and incremental borrowings as necessary.
The Bank held commitments, at Mar. 31, 1997, to sell $3.4 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 Mar. 31, 1997, the Company has issued $7.6 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 1997, the Company adopted Statement of Financial
Accounting Standards("SFAS") No. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities. This Statement provides
accounting and reporting standards for the sale, securitization, and servicing
of receivables and other financial assets and the extinguishment of
liabilities. The adoption of this Statement did not affect operations in a
material way. The implementation of some of the provisions of this Statement
has been delayed until
7
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1998 as required by SFAS No. 127, Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125.
5. In February 1997, the Financial Accounting Standards Board ("FASB")issued
SFAS No. 128, Earnings per Share, which is required to be adopted on December
31, 1997. At that time, the Company will be required to change the method used
to compute earnings per share and to restate all prior periods. Under the new
requirements, the Company will report basic and diluted earnings per share, in
the place of primary and fully diluted earnings per share which are currently
disclosed. Under this Statement, the computation of basic earnings per share
will exclude the dilutive effect of common stock equivalents. Currently, the
Company's only common stock equivalents are stock options issued to key
employees and directors. Diluted earnings per share will reflect the potential
dilutive effect of common stock options. The potential dilution of stock
options is computed using the treasury stock method and the average market
price of the Company's common stock over the period. For the Company, the
calculation of diluted earnings per share will be similar to the calculation of
primary earnings per share under existing requirements. Basic earnings per
share calculated under SFAS No. 128 would be $0.52 and $0.38 per share for the
three months ended Mar. 31, 1997 and 1996, respectively. Diluted earnings per
share under SFAS No. 128 would be $0.50 and $0.36 for the three months ended
Mar. 31, 1997 and 1996, respectively. The impact of this Statement on future
earnings per share is largely dependent on future share prices and the amount
of stock options outstanding.
6. In February 1997, the FASB issued SFAS No. 129, Disclosure of Information
about Capital Structure. This statement consolidates existing guidance on
disclosures about the Company's capital structure into one Statement. This
Statement is effective for financial statements for periods ending after
December 15, 1997. Since the Company already makes the disclosures required by
this Statement, the adoption will have no impact.
8
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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"), the largest independent savings
institution in the State of Illinois. At Mar. 31, 1997, the Company reported
total assets of $4.5 billion. The Bank operates 52 branches in the Chicago
metropolitan area, comprised of 35 free-standing offices and 17 banking offices
located in Omni(R) and Cub(R) supermarkets. The Bank intends to add to its
branch network during 1997 by opening up to three branches located in
store-fronts or neighborhood shopping centers, which would have lower initial
cost requirements than free-standing locations. In addition, the Bank operates
the largest number of ATM sites in the metropolitan Chicago area with 432
sites. The Bank also services approximately 180,000 checking accounts and over
29,000 loans as of Mar. 31, 1997.
Both the Company and the Bank continued to operate other wholly owned
financial services companies, including St. Paul Financial Development
Corporation ("SPFD"), Annuity Network, Inc., SPF Insurance Agency, Inc., and
Investment Network, Inc. As of Mar. 31, 1997, customers maintained $566
million of investments through Investment Network, Inc. and $325 million of
annuity contracts through Annuity Network, Inc. SPFD is primarily a
residential land development company focused in the greater Chicagoland area
and, from time to time, participates in commercial real estate development
projects. At Mar. 31, 1997, SPFD had $21.8 million in real estate equity and
financing investments.
In general, the business of the Bank is to reinvest funds obtained from
its retail banking facilities into interest-yielding assets, such as loans
secured by mortgages on real estate, securities, and to a lesser extent,
consumer and commercial real estate loans. The Bank's 1-4 family residential
mortgage products are originated through its retail banking offices and
telephone banking facility, as well as a correspondent loan program in the
Chicago metropolitan area and other Midwestern states (including Wisconsin,
Indiana, Michigan and Ohio). The Bank also emphasizes the origination of a
variety of consumer loan products, including home equity loans, secured lines
of credit, education, automobile and credit card loans through the retail
banking offices. The Bank has also entered into agreements to sell lesser
quality home equity and
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automobile loans to third parties rather than retaining them for its portfolio.
During the first quarter of 1997, the Bank originated $29.1 million of 1-4
family loans, $54.0 million of loans on income producing properties, $17.1
million of home equity/line of credit loans, and $3.5 million of other consumer
loans.
The Bank offers mortgage loans to qualifying borrowers to finance
apartment buildings and to a lesser extent, commercial real estate. In recent
years, the Bank made these loans on income producing properties in several
Midwestern states, such as Illinois, Indiana, Wisconsin, Minnesota, and Ohio.
In 1997, the Bank's Board of Directors provided for a limited expansion of the
Bank's nationwide income property lending program. The Board has authorized
the origination of new loans in those markets where Management believes the
economies are strong and where the Bank currently has an income property
servicing portfolio or to borrowers with whom the Bank has a long standing
relationship. See "CREDIT RISK MANAGEMENT" for further details.
To supplement its loan origination efforts, the Bank has actively
purchased 1-4 family adjustable rate whole loans for its portfolio. During the
first quarter the Bank purchased $223.6 million of 1-4 family loans located
nationally and had budgeted the acquisition of at least $400 million of such
loans in 1997.(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. Under SFAS
No. 115, unrealized gains and losses on AFS securities are recorded as an
adjustment to stockholders' equity, net of related taxes.
As a consumer-oriented retail financial institution, the Bank gathers
deposits from the neighborhoods and surrounding suburbs of the metropolitan
Chicago area, which has favorable savings patterns and high levels of home
ownership. The Bank offers a variety of deposit products including checking,
savings, money market accounts and certificates of deposit ("CDs"). The Bank
also borrows to help fund operations and interest-earning assets growth.
- -----------------
(1) The Bank will exceed the minimum level of expected whole loan
acquisitions for the year during the second quarter of 1997. As of May 1,
1997, since the end of the first quarter of 1997, the Bank has purchased or
committed to purchase another $289.4 million of 1-4 family loans.
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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 exposure to interest rate risk and to maximize its
return on equity, commensurate with risk levels that do not jeopardize the
financial safety and soundness of the institution.
Changes in real estate market values also affect the Bank's earnings. As
changes occur in 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.
STATEMENT OF FINANCIAL CONDITION
St. Paul Bancorp reported total assets of $4.5 billion at Mar. 31, 1997,
or $127.7 million higher than total assets reported at Dec. 31, 1996. Higher
loans receivable, cash and cash equivalent balances, and marketable-debt
securities balances generally produced the increase in total assets.
Cash and cash equivalents totaled $222.4 million at Mar. 31, 1997, $32.2
million higher than Dec. 31, 1996. See "CASH FLOW ACTIVITY" for further
details.
Marketable-debt securities, comprised of U.S. Treasury and agency
securities, totaled $62.4 million at Mar. 31, 1997, as compared to $49.1
million at Dec. 31, 1996. At both Mar. 31, 1997 and Dec. 31, 1996, all of the
Company's marketable-debt securities were classified as AFS. The Company
recorded an unrealized loss of $783,000 on AFS marketable-debt securities at
Mar. 31, 1997, compared to an unrealized loss of $137,000 at Dec. 31, 1996. An
increase in market interest rates since the beginning of 1997 produced the
increase in the unrealized loss.
MBS totaled $1.11 billion at Mar. 31, 1997, $55.0 million or 4.7% less
than the $1.16 billion of MBS at Dec. 31, 1996. The decline in balance was a
result
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of principal repayments. The weighted average yield on the MBS portfolio was
7.00% at Mar. 31, 1997, or 9 basis points higher than the weighted average
yield at Dec. 31, 1996. Lower scheduled amortization of net premiums produced
the increase in the weighted average rate since Dec. 31, 1996. Included in the
Bank's MBS portfolio at Mar. 31, 1997, was $372.2 million of MBS that were
loans originated and serviced by the Bank.
Approximately 53% of the MBS portfolio is classified as AFS, and at Mar.
31, 1997, the Company reported an unrealized gain on its AFS MBS of $1.3
million compared to an unrealized gain of $3.8 million at Dec. 31, 1996. The
decrease in the unrealized gain was primarily associated with the increase in
market interest rates since year-end 1996.
At Mar. 31, 1997, 76% of the MBS portfolio had adjustable rate
characteristics (although some may be performing at initial fixed interest
rates), compared to 77% of the portfolio at Dec. 31, 1996.
Loans receivable totaled $2.9 billion at Mar. 31, 1997, $137.8 million or
5.0% higher than the $2.8 billion of loans receivable at Dec. 31, 1996. The
purchase of $231.2 million of loans and $105.4 million of loan originations,
partly offset by $203.9 million of principal repayments produced the increase
in loans receivable during the first three months of 1997. See "CASH FLOW
ACTIVITY" for further discussion.
The weighted average rate on loans receivable decreased to 7.59% at Mar.
31, 1997 from 7.66% at Dec. 31, 1996. The repayment of higher yielding loans
and the purchase and origination of loans at rates lower than the portfolio
average produced a decline in the weighted average rate. At Mar. 31, 1997, 84%
of the mortgage loan portfolio had adjustable rate characteristics compared to
82% at Dec. 31, 1996.
Deposits totaled $3.4 billion at Mar. 31, 1997, $58.2 million or 1.7%
higher than deposit balances at Dec. 31, 1996. Most of the increase in deposit
balances since year-end 1996 occurred in CD and checking account balances. The
weighted average cost of deposits increased slightly to 4.33% at Mar. 31, 1997
from 4.31% at Dec. 31, 1996. The increase was primarily related to an increase
in the weighted average cost of CDs, as the Bank continues to promote
short-term CDs as
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a source of funds. However, according to industry surveys, the Company's
deposit costs continue to be below the cost of certain competitors.
Total borrowings, which include FHLB advances, totaled $614.4 million at
Mar. 31, 1997, $53.2 million or 9.5% higher than the $561.2 million of
borrowings at Dec. 31, 1996. The increase was largely due to new borrowings by
the Company. In February 1997, the Company issued $100 million of unsecured
7.125% senior notes due in 2004. A portion of the proceeds were used in March
1997 to redeem, at par, the Company's $34.5 million of 8.25% subordinated notes
due in 2000. See "RESULTS OF OPERATIONS -- COMPARISON OF THREE MONTHS ENDED
MAR. 31, 1997 AND 1996" for further details on the extraordinary loss on the
early extinguishment of this debt. The remainder of the proceeds will be used
for general corporate purposes and the repurchase of Company stock.
The combined weighted average cost of borrowings declined to 6.17% at Mar.
31, 1997 from 6.22% at Dec. 31, 1996, due primarily to the repayment of the
subordinated notes and the increased use of the lower-costing short-term
borrowings. See "CASH FLOW ACTIVITY" for further discussion.
Stockholders' equity of the Company was $391.9 million at Mar. 31, 1997 or
$17.16 per share. In comparison, stockholders' equity at Dec. 31, 1996 was
$388.1 million or $17.04 per share. The $3.8 million increase in stockholders'
equity during the three months ended Mar. 31, 1997 resulted from $11.8 million
of net income and $5.2 million of capital provided by the exercise of employee
stock options. These increases were partly offset by the repurchase of $8.6
million of the Company's common stock, dividends paid to shareholders of $2.8
million, and a $1.9 million decrease in the unrealized gain on investment
securities, net of tax. See "CAPITAL" and "CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY" for further analysis.
During the first three months of 1997, the Company continued with its
stock repurchase program by acquiring 332,750 shares of Company common stock,
at a weighted average price of $25.71. As of Mar. 31, 1997, under the current
program, which is scheduled to run through July 1997, the Company has purchased
445,250 shares (at a weighted average price of $24.79) of the 1.125 million
13
<PAGE> 14
goal.(2) Management's primary objective in reacquiring its shares is to increase
return on equity and earnings per share for those shares that remain
outstanding. See "CASH FLOW ACTIVITY -- HOLDING COMPANY LIQUIDITY" for further
details.
See "CREDIT RISK MANAGEMENT" for discussion of foreclosed real estate
balances.
CAPITAL
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 Mar. 31, 1997, Management believes that the Bank meets all capital adequacy
requirements to which it is subject.
As of Mar. 31, 1997 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(3) as set forth in the
table below. The Bank's actual amounts and ratios are also presented in the
following table:
- -----------------
(2) Through May 1, 1997, the Company had acquired an additional 319,000
shares (at a weighted average price of $26.90) during the second quarter of
1997 under this program.
(3) 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 Mar. 31, 1997,
the Bank's tangible capital ratio of 8.66% exceeded the minimum required ratio.
14
<PAGE> 15
<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 Mar. 31, 1997 ------------- ------------------ ------------------
<S> <C> <C> <C>
Total Capital
(to Risk Weighted Assets) $413,832 16.92% >$195,665 >8.00% >$244,581 >10.00%
- - - -
Tier I Capital
(to Risk Weighted Assets) $383,823 15.69% >$ 97,832 >4.00% >$146,749 > 6.00%
- - - -
Tier I Capital (core)
(to Regulatory Assets) $383,823 8.66% >$177,207 >4.00% >$221,509 > 5.00%
- - - -
As of Dec. 31, 1996
Total Capital
(to Risk Weighted Assets) $409,266 17.27% >$189,562 >8.00% >$236,953 >10.00%
- - - -
Tier I Capital
(to Risk Weighted Assets) $379,645 16.02% >$ 94,787 >4.00% >$142,181 > 6.00%
- - - -
Tier I Capital (core)
(to Regulatory Assets) $379,645 8.80% >$172,647 >4.00% >$215,809 > 5.00%
- - - -
</TABLE>
The following schedule reconciles stockholders' equity of the Company to
the components of regulatory capital of the Bank at Mar. 31, 1997:
<TABLE>
<CAPTION>
Mar. 31,
Dollars in thousands 1997
- -----------------------------------------------------------------------
<S> <C>
Stockholders' equity of the Company $391,900
Less: capitalization of the Company
and non-Bank subsidiaries (4,475)
- -----------------------------------------------------------------------
Stockholder's equity of the Bank 387,425
Less: unrealized gain on
available for sale securities (466)
Less: investments in non-includable
subsidiaries (1,575)
Less: intangible assets (1,561)
- -----------------------------------------------------------------------
Tangible and core capital 383,823
Plus: allowable GVAs 30,009
- -----------------------------------------------------------------------
Risk-based capital $ 413,832
=======================================================================
</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 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
15
<PAGE> 16
risk-based capital requirement. This regulation has been proposed, but not yet
implemented by the OTS. At Mar. 31, 1997, the Bank had $218.2 million of
excess risk-based capital available to meet any additional capital requirement.
The OTS has issued notice of a proposed regulation that would require all
but the most highly rated savings institutions to maintain a ratio of core
capital to total assets of between 4% and 5% to conform to the prompt
corrective action requirement and allow the Bank to be deemed at least
"adequately capitalized". Even at a 4% core capital ratio requirement as of
Mar. 31, 1997, the Bank would have excess core capital of $206.6 million. The
Bank presently intends to maintain a ratio of core capital to total assets of
at least 7%.
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.
16
<PAGE> 17
CASH FLOW ACTIVITY
Sources of Funds The major sources of funds during the first three months of
1997 included $256.1 million of principal repayments on loans receivable and
MBS, $129.6 million from the issuance of CDs, a $54.1 million net increase in
borrowings and $16.2 million from maturing AFS marketable debt securities.
During the first three months of 1997, repayments of loans receivable
and MBS totaled $256.1 million, compared to $193.6 million of repayments during
the first three months of 1996. The increase in repayments is primarily
related to higher repayments of income producing property loans as compared to
the same quarter in 1996. Repayments on income producing property loans were
$103.5 million in the first quarter of 1997 and $16.3 million during the first
quarter of 1996. This portfolio has experienced and may continue to experience
a high level of repayments associated with the pending maturity of a
significant portion of the portfolio over the next few years. See "CREDIT RISK
MANAGEMENT" for further details. Single family loan repayments have declined
slightly in comparison to the first quarter of 1996, due in part to higher
interest rates compared to the same period in 1996. Repayment of single family
loans were $100.4 million during the first quarter of 1997 compared to $108.0
million during the same quarter of 1996.
During the first three months of 1997, the issuance of CDs continued to be
a major source of funding. The issuance of CDs during the first three months
of 1997 totaled $129.6 million, up from $97.6 million during the same period in
1996. Management continues to emphasize shorter-term CD products, by offering
attractive rates, in order to provide for asset expansion. In addition,
checking, savings and money market account balances increased $21.3 million
during the first three months of 1997. In comparison, during the first three
months of 1996, checking, savings and money market account balances increased
by $41.3 million.
During the first quarter of 1997, a net of $54.1 million of funds were
provided by borrowings. During the quarter, the Company issued $100 million of
senior notes and repaid $34.5 million of subordinated notes. See "STATEMENT OF
FINANCIAL CONDITION" for further details. The Company also refinanced a
portion of its short-term borrowings with long-term advances. In contrast,
during the
17
<PAGE> 18
same quarter in 1996, liquidity was used to repay $50.0 million of short term
borrowings.
The maturity of $16.2 million of marketable debt securities also provided
additional liquidity during the current quarter. In comparison, during the
same quarter in 1996, $20.0 million of funds were provided by the maturity of
marketable debt securities.
Uses of Funds. The major uses of funds during the three months ended Mar. 31,
1997 included $336.6 million of loans originated and purchased for investment,
$92.7 million of payments for maturing CDs, $30.2 million for the purchase of
AFS marketable-debt securities, and $8.5 million for the purchase of treasury
stock.
Loans originated and purchased for investment totaled $336.6 million
during the first three months of 1997, compared to $221.0 million during the
same period of 1996. During the first three months of 1997, the Bank purchased
$231.2 million of mortgage loans, primarily 1-4 family adjustable rate whole
loans, in an effort to increase interest earning asset levels and enhance
interest income. Management plans additional purchases of 1-4 family loans
during 1997 to build interest earning assets. Loans originated for investment
during the first quarter of 1997 from retail operations and correspondent
operations were $91.1 million and $12.6 million, respectively.
Payments for maturing CDs increased from $65.4 million during the three
months ended Mar. 31, 1996 to $92.7 million during the first three months of
1997. The Bank's emphasis on shorter-term CD products has resulted in the
increase in the amount of CDs maturing and total CD balances. Management has
been successful in retaining a large portion of these maturing balances.
Also during the first quarter, $30.2 million of funds were used to
purchase AFS marketable-debt securities. In comparison, during the same period
in 1996, $20.0 million of funds were provided by the maturity of AFS
marketable-debt securities.
The Company also used $8.6 million of funds to acquire 332,750 shares of
its own common stock during the first three months of 1997. See "HOLDING
COMPANY LIQUIDITY" following for further details. In comparison, the Company
used $7.1
18
<PAGE> 19
million to acquire 356,250 of its own common stock during the first three
months of 1996.
Holding Company Liquidity. At Mar. 31, 1997, St. Paul Bancorp, the "holding
company", had $21.6 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 also has $10.0 million
of investment securities classified as AFS. The Company also maintains a $20.0
million revolving line of credit agreement from another financial institution.
At Mar. 31, 1997, no funds have been borrowed under this agreement.
Sources of liquidity for St. Paul Bancorp during the first three months of
1997 included $98.6 million from the issuance of senior debt, $11.0 million of
dividends from the Bank and $550,000 of dividends from SPFD and Annuity
Network, Inc. Uses of St. Paul Bancorp's liquidity during the first three
months of 1997 included advances to the Bank of $54.3 million(4), the repayment
of $34.5 million of subordinated debt, the $10.0 million purchase of investment
securities, the acquisition of $8.5 million of Company common stock under the
stock repurchase program, $3.3 million of advances to St. Paul Financial
Development, and $2.8 million of dividends paid to stockholders. See
"STATEMENT OF FINANCIAL CONDITION" for further discussion.
Under the current stock repurchase program, which was announced during
1996, the Company has acquired 445,250 of the stated 1.125 million share goal.
As a result, until the program expires in July 1997, the Company may purchase
up to 679,750 additional shares under this program. In addition, the Company
increased the quarterly dividend per share to $0.12 from $0.10 per share during
the first quarter of 1997, after considering the five-for-four stock split
distributed to shareholders in January 1997.
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
- -----------------
(4) During the first quarter of 1997, the Company used its excess
liquidity to advance funds to the Bank for use in the Bank's operation. The
advance is due upon demand and earns a rate of interest comparable to what the
Company could earn on its investment portfolio.
19
<PAGE> 20
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. The Bank's regulators have recently issued a proposal to reduce
the current liquidity requirement. At Mar. 31, 1997, the Bank had $361.0
million invested in liquid assets, which exceeded the current requirement by
$177.3 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(5) for the three months ended Mar. 31, 1997 and 1996:
<TABLE>
INCREASE/(DECREASE) DUE TO
TOTAL
Dollars in thousands VOLUME RATE CHANGE
- --------------------------------------------------------------------
CHANGE IN INTEREST INCOME:
<S> <C> <C> <C>
Loans receivable $1,552 $ (857) $ 695
Mortgage-backed securities 2,935 1,696 4,631
Marketable-debt securities (295) 155 (140)
Federal funds and interest-bearing
bank balances 709 (36) 673
Other short-term investments (365) 91 (274)
------ ------ ------
Total interest income 4,536 1,049 5,585
CHANGE IN INTEREST EXPENSE:
Deposits 1,293 (163) 1,130
Short-term borrowings 1,995 (11) 1,984
Long-term borrowings (70) (50) (120)
------ ------ ------
Total interest expense 3,218 (224) 2,994
------ ------ ------
NET CHANGE IN NET INTEREST INCOME
BEFORE PROVISION FOR LOAN LOSSES $1,318 $1,273 $2,591
====== ====== ======
</TABLE>
- -----------------
(5) 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 MAR. 31, 1997 AND 1996
General. Net income rose 35.2% during the first quarter of 1997 to $11.8
million compared to $8.8 million during the first quarter of 1996. The
increase in net income was associated with higher net interest income and other
income and lower provisions for losses on loans and foreclosed real estate.
Earnings per share rose 38.9% to $0.50 per primary share during the first
quarter of 1997 from $0.36 per share during the same period in 1996.(6)
Operating results during the first quarter of 1997 also included a $403,000
extraordinary loss, net of tax, on the early extinguishment of the Company's
$34.5 million of subordinated notes. Earnings before this extraordinary item
were $12.2 million or $0.51 per share.
Net Interest Income. Net interest income totaled $32.3 million during the
first three months of 1997, $2.6 million or 8.7% higher than during the same
period a year ago. A $5.6 million increase in interest income was partly
offset by a $3.0 million rise in interest expense. Between the two periods,
Management focused on increasing average interest earning assets, primarily
through the acquisition of adjustable rate 1-4 family whole loans. Average
interest earnings asset increased $269 million or 6.8% to $4.2 billion during
the first quarter of 1997 from the first quarter of 1996. This growth in
average interest earnings asset was funded with both additional borrowings and
higher average deposit balances.
The net interest margin ("NIM") rose 5 basis points to 3.05% during the
first quarter of 1997 compared to 3.00% during the same period in 1996. The
NIM benefited from both higher interest earning assets levels and higher
effective yields on assets. The higher asset yields were mainly associated
with an increase in the MBS portfolio yield as amortization of net premiums
decreased due to a slowing of prepayment speeds. However, the heavier reliance
on higher costing borrowing balances, partly offset these increases in the NIM.
- --------------------
(6) The per share comparisons benefited from 1,268,750 of Company
shares repurchased during 1996 and 332,750 shares repurchased during the first
quarter of 1997.
22
<PAGE> 23
Interest Income. Interest income on loans receivable increased $695,000 to
$53.6 million during the first quarter of 1997. An $81.5 million increase in
average balances was partly offset by a 12 basis point decline in the effective
loan yield. Average loan balances, which totaled $2.8 billion during the first
quarter of 1997, benefitted from the $698.0 million of loans purchased since
the first quarter of 1996. These purchases and loans originated for investment
were partly offset by principal amortization and the securitization of $381
million of 1-4 family loans into MBS at the end of December 1996. The
effective loan yield declined to 7.58% during the first three months of 1997
compared to 7.70% during the same period in 1996. The repayment of higher rate
loans and the purchase and origination of loans at weighted average rates less
than the portfolio average primarily produced the decline in the effective loan
yield. In addition, the securitization of loans into MBS also contributing to
the decline in the effective loan yield as higher rate loan balances were
transferred into MBS.
MBS interest income rose $4.6 million or 30.9% to $19.6 million during the
first quarter of 1997. A $176.9 million increase in average balances and a 66
basis point increase in the effective MBS yield produced the higher level of
income. Higher average MBS balances, which totalled $1.1 billion during the
first quarter of 1997, primarily resulted from the $381 million loan
securitization at the end of 1996. Principal repayments partly offset this
increase. The effective MBS yield rose to 6.88% during the first three months
of 1997. The higher yield was associated with lower amortization of net
premiums, the addition of the new securities which had a weighted average rate
higher than the rate on the entire MBS portfolio, and a modest amount of upward
repricing in the adjustable rate portfolio.
Interest Expense. Deposit interest expense rose $1.1 million to $35.8 million
during the first quarter of 1997 compared to the same period a year ago. Most
of the increase was associated with a $121.7 million increase in average
deposit balances, which totaled $3.4 billion during the first three months of
1997. Higher average CD and money market balances caused the increase in
overall average deposits. The effective cost of deposits was 4.31% in the
first quarter of 1997, or 2 basis points lower than the same quarter in 1996.
The lower
23
<PAGE> 24
effective cost was due to a lower effective cost of CD's, as many of
the higher rate short-term CD balances put on in prior periods matured.
Borrowing interest expense rose $1.9 million during the current quarter
compared to the year ago quarter primarily due to a $137.7 million increase in
average borrowing balances. Average borrowing balances rose to $561.0 million
during the first quarter of 1997, up from $423.3 million in the year ago
quarter. The higher average balances were largely due to the use of borrowings
to help fund the acquisition of 1-4 family whole loans.(7) The borrowing yield
declined 27 basis points to 6.33% during the first quarter of 1997. A lower
effective yield on long-term borrowings and an increase in lower costing
short-term borrowings contributed to the lower overall effective cost.
Interest Rate Spread. The Bank's ability to sustain current net
interest income levels during future periods is largely dependent on
maintaining the interest rate spread, which is the difference between weighted
average rates on interest earning assets and interest bearing liabilities. The
interest rate spread was 2.74% at Mar. 31, 1997, compared to 2.78% at Dec. 31,
1996 and 2.80% at Mar. 31, 1996. The heavier reliance on borrowings as a
source of funds and an 8 basis point increase in the weighted average deposit
rate since Mar. 31, 1996 produced the contraction in the interest rate spread.
However, higher weighted average rates on MBS and investments partly offset
these contractions in the spread. See "CASH FLOW ACTIVITY" for a discussion of
changes in interest earning assets and interest bearing liabilities.
External forces, such as the performance of the economy, actions of the
Board of Governors of the Federal Reserve System, and market interest rates,
can significantly influence the size of the interest rate spread and are beyond
the control of Management. In response to these forces, Management evaluates
market
- -------------------
(7) In addition, the Company issued $100 million of 7.125% senior notes
in February of 1997. The full impact on average balances of this borrowings
will not occur until the second quarter of 1997. A portion of the proceeds
from the senior notes were used on Mar. 31, 1997 to redeem the Company's $34.5
million of 8.25% subordinated notes. The benefit from this repayment of the
higher costing borrowings will not impact borrowing expense until the second
quarter of 1997.
24
<PAGE> 25
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, the Bank has $1.1 billion
of "adjustable" rate loans and MBS that have initial fixed interest rate
periods ranging from three to five years. At Mar. 31, 1997, only $45.7 million
of these loans and MBS were scheduled to reprice during the ensuing twelve
months. If interest rates remain at current levels at the time of repricing,
the Bank may experience an increase in the yields, but could also experience
higher prepayments.
Second, approximately $348.4 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.(8)
Third, $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.
Lastly, nearly all adjustable rate loans and MBS contain periodic and
lifetime interest rate caps that limit the amount of upward repricing on loans
and MBS. Most of the annual interest caps in the Bank's loan and MBS portfolio
are 2%. At Mar. 31, 1997, only $30.9 million of loans and MBS are at their
period or lifetime interest rate caps.
On the liability side, the Company has $448.5 million of borrowings that
are scheduled to reprice during the next six months and a CD portfolio of $2.1
billion that has a weighted average remaining maturity of 11 months. The
Company also has $1.3 billion of deposits in checking, savings, and money
market accounts
- -----------------------
(8) At Mar. 31, 1997, the weighted average fully indexed rate on these
loans was 7.08% and the weighted average floor was 8.03%. These interest rate
floors benefited net income by $818,000 during the first quarter of 1997 and
the NIM and interest rate spread during 1997 by 8 basis points. In comparison,
at Mar. 31, 1996, the Bank had $518.0 million of loans at their floors, which
benefited interest income by $740,000 during the first quarter of 1996 and the
NIM and interest rate spread by 7 basis points.
25
<PAGE> 26
that are expected to help mitigate the effect of a rapid change in interest
rates.
Traditionally, financial institutions have used "GAP" analysis as a
measure of interest rate sensitivity. GAP is the ratio of interest rate
sensitive assets to interest rate sensitive liabilities over a specified time
horizon, expressed as a percentage of total assets. At Mar. 31, 1997, the
Company maintained a one-year negative GAP of 2.46%, suggesting that net
interest income would decrease if market rates were to increase. See
"ASSET/LIABILITY REPRICING SCHEDULE" following for further details.
Provision for Loan Losses. Due to continued positive trends in credit quality,
the Company recorded no provision for loan losses during the first quarter of
1997. See "CREDIT RISK MANAGEMENT" for further discussion of loss provisions
and adequacy of the accumulated provisions for losses. In comparison, during
the first three months of 1996, the Company recorded a $500,000 provision for
loan loss.
Other Income. Other income rose 13.6% to $10.5 million during the first three
months of 1997 compared to $9.2 million for the same quarter a year ago.
Higher other fee income and revenues from discount brokerage operations and
insurance and annuity sales generated the increase.
Most of the $2.2 million increase in other fee income was associated with
higher revenues from ATM operations. The higher ATM revenues resulted from the
January 1997 introduction of an ATM access fees to non-customers who use the
Bank's ATM network and the expansion of the Bank's ATM network. During
mid-1996, the Bank more than doubled the size of its network with the
installation of 261 ATMs in White Hen Pantry convenience stores located in the
eight county Chicagoland area. A 12% increase in transaction volumes at
Investment Network, Inc., the Bank's discount brokerage subsidiary produced a
$191,000 increase in revenues from brokerage operations. Also, higher sales
volumes produced the $117,000 increase in revenues from insurance and annuity
sales.
26
<PAGE> 27
These increases in other income were partly offset by lower gains from
security and loan sales and lower revenues from real estate development
operations. A $855,000 gain on the sale of MBS in the first quarter of 1996
produced the lower gain on security sales in 1997. Lower loan sales volumes
during the first quarter of 1997 as compared to the same period in 1996
produced the $203,000 reduction in gains on loan sales. A decrease in sales
volumes produced the $192,000 decline in revenues from real estate development
operations. In the first quarter of 1997, the Company's real estate
development subsidiary, St. Paul Financial Development Corporation ("SPFD"),
discontinued its home building operations, and will concentrate on
single-family and commercial real estate development. SPFDC will also be
reducing staffing levels and consolidating its operating facilities in an
effort to reduce overhead expenses.
While Management expects that some of the growth in other income during
1997 will be generated from ATM operations, several events could impact ATM
revenues in the future. First, on May 1, 1997, the Bank will lose 22 ATM
machines located in a grocery store chain in the Chicagoland area, as the
grocery store chain begins to install in-store branches of another financial
institution. The Bank expects to lose up to an additional 61 ATMs located in
these stores over the next few years. The Bank continues to seek partners in
other ATM ventures, and during 1997 entered into an agreement with another
grocery store chain to install 12 ATMs. Second, proposals have been discussed,
from time to time, both at the federal and state level to introduce legislation
that could increase disclosures and/or limit the Bank's ability to charge an
access fee to non-customers who use a St. Paul ATM. Management can give no
assurances that such legislation will be enacted (and in what form), nor can
Management estimate that impact of such legislation on ATM revenues.
General and Administrative Expense. General and administrative expenses
("G&A")totaled $24.2 million during the first quarter of 1997, or 3.1% higher
the $23.5 million of G&A expense during the same period of 1996.
The increase in G&A expense was associated with a $1.0 million increase in
compensation and benefits, a $721,000 rise in occupancy, equipment and office
expense, and higher advertising costs of $258,000. The increase in
compensation
27
<PAGE> 28
and benefits was associated with annual merit increases, higher sales
incentives, an increase in employment taxes, and higher pension cots. The
expansion of the ATM network, system projects, and higher depreciation on
capital investments produced the increase in occupancy, equipment and office
expense. Product promotions produced the increase in advertising costs.
A $1.3 million decrease in federal deposit insurance premiums partly
offset these increase in G&A. The lower deposit insurance premiums resulted
from the decrease in deposit insurance premiums that became effective in
January 1997.
Management remains committed to on-going expense control, and is
continuing to review back-office and data processing operations in order to
improve work flows, communications, coordination, and service as a means to
improve efficiency and control expense. Even with these measures, 1997 G&A
levels are expected to exceed 1996 levels due to anticipated additions to the
branch network, expansion of the ATM network, an increase in planned
advertising and promotions, more services offered to customers, systems
projects, higher compensation for retail personnel, and general inflation.
Management expects to add to the branch network in 1997 by opening of up
to three branches. While locations are still under consideration, Management
is considering a new prototype branch, such as an office in a storefront or
neighborhood shopping center, which has similar cost requirements as the Bank's
current in-store branch locations. The initial cost for in-store branches is
significantly less than the initial cost for a free-standing branch. The Bank
intends to fund the branch expansion with existing liquidity.
Management also expects increased G&A expenditures in 1997 and 1998
related to the system projects designed to upgrade the Bank's information
systems to process transactions in the next century. The Bank has assembled a
task force charged with addressing the "Year 2000" compliance issue and has
been coordinating efforts with an outside consultant. The Bank expects to have
critical development work completed by December of 1998 with final testing to
occur in 1999. The Bank intends to fund this cost from operations and excess
liquidity.
28
<PAGE> 29
Operations of Foreclosed Real Estate. The Bank generated a net loss from its
foreclosed real estate operation of $44,000 during the first quarter of 1997,
down substantially from the $1.1 million loss incurred during the same quarter
in 1996. The decrease was produced by a lower provision for real estate owned
("REO") losses. The provision during 1996 was considered necessary to reflect
an additional loss on a multifamily property sold during the second quarter of
1996.(9) See "CREDIT RISK MANAGEMENT" for further discussion of REO.
Income Taxes. A $4.7 million increase in the level of pretax income and a
lower effective income tax rate produced the $1.2 million rise in the provision
for income taxes during the first quarter of 1997. The effective income tax
rate for the first three months of 1997 was 34.0%, which is the expected annual
effective income tax rate for 1997.
Extraordinary Item. During the first quarter of 1997, the Company recorded a
$403,000 extraordinary loss, net of tax, on the early extinguishment, at par,
of its $34.5 million of 8.25% subordinated debt due in 2000. The subordinated
debt was repaid with a portion of the proceeds from the Company's issuance of
$100 million of 7.125% senior notes due in 2004. The future savings of
replacing the higher costing subordinated notes with the senior notes will more
than offset the extraordinary loss incurred during the current quarter.
- ------------------
(9) The additional loss in 1996 occurred when the Bank entered into a
sales contract with a buyer to purchase the multifamily property at a value
lower than the current book value. While the book value was supported by a
current appraisal, Management elected to accept a liquidation value,
principally due to the high vacancy levels, rather than holding this asset in
an effort to achieve stabilization of occupancy.
29
<PAGE> 30
AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS
<TABLE>
<CAPTION>
Three months ended Mar. 31,
Dollars in thousands At Mar. 31, 1997 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
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) $62,374 6.42% $65,869 $1,001 6.16% $86,299 $1,141 5.36%
Federal funds and
interest-bearing bank balances 117,440 5.42 129,319 1,653 5.18 73,916 980 5.38
Other investments (c) 54,148 6.19 66,049 1,023 6.28 89,960 1,297 5.85
- ------------------------------------------------------------------------------------------------------------------------
Total investments 233,962 5.87 261,237 3,677 5.71 250,175 3,418 5.54
Mortgage-backed securities (b) 1,107,953 7.00 1,140,367 19,612 6.88 963,474 14,981 6.22
Loans receivable (d) 2,966,814 7.60 2,826,965 53,553 7.58 2,745,493 52,858 7.70
- ------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets $4,308,729 7.35% $4,228,569 $76,842 7.27% $3,959,142 $71,257 7.20%
========================================================================================================================
Deposits:
Interest-bearing checking $ 238,059 1.74% $ 232,182 $993 1.73% $ 236,388 $ 1,016 1.74%
Non-interest-bearing checking 145,510 -- 140,225 -- -- 123,202 -- --
Other non-interest-bearing accounts 37,881 -- 36,546 -- -- 29,210 -- --
Money market accounts 220,322 3.66 219,477 1,947 3.60 196,590 1,532 3.16
Savings accounts 686,616 2.44 679,142 4,017 2.40 692,485 4,169 2.44
Certificates of deposit 2,066,834 5.71 2,065,400 28,860 5.67 1,973,415 27,970 5.75
- ------------------------------------------------------------------------------------------------------------------------
Total deposits 3,395,222 4.33 3,372,972 35,817 4.31 3,251,290 34,687 4.33
Borrowings:(e)
Short-term borrowings 305,501 5.68 298,945 4,207 5.71 157,209 2,223 5.73
Long-term borrowings 308,937 6.66 262,092 4,547 7.04 266,104 4,667 7.11
- ------------------------------------------------------------------------------------------------------------------------
Total borrowings 614,438 6.17 561,037 8,754 6.33 423,313 6,890 6.60
- ------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities $4,009,660 4.61% $3,934,009 $44,571 4.59% $3,674,603 $41,577 4.59%
========================================================================================================================
Excess of interest-earning assets
over interest-bearing liabilities $ 299,069 $ 294,560 $ 284,539
========================================================================================================================
Ratio of interest-earning assets to
interest-bearing liabilities 1.07x 1.07x 1.08x
========================================================================================================================
Net interest income $32,271 $29,680
========================================================================================================================
Interest rate spread 2.74%
========================================================================================================================
"Average" interest rate spread 2.68% 2.61%
========================================================================================================================
Net yield on average earning assets 3.05% 3.00%
========================================================================================================================
</TABLE>
(a) All average balances based on daily balances.
(b) Average balances exclude the effect of unrealized gains or losses on
available for sale investment securities.
(c) Includes investment in FHLB stock, deposits at the FHLB, and other
short-term investments.
(d) Includes loans held for sale and loans placed on nonaccrual status.
(e) Includes FHLB advances, securities sold under agreements to repurchase, and
other borrowings.
30
<PAGE> 31
KEY CREDIT STATISTICS
<TABLE>
Mar. 31, 1997 Dec. 31, 1996 Dec. 31, 1995
Dollars in thousands Dollar % Dollar % Dollar %
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LOAN PORTFOLIO
- --------------------------------------------------------------------------------
MORTGAGE LOANS
1-4 family units $1,929,283 66% $1,753,907 63% $1,663,228 62%
Multifamily units 953,616 32 988,506 35 979,017 36
Commercial 53,725 2 54,985 2 54,981 2
Land and land development 984 * 1,633 * 1,940 *
- --------------------------------------------------------------------------------
Total mortgage loans $2,937,608 100% $2,799,031 100% $2,699,166 100%
================================================================================
CONSUMER LOANS
Secured by deposits $ 950 6% $ 1,169 6% $ 2,307 10%
Education (guaranteed) 102 1 210 1 261 1
Home improvement 245 1 281 1 576 2
Auto 14,524 84 16,197 85 20,034 86
Personal 1,454 8 1,193 7 165 1
- --------------------------------------------------------------------------------
Total consumer loans $ 17,275 100% $ 19,050 100% $ 23,343 100%
- --------------------------------------------------------------------------------
Total loans held for
investment $2,954,883 $2,818,081 $2,722,509
================================================================================
Weighted average rate 7.59% 7.66% 7.69%
================================================================================
*Less than 1%
Mar 31, 1997 Dec. 31, 1996 Dec. 31, 1995
Dollars in thousands Dollar % Dollar % Dollar %
- --------------------------------------------------------------------------------
NONPERFORMING ASSETS
- --------------------------------------------------------------------------------
MORTGAGE LOANS
1-4 family units $ 9,780 47% $ 9,102 73% $ 7,722 26%
Multifamily units 7,883 38 --- -- 8,665 30
Commercial --- -- 387 3 1,360 5
- --------------------------------------------------------------------------------
Total mortgage loans 17,663 85 9,489 76 17,747 61
CONSUMER LOANS 37 * 46 * 81 *
REAL ESTATE OWNED
1-4 family units 1,712 8 1,566 13 2,174 8
Multifamily units --- -- --- -- 8,206 28
Commercial 1,351 7 1,351 11 997 3
- --------------------------------------------------------------------------------
Total real estate owned 3,063 15 2,917 24 11,377 39
- --------------------------------------------------------------------------------
Total nonperforming assets $ 20,763 100% $ 12,452 100% $ 29,205 100%
================================================================================
*Less than 1%
</TABLE>
<TABLE>
Mar. 31, Dec. 31, Dec. 31,
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
KEY CREDIT RATIOS
- --------------------------------------------------------------------------------
Net loan charge-offs to average loans receivable 0.13% 0.15% 0.21%
Net California loan charge-offs to average California
loans receivable 0.76 0.56 0.48
Loan loss reserve to total loans 1.19 1.28 1.42
Loan loss reserve to nonperforming loans 197.83 377.19 216.62
Loan loss reserve to impaired loans 63.21 64.04 120.37
Nonperforming assets to total assets 0.46 0.29 0.71
General valuation allowance to non-
performing assets 150.42 248.88 123.94
- -------------------------------------------------------------------------------
</TABLE>
31
<PAGE> 32
CREDIT RISK MANAGEMENT
LENDING
At Mar. 31, 1997, the loans receivable portfolio was primarily
comprised of residential mortgages, secured by both 1-4 family 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.
Non-performing loans totaled $17.7 million at Mar. 31, 1997, up from
$9.5 million at Dec. 31, 1996. The increase was largely due to the
addition of one multifamily loan to a non-performing status during the
first quarter of 1997.
At Mar. 31, 1997, the Bank had a net investment in impaired loans of
$55.4 million, compared to $56.2 million at Dec. 31, 1996.(10) At Mar. 31,
1997, $47.5 million of the $55.4 million of impaired loans were
performing but 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, all of the $56.2 million of impaired loans at Dec. 31,
1996 were considered performing. While the level of impaired loans
remained relatively unchanged from year-end 1996, the amount of impaired
loans has increased during the past few years. The increase has been
largely due to the pending maturities of a significant portion of the
Bank's income property loan portfolio.
The accumulated provision for loan losses at Mar. 31, 1997 was $35.0
million compared to $36.0 million at Dec. 31, 1996, a decrease of $1.0
million. The following table provides a rollforward of the accumulated
provision for loan losses from Jan. 1, 1996 through Mar. 31, 1997:
- -------------------
(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."
32
<PAGE> 33
<TABLE>
<CAPTION>
1997 1996
------------- -------------------------
Three Months Three Months Year Ended
Dollars in thousands Ended Mar. 31 Ended Mar. 31 Dec. 31
- ------------------------------------------- -------------------------
<S> <C> <C> <C>
Beginning of Period $35,965 $38,619 $38,619
Provision for losses --- 500 1,750
Charge-offs (1,498) (1,128) (5,113)
Recoveries 550 258 709
------------- ------------------------
End of Period $35,017 $38,249 $35,965
============= ========================
</TABLE>
The general valuation allowance is 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.
Net loan charge-offs in the first three months of 1997 totaled
$948,000, slightly higher than the $870,000 of net charge-offs in the
first quarter of 1996.(11) Most of the charge-offs during 1997 related to
the Bank's income property loan portfolio. Of total charge-offs, $1.0
million had already been identified as "loss" for which a specific
reserve had been established prior to year-end 1996. Annualized net loan
charge-offs to average loans receivable totaled 0.13% during the first
three months of 1997. In comparison, the Company's net loan charge-offs
in 1996 and 1995 were equivalent to 0.15% and 0.21% of average loans
receivable, respectively. See "KEY CREDIT STATISTICS" for further
details.
- -------------------------
(11) Gross loan charge-offs in the first three months of 1997 totaled
$1.5 million and included $1.2 million charge-offs on loans that were considered
impaired under SFAS No. 114 and $302,000 of charge-offs on 1-4 family and
consumer loans. Recoveries during the first quarter of 1997 were primarily
related to multifamily loans.
33
<PAGE> 34
No loan loss provision was recorded during the three months ended Mar.
31, 1997 compared to a $500,000 loan loss provision during the same period in
1996. A continued decline in the level of classified loans and non-performing
assets over the past few years, as well as a decrease in the size of the
Bank's income property lending portfolio, and the stabilization of certain
real estate markets have allowed the Bank to reduce the level of the
accumulated provision for loan losses by recording loss provisions below net
charge-offs. In the future, if the trends noted above continue, the level of
charge-offs may be higher than loan loss provisions, thereby reducing the level
of the accumulated provision for loan losses. See "KEY CREDIT STATISTICS" for
further details.
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
credit risks for loans on income producing properties as well as all 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.
In recent years, loans on income producing properties originated by the
Company have been secured by collateral located in the Midwest. Prior to 1991,
the Bank originated these loans on a nationwide basis. Before the end of 1999
approximately 40% of the portfolio originated before 1991 is scheduled to
mature. The Bank intends to refinance a large portion of these loans that meet
underwriting standards, and Management is actively working with borrowers whose
loans are scheduled to mature in 1997 to refinance certain loans and obtain
payoff of lower quality loans. Management is also pursuing strategies for 1998
maturities. In connection with these maturities, Management is prepared to
make loans to facilitate the sale of REO and repurchase distressed loans that
have been sold with recourse. 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
34
<PAGE> 35
portfolio as it relates to current plans to refinance or liquidate the income
producing real estate portfolio as it matures.
In addition to its program to refinance existing maturing income
producing property loans, the Bank's Board of Directors has provided for a
limited expansion of income property lending outside of the Midwest. Under this
program, the Bank has been authorized to originate new multifamily loans in
strong markets where the Bank already has an income producing property
servicing portfolio or to borrowers with whom it has a long-standing
relationship. Originations under this program are not expected to exceed $100
million during 1997, and will help offset the repayment of maturing loans.
During the first three months of 1997, the Bank purchased $223.6
million of whole loans, secured by 1-4 family residences located nationally.
Prior to purchasing these loans, the Bank performs due diligence procedures.
Because of that process, Management believes that the portfolios acquired
present no greater risk than the Bank's own originated 1-4 family portfolio.
The Bank also purchased $7.6 million of loans secured by income producing 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. While some
softness 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.
As of Mar. 31, 1997, the Bank's ratio of classified assets to tangible
capital and general valuation allowance was 33% compared to 34% at Dec. 31,
1996.
OTHER REAL ESTATE OWNED
REO totaled $3.1 million at Mar. 31, 1997 compared to $2.9 million at
the end of 1996. Of total REO at Mar. 31, 1997, $1.7 million was 1-4 family
assets and $1.4 million was commercial real estate.
35
<PAGE> 36
The accumulated provision for real estate losses totaled $288,000 at
Mar. 31, 1997 compared to $284,000 at Dec. 31, 1996. During the first three
months of 1997, the Bank recorded net recoveries of $4,000. In comparison,
$1.3 million of net charge-offs were recorded during the same period in 1996.
There was no provision for REO losses during the first three months of 1997
compared to $993,000 in the first three months of 1996. See "RESULTS OF
OPERATIONS -- COMPARISON OF THREE MONTHS ENDED MAR. 31, 1997 AND 1996" for
further details on REO provision.
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.
36
<PAGE> 37
ASSET/LIABILITY REPRICING SCHEDULE (a)
<TABLE>
<CAPTION>
at Mar. 31, 1997
--------------------------------------------------------------------------------
Weighted More than 6
Average % of 6 months months to Over
Rate Balance Total or less 1 year 1-3 years 3-5 years 5 years
- ------------------------------------------------------------------------------------------------------------------------
RATE SENSITIVE ASSETS: (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investments:(b)
Adjustable rate 5.42% $ 117,440 3% $ 117,440 $ - $ - $ - $ -
Fixed rate 6.31 116,522 3 51,689 9,917 9,897 9,808 35,211
Mortgage-backed securities:(c)
Adjustable rate 7.08 842,514 20 346,998 262,426 233,090 - -
Fixed rate 6.75 265,439 6 17,554 16,783 56,787 51,115 123,200
Mortgage loans:(c)
Adjustable and renegotiable rate 7.48 2,468,502 57 1,335,837 346,626 652,107 133,932 -
Fixed rate 8.20 469,106 11 68,808 34,881 144,688 107,052 113,677
Consumer loans (c) 7.41 17,275 * 2,645 1,630 5,233 3,889 3,878
Assets held for sale 7.92 11,931 * 11,931 - - - -
--------------------------------------------------------------------------------
Total rate sensitive assets 7.35% $4,308,729 100% $1,952,902 $ 672,263 $1,101,802 $305,796 $ 275,966
================================================================================
RATE SENSITIVE LIABILITIES:
Deposits:
Checking accounts 0.98% $ 420,992 10% $ 114,125 $ 23,950 $ 78,510 $ 56,723 $ 147,684
Savings accounts 2.44 686,686 17 226,538 43,466 136,505 91,786 188,391
Money market deposit accounts 3.65 220,710 6 220,710 - - - -
Fixed-maturity certificates 5.71 2,066,834 52 1,215,782 442,151 278,220 70,583 60,098
--------------------------------------------------------------------------------
4.33 3,395,222 85 1,777,155 509,567 493,235 219,092 396,173
Borrowings:
FHLB advances 6.01 326,399 8 225,314 50,000 50,000 248 837
Other borrowings 6.20 271,639 7 173,233 - - - 98,406
Mortgage-backed note 8.82 16,400 * - - 16,400 - -
--------------------------------------------------------------------------------
6.17 614,438 15 398,547 50,000 66,400 248 99,243
--------------------------------------------------------------------------------
Total rate sensitive liabilities 4.61% $4,009,660 100% $2,175,702 $ 559,567 $ 559,635 $219,340 $ 495,416
================================================================================
Excess (deficit) of rate sensitive assets
over rate sensitive liabilities (GAP) 2.74% $ 299,069 $ (222,800) $ 112,696 $ 542,167 $ 86,456 $(219,450)
================================================================================
Cumulative GAP $ (222,800) $(110,104)$ 432,063 $518,519 $ 299,069
Cumulative GAP to total assets without
regard to hedging transactions (4.97)% (2.46)% 9.63% 11.56% 6.67%
Cumulative GAP to total assets with
impact of hedging transactions (3.25)% (0.92)% 9.63% 11.56% 6.67%
</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 15% per year; adjustable rate mortgage loans on 1-4
family residences and loan securities were estimated to prepay at a rate of 22%
per year; fixed rate loans and loan securities were estimated to prepay at a
rate of 10% per year. Loans with an adjustable rate characteristic, including
loans with initial fixed interest rate periods, are considered by Management to
have an adjustable rate.
Checking accounts were estimated to be withdrawn at rates between 15% and
21% per year. Most of the regular savings accounts were estimated to be
withdrawn at rates between 18% and 26% per year, although for some of the
accounts, Management assumed an even faster rate.
Except for multifamily loans, the prepayment assumptions included in this
schedule are based upon the Bank's actual prepayment experience over the past
year, as well as Management's future expectations of prepayments. The Bank
assumed a prepayment percentage of 15% 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.
37
<PAGE> 38
PART II. -- OTHER INFORMATION
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 11, Statement re: Computation of Per Share Earnings.
(b) Exhibit 27, Financial Data Schedule.
(c) (i) The Company filed a current report on Form 8-K on January 15, 1997
announcing a six-month extension through July 1997 of the 1.125 million
share repurchase program (or approximately 5% of its outstanding common
stock) that was announced during the third quarter of 1996.
(ii) The Company filed a current report on Form 8-K on March 17, 1997
related to the scheduled date and record date for the 1997 annual meeting
of shareholders.
38
<PAGE> 39
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: May 14, 1997 By: /s/ Joseph C. Scully
-------------- ------------------------------
Joseph C. Scully
Chairman of the Board and Chief Executive Officer
(Duly Authorized Officer)
Date: May 14, 1997 By: /s/ Robert N. Parke
-------------- ------------------------------
Robert N. Parke
Senior Vice President and Treasurer
(Principal Financial Officer)
39
<PAGE> 1
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Three months ended
Mar. 31, 1997
------------------
1. Net income $11,834,034
2. Weighted average common
shares outstanding 22,689,360
-----------
3. Earnings per $ 0.52
common share ===========
4. Weighted average common
shares outstanding 22,689,360
5. Common stock equivalents
due to diluted
effect of stock options 1,074,420
-----------
6. Total weighted average
common shares and
equivalents outstanding 23,763,780
===========
7. Primary earnings per share $ 0.50
===========
8. Total weighted average
common shares and
equivalents outstanding
(Line 6) 23,763,780
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 75,760
-----------
10. Total shares for fully
diluted earnings per share 23,839,540
===========
11. Fully diluted earnings
per share $ 0.50
===========
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 86,065
<INT-BEARING-DEPOSITS> 12,481
<FED-FUNDS-SOLD> 104,959
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 651,808
<INVESTMENTS-CARRYING> 518,519
<INVESTMENTS-MARKET> 512,514
<LOANS> 2,966,814
<ALLOWANCE> 35,017
<TOTAL-ASSETS> 4,484,882
<DEPOSITS> 3,395,222
<SHORT-TERM> 305,501
<LIABILITIES-OTHER> 83,322
<LONG-TERM> 308,937
0
0
<COMMON> 260
<OTHER-SE> 391,640
<TOTAL-LIABILITIES-AND-EQUITY> 4,484,882
<INTEREST-LOAN> 53,553
<INTEREST-INVEST> 3,677
<INTEREST-OTHER> 19,612
<INTEREST-TOTAL> 76,842
<INTEREST-DEPOSIT> 35,817
<INTEREST-EXPENSE> 44,571
<INTEREST-INCOME-NET> 32,271
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 24,169
<INCOME-PRETAX> 18,542
<INCOME-PRE-EXTRAORDINARY> 12,237
<EXTRAORDINARY> 403
<CHANGES> 0
<NET-INCOME> 11,834
<EPS-PRIMARY> .50
<EPS-DILUTED> .50
<YIELD-ACTUAL> 3.05
<LOANS-NON> 12,405
<LOANS-PAST> 5,295
<LOANS-TROUBLED> 600
<LOANS-PROBLEM> 59,473
<ALLOWANCE-OPEN> 35,965
<CHARGE-OFFS> 1,498
<RECOVERIES> 550
<ALLOWANCE-CLOSE> 35,017
<ALLOWANCE-DOMESTIC> 35,017
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
