<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the Quarter Ended June 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 August 9, 1996.
<PAGE>
PART I - Financial Information
Item 1. Financial Statements
UPBANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
June 30 December 31,
DOLLARS IN THOUSANDS (UNAUDITED) 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 9,390 $ 7,356
Federal funds sold 3,540 8,100
Securities available-for-sale, at estimated market value 69,868 65,804
Securities held-to-maturity, at amortized cost
(MARKET VALUES OF $200 AND $417 IN 1996 AND 1995, RESPECTIVELY) 200 415
Mortgages held-for-sale 1,292 2,949
Loans, net of unearned discount 122,053 111,208
Allowance for loan losses (1,477) (1,402)
-------- --------
Loans, net 120,576 109,806
Premises, furniture and equipment, net 5,679 5,780
Accrued interest receivable 1,231 1,262
Other real estate owned 230 1,343
Other assets 3,683 3,526
-------- --------
TOTAL ASSETS $215,689 $206,341
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Demand deposits (non-interest bearing) $ 35,290 $32,070
Savings, NOW and money market deposits 96,328 97,037
Other time deposits 51,866 51,666
-------- --------
Total deposits 183,484 180,773
U.S. Treasury tax and loan notes 573 230
Borrowed funds 12,000 5,000
Accrued interest, taxes and other liabilities 1,537 1,904
-------- --------
TOTAL LIABILITIES 197,594 187,907
-------- --------
SHAREHOLDERS' EQUITY
Common stock, $10 par value: 300,000 shares authorized;
222,000 issued and outstanding in 1996 and 1995 2,500 2,500
Capital surplus 3,000 3,000
Retained earnings 14,882 14,714
Treasury stock, at cost - 28,000 shares in 1996 and 1995 (1,394) (1,394)
Unrealized loss on securities available-for-sale, net of tax (893) (386)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 18,095 18,434
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $215,689 $206,341
======== ========
</TABLE>
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 six months ended
June 30, June 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 $ 2,559 $ 2,546 $ 5,173 $ 4,959
Interest on mortgages held-for-sale 13 6 31 6
Interest on federal funds sold 78 139 254 273
Interest on investments:
Taxable 1,045 1,090 1,997 2,242
Non-taxable 20 22 42 41
-------- -------- ------- --------
Total interest on investments 1,065 1,112 2,039 2,283
-------- -------- ------- --------
Total interest income 3,755 3,803 7,497 7,521
-------- -------- ------- --------
INTEREST EXPENSE
Interest on savings, NOW, and money market deposits 556 690 1,096 1,406
Interest on other time deposits 645 597 1,296 1,099
Interest on borrowed funds 77 89 152 173
-------- -------- ------- --------
Total interest expense 1,278 1,376 2,544 2,678
-------- -------- ------- --------
NET INTEREST INCOME 2,477 2,427 4,953 4,843
PROVISION FOR LOAN LOSSES 181 179 329 402
-------- -------- ------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,296 2,248 4,624 4,441
-------- -------- ------- --------
NON-INTEREST INCOME
Service charges on deposit accounts 277 281 562 561
Mortgage banking fees 159 122 296 127
Other operating income 194 100 351 257
Net security losses (125) (5) (125) (60)
-------- -------- ------- --------
Total non-interest income 505 498 1,084 885
-------- -------- ------- --------
NON-INTEREST EXPENSE
Salaries and employee benefits 1,327 1,276 2,745 2,537
Net occupancy expense 136 175 270 330
Equipment expense 215 193 419 383
Other operating expense 842 883 1,646 1,585
-------- -------- ------- --------
Total non-interest expense 2,520 2,527 5,080 4,835
-------- -------- ------- --------
INCOME BEFORE INCOME TAXES 281 219 628 491
Income tax provision 102 41 238 117
-------- -------- ------- --------
NET INCOME $ 179 $ 178 $ 390 $ 374
======== ======== ======= ========
Net income per share $ 0.81 $ 0.80 $ 1.76 $ 1.68
======== ======== ======= ========
Dividends paid per share $ 0.50 $ 0.50 $ 1.00 $ 1.00
======== ======== ======= ========
Average shares outstanding used to compute net income per share 222,000 222,000 222,000 222,000
======== ======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
UPBANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the six months ended
June 30,
DOLLARS IN THOUSANDS (UNAUDITED) 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 390 $ 374
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for loan losses 329 402
Depreciation and amortization 454 572
Net losses on investments available-for-sale 125 60
Provision for deferred income taxes (76) (87)
Amortization and accretion of securities and unearned income (74) (66)
Increase (decrease) in accrued taxes payable (71) 215
Changes in assets and liabilities:
Decrease in accrued interest receivable 31 301
(Increase) decrease in other real estate owned and other assets 1,336 (125)
Increase (decrease) in accrued interest payable (58) 75
Increase (decrease) in other liabilities (238) 110
------- ------
Net cash provided by (used in) operating activities 2,148 1,831
------- ------
CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in Federal funds sold 4,560 4,326
Purchases of investments available-for-sale (24,546) (4,857)
Proceeds from maturities and redemptions
of investments available-for-sale 14,795 3,431
Proceeds from sales of investments available-for-sale 4,878 6,983
Purchases of investment securities held-to-maturity - (389)
Proceeds from maturities and
redemptions of investment securities held-to-maturity 215 3,238
Purchases of loans (67) (122)
Sales of loans and mortgages held-for-sale 15,427 190
Net other increase in loans and mortgages held-for-sale 24,876 (12,076)
Purchases of premises and equipment (332) (258)
------- ------
Net cash provided by (used in) investing activities (9,946) 466
------- ------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in total deposits 2,711 (2,564)
Net increase in other borrowed funds 7,343 104
Cash dividends paid (222) (222)
------- ------
Net cash provided by (used in) financing activities 9,832 (2,682)
------- ------
Net increase (decrease) in cash and due from banks 2,034 (385)
Cash and due from banks at beginning of year 7,356 12,088
------- ------
Cash and due from banks at end of period $ 9,390 $11,703
------- ------
------- ------
Supplemental disclosure of cash flow information:
Interest paid on interest-bearing liabilities $ 2,601 $ 2,603
Income taxes paid 385 42
</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 six months
ended June 30, 1996 390 390
Cash dividends: $1.00 per common share (222) (222)
Unrealized loss on
securities available-for-sale, net of tax (507) (507)
------ ------ ------- ------- ------ ------
BALANCE, JUNE 30, 1996 $2,500 $3,000 $14,882 $(1,394) $(893) 18,095
------ ------ ------- ------- ------ ------
------ ------ ------- ------- ------ ------
</TABLE>
See accompanying notes to consolidated financial statements
UPBANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 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 six
months ended June 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 U. S. Treasury securities outstanding at June 30, 1996 are due on or
before December 31, 1996. The amortized cost and estimated market value of
HELD-TO-MATURITY securities at June 30, were $200,000. In accordance with
Statement of Financial Accounting Standard (SFAS) No. 115, held-to-maturity
securities are carried at their amortized cost.
5
<PAGE>
The amortized cost and estimated market value of securities AVAILABLE-FOR-
SALE are as follows at June 30:
<TABLE>
<CAPTION>
June 30, 1996
----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 9,422 $ - $ 198 $ 9,244
U.S. Government agencies 21,560 - 166 21,394
States and political
subdivisions 1,545 74 318 1,301
Mortgage-backed securities 35,269 88 896 34,461
Other securities 3,517 - 49 3,468
--------- ---------- ---------- --------
Total investment securities $ 71,333 $ 162 $ 1,627 $ 69,868
--------- ---------- ---------- --------
--------- ---------- ---------- --------
</TABLE>
In accordance with SFAS No. 115, the available-for-sale securities are carried
at their fair market value.
NOTE C: LOANS AND NONPERFORMING ASSETS
The following summarizes loans and nonperforming assets at the dates indicated
(dollars in thousands):
June 30, December 31,
1996 1995
--------- ------------
Commercial and industrial $ 34,164 $ 29,609
Real estate - Commercial 20,083 18,769
Real estate - Construction 14,150 16,249
Real estate - Residential mortgages 41,641 34,493
Real estate - Consumer home equity 8,289 7,049
Consumer and all other 4,033 5,271
--------- ------------
122,360 111,440
Less unearned discount (307) (232)
--------- ------------
Total loans $ 122,053 $ 111,208
--------- ------------
--------- ------------
June 30, December 31,
1996 1995
--------- ------------
Nonaccrual loans $ 2,927 $ 2,369
Restructured loans 872 1,430
--------- ------------
Total non-performing loans 3,799 3,799
Non-performing securities, at market value 134 134
Other real estate owned 230 1,343
--------- ------------
Total non-performing assets $ 4,163 $ 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 March 31, 1996 is herein incorporated by reference.
RESULTS OF OPERATIONS
The Registrant's net income was $179,000 for the second quarter of 1996
compared to $178,000 for the same period in 1995. Second quarter net income
per share for 1996 was $.81, a 1.3% increase over last year's $.80.
Year-to-date net income was $390,000 compared to $374,000 a year ago and
earnings per share was $1.76, a 4.8% increase over last year's $1.68. Return
on average equity for the second quarter of 1996 was 3.95% compared to 3.88%
for the second quarter of 1995. Return on assets was .34% for the second
quarter of 1996 and in 1995.
The Registrant's net interest income for the second quarter of 1996 was
$2,477,000, a 2.1% increase over the $2,427,000 recorded in the same period
of 1995. Income from increased average earning assets in the quarter was
offset by a decline in overall interest rates from the prior year quarter.
The net interest margin of 4.49% for the second quarter of 1996 compared to
4.49% of the second 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 $181,000 for the second quarter of 1996 and
$179,000 for the second quarter of 1995. Net credit losses were $200,000 or
.17% of average loans for the second quarter of 1996 compared to $251,000 or
.24% of average loans for the same period a year ago. The allowance for loan
losses as a percent of loans outstanding was 1.21% at June 30, 1996 and 1.26%
at December 31, 1995. Total nonperforming assets as a percent of total assets
was 1.93% at June 30, 1996 compared to 2.56% at December 31, 1995.
Total non-interest income increased 1.4% to $505,000 during the second
quarter of 1996 over the same period a year ago. Total securities losses for
the second quarter of 1996 were $125,000 compared to losses of $5,000 for the
same period of 1995. The security losses were taken in order to reinvest in
higher yielding state-tax exempt investment securities. Excluding security
losses, non-interest income increased 25.2% to $630,000 during the second
quarter of 1996 from the $503,000 earned in the second quarter of 1995.
Total non-interest expense for the second quarter of 1996 decreased .3% to
$2,520,000 over the same period of 1995. Salaries and employee benefits
increased 4.0% to $1,327,000 for the second quarter of 1996 compared to
$1,276,000 in the prior year period. Second quarter net occupancy expense
declined 22.3% to $136,000 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 declined 1.8% to $1,057,000 in the second
quarter of 1996 compared to the $1,076,000 expensed in last year's second
quarter. The Registrant was the benefactor of reduced FDIC insurance premiums
over 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 9.8% or $10,845,000
from year-end 1995. For the first half of 1996, commercial loans increased
15.4% or $4,555,000 and total real estate loans increased $7,603,000 or
9.93%. As a result of increased loan demand, federal funds sold declined
$4,560,000 since December 31, 1995. Total interest-earning assets, net of
unrealized losses on securities, increased 4.7% or $8,827,000 from December
31, 1995.
Total deposits increased $2,711,000 or 1.5% from year-end 1995. Non-interest
bearing deposits increased 10.0% or $3,220,000 and interest bearing deposits
declined .3% or $509,000. Short-term borrowed funds
7
<PAGE>
increased $7,343,000 or 140.4% from December 31, 1995 levels to fund
increases in earning assets. Subsequent to June 30, 1996, Uptown National
Bank of Chicago entered into an agreement with the 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 June 30, 1996, shareholders' equity was $18,095,000 compared to
$18,434,000 at December 31, 1995, a decrease of $339,000, or 1.8%. Total
equity at June 30, 1996 was reduced by an after-tax unrealized loss of
$893,000 on securities available-for-sale. Shareholders' equity as a
percentage of total assets as of June 30, 1996 was 8.4%. The following table
represents the Registrant's consolidated regulatory capital position as of
June 30, 1996.
Regulatory capital at June 30, 1996:
Tier 1 Total
Leverage Risk-Based Risk-Based
Ratio Capital Capital
--------------------------------------
Upbancorp, Inc. ratio 8.81% 13.95% 15.07%
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: August 9, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 9,390
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,540
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 69,868
<INVESTMENTS-CARRYING> 200
<INVESTMENTS-MARKET> 200
<LOANS> 122,053
<ALLOWANCE> 1,477
<TOTAL-ASSETS> 215,689
<DEPOSITS> 183,484
<SHORT-TERM> 12,573
<LIABILITIES-OTHER> 1,537
<LONG-TERM> 0
0
0
<COMMON> 2,500
<OTHER-SE> 15,595
<TOTAL-LIABILITIES-AND-EQUITY> 215,689
<INTEREST-LOAN> 5,173
<INTEREST-INVEST> 2,039
<INTEREST-OTHER> 285
<INTEREST-TOTAL> 7,497
<INTEREST-DEPOSIT> 2,392
<INTEREST-EXPENSE> 2,544
<INTEREST-INCOME-NET> 4,953
<LOAN-LOSSES> 329
<SECURITIES-GAINS> (125)
<EXPENSE-OTHER> 5,080
<INCOME-PRETAX> 628
<INCOME-PRE-EXTRAORDINARY> 628
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 390
<EPS-PRIMARY> 1.76
<EPS-DILUTED> 1.76
<YIELD-ACTUAL> 7.8
<LOANS-NON> 2,927
<LOANS-PAST> 20
<LOANS-TROUBLED> 872
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,402
<CHARGE-OFFS> 281
<RECOVERIES> 27
<ALLOWANCE-CLOSE> 1,477
<ALLOWANCE-DOMESTIC> 1,477
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
