ST PAUL BANCORP INC, DEF 14A, 1999-04-15

ST PAUL BANCORP INC
DEF 14A, 1999-04-15
SAVINGS INSTITUTION, FEDERALLY CHARTERED

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<PAGE> 1

SCHEDULE 14A
(RULE 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))

[X] Definitive Proxy Statement

[ ] Definitive Additional Materials

[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12

St. Paul Bancorp, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.

[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.

(1) Title of each class of securities to which transaction applies:

- --------------------------------------------------------------------------------

(2) Aggregate number of securities to which transaction applies:

- --------------------------------------------------------------------------------

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):

- --------------------------------------------------------------------------------

(4) Proposed maximum aggregate value of transaction:

- --------------------------------------------------------------------------------

(5) Total fee paid:

- --------------------------------------------------------------------------------

[ ] Fee paid previously with preliminary materials.

[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.

(1) Amount previously paid:

- --------------------------------------------------------------------------------

(2) Form, schedule or registration statement no.:

- --------------------------------------------------------------------------------

(3) Filing party:

- --------------------------------------------------------------------------------

(4) Date filed:

- --------------------------------------------------------------------------------

<PAGE> 2

[LOGO] ST. PAUL BANCORP INC.
6700 West North Avenue
Chicago, Illinois 60707
(773) 622-5000

April 15, 1999

Dear Fellow Shareholder:

You are cordially invited to attend the annual meeting of shareholders (the
"Annual Meeting") of St. Paul Bancorp, Inc. (the "Company") to be held on
Wednesday, May 26, 1999 at 10:00 a.m. at the Drury Lane Oakbrook, 100 Drury
Lane, Oakbrook Terrace, Illinois 60181.

The Annual Meeting has been called for the following purposes: (1) to elect
each of three directors for a three-year term; (2) to consider a stockholder
proposal, if properly brought before the Annual Meeting; and (3) to transact
such other business as may properly come before the Annual Meeting or any
adjournments thereof.

YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" ELECTION OF NOMINEES
JOHN W. CROGHAN, KENNETH J. JAMES AND ANTHONY R. PASQUINELLI, AS DIRECTORS. THIS
YEAR YOU ARE ALSO BEING ASKED TO CONSIDER A STOCKHOLDER PROPOSAL. THE BOARD OF
DIRECTORS BELIEVES THAT THIS PROPOSAL COULD SERIOUSLY PREJUDICE YOUR FINANCIAL
INTERESTS AND WILL NOT ENHANCE SHAREHOLDER VALUE. ACCORDINGLY, THE BOARD OF
DIRECTORS RECOMMENDS UNANIMOUSLY THAT YOU VOTE "AGAINST" THE STOCKHOLDER
PROPOSAL.

The accompanying proxy statement provides detailed information concerning
the matters to be voted on at the Annual Meeting. Also enclosed is our annual
report to shareholders, which reviews results for the 1998 fiscal year. Please
give these documents your careful attention.

It is important that your shares be represented and voted at the Annual
Meeting. Whether or not you plan to attend the Annual Meeting, you are requested
to sign, date and mail the enclosed proxy card in the enclosed postage-paid
envelope. We sincerely appreciate your prompt cooperation.

On behalf of the Board of Directors, thank you for your continued interest
and support.

Sincerely yours,

/s/ Joseph C. Scully

Joseph C. Scully
Chairman of the Board and
Chief Executive Officer
<PAGE> 3

[LOGO] ST. PAUL BANCORP INC.
6700 West North Avenue
Chicago, Illinois 60707
(773) 622-5000

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON WEDNESDAY, MAY 26, 1999
------------------------

NOTICE IS HEREBY GIVEN that the 1999 annual meeting of shareholders (the
"Annual Meeting") of St. Paul Bancorp, Inc. (the "Company") will be held on
Wednesday, May 26, 1999 at 10:00 a.m. at the Drury Lane Oakbrook, 100 Drury
Lane, Oakbrook Terrace, Illinois 60181 for the following purposes:

(1) To elect each of three directors for a three-year term (Proposal 1);

(2) To consider a stockholder proposal, if properly brought before the
Annual Meeting (Proposal 2); and

(3) To transact such other business as may properly come before the Annual
Meeting or any adjournments thereof.

Pursuant to the Company's Bylaws, the Board of Directors has fixed the
close of business on April 6, 1999 as the record date for the determination of
shareholders entitled to notice of and to vote at the Annual Meeting. Only
holders of common stock of record at the close of business on that date will be
entitled to notice of and to vote at the Annual Meeting or any adjournments
thereof.

The Board of Directors may in its discretion adjourn the Annual Meeting in
order to permit further solicitation of proxies by the Company.

By Order of the Board of Directors,

/s/ Clifford M. Sladnick

Clifford M. Sladnick
Senior Vice President,
General Counsel and Corporate
Secretary

Chicago, Illinois
April 15, 1999

-- IMPORTANT --

YOUR VOTE IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN, AND WE
RESPECTFULLY REQUEST THAT ALL PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER
OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE SIGN, DATE AND MAIL THE
ENCLOSED PROXY USING THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED
IN THE UNITED STATES. WE SINCERELY APPRECIATE YOUR PROMPT COOPERATION.
<PAGE> 4

[ST. PAUL BANCORP LETTERHEAD]

------------------------

PROXY STATEMENT

ANNUAL MEETING OF SHAREHOLDERS

MAY 26, 1999

------------------------

VOTING AND REVOCABILITY OF PROXIES

This proxy statement is furnished to shareholders of St. Paul Bancorp, Inc.
(the "Company") in connection with the solicitation by the Board of Directors of
the Company of proxies to be used at the 1999 annual meeting of shareholders
(the "Annual Meeting") to be held on Wednesday, May 26, 1999 at 10:00 a.m. at
the Drury Lane Oakbrook, 100 Drury Lane, Oakbrook Terrace, Illinois 60181, and
at any adjournments thereof. This proxy statement and the accompanying proxy
card are initially being mailed to shareholders on or about April 15, 1999.

If the enclosed form of proxy is properly executed and returned to the
Company in time to be voted at the Annual Meeting, the shares represented
thereby will be voted in accordance with the instructions marked thereon. IF
INSTRUCTIONS ARE NOT GIVEN, PROXIES WILL BE VOTED "FOR" PROPOSAL 1 TO ELECT EACH
OF THE THREE NOMINEES TO THE BOARD OF DIRECTORS AND "AGAINST" PROPOSAL 2 TO
ADOPT THE STOCKHOLDER PROPOSAL. Except for procedural matters incident to the
conduct of the Annual Meeting, the Company does not know of any matters other
than those described in the Notice of Annual Meeting that are to come before the
Annual Meeting. If any other matters are properly brought before the Annual
Meeting, the persons named in the accompanying proxy card will vote the shares
represented by the proxies on such matters as determined by a majority of the
Board of Directors.

The presence of a shareholder at the Annual Meeting will not automatically
revoke such shareholder's proxy. Shareholders may, however, revoke a proxy at
any time prior to its exercise by delivering to the Company a duly executed
proxy bearing a later date, by attending the Annual Meeting and voting in
person, or by filing a written notice of revocation with Clifford M. Sladnick,
Senior Vice President, General Counsel and Corporate Secretary, at 6700 West
North Avenue, Chicago, Illinois 60707.
<PAGE> 5

The securities which can be voted at the Annual Meeting consist of shares
of Common Stock of the Company, with each share entitling its owner to one vote
on all matters. The Company's governing documents do not provide for cumulative
voting of shares. The close of business on April 6, 1999 has been fixed by the
Board of Directors as the record date for the determination of shareholders
entitled to notice of and to vote at the Annual Meeting. The number of shares of
the Company's Common Stock outstanding on April 6, 1999 was 39,894,840. There
were approximately 6,401 record holders of the Company's Common Stock as of that
date. The presence, in person or by proxy, of at least one-third of the total
number of issued and outstanding shares of Common Stock of the Company is
necessary to constitute a quorum at the Annual Meeting.

Under Delaware corporate law and the Company's Bylaws, directors are
elected by plurality of votes of shares present (in person or by proxy) and
entitled to vote. The stockholder proposal, which is non-binding, requires the
affirmative vote of a majority of the votes cast thereon for approval. Unless
otherwise required by law or the Company's Certificate of Incorporation or
Bylaws, any other matter put to a shareholder vote will be decided by the
affirmative vote of a majority of the votes cast on the matter. Abstentions and
broker non-votes will be treated as shares that are present, or represented, and
entitled to vote for purposes of determining the presence of a quorum.
Abstentions and broker non-votes will not be counted as shares present and
entitled to vote, nor as votes cast, on any matter presented at the Annual
Meeting. Accordingly, abstentions and broker non-votes will have no effect on
the outcome of the election of directors or the stockholder proposal.

THE COMPANY IS REQUIRED TO FILE AN ANNUAL REPORT/FORM 10-K FOR ITS FISCAL
YEAR ENDED DECEMBER 31, 1998 WITH THE SECURITIES AND EXCHANGE COMMISSION (THE
"SEC"). A COPY OF THE ANNUAL REPORT/FORM 10-K, EXCLUDING EXHIBITS, ACCOMPANIES
THIS PROXY STATEMENT. THE COMPANY WILL PROVIDE COPIES OF THE EXHIBITS TO THE
ANNUAL REPORT/FORM 10-K UPON WRITTEN REQUEST DIRECTED TO CLIFFORD M. SLADNICK,
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND CORPORATE SECRETARY, ST. PAUL
BANCORP, INC., 6700 WEST NORTH AVENUE, CHICAGO, ILLINOIS 60707.

ELECTION OF DIRECTORS
(PROPOSAL 1)

Under the Company's Bylaws, the number of directors is set at ten. Eight of
the ten directors are independent, non-employee directors. The directors are
divided into three classes. The term of office of only one class of directors
expires in each year, and their successors are elected for terms of three years
and until their successors are elected and qualified.

At the 1999 Annual Meeting, each of three directors will be elected for a
three-year term. Unless otherwise specified on the proxy, it is the intention of
the persons named in the proxy to vote the shares represented by each properly
executed proxy for the election as director of the persons named below as
nominees. The Board of Directors believes that each of the nominees will stand
for election and will serve if elected as directors. However, if any of the
persons nominated by the Board of Directors fails to stand for election or will
be unable to accept election (an event not now anticipated), the proxies will be
voted for the election of such other person or persons as the Board of Directors
may nominate.

YOUR BOARD OF DIRECTORS RECOMMENDS UNANIMOUSLY A VOTE "FOR" ITS THREE
NOMINEES FOR DIRECTOR.

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<PAGE> 6

INFORMATION AS TO NOMINEES AND CONTINUING DIRECTORS

The following table sets forth the names of the Board of Directors' three
nominees for election as directors and those directors who will continue to
serve as such after the 1999 Annual Meeting. Also set forth is certain other
information, some of which has been obtained from the Company's records and some
of which has been supplied by the nominees and continuing directors, with
respect to each such person's age at April 15, 1999, the periods during which
such person has served as a director of the Company and its wholly-owned
subsidiary, St. Paul Federal Bank for Savings (the "Bank" or "St. Paul
Federal"), and positions currently held with the Company.

<TABLE>
<CAPTION>
DIRECTOR OF THE DIRECTOR OF
COMPANY THE BANK POSITIONS HELD WITH EXPIRATION
AGE SINCE SINCE THE COMPANY OF TERM
--- --------------- ----------- ------------------- ----------
<S> <C> <C> <C> <C> <C>
NOMINEES FOR 3-YEAR TERM:
John W. Croghan(a)(b)(c)............. 68 1993 1993 Director 2002
Kenneth J. James(d)(e)............... 67 1987 1987 Director 2002
Anthony R. Pasquinelli(d)............ 65 1998 1998 Director 2002

CONTINUING DIRECTORS:
Patrick J. Agnew(a)(d)(e)(f)(g)(h)... 56 1989 1989 President, Chief Operating 2001
Officer and Director
William A. Anderson(a)(b)(e)(f)...... 73 1987 1985 Director 2001
Alan J. Fredian(c)(f)(g)(i).......... 68 1987 1977 Director 2001
Jean C. Murray, O.P.(g)(h)........... 71 1993 1993 Director 2001
Paul C. Gearen(d).................... 47 1997 1997 Director 2000
Joseph C. Scully(a)(d)(e)(f)(g)(h)... 58 1987 1980 Chairman of the Board, Chief 2000
Executive Officer and Director
John J. Viera (b)(c)(f)(h)(i)........ 67 1987 1978 Director 2000
</TABLE>

- ---------------

(a) Member of the Investment Committee of the Bank.
(b) Member of the Audit and Accounting Committees of the Company and the Bank.
(c) Member of the Stock Option Committee of the Company.
(d) Member of the Loan Committee of the Bank.
(e) Member of the Loan Loss Reserve Committee of the Bank.
(f) Member of the Executive Committees of the Company and the Bank.
(g) Member of the Profit Sharing and Pension and ESOP Trust Committees of the
Bank.
(h) Member of the Corporate Responsibility Committee of the Bank.
(i) Member of the Organizational Planning Committees of the Company and the
Bank.

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<PAGE> 7

The principal occupation of each nominee and continuing director of the
Company for the past five years is set forth below.

JOHN W. CROGHAN is President of Lincoln Partners, a division of Lincoln
Capital Management Company, a Chicago-based investment management firm of which
he was a founder in 1967. Mr. Croghan is a graduate of Loyola University and
holds a Masters of Business Administration degree from Harvard University. He is
a director of Lindsay Manufacturing Company, Republic Services, Inc. and Morgan
Stanley's public closed-end funds. Mr. Croghan serves on several non-profit
boards, including Northwestern University, Evanston Hospital and The Chicago
Historical Society.

KENNETH J. JAMES is Chairman of the Board of James Investment Company, real
estate developers. He is a director of the Illinois Masonic Medical Center and
the Robert R. McCormick unit of the Chicago Boys' and Girls' Clubs. Mr. James is
also President of the Homebuilders Association of Greater Chicago. He holds an
A.B. degree in economics from Stanford University and a Juris Doctor degree from
Northwestern Law School. Mr. James is a member of the Illinois Bar, the Urban
Land Institute and Lambda Alpha Real Estate fraternity.

ANTHONY R. PASQUINELLI is the former Chairman of the Board of Beverly
Bancorporation, Inc., which was acquired by the Company in a merger transaction
on July 1, 1998. He served as Chairman of the Board of Beverly Bancorporation,
Inc. from November 1995 until closing of the merger. Mr. Pasquinelli has been
Executive Vice President and Secretary of Pasquinelli Construction Co., a
Homewood, Illinois corporation company, since 1962.

PATRICK J. AGNEW joined the Bank in 1979 as General Counsel. He was
appointed President, Chief Operating Officer and a Director in December 1989.
Prior to joining the Bank, he was a partner in the law firm of Righeimer, Martin
and Cinquino. Mr. Agnew holds a Juris Doctor degree from DePaul University
College of Law. He serves on the boards of directors of the Oak Park Development
Corporation and the Oak Park YMCA. Mr. Agnew is a board member of the
Chicagoland Association of Savings Institutions and Vice Chairman of the
Illinois League of Financial Institutions. He is also a member of the
President's Council of Dominican University (formerly Rosary College) and the
Advisory Council of DePaul University College of Law.

WILLIAM A. ANDERSON is a Certified Public Accountant and a retired partner
of Ernst & Young LLP. While with that firm, he specialized in providing
professional accounting services to financial institutions. He is Secretary and
Treasurer of the Mason Foundation, Inc., a private charitable foundation, and a
member of the board of trustees of the Fourth Presbyterian Church of Chicago. He
is a member of the American Institute of Certified Public Accountants and the
Illinois CPA Society. Mr. Anderson holds a bachelor's degree in accounting from
the University of Illinois.

ALAN J. FREDIAN is an organizational psychologist and president of Alan J.
Fredian and Associates, management consultants. Dr. Fredian is a retired
Professor of the Institute of Human Resources and Industrial Relations at Loyola
University and has been affiliated with the University since 1967. He has
authored several books and publications. He is a member of the American
Psychological Association's Division of Industrial and Organizational
Psychology. Dr. Fredian is a life member of the board of directors of Building
Owners and Managers Institute International. He holds a doctorate degree in
industrial psychology from the Illinois Institute of Technology.

PAUL C. GEAREN is the President of Nicolson, Porter & List, Inc., a
corporate real estate brokerage and management company, specializing in
industrial real estate. He is a director of Motion Engineering, Inc., a

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<PAGE> 8

software company in Santa Barbara, California that manufactures motion control
boards for computerized manufacturing. Mr. Gearen is a member of the Chicago
Council on Foreign Relations and has been involved in fundraising for various
organizations, including Horizons for Youth, ACORN, Link Unlimited and DePorres
House. Mr. Gearen holds a B.A. degree from the University of Wisconsin, Madison.

JEAN C. MURRAY, O.P., is the retired President of Dominican University
(formerly Rosary College) in River Forest, Illinois. She has been affiliated
with the University since 1961, serving as a professor and an administrator in
various capacities prior to her appointment as President in 1981. She is
currently an Associate Professor of French and a senior advisor to the President
of the University. Dr. Murray has been a member of the Sinsinawa Dominicans
since 1952. She holds an undergraduate degree in French from Rosary College and
a doctorate degree in French from the University of Fribourg, Switzerland. She
also holds a certificate from the Institute of Educational Management at Harvard
University. Dr. Murray is the Executive Director of the Dominican Higher
Education Council and a trustee of North Central College in Naperville.

JOSEPH C. SCULLY joined the Bank in 1963 as a real estate appraiser. He was
appointed Assistant Vice President in 1965, Vice President in 1968, Corporate
Secretary in 1971 and Senior Vice President in 1974. He was appointed President,
Chief Operating Officer and elected a Director in 1980. He was appointed Chief
Executive Officer in 1982. Mr. Scully held the dual roles of President and Chief
Executive Officer from 1982 to 1989, when he relinquished the role of President
to become Chairman and Chief Executive Officer. He holds undergraduate and
graduate degrees from Loyola University. In 1981, Loyola University named him
alumnus of the year. He serves as a trustee of Loyola University and chairs its
investment committee. Mr. Scully serves on the board of the Austin Career
Education Center Corp., the advisory board of Goodwill Industries, and the
Leadership Committee of the Central Board of Neighborhood Housing Services. He
also serves on the Board of Link Unlimited, a group devoted to obtaining high
school scholarships for deserving youths. Mr. Scully has served as a member of
the Thrift Institutions Advisory Council, a panel established by the Federal
Reserve Board. He is also the past chairman of the Community Investment
Corporation of Chicago, the Institute of Financial Education of the United
States League, the Federal Savings and Loan Council and the Chicagoland
Association of Savings Institutions.

JOHN J. VIERA is a retired Vice President of Commonwealth Edison Company.
He holds an undergraduate degree in electrical engineering from Marquette
University and a graduate degree in business administration from the Illinois
Institute of Technology. After joining Commonwealth Edison Company in 1957, he
held several engineering and administrative positions. Mr. Viera is a member of
the Economic Club of Chicago, a Northwestern Associate and a member of the
advisory boards for Marquette University and the Local Initiatives Support
Corporation. He is a member of the Illinois Housing Development Authority and a
trustee of Roosevelt University and the Chicago Architecture Foundation. He is
on the boards of Children's Memorial Hospital, Urban Gateways, Neighborhood
Housing Services and Catholic Charities.

DIRECTOR COMPENSATION

Directors of the Company are not paid for attending meetings of the Board
of Directors of the Company. Each director of the Company is also a director of
the Bank. Non-employee directors of the Bank are paid an annual director's fee
of $24,000. Non-employee directors of the Bank also receive board and committee
meeting fees of $500 per meeting ($600 for committee chairpersons), based upon
attendance. Non-employee directors of the Bank also receive fees of $500 per
meeting from St. Paul Financial Development Corporation, $200 per meeting from
Annuity Network, Inc., and $250 per meeting from St. Paul Trust Company, each of
which are wholly-owned subsidiaries of the Company, as well as $300 per meeting
from SPF Insurance Agency, Inc., a wholly-owned subsidiary of the Bank. The
boards of the Bank, St. Paul Financial

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<PAGE> 9

Development Corporation, Annuity Network, Inc. and SPF Insurance Agency, Inc.
meet monthly, while the board of St. Paul Trust Company meets quarterly.
Directors who are employees of the Bank do not receive any such fees.

Under the terms of the Company's 1995 Incentive Plan and to align
directors' and shareholders' interests, each non-employee director of the
Company is automatically granted, on the date of each annual meeting of
shareholders, a non-qualified option to purchase 2,250 shares of the Company's
Common Stock at a price per share equal to the fair market value of a share of
Common Stock on the date of grant.

The Company and the Bank maintain a nonqualified retirement plan (the
"Retirement Plan") for non-employee directors of the Company and Bank. Effective
December 31, 1998, the Company and the Bank amended the Retirement Plan to
freeze the benefit thereunder. Prior to January 1, 1999, the Retirement Plan
provided that eligible directors would receive annual retirement benefits
consisting of between 60% and 70% of regular annual compensation paid for
services on the Board of Directors of the Bank or the Company. Benefits under
the Retirement Plan became payable following the eligible director's termination
of service after attainment of age 70; upon the director's total and permanent
disability; after a director nominated by the Company was not reelected; or
following termination of service following a change in control. Such amounts
were paid monthly, for the number of months equal to the number of full months
the eligible director served as a director, unless the director elected payment
in a lump sum, which was the present value of such monthly payments.

As stated above, effective December 31, 1998, the Company and Bank amended
the Retirement Plan to freeze the benefit thereunder. The accrued benefit of
each eligible director under the Retirement Plan as of December 31, 1998,
determined by taking into account only service on the Boards of Directors on or
before such date, was converted to a single sum amount using the actuarial
assumptions set forth in the Bank's pension plan for employees. The single sum
amount was credited to an account in the name of each eligible director. The
balance in the account shall be adjusted upward and downward on a quarterly
basis to reflect the investment return of the assets in which it is deemed to be
invested, as selected by the eligible director from among various assumed
investment alternatives established by the Board of Directors of the Bank.

Each director has a fully vested interest in his or her account, provided,
however, that to receive payment of benefits the director must agree not to
become an employee of any financial institution located within 50 miles of the
Bank's headquarters for a one-year period following termination of service as a
director. Benefits are not paid if the director is removed from the Board of the
Bank for "cause," as defined in the Retirement Plan. Payment of the balance in a
director's account shall be made in a single lump sum cash payment as soon as
practicable following the director's termination of service on the Boards of
Directors.

The Bank maintains a grantor "rabbi" trust, the assets of which are subject
to the Bank's general creditors, for purposes of accumulating funds with which
to meet its obligations under the Retirement Plan. The Bank is in the process of
contributing assets to the trust in an amount sufficient to satisfy the
liabilities under the Retirement Plan as of December 31, 1998. Although
contributed assets may only be used to pay Retirement Plan benefits (with
certain exceptions), the benefits under the Retirement Plan remain the
obligation of the Bank and Company.

6
<PAGE> 10

CORPORATE GOVERNANCE AND OTHER MATTERS

The Boards of Directors of the Company and the Bank have established a
number of committees to assist them in effectively discharging their duties.

The Boards of Directors of the Company and the Bank have each appointed a
standing audit committee. During the year ended December 31, 1998, the audit
committees each conducted five meetings. Composed entirely of non-employee
independent directors, the current members of the audit committees are Messrs.
Anderson (chairman of both committees), Croghan and Viera. The duties of the
committees include reviewing with management and the Company's independent
auditors the annual financial statements, significant accounting policies, audit
conclusions regarding significant accounting estimates and the independent
auditors' letter to management concerning the effectiveness of financial and
accounting controls. In addition, the committees review the scope of the annual
independent auditors' audit and recommend to the Board of Directors the firm to
be engaged as the independent auditor. The committees also oversee the Company's
internal audit function and review with the Director of Internal Audit his
conclusions regarding the adequacy of the organization's internal controls. The
committees may also examine and consider other matters relating to the financial
affairs of the Company and the Bank as they determine appropriate.

The Boards of Directors of the Company and the Bank have each appointed a
standing organizational planning committee. During the year ended December 31,
1998, the organizational planning committees each conducted six meetings.
Composed entirely of non-employee independent directors, the current members of
the organizational planning committees are Dr. Fredian (chairman of both
committees) and Mr. Viera. The organizational planning committees function as
compensation committees. The duties of such committees include making
recommendations to the Boards of Directors concerning compensation of executive
officers and employee benefit plans. See "Executive Compensation--Report of the
Organizational Planning and Stock Option Committees on Executive Compensation."

The Boards of Directors of the Company and the Bank have each appointed a
standing executive committee. The Bylaws of the Company and the Bank give the
executive committees certain powers and authority in the management of the
business and affairs of the Company and the Bank when the Boards of Directors
are not in session. During the year ended December 31, 1998, no executive
committee meetings were conducted. The current members of the executive
committees are Dr. Fredian and Messrs. Agnew, Anderson, Scully (chairman of both
committees) and Viera.

The Board of Directors of the Company has appointed a standing stock option
committee. The duties of the committee include making recommendations to the
Board of Directors concerning eligible persons to whom options will be granted
under the Company's option plans. During the year ended December 31, 1998, the
stock option committee conducted five meetings. Composed entirely of
non-employee independent directors, the current members of the stock option
committee are Dr. Fredian (chairman), Mr. Viera and Mr. Croghan. See "Executive
Compensation--Report of the Organizational Planning and Stock Option Committees
on Executive Compensation."

The Board of Directors of the Company acts as a nominating committee for
selecting nominees for election as directors and has made its nominations for
the 1999 Annual Meeting. The Company's Bylaws also permit shareholders eligible
to vote at the Annual Meeting to make nominations for directors, but only if
such nominations are made pursuant to timely notice in writing to the Secretary
of the Company. To be timely, notice must be delivered to, or mailed to and
received at, the principal executive offices of the Company not less than 30
days nor more than 90 days prior to the date of the meeting, provided that at
least 45 days' notice or prior public disclosure of the date of the meeting is
given or made to shareholders. Public disclosure of the

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date of the 1999 Annual Meeting was made on April 9, 1999 by the issuance of a
press release followed by a filing of a Current Report on Form 8-K under the
Securities Exchange Act of 1934, as amended (the "1934 Act") with the SEC. A
shareholder's notice of nomination must also set forth certain information
specified in Article III, Section 13 of the Company's Bylaws concerning each
person the shareholder proposes to nominate for election and the nominating
shareholder. Prior to printing this proxy statement, the Company had received no
such nominations.

During 1998, the Company's Board of Directors held fourteen meetings. No
incumbent director attended fewer than 75% of the aggregate of the total number
of meetings of the Company's Board of Directors and the total number of meetings
held by all committees of such board on which the director served.

EXECUTIVE COMPENSATION

SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION

The following table sets forth certain summary information concerning the
compensation paid by the Company and its subsidiaries for services rendered
during each of the fiscal years ended December 31, 1996, 1997 and 1998 to the
Company's chief executive officer and to each of the four other most highly
compensated executive officers of the Company determined as of December 31, 1998
(the "named executive officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
------------
SECURITIES
ANNUAL COMPENSATION(B) UNDERLYING ALL OTHER
------------------------ OPTIONS/SARS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(A) #(C) ($)(D)
--------------------------- ---- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Joseph C. Scully....................... 1998 $426,864 $155,833 25,000 $179,154
Chairman of the Board, 1997 410,436 358,554 1,500 166,139
Chief Executive Officer and Director 1996 394,644 300,558 56,250 149,660
Patrick J. Agnew....................... 1998 302,868 152,113 25,000 120,817
President, Chief 1997 291,216 354,977 1,500 105,189
Operating Officer and Director 1996 280,008 297,054 56,250 94,055
Robert N. Parke........................ 1998 165,024 66,683 25,000 18,560
Senior Vice President, Finance 1997 158,676 154,201 1,500 3,592
and Chief Financial Officer 1996 152,580 126,789 18,750 2,897
Thomas J. Rinella...................... 1998 173,904 62,677 25,000 19,564
Senior Vice President, 1997 167,220 144,117 1,500 3,616
Community Lending 1996 160,788 120,461 18,750 2,897
Donald G. Ross......................... 1998 162,744 60,447 25,000 18,299
Senior Vice President, 1997 156,480 139,207 1,500 3,545
Community Banking 1996 150,456 116,325 18,750 2,897
</TABLE>

- ---------------
(a) Includes incentive compensation paid in July of 1996, 1997 and 1998 to the
Bank's officers based on a percentage of earnings, as well as annual holiday
bonuses (3% of base compensation) paid in December

8
<PAGE> 12

of each year. Incentive compensation paid in July of 1996, 1997 and 1998 was
based upon the Company's earnings during the preceding twelve month period,
and is included in the table based on the amount earned with respect to each
year presented. Incentive compensation payments made in July 1998 only
relate to the last half of 1997 and the first half of 1998. The incentive
compensation program was suspended by the Board of Directors in August 1998
for the remainder of 1998 and for 1999.

(b) Certain executive officers of St. Paul Federal receive indirect compensation
in the form of personal benefits; including insurance premiums, death
benefits, personal tax, financial and estate planning services, club
memberships, the use of automobiles and various benefits (including medical
and retirement plans) generally available to employees of the Company. The
amount of such indirect compensation in 1998 did not exceed, with respect to
any named executive officer, the lesser of $50,000 or 10% of the total
amount of annual salary and bonus paid to such officer.

(c) Represents stock options granted on June 20, 1996, June 19, 1997 and August
18, 1998 under the 1995 Incentive Plan, as amended, to purchase the stated
number of shares of the Company's Common Stock at exercise prices of $12.27,
$21.83 and $23.00 per share, respectively. For 1996 and 1997, the number of
shares subject to stock options and the per share exercise prices have been
adjusted to reflect the Company's five-for-four stock split on January 14,
1997 and three-for-two stock split on July 14, 1997. Although the 1995
Incentive Plan permits the grant of stock appreciation rights ("SARs"), no
grants of SARs have been made.

(d) For 1996 and 1997, data consists of contributions to the Company's Employee
Stock Ownership Plan (the "ESOP") with respect to Messrs. Parke, Rinella and
Ross. For 1996 and 1997, with respect to Messrs. Scully and Agnew, data
consists of ESOP contributions and deferred compensation. For 1998, Messrs.
Scully's and Agnew's deferred compensation was $155,010 and $95,372,
respectively, earned under their respective employment agreements. There
were no ESOP contributions for any persons in 1998. The ESOP was terminated
by the Company effective September 30, 1998, and no further contributions
will be made to the ESOP on behalf of the named executive officers. In
connection with the termination of the ESOP, the remaining unallocated
shares held in the ESOP were allocated to the accounts of participants,
including the named executive officers. The dollar amounts of such shares
allocated to the accounts of Messrs. Scully, Agnew, Parke, Rinella and Ross
were $24,144, $24,144, $18,560, $19,564, and $18,299, respectively, based on
the closing price of the Company's Common Stock of $21.81 per share on
September 30, 1998.

9
<PAGE> 13

STOCK OPTION GRANTS

The following table sets forth certain information concerning the grant of
stock options under the Company's 1995 Incentive Plan, as amended, during the
fiscal year ended December 31, 1998 to each of the named executive officers.

OPTION/SAR GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT VALUE
NAME GRANTED(#)(A) FISCAL YEAR ($/SHARE)(B) DATE ($)(C)
---- ------------- ------------ ------------ ---------- -------------
<S> <C> <C> <C> <C> <C>
Joseph C. Scully.................. 25,000 2.05% $23.00 8/18/08 $165,500
Patrick J. Agnew.................. 25,000 2.05% 23.00 8/18/08 165,500
Robert N. Parke................... 25,000 2.05% 23.00 8/18/08 165,500
Thomas J. Rinella................. 25,000 2.05% 23.00 8/18/08 165,500
Donald G. Ross.................... 25,000 2.05% 23.00 8/18/08 165,500
</TABLE>

- ---------------
(a) All options were granted with an exercise price equal to the fair market
value of the Company's Common Stock on the date of grant. Options granted
under the 1995 Incentive Plan are exercisable in respect of 50% of the
number of shares on the first anniversary of the date of grant and are
exercisable in respect of an additional 12.5% on each of the second, third,
fourth and fifth anniversaries of the grant, provided that options are 100%
exercisable for any employee who has completed five years of employment with
the Company. The options also become exercisable upon any merger or
consolidation in which the Company is not the surviving entity.

(b) All options were granted with an exercise price equal to the fair market
value of the Company's Common Stock on the date of grant.

(c) Based on the Black-Scholes option pricing model adapted for use in valuing
executive stock options. The actual value, if any, an employee may realize
will depend on the excess of the stock price over the exercise price on the
date the option is exercised. There is no assurance that the value realized
by an employee will be at or near the value estimated by the Black-Scholes
model. The estimated values under that model are based on assumptions that
may vary, including assumptions about the expected term of the option (seven
years), the risk-free interest rate for the expected term of the option
(based upon the rate available on the date of grant on a seven-year
zero-coupon U.S. Treasury Note of 5.4%), stock price volatility (based on
the Company's month-end stock price history over the seven-year period prior
to the date of grant), and expected future dividend yield (based upon the
dividend yield at the date of grant). No adjustments were made for
non-transferability and risk of forfeiture.

10
<PAGE> 14

STOCK OPTION EXERCISES AND FISCAL YEAR-END VALUES

With respect to the named executive officers, the following table sets
forth certain information concerning the exercise of options during the fiscal
year ended December 31, 1998 and the value of unexercised options held as of
December 31, 1998.

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY
ACQUIRED OPTIONS/SARS AT OPTIONS/SARS AT FISCAL
ON VALUE FISCAL YEAR-END(#) YEAR-END($)(A)
EXERCISE REALIZED ---------------------------- ----------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Joseph C. Scully............ -0- $ 0.00 311,689 750 $5,271,535 $4,040
Patrick J. Agnew............ -0- 0.00 424,189 750 7,933,780 4,040
Robert N. Parke............. 5,000 106,910 124,813 750 1,877,810 4,040
Thomas J. Rinella........... -0- 0.00 129,813 750 1,996,132 4,040
Donald G. Ross.............. -0- 0.00 129,813 750 1,996,132 4,040
</TABLE>

- ---------------
(a) Market value of underlying securities at year-end, minus the exercise price.

REPORT OF THE ORGANIZATIONAL PLANNING AND STOCK OPTION COMMITTEES ON EXECUTIVE
COMPENSATION

Overview and Philosophy

The Organizational Planning Committee of the Company's Board of Directors
is composed of two outside directors, Dr. Fredian and Mr. Viera. The Stock
Option Committee of the Company's Board of Directors is composed of three
outside directors, Dr. Fredian and Messrs. Croghan and Viera. The Organizational
Planning Committee and the Stock Option Committee are collectively referred to
as the "Committee" throughout the remainder of this proxy statement.

The Organizational Planning Committee is responsible for developing and
making recommendations to the Board with respect to the Company's executive
compensation policies. In addition, the Organizational Planning Committee
determines annually the compensation that is paid to the Chief Executive Officer
and the other executive officers of the Company, subject to Board approval. The
Stock Option Committee selects, subject to Board approval, the eligible persons
to whom options will be granted based on each individual's performance and
responsibilities. The Stock Option Committee prescribes the terms and provisions
(which need not be identical) of each option granted under the Company's option
plans.

The Committee has access to outside compensation consultants and
independent national, regional and industry compensation survey information.

The objectives of the Company's executive compensation program are to:

- Directly tie individual executive pay to corporate performance;

- Support the achievements of the long- and short-term strategic goals and
performance objectives of the Company;

11
<PAGE> 15

- Provide a competitive compensation program that will attract and retain
talented and qualified executives while rewarding individual achievement
and contribution; and

- Align the executives' interests with corporate success, and
correspondingly, with shareholders' interests, by making a substantial
portion of compensation subject to profitability.

The Company's executive compensation program provides an overall level of
potential compensation that is competitive within the thrift and banking
industry. The Committee will use its discretion to set executive compensation
where, in its judgment, external, internal or individual circumstances warrant
it. For example, in August 1998, the Company's incentive compensation program
was suspended for the remainder of 1998 and for 1999.

The 1993 Tax Act

The Omnibus Budget Reconciliation Act of 1993 added a provision to the
Internal Revenue Code of 1986, as amended (the "Code"), which generally limits
to $1.0 million the Company's allowable deduction for federal income tax
purposes of certain compensation paid to executive officers, except for certain
"performance-based" compensation and certain compensation related to employee
benefit plans.

The Committee has considered the implications of this law and has concluded
that, since the cash compensation paid to the Company's executive officers is
significantly below the $1.0 million limitation, no general policy with respect
to this matter is necessary at this time. The Company, however, could be
impacted by this law to the extent that option exercises by executive officers
cause an individual's compensation in a particular year to exceed $1.0 million.
Accordingly, the Committee has attempted to conform the terms of the 1995
Incentive Plan in order that compensation attributable to awards thereunder will
not be subject to the deduction limitation.

Executive Officer Compensation Program

The Company's executive officer compensation program consists of base
salary, annual cash incentive compensation, long-term incentive compensation in
the form of stock options, deferred compensation, personal benefits such as
insurance premiums, tax services, club memberships, financial and estate
planning and the use of automobiles, and various benefits including medical and
retirement plans generally available to employees of the Company. The executive
officer compensation program is reviewed, with the assistance of an independent
compensation consultant, relative to other well-managed large thrift
institutions, regional thrifts and local bank competitors (the "Compensation
Peer Group"). The Compensation Peer Group (which consists of 22 large national
thrifts, 15 regional and local thrifts and 12 selected banks) is used to compare
the Company's compensation packages to that of other companies that compete with
the Bank for executives. The Committee believes that this peer group, which
differs from the published NASDAQ indices utilized in the Comparative
Performance Graph set forth below, is appropriate for executive compensation
purposes.

Base Salary. Executive officer base salaries are set using market data and
surveys of the Compensation Peer Group. Base salaries are reviewed position by
position and are generally set at levels lower than the market due to the large
emphasis on incentive compensation determined by annual corporate and individual
performance. Overall base salaries for the named executive officers average 27%
below the combined base salaries of the Compensation Peer Group. In determining
base salaries, the Committee also takes into consideration individual experience
and contributions, as well as level of responsibility.

12
<PAGE> 16

Annual Incentive Compensation. The officer incentive compensation program
is the Company's annual incentive program for corporate officers. The purpose of
the incentive compensation program is to provide a direct link between executive
officer compensation and corporate earnings. The Organizational Planning
Committee believes that compensation tied to corporate performance strengthens
management's incentive to increase the Company's profitability. Accordingly,
annual incentive compensation is a significant component of the executive
officers' total cash compensation. For the named executive officers, the portion
of compensation attributable to the incentive program in 1998 ranged from 40% to
49% of total compensation.

Incentive compensation for all corporate officers has generally averaged 5%
of the Company's pre-tax earnings for the preceding twelve-month period, with
adjustments made for certain non-recurring items. Incentive compensation can
also be adjusted at the Board's discretion based upon the attainment of the
Company's earnings goals. Aggregate incentive compensation of $2,969,031 was
paid on July 1, 1998, and was distributed to officers based on individual
performance and position within the Company.

For the period from July 1, 1997 to June 30, 1998, the Company's pre-tax
earnings increased by 6.53%, or $4.5 million, over the period from July 1, 1996
to June 30, 1997. Bonus payments made in July 1998 to all officers of the
Company were approximately 15% lower than the prior year.

On August 18, 1998, the Board of Directors of the Company suspended the
incentive compensation program for the last six months of 1998 and 1999 and no
further incentive compensation payments will be made for those periods. The
Board intends to re-evaluate the incentive compensation program for 2000.

Individual incentive bonus awards to the executive officers are determined,
at the discretion of the Organizational Planning Committee, based on individual
performance and achievement. The annual incentive bonus, when combined with base
salary, resulted in average compensation payments during 1998 to the named
executive officers that were 31% below the average of the Compensation Peer
Group. The Organizational Planning Committee believes that the level of
compensation paid to the named executive officers during 1998 was appropriate
based upon the Company's financial performance.

Stock Options. The Board of Directors of the Company believes that stock
options are important to increase the incentive, and to attract and encourage
the continued employment and service, of executive officers and other key
officers and employees by facilitating their purchase of an equity interest in
the Company. The Stock Option Committee believes that grants of stock options
help to align management's interests with those of the Company's shareholders,
while creating another form of performance-based compensation.

The Company's option plans authorize the Stock Option Committee to
administer the plans and grant stock options to key officers, directors and
employees. Stock options are granted at the discretion of the Stock Option
Committee, with grants generally made based on individual contributions and upon
promotion. Stock options are granted at an option price equal to the fair market
value of the Company's Common Stock on the date of grant, have ten year terms
and have exercise restrictions based on length of service. The amount of stock
option grants increases according to salary and position within the Company.

In fiscal 1998, the named executive officers received stock option grants
for an aggregate of 125,000 shares of Common Stock, at an exercise price of
$23.00 per share. These grants represent approximately 10.23% of all stock
options granted in fiscal 1998.

Deferred Compensation Plan. A deferred compensation plan is provided to
Messrs. Scully and Agnew as part of their long-term incentive compensation
program. This plan, as specified in their employment agreements, requires that a
specified sum be credited annually to their account. In fiscal 1998, the amounts

13
<PAGE> 17

credited (without earnings) for Messrs. Scully and Agnew were $155,010 and
$95,372, respectively, representing 20% of Mr. Scully's and 15% of Mr. Agnew's
annual compensation.

Benefits. The Company provides medical, life insurance and retirement
benefits to the executive officers that are generally available on the same
terms to other employees of the Company. Certain executive officers receive
indirect compensation in the form of personal benefits; these include insurance
premiums, death benefits, personal tax services, financial planning, club
memberships and the use of automobiles. For each executive officer, the amount
of these perquisites, as determined in accordance with the rules of the SEC
relating to executive compensation, did not exceed the lesser of either $50,000
or 10% of the total amount of salary and bonus for fiscal 1998.

Chief Executive Officer Compensation

At the beginning of fiscal 1998, Mr. Scully's base salary was $418,488.
During the year, Mr. Scully received a base salary increase of $16,752,
representing an increase of 4% effective July 1, 1998. His base salary at the
end of the fiscal year was $435,240. Mr. Scully's base salary is reviewed
annually by the Committee. The Committee consults with an independent
compensation consultant who conducts a customized survey of the Compensation
Peer Group. The survey data is used to develop trend line analysis which shows
the relationship between CEO total compensation and return on assets, as well as
CEO total compensation and institution asset size. As discussed above, the
Company's base salaries are set at the low end of the market data range,
allowing for an effective incentive compensation program. For 1998, Mr. Scully's
base salary was 20% below the Compensation Peer Group.

Mr. Scully received a bonus in fiscal 1998 of $292,570 for the period from
July 1, 1997 through June 30, 1998. The bonus was the result of corporate
performance for that period and was paid from a pool which has generally
averaged 5% of the Company's pre-tax earnings for such period, with adjustments
made for certain non-recurring items and attainment of the Company's earnings
goals. The incentive compensation program was suspended by the Board of
Directors in August 1998 and no further incentive compensation payments will be
made for the last six months of 1998 and 1999.

The Company's incentive program is designed to reward officers according to
annual earnings. Mr. Scully's 1998 incentive bonus payment was 15% lower than
the 1997 incentive bonus payment. Mr. Scully's total cash compensation paid in
1998 was 32% below the average of the Compensation Peer Group.

The stock options for 25,000 shares granted to Mr. Scully in fiscal 1998
brought his cumulative option grants to 804,627 since the Company's formation in
1987.

Submitted by the Members of the
Organizational Planning Committee
and the Stock Option Committee
Alan J. Fredian, Chairman
John C. Croghan
John J. Viera

14
<PAGE> 18

COMPARATIVE PERFORMANCE GRAPH

The following graph sets forth comparative information regarding the
Company's cumulative shareholder return on its Common Stock over the last five
fiscal years. The shareholder return is measured by dividing total dividends
(assuming dividend reinvestment) plus share price change for a period by the
share price at the beginning of the measurement period. The Company's cumulative
shareholder return, based on an investment of $100 at the beginning of the
five-year period beginning January 1, 1994, is compared to the cumulative total
return of the NASDAQ Stock Market Index and the NASDAQ Bank Stock Index.

COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS

<TABLE>
<CAPTION>
ST. PAUL BANCORP NASDAQ BANK NASDAQ
---------------- ----------- ------
<S> <C> <C> <C>
'12/31/93' 100.00 100.00 100.00
'12/31/94' 96.86 99.64 97.75
'12/31/95' 143.16 148.38 138.25
'12/31/96' 167.81 195.91 170.01
'12/31/97' 286.10 328.02 208.58
'12/31/98' 303.26 324.90 293.21
</TABLE>

Employment Agreements. The Company and the Bank have entered into
employment agreements with Joseph C. Scully, Chairman of the Board and Chief
Executive Officer, and Patrick J. Agnew, President and Chief Operating Officer.

The salaries for Messrs. Scully and Agnew for the twelve-month period
ending June 30, 1999 are $435,240 and $308,808, respectively. Each officer
receives annual salary increases as determined by the Bank's Board of Directors.
Both Mr. Scully and Mr. Agnew are entitled to participate in any discretionary
bonuses and retirement or other benefit plans applicable to the Company's or the
Bank's executive officers. The employment agreements for Messrs. Scully and
Agnew, as amended, are each for terms of three years, with each expiring on
December 19, 2001. The Company and the Bank may, upon the majority affirmative
vote of each of their respective Boards, by written notice to the officer, renew
the employment agreements for one additional year on each anniversary date,
commencing with the December 19, 1999 anniversary date, unless the officer gives
contrary written notice to the other parties prior to such anniversary date. The
employment

15
<PAGE> 19

agreements provide that the terms thereof are automatically terminated upon the
officer attaining the age of 65.

The employment of Messrs. Scully and Agnew may be terminated by the Boards
of Directors of the Company and the Bank at any time; provided, however,that if
the termination is not for cause, as defined in the agreements, each is
entitled: (a) to receive a lump sum payment in an amount equal to his
then-current compensation (including any bonuses paid during the then-current
fiscal year and deferred compensation credited for the preceding year)
calculated for a period equal to the remaining term of the agreement (provided
that the aggregate amount of such payment shall not exceed three times the
officer's then-current compensation) and (b) subject to certain limitations, to
continue to participate in retirement and other benefit plans for the remaining
term of the agreement, to be funded by an irrevocable trust established by the
Company and the Bank. Such lump sum payments for termination without cause would
be $2,686,878 and $2,021,868 for Messrs. Scully and Agnew, respectively, based
upon current salary and deferred compensation plus the most recent incentive
compensation paid to such officers, assuming a remaining term of three years.
However, if the termination of employment is in connection with a "change in
control," the lump sum severance payment would instead be calculated in
accordance with the provisions described below.

If any such officer terminates his employment without the consent of both
Boards, then the agreements restrict the terminating officer for one year or the
remaining term of the agreement plus six months, whichever is less, from being
employed by a competing bank, savings bank, savings and loan association or
mortgage banking company, or a holding company affiliate of any of the
foregoing, having an office in Illinois within 50 miles of the Bank's home
office, out of which the terminating officer would be primarily based.

If, during the term of the employment agreements, there is a "change in
control" of the Company or of the Bank, and the employment of Messrs. Scully or
Agnew is terminated, voluntarily or involuntarily, within two years thereafter
(except by reason of normal retirement, disability, death or for cause), each
will be entitled to receive, as liquidated damages for services previously
rendered, a lump sum cash payment. The payment will be in the amount of one
year's then-current compensation (including deferred compensation and any
bonuses paid during the past twelve months) if employment is voluntarily
terminated without "good reason," defined in the agreements as, among other
things, a material reduction in the officer's salary or deferred compensation, a
material reduction in the officer's bonus below a certain amount, the officer's
relocation of more than 50 miles or a material reduction in his position,
authority, duties or responsibilities. If the officer's employment is terminated
by him voluntarily with good reason or involuntarily by the Company or the Bank,
such payment will be equal to the sum of (X) the amount of the officer's
then-current compensation which, but for such termination, would be payable for
the remaining term of the agreement, plus (Y) one year's then-current
compensation; provided that the aggregate amount of such payment shall not
exceed three times the officer's then-current compensation. Based upon current
salary and deferred compensation plus the most recent incentive compensation
paid to such officers, such payments would be $895,626 and $673,956 for Messrs.
Scully and Agnew, respectively, if employment were terminated as described in
the second sentence of this paragraph, and, $2,686,878 and $2,021,868,
respectively, if employment were terminated as described in the third sentence
of this paragraph. This payment will be in lieu of the lump sum amount payable
for termination without cause. The agreements also permit Messrs. Scully and
Agnew to receive a lump sum amount equal to, but in lieu of, the above payment
if they elect to terminate their employment agreements while continuing to work
for the Company and the Bank following a change in control. In addition, such
officers would be entitled, subject to certain limitations, to continue to
participate in retirement and other benefit plans to be funded by an irrevocable
trust created by the Company and the Bank. The employment agreements provide
that the officers shall not have the right to receive any payment or

16
<PAGE> 20

benefits under the agreement to the extent that such payment or benefit would
cause any payment to be considered a "parachute payment" under Section 280G of
the Code.

A "change in control" of the Company will be deemed to have occurred if (i)
any person becomes the beneficial owner of 25% or more of the Company's voting
shares; (ii) any person receives certain regulatory approvals to acquire control
of the Company; (iii) any person enters into a binding agreement to acquire (by
means of stock purchase, tender offer or merger) beneficial ownership of 25% or
more of the Company's voting shares, provided that a change in control would not
be deemed to occur unless the Board of Directors makes a determination that such
action constitutes a change in control, and further provided that a change in
control shall no longer be deemed to have occurred upon any termination of such
an agreement; (iv) any person becomes the beneficial owner of 10% to 25% of the
Company's voting shares, provided that the Office of Thrift Supervision (the
"OTS") has made a determination that such ownership constitutes a change in
control of the Company; (v) any person (other than persons named as proxies
solicited on behalf of the Company) holds irrevocable proxies for 25% or more of
the Company's voting shares, provided that the Board of Directors has made a
determination that such action constitutes a change in control; (vi) as the
result of any tender offer, business combination or contested proxy
solicitation, the persons who were directors prior to such transaction cease to
constitute at least two-thirds of the Board of Directors of the Company; (vii)
the Company enters into an agreement with respect to any merger other than (a) a
merger which would result in the voting shares of the Company outstanding
immediately prior thereto continuing to represent more than 80% of the combined
voting power of the voting shares outstanding immediately after such merger or
(b) a merger effected to implement a recapitalization of the Company; or (viii)
the Company enters into an agreement with respect to any merger with any other
person having total consolidated assets in an amount that is at least 60% of the
Company's total consolidated assets; provided that a change in control will not
be deemed to have occurred under clauses (vii) or (viii) if the Board of
Directors of the Company has made a determination that such action will not
constitute a change in control. The Board of Directors may de-trigger any
transaction or event (pursuant to which any person became the beneficial owner
of up to 50% of the Company's voting shares) which terminates or ceases to
exist. A "change in control" of the Bank will be deemed to have taken place if
the Company's beneficial ownership of the total number of outstanding voting
shares of the Bank is reduced to less than 50%.

The employment agreements with Messrs. Scully and Agnew each provide for
deferred compensation. In general, the employment agreements require St. Paul
Federal to credit a specified sum annually as deferred compensation for each of
these officers. The accrued payments will be paid to a named beneficiary if the
officer dies prior to retirement. In case of involuntary termination before the
end of the term of the agreement, the officer will receive the entire accrued
amount in annual payments over a period of ten years or a lesser period at the
option of the Bank. If the officer voluntarily terminates his employment, 75% of
the accrued amount will be payable to the officer in five annual payments. If
the officer remains in the employ of St. Paul Federal until he retires due to
age, early retirement or disability and refrains from engaging in any
competitive business, as described above, the accrued payments will be paid to
the officer in ten annual installments or a lesser period at the option of the
Bank. Each officer may elect, one year prior to the officer's retirement, to
extend the period within which he or his beneficiaries will receive distribution
of the accrued payments to a period not in excess of 15 years, except that at
the option of the Bank it may be paid over a lesser period. Also, at the option
of the Bank, distribution of the accrued payments may begin at age 70 and such
payments may be made over a 15-year period. The employment agreements permit
Messrs. Scully and Agnew to request that deferred compensation contributions be
invested in government securities, the Common Stock of the Company or such other
types of investments as requested by the officer.

17
<PAGE> 21

Severance Agreements. The Company and the Bank have entered into severance
agreements with the Senior Vice Presidents and First Vice Presidents of the
Company and the Bank, including Robert N. Parke, Thomas J. Rinella and Donald G.
Ross, Senior Vice Presidents of the Company and the Bank. Under these
agreements, each officer is entitled to receive a severance payment in the event
his employment with the Company and the Bank is terminated, voluntarily or
involuntarily (except by reason of normal retirement, disability, death or for
cause), within two years of a change in control of the Company or of the Bank.

The severance agreements provide that each officer will receive one year's
then-current compensation, including any bonuses paid and any deferred
compensation credited to his account during the past twelve months, if he
voluntarily terminates his employment without "good reason" (defined in the
agreements to include, among other things, a reduction in the officer's salary,
a reduction in the officer's bonus below a certain amount, the officer's
relocation of more than 50 miles, or a material reduction in the position,
authority, duties or responsibilities which existed prior to the change in
control). In the event the employment of any such officer is terminated by him
voluntarily with good reason or involuntarily by the Company or the Bank, he
will receive three times his average annual compensation for the five-year
period before termination. Based upon current salaries and the most recent
incentive compensation payments received, the aggregate amount of such payments
under the severance agreements would be $299,491, $300,067 and $284,480 for
Messrs. Parke, Rinella and Ross, respectively, if employment were terminated as
described in the first sentence of this paragraph, and would be $840,681,
$847,930 and $798,970 for Messrs. Parke, Rinella and Ross, respectively, if
employment were terminated as described in the second sentence hereof. In
addition, such employees will be entitled, subject to certain limitations, to
continue to participate in retirement and other benefit plans to be funded by an
irrevocable trust created by the Company and the Bank. The severance agreements
provide that the officers shall not have the right to receive any payment or
benefits under the agreement to the extent that such payment or benefit would
cause any payment to be considered a "parachute payment" under Section 280G of
the Code.

The severance agreements are each for terms of three years, with each
expiring on December 20, 2001. The Company and the Bank may, upon the majority
affirmative vote of each of their respective Boards, by written notice to the
officer, renew the severance agreements for one additional year on each
anniversary date, commencing with the December 20, 1999 anniversary date, unless
the officer gives contrary written notice to the other parties prior to such
anniversary date.

Pension Plans. The Bank maintains a qualified noncontributory pension plan
(the "Plan") administered by trustees appointed by the Board of Directors of the
Bank for its employees and the employees of its subsidiaries. All of the current
trustees are members of the Bank's Board of Directors. The Plan covers those
employees who have reached 21 and who have completed at least 1,000 hours of
employment in a 12-month period. Contributions are determined in accordance with
actuarial principles, subject to the approval of the Board of Directors. Accrued
benefits of eligible employees become vested after five years of service.

Prior to January 1, 1999, the Plan calculated benefits using the final
average pay formula. Plan benefits were based upon a participant's final average
monthly compensation for the last 36 consecutive months of service, multiplied
by the participant's years of credited service, reduced by the Social Security
offset allowance as defined in the Plan. Compensation for this purpose included
base salary plus incentive compensation (as set forth under "Annual
Compensation" in the Summary Compensation Table with respect to the named
executive officers). For 1998, the Code limited the annual maximum compensation
that may be taken into account under the Plan to $160,000.

18
<PAGE> 22

Effective January 1, 1999, the Plan was amended to become a cash balance
plan. Under the cash balance plan, a separate "account" is maintained for each
employee participating in the Plan. Each participant's benefit accrued under the
Plan as of December 31, 1998 was converted to a lump sum actuarial equivalent
amount and became the participant's opening account balance. Each year, credits
of from 5% to 11 1/2% of the participant's compensation for that year will be
added to the participant's account. The definition of compensation under the
cash balance plan is the same as under the final average pay formula and
includes base salary plus incentive compensation. The pay credits vary depending
upon the participant's years of credited service, as shown in the following
schedule:

<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE PAY CREDITS
------------------------- -----------
<S> <C>
0-10........................................................ 5.0%
11 to 15.................................................... 6.5%
16 to 20.................................................... 8.5%
21 to 30.................................................... 10.0%
31 or more.................................................. 11.5%
</TABLE>

Interest is credited to participants' accounts annually based on the annual
rate of interest on 30-year Treasury securities, with a minimum interest rate of
4.1%. There is no offset under the cash balance plan for Social Security. At the
time of normal or early retirement, the account value of the participant is
converted into one of several available forms of lifetime annuities. The
participant may also elect payment in the form of a lump sum.

As of December 31, 1998, Messrs. Scully, Agnew, Parke, Rinella and Ross had
35, 19, 21, 30 and 26 years of credited service, respectively, under the Plan.
The estimated annual benefit payable under the cash balance plan upon retirement
at age 65 for each of Messrs. Scully, Agnew, Parke, Rinella and Ross is
$216,535, $123,623, $123,978, $194,909 and $165,550, respectively, assuming an
interest rate of 5.25%, current compensation levels remain unchanged and
continuous employment until age 65.

The Bank also maintains a nonqualified supplemental retirement plan (the
"Supplemental Plan") which, prior to January 1, 1999, was intended to provide
employees who were participants in the pension plan with benefits that were not
available under the pension plan because such benefits would be in excess of the
limitations on contributions and benefits imposed by the Code. The Supplemental
Plan was also intended to provide a targeted level of retirement income to
eligible participants.

Effective December 31, 1998, the benefit formula under the Supplemental
Plan was frozen. The accrued benefit of each eligible employee under the
Supplemental Plan as of December 31, 1998 was converted to a single sum balance
using the actuarial assumptions set forth in the pension plan as in effect on
such date. The single sum amount was credited to an account in the name of each
eligible participant. The account shall be adjusted upward or downward on a
quarterly basis to reflect the investment return of the assets in which it is
assumed to be invested, as selected by the participant from among various
assumed investment alternatives established by the Board of Directors. Other
than such investment return adjustments, no further contributions or other
benefits will be credited to the participant's account after December 31, 1998.
Payment of the balance in the participant's account shall be made in a single
lump sum cash payment as soon as practicable following termination of employment
with the Bank. The amount credited to the accounts of Messrs. Scully, Agnew,
Parke, Rinella and Ross as of December 31, 1998 was $3,986,549, $2,623,632,
$902,125, $739,203 and $785,035, respectively.

The Bank is in the process of contributing assets to the trust in an amount to
satisfy the liabilities under the Supplemental Plan as of December 31, 1998.
Although contributed assets may only be used to pay Supplemental Plan benefits
(with certain exceptions), the benefits under the Supplemental Plan remain the
obligation of the Bank.

Death Benefit Plan. The Board of Directors has adopted a death benefit plan
which will provide benefits to the beneficiaries of eligible executives,
including the named executive officers, who die prior to termination of
employment and before retirement. Generally, the plan provides for five years of
payments to the beneficiary in an amount equal to 100% of the executive's annual
base salary for the first year and 50% of executive's annual base salary in each
of the following four years.

Certain Transactions. Certain directors and executive officers of the
Company and the Bank, as well as certain members of their families and certain
business entities with which they or their families are affiliated, are
borrowers from the Bank. All such loans, including bridge loans, were made in
the ordinary course of business, did not involve more than the normal risk of
collection or present other unfavorable features, and were made on substantially
the same terms, including interest rates and collateral, as those prevailing at
the same time for comparable transactions with unaffiliated persons. All loans
to directors and executive officers must be approved by the Board of Directors.

The Bank leases a warehouse facility from a limited partnership in which
Mr. Paul C. Gearen, a director of the Company and the Bank, owns a general
partner interest. The lease, which commenced in April 1983, expires on August
31, 1999 and provides for a monthly rental payment of $4,766.

20
<PAGE> 24

STOCK OWNED BY MANAGEMENT AND PRINCIPAL SHAREHOLDERS

The following table sets forth information as of April 6, 1999 with respect
to the shares of the Company's Common Stock beneficially owned by each director
of the Company, each of the named executive officers and by all directors and
executive officers of the Company as a group. Such individuals and certain of
the Company's employee benefit plans beneficially own a total of 5,949,956
shares of the Company's Common Stock, or 14.3% of the Common Stock outstanding,
including shares subject to options that will become exercisable within 60 days.

<TABLE>
<CAPTION>
AMOUNT AND PERCENT OF
NATURE OF OUTSTANDING
BENEFICIAL COMMON
NAME AND POSITION WITH THE COMPANY OWNERSHIP(A) STOCK
---------------------------------- ------------ -----------
<S> <C> <C>
Joseph C. Scully
Chairman of the Board, Chief Executive Officer and
Director.................................................. 650,102(b) 1.6%
Patrick J. Agnew
President, Chief Operating Officer and Director........... 635,142(b) 1.5%
William A. Anderson
Director.................................................. 21,582 *
John W. Croghan
Director.................................................. 121,501 *
Alan J. Fredian
Director.................................................. 36,083 *
Paul C. Gearen
Director.................................................. 78,895 *
Kenneth J. James
Director.................................................. 132,222 *
Jean C. Murray, O.P
Director.................................................. 23,063(b)(c) *
Anthony R. Pasquinelli
Director.................................................. 469,558 1.1%
John J. Viera
Director.................................................. 37,472 *
Robert N. Parke
Senior Vice President..................................... 220,881 *
Thomas J. Rinella
Senior Vice President..................................... 221,870 *
Donald G. Ross
Senior Vice President..................................... 227,080 *
All directors and executive officers as a group (17
persons).................................................. 3,422,245(b)(c) 8.2%
</TABLE>

- ---------------
* Less than 1%

(a) In accordance with Rule 13d-3 under the 1934 Act, a person is deemed to be
the beneficial owner, for purposes of this table, of any shares of Common
Stock if he or she has or shares voting power or investment power with
respect to such shares, or has the right to acquire beneficial ownership at
any time within 60 days from April 6, 1999. As used herein, "voting power"
is the power to vote or direct the voting of shares and "investment power"
is the power to dispose or direct the disposition of shares. The table

21
<PAGE> 25

includes shares owned by spouses or other immediate family members or that
are held in trust, as to which the persons named in the table possess shared
voting and/or investment power as follows: Mr. Scully, 30,793 shares; Mr.
Agnew, 73,358 shares; Dr. Fredian, 25,054 shares; Mr. Gearen, 3,375 shares;
Mr. James, 123,161 shares; Mr. Pasquinelli, 279,155 shares; Mr. Viera,
14,522 shares; Mr. Parke, 77,932 shares; Mr. Rinella, 14,249 shares; Mr.
Ross, 26,555 shares; and all directors and executive officers as a group,
671,868 shares. The table includes 13,968 shares and 46,468 shares as of
April 6, 1999 held for the benefit of Mr. Scully and Mr. Agnew,
respectively, under the St. Paul Federal Bank For Savings Deferred
Compensation Trust. All other shares included in the table are held by
persons who have sole voting and investment power over such shares. The
table includes 1,712,069 shares of Common Stock subject to outstanding
options which are exercisable within 60 days from April 6, 1999. The table
also includes 425,482 shares as of December 31, 1998 allocated to executive
officers' accounts under the Bank's 401(k) Profit Sharing Plan and the ESOP.
Dr. Fredian, Dr. Murray and Messrs. Scully and Agnew are the trustees of the
ESOP. The ESOP was terminated effective September 30, 1998 but shares
continue to be held in the ESOP pending distribution to participants.

(b) Does not include 334,158 shares with respect to which the St. Paul Federal
Bank For Savings Employees Pension Plan has sole voting and dispositive
power. Dr. Fredian, Dr. Murray and Messrs. Scully and Agnew are the trustees
of the Employees Pension Plan.

(c) Except as allotted to Messrs. Scully and Agnew as indicated above, does not
include 68,992 shares with respect to which the St. Paul Federal Bank For
Savings Deferred Compensation Trust has shared voting and dispositive power.
Dr. Fredian and Dr. Murray are the trustees of the Deferred Compensation
Trust.

As of April 6, 1999, no persons are known by the Company to have filed a
beneficial ownership report with the SEC with regard to 5% or more of the
Company's outstanding Common Stock.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the 1934 Act requires the Company's directors and
executive officers, and persons who own more than ten percent of a registered
class of the Company's equity securities, to file with the SEC initial reports
of ownership and reports of changes in ownership of Common Stock and other
equity securities of the Company. Officers, directors and greater than
ten-percent shareholders are required by SEC regulation to furnish the Company
with copies of all Section 16(a) forms they file.

To the Company's knowledge, based solely upon review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, all Section 16(a) filing requirements applicable to
officers, directors and greater than ten-percent beneficial owners were complied
with during the fiscal year ended December 31, 1998, except on April 13, 1998,
Paul C. Gearen, Director, filed an amended Form 3 ("Initial Statement of
Beneficial Ownership of Securities") to correct the number of shares reported on
February 28, 1997. The original report had understated the number of shares so
held by 3,375 shares.

22
<PAGE> 26

STOCKHOLDER PROPOSAL
(PROPOSAL 2)

Keefe Managers, Inc. ("Keefe"), 375 Park Avenue, New York, New York 10152,
has given notice that it intends to present the proposal set forth below for
consideration at the Annual Meeting. Keefe has informed the Company that it
beneficially owns 428,200 shares of Common Stock. The Board of Directors of the
Company is opposed to this proposal and urges shareholders to vote "Against" the
proposal. To be approved, the proposal must receive the affirmative vote of a
majority of the votes cast on the proposal.

PROPOSAL

RESOLVED, that the shareholders of St. Paul Bancorp, Inc. ("St. Paul")
believing that the value of their investment in St. Paul can be maximized
through a sale or merger of St. Paul to or with an unaffiliated party, hereby
request that the Board of Directors of St. Paul promptly take the necessary
steps to effect such a sale or merger by (i) retaining a leading investment
banking firm to solicit offers to acquire St. Paul, (ii) establishing a
committee of independent non-management directors to recommend to the full Board
for approval the best available offer to acquire St. Paul that is fair to, and
in the best interests of, the shareholders of St. Paul, and (iii) requiring that
any and all overtures (whether informal or formal) by any unaffiliated third
parties received by St. Paul concerning such a possible sale or merger are to be
reported to the full Board of Directors of St. Paul and that all such overtures
should be explored in full and offers from any such persons should be solicited
and not discouraged with a full report of such matters to be made to the
shareholders of St. Paul.

SHAREHOLDER SUPPORTING STATEMENT

The purpose of this proposal is to advise the Board of Directors of the
shareholders' concerns regarding St. Paul's strategic direction and to express
shareholders' desire to realize the full value of their holdings in St. Paul.
After numerous conference calls and meetings with senior management, we conclude
that St. Paul's current strategies are fraught with risk. Moreover, we believe
that St. Paul's operating performance to date has been unacceptable to
investors, and that any positive stock performance has been due primarily to
takeover speculation. The proposal requests that directors of St. Paul take the
necessary steps to effect a sale or merger of the company with a view to
maximize shareholder value. It is our opinion that investors lack confidence
that present management is prepared to adopt strategies that would bring the
operating performance of the company to a satisfactory level within a reasonable
time. Further, management's recent actions show no evidence that a strategy
exists that will obtain this value. We believe that through a sale or merger,
St. Paul's shareholders would likely receive a substantial premium over the
company's market price. We believe that management's failure to actively pursue
a sale or merger has been detrimental to shareholders. We further believe that,
if such a sale or merger is not undertaken, existing management will continue in
its current policies, which, in our opinion, will result in a continuation of
poor relative returns and high risk for St. Paul shareholders. We urge you to
vote for this resolution.

STATEMENT OF THE BOARD OF DIRECTORS OF THE COMPANY IN OPPOSITION TO THE
STOCKHOLDER PROPOSAL

The Board of Directors of the Company recommends that you vote "AGAINST"
this proposal for the following reasons:

The Board of Directors of the Company is committed to maximizing value for
shareholders and pursues the course of action that will, in the Board's
judgment, best achieve that objective. As such, the Board, in consultation with
its advisors, reviews on a regular basis strategic alternatives and
opportunities available to the

23
<PAGE> 27

Company in furtherance of maximizing shareholder value. To date, the Board's
efforts to enhance shareholder value have focused on internal growth, strategic
acquisitions, investment in technology, cost containment and capital management
initiatives, including the Company's stock purchase program and dividend
increases. As indicated in the performance graph set forth on page 15 of this
Proxy Statement, during the period from January 1, 1994 through December 31,
1998, the Company's common stock produced a cumulative total return of over
300%, which exceeded the performance of the overall NASDAQ stock market and was
comparable to that of its peer group.

The Board regularly seeks to enhance shareholder value through acquisitions
which are complementary to the Company's business. During 1998, the Company
completed two significant transactions to enhance growth and increase
profitability. In July 1998, the Company completed the acquisition of Beverly
Bancorporation, a commercial bank. The addition of Beverly's 12 branches
resulted in a 34% increase in the number of the Company's full-service branches
and has enabled the Company to expand its geographical reach into Chicago's
South and Southwest suburbs. The combined institution now has more than $6
billion in assets, over 60 branches and more than 550 ATMs. The Beverly
acquisition has allowed the Company to offer business banking products and trust
services in addition to its existing products. In early 1998, the Company
acquired the operations of Serve Corps Mortgage, a mortgage brokerage firm, to
improve the Company's single family mortgage origination capability and to
achieve additional fee income. The Board of Directors believes that both of
these transactions afford the Company with significant opportunities for
continued growth and enhanced profitability.

In August 1998, the Company initiated a cost reduction plan focused on
reducing the Company's fixed cost structure. Key aspects of this plan include
implementation of an early retirement program, modifications to the Company's
compensation and benefit plans, the termination of the Company's employee stock
ownership plan, and changes to the Company's pension plans. Implementation of
this program, coupled with synergies from the Beverly acquisition, has enabled
the Company to reduce personnel by approximately 215 persons and cut
compensation, benefits and other expenses by approximately $14 million annually.

The Company also made the commitment to replace and upgrade much of the
computer software and hardware used through the Bank. The entire core operating
system of the Bank has been replaced with the EDS/Miser system. The teller
platform, loan servicing system and the voice response unit, which supports
telephone banking services, have also been upgraded. The new technology
infrastructure will enhance the Company's competitive position, allowing it to
adapt more quickly to future innovation, assimilate acquisitions more quickly
and incorporate future products more efficiently.

The Company's capital management initiatives are another significant aspect
of the Board's continuing efforts to enhance shareholder value. The Company's
ability to generate above average returns has been impacted by its relatively
high ratio of equity to assets. The Company has been successful in reducing this
ratio from 9.31% at December 31, 1997 to the current level of 8.45%. The Board
is actively working to further improve the Company's capital position both
through share repurchases and, if available, acquisitions. The Board, in January
1999, authorized the repurchase of up to 2 million shares (or approximately 5%
of the Company's outstanding common stock). The program, with a six-month term
subject to renewal, has already resulted in the repurchase of 1,022,000 shares
of common stock in the open market as of March 31, 1999. Also in January of this
year, the Board increased by 33% the quarterly cash dividend, boosting the
quarterly payment from $.15 to $.20 per share.

The Board and management of St. Paul, after consultation with its advisors,
believe that the best method to maximize value for shareholders is to continue
to pursue its business plan with a goal of achieving a return

24
<PAGE> 28

on equity of 15% by the fourth quarter of 2000, subject to market conditions and
any non-recurring costs of the Company's data processing conversion.

In addition to implementing its own initiatives, the Board remains open and
welcomes viable suggestions from all of the Company's shareholders to further
enhance shareholder value. However, the Board does not believe that placing a
"for sale" sign on the Company is in the best long-term interest of
shareholders.

The Board believes that the intent of the Proposal is to force the Board to
sell the Company to a third party as soon as possible. The Board is committed to
considering all options available to the Company for enhancing shareholder
value, including through potential merger and/or other business combination
transactions. The Board and Management recognize that the banking industry is in
the process of undergoing tremendous change and will remain attuned to the
marketplace to make sure the Company's shareholders benefit fully from the best
opportunities for growth in shareholder values the future will provide. The
Board will responsibly review any offer for a combination with the Company and
exercise its business judgment to determine whether to accept such an offer.
However, the Board does not believe that putting the Company on the "auction
block", without reviewing all alternatives, is likely to result in maximizing
shareholder value.

The Board believes strongly that adoption of the Proposal is not in the
best long-term interest of shareholders. In the Board's opinion, Keefe Managers,
Inc., the proponent of the Proposal, is pursuing a short-term agenda, without
regard to the long-term interests of the Company or the other shareholders,
which will not maximize shareholder value. While we recognize that the Proposal
only requests certain action by the Board and does not obligate the Board to
take any action, an announcement that the Proposal has been adopted could
severely damage the Company's long-term relationships with its customers.
Moreover, the Company may have difficulty retaining employees and attracting new
employees if the Proposal is adopted. This could adversely impact the Company's
ability to effectively compete in the short-and-long term, resulting in a
possible decline in revenues and a corresponding decline in shareholder value.
Moreover, Keefe's actions have already resulted in the Company incurring
expenses and diverting resources that could have been put to better use.

The Board is dedicated to maximizing value for all shareholders. We believe
the Company is well positioned to deliver exceptional shareholder value.

THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE "AGAINST" ADOPTION
OF THIS PROPOSAL.

INDEPENDENT AUDITORS

The Board of Directors has appointed the firm of Ernst & Young LLP to
continue as independent auditors for the Company for the year ending December
31, 1999. Ernst & Young LLP was appointed as the independent auditors of St.
Paul Federal in 1981 and has performed audits for the Bank for the years since
then. Ernst & Young LLP has also served as the independent auditors of the
Company since its organization as the holding company of St. Paul Federal.
Representatives of Ernst & Young LLP are expected to be present at the Annual
Meeting. They will be given an opportunity to make a statement if they desire to
do so and will be available to respond to appropriate questions.

25
<PAGE> 29

DEADLINE FOR SUBMISSION OF SHAREHOLDER PROPOSALS
TO BE PRESENTED AT 2000 ANNUAL MEETING OF SHAREHOLDERS

Any proposal intended to be presented by any shareholder for action at the
2000 annual meeting of shareholders of the Company must be received by the
Secretary of the Company at 6700 West North Avenue, Chicago, Illinois 60707 not
later than December 18, 1999 in order for the proposal to be considered for
inclusion in the proxy statement and proxy relating to the 2000 annual meeting.
In addition, the Company's Bylaws require that notice of shareholder proposals
and nominations for director be delivered to, or mailed to and received at, the
principal executive offices of the Company not less than 30 days nor more than
90 days prior to the date of an annual meeting, unless notice or public
disclosure of the date of the meeting occurs less than 45 days prior to the date
of such meeting, in which event, shareholders may deliver such notice not later
than the 15th day following the day on which notice of the date of the meeting
was mailed or public disclosure thereof was made. The date of the 2000 annual
meeting has not yet been established. Nothing in this paragraph shall be deemed
to require the Company to include in its proxy statement and proxy relating to
the 2000 annual meeting any shareholder proposal which does not meet all of the
requirements for inclusion established by the SEC in effect at the time such
proposal is received.

SOLICITATION OF PROXIES

The cost of soliciting proxies in the form enclosed herewith will be borne
by the Company. In addition to the solicitation of proxies by mail, the Company
and St. Paul Federal, through their directors, officers and employees (none of
whom will receive additional compensation for such solicitations), may also
solicit proxies personally or by telephone, telecommunications or other
electronic means. The Company also will request persons, firms and corporations
holding shares in their names or in the name of their nominees, which are
beneficially owned by others, to send proxy materials to and obtain proxies from
such beneficial owners and will reimburse such holders for their reasonable
expenses in doing so. The Company also has retained D.F. King & Co., Inc. ("D.F.
King") to provide advisory and solicitation services at a fee of between $30,000
and $200,000, depending on the services required, plus reimbursement of
out-of-pocket expenses. The Company also has agreed to indemnify D.F. King
against certain liabilities including liabilities under the federal securities
laws.

26
<PAGE> 30

OTHER MATTERS

As of the date of this proxy statement, the Board of Directors of the
Company does not know of any other matters to be presented for action by the
shareholders at the Annual Meeting. If, however, any other matters not now known
are properly brought before the meeting, the persons named in the accompanying
proxy will vote such proxy in accordance with the determination of a majority of
the Board of Directors.
By Order of the Board of Directors,

/s/ JOSEPH C. SCULLY
-----------------------------
Joseph C. Scully
Chairman of the Board and
Chief Executive Officer

Chicago, Illinois
April 15, 1999

--IMPORTANT--

YOUR VOTE IS IMPORTANT. PLEASE TAKE A MOMENT TO SIGN, DATE AND MAIL YOUR
PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. THANK YOU FOR YOUR PROMPT
COOPERATION.

27
<PAGE> 31

================================================================================

TABLE OF CONTENTS

<TABLE>
<CAPTION>
ITEM PAGE
---- ----
<S> <C>
Voting and Revocability of Proxies....... 1
Election of Directors.................... 2
Executive Compensation................... 8
Stock Owned by Management and Principal
Shareholders........................... 21
Stockholder Proposal..................... 23
Independent Auditors..................... 25
Deadline for Submission of Shareholder
Proposals to be Presented at 2000
Annual Meeting of Shareholders......... 26
Solicitation of Proxies.................. 26
Other Matters............................ 27
</TABLE>

================================================================================

================================================================================
ST.PAUL BANCORP LOGO
-------------------------------
PROXY STATEMENT
-------------------------------
APRIL 15, 1999
================================================================================
<PAGE> 32

[ST. PAUL BANCORP INC. LOGO]

The officers and directors of St. Paul Bancorp, Inc.

cordially invite you to attend

the Annual Meeting of Shareholders

Wednesday, May 26, 1999 at 10:00 a.m.

Drury Lane Oakbrook

100 Drury Lane, Oakbrook Terrace, Illinois

Joseph C. Scully

Chairman and Chief Executive Officer

PLEASE BRING THIS CARD TO THE MEETING AS YOUR ADMISSION TICKET.

Directions to Drury Lane Oakbrook on reverse.

DETACH HERE

ST. PAUL BANCORP, INC.

VOTING AUTHORIZATION TO THE TRUSTEES OF THE PLANS SPECIFIED BELOW

The trustees of the St. Paul Federal Bank For Savings Employee Stock
Ownership Plan and Trust (the "ESOP") and the St. Paul Federal Bank For
Savings Profit Sharing & Savings Plan (the "Savings Plan"), respectively,
are hereby authorized to represent and vote as designated on the reverse
side the shares of the undersigned held under the ESOP and the Savings Plan,
at the annual meeting of shareholders to be held at 10:00 a.m. on May 26,
1999, at the Drury Lane Oakbrook, 100 Drury Lane, Oakbrook Terrace, Illinois
60181, and at any adjournments thereof.

IF A VOTE IS NOT SPECIFIED ON THE REVERSE SIDE, THE TRUSTEES WILL NOT
VOTE THE SHARES OF THE UNDERSIGNED HELD UNDER THE ESOP OR THE SAVINGS PLAN.
YOU MUST MARK YOUR CARD FOR YOUR VOTE TO COUNT.

(CONTINUED AND TO BE MARKED, SIGNED AND DATED ON REVERSE SIDE)
SEE REVERSE SIDE SEE REVERSE SIDE
<PAGE> 33

DIRECTIONS TO DRURY LANE OAKBROOK

When approaching Drury Lane Oakbrook:

From the North or South on Route 83 (Kingery), exit at Roosevelt Road
(38) East and follow GREEN sign to DRURY LANE.

From the East or West on Roosevelt Road, exit Route 83 (Kingery) South
to Roosevelt Road (38) East and follow GREEN sign to DRURY LANE.

From Downtown Chicago and the Loop, take Eisenhower Expressway (I-290)
West to Roosevelt Road (38) West. Proceed to 83 (Kingery) South, exit
83 South at Roosevelt Road (38) East and follow GREEN sign to DRURY
LANE.

From the West on I-88, exit at Midwest Road, proceed north to
Butterfield Road (56), turn right onto Butterfield Road, exit Roosevelt
Road (38) East to DRURY LANE.

From I-294 (Tri-State), take I-88 West to Aurora, exit at Cermak Road
(22nd Street), make no turns and proceed north on Spring Road 3/4 of a
mile to DRURY LANE.

DRURY LANE OAKBROOK, 100 DRURY LANE, OAKBROOK TERRACE, ILLINOIS Located
next door to the 31-Story Oakbrook Terrace Tower

DETACH HERE

[X] PLEASE MARK
VOTES AS IN
THIS EXAMPLE.

IF YOU RECEIVE MORE THAN ONE CARD, PLEASE SIGN AND MAIL ALL CARDS.

- --------------------------------------------------------------------------------

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 1

- --------------------------------------------------------------------------------
<TABLE>
<S><C>
1. Election of each of three directors for a three-year term.

NOMINEES: JOHN W. CROGHAN, KENNETH J. JAMES AND ANTHONY R. PASQUINELLI

FOR ALL NOMINEES WITHHELD FROM ALL NOMINEES MARK HERE
IF YOU PLAN [ ]
[ ] [ ] TO ATTEND
THE MEETING

For, except vote withheld from the following nominee(s):
MARK HERE
[ ] FOR ADDRESS [ ]
--------------------------- CHANGE AND
NOTE AT LEFT
</TABLE>
<PAGE> 34

- --------------------------------------------------------------------------------

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" PROPOSAL 2

- --------------------------------------------------------------------------------

2. Adoption of the stockholder proposal.

FOR AGAINST ABSTAIN

[ ] [ ] [ ]

EACH TRUSTEE IS AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY
PROPERLY COME BEFORE THE MEETING, OR ANY ADJOURNMENTS THEREOF, IN
ACCORDANCE WITH THE DETERMINATION OF A MAJORITY OF THE COMPANY'S BOARD
OF DIRECTORS.

PLEASE DATE AND SIGN EXACTLY AS NAME APPEARS HEREIN. EACH EXECUTOR,
ADMINISTRATOR, TRUSTEE, GUARDIAN, ATTORNEY-IN-FACT AND OTHER FIDUCIARY
SHOULD SIGN AND INDICATE HIS OR HER FULL TITLE.

<TABLE>
<S><C>
SIGNATURE:_______________ DATE:_______ SIGNATURE:_______________ DATE: _______
</TABLE>
<PAGE> 35

[ST. PAUL BANCORP INC. LOGO]

The officers and directors of St. Paul Bancorp, Inc.

cordially invite you to attend

the Annual Meeting of Shareholders

Wednesday, May 26, 1999 at 10:00 a.m.

Drury Lane Oakbrook

100 Drury Lane, Oakbrook Terrace, Illinois

Joseph C. Scully

Chairman and Chief Executive Officer

PLEASE BRING THIS CARD TO THE MEETING AS YOUR ADMISSION TICKET.

Directions to Drury Lane Oakbrook on reverse.

DETACH HERE

REVOCABLE PROXY ST. PAUL BANCORP, INC. REVOCABLE PROXY

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned shareholder of St. Paul Bancorp, Inc. (the "Company")
hereby appoints Joseph C. Scully and Patrick J. Agnew, or either of them, with
full power of substitution in each, as proxies to cast all votes which the
undersigned shareholder is entitled to cast at the annual meeting of
shareholders to be held at 10:00 a.m. on May 26, 1999, at the Drury Lane
Oakbrook, 100 Drury Lane, Oakbrook Terrace, Illinois 60181, and at any
adjournments thereof, upon the following matters. The undersigned shareholder
hereby revokes any proxy or proxies heretofore given.

THIS PROXY WILL BE VOTED AS DIRECTED BY THE UNDERSIGNED SHAREHOLDER.
UNLESS CONTRARY DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR THE ELECTION OF
THE NOMINEES LISTED IN PROPOSAL 1, AGAINST PROPOSAL 2 AND IN ACCORDANCE WITH THE
DETERMINATION OF A MAJORITY OF THE BOARD OF DIRECTORS AS TO OTHER MATTERS. THE
UNDERSIGNED SHAREHOLDER MAY REVOKE THIS PROXY AT ANY TIME BEFORE IT IS VOTED BY
DELIVERING TO THE SECRETARY OF THE COMPANY EITHER A WRITTEN REVOCATION OF THE
PROXY OR A DULY EXECUTED PROXY BEARING A LATER DATE, OR BY APPEARING AT THE
ANNUAL MEETING AND VOTING IN PERSON. THE UNDERSIGNED SHAREHOLDER HEREBY
ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL MEETING AND PROXY STATEMENT.

(CONTINUED AND TO BE MARKED, SIGNED AND DATED ON REVERSE SIDE)
SEE REVERSE SIDE SEE REVERSE SIDE
<PAGE> 36

DIRECTIONS TO DRURY LANE OAKBROOK

When approaching Drury Lane Oakbrook:

From the North or South on Route 83 (Kingery), exit at Roosevelt Road
(38) East and follow GREEN sign to DRURY LANE.

From the East or West on Roosevelt Road, exit Route 83 (Kingery) South
to Roosevelt Road (38) East and follow GREEN sign to DRURY LANE.

From the West on I-88, exit at Midwest Road, proceed north to
Butterfield Road (56), turn right onto Butterfield Road, exit Roosevelt
Road (38) East to DRURY LANE.

From I-294 (Tri-State), take I-88 West to Aurora, exit at Cermak Road
(22nd Street), make no turns and proceed north on Spring Road 3/4 of a
mile to DRURY LANE.

DRURY LANE OAKBROOK, 100 DRURY LANE, OAKBROOK TERRACE, ILLINOIS Located
next door to the 31-Story Oakbrook Terrace Tower

DETACH HERE

[X] PLEASE MARK
VOTES AS IN
THIS EXAMPLE.

IF YOU RECEIVE MORE THAN ONE PROXY CARD, PLEASE SIGN AND MAIL ALL
CARDS.

- --------------------------------------------------------------------------------

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 1

- --------------------------------------------------------------------------------
<TABLE>
<S><C>
1. Election of each of three directors for a three-year term.

NOMINEES: JOHN W. CROGHAN, KENNETH J. JAMES AND ANTHONY R. PASQUINELLI

FOR ALL NOMINEES WITHHELD FROM ALL NOMINEES MARK HERE
IF YOU PLAN [ ]
[ ] [ ] TO ATTEND
THE MEETING

For, except vote withheld from the following nominee(s):
MARK HERE
[ ] FOR ADDRESS [ ]
--------------------------- CHANGE AND
NOTE AT LEFT
</TABLE>
<PAGE> 37

- --------------------------------------------------------------------------------

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" PROPOSAL 2

- --------------------------------------------------------------------------------

2. Adoption of the stockholder proposal.

FOR AGAINST ABSTAIN

[ ] [ ] [ ]

THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY
PROPERLY COME BEFORE THE MEETING, OR ANY ADJOURNMENTS THEREOF, IN
ACCORDANCE WITH THE DETERMINATION OF A MAJORITY OF THE COMPANY'S BOARD
OF DIRECTORS.

PLEASE SIGN AND DATE EXACTLY AS NAME APPEARS HEREIN. EACH EXECUTOR,
ADMINISTRATOR, TRUSTEE, GUARDIAN, ATTORNEY-IN-FACT AND OTHER FIDUCIARY SHOULD
SIGN AND INDICATE HIS OR HER FULL TITLE. WHEN STOCK HAS BEEN ISSUED IN THE NAME
OF TWO OR MORE PERSONS, ALL SHOULD SIGN.

<TABLE>
<S><C>
SIGNATURE:___________________ DATE:________ SIGNATURE:__________________ DATE: ________
</TABLE>