<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER COMMISSION
ENDED SEPTEMBER 30, 1995 FILE NO. 0-12292
UPBANCORP, INC.
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-3207297
- ---------------------------- ----------------------
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR IDENTIFICATION NUMBER)
ORGANIZATION)
4753 NORTH BROADWAY, CHICAGO, ILLINOIS 60640
------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(312) 878-2000
------------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE
ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD
THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN
SUBJECT TO SUCH FILING FOR THE PAST 90 DAYS.
YES X NO
--- ---
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S
CLASSES OF COMMON STOCK AS OF THE LATEST PRACTICABLE DATE. TWO HUNDRED
TWENTY TWO THOUSAND (220,000) COMMON SHARES WERE OUTSTANDING
AS OF NOVEMBER 1, 1995.
Page 1.
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UPBANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
AS OF SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
----------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
ASSETS (UNAUDITED)
- -------------- ------------- ------------
<S> <C> <C>
CASH AND DUE FROM BANKS $9,423,585 $12,088,428
FEDERAL FUNDS SOLD 10,575,000 9,005,000
AVAILABLE-FOR-SALE SECURITIES:
MORTGAGE-BACKED SECURITIES $21,440,337 $21,360,753
OTHER DEBT SECURITIES 10,108,236 14,834,693
EQUITY SECURITIES 957,000 945,000
----------- -----------
TOTAL AVAILABLE-FOR-SALE SECURITIES $32,505,573 $37,140,446
(REPORTED AT FAIR MARKET VALUE)
HELD-TO-MATURITY SECURITIES:
MORTGAGE-BACKED SECURITIES $17,283,836 $20,894,228
OTHER DEBT SECURITIES 21,760,132 22,812,354
----------- -----------
TOTAL HELD-TO-MATURITY SECURITIES $39,043,968 $43,706,582
(FAIR MARKET VALUE OF $38,188,297 AND
$40,557,867, RESPECTIVELY)
LOANS (NET OF UNEARNED DISCOUNT) $110,650,196 $98,517,619
ALLOWANCE FOR LOAN LOSSES (1,444,944) (1,605,397)
------------ ------------
LOANS, NET $109,205,252 $96,912,222
PREMISES AND EQUIPMENT, NET 5,618,534 5,979,200
INTEREST EARNED, NOT COLLECTED 1,149,013 1,402,855
OTHER ASSETS 3,737,042 3,999,295
------------ ------------
TOTAL ASSETS $211,257,967 $210,234,028
============ ============
</TABLE>
Page 2.
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CON'T)
UPBANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
AS OF SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
----------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
(UNAUDITED)
------------- ------------
<S> <C> <C>
LIABILITIES
- --------------
DEPOSITS:
DEMAND (NON-INTEREST BEARING) $33,815,725 $32,077,054
SAVINGS, NOW AND MONEY MARKET 99,990,164 110,504,251
OTHER TIME 51,411,841 43,505,435
------------ ------------
TOTAL DEPOSITS $185,217,730 $186,086,740
U.S. TREASURY TAX & LOAN NOTES 988,524 505,469
FEDERAL HOME LOAN BANK ADVANCE 5,000,000 5,000,000
REPURCHASE AGREEMENTS 0 250,000
ACCRUED INTEREST, TAXES AND
OTHER LIABILITIES 1,720,802 1,076,522
------------ ------------
TOTAL LIABILITIES $192,927,056 $192,918,731
EQUITY CAPITAL
- --------------
COMMON STOCK - $10 PAR VALUE $2,500,000 $2,500,000
SHARES 9/30/95 12/31/94
----------- -------- --------
AUTHORIZED 300,000 300,000
ISSUED 250,000 250,000
OUTSTANDING 222,000 222,000
SURPLUS 3,000,000 3,000,000
UNDIVIDED PROFITS 14,490,049 14,139,680
NET UNREALIZED HOLDING LOSSES ON
AVAILABLE-FOR-SALE SECURITIES (264,982) (930,227)
TREASURY STOCK - 28,000 SHARES IN BOTH
PERIODS, AT COST (1,394,156) (1,394,156)
------------ ------------
TOTAL EQUITY CAPITAL $18,330,911 $17,315,297
------------ ------------
TOTAL LIABILITIES AND EQUITY CAPITAL $211,257,967 $210,234,028
============ ============
</TABLE>
Page 3.
<PAGE>
UPBANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
---------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
INTEREST INCOME 1995 1994 1995 1994
- ------------------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INTEREST AND FEES ON LOANS $2,801,555 $2,269,926 $7,937,159 $6,516,133
INTEREST ON TIME DEPOSITS IN OTHER BANKS 0 945 0 4,259
INTEREST ON FEDERAL FUNDS SOLD 127,469 97,521 400,709 257,336
INTEREST AND DIVIDENDS ON INVESTMENTS:
TAXABLE $1,063,538 $1,175,794 $3,305,585 $3,271,248
NON-TAXABLE 21,700 21,549 62,854 139,219
----------- ----------- ----------- -----------
TOTAL INTEREST ON INVESTMENTS $1,085,238 $1,197,343 $3,368,439 $3,410,467
----------- ----------- ----------- -----------
TOTAL INTEREST INCOME $4,014,262 $3,565,735 $11,706,307 $10,188,195
INTEREST EXPENSE
- ------------------------
INTEREST ON SAVINGS, NOW AND MONEY MARKET $664,755 $708,303 $2,070,723 $2,057,107
INTEREST ON OTHER TIME DEPOSITS 646,592 468,532 1,745,747 1,493,385
INTEREST ON OTHER BORROWINGS 87,030 65,887 259,999 76,334
----------- ----------- ----------- -----------
TOTAL INTEREST EXPENSE $1,398,377 $1,242,722 $4,076,469 $3,626,826
----------- ----------- ----------- -----------
NET INTEREST INCOME $2,615,885 $2,323,013 $7,629,838 $6,561,369
PROVISION FOR LOAN LOSSES 120,000 65,000 521,971 165,000
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES $2,495,885 $2,258,013 $7,107,867 $6,396,369
OTHER INCOME
- ------------------------
SERVICE CHARGES ON DEPOSIT ACCOUNTS $285,806 $295,007 $847,447 $833,423
OTHER OPERATING INCOME 83,792 89,878 295,933 273,468
NET SECURITY GAINS (LOSSES) 0 0 (59,960) 139,925
----------- ----------- ----------- -----------
TOTAL OTHER INCOME $369,598 $384,885 $1,083,420 $1,246,816
OTHER EXPENSE
- ------------------------
SALARIES AND EMPLOYEE BENEFITS $1,224,956 $1,106,702 $3,600,588 $3,317,620
NET OCCUPANCY EXPENSE 300,851 234,130 828,834 788,155
OTHER OPERATING EXPENSE 897,344 923,533 2,829,525 2,634,848
----------- ----------- ----------- -----------
TOTAL OTHER EXPENSE $2,423,151 $2,264,365 $7,258,947 $6,740,623
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES $442,332 $378,533 $932,340 $902,562
INCOME TAX PROVISION 131,906 108,854 248,971 191,885
----------- ----------- ----------- -----------
NET INCOME $310,426 $269,679 $683,369 $710,677
=========== =========== =========== ===========
</TABLE>
Page 4.
<PAGE>
UPBANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1994 (CON'T)
(UNAUDITED)
--------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET INCOME PER COMMON SHARE (BASED ON
WEIGHTED AVERAGE SHARES OUTSTANDING OF
222,000 IN 1995 AND 1994) $1.40 $1.21 $3.08 $3.20
=========== =========== =========== ===========
</TABLE>
Page 5.
<PAGE>
UPBANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
-----------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $683,369 $710,677
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
PROVISION FOR LOAN LOSSES 521,971 165,000
DEPRECIATION AND AMORTIZATION 816,671 783,366
NET (GAIN) LOSS ON SECURITIES 59,960 (139,925)
PROVISION (BENEFIT) FOR DEFERRED INCOME TAXES 73,383 (61,874)
AMORTIZATION AND ACCRETION OF SECURITIES
AND UNEARNED INCOME (153,715) (107,463)
INCREASE IN ACCRUED TAXES PAYABLE 267,378 138,099
CHANGES IN ASSETS AND LIABILITIES:
DECREASE IN ACCRUED INTEREST RECEIVABLE 253,842 156,586
(INCREASE) DECREASE IN OTHER ASSETS (362,819) 1,127,791
INCREASE(DECREASE) IN ACCRUED INTEREST PAYABLE 94,077 (83,009)
INCREASE IN OTHER LIABILITIES 282,825 (209,012)
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES $2,536,942 $2,480,236
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASES OF TIME DEPOSITS IN OTHER BANKS $0 ($200,000)
PROCEEDS FROM SALES OR MATURITIES
OF TIME DEPOSITS IN OTHER BANKS 0 300,000
NET (INCREASE) DECREASE IN FEDERAL FUNDS SOLD (1,570,000) 365,000
PURCHASES OF AVAILABLE-FOR-SALE SECURITIES (4,856,898) (19,075,456)
PROCEEDS FROM MATURITIES AND REDEMPTIONS OF
AVAILABLE-FOR-SALE SECURITIES 3,736,937 4,238,906
PROCEEDS FROM SALE OF AVAILABLE-FOR-SALE SECURITIES 6,982,500 23,127,417
PURCHASES OF HELD-TO-MATURITY SECURITIES (388,574) (35,160,044)
PROCEEDS FROM MATURITIES AND REDEMPTIONS OF
HELD-TO-MATURITY SECURITIES 4,989,824 28,634,318
PURCHASES OF LOANS (145,539) (277,389)
SALES OF LOANS 661,350 4,122,105
NET OTHER LOAN ADVANCES (13,312,793) (11,616,490)
PURCHASES OF PREMISES AND EQUIPMENT (329,637) (574,034)
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES ($4,232,830) ($6,115,667)
CASH FLOWS FROM FINANCING ACTIVITIES:
NET DECREASE IN TOTAL DEPOSITS ($869,010) ($636,772)
NET INCREASE IN OTHER BORROWINGS 233,055 5,141,788
CASH DIVIDENDS PAID (333,000) (333,000)
---------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ($968,955) $4,172,016
---------- ----------
NET INCREASE IN CASH AND DUE FROM BANKS ($2,664,843) $536,585
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD $12,088,428 $8,659,405
---------- ----------
CASH AND DUE FROM BANKS AT END OF PERIOD $9,423,585 $9,195,990
========== ==========
</TABLE>
Page 6.
<PAGE>
UPBANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
-----------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
COMMON STOCK
- ------------
BALANCE JANUARY 1, $2,500,000 $2,500,000
----------- -----------
BALANCE SEPTEMBER 30, $2,500,000 $2,500,000
=========== ===========
SURPLUS
- -------
BALANCE JANUARY 1, $3,000,000 $3,000,000
----------- -----------
BALANCE SEPTEMBER 30, $3,000,000 $3,000,000
=========== ===========
UNDIVIDED PROFITS
- -----------------
BALANCE JANUARY 1, $14,139,680 $13,777,780
NET INCOME 683,369 710,677
CASH DIVIDEND DECLARED ON COMMON
STOCK ($1.50 PER SHARE IN 1995
AND 1994) (333,000) (333,000)
----------- -----------
BALANCE SEPTEMBER 30, $14,490,049 $14,155,457
=========== ===========
TREASURY STOCK
- --------------
BALANCE JANUARY 1, ($1,394,156) ($1,394,156)
----------- -----------
BALANCE SEPTEMBER 30, ($1,394,156) ($1,394,156)
=========== ===========
TOTAL EQUITY CAPITAL
- --------------------
BALANCE JANUARY 1, $18,245,524 $17,883,624
NET INCOME 683,369 710,677
CASH DIVIDEND DECLARED ON COMMON
STOCK ($1.50 PER SHARE IN 1995
AND 1994) (333,000) (333,000)
NET UNREALIZED HOLDING GAINS (LOSSES)
ON AVAILABLE-FOR-SALE SECURITIES (264,982) (535,987)
----------- -----------
BALANCE SEPTEMBER 30, $18,330,911 $17,725,314
=========== ===========
</TABLE>
Page 7.
<PAGE>
UPBANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
-------------------------------------------------------------
UNAUDITED FINANCIAL STATEMENTS
- ------------------------------
THE FINANCIAL STATEMENTS IN THIS REPORT HAVE NOT BEEN AUDITED BY
INDEPENDENT PUBLIC ACCOUNTANTS. IN THE OPINION OF MANAGEMENT, ALL
NECESSARY ADJUSTMENTS FOR THE FAIR PRESENTATION OF THE FINANCIAL
POSITION AND THE RESULTS OF OPERATIONS FOR THE INTERIM PERIODS HAVE
BEEN MADE. ALL SUCH ADJUSTMENTS WERE OF A NORMAL RECURRING
NATURE. THIS REPORT SHOULD BE READ IN CONJUNCTION WITH THE 1994
10-K, WHERE APPROPRIATE NOTES ARE INCLUDED.
STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
- --------------------------------------------
IN MAY, 1993, THE FINANCIAL ACCOUNTING STANDARDS BOARD RELEASED
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS ("SFAS") NOS. 114 AND
118, "ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN" AND STATEMENT
OF FINANCIAL ACCOUNTING STANDARDS NO. 115 "ACCOUNTING FOR CERTAIN
INVESTMENTS IN DEBT AND EQUITY SECURITIES" ("SFAS NO. 115").
SFAS NOS. 114 AND 118 REQUIRE IMPAIRED LOANS TO BE MEASURED BASED
ON THE PRESENT VALUE OF EXPECTED FUTURE CASH FLOWS DISCOUNTED
AT THE LOAN'S EFFECTIVE INTEREST RATE OR THE VALUE OF THE COLLATERAL
IF THE LOAN IS COLLATERAL DEPENDENT. THE STATEMENTS ALSO REQUIRE
CHANGES IN THE DISCLOSURE OF IMPAIRED LOANS. THE COMPANY ADOPTED
THESE STATEMENTS AS REQUIRED ON JANUARY 1, 1995 AND HAS MADE
ADDITIONAL RESERVE ALLOCATIONS AS APPROPRIATE; THESE ADDITIONAL
RESERVE ALLOCATIONS DID NOT HAVE A MATERIAL EFFECT ON ITS RESULTS
OF OPERATIONS OR FINANCIAL POSITION. THE FUTURE IMPACT IS NOT CURRENTLY
DETERMINABLE. HOWEVER, IT WILL BE ADDRESSED AS NECESSARY.
SFAS NO. 115 ADDRESSES THE ACCOUNTING AND REPORTING FOR INVESTMENTS
IN EQUITY SECURITIES THAT HAVE READILY DETERMINABLE FAIR VALUES AND
FOR ALL INVESTMENTS IN DEBT SECURITIES. THOSE INVESTMENTS ARE TO BE
CLASSIFIED IN THREE CATEGORIES AND ACCOUNTED FOR AS FOLLOWS:
1. DEBT SECURITIES THAT THE COMPANY HAS THE POSITIVE INTENT AND
ABILITY TO HOLD TO MATURITY ARE CLASSIFIED AS "HELD-TO-MATURITY
SECURITIES" AND REPORTED AT AMORTIZED COST.
Page 8.
<PAGE>
UPBANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 (CON'T)
--------------------------------------------------------------
STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS (CON'T)
- ----------------------------------------------------
2. DEBT AND EQUITY SECURITIES THAT ARE BOUGHT AND HELD PRINCIPALLY
FOR THE PURPOSE OF SELLING THEM IN THE NEAR TERM ARE CLASSIFIED
AS "TRADING SECURITIES" AND REPORTED AT MARKET VALUE, WITH UN-
REALIZED GAINS AND LOSSES INCLUDED IN EARNINGS.
3. DEBT AND EQUITY SECURITIES NOT CLASSIFIED AS EITHER "HELD-TO-
MATURITY SECURITIES" OR "TRADING SECURITIES" ARE CLASSIFIED AS
"AVAILABLE-FOR-SALE SECURITIES" AND REPORTED AT FAIR VALUE,
WITH UNREALIZED GAINS AND LOSSES EXCLUDED FROM EARNINGS BUT
REPORTED AS A SEPARATE COMPONENT OF THE COMPANY'S EQUITY CAPITAL.
THE COMPANY ADOPTED THIS STATEMENT AS REQUIRED ON JANUARY 1, 1994.
THE EFFECT OF SFAS NO. 115 ON THE ACCOMPANYING SEPTEMBER 30, 1995
FINANCIAL STATEMENTS WAS TO DECREASE THE VALUE OF THE AVAILABLE-FOR-
SALE SECURITIES BY $434,397 (TO THEIR FAIR MARKET VALUE OF $32,505,573),
TO RECORD A DEFERRED TAX ASSET OF $169,415 (AN EFFECTIVE TAX
RATE OF 39% ON THE $434,397 DECREASE), AS WELL AS RECORD A
SEPARATE COMPONENT OF EQUITY CAPITAL OF $(264,982).
AVAILABLE-FOR-SALE SECURITIES
- ------------------------------
THE AMORTIZED COST AND THE FAIR MARKET VALUE OF AVAILABLE-FOR-SALE
SECURITIES AT SEPTEMBER 30, 1995 ARE AS FOLLOWS:
<TABLE>
<CAPTION>
GROSS GROSS FAIR
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. TREASURY $0 $0 $0 $0
U.S. GOVERNMENT AGENCY 8,873,873 1,250 64,510 8,810,613
STATES AND POLITICAL
SUBDIVISIONS 1,189,211 108,525 113 1,297,623
MORTGAGE-BACKED 21,919,886 77,337 556,886 21,440,337
EQUITY SECURITIES 957,000 0 0 957,000
----------- ---------- ---------- -----------
$32,939,970 $187,112 $621,509 $32,505,573
=========== ========== ========== ===========
</TABLE>
IN ACCORDANCE WITH SFAS NO. 115, THESE ASSETS ARE CARRIED AT THEIR
FAIR MARKET VALUE.
Page 9.
<PAGE>
UPBANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 (CON'T)
--------------------------------------------------------------
HELD-TO-MATURITY SECURITIES
- ---------------------------
THE AMORTIZED COST AND THE FAIR MARKET VALUE OF HELD-TO-MATURITY
SECURITIES AT SEPTEMBER 30, 1995 ARE AS FOLLOWS:
<TABLE>
<CAPTION>
GROSS GROSS FAIR
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. TREASURY $7,625,356 $1,516 $210,624 $7,416,248
U.S. GOVERNMENT AGENCY 12,196,926 400 217,479 11,979,847
STATES AND POLITICAL
SUBDIVISIONS 813,850 3,616 344,550 472,916
MORTGAGE-BACKED 17,283,836 83,934 164,959 17,202,811
OTHER 1,124,000 0 7,525 1,116,475
----------- ---------- ---------- -----------
$39,043,968 $89,466 $945,137 $38,188,297
=========== ========== ========== ===========
</TABLE>
IN ACCORDANCE WITH SFAS NO. 115, THESE ASSETS ARE CARRIED AT THEIR
AMORTIZED COST.
Page 10.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
EARNINGS AND BALANCE SHEET ANALYSIS
- -----------------------------------
UPBANCORP, INC. POSTED NET INCOME OF $683,369 ($3.08 PER SHARE) FOR THE
NINE MONTH PERIOD ENDING SEPTEMBER 30, 1995. THAT FIGURE WAS A DECREASE OF
$27,308 FROM THE 1994 EARNINGS OF $710,677 ($3.20 PER SHARE). THE CHANGE
IN EARNINGS OCCURRED DESPITE AN INCREASE IN NET INTEREST INCOME OF
$1,068,469 (1995-$7,629,838, 1994-$6,561,369); THIS INCREASE WAS OFFSET BY AN
INCREASE IN THE PROVISION FOR LOAN LOSSES OF $356,971 (FROM $165,000 IN
1994 TO $521,971 IN 1995), A DECREASE IN SECURITIES GAINS OF $199,885,
AN INCREASE IN SALARIES AND BENEFITS OF $282,968 (FROM $3,317,620 IN 1994
TO $3,600,588 IN 1995), AN INCREASE IN OTHER OPERATING EXPENSE OF $194,677
(FROM $2,634,848 IN 1994 TO $2,829,525 IN 1995) AND AN INCREASE IN THE
INCOME TAX PROVISION OF $57,086.
INCLUDED IN UPBANCORP'S TOTALS WERE THE RESULTS OF ITS WHOLLY-OWNED
SUBSIDIARIES, UPTOWN NATIONAL BANK OF CHICAGO (UPTOWN) AND HERITAGE
BANK OF ARIZONA (HERITAGE). UPTOWN REPORTED NINE MONTH NET INCOME OF
$858,468 COMPARED TO $918,528 IN THE FIRST NINE MONTHS OF 1994. GROWTH AT
HERITAGE AND THE CORRESPONDING INCREASE IN NET INTEREST MARGIN, WAS ABATED
BY ADDITIONAL STAFFING EXPENSES AND AN INTERCOMPANY TAX ALLOCATION AS IT
REPORTED NET INCOME OF $84,670 FOR THE FIRST NINE MONTHS OF 1995 COMPARED
TO NET INCOME OF $35,056 FOR THE COMPARABLE PERIOD IN 1994.
NET INTEREST INCOME INCREASED $1,068,469 (46.0%). AVERAGE EARNING ASSETS
DECREASED IN THE FIRST NINE MONTHS OF 1995 BY $443,000 FROM THE TOTALS
FOR THE SAME PERIOD IN 1994, WHILE AVERAGE INTEREST BEARING LIABILITIES
DECREASED $6,349,000. INTEREST RATES FOR THE FIRST NINE MONTHS OF 1995
WERE HIGHER OVERALL THAN THOSE IN 1994 ON BOTH ASSETS AND LIABILITIES
WITH EARNING ASSET RATES RISING MORE QUICKLY THAN DEPOSIT RATES.
THE TAXABLE EQUIVALENT NET INTEREST MARGIN INCREASED .75% IN THE
FIRST NINE MONTHS OF 1995 TO 5.47%. FEES ON LOANS INCLUDED IN EARNINGS
WERE $984,000 AND $742,000 IN 1995 AND 1994, RESPECTIVELY.
THE ALLOWANCE FOR LOAN LOSSES IS BASED ON ESTIMATES AND IS DETERMINED BY
MANAGEMENT UTILIZING SUCH FACTORS AS: HISTORICAL LOSSES AND RECOVERIES,
EVALUATION OF INDIVIDUAL LOAN QUALITY, PRESENT ECONOMIC CONDITIONS,
DELINQUENCIES, REVIEWS PERFORMED BY REGULATORY AGENCIES, PORTFOLIO
GROWTH AND THE RELATIONSHIP OF THE ALLOWANCE FOR LOAN LOSSES TO OUT-
STANDING LOANS. THE PROVISION (ADDITIONS TO THE ALLOWANCE) FOR THE FIRST
NINE MONTHS OF 1995 WAS $521,971 COMPARED TO $165,000 FOR THE SAME PERIOD
IN 1994. THE ALLOWANCE FOR LOAN LOSSES WAS $1,444,944 AND $1,605,397 AT
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994, AND REPRESENTED 1.31% AND 1.62%,
RESPECTIVELY, OF NET OUTSTANDING LOANS. CHARGE-OFFS IN THE FIRST NINE
MONTHS OF 1995 WERE $708,767, WHILE RECOVERIES ON LOANS PREVIOUSLY
CHARGED-OFF WERE $26,343. NON-PERFORMING ASSETS, EXCLUDING TROUBLED
DEBT RESTRUCTURINGS, AT SEPTEMBER 30, 1995 WERE $3,282,000 COMPARED TO
$3,362,000 AT DECEMBER 31, 1994. TROUBLED DEBT RESTRUCTURINGS WERE $1,391,000
AT SEPTEMBER 30, 1995 COMPARED TO $312,000 AT DECEMBER 31, 1994 AND WERE
PERFORMING IN COMPLIANCE WITH THE MODIFIED TERMS. THE INCREASE IN
Page 11.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CON'T)
TROUBLED DEBT RESTRUCTURINGS RELATES TO TWO LOANS, WHICH HAD BEEN
PREVIOUSLY CLASSIFIED AS NON-ACCRUAL STATUS, BUT ARE NOW ON A FULL ACCRUAL
BASIS.
OTHER INCOME DECREASED $163,396 TO $1,083,420 AT SEPTEMBER 30, 1995,
PRIMARILY AS A RESULT OF A DECREASE IN NET SECURITY GAINS. PROCEEDS FROM
THE SALE OF AVAILABLE-FOR-SALE SECURITIES WAS $6,982,500 DURING THE FIRST
NINE MONTHS OF 1995 AND GENERATED GROSS GAINS OF $5,795 AND GROSS LOSSES
OF $11,005. ALSO INCLUDED IN NET SECURITY GAINS AT SEPTEMBER 30, 1995 WAS
AN ADDITIONAL WRITE-DOWN OF $54,750 ON TWO MUNICIPAL SECURITIES WITH A
FACE VALUE OF $710,000 WHICH MANAGEMENT VIEWS AS OTHER THAN TEMPORARILY
IMPAIRED SECURITIES (TOTAL WRITE-DOWN TO DATE IS $231,150). PROCEEDS FROM
THE SALE OF AVAILABLE-FOR-SALE SECURITIES WERE $23,127,417 IN THE NINE
MONTHS ENDED SEPTEMBER 30, 1994 AND GENERATED A GROSS GAIN OF $451,335
AND A GROSS LOSS OF $201,910.
GROSS UNREALIZED GAINS ON AVAILABLE-FOR-SALE SECURITIES AND HELD-
TO-MATURITY SECURITIES WERE $187,112 AND $89,466, RESPECTIVELY, AT
SEPTEMBER 30, 1995 COMPARED TO $70,517 AND $17,720 AT DECEMBER 31, 1994.
GROSS UNREALIZED LOSSES WERE $621,509 AND $945,137, RESPECTIVELY,
AT SEPTEMBER 30, 1995 COMPARED TO $1,595,480 AND $3,166,435 AT DECEMBER 31,
1994. INTEREST RATES HAVE RETREATED SIGNIFICANTLY SINCE YEAR-END
IN ALL BUT THE SHORTEST MATURITY RANGES, RESULTING IN A DRAMATIC
IMPROVEMENT IN BOTH THE AVAILABLE-FOR-SALE AND HELD-TO-MATURITY
PORTFOLIOS AT SEPTEMBER 30, 1995. THIS CAN BE INTERPRETED AS A GROWING
CONFIDENCE THAT MEASURES TAKEN IN 1994 AND EARLY 1995 BY THE FEDERAL
RESERVE OPEN MARKET COMMITTEE ARE HAVING THE DESIRED EFFECT UPON
POTENTIAL INFLATIONARY FORCES.
OTHER EXPENSE INCREASED $518,324 TO $7,258,947. SALARIES AND EMPLOYEE
BENEFITS EXPENSE INCREASED $282,968. AN INCREASE IN THE STAFF AT HERITAGE
BANK RELATING TO THE CONTINUED GROWTH OF A LOAN PRODUCTION OFFICE AND
A NEW BRANCH, BOTH OF WHICH WERE OPENED IN 1993, AS WELL AS MODERATE
PAY RAISES, WERE PARTIALLY OFFSET BY A DECREASE IN STAFF AT UPTOWN. THE
INCREASE IN NET OCCUPANCY EXPENSE IS PRIMARILY ATTRIBUTABLE TO BRANCH
RENOVATION EXPENSES AT HERITAGE, PARTIALLY OFFSET BY IMPROVED OPERATING
RESULTS AT THE UPTOWN NATIONAL BUILDING. THE 194,677 INCREASE IN OTHER
OPERATING EXPENSES IS PRIMARILY RELATED TO GAINS RECOGNIZED ON THE SALE
OF OTHER REAL ESTATE AT UPTOWN IN 1994, THAT DECREASED OTHER OPERATING
EXPENSE. THESE SALES RESULTED IN A NONRECURRING GAIN OF $213,700. ALSO
REFLECTED IN THIS CATEGORY WAS A REFUND OF $106,169 RECEIVED FROM THE
F.D.I.C. AFTER IT HAD BEEN DETERMINED THAT THE BANK INSURANCE FUND (B.I.F.)
HAD REACHED ITS CAPITALIZATION TARGET AS OF JUNE 1, 1995, AND THEREFORE
MEMBER INSTITUTIONS WERE ELIGIBLE FOR PARTIAL REFUNDS OF PREMIUMS PAID
FOR THE PERIOD BEGINNING JUNE 1, AND ENDING SEPTEMBER 30, 1995.
Page 12.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CON'T)
INCOME TAX PROVISIONS OF $248,971 AND $191,885 WERE REPORTED FOR SEPTEMBER
30, 1995 AND 1994, RESPECTIVELY. THE EFFECTIVE TAX RATES FOR THESE PERIODS
ARE 26.7% AND 21.3%. THE INCREASE IN EFFECTIVE TAX RATE IS DUE TO PERMANENT
DIFFERENCES IN THE RECOGNITION OF INCOME AND EXPENSE FOR BOOK PURPOSES
AS OPPOSED TO TAX RETURN PURPOSES.
LIQUIDITY
- ---------
THE COMPANY'S BALANCE SHEET INCLUDES LIQUIDITY IN THE FORM OF CASH AND
SHORT-TERM INVESTMENTS. LIQUIDITY IS MAINTAINED TO MEET THE REASONABLE
NEEDS OF BORROWERS AS WELL AS DEPOSITORS. PARENT COMPANY CASH NEEDS
ARE PROVIDED BY DIVIDENDS FROM THE COMPANY'S LARGER SUBSIDIARY, UPTOWN
NATIONAL BANK OF CHICAGO. THIS CASH IS USED TO PAY OPERATING EXPENSES,
PURCHASE TREASURY STOCK OF THE COMPANY, PROVIDE FOR CAPITAL REQUIREMENTS
OF SUBSIDIARIES AND TO PROVIDE CASH DIVIDENDS TO SHAREHOLDERS. THE COM-
PANY HAS NO INFORMATION WHICH WOULD LEAD IT TO BELIEVE IT CANNOT MAIN-
TAIN SUFFICIENT LIQUIDITY FOR THESE NEEDS FOR THE FORESEEABLE FUTURE.
CAPITAL RESOURCES
- -----------------
THE FEDERAL RESERVE BOARD RISK-BASED CAPITAL GUIDELINES CONTAIN
THREE COMPONENTS. THE FIRST IS THE TIER I CAPITAL RATIO WHICH
MUST EQUAL OR EXCEED 4.0%. THIS CALCULATION FOR THE COMPANY AND
ITS SUBSIDIARY BANKS IS THE TOTAL EQUITY CAPITAL LESS GOODWILL
AND DISALLOWED DEFERRED INCOME TAXES DIVIDED BY RISK-WEIGHTED
ASSETS, AS DEFINED. THE SECOND IS THE TIER II CAPITAL WHICH MUST
EQUAL OR EXCEED 8.0%. THIS CALCULATION FOR THE COMPANY AND ITS
SUBSIDIARY BANKS IS THE TOTAL EQUITY CAPITAL LESS GOODWILL AND DIS-
ALLOWED DEFERRED INCOME TAXES PLUS THE ALLOWABLE PORTION OF THE
ALLOWANCE FOR LOAN LOSSES DIVIDED BY RISK-WEIGHTED ASSETS, AS DEFINED.
THE THIRD IS THE TIER I LEVERAGE RATIO WHICH MUST EQUAL OR EXCEED 3.0%.
THIS CALCULATION FOR THE COMPANY AND ITS SUBSIDIARY BANKS IS THE TOTAL
EQUITY CAPITAL LESS GOODWILL AND DISALLOWED DEFERRED INCOME TAXES
DIVIDED BY AVERAGE TOTAL CONSOLIDATED ASSETS, AS DEFINED, LESS GOODWILL
AND DISALLOWED DEFERRED INCOME TAXES. THE FOLLOWING CHART SUMMARIZES
THE REQUIREMENTS AND THE SEPTEMBER 30, 1995 PERCENTAGES FOR THE COMPANY
AND ITS SUBSIDIARY BANKS:
TIER I TIER II TIER I
CAPITAL CAPITAL LEVERAGE
RATIO RATIO RATIO
REQUIREMENT 4.0% 8.0% 3.0%
UPBANCORP, INC. 13.6% 14.7% 8.6%
UPTOWN NATIONAL BANK OF CHICAGO 15.5% 16.6% 8.9%
HERITAGE BANK OF ARIZONA 7.6% 8.7% 6.8%
Page 13.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CON'T)
IN THE FIRST NINE MONTHS OF 1995, THE COMPANY:
1. DECLARED THREE $.50 PER SHARE DIVIDENDS PAYABLE TO
SHAREHOLDERS ON APRIL 1, JULY 1, AND OCTOBER 1, 1995.
IN JUNE, 1992, AT THE REQUEST OF THE FEDERAL RESERVE BANK OF CHICAGO
("RESERVE BANK"), THE COMPANY'S DIRECTORS ADOPTED A RESOLUTION
THAT REQUIRES THE COMPANY TO A.) NOTIFY THE RESERVE BANK IN WRITING
30 DAYS PRIOR TO THE DECLARATION OF DIVIDENDS, B.) PROVIDE PRIOR
WRITTEN APPROVAL OF THE RESERVE BANK BEFORE INCURRING DEBT, AND
C.) PROVIDE QUARTERLY REPORTS OF PAST DUE, NONPERFORMING AND WATCH
LOANS TO THE RESERVE BANK. MANAGEMENT BELIEVES THAT THE COMPANY
HAS BEEN IN COMPLIANCE WITH ALL THE PROVISIONS OF THE RESOLUTION,
WHICH MAY NOT BE AMENDED OR RESCINDED WITHOUT THE PRIOR APPROVAL
OF THE RESERVE BANK.
Page 14.
<PAGE>
PART II - OTHER INFORMATION
---------------------------
ITEM 1 - LEGAL PROCEEDINGS
NONE REQUIRED
ITEM 2 - CHANGES IN SECURITIES
NONE REQUIRED
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
NONE REQUIRED
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE REQUIRED
ITEM 5 - OTHER INFORMATION
NONE REQUIRED
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
NONE REQUIRED OR FILED IN THE QUARTER ENDING
SEPTEMBER 30, 1995
Page 15.
<PAGE>
SIGNATURES
----------
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED.
UPBANCORP, INC. AND SUBSIDIARIES
--------------------------------
(REGISTRANT)
NOVEMBER 3, 1995
BY: /S/ RICHARD K. OSTROM
-----------------------------
RICHARD K. OSTROM, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
Page 16.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 9423585
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 10575000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 32505573
<INVESTMENTS-CARRYING> 39043968
<INVESTMENTS-MARKET> 38188297
<LOANS> 110650196
<ALLOWANCE> 1444944
<TOTAL-ASSETS> 211257967
<DEPOSITS> 185217730
<SHORT-TERM> 5988524
<LIABILITIES-OTHER> 1720802
<LONG-TERM> 0
<COMMON> 2500000
0
0
<OTHER-SE> 15830911
<TOTAL-LIABILITIES-AND-EQUITY> 211257967
<INTEREST-LOAN> 7937159
<INTEREST-INVEST> 3368439
<INTEREST-OTHER> 400709
<INTEREST-TOTAL> 11706307
<INTEREST-DEPOSIT> 3816470
<INTEREST-EXPENSE> 4076469
<INTEREST-INCOME-NET> 7629838
<LOAN-LOSSES> 521971
<SECURITIES-GAINS> (59960)
<EXPENSE-OTHER> 7258947
<INCOME-PRETAX> 932340
<INCOME-PRE-EXTRAORDINARY> 683369
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 683369
<EPS-PRIMARY> 3.08
<EPS-DILUTED> 0
<YIELD-ACTUAL> 8.38
<LOANS-NON> 3282000
<LOANS-PAST> 0
<LOANS-TROUBLED> 1391000
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1605397
<CHARGE-OFFS> 708767
<RECOVERIES> 26343
<ALLOWANCE-CLOSE> 1444944
<ALLOWANCE-DOMESTIC> 1444944
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
