<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 MARCH 31, 1996 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
(222,000) COMMON SHARES WERE OUTSTANDING AS OF MAY 1, 1996.
Page 1.
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PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UPBANCORP, INC.
CONSOLIDATED STATEMENTS OF CONDITION
AS OF MARCH 31, 1996 AND DECEMBER 31, 1995
--------------------------------------------
MARCH 31, DECEMBER 31,
1996 1995
ASSETS (UNAUDITED)
- - -------------- ------------- ------------
CASH AND DUE FROM BANKS $7,361,587 $7,356,288
TIME DEPOSITS IN OTHER BANKS 0 0
FEDERAL FUNDS SOLD 6,375,000 8,100,000
AVAILABLE-FOR-SALE SECURITIES:
MORTGAGE-BACKED $35,696,523 $37,130,435
OTHER DEBT SECURITIES 33,737,898 27,716,266
EQUITY SECURITIES 2,706,300 957,000
----------- -----------
TOTAL AVAILABLE-FOR-SALE $72,140,721 $65,803,701
(REPORTED AT FAIR MARKET VALUE)
HELD-TO-MATURITY SECURITIES:
MORTGAGE-BACKED $0 $0
OTHER DEBT SECURITIES 199,961 414,936
----------- -----------
TOTAL HELD-TO-MATURITY $199,961 $414,936
(FAIR MARKET VALUE OF $201,187 AND
$416,734, RESPECTIVELY)
MORTGAGES HELD-FOR-SALE $2,239,929 $2,948,771
LOANS (NET OF UNEARNED DISCOUNT) $109,925,357 $111,207,748
ALLOWANCE FOR LOAN LOSSES (1,496,342) (1,401,739)
------------ ------------
LOANS, NET $108,429,015 $109,806,009
PREMISES AND EQUIPMENT 5,811,255 5,780,384
INTEREST EARNED, NOT COLLECTED 1,275,994 1,261,802
OTHER REAL ESTATE OWNED 603,704 1,342,870
OTHER ASSETS 3,594,726 3,526,231
------------ ------------
TOTAL ASSETS $208,031,892 $206,340,992
------------ ------------
------------ ------------
Page 2.
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PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (CON'T)
UPBANCORP, INC.
CONSOLIDATED STATEMENTS OF CONDITION
AS OF MARCH 31, 1996 AND DECEMBER 31, 1995
----------------------------------------------
MARCH 31, DECEMBER 31,
1996 1995
(UNAUDITED)
------------- ------------
LIABILITIES
- - --------------
DEPOSITS:
DEMAND (NON-INTEREST BEARING) $34,120,493 $32,069,734
SAVINGS, NOW AND MONEY MARKET 96,688,017 97,036,769
OTHER TIME 51,410,541 51,666,300
------------ ------------
TOTAL DEPOSITS $182,219,051 $180,772,803
U.S. TREASURY TAX & LOAN NOTES 606,986 230,399
FEDERAL HOME LOAN BANK ADVANCE 5,000,000 5,000,000
REPURCHASE AGREEMENTS 0 0
ACCRUED INTEREST, TAXES AND
OTHER LIABILITIES 1,841,724 1,903,585
------------ ------------
TOTAL LIABILITIES $189,667,761 $187,906,787
EQUITY CAPITAL
- - --------------
COMMON STOCK - $10 PAR VALUE $2,500,000 $2,500,000
SHARES 3/31/96 12/31/95
----------- -------- --------
AUTHORIZED 300,000 300,000
ISSUED AND
OUTSTANDING 222,000 222,000
SURPLUS 3,000,000 3,000,000
UNDIVIDED PROFITS 14,814,605 14,713,984
NET UNREALIZED HOLDING LOSSES ON
AVAILABLE-FOR-SALE SECURITIES (556,318) (385,623)
TREASURY STOCK - 28,000 SHARES IN BOTH
PERIODS, AT COST (1,394,156) (1,394,156)
------------ ------------
TOTAL EQUITY CAPITAL $18,364,131 $18,434,205
------------ ------------
TOTAL LIABILITIES AND EQUITY CAPITAL $208,031,892 $206,340,992
------------ ------------
------------ ------------
Page 3.
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UPBANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1995
(UNAUDITED)
--------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31,
INTEREST INCOME 1996 1995
- - ------------------------ ---------- ----------
INTEREST AND FEES ON LOANS $2,551,422 $2,424,325
INTEREST ON TIME DEPOSITS IN OTHER BANKS $0 0
INTEREST ON FEDERAL FUNDS SOLD $176,527 133,862
INTEREST ON INVESTMENTS:
TAXABLE $951,417 $1,152,412
NON-TAXABLE $21,806 19,453
----------- -----------
TOTAL INTEREST ON INVESTMENTS $973,223 $1,171,865
----------- -----------
TOTAL INTEREST INCOME $3,701,172 $3,730,052
INTEREST EXPENSE
- - ------------------------
INTEREST ON SAVINGS, NOW AND MONEY MARKET $538,885 $714,971
INTEREST ON OTHER TIME DEPOSITS $651,173 502,394
INTEREST ON OTHER BORROWINGS $75,068 84,378
----------- -----------
TOTAL INTEREST EXPENSE $1,265,126 $1,301,743
----------- -----------
NET INTEREST INCOME $2,436,046 $2,428,309
PROVISION FOR LOAN LOSSES $147,781 222,825
----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN LOSSES $2,288,265 $2,205,484
OTHER INCOME
- - ------------------------
SERVICE CHARGES ON DEPOSIT ACCOUNTS $284,580 $280,154
OTHER OPERATING INCOME $171,350 132,677
LOANS SOLD GAINS (LOSSES) $165,275 16,429
NET SECURITY GAINS (LOSSES) $0 (54,750)
----------- -----------
TOTAL OTHER INCOME $621,205 $374,510
OTHER EXPENSE
- - ------------------------
SALARIES AND EMPLOYEE BENEFITS $1,417,667 $1,134,464
NET OCCUPANCY EXPENSE $134,693 248,371
OTHER OPERATING EXPENSE $1,009,464 925,491
----------- -----------
TOTAL OTHER EXPENSE $2,561,824 $2,308,326
----------- -----------
INCOME BEFORE INCOME TAXES $347,646 $271,668
INCOME TAX PROVISION $136,025 76,090
----------- -----------
NET INCOME $211,621 195,578
----------- -----------
----------- -----------
Page 4.
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UPBANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1995 (CON'T)
(UNAUDITED)
--------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31,
1996 1995
---------- ----------
NET INCOME PER COMMON SHARE (BASED ON
WEIGHTED AVERAGE SHARES OUTSTANDING OF
222,000 IN 1996 AND 1995) $0.95 $0.88
----------- -----------
----------- -----------
Page 5.
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UPBANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
-----------------------------------------------------
1996 1995
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $211,621 $195,578
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
PROVISION FOR LOAN LOSSES 147,781 222,825
DEPRECIATION AND AMORTIZATION 224,959 366,649
NET (GAIN) LOSS ON SECURITIES 0 54,750
(PROVISION)BENEFIT FOR DEFERRED INCOME TAXES 44,114 (57,470)
AMORTIZATION AND ACCRETION OF SECURITIES
AND UNEARNED INCOME (29,152) (13,761)
INCREASE IN ACCRUED TAXES PAYABLE 107,045 73,038
CHANGES IN ASSETS AND LIABILITIES:
(INCREASE) DECREASE IN ACCRUED INTEREST
RECEIVABLE (14,192) 257,621
(INCREASE) DECREASE IN OTHER REAL ESTATE OWNED 739,166 22,729
(INCREASE) DECREASE IN OTHER ASSETS (14,077) (206,776)
(DECREASE) IN ACCRUED INTEREST PAYABLE (29,134) (9,303)
INCREASE(DECREASE) IN OTHER LIABILITIES (139,772) 79,043
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES $1,248,359 $984,923
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASES OF TIME DEPOSITS IN OTHER BANKS $0 $0
PROCEEDS FROM SALES OR MATURITIES
OF TIME DEPOSITS IN OTHER BANKS 0 0
NET (INCREASE)DECREASE IN FEDERAL FUNDS SOLD 1,725,000 505,000
PURCHASES OF AVAILABLE-FOR-SALE SECURITIES (15,113,317) 0
PROCEEDS FROM MATURITIES AND REDEMPTIONS OF
AVAILABLE-FOR-SALE SECURITIES 8,546,522 3,250,749
PROCEEDS FROM SALE OF AVAILABLE-FOR-SALE
SECURITIES 0 0
PURCHASES OF HELD-TO-MATURITY SECURITIES 0 0
PROCEEDS FROM MATURITIES AND REDEMPTIONS OF
HELD-TO-MATURITY SECURITIES 215,000 1,240,047
PURCHASES OF LOANS 0 (54,585)
SALES OF LOANS 7,819,000 153,000
NET OTHER LOAN REPAYMENTS (ADVANCES) (5,901,871) (5,594,360)
PURCHASES OF PREMISES AND EQUIPMENT (245,229) (216,842)
---------- ----------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES ($2,954,895) ($716,991)
CASH FLOWS FROM FINANCING ACTIVITIES:
NET INCREASE (DECREASE) IN TOTAL DEPOSITS $1,446,248 ($2,985,974)
NET INCREASE (DECREASE) IN OTHER BORROWINGS 376,587 (317,430)
CASH DIVIDENDS PAID (111,000) (111,000)
---------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES $1,711,835 ($3,414,404)
---------- ----------
NET INCREASE (DECREASE) IN CASH AND DUE FROM
BANKS $5,299 ($3,146,472)
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD $7,356,288 $12,088,428
---------- ----------
CASH AND DUE FROM BANKS AT END OF PERIOD $7,361,587 $8,941,956
---------- ----------
---------- ----------
Page 6.
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UPBANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY CAPITAL
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
-----------------------------------------------------
1996 1995
----------- -----------
COMMON STOCK
- - ------------
BALANCE JANUARY 1, $2,500,000 $2,500,000
----------- -----------
BALANCE MARCH 31, $2,500,000 $2,500,000
----------- -----------
----------- -----------
SURPLUS
- - -------
BALANCE JANUARY 1, $3,000,000 $3,000,000
----------- -----------
BALANCE MARCH 31, $3,000,000 $3,000,000
----------- -----------
----------- -----------
UNDIVIDED PROFITS
- - -----------------
BALANCE JANUARY 1, $14,713,984 $14,139,680
NET INCOME 211,621 195,578
CASH DIVIDEND DECLARED ON COMMON
STOCK ($.50 PER SHARE IN 1996
AND 1995) (111,000) (111,000)
----------- -----------
BALANCE MARCH 31, $14,814,605 $14,224,258
----------- -----------
----------- -----------
TREASURY STOCK
- - --------------
BALANCE JANUARY 1, ($1,394,156) ($1,394,156)
----------- -----------
BALANCE MARCH 31, ($1,394,156) ($1,394,156)
----------- -----------
----------- -----------
TOTAL EQUITY CAPITAL
- - --------------------
BALANCE JANUARY 1, $18,819,828 $18,245,524
NET INCOME 211,621 195,578
CASH DIVIDEND DECLARED ON COMMON
STOCK ($.50 PER SHARE IN 1996
AND 1995) (111,000) (111,000)
NET UNREALIZED HOLDING GAINS (LOSSES)
ON AVAILABLE-FOR-SALE SECURITIES (556,318) (689,776)
----------- -----------
BALANCE MARCH 31, $18,364,131 $17,640,326
----------- -----------
----------- -----------
Page 7.
<PAGE>
UPBANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
-------------------------------------------------------------
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 1995 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 SFAS NO. 115 "ACCOUNTING FOR CERTAIN
INVESTMENTS IN DEBT AND EQUITY SECURITIES".
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 THE COMPANY'S 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (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 UNREALIZED 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 MARCH 31, 1996 FINANCIAL STATEMENTS WAS TO
DECREASE THE VALUE OF THE AVAILABLE-FOR-SALE SECURITIES BY $911,997 (TO THEIR
FAIR MARKET VALUE OF $72,140,721), TO RECORD A DEFERRED TAX ASSET OF $355,679
(AN EFFECTIVE TAX RATE OF 39% ON THE $911,997 DECREASE), AS WELL AS RECORD A
SEPARATE COMPONENT OF EQUITY CAPITAL OF $(556,318).
AVAILABLE-FOR-SALE SECURITIES
- - ------------------------------
THE AMORTIZED COST AND THE FAIR MARKET VALUE OF AVAILABLE-FOR-SALE SECURITIES AT
MARCH 31, 1996 ARE AS FOLLOWS:
GROSS GROSS FAIR
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ----------- ----------- -----------
U.S. TREASURY $9,433,352 $0 $163,838 $9,269,514
U.S. GOVERNMENT AGENCY 21,596,824 1,751 202,842 21,395,733
STATES AND POLITICAL
SUBDIVISIONS 1,839,888 90,132 318,200 1,611,820
MORTGAGE-BACKED 36,352,354 178,110 492,919 36,037,545
OTHER 1,124,000 0 4,191 1,119,809
EQUITY SECURITIES 2,706,300 0 0 2,706,300
----------- ---------- ---------- -----------
$73,052,718 $269,993 $1,181,990 $72,140,721
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
IN ACCORDANCE WITH SFAS NO. 115, THESE ASSETS ARE CARRIED AT THEIR FAIR MARKET
VALUE.
Page 9.
<PAGE>
UPBANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (CON'T)
--------------------------------------------------------------
HELD-TO-MATURITY SECURITIES
- - ---------------------------
THE AMORTIZED COST AND THE FAIR MARKET VALUE OF HELD-TO-MATURITY SECURITIES AT
MARCH 31, 1996 ARE AS FOLLOWS:
GROSS GROSS FAIR
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ----------- ----------- -----------
U.S. TREASURY $199,961 $1,226 $0 $201,187
----------- ---------- ---------- -----------
$199,961 $1,226 $0 $201,187
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
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. REPORTED NET INCOME OF $211,621 FOR THE THREE MONTH PERIOD
ENDING MARCH 31, 1996. THIS REPRESENTS AN 8.2% INCREASE FROM THE $195,578 EARNED
IN THE SAME PERIOD IN 1995. ON A PER COMMON SHARE BASIS, FIRST QUARTER NET
INCOME INCREASED TO $.95 FROM THE $.88 EARNED IN THE FIRST QUARTER OF 1995.
ANNUALIZED RETURN ON AVERAGE ASSETS FOR THE QUARTER WAS .41% AS COMPARED TO
.38% IN THE SAME PERIOD IN 1995. ANNUALIZED RETURN ON EQUITY WAS 4.59% IN 1996
AND 4.29% IN 1995.
THE RESULTS INCLUDE UPBANCORP, INC'S TWO WHOLLY-OWNED OPERATING SUBSIDIARIES,
UPTOWN NATIONAL BANK OF CHICAGO (UPTOWN) AND HERITAGE BANK (HERITAGE), PHOENIX,
ARIZONA. UPTOWN REPORTED FIRST QUARTER 1996 NET INCOME OF $294,472 COMPARED TO
$361,121 IN THE FIRST THREE MONTHS OF 1995. HERITAGE REPORTED EARNINGS OF $859
COMPARED TO A LOSS OF $73,505 IN THE FIRST THREE MONTHS OF 1996 AND 1995,
RESPECTIVELY. THE VARIANCES WERE LARGELY DUE TO A ONE-TIME INTERCOMPANY TAX
ALLOCATION MADE IN THE 1995 PERIOD.
NET INTEREST INCOME INCREASED $7,737 TO $2,436,046 FROM THE $2,428,309 EARNED IN
THE FIRST QUARTER OF 1995. AVERAGE EARNING ASSETS INCREASED $1,123,000 COMPARED
TO THE SAME PERIOD LAST YEAR WHILE AVERAGE INTEREST-BEARING LIABILITIES
DECREASED $3,684,000. THE TAXABLE EQUIVALENT NET INTEREST MARGIN DECREASED .08%
IN THE FIRST THREE MONTHS OF 1996 TO 5.25%. THE MARGIN WAS COMPRESSED DUE TO A
GREATER DECLINE IN LOAN YIELDS AS COMPARED TO DEPOSIT YIELDS. FEES ON LOANS,
WHICH ARE INCLUDED IN THE CALCULATION OF LOAN YIELDS, AMOUNTED TO $95,000
COMPARED TO $288,000 EARNED IN THE PRIOR YEAR PERIOD. THE LOWER LEVEL OF FEE
INCOME REFLECTS A TEMPORARY SLOWDOWN IN CONSTRUCTION FINANCING ACTIVITY.
THE ALLOWANCE FOR LOAN LOSSES IS ESTABLISHED THROUGH A PROVISION FOR LOAN LOSSES
CHARGED TO EXPENSE. LOANS ARE CHARGED AGAINST THE ALLOWANCE FOR LOAN LOSSES WHEN
MANAGEMENT BELIEVES THAT THE COLLECTIBILITY OF THE LOAN PRINCIPAL IS UNLIKELY.
THE LEVEL OF THE PROVISION FOR LOAN LOSSES CHARGED TO OPERATING EXPENSE AS WELL
AS BALANCES MAINTAINED IN THE ALLOWANCE FOR LOAN LOSSES IS DEPENDENT UPON MANY
FACTORS, INCLUDING LOAN GROWTH, CHANGES IN THE COMPOSITION OF THE LOAN
PORTFOLIO, NET CHARGE-OFF LEVELS, DELINQUENCIES, COLLATERAL VALUES AND
MANAGEMENT'S ASSESSMENT OF CURRENT AND PROSPECTIVE ECONOMIC CONDITIONS IN THE
COMPANY'S PRIMARY MARKET AREAS. THE PROVISION FOR THE FIRST QUARTER WAS $147,781
COMPARED TO $222,825 FOR THE SAME PERIOD IN 1995. THE ALLOWANCE FOR LOAN LOSSES
WAS $1,496,342 AND $1,401,739 AT MARCH 31, 1996 AND DECEMBER 31, 1995,
RESPECTIVELY. THE ALLOWANCE AS A PERCENTAGE OF NET LOANS WAS 1.36% AT MARCH 31,
1996 COMPARED TO 1.26% AT DECEMBER 31, 1995. CHARGE-OFFS IN THE FIRST THREE
MONTHS OF 1996 WERE $54,939, WHILE RECOVERIES ON LOANS PREVIOUSLY CHARGED-OFF
WERE $1,761. NON-PERFORMING LOANS, EXCLUDING TROUBLED DEBT RESTRUCTURINGS, AT
MARCH 31, 1996 WERE $2,473,000 COMPARED TO $2,373,000 AT DECEMBER 31, 1995.
TROUBLED DEBT RESTRUCTURINGS WERE $882,000 AT MARCH 31, 1996 COMPARED TO
$1,430,000 AT DECEMBER 31, 1995 AND WERE PERFORMING IN COMPLIANCE
Page 11.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CON'T)
WITH THE MODIFIED TERMS. THE MAJORITY OF THE DECREASE IN TROUBLED DEBT
RESTRUCTURINGS RELATES TO ONE LOAN, WHICH HAS BEEN PERFORMING IN ACCORDANCE WITH
THE MODIFIED TERMS AND NO LONGER IS REQUIRED TO BE REPORTED AS SUCH.
NON-INTEREST INCOME INCREASED 66% TO $621,205 IN THE FIRST QUARTER OF 1996
COMPARED TO THE PRIOR YEAR'S QUARTER. THE INCREASE IS PRIMARILY DUE TO REVENUE
GENERATED BY MORTGAGE BANKING ACTIVITIES WHICH WERE ESTABLISHED LATE IN THE
FIRST QUARTER OF 1995. THERE WERE NO SALES OF AVAILABLE-FOR-SALE SECURITIES IN
THE FIRST QUARTER OF 1996 OR 1995. THE MARCH 31, 1995 RESULTS REFLECTED A
WRITE-DOWN OF $54,750 ON TWO MUNICIPAL SECURITIES WITH A FACE VALUE OF $710,000
WHICH MANAGEMENT VIEWS AS OTHER THAN TEMPORARILY IMPAIRED (WRITE-DOWN TO DATE IS
$257,500).
GROSS UNREALIZED GAINS ON AVAILABLE-FOR-SALE SECURITIES AND HELD-TO-MATURITY
SECURITIES WERE $269,993 AND $1,226, RESPECTIVELY, AT MARCH 31, 1996 COMPARED TO
$402,321 AND $1,840 AT DECEMBER 31, 1995. GROSS UNREALIZED LOSSES WERE
$1,181,990 AND $-0-, RESPECTIVELY, AT MARCH 31, 1996 COMPARED TO $1,034,489 AND
$42 AT DECEMBER 31, 1995. INTEREST RATES HAVE INCREASED .50% TO .75% SINCE
YEAR-END IN ALL BUT THE SHORTEST MATURITY RANGES, RESULTING IN SOME MARKET VALUE
DETERIORATION IN BOTH THE AVAILABLE-FOR-SALE AND HELD-TO-MATURITY PORTFOLIOS AT
MARCH 31, 1996.
NON-INTEREST EXPENSE INCREASED 11% IN THE FIRST QUARTER OF 1996 COMPARED TO
THE SAME PERIOD LAST YEAR. THE INCREASE IN SALARY AND EMPLOYEE BENEFITS IS
PRIMARILY DUE TO MORTGAGE BANKING OPERATIONS ACQUIRED IN 1995. THE DECREASE
IN NET OCCUPANCY EXPENSE REFLECTS REDUCTIONS IN DEPRECIATION CHARGES COUPLED
WITH INCREASED RENTAL INCOME AT THE UPTOWN BANK BUILDING. THE CHANGE IN OTHER
OPERATING EXPENSES REFLECTS INCREMENTAL INCREASES IN GENERAL OPERATING
EXPENSE; THESE WERE PARTIALLY OFFSET BY A REDUCTION IN F.D.I.C. PREMIUMS AT
BOTH INSTITUTIONS.
INCOME TAX PROVISIONS OF $136,025 AND $76,090 WERE MADE FOR THE PERIODS ENDING
MARCH 31, 1996 AND 1995, RESPECTIVELY. THE EFFECTIVE TAX RATES FOR THESE PERIODS
WERE 39.1% AND 28.0%. THE INCREASE IN EFFECTIVE TAX RATE WAS DUE TO AN INCREASE
IN STATE INCOME TAXES AS WELL AS A DECREASE IN INCOME EXEMPT FROM FEDERAL INCOME
TAXES. THE COMPANY HAS PURCHASED ADDITIONAL SECURITIES EXEMPT FROM FEDERAL
AND/OR STATE TAXES IN AN ATTEMPT TO REDUCE ITS EFFECTIVE TAX RATE IN THE FUTURE.
Page 12.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CON'T)
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 COMPANY HAS NO INFORMATION WHICH WOULD LEAD IT
TO BELIEVE IT CANNOT MAINTAIN SUFFICIENT LIQUIDITY FOR THESE NEEDS FOR THE
FORESEEABLE FUTURE.
CAPITAL RESOURCES
- - -----------------
A STRONG CAPITAL STRUCTURE IS VITAL FOR MANY REASONS, ONE OF WHICH IS TO ALLOW
THE COMPANY THE OPPORTUNITY FOR FUTURE GROWTH. UPBANCORP HAS DEVELOPED A POLICY
TO MANAGE ITS CAPITAL STRUCTURE AND THAT OF ITS SUBSIDIARY BANKS IN ACCORDANCE
WITH REGULATORY GUIDELINES AND TO ENSURE APPROPRIATE USE OF THIS RESOURCE. THE
COMPANY'S CAPITAL POLICY REQUIRES THAT THE COMPANY AND ITS SUBSIDIARY BANKS
MAINTAIN A CAPITAL RATIO IN EXCESS OF THE MINIMUM REGULATORY GUIDELINES. AT
MARCH 31, 1996, ALL ENTITIES EXCEEDED REGULATORY ESTABLISHED MINIMUMS AS DEFINED
FOR "ADEQUATELY CAPITALIZED" INSTITUTUIONS.
THE FOLLOWING ANALYZES THE COMPANY'S AND SUBSIDIARY BANKS' CAPITAL RATIOS FOR
THE PERIOD ENDING MARCH 31, 1996:
TIER I TOTAL
CAPITAL CAPITAL LEVERAGE
RATIO RATIO RATIO
REQUIREMENT 4.0% 8.0% 3.0%
UPBANCORP, INC. 14.0% 15.1% 8.8%
UPTOWN NATIONAL BANK OF CHICAGO 15.6% 16.7% 9.1%
HERITAGE BANK 8.3% 9.5% 6.7%
IN THE FIRST THREE MONTHS OF 1996, THE COMPANY:
1. DECLARED ONE $.50 PER SHARE DIVIDEND PAYABLE TO SHAREHOLDERS ON APRIL
1, 1996.
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.) 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.
Page 13.
<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
At the Annual Meeting of Shareholders held April 16,
1996, the shareholders elected the following persons:
Votes Votes
For Against Abstentions
---------- --------- -----------
Marvin L. Kocian 169,888 0 570
Richard K. Ostrom 169,878 0 580
No other matters were voted on by the shareholders
at the meeting.
ITEM 5 - OTHER INFORMATION
NONE REQUIRED
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
NONE REQUIRED OR FILED IN THE QUARTER ENDING
MARCH 31, 1996
Page 14.
<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.
--------------------------------
(REGISTRANT)
MAY 13, 1996.
BY: /S/ RICHARD K. OSTROM
----------------------------
RICHARD K. OSTROM, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
Page 15.
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<PERIOD-START> JAN-01-1996
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0
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