<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
For the quarter ended March 31, 1997 Commission file number 01-12292
UPBANCORP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
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)
</TABLE>
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 May 7, 1997.
<PAGE>
PART 1 - Financial Information
Item 1. Financial Statements
UPBANCORP, INC.
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
March 31,
1997 December 31,
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (Unaudited) 1996
- -------------------------------------------------- -------------- ---------------
<S> <C> <C>
ASSETS
Cash and due from banks $8,340 $9,804
Federal funds sold 10,432 9,550
Securities available-for-sale 58,485 65,856
Securities held-to-maturity
(FAIR VALUE OF $198 AND $0 IN 1997 AND 1996) 200 0
Mortgages held-for-sale 1,476 1,001
Loans (net of allowance for loan losses of
$1,584 and $1,485 in 1997 and 1996) 133,795 129,584
Premises and equipment, net 5,435 5,501
Other assets 5,291 5,099
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TOTAL ASSETS $223,454 $226,395
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LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Demand deposits $35,157 $40,009
Savings, NOW and money market deposits 103,566 100,519
Other time deposits 57,956 54,774
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Total deposits 196,679 195,302
Borrowed funds 5,556 10,561
Accrued interest and other liabilities 1,977 1,676
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TOTAL LIABILITIES 204,212 207,539
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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 15,734 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 $(327) and $(376) in 1997 and 1996 (512) (589)
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TOTAL SHAREHOLDERS' EQUITY 19,242 18,856
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $223,454 $226,395
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</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2.
<PAGE>
UPBANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31,
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) 1997 1996
- ------------------------------------------------------------------------- ---------- ---------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $3,030 $2,530
Interest on mortgages held-for-sale 11 18
Interest on federal funds sold 136 176
Interest and dividends on investments
Taxable 885 952
Non-taxable 25 22
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Total interest and dividends on investments 910 974
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Total interest income 4,087 3,698
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INTEREST EXPENSE
Interest on savings, NOW & money market accounts 620 540
Interest on other time deposits 730 651
Interest on other borrowings 91 75
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Total interest expense 1,441 1,266
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NET INTEREST INCOME 2,646 2,432
PROVISION FOR POSSIBLE LOAN LOSSES 108 148
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NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,538 2,284
---------- ---------
NON-INTEREST INCOME
Service charges on deposit accounts 307 285
Mortgage banking fees 161 137
Other non-interest income 159 174
Loans sold gains (losses) 31 27
O.R.E.O. sold gains (losses) 0 0
Net realized gains (losses) and write-downs on securities available-for-sale (15) 0
---------- ---------
Total non-interest income 643 623
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NON-INTEREST EXPENSE
Salaries and employee benefits 1,419 1,418
Net occupancy expense 141 134
Other expense
Equipment expense 131 193
Outside fees & services 256 178
Advertising & business development expenses 75 104
Supplies expense 58 51
Data processing expense 67 73
Regulatory services/fees 24 24
Other operating expense 341 385
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Total non-interest expense 2,512 2,560
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INCOME BEFORE INCOME TAXES 669 347
Income tax provision 250 136
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NET INCOME $419 $211
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---------- ---------
NET INCOME PER SHARE $1.90 $0.95
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WEIGHTED AVERAGE SHARES OUTSTANDING 220,700 222,000
---------- ---------
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CASH DIVIDENDS PAID 110 111
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PAYOUT RATIO 26.25% 52.61%
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</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3.
<PAGE>
UPBANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS) (UNAUDITED) 1997 1996
- ------------------------------------------------------------------------- ----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $419 $211
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 108 148
Depreciation and amortization 198 225
Net (gain) loss on sale of securities 15 0
Net (gain) loss on sale of mortgage loans (31) (27)
Net (gain) loss on sale of other real estate owned 0 0
Provision (Benefit) for deferred income taxes 0 44
Amortization (Accretion) on investment securities, net (99) (51)
Originations of mortgages held-for-sale (12,840) (7,525)
Proceeds from sales of mortgages held-for-sale 12,396 8,261
Changes in assets and liabilities:
(Increase) decrease in accrued interest receivable and other assets (251) (27)
(Increase) decrease in accrued interest payable and other liabilities 301 (62)
----------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 216 1,197
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of and proceeds from time deposits in other banks 0 0
Net (increase) decrease in federal funds sold (882) 1,725
Purchases of available-for-sale securities (2,078) (15,113)
Proceeds from maturities and redemptions of
available-for-sale securities 6,689 8,547
Proceeds from sale of available-for-sale securities 2,970 0
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 (4,319) 1,229
Purchases of premises and equipment (121) (245)
Proceeds from sale of other real estate 0 739
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NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 2,059 (2,903)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in total deposits 1,377 1,446
Net increase (decrease) in other borrowings (5,005) 377
Cash dividends paid (110) (111)
Purchase of treasury stock 0 0
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (3,738) 1,712
----------- ----------
Net increase (decrease) in cash and due from banks (1,464) 6
Cash and due from banks at beginning of period 9,804 7,356
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Cash and due from banks at end of period $8,340 $7,362
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Supplemental disclosure of cash flow information:
Cash payments for: Interest $1,408 $1,294
Income taxes 20 105
Supplemental schedule of non-cash investing activities:
Other real estate acquired in settlement of loans $0 $0
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</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 three months
ended March 31, 1997 419 419
Cash dividends: $.50 per share (110) (110)
Net unrealized gain (loss) on securities
available-for-sale, net of tax of $49 77 77
-------- ---------- --------- ---------- ----------------- --------
BALANCE, MARCH 31, 1997 $2,500 $3,000 $15,734 ($1,480) ($512) $19,242
-------- ---------- --------- ---------- ----------------- --------
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</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 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 three months ended March 31, 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 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 quarter
of 1997, basic earnings per share would have been $1.90 per share and diluted
earnings per share would have been $1.90.
NOTE C: INVESTMENT SECURITIES
AVAILABLE-FOR-SALE SECURITIES
The amortized cost and estimated market value of these are as follows at
March 31, 1997:
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ---------- ----------- ---------
U. S. Treasury Securities $7,200 $0 $138 $7,062
U. S. Government agencies 20,359 0 112 20,247
States and political subdivisions 1,912 66 133 1,845
Mortgage-backed securities 25,579 30 562 25,047
Other securities 4,274 14 4 4,284
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Total available-for-sale securities $59,324 $110 $949 $58,485
---------- ---------- ----------- ---------
---------- ---------- ----------- ---------
In accordance with SFAS No. 115 these securities are carried at their fair
value.
5.
<PAGE>
HELD-TO-MATURITY SECURITIES
The amortized cost and estimated market value of these are as follows at
March 31, 1997:
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
U. S. Treasury Securities $200 $0 $2 $198
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Total held-to-maturity securities $200 $0 $2 $198
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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:
March 31, December 31,
1997 1996
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Commercial and industrial $42,817 $39,498
Real Estate - Construction 9,060 9,829
Real Estate - Residential (1 to 4 family) 34,524 34,071
Real Estate - Residential (5 or more) 19,859 19,736
Real Estate - Non-Residential 25,351 23,987
Consumer and all other, net of unearned discount 3,768 3,948
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Total loans 135,379 131,069
Less: Allowance for loan losses (1,584) (1,485)
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Total loans, net of allowance for loan losses $133,795 $129,584
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The following summarizes the analysis of the allowance for loan losses for
the three months ended:
March 31, March 31,
1997 1996
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Balance at beginning of year $1,485 $1,402
Charge-offs:
Commercial and industrial 10 36
Real Estate - Residential (5 or more) 0 5
Consumer and all other, net of unearned discount 4 15
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Total charge-offs 14 56
Recoveries:
Commercial and industrial 4 0
Consumer and all other, net of unearned discount 1 2
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Total recoveries 5 2
Net charge-offs 9 54
Provision for loan losses 108 148
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Balance at end of period $1,584 $1,496
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The following summarizes non-performing assets at the dates indicated:
March 31, December 31,
1997 1996
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Nonaccrual loans $1,165 $1,158
Restructured loans 940 954
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Total non-performing loans 2,105 2,112
Non-performing securities, at market value 69 134
Other real estate owned 334 334
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Total non-performing assets $2,508 $2,580
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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 March 31, 1996 is incorporated by reference.
RESULTS OF OPERATIONS
The Registrant's net income for the first quarter was $419,000 in 1997
compared to $211,000 in 1996. Earnings per share was $1.90, a 100% increase
over last year's $.95. Return on average equity was 8.8% compared to 4.6% in
1996. Return on average assets was .75% for the first quarter of 1997
compared to .41% in the previous year.
The Registrant's net interest income was $2,646,000 for the first quarter of
1997, an 8.80% increase over the $2,432,000 registered in the same period of
1996. Income from an increase in average earning assets and a higher net
margin of 5.27% in 1997, as compared to 5.24% earned in the comparable period
of 1996, were contributing factors in this year's improvement.
The provision for loan losses was $108,000 in 1997 and $148,000 in 1996. Net
credit losses were $9,000 for the first three months of 1997 and $54,000 in
1996. The allowance for loan losses as a percent of total loans was 1.17% at
March 31, 1997 and 1.13% at December 31, 1996. Total non-performing assets as
a percent of total assets were 1.12% at March 31, 1997 and 1.14% at December
31, 1996.
Total non-interest income increased 3.2% to $643,000 during the first quarter
of 1997 over the previous year. Total securities losses for the first quarter
of 1997 were $15,000 compared to none in the previous year. The security
losses were taken in order to reinvest in higher-yielding state tax-exempt
investment securities. Excluding security losses, non-interest income
increased 5.6% over the previous year.
Total non-interest expense for the first three months of 1997 decreased 1.9%
to $2,512,000 from the year earlier period. Salaries and employee benefits
and net occupancy expense were essentially unchanged from 1996 to 1997. Other
expense decreased 5.6% to $952,000 in the first quarter of 1997 from
$1,008,000 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 and to improve efficiency and profitability in the
future.
BALANCE SHEET CHANGES
Total assets were $223 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 $1,377,000 or .7% from year-end. Non-interest
bearing deposits decreased 12.1% or $4,852,000 and interest bearing deposits
increased 4.0% or $6,229,000. Borrowed funds decreased $5,005,000 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 March 31, 1997, shareholders' equity was $19,242,000 compared to
$18,856,000 at December 31, 1996, an increase of $386,000 or 2.0%. Total
equity at quarter-end was reduced by an unrealized loss after-tax of $512,000
on securities available-for-sale. Shareholders' equity as a percentage of
total assets at March 31, 1997 was 8.61%. The following table represents the
Registrant's consolidated regulatory capital position as of March 31, 1997.
Regulatory capital at March 31, 1997:
Tier 1 Total
Leverage Risk-based Risk-based
Ratio Capital Capital
---------- ------------ ------------
Upbancorp, Inc. ratio 8.7% 13.5% 14.6%
For capital adequacy purposes 4.0% 4.0% 8.0%
To be well capitalized under prompt
corrective action provisions 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
At the Annual Meeting of Shareholders held April 15, 1997,
the shareholders elected the following Directors:
VOTES
VOTES FOR AGAINST ABSTENTIONS
--------- ------- -----------
Stephen W. Edwards 168,744 0 10
John E. Fahrendorf, Jr. 168,744 0 10
Robert P. Griffiths 168,644 0 110
Alfred E. Hackbarth, Jr. 168,734 0 20
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
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: May 12, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 8,340
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 10,432
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 58,485
<INVESTMENTS-CARRYING> 200
<INVESTMENTS-MARKET> 198
<LOANS> 135,379
<ALLOWANCE> 1,584
<TOTAL-ASSETS> 223,454
<DEPOSITS> 196,679
<SHORT-TERM> 5,556
<LIABILITIES-OTHER> 1,977
<LONG-TERM> 0
0
0
<COMMON> 2,500
<OTHER-SE> 16,742
<TOTAL-LIABILITIES-AND-EQUITY> 223,454
<INTEREST-LOAN> 3,030
<INTEREST-INVEST> 910
<INTEREST-OTHER> 147
<INTEREST-TOTAL> 4,087
<INTEREST-DEPOSIT> 1,350
<INTEREST-EXPENSE> 1,441
<INTEREST-INCOME-NET> 2,646
<LOAN-LOSSES> 108
<SECURITIES-GAINS> (15)
<EXPENSE-OTHER> 2,512
<INCOME-PRETAX> 669
<INCOME-PRE-EXTRAORDINARY> 669
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 419
<EPS-PRIMARY> 1.90
<EPS-DILUTED> 1.90
<YIELD-ACTUAL> 8.12
<LOANS-NON> 1,165
<LOANS-PAST> 0
<LOANS-TROUBLED> 940
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,485
<CHARGE-OFFS> 14
<RECOVERIES> 5
<ALLOWANCE-CLOSE> 1,584
<ALLOWANCE-DOMESTIC> 1,584
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
