St. Paul Bancorp makes no pretense about what it is.
Founded in a Southside Catholic church basement in 1889, St. Paul never tried to be Chicago's business bank, it never catered to the city's most affluent, and it never made a serious run at being the city's largest bank.
But with $4.5 billion of assets and $3.2 billion of deposits, St. Paul Bancorp is a very attractive takeover candidate.
Acquiring St. Paul would represent a prime opportunity to grab market share in Chicago. And analysts say it could be done for about $30 per share. Although the company's stock price traded at a high of $28.50 on Oct. 8, it dropped 19% to $23 by Nov. 7 and has stayed there.
Analysts say all the pieces are in place for an acquisition.
But Joseph C. Scully, St. Paul's chairman and chief executive officer, said his company is not being dressed for sale.
"Our focus is running this company," Mr. Scully said in a recent interview. "What happens depends on market conditions.
"When we went public (in 1987), we said we would run this company for the best interest of our stockholders. If that results in selling, so be it. But that's not why we went public."
Having survived the Depression and the savings and loan crisis of the 1980s, St. Paul can weather current consolidation in the industry, some observers said.
The 57-year-old Mr. Scully may have personal reasons for wanting to keep the thrift independent. He joined the company 34 years ago, and St. Paul is the only employer he's ever known, outside a nine-month stint with the city of Chicago's urban renewal department, a job he took upon graduation from Loyola University.
After quitting his city job, Mr. Scully went to St. Paul, where he worked his way up through the ranks. He has been chairman since 1989 and chief executive since 1982. He has run the company continuously despite being diagnosed with Parkinson's disease 10 years ago. His illness, company officials said, has not affected his ability to do the job.
St. Paul is still a federal savings bank. Its primary business is making real estate loans-more multifamily than single family, and more home equity than first mortgages, because of intense competition from national mortgage banking companies. The loan portfolio is much like that of any traditional savings and loan, even though St. Paul has a growing number of fee-based businesses, including a small discount brokerage and a network of automated teller machines.
Its strategy does not appeal to some.
"St. Paul is a pretty plain-vanilla thrift," said Robert Ollech, an analyst with Principal Financial Securities. Mr. Ollech, other analysts, and most observers of the Chicago banking market find it curious that St. Paul hasn't sold yet.
Aside from getting in over its head in the late 1980s with exposure to potentially sour California real estate loans, St. Paul has been a model of prudence and conservativism.
That has led to improved earnings each year, but St. Paul isn't realizing the robust growth experienced by some of its peers. This too leads to speculation that it will need to sell.
Mr. Scully sees things differently. "We have predictable earnings, rather than wild, gyrating earnings, and we're still growing," said the chief executive.
Stable earnings are important to St. Paul because company officials know that any missteps could make the thrift vulnerable to takeover.
St. Paul has been an acquisition target virtually from the day it went public.
There would be no shortage of potential suitors if St. Paul should ever put itself on the block. Any of the sizable banking companies that do business in Chicago would be interested, including First Chicago NBD Corp., ABN Amro Holdings, Bank of Montreal's Harris unit, Banc One Corp., Old Kent Financial Corp., Firstar Corp., U.S. Bancorp, First of America Bank Corp., and TCF Financial Corp.
The rare opportunity to gain market share via St. Paul might even attract companies that have said they are not interested in bank mergers, including Citicorp and BankAmerica Corp.
Though buyers would readily line up for a chance to buy St. Paul, thrift analyst Thomas O'Donnell of Smith Barney said he believes the company is prudent not to sell. Mr. O'Donnell said St. Paul will be an even more attractive company two years from now and will fetch an even higher price then. Assuming, of course, that the company doesn't make any mistakes.
"What they don't want to do is do anything that would impair the franchise," Mr. O'Donnell said.
"I think a lot of people are surprised they've stayed independent this long," Mr. O'Donnell added. "I think it's a smart move to stay independent as long as they can."
As far as doing acquisitions itself, St. Paul has been a no-show for the past few years.
The thrift hasn't done a deal since it bought $366 million-asset Elm Financial Services Inc., of Elmhurst, Ill., for $49 million in February 1993.
Although St. Paul looks at nearly every bank and thrift for sale in the Chicago market and bids on a number of them, Mr. Scully said he currently isn't happy with the prices.
With companies fetching two to four times their book value, Mr. Scully is pleased to point out that Elm Financial was bought at book. But more important, Mr. Scully said, he's content to generate earnings through means other than acquisitions, namely, growing internally.
Free checking is St. Paul's hallmark product, but the thrift is diversifying its revenue mix. It gains income from brokerage, teller machines, and a specialty business that buys speculative property and sells it to developers.
St. Paul has also followed the lead of larger regional banks that have aggressively expanded their automated teller machine networks. Its 450 ATMs form the region's second-largest network, behind First Chicago's. Some critics of the company say it has been depending too heavily on ATM fees for revenue growth.
That growth may not be sustainable unless the company can add significantly to its ATM network, analysts said.
St. Paul had tried expanding through supermarket locations-it has 17-but that, too, may have come to a halt as other banks have snatched exclusive agreements with the city's largest grocers.
St. Paul is like many other thrifts-facing the challenge of reinventing itself. Like other traditional mortgage lenders, the company can no longer depend upon that business as larger national players have taken over. St. Paul faces diversifying its business or selling out. Some observers believe St. Paul is going to do both.
Earnings at St. Paul have been acceptable, analysts said. The company has generally met Wall Street projections, although it missed analysts' estimates by a penny in the third quarter. That was due to "aggressive estimates," the company said.
But being slightly under estimates isn't enough to convince St. Paul's board to sell.
St. Paul has a steady stream of earnings, but on business fundamentals Smith Barney's Mr. O'Donnell doesn't recommend buying the stock. However, for investors gambling on which banks and thrifts will be bought in the next few years, St. Paul is a stock to buy, the analyst said. He added, "It's speculating as opposed to an investment."