<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
---------
For the quarter ended September 30, 1997 Commission file number 01-12292
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 (773) 878-2000
- ------------------------------------------ ---------------
(Address of principal executive offices)(zip code) (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 thousand
seven hundred (220,700) common shares were outstanding as of November 3, 1997.
<PAGE>
PART 1 - Financial Information
Item 1. Financial Statements
UPBANCORP, INC.
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
September 30,
1997 December 31,
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (Unaudited) 1996
- ----------------------------------------- ------------- -------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 8,825 $ 9,804
Federal funds sold 1,602 9,550
Securities available-for-sale 57,355 65,856
Securities held-to-maturity
(FAIR VALUE OF $200 AND $0 IN 1997 AND 1996) 200 0
Mortgages held-for-sale 2,042 1,001
Loans (net of allowance for loan losses of
$1,842 and $1,485 in 1997 and 1996) 148,773 129,584
Premises and equipment, net 5,120 5,501
Other assets 4,778 5,099
-------- ---------
TOTAL ASSETS $228,695 $226,395
-------- ---------
-------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Demand deposits $ 40,334 $ 40,009
Savings, NOW and money market deposits 99,917 100,519
Other time deposits 59,849 54,774
-------- ---------
Total deposits 200,100 195,302
Borrowed funds 5,978 10,561
Accrued interest and other liabilities 2,170 1,676
-------- ---------
TOTAL LIABILITIES 208,248 207,539
-------- ---------
SHAREHOLDERS' EQUITY
Common stock, $10 par value: 300,000 shares authorized:
250,000 issued in 1997 and 1996 2,500 2,500
Additional paid in capital 3,000 3,000
Retained earnings 16,493 15,425
Treasury stock - 29,300 shares in 1997 and 1996 (1,480) (1,480)
Unrealized loss on securities available-for-sale,
net of tax of $(43) and $(376) in 1997 and 1996 (66) (589)
-------- ---------
TOTAL SHAREHOLDERS' EQUITY 20,447 18,856
-------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $228,695 $226,395
-------- ---------
-------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2.
<PAGE>
UPBANCORP, INC.
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) 1997 1996 1997 1996
- --------------------------------------------------------- ------- ------ ------ ------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $3,522 $3,001 $9,909 $8,131
Interest on mortgages held for sale 22 9 54 40
Interest on federal funds sold 93 34 355 288
Interest and dividends on investments
Taxable 826 1,035 2,549 3,032
Non-taxable 32 17 85 59
-------- ------- ------- --------
Total interest and dividends on investments 858 1,052 2,634 3,091
-------- ------- ------- --------
Total interest income 4,495 4,096 12,952 11,550
-------- ------- ------- --------
INTEREST EXPENSE
Interest on savings, NOW & MMA 652 584 1,919 1,680
Interest on other time deposits 827 672 2,332 1,968
Interest on other borrowings 78 166 249 318
-------- ------- ------- --------
Total interest expense 1,557 1,422 4,500 3,966
-------- ------- ------- --------
NET INTEREST INCOME 2,938 2,674 8,452 7,584
PROVISION FOR POSSIBLE LOAN LOSSES 49 508 255 837
-------- ------- ------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,889 2,166 8,197 6,747
-------- ------- ------- --------
NONINTEREST INCOME
Service charges on deposit accounts 293 343 905 923
Mortgage Banking Fees 282 169 640 465
Other Noninterest Income 95 91 355 361
Loans Sold Gains (Losses) 72 46 113 149
O.R.E.O. Sold Gains (Losses) 0 18 0 21
Net realized gains (losses) and write-downs on
securities available-for-sale (99) 20 (107) (105)
-------- ------- ------ --------
Total noninterest income 643 687 1,906 1,814
-------- ------- ------- --------
NONINTEREST EXPENSE
Salaries and employee benefits 1,518 1,382 4,404 4,206
Net occupancy expense 196 158 511 429
Other expense
Equipment expense 246 211 508 600
Outside fees & services 210 201 821 592
Advertising & business development expenses 57 65 213 253
Supplies expense 45 56 173 160
Data processing expense 71 68 206 207
Regulatory services/fees 25 13 73 72
Other operating expense 312 431 997 1,146
-------- ------- ------- --------
Total noninterest expense 2,680 2,585 7,906 7,665
-------- ------- ------- --------
INCOME BEFORE INCOME TAXES 852 268 2,197 896
Income tax provision (credit) 311 96 798 334
-------- ------- ------- --------
NET INCOME $541 $172 $1,399 $562
-------- ------- ------- --------
-------- ------- ------- --------
NET INCOME PER SHARE $2.45 $0.78 $6.34 $2.54
-------- ------- ------- --------
-------- ------- ------- --------
WEIGHTED AVERAGE SHARES OUTSTANDING 220,700 221,053 220,700 221,682
-------- ------- ------- --------
-------- ------- ------- --------
CASH DIVIDENDS PAID 110 111 331 333
-------- ------- ------- --------
-------- ------- ------- --------
PAYOUT RATIO 20.33% 64.53% 23.66% 59.25%
-------- ------- ------- --------
-------- ------- ------- --------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3.
<PAGE>
UPBANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
(DOLLARS IN THOUSANDS) (UNAUDITED) 1997 1996
- -------------------------------------------- ------ ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $1,399 $562
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 255 837
Depreciation and amortization 659 699
Net (gain) loss on sale of securities 107 105
Net (gain) loss on sale of mortgage loans (113) (149)
Net (gain) loss on sale of other real estate owned 0 (21)
Change in deferred income taxes 5 (77)
Amortization (Accretion) on investment securities, net (322) (239)
Originations of mortgages held-for-sale (15,829) (15,006)
Proceeds from sales of mortgages held-for-sale 14,901 16,062
Changes in assets and liabilities:
(Increase) decrease in accrued interest receivable and other assets (49) 230
Increase (decrease) in accrued interest payable and other liabilities 494 (319)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,507 2,684
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of and proceeds from time deposits in other banks 0 0
Net (increase) decrease in federal funds sold 7,948 5,300
Purchases of available-for-sale securities (21,505) (26,825)
Proceeds from maturities and redemptions of
available-for-sale securities 15,424 19,808
Proceeds from sale of available-for-sale securities 15,653 12,393
Purchases of held-to-maturity securities (200) 0
Proceeds from maturities and redemptions of
held-to-maturity securities 0 415
Net (increase) decrease in loans (19,444) (19,771)
Purchases of premises and equipment (246) (462)
Proceeds from sale of other real estate 0 1,030
-------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (2,371) (8,112)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in total deposits 4,798 6,693
Net increase (decrease) in other borrowings (4,583) 3,427
Cash dividends paid (331) (333)
Purchase of treasury stock 0 (87)
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (116) 9,700
-------- --------
Net increase (decrease) in cash and due from banks (979) 4,272
Cash and due from banks at beginning of period 9,804 7,356
-------- --------
Cash and due from banks at end of period $8,825 $11,628
-------- --------
-------- --------
Supplemental disclosure of cash flow information:
Cash payments for: Interest $4,421 $3,989
Income taxes 488 520
Supplemental schedule of non-cash investing activities:
Other real estate acquired in settlement of loans $0 $0
-------- --------
-------- --------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4.
<PAGE>
UPBANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY CAPITAL
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<TABLE>
<CAPTION>
Net Unrealized
Gain (Loss)
Additional on Securities
Common Paid In Retained Treasury Available-for-
Stock Capital Earnings Stock Sale, net of tax Total
-------- -------- -------- -------- ---------------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997 $2,500 $3,000 $15,425 ($1,480) ($589) $18,856
Net income for the nine months
ended September 30, 1997 1,399 1,399
Cash dividends: $1.50 per share (331) (331)
Net unrealized gain (loss) on securities
available-for-sale, net of tax of $333 523 523
-------- -------- -------- -------- ---------------- ---------
BALANCE, SEPTEMBER 30, 1997 $2,500 $3,000 $16,493 ($1,480) ($66) $20,447
-------- -------- -------- -------- ---------------- ---------
-------- -------- -------- -------- ---------------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
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 accounting accruals) considered necessary for fair
presentation have been included.
Operating results of the nine months ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997. 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, 1996.
Prior period's amounts included in these financial statements have been
reclassified to place them on a basis consistent with the current period's
financial statements.
NOTE B: ACCOUNTING DEVELOPMENTS
In February, 1997 the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share". SFAS
No. 128 requires the presentation of both basic earnings per share and
diluted earnings per share. Basic earnings per share will be computed by
dividing net income by the weighted average number of common shares
outstanding. Diluted earnings per share will be computed in the same manner
used by the company in computing earnings per share. SFAS 128 will be
effective for the Company's 1997 annual report. If SFAS 128 had been in
effect during the first nine months of 1997, basic earnings per share would
have been $6.34 and diluted earnings per share would have been $6.34.
NOTE C: INVESTMENT SECURITIES
Available-for-Sale Securities
- -----------------------------
The amortized cost and fair value of these are as follows at September 30, 1997:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ------
U. S. Treasury Securities $7,698 $0 $53 $7,645
U. S. Government agencies 28,251 106 9 28,348
States and political subdivisions 2,482 117 0 2,599
Mortgage-backed securities 14,650 17 389 14,278
Other securities 4,383 104 2 4,485
------- ----- ---- -------
Total available-for-sale securities $57,464 $344 $453 $57,355
------- ----- ---- -------
------- ----- ---- -------
In accordance with SFAS No. 115 these securities are carried at their fair
value.
5.
<PAGE>
HELD-TO-MATURITY SECURITIES
- ----------------------------
The amortized cost and fair value of these are as follows at September 30, 1997:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- --------- ----------- -------
U. S. Treasury Securities $200 $0 $0 $200
--------- --------- ----------- -------
Total held-to-maturity securities $200 $0 $0 $200
--------- --------- ----------- -------
--------- --------- ----------- -------
In accordance with SFAS No. 115 these securities are carried at their amortized
cost.
NOTE D: LOANS AND NON-PERFORMING ASSETS
The following summarizes loans at the dates indicated:
Sept. 30, December 31,
1997 1996
--------- ------------
Commercial and industrial $48,671 $39,498
Real Estate - Construction 8,809 9,829
Real Estate - Residential (1 to 4 family) 34,441 34,071
Real Estate - Residential (5 or more) 25,189 19,736
Real Estate - Non-Residential 28,188 23,987
Consumer and all other, net of unearned discount 5,317 3,948
--------- ------------
Total loans 150,615 131,069
Less: Allowance for loan losses (1,842) (1,485)
--------- ------------
Total loans, net of allowance for loan losses $148,773 $129,584
--------- ------------
--------- ------------
The following summarizes the analysis of the allowance for loan losses for the
nine months ended:
Sept. 30, Sept. 30,
1997 1996
-------- ---------
Balance at beginning of year $1,485 $1,402
Charge-offs:
Commercial and industrial 10 256
Real Estate - Residential (5 or more) 0 607
Consumer and all other, net of unearned discount 13 20
-------- ---------
Total charge-offs 23 883
Recoveries:
Commercial and industrial 38 32
Real Estate - Residential (5 or more) 86 0
Consumer and all other, net of unearned discount 1 0
-------- ---------
Total recoveries 125 32
Net recoveries(charge-offs) 102 (851)
Provision for loan losses 255 837
-------- ---------
Balance at end of period $1,842 $1,388
-------- ---------
-------- ---------
The following summarizes non-performing assets at the dates indicated:
Sept. 30, December 31,
1997 1996
-------- ------------
Nonaccrual loans $296 $1,158
Restructured loans 911 954
-------- ----------
Total non-performing loans 1,207 2,112
Non-performing securities, at market value 0 134
Other real estate owned 334 334
-------- ----------
Total non-performing assets $1,541 $2,580
-------- ----------
-------- ----------
6.
<PAGE>
ITEM 2. MANAGEMENT'S 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 September 30, 1996 is incorporated by reference.
RESULTS OF OPERATIONS
The Registrant's net income for the period ended September 30, 1997 was
$1,399,000 compared to $562,000 in 1996. Net income per share was $6.34, a
150% increase over last year's $2.54. Return on average equity was 9.58% in
1997 compared to 4.08% in 1996. Return on average assets was .83% for 1997
compared to .35% in the previous year.
The Registrant's net interest income was $8,452,000 for the first nine months
of 1997, an increase of 11.44% over the $7,584,000 registered in the same
period of 1996. Income from an increase in average earning assets and a
higher net margin of 5.50% in 1997, as compared to 5.31% earned in the
comparable period of 1996, were contributing factors in this year's
improvement. A continuation of strong growth in the loan portfolio,
particularly in the commercial and industrial category, and a decrease of
almost $2,000,000 in average non-performing assets in 1997 as compared to
1996, were the main components of both net interest income and net margin
improvement.
The provision for loan losses was $255,000 in 1997 and $837,000 in 1996. Net
credit recoveries were $102,000 for the first nine months of 1997 as compared
to net losses of $851,000 in 1996. The 1996 figures reflect a write-off of
$602,000 related to one credit and a specific provision of $353,000 to
replenish the allowance. The allowance for loan losses as a percent of total
loans was 1.22% at September 30, 1997 and 1.13% at December 31, 1996. Total
non-performing assets as a percent of total assets were .67% at September 30,
1997 and 1.14% at December 31, 1996.
Total noninterest income increased 5.07% to $1,906,000 for the first nine
months of 1997 over the previous year. Net securities losses totalled
$107,000 for 1997 compared to a net loss of $105,000 in the previous year.
The securities activity was taken in order to benefit from the flattening of
the yield curve in the past year and reinvest in higher yielding state
tax-exempt securities with a shorter term. Excluding, securities activity,
noninterest income increased 4.90% over the previous year.
Total noninterest expense for the first nine months of 1997 increased 3.14%
to $7,906,000 from the year earlier period. Salaries and employee benefits
and net occupancy expense were essentially unchanged from 1996 to 1997. Other
expense decreased 1.29% to $2,991,000 in the first nine months of 1997 from
$3,030,000 in 1996. The decrease in equipment expense resulted from lower
depreciation expense and a lease on computer equipment which was not renewed
at its expiration. Outside fees and services increased as a result of the
company entering into a contract with a service to examine technological and
operational procedures, to improve efficiency and profitability in the future.
BALANCE SHEET CHANGES
Total assets were $228 million at quarter-end compared to $226 million at
December 31, 1996. The decrease in securities from year-end 1996 is due to
matured and sold investments, the proceeds of which were used primarily to
pay off short-term borrowings and also fund the continued growth in loans.
Total deposits increased $4,798,000 or 2.46% from year-end. Noninterest
bearing deposits increased slightly, .81% or $325,000 and interest bearing
deposits increased 2.88% or $4,473,000. Borrowed funds decreased $4,583,000
from December 31, 1996 levels.
7.
<PAGE>
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 core deposits,
funds borrowed, certificates of deposit and public fund deposits.
At September 30, 1997, shareholders' equity was $20,447,000 compared to
$18,856,000 at December 31, 1996, an increase of $1,591,000 or 8.44%. Total
equity at quarter-end was reduced by an unrealized loss after-tax of $66,000
on securities available-for-sale. Shareholders' equity as a percentage of
total assets at September 30, 1997 was 8.94%. The following table represents
the Registrant's consolidated regulatory capital position as of September 30,
1997.
Regulatory capital at September 30, 1997:
Tier 1 Total
Leverage Risk-based Risk-based
Ratio Capital Capital
-------- ---------- ----------
Upbancorp, Inc. ratio 8.9% 12.9% 14.0%
Regulatory minimum ratio 4.0% 4.0% 8.0%
Ratio considered "well- capitalized" 5.0% 6.0% 10.0%
FORWARD LOOKING STATEMENTS
Statements made about the Registrant's future economic performance, strategic
plans or objectives, revenue or earnings projections, or other financial
items and similar statements are not guarantees of future performance, but
are forward looking statements. By their nature, these statements are subject
to numerous uncertainties that could cause actual results to differ
materially from those in the statements. Important factors that might cause
the Registrant's actual results to differ materially include, but are not
limited to, the following:
- Federal and state legislative and regulatory developments;
- Changes in management's estimate of the adequacy of the allowance for
loan losses(and/or other significant estimates such as O.R.E.,
deferred tax valuation allowance, etc);
- Changes in the level and direction of loan delinquencies and
write-offs;
- Interest rate movements and their impact on customer behavior and
Upbancorp's net interest margin;
- The impact of repricing and competitors' pricing initiatives on loan
and deposit products;
- Upbancorp's ability to adapt successfully to technological changes to
meet customers' needs and developments in the marketplace;
- Upbancorp's ability to access cost effective funding; and
- Economic conditions.
8.
<PAGE>
PART 2. - OTHER INFORMATION
Item 1 - Legal Prceedings
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
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, therunto duly authorized.
Date: November 7, 1997 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 8,825
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,602
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 57,355
<INVESTMENTS-CARRYING> 200
<INVESTMENTS-MARKET> 200
<LOANS> 150,615
<ALLOWANCE> 1,842
<TOTAL-ASSETS> 228,695
<DEPOSITS> 200,100
<SHORT-TERM> 5,978
<LIABILITIES-OTHER> 2,170
<LONG-TERM> 0
0
0
<COMMON> 2,500
<OTHER-SE> 17,947
<TOTAL-LIABILITIES-AND-EQUITY> 228,695
<INTEREST-LOAN> 9,909
<INTEREST-INVEST> 2,634
<INTEREST-OTHER> 409
<INTEREST-TOTAL> 12,952
<INTEREST-DEPOSIT> 4,251
<INTEREST-EXPENSE> 4,500
<INTEREST-INCOME-NET> 8,452
<LOAN-LOSSES> 255
<SECURITIES-GAINS> (107)
<EXPENSE-OTHER> 7,906
<INCOME-PRETAX> 2,197
<INCOME-PRE-EXTRAORDINARY> 2,197
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,399
<EPS-PRIMARY> 6.34
<EPS-DILUTED> 6.34
<YIELD-ACTUAL> 8.40
<LOANS-NON> 296
<LOANS-PAST> 0
<LOANS-TROUBLED> 911
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,485
<CHARGE-OFFS> 23
<RECOVERIES> 125
<ALLOWANCE-CLOSE> 1,842
<ALLOWANCE-DOMESTIC> 1,842
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
