<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
For the quarter ended March 31, 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)(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 nineteen thousand
nine hundred (219,900) common shares were outstanding as of May 1, 1998.
<PAGE>
PART 1 - Financial Information
Item 1. Financial Statements
UPBANCORP, INC.
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
March 31,
1998 December 31,
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (Unaudited) 1997
- ------------------------------------------------ ----------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks $10,896 $6,678
Federal funds sold 6,300 500
Securities available-for-sale 48,729 47,421
Securities held-to-maturity
(FAIR VALUE OF $201 AND $201 IN 1998 AND 1997) 200 200
Mortgages held-for-sale 4,721 2,146
Loans (net of allowance for loan losses of
$2,122 and $2,010 in 1998 and 1997) 169,840 164,242
Premises and equipment, net 6,191 5,675
Other assets 4,459 4,515
--------- --------
TOTAL ASSETS $251,336 $231,377
--------- --------
--------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Demand deposits $50,289 $40,088
Savings, NOW and money market deposits 100,695 98,660
Other time deposits 62,976 59,384
--------- --------
Total deposits 213,960 198,132
Borrowed funds 13,324 10,037
Accrued interest and other liabilities 2,553 2,208
--------- --------
TOTAL LIABILITIES 229,837 210,377
--------- --------
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 17,462 16,961
Treasury stock - 29,465 shares in 1998 and 29,300 in 1997 (1,502) (1,480)
Accumulated other comprehensive income,
unrealized gain (loss) on securities available-for-sale 39 19
--------- --------
TOTAL SHAREHOLDERS' EQUITY 21,499 21,000
--------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $251,336 $231,377
--------- --------
--------- --------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2.
<PAGE>
UPBANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) 1998 1997
- --------------------------------------------------------- ------- -------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $3,824 $3,030
Interest on mortgages held-for-sale 27 11
Interest on federal funds sold 36 136
Interest and dividends on investments
Taxable 686 885
Non-taxable 48 25
-------- -------
Total interest and dividends on investments 734 910
-------- -------
Total interest income 4,621 4,087
-------- -------
INTEREST EXPENSE
Interest on savings, NOW & MMA 632 620
Interest on other time deposits 827 730
Interest on borrowed funds 172 91
-------- -------
Total interest expense 1,631 1,441
-------- -------
NET INTEREST INCOME 2,990 2,646
PROVISION FOR LOAN LOSSES 148 108
-------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,842 2,538
-------- -------
NONINTEREST INCOME
Service charges on deposit accounts 299 307
Mortgage banking fees 364 161
Other noninterest income 154 159
Net gains (losses) on sale of loans 28 31
Net gains (losses) on sale of securities (20) (15)
-------- -------
Total noninterest income 825 643
-------- -------
NONINTEREST EXPENSE
Salaries and employee benefits 1,541 1,419
Net occupancy expense 187 141
Other expense
Equipment expense 198 131
Outside fees & services 156 256
Advertising & business development expenses 93 75
Supplies expense 57 58
Data processing expense 71 67
Regulatory services/fees 25 24
Other operating expense 373 341
-------- -------
Total noninterest expense 2,701 2,512
-------- -------
INCOME BEFORE INCOME TAXES 966 669
Income tax provision 355 250
-------- -------
NET INCOME $611 $419
OTHER COMPREHENSIVE INCOME, NET OF INCOME TAXES
Unrealized securities gains (losses) 20 77
-------- -------
COMPREHENSIVE INCOME $631 $496
-------- -------
-------- -------
NET INCOME PER SHARE $2.77 $1.90
-------- -------
-------- -------
WEIGHTED AVERAGE SHARES OUTSTANDING 220,645 220,700
-------- -------
-------- -------
CASH DIVIDENDS PAID 110 110
-------- -------
-------- -------
PAYOUT RATIO 18.00% 26.25%
-------- -------
-------- -------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3.
</TABLE>
<PAGE>
UPBANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
(DOLLARS IN THOUSANDS) (UNAUDITED) 1998 1997
- ------------------------------------------------------- --------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $611 $419
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 148 108
Depreciation and amortization 254 198
Net (gain) loss on sale of securities 20 15
Net (gain) loss on sale of mortgage loans (28) (31)
Net (gain) loss on sale of other real estate owned 0 0
Change in deferred income taxes 1 0
Amortization (Accretion) on investment securities, net (20) (99)
Originations of mortgages held-for-sale (24,184) (12,840)
Proceeds from sales of mortgages held-for-sale 21,637 12,396
Changes in assets and liabilities:
(Increase) decrease in accrued interest receivable and
other assets 33 (252)
Increase (decrease) in accrued interest payable and other
liabilities 345 301
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES (1,183) 215
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of and proceeds from time deposits in other
banks 0 0
Net (increase) decrease in federal funds sold (5,800) (882)
Purchases of available-for-sale securities (13,307) (2,078)
Proceeds from maturities and redemptions of
available-for-sale securities 4,785 6,689
Proceeds from sale of available-for-sale securities 7,246 2,970
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 (5,746) (4,319)
Purchases of premises and equipment (760) (121)
Proceeds from sale of other real estate 0 0
-------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (13,582) 2,059
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in total deposits 15,828 1,377
Net increase (decrease) in borrowed funds 3,287 (5,005)
Cash dividends paid (110) (110)
Purchase of treasury stock (22) 0
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 18,983 (3,738)
-------- --------
Net increase (decrease) in cash and due from banks 4,218 (1,464)
Cash and due from banks at beginning of period 6,678 9,804
-------- --------
Cash and due from banks at end of period $10,896 $8,340
-------- --------
-------- --------
Supplemental disclosure of cash flow information:
Cash payments for: Interest $1,537 $1,408
Income taxes 0 20
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>
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 three months
ended March 31, 1998 611 611
Cash dividends: $.50 per share (110) (110)
Unrealized gain (loss) on securities
available-for-sale, net of tax of $12 20 20
Purchase of treasury stock (22) (22)
------- ---------- -------- -------- -------------- --------
BALANCE, MARCH 31, 1998 $2,500 $3,000 $17,462 ($1,502) $39 $21,499
------- ---------- -------- -------- -------------- --------
------- ---------- -------- -------- -------------- --------
</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 three months ended March 31, 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 March 31, 1998:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ------
<S> <C> <C> <C> <C>
U. S. Treasury Securities $7,002 $0 $20 $6,982
U. S. Government agencies 26,143 77 92 26,128
States and political subdivisions 3,602 125 0 3,727
Mortgage-backed securities 6,279 18 208 6,089
Other securities 5,640 164 1 5,803
--------- ---------- ---------- ------
Total available-for-sale securities $48,666 $384 $321 $48,729
--------- ---------- ---------- ------
--------- ---------- ---------- ------
</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 March 31, 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>
March 31, Dec. 31,
1998 1997
--------- --------
<S> <C> <C>
Commercial - Aircraft related $19,633 $17,846
Commercial - Other 32,066 30,361
Secured by real estate - Construction 12,243 9,440
Secured by real estate - Residential (1 to 4 family) 31,042 34,899
Secured by real estate - Residential (5 or more) 28,821 27,635
Secured by real estate - Non-Residential 42,949 40,984
Consumer and all other, net of unearned discount 5,208 5,087
-------- --------
Total loans 171,962 166,252
Less: Allowance for loan losses (2,122) (2,010)
-------- --------
Total loans, net of allowance for loan losses $169,840 $164,242
-------- --------
-------- --------
</TABLE>
The following summarizes the analysis of the allowance for loan losses for the
three months ended:
<TABLE>
<CAPTION>
March 31, March 31,
1998 1997
-------- ---------
<S> <C> <C>
Balance at beginning of year $2,010 $1,485
Charge-offs:
Commercial - Other 42 10
Consumer and all other, net of unearned discount 4 4
-------- ---------
Total charge-offs 46 14
Recoveries:
Commercial - Other 9 4
Consumer and all other, net of unearned discount 1 1
-------- ---------
Total recoveries 10 5
Net recoveries(charge-offs) (36) (9)
Provision for loan losses 148 108
-------- ---------
Balance at end of period $2,122 $1,584
-------- ---------
-------- ---------
</TABLE>
The following summarizes non-performing assets at the dates indicated:
<TABLE>
<CAPTION>
March 31, Dec. 31,
1998 1997
--------- ---------
<S> <C> <C>
Nonaccrual loans $263 $252
Restructured loans 880 896
-------- ---------
Total non-performing loans 1,143 1,148
Other real estate owned 334 334
-------- ---------
Total non-performing assets $1,477 $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 March 31, 1997 is incorporated by reference.
RESULTS OF OPERATIONS
The Registrant's net income for the three months ended March 31, 1998 was
$611 compared to $419 in 1997. Net income per share was $2.77, a 46% increase
over last year's $1.90. Return on average equity was 11.5% in 1998 compared
to 8.8% in 1997. Return on average assets was 1.02% for 1998 compared to .75%
in the previous year.
The Registrant's net interest income was $2,990 for the first three months of
1998, an increase of 13.00% over the $2,646 registered in the same period of
1997. Income from an increase in average earning assets and a higher net
margin of 5.57% in 1998, as compared to 5.27% 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 the non-residential
real estate and commercial categories, and a decrease of almost $1,000 in
average non-performing 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 $148 in 1998 and $108 in 1997. Net
charge-offs were $36 for the first three months of 1998 as compared to net
charge-offs of $9 in 1997. The allowance for loan losses as a percent of
total loans was 1.23% at March 31, 1998 and 1.21% at December 31, 1997. Total
non-performing assets as a percent of total assets were .59% at March 31,
1998 and .64% at December 31, 1997.
Total noninterest income increased 28.30% to $825 for the first quarter of
1998 over the previous year, due to a high level of activity in our mortgage
banking division. Net securities losses totalled $20 for 1998 compared to a
net loss of $15 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 quarter of 1998 increased 7.52% to
$2,701 from the year earlier period. The increase in salaries and employee
benefits in 1998 to $1,541 from $1,419 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 $187 in
1998 from $141 in 1997, due to increased depreciation provisions resulting
from remodeling done at the Uptown location. Other expense increased 2.21% to
$973 in the first three months of 1998 from $948 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 $251,336 at quarter-end compared to $231,377 at December
31, 1997. The increases in federal funds sold and mortgages held-for-sale
parallel the increase in demand deposits. The net increase in securities from
year-end 1997 is due to a leveraging opportunity provided via utilization of
our borrowing capacity with the Federal Home Loan Bank (FHLB) of Chicago,
reduced by matured and/or called investments. The strong growth in our loan
portfolio continues (13.6% annualized).
Total deposits increased $15,828 or 7.9% from year-end. Noninterest bearing
deposits increased 25.4% or $10,201, due to core growth, as well as seasonal
fluctuations at each of the subsidiary banks. Interest bearing deposits
increased 3.6% or $5,627. Borrowed funds increased $3,827 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 demand 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 March 31, 1998, shareholders' equity was $21,499 compared to $21,000 at
December 31, 1997, an increase of $499 or 2.4%. Total equity at quarter-end
was increased by an unrealized gain after-tax of $20 on securities
available-for-sale. Shareholders' equity as a percentage of total assets at
March 31, 1998 was 8.55%. The following table represents the Registrant's
consolidated regulatory capital position as of March 31, 1998.
Regulatory capital at March 31, 1998:
<TABLE>
<CAPTION>
Tier 1 Total
Leverage Risk-Based Risk-Based
Ratio Capital Capital
---------- ----------- ----------
<S> <C> <C> <C>
Upbancorp, Inc. ratio 8.9% 12.0% 13.2%
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
At the Annual Meeting of Shareholders held April 14, 1998,
the shareholders elected the following Directors:
<TABLE>
<CAPTION>
Votes
Votes for Against Abstentions
--------- -------- -----------
<S> <C> <C> <C>
James E. Heraty 176,104 0 1,448
Richard K. Ostrom 176,104 0 1,448
B. Arthur Russell 176,104 0 1,448
</TABLE>
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 8, 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 10,896
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 6,300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 48,729
<INVESTMENTS-CARRYING> 200
<INVESTMENTS-MARKET> 201
<LOANS> 169,840
<ALLOWANCE> 2,122
<TOTAL-ASSETS> 251,336
<DEPOSITS> 213,960
<SHORT-TERM> 8,324
<LIABILITIES-OTHER> 2,553
<LONG-TERM> 5,000
0
0
<COMMON> 2,500
<OTHER-SE> 18,999
<TOTAL-LIABILITIES-AND-EQUITY> 251,336
<INTEREST-LOAN> 3,824
<INTEREST-INVEST> 734
<INTEREST-OTHER> 63
<INTEREST-TOTAL> 4,621
<INTEREST-DEPOSIT> 1,459
<INTEREST-EXPENSE> 1,631
<INTEREST-INCOME-NET> 2,990
<LOAN-LOSSES> 148
<SECURITIES-GAINS> (20)
<EXPENSE-OTHER> 2,701
<INCOME-PRETAX> 966
<INCOME-PRE-EXTRAORDINARY> 966
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 611
<EPS-PRIMARY> 2.77
<EPS-DILUTED> 2.77
<YIELD-ACTUAL> 8.58
<LOANS-NON> 263
<LOANS-PAST> 0
<LOANS-TROUBLED> 880
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,010
<CHARGE-OFFS> 46
<RECOVERIES> 10
<ALLOWANCE-CLOSE> 2,122
<ALLOWANCE-DOMESTIC> 2,122
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
