<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the Quarter Ended September 30, 1996 Commission file number 0-12292
UPBANCORP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3207297
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4753 N. BROADWAY, CHICAGO, ILLINOIS 60640
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including
area code: (312) 878-2000
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 thousand
seven hundred (220,700) common shares were outstanding as of November 12,
1996.
<PAGE>
PART I - Financial Information
Item 1. Financial Statements
UPBANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
September 30, December 31,
DOLLARS IN THOUSANDS (UNAUDITED) 1996 1995
- -------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 11,628 $ 7,356
Federal funds sold 2,800 8,100
Securities available-for-sale, at estimated
market value 59,931 65,804
Securities held-to-maturity, at amortized cost
(MARKET VALUES OF $-0- AND $417 IN 1996
AND 1995, RESPECTIVELY) - 415
Mortgages held-for-sale 2,042 2,949
Loans, net of unearned discount 130,128 111,208
Allowance for loan losses (1,388) (1,402)
-------- --------
Loans, net 128,740 109,806
Premises, furniture and equipment, net 5,575 5,780
Accrued interest receivable 1,212 1,262
Other real estate owned 334 1,343
Other assets 3,638 3,526
-------- --------
TOTAL ASSETS $215,900 $206,341
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Demand deposits (non-interest bearing) $ 36,146 $ 32,070
Savings, NOW and money market deposits 97,813 97,037
Other time deposits 53,507 51,666
-------- --------
Total deposits 187,466 180,773
U.S. Treasury tax and loan notes 657 230
Borrowed funds 8,000 5,000
Accrued interest, taxes and other liabilities 1,585 1,904
-------- --------
TOTAL LIABILITIES 197,708 187,907
-------- --------
Shareholders' Equity
Common stock, $10 par value: 300,000 shares
authorized;
issued and outstanding - 220,700 in 1996 and
222,000 in 1995 2,500 2,500
Capital surplus 3,000 3,000
Retained earnings 14,943 14,714
Treasury stock, at cost - 29,300 and 28,000
shares in 1996 and 1995 (1,481) (1,394)
Unrealized loss on securities available-for-sale,
net of tax (770) (386)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 18,192 18,434
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $215,900 $206,341
-------- --------
-------- --------
See accompanying notes to consolidated financial statements
2
<PAGE>
UPBANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) 1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 2,998 $ 2,660 $ 8,171 $ 7,578
Interest on mortgages held-for-sale 12 19 43 25
Interest on federal funds sold 34 128 288 401
Interest on investments:
Taxable 1,036 1,023 3,033 3,306
Non-taxable 16 22 58 63
-------- -------- -------- --------
Total interest on investments 1,052 1,045 3,091 3,369
-------- -------- -------- --------
Total interest income 4,096 3,852 11,593 11,373
-------- -------- -------- --------
INTEREST EXPENSE
Interest on savings, NOW, and money market deposits 584 665 1,680 2,070
Interest on other time deposits 672 646 1,968 1,746
Interest on borrowed funds 166 87 318 260
-------- -------- -------- --------
Total interest expense 1,422 1,398 3,966 4,076
-------- -------- -------- --------
NET INTEREST INCOME 2,674 2,454 7,627 7,297
PROVISION FOR LOAN LOSSES 508 120 837 522
-------- -------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,166 2,334 6,790 6,775
-------- -------- -------- --------
NON-INTERST INCOME
Service charges on deposit accounts 341 286 903 847
Mortgage banking fees 169 206 465 333
Other operating income 157 39 508 296
Net security gains (losses) 20 - (105) (60)
-------- -------- -------- --------
Total non-interest income 687 531 1,771 1,416
-------- -------- -------- --------
NON-INTEREST EXPENSE
Salaries and employee benefits 1,466 1,318 4,211 3,855
Net occupancy expense 159 211 429 541
Equipment expense 181 167 600 550
Other operating expense 779 727 2,425 2,312
-------- -------- -------- --------
Total non-interest expense 2,585 2,423 7,665 7,258
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 268 442 896 933
Income tax provision 96 132 334 249
-------- -------- -------- --------
NET INCOME $ 172 $ 310 $ 562 $ 684
-------- -------- -------- --------
-------- -------- -------- --------
Net income per share $ 0.78 $ 1.40 $ 2.54 $ 3.08
-------- -------- -------- --------
-------- -------- -------- --------
Dividends paid per share $ 0.50 $ 0.50 $ 1.00 $ 1.00
-------- -------- -------- --------
-------- -------- -------- --------
Average shares outstanding used to compute net income per share 221,053 222,000 221,682 222,000
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
UPBANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the nine months ended
September 30,
(DOLLARS IN THOUSANDS) (UNAUDITED) 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 562 $ 684
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for loan losses 837 522
Depreciation and amortization 699 817
Net losses on investments available-for-sale 105 60
Provision (benefit) for deferred income taxes (77) 73
Amortization and accretion of securities and unearned income (122) (154)
Increase (decrease) in accrued taxes payable (221) 267
Changes in assets and liabilities:
Decrease in accrued interest receivable 50 254
(Increase) decrease in other real estate owned and other assets 1,189 (363)
Increase (decrease) in accrued interest payable (24) 94
Increase (decrease) in other liabilities (74) 283
--------- --------
Net cash provided by (used in) operating activities 2,924 2,537
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in Federal funds sold 5,300 (1,570)
Purchases of investments available-for-sale (26,825) (4,857)
Proceeds from maturities and redemptions
of investments available-for-sale 19,808 3,737
Proceeds from sales of investments available-for-sale 12,393 6,983
Purchases of investment securities held-to-maturity - (389)
Proceeds from maturities and
redemptions of investment securities held-to-maturity 415 4,990
Purchases of loans (108) (146)
Sales of loans and mortgages held-for-sale 19,742 661
Net other increase in loans and mortgages held-for-sale (38,615) (13,313)
Purchases of premises and equipment (462) (330)
--------- --------
Net cash provided by (used in) investing activities (8,352) (4,234)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in total deposits 6,693 (869)
Net increase in other borrowed funds 3,427 233
Purchase of treasury stock (87) -
Cash dividends paid (333) (333)
--------- --------
Net cash provided by (used in) financing activities 9,700 (969)
--------- --------
Net increase (decrease) in cash and due from banks 4,272 (2,666)
Cash and due from banks at beginning of year 7,356 12,088
--------- --------
Cash and due from banks at end of period $ 11,628 $ 9,422
--------- --------
--------- --------
Supplemental disclosure of cash flow information:
Interest paid on interest-bearing liabilities $ 3,989 $ 3,982
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
UPBANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (Unaudited)
<TABLE>
<CAPTION>
Unrealized
Loss on
Securities
Common Undivided Treasury Available-for-
Stock Surplus Profits Stock Sale, Net of Tax Total
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1996 2,500 3,000 14,714 (1,394) (386) 18,434
Net income for the nine months
ended September 30, 1996 562 562
Cash dividends: $1.00 per common share (333) (333)
Unrealized loss on -
securities available-for-sale, net of tax (384) (384)
Purchase of treasury stock (87) (87)
-------- -------- --------- -------- ------------- ------
BALANCE, SEPTEMBER 30, 1996 $ 2,500 $ 3,000 $ 14,943 $ (1,481) $ (770) 18,192
-------- -------- --------- -------- ------------- ------
-------- -------- --------- -------- ------------- ------
</TABLE>
See accompanying notes to consolidated financial statements
URBANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1996
NOTE A: BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consistent of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results of the three and nine months ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1996. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the year ended December 31, 1995.
Prior period's amounts included in these financial statements have been
reclassified to place them on a basis comparable with the current periods'
financial statements.
NOTE B. INVESTMENT SECURITIES
The amortized cost and estimated market value of securities AVAILABLE-FOR-
SALE are as follows at September 30:
September 30, 1996
-----------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
-----------------------------------------------
U.S. Treasury securities $ 9,449 $ - $ 160 $ 9,289
U.S. Government agencies 18,682 2 127 18,557
States and political
subdivisions 2,261 78 326 2,013
Mortgage-backed securities 26,717 15 723 26,009
Other securities 4,085 - 22 4,063
--------- ----- -------- ---------
Total investment securities $ 61,194 $ 95 $ 1,358 $ 59,931
--------- ----- -------- ---------
--------- ----- -------- ---------
In accordance with SFAS No. 115, the available-for-sale securities are carried
at their fair market value.
5
<PAGE>
NOTE C: LOANS AND NONPERFORMING ASSETS
The following summarizes loans and nonperforming assets at the dates indicated
(dollars in thousands):
September 30, December 31,
1996 1995
---------- ----------
Commercial and industrial $ 36,274 $ 29,609
Real estate - Commerical 24,421 18,769
Real estate - Construction 13,413 16,249
Real estate - Residential mortgages 41,381 34,493
Real estate - Consumer home equity 10,711 7,049
Consumer and all other 4,277 5,271
---------- ----------
130,477 111,440
Less unearned discount (349) (232)
---------- ----------
Total loans $ 130,128 $ 111,208
---------- ----------
---------- ----------
September 30, December 31,
1996 1995
---------- ----------
Nonaccrual loans $ 1,588 $ 2,369
Restructured loans 861 1,430
---------- ----------
Total non-performing loans 2,449 3,799
Non-performing securities, at market value 134 134
Other real estate owned 334 1,343
---------- ----------
Total non-performing assets $ 2,917 $ 5,276
---------- ----------
---------- ----------
6
<PAGE>
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following is management's discussion and analysis of certain significant
factors which have affected the Registrant's financial condition and results of
operations during the periods included in the consolidated financial statements
included in this filing. The Registrant's form 10-Q for the quarterly period
ended June 30, 1996 is herein incorporated by reference.
RESULTS OF OPERATIONS
The Registrant's net income was $172,000 for the third quarter of 1996 compared
to $310,000 for the same period in 1995. Third quarter net income per share for
1996 was $.78, a 44.3% decrease over last year's $1.40. Year-to-date net income
was $562,000 compared to $684,000 a year ago and earnings per share was $2.54, a
17.5% decrease over last year's $3.08. Return on average equity for the third
quarter of 1996 was 3.04% compared to 6.72% for the third quarter of 1995.
Return on assets was .26% for the third quarter of 1996 and .59% in 1995.
The Registrant's net interest income for the third quarter of 1996 was
$2,674,000, an 8.9% increase over the $2,454,000 recorded in the same period of
1995. Income from increased average earning assets in the quarter was partially
offset by a decline in overall interest rates from the prior year quarter. The
net interest margin of 5.38% for the third quarter of 1996 compared to 5.22% of
the third quarter of 1995. Interest rates earned on assets declined in
proportion to rates paid on deposit products and other borrowed funds.
The provision for loan losses was $508,000 for the third quarter of 1996 and
$120,000 for the third quarter of 1995. Net credit losses were $597,000 or .46%
of average loans for the third quarter of 1996 compared to $422,000 or .39% of
average loans for the same period a year ago. The allowance for loan losses as a
percent of loans outstanding was 1.07% at September 30, 1996 and 1.26% at
December 31, 1995. Total nonperforming assets as a percent of total assets was
1.35% at September 30, 1996 compared to 2.56% at December 31, 1995.
Total non-interest income increased 29.3% to $687,000 during the third quarter
of 1996 over the same period a year ago. Total securities gains for the third
quarter of 1996 were $20,000 compared to none for the same period of 1995. The
security gains were taken in order to fund loan growth. Excluding security
gains, non-interest income increased 25.6% to $667,000 during the third quarter
of 1996 from the $531,000 earned in the third quarter of 1995.
Total non-interest expense for the third quarter of 1996 increased 6.7% to
$2,585,000 over the same period of 1995. Salaries and employee benefits
increased 11.2% to $1,466,000 for the third quarter of 1996 compared to
$1,318,000 in the prior year period. Third quarter net occupancy expense
declined 24.6% to $159,000 from prior year levels due to higher rental income at
the Uptown Bank Building and lower depreciation expenses associated with the
building. Excluding salaries and employee benefits and occupancy expense, total
other non-interest expenses increased 7.3% to $960,000 in the third quarter of
1996 compared to the $894,000 expensed in last year's third quarter. The
Registrant was the benefactor of an FDIC insurance premium refund in the prior
year period.
BALANCE SHEET CHANGES
Total assets were $216 million at quarter-end compared to total assets of $206
million at December 31, 1995. Total loans increased 17% or $18,920,000 from
year-end 1995. For the first three quarters of 1996, commercial loans increased
22.5% or $6,665,000 and total real estate loans increased $13,366,000 or 16.8%.
As a result of increased loan demand, federal funds sold declined $5,300,000
since December 31, 1995. Total interest-earning assets, net of unrealized losses
on securities, increased 4.2% or $7,837,000 from December 31, 1995.
Total deposits increased $6,693,000 or 3.7% from year-end 1995. Non-interest
bearing deposits increased 12.7% or $4,076,000 and interest bearing deposits
increased 1.7% or $2,617,000. Short-term borrowed funds increased $3,427,000 or
65.5% from December 31, 1995 levels to fund increases in earning assets. During
the third quarter of 1996, Uptown National Bank of Chicago entered into an
agreement with the
7
<PAGE>
Federal Home Loan Bank of Chicago to borrow on a short-term basis an
additional $5,000,000 to fund loan growth. This borrowing is matched by
scheduled maturities within the securities portfolio; proceeds from these
maturing securities will then liquidate this advance.
LIQUIDITY AND CAPITAL RESOURCES
The maintenance of an adequate level of liquidity is necessary to ensure that
sufficient funds are available to meet customers' loan demand and deposit
withdrawals. The banking subsidiaries' liquidity sources consist of investment
securities, maturing loans, and other short-term investments. Liquidity has also
been obtained through liabilities such as customer-related core deposits, funds
borrowed, certificates of deposit and public funds deposits.
At September 30, 1996, shareholders' equity was $18,192,000 compared to
$18,434,000 at December 31, 1995, a decrease of $242,000, or 1.3%. Total equity
at September 30, 1996 was reduced by an after-tax unrealized loss of $770,000 on
securities available-for-sale. Shareholders' equity as a percentage of total
assets as of September 30, 1996 was 8.4%. The following table represents the
Registrant's consolidated regulatory capital position as of September 30, 1996.
Regulatory capital at September 30, 1996:
Tier 1 Total
Leverage Risk-Based Risk-Based
Ratio Capital Capital
-----------------------------------------
Upbancorp, Inc. ratio 8.49% 13.33% 14.33%
Regulatory minimum ratio 3.00% 4.00% 8.00%
Ratio considered "well
capitalized" by
regulatory agencies 5.00% 6.00% 10.00%
In June, 1992, at the request of the Federal Reserve Bank of Chicago
("Reserve Bank"), the Registrant's directors adopted a resolution that
requires the Registrant to notify the Reserve Bank in writing 30 days prior
to the declaration of dividends and to obtain prior written approval of the
Reserve Bank before incurring debt. 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.
8
<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
Exhibit 16 to Form 8-K filed on August 5, 1996.
9
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) 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.
Date: November 12, 1996 UPBANCORP, INC.
---------------
(The Registrant)
/s/ Richard K. Ostrom
---------------------
Richard K. Ostrom
President and Chief
Executive Officer
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 11,628
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,800
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 59,931
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 130,128
<ALLOWANCE> 1,388
<TOTAL-ASSETS> 215,900
<DEPOSITS> 187,466
<SHORT-TERM> 8,657
<LIABILITIES-OTHER> 1,585
<LONG-TERM> 0
0
0
<COMMON> 2,500
<OTHER-SE> 15,692
<TOTAL-LIABILITIES-AND-EQUITY> 215,900
<INTEREST-LOAN> 8,171
<INTEREST-INVEST> 3,091
<INTEREST-OTHER> 331
<INTEREST-TOTAL> 11,593
<INTEREST-DEPOSIT> 3,648
<INTEREST-EXPENSE> 3,966
<INTEREST-INCOME-NET> 7,627
<LOAN-LOSSES> 837
<SECURITIES-GAINS> (105)
<EXPENSE-OTHER> 7,665
<INCOME-PRETAX> 896
<INCOME-PRE-EXTRAORDINARY> 896
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 562
<EPS-PRIMARY> 2.54
<EPS-DILUTED> 2.54
<YIELD-ACTUAL> 8.25
<LOANS-NON> 1,588
<LOANS-PAST> 12
<LOANS-TROUBLED> 861
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,402
<CHARGE-OFFS> 883
<RECOVERIES> 32
<ALLOWANCE-CLOSE> 1,388
<ALLOWANCE-DOMESTIC> 1,388
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
