<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended June 30, 1998 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) (Registrant's telephone number
(zip code) 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 eighteen thousand
two hundred sixty three (218,263) common shares were outstanding as of August
1, 1998.
<PAGE>
PART 1 - Financial Information
Item 1. Financial Statements
UPBANCORP, INC.
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
June 30,
1998 December 31,
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (Unaudited) 1997
- ----------------------------------------- ----------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks $17,864 $6,678
Federal funds sold 555 500
Securities available-for-sale 43,451 47,421
Securities held-to-maturity
(FAIR VALUE OF $201 AND $201 IN 1998 AND 1997) 200 200
Mortgages held-for-sale 2,572 2,146
Loans (net of allowance for loan losses of
$2,302 and $2,010 in 1998 and 1997) 177,751 164,242
Premises and equipment, net 6,255 5,675
Other assets 4,809 4,515
--------- ---------
Total Assets $253,457 $231,377
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Demand deposits $48,099 $40,088
Savings, NOW and money market deposits 99,123 98,660
Other time deposits 66,348 59,384
--------- ---------
Total deposits 213,570 198,132
Borrowed funds 16,126 10,037
Accrued interest and other liabilities 2,076 2,208
--------- ---------
TOTAL LIABILITIES 231,772 210,377
--------- ---------
SHAREHOLDERS' EQUITY
Common stock, $10 par value: 300,000 shares authorized:
250,000 issued in 1998 and 1997 2,500 2,500
Additional paid in capital 3,000 3,000
Retained earnings 17,951 16,961
Treasury stock - 31,737 shares in 1998 and
29,300 in 1997 (1,829) (1,480)
Accumulated other comprehensive income,
unrealized gain (loss) on securities
available-for-sale 63 19
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 21,685 21,000
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $253,457 $231,377
--------- ---------
--------- ---------
</TABLE>
SEE ACCOMPANYIONG NOTES TO CONSOLDIATED FINANCIAL STATEMENTS
2.
<PAGE>
UPBANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE 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) 1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $4,194 $3,357 $8,018 $6,387
Interest on mortgages held-for-sale 30 21 57 32
Interest on federal funds sold 87 126 123 262
Interest and dividends on investments
Taxable 679 838 1,365 1,723
Non-taxable 50 28 98 53
------- ------- ------- -------
Total interest and dividends on investments 729 866 1,463 1,776
------- ------- ------- -------
Total interest income 5,040 4,370 9,661 8,457
------- ------- ------- -------
INTEREST EXPENSE
Interest on savings, NOW & MMA 675 647 1,307 1,267
Interest on other time deposits 885 775 1,712 1,505
Interest on borrowed funds 188 80 360 171
------- ------- ------- -------
Total interest expense 1,748 1,502 3,379 2,943
------- ------- ------- -------
NET INTEREST INCOME 3,292 2,868 6,282 5,514
PROVISION FOR LOAN LOSSES 141 98 289 206
------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 3,151 2,770 5,993 5,308
------- ------- ------- -------
NONINTEREST INCOME
Service charges on deposit accounts 317 333 704 727
Mortgage banking fees 323 197 687 358
Other noninterest income 75 73 141 145
Net gains (losses) on sale of loans 20 10 48 41
Net gains (losses) on sale of securities (8) 7 (28) (8)
------- ------- ------- -------
Total noninterest income 727 620 1,552 1,263
------- ------- ------- -------
NONINTEREST EXPENSE
Salaries and employee benefits 1,667 1,467 3,208 2,886
Net occupancy expense 173 174 360 315
Other expense
Equipment expense 217 131 415 262
Outside fees & services 197 355 353 611
Advertising & business development expenses 93 81 186 156
Supplies expense 85 70 142 128
Data processing expense 147 68 218 135
Regulatory services/fees 25 24 50 48
Other operating expense 352 344 725 685
------- ------- ------- -------
Total noninterest expense 2,956 2,714 5,657 5,226
------- ------- ------- -------
INCOME BEFORE INCOME TAXES 922 676 1,888 1,345
Income tax provision 323 237 678 487
------- ------- ------- -------
NET INCOME $599 $439 $1,210 $858
OTHER COMPREHENSIVE INCOME, NET OF INCOME TAXES
Unrealized securities gains (losses) 24 146 44 223
------- ------- ------- -------
COMPREHENSIVE INCOME $623 $585 $1,254 $1,081
------- ------- ------- -------
------- ------- ------- -------
NET INCOME PER SHARE $2.72 $1.99 $5.48 $3.89
------- ------- ------- -------
------- ------- ------- -------
WEIGHTED AVERAGE SHARES OUTSTANDING 220,094 220,700 220,645 220,700
------- ------- ------- -------
------- ------- ------- -------
CASH DIVIDENDS PAID 110 110 220 221
------- ------- ------- -------
------- ------- ------- -------
PAYOUT RATIO 18.36% 25.06% 18.18% 25.76%
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3.
<PAGE>
UPBANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
(DOLLARS IN THOUSANDS) (UNAUDITED) 1998 1997
- ---------------------------------- ---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $1,210 $858
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 289 206
Depreciation and amortization 529 408
Net (gain) loss on sale of securities 28 8
Net (gain) loss on sale of mortgage loans (48) (41)
Net (gain) loss on sale of other real estate owned 0 0
Change in deferred income taxes (12) 0
Amortization (Accretion) on investment securities, net (48) (221)
Originations of mortgages held-for-sale (41,891) (15,829)
Proceeds from sales of mortgages held-for-sale 41,513 15,667
Changes in assets and liabilities:
(Increase) decrease in accrued interest
receivable and other assets (332) (254)
Increase (decrease) in accrued interest
payable and other liabilities (132) 570
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,106 1,372
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of and proceeds from time deposits in
other banks 0 0
Net (increase) decrease in federal funds sold (55) 2,423
Purchases of available-for-sale securities (21,660) (13,168)
Proceeds from maturities and redemptions of
available-for-sale securities 11,484 14,348
Proceeds from sale of available-for-sale 14,239 7,976
securities
Purchases of held-to-maturity securities 0 (200)
Proceeds from maturities and redemptions of
held-to-maturity securities 0 0
Net (increase) decrease in loans (13,798) (11,711)
Purchases of premises and equipment (1,088) (176)
Proceeds from sale of other real estate 0 0
-------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (10,878) (508)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in total deposits 15,438 3,776
Net increase (decrease) in borrowed funds 6,089 (4,504)
Cash dividends paid (220) (221)
Purchase of treasury stock (349) 0
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 20,958 (949)
Net increase (decrease) in cash and due from banks 11,186 (85)
Cash and due from banks at beginning of period 6,678 9,804
-------- --------
Cash and due from banks at end of period $17,864 $ 9,719
-------- --------
-------- --------
Supplemental disclosure of cash flow information:
Cash payments for: Interest $ 3,412 $ 2,921
Income taxes 777 281
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>
Accumulated
Additional Other
Common Paid In Retained Treasury Comprehensive
Stock Capital Earnings Stock Income Total
------ ---------- -------- -------- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1998 $2,500 $3,000 $16,961 ($1,480) $19 $21,000
Net income for the six months
ended June 30, 1998 1,210 1,210
Cash dividends: $1.00 per share (220) (220)
Unrealized gain (loss) on securities
available-for-sale, net of tax of $29 44 44
Purchase of treasury stock (349) (349)
------ ------- ------- ------- ------ -------
BALANCE JUNE 30, 1998 $2,500 $3,000 $17,951 ($1,829) $63 $21,685
------ ------- ------- ------- ------ -------
------ ------- ------- ------- ------ -------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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, 1998 are not necessarily
indicative of the results that may be expected for the year ended December
31, 1998. 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, 1997.
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: INVESTMENT SECURITIES
AVAILABLE-FOR-SALE SECURITIES
The amortized cost and fair value of these are as follows at June 30, 1998:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ------
<S> <C> <C> <C>
U. S. Treasury Securities $0 $0 $0 $0
U. S. Government agencies 28,876 68 60 28,884
States and political subdivisions 3,967 129 0 4,096
Mortgage-backed securities 5,979 18 183 5,814
Other securities 4,525 132 0 4,657
------- ----- ----- --------
Total available-for-sale securities $43,347 $347 $243 $43,451
------- ----- ----- --------
------- ----- ----- --------
</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, 1998:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
U. S. Treasury Securities $200 $ 1 $ 0 $ 201
--------- ----- ---- -----
Total held-to-maturity securities $200 $ 1 $ 0 $ 201
--------- ----- ---- -----
--------- ----- ---- -----
</TABLE>
In accordance with SFAS No. 115, these securities are carried at their amortized
cost.
NOTE C: LOANS AND NON-PERFORMING ASSETS
The following summarizes loans at the dates indicated:
<TABLE>
<CAPTION>
June 30, Dec. 31,
1998 1997
--------- ----------
<S> <C> <C>
Commercial - Aircraft related $19,903 $17,846
Commercial - Other 31,964 30,361
Secured by real estate - Construction 18,196 9,440
Secured by real estate - Residential (1 to 4 family) 28,560 34,899
Secured by real estate - Residential (5 or more) 27,672 27,635
Secured by real estate - Non-Residential 47,348 40,984
Consumer and all other, net of unearned discount 6,410 5,087
-------- --------
Total loans 180,053 166,252
Less: Allowance for loan losses (2,302) (2,010)
-------- --------
Total loans, net of allowance for loan losses $177,751 $164,242
-------- --------
-------- --------
The following summarizes the analysis of the allowance for loan losses for the six months
ended:
<CAPTION>
June 30, June 30,
1998 1997
--------- ----------
<S> <C> <C>
Balance at beginning of year $2,010 $1,485
Charge-offs:
Commercial - Other 42 12
Consumer and all other, net of unearned discount 6 6
-------- --------
Total charge-offs 48 18
Recoveries:
Commercial - Other 51 4
Consumer and all other, net of unearned discount 0 1
-------- --------
Total recoveries 51 5
Net recoveries(charge-offs) 3 (13)
Provision for loan losses 289 206
-------- --------
Balance at end of period $2,302 $1,678
-------- --------
-------- --------
<CAPTION>
The following summarizes non-performing assets at the dates indicated:
June 30, Dec. 31,
1998 1997
--------- ----------
<S> <C> <C>
Nonaccrual loans $ 457 $ 252
Restructured loans 867 896
-------- --------
Total non-performing loans 1,324 1,148
Other real estate owned (OREO) 334 334
-------- --------
Total non-performing assets $ 1,658 $ 1,482
-------- --------
-------- --------
</TABLE>
6.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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 quarter ended June
30,1997 is incorporated by reference.
RESULTS OF OPERATIONS
The Registrant's net income for the six months ended June 30, 1998 was $1,210
compared to $858 in 1997. Net income per share was $5.48, a 41% increase over
last year's $3.89. Return on average equity was 11.33% in 1998 compared to 9.04%
in 1997. Return on average assets was .99% for 1998 compared to .78% in the
previous year.
The Registrant's net interest income was $6,282 for the first six months of
1998, an increase of 13.93% over the $5,514 registered in the same period of
1997. Income from an increase in average earning assets and a higher net margin
of 5.70% in 1998, as compared to 5.45% earned in the comparable period of 1997,
were contributing factors in this year's improvement. A continuation of strong
growth in the loan portfolio, particularly in loans secured by real estate and a
decrease of more than $600 in average nonperforming assets in 1998 as compared
to 1997, were the main components of both net interest income and net margin
improvement.
The provision for loan losses was $289 in 1998 and $206 in 1997. Net recoveries
were $3 for the first half of 1998 as compared to net charge-offs of $13 in
1997. The allowance for loan losses as a percent of total loans was 1.28% at
June 30, 1998 and 1.21% at December 31, 1997. Total nonperforming assets as a
percent of total assets were .65% at June 30, 1998 and .64% at December 31,
1997.
Total noninterest income increased 22.88% to $1,552 for the first half of 1998
over the previous year, due to a high level of activity in our mortgage banking
division. Net securities losses totalled $28 for 1998 compared to a net loss of
$8 in the previous year. The securities were sold to take advantage of the
continued flattening of the yield curve in the past year. The proceeds were
reinvested in state tax-exempt securities with a higher effective yield and
shorter term.
Total noninterest expense for the first six months of 1998 increased 8.25% to
$5,657 from the year earlier period. The increase in salaries and employee
benefits in 1998 to $3,208 from $2,886 in 1997, is a direct result of the
increased volume in our mortgage banking division, tempered by a slight decrease
at the core bank level. Net occupancy expense increased to $360 in 1998 from
$315 in 1997, due to increased depreciation provisions resulting from remodeling
done at the Uptown location. Other expense increased 3.16% to $2,089 in the
first six months of 1998 from $2,025 in the comparable 1997 period. The increase
in equipment expense is a result of higher depreciation expense arising from the
purchase of computer equipment, from our continuing effort to upgrade our
technological capability, to serve our customers.
BALANCE SHEET CHANGES
Total assets were $253,457 at quarter-end compared to $231,377 at December 31,
1997. The increase in cash and due from banks resulted from the quarter-end sale
of one security (the proceeds of which were reinvested the next day) and regular
daily deposit activity which parallels the increase in demand deposits. The
decrease in securities from year-end 1997 resulted from the sale activity
mentioned above. The strong growth in our loan portfolio continues (16.6%
annualized).
Total deposits increased $15,438 or 7.8% from year-end. Noninterest bearing
deposits increased 20.0% or $8,011, due to core growth, as well as seasonal
fluctuations at each of the subsidiary banks. Interest bearing deposits
increased 3.7% or $7,427. Borrowed funds increased $6,089 from year-end 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 demands and deposit
withdrawals. The banking subsidiaries' liquidity sources consist of
investment securities, maturing loans and other short-term investments.
Liquidity can also be obtained through liabilities such as core deposits,
funds borrowed, certificates of deposit and public fund deposits.
At June 30, 1998, shareholders' equity was $21,685 compared to $21,000 at
December 31, 1997, an increase of $685 or 3.3%. Total equity at quarter-end
was increased by an unrealized gain after-tax of $44 on securities
available-for-sale. Shareholders' equity as a percentage of total assets at
June 30, 1998 was 8.56%. The following table represents the Registrant's
consolidated regulatory capital position as of June 30, 1998.
Regulatory capital at June 30, 1998:
<TABLE>
<CAPTION>
Tier 1 Total
Leverage Risk-Based Risk-Based
Ratio Capital Capital
---------- --------- ----------
<S> <C> <C> <C>
Upbancorp, Inc. ratio 8.5% 11.6% 12.8%
Regulatory minimum ratio 4.0% 4.0% 8.0%
Ratio considered "well-capitalized" 5.0% 6.0% 10.0%
</TABLE>
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 OREO,
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 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 7, 1998 UPBANCORP, INC.
-------------------------
(The Registrant)
/s/ Richard K. Ostrom
-------------------------
Richard K. Ostrom
Chairman of the Board,
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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 17,864
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 555
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 43,451
<INVESTMENTS-CARRYING> 200
<INVESTMENTS-MARKET> 201
<LOANS> 180,053
<ALLOWANCE> 2,302
<TOTAL-ASSETS> 253,457
<DEPOSITS> 213,570
<SHORT-TERM> 11,126
<LIABILITIES-OTHER> 2,076
<LONG-TERM> 5,000
0
0
<COMMON> 2,500
<OTHER-SE> 19,185
<TOTAL-LIABILITIES-AND-EQUITY> 253,457
<INTEREST-LOAN> 8,018
<INTEREST-INVEST> 1,463
<INTEREST-OTHER> 180
<INTEREST-TOTAL> 9,661
<INTEREST-DEPOSIT> 3,029
<INTEREST-EXPENSE> 3,379
<INTEREST-INCOME-NET> 6,282
<LOAN-LOSSES> 289
<SECURITIES-GAINS> (28)
<EXPENSE-OTHER> 5,657
<INCOME-PRETAX> 1,888
<INCOME-PRE-EXTRAORDINARY> 1,888
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,254
<EPS-PRIMARY> 5.48
<EPS-DILUTED> 5.48
<YIELD-ACTUAL> 8.72
<LOANS-NON> 457
<LOANS-PAST> 0
<LOANS-TROUBLED> 867
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,010
<CHARGE-OFFS> 48
<RECOVERIES> 51
<ALLOWANCE-CLOSE> 2,302
<ALLOWANCE-DOMESTIC> 2,302
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
