<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
For the quarter ended June 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 August 6, 1997.
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UPBANCORP, INC.
CONSOLIDATED STATEMENTS OF CONDITION
June 30,
1997 December 31,
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (Unaudited) 1996
- ----------------------------------------- ---------- ------------
ASSETS
Cash and due from banks $9,719 $9,804
Federal funds sold 7,127 9,550
Securities available-for-sale 57,279 65,856
Securities held-to-maturity
(FAIR VALUE OF $200 AND $0 IN 1997 AND 1996) 200 0
Mortgages held-for-sale 1,204 1,001
Loans (net of allowance for loan losses of
$1,678 and $1,485 in 1997 and 1996) 141,089 129,584
Premises and equipment, net 5,290 5,501
Other assets 5,189 5,099
-------- --------
TOTAL ASSETS $227,097 $226,395
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Demand deposits $37,832 $40,009
Savings, NOW and money market deposits 100,974 100,519
Other time deposits 60,272 54,774
-------- --------
Total deposits 199,078 195,302
Borrowed funds 6,057 10,561
Accrued interest and other liabilities 2,246 1,676
-------- --------
TOTAL LIABILITIES 207,381 207,539
-------- --------
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 16,062 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 $(233) and $(376) in 1997 and 1996 (366) (589)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 19,716 18,856
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $227,097 $226,395
======== ========
See accompanying notes to consolidated financial statements
2.
<PAGE>
UPBANCORP, INC.
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) 1997 1996 1997 1996
------------------------- -------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $3,357 $2,600 $6,387 $5,130
Interest on mortgages held for sale 21 13 32 31
Interest on federal funds sold 126 78 262 254
Interest and dividends on investments
Taxable 838 1,045 1,723 1,997
Non-taxable 28 20 53 42
------------------------- -------------------------
Total interest and dividends on investments 866 1,065 1,776 2,039
------------------------- -------------------------
Total interest income 4,370 3,756 8,457 7,454
------------------------- -------------------------
INTEREST EXPENSE
Interest on savings, NOW & MMA 647 556 1,267 1,096
Interest on other time deposits 775 645 1,505 1,296
Interest on other borrowings 80 77 171 152
------------------------- -------------------------
Total interest expense 1,502 1,278 2,943 2,544
------------------------- -------------------------
NET INTEREST INCOME 2,868 2,478 5,514 4,910
PROVISION FOR POSSIBLE LOAN LOSSES 98 181 206 329
------------------------- -------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,770 2,297 5,308 4,581
------------------------- -------------------------
NONINTEREST INCOME
Service charges on deposit accounts 305 295 612 580
Mortgage Banking Fees 197 159 358 296
Other Noninterest Income 101 96 260 270
Loans Sold Gains (Losses) 10 76 41 103
O.R.E.O. Sold Gains (Losses) 0 3 0 3
Net realized gains (losses) and write-downs on
securities available-for-sale 7 (125) (8) (125)
------------------------- -------------------------
Total noninterest income 620 504 1,263 1,127
------------------------- -------------------------
NONINTEREST EXPENSE
Salaries and employee benefits 1,467 1,406 2,886 2,824
Net occupancy expense 174 137 315 271
Other expense
Equipment expense 131 196 262 389
Outside fees & services 355 213 611 391
Advertising & business development expenses 81 84 156 188
Supplies expense 70 53 128 104
Data processing expense 68 66 135 139
Regulatory services/fees 24 35 48 59
Other operating expense 344 330 685 715
------------------------- -------------------------
Total noninterest expense 2,714 2,520 5,226 5,080
------------------------- -------------------------
INCOME BEFORE INCOME TAXES 676 281 1,345 628
Income tax provision (credit) 237 102 487 238
------------------------- -------------------------
NET INCOME $439 $179 $858 $390
========================= =========================
NET INCOME PER SHARE $1.99 $0.81 $3.89 $1.76
========================= =========================
WEIGHTED AVERAGE SHARES OUTSTANDING 220,700 222,000 220,700 222,000
========================= =========================
CASH DIVIDENDS PAID 110 111 221 222
========================= =========================
PAYOUT RATIO 25.06% 62.01% 25.76% 56.92%
========================= =========================
</TABLE>
See accompanying notes to consolidated financial statements
3.
<PAGE>
UPBANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30,
(DOLLARS IN THOUSANDS) (UNAUDITED) 1997 1996
- ---------------------------------- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $858 $390
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 206 329
Depreciation and amortization 408 454
Net (gain) loss on sale of securities 8 125
Net (gain) loss on sale of mortgage loans (41) (103)
Net (gain) loss on sale of other real estate owned 0 (3)
Change in deferred income taxes 0 (76)
Amortization (Accretion) on investment securities, net (221) (148)
Originations of mortgages held-for-sale (15,829) (15,006)
Proceeds from sales of mortgages held-for-sale 15,667 16,766
Changes in assets and liabilities:
(Increase) decrease in accrued interest receivable
and other assets (254) 254
Increase (decrease) in accrued interest payable and
other liabilities 570 (367)
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,372 2,615
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of and proceeds from time deposits in
other banks 0 0
Net (increase) decrease in federal funds sold 2,423 4,560
Purchases of available-for-sale securities (13,168) (24,546)
Proceeds from maturities and redemptions of
available-for-sale securities 14,348 14,795
Proceeds from sale of available-for-sale securities 7,976 4,878
Purchases of held-to-maturity securities (200) 0
Proceeds from maturities and redemptions of
held-to-maturity securities 0 215
Net (increase) decrease in loans (11,711) (11,099)
Purchases of premises and equipment (176) (332)
Proceeds from sale of other real estate 0 1,116
------- -------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (509) (10,413)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in total deposits 3,776 2,711
Net increase (decrease) in other borrowings (4,504) 7,343
Cash dividends paid (221) (222)
Purchase of treasury stock 0 0
------- -------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (949) 9,832
------- -------
Net increase (decrease) in cash and due from banks (85) 2,034
Cash and due from banks at beginning of period 9,804 7,356
------- -------
Cash and due from banks at end of period $9,719 $9,390
======= ======
Supplemental disclosure of cash flow information:
Cash payments for: Interest $2,921 $2,601
Income taxes 281 385
Supplemental schedule of non-cash investing activities:
Other real estate acquired in settlement of loans $0 $0
======= ======
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 six months
ended June 30, 1997 858 858
Cash dividends: $1.00 per share (221) (221)
Net unrealized gain (loss) on securities
available-for-sale, net of tax of $143 223 223
------- ---------- --------- ------- ---------------- -------
BALANCE, JUNE 30, 1997 $2,500 $3,000 $16,062 ($1,480) ($366) $19,716
======= ========= ========= ======== =============== =======
</TABLE>
See accompanying notes to consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 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 six months ended June 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 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 half of
1997, basic earnings per share would have been $3.89 per share and diluted
earnings per share would have been $3.89 per share.
NOTE C: INVESTMENT SECURITIES
AVAILABLE-FOR-SALE SECURITIES
The amortized cost and fair value of these are as follows at June 30, 1997:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
U. S. Treasury Securities $7,201 $0 $84 $7,117
U. S. Government agencies 23,851 37 32 23,856
States and political subdivisions 2,138 80 124 2,094
Mortgage-backed securities 20,127 8 547 19,588
Other securities 4,561 66 3 4,624
--------- ---------- ---------- -------
Total available-for-sale securities $57,878 $191 $790 $57,279
========= ========== ========== ========
</TABLE>
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 June 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:
June 30, December 31,
1997 1996
-------- ------------
Commercial and industrial $45,458 $39,498
Real Estate - Construction 8,503 9,829
Real Estate - Residential (1 to 4 family) 34,843 34,071
Real Estate - Residential (5 or more) 24,779 19,736
Real Estate - Non-Residential 24,743 23,987
Consumer and all other, net of
unearned discount 4,441 3,948
-------- ------------
Total loans 142,767 131,069
Less: Allowance for loan losses (1,678) (1,485)
-------- ------------
Total loans, net of allowance for
loan losses $141,089 $129,584
======== ============
The following summarizes the analysis of the allowance for loan
losses for the six months ended:
June 30, June 30,
1997 1996
-------- ------------
Balance at beginning of year $1,485 $1,402
Charge-offs:
Commercial and industrial 12 256
Real Estate - Residential (5 or more) 0 5
Consumer and all other, net of unearned
discount 6 20
-------- ------------
Total charge-offs 18 281
Recoveries:
Commercial and industrial 4 27
Consumer and all other, net of unearned
discount 1 0
-------- ------------
Total recoveries 5 27
Net charge-offs 13 254
Provision for loan losses 206 329
-------- ------------
Balance at end of period $1,678 $1,477
======== ============
The following summarizes non-performing assets at the dates indicated:
June 30, December 31,
1997 1996
-------- ------------
Nonaccrual loans $363 $1,158
Restructured loans 924 954
-------- ------------
Total non-performing loans 1,287 2,112
Non-performing securities, at market value 69 134
Other real estate owned 334 334
-------- ------------
Total non-performing assets $1,690 $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 June 30, 1996 is incorporated by reference.
RESULTS OF OPERATIONS
The Registrant's net income for the second quarter was $439,000 in 1997
compared to $179,000 in 1996. Earnings per share was $1.99, a 145% increase
over last year's $.81. Return on average equity was 9.04% compared to 3.95%
in 1996. Return on average assets was .78% for the second quarter of 1997
compared to .34% in the previous year.
The Registrant's net interest income was $2,868,000 for the second quarter of
1997, an increase of 15.73% over the $2,478,000 registered in the same period
of 1996. Income from an increase in average earning assets and a higher net
margin of 5.45% in 1997, as compared to 5.27% earned in the comparable period
of 1996, were contributing factors in this years' improvement.
The provision for loan losses was $98,000 in 1997 and $181,000 in 1996. Net
credit losses were $13,000 for the first six months of 1997 and $254,000 in
1996. The allowance for loan losses as a percent of total loans was 1.18% at
June 30, 1997 and 1.13% at December 31, 1996. Total non-performing assets as
a percent of total assets were .74% at June 30, 1997 and 1.14% at December
31, 1996.
Total noninterest income increased 12.07% to $1,263,000 for the first six
months of 1997 over the previous year. Net securities losses totalled $8,000
for 1997 compared to a net loss of $125,000 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 decreased 2.54% over the previous year.
Total noninterest expense for the first six months of 1997 increased 2.87% to
$5,226,000 from the year earlier period. Salaries and employee benefits and
net occupancy expense were essentially unchanged from 1996 to 1997. Other
expense increased 2.01% to $2,025,000 in the first half of 1997 from
$1,985,000 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 $227 million at quarter-end compared to $226 million at
December 31, 1996. The decrease in securities from year-end 1996 is due to
matured 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 $3,776,000 or 1.93% from year-end. Non-interest
bearing deposits decreased 5.44% or $2,177,000 and interest bearing deposits
increased 3.83% or $5,953,000. Borrowed funds decreased $4,504,000 from
December 31, 1996 levels.
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.
7.
<PAGE>
At June 30, 1997, shareholders' equity was $19,716,000 compared to
$18,856,000 at December 31, 1996, an increase of $860,000 or 4.56%. Total
equity at quarter-end was reduced by an unrealized loss after-tax of $366,000
on securities available-for-sale. Shareholders' equity as a percentage of
total assets at June 30, 1997 was 8.68%. The following table represents the
Registrant's consolidated regulatory capital position as of June 30, 1997.
Regulatory capital at June 30, 1997:
Tier 1 Total
Leverage Risk-based Risk-based
Ratio Capital Capital
-------- ---------- ----------
Upbancorp, Inc. ratio 8.8% 12.9% 14.0%
Regulatory minimum ratio 4.0% 4.0% 8.0%
Ratio considered well- capitalized 5.0% 6.0% 10.0%
8.
<PAGE>
PART 2. - 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
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: August 6, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 9,719
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 7,127
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 57,279
<INVESTMENTS-CARRYING> 200
<INVESTMENTS-MARKET> 200
<LOANS> 142,767
<ALLOWANCE> 1,678
<TOTAL-ASSETS> 227,097
<DEPOSITS> 199,078
<SHORT-TERM> 6,057
<LIABILITIES-OTHER> 2,246
<LONG-TERM> 0
0
0
<COMMON> 2,500
<OTHER-SE> 17,216
<TOTAL-LIABILITIES-AND-EQUITY> 227,097
<INTEREST-LOAN> 6,387
<INTEREST-INVEST> 1,776
<INTEREST-OTHER> 294
<INTEREST-TOTAL> 8,457
<INTEREST-DEPOSIT> 2,772
<INTEREST-EXPENSE> 2,943
<INTEREST-INCOME-NET> 5,514
<LOAN-LOSSES> 206
<SECURITIES-GAINS> (8)
<EXPENSE-OTHER> 5,226
<INCOME-PRETAX> 1,345
<INCOME-PRE-EXTRAORDINARY> 1,345
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 858
<EPS-PRIMARY> 3.89
<EPS-DILUTED> 3.89
<YIELD-ACTUAL> 8.34
<LOANS-NON> 363
<LOANS-PAST> 0
<LOANS-TROUBLED> 924
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,485
<CHARGE-OFFS> 18
<RECOVERIES> 5
<ALLOWANCE-CLOSE> 1,678
<ALLOWANCE-DOMESTIC> 1,678
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
