----

----

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION********Washington, DC 20549**

** **

**FORM 10-Q**

 
| **ý** | **Quarterly Report Pursuant to Section 13  or 15(d) of the Securities Exchange Act of 1934** |
|------------|----------------------------------------------------------------------------------------------|

 

**For the quarterly periodended June 30, 2001**

**Commission file number01-12292**

 

| **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) |

Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filing for thepast 90 days.                   Yes   ý             No   o

Indicatethe number of shares outstanding of each of the issuer's classes of commonstock as of the latest practicable date: Eight hundred thirty five thousandfifty-five (835,055) common shares were outstanding as of August 9, 2001.

----

----

**TABLE OF CONTENTS**

| PART 1     | FINANCIAL INFORMATION |
|------------|-----------------------|
|       |                  |
|       | Item 1                | Consolidated  Statements of Condidtion |
|       |                  |   |
|       |                  | Consolidated  Statements of Income and Comprehensive Income |
|       |                  |   |
|       |                  | Consolidated  Statements of Cash flow |
|       |                  |   |
|       |                  | Consolidated  Statements of Changes in Equity Capital |
|       |                  |   |
|       |                  | Notes to  Consolidated Financial Statements |
|       |                  |   |
|       | Item  2               | Management's  Discussion and Analysis of Financial Condition and Results of Operations |
|       |                  |   |
|       | Item  3               | Quantitative  and Qualitative Disclosures on Market Risk |
|       |                  |   |
| PART 2     | OTHER INFORMATION     |
|       |                  |   |
| SIGNATURES |
|       |                  |

 

 

PART1 - Financial InformationItem 1. Financial Statements

**UPBANCORP, INC.CONSOLIDATED STATEMENTS OF CONDITION**

| ***(Unaudited)***                                                               | June 30,                                        |    | December 31, |    |
|---------------------------------------------------------------------------------|-------------------------------------------------|---------|--------------|---------|
| ***(Dollars in  thousands, except share data)***                                | 2001                                            |    | 2000         |    |
| ******                                                                          |                                                 |    |              |    |
| **Assets**                                                                      |                                            |    |         |    |
| Cash and due from banks                                                         | $                                               | 23,002  |         | $       | 16,319 |   |
| Federal funds sold                                                              | 1,000                                           |    | 12,600       |    |
| Securities available-for-sale                                                   | 66,443                                          |    | 65,517       |    |
| Mortgages held-for-sale                                                         | 647                                             |    | 0            |    |
| Loans (net of allowance for loan losses of $3,712  and $3,817 in 2001 and 2000) | 304,962                                         |    | 288,488      |    |
| Premises and equipment, net                                                     | 5,433                                           |    | 5,526        |    |
| Nonmarketable equity securities                                                 | 1,889                                           |    | 1,909        |    |
| Accrued interest and other assets                                               | 6,435                                           |    | 6,312        |    |
|                                                                            |                                                 |    |              |    |
|                                                                            | **Total Assets**                                | $       | 409,811      |    | $ | 396,671 |   |
|                                                                            |                                            |         |         |         |   |
|                                                                            |                                            |    |         |    |
| **Liabilities and Shareholders'  Equity**                                       |                                            |    |         |    |
| **Liabilities**                                                                 |                                            |    |         |    |
| Demand deposits, noninterest bearing                                            | $                                               | 77,941  |         | $       | 65,900 |   |
| Savings, NOW and money market deposits                                          | 129,772                                         |    | 133,345      |    |
| Other time deposits                                                             | 145,003                                         |    | 149,303      |    |
|                                                                            |                                                 |    |              |    |
|                                                                            | Total deposits                                  | 352,716 |         | 348,548 |   |
| Borrowed funds                                                                  | 21,909                                          |    | 14,849       |    |
| Note payable                                                                    | 3,000                                           |    | 3,000        |    |
| Accrued interest and other liabilities                                          | 4,819                                           |    | 4,377        |    |
|                                                                            |                                                 |    |              |    |
|                                                                            | **Total Liabilities**                           | 382,444 |         | 370,774 |   |
|                                                                            |                                                 |    |              |    |
|                                                                            |                                            |    |         |    |
| **Shareholders' Equity**                                                        |                                            |    |         |    |
| Common stock, $1 par value: 3,000,000 shares  authorized:                       |                                            |    |         |    |
|                                                                            | 1,000,000 issued in 2001 and 2000               | 1,000   |         | 1,000   |   |
| Additional paid in capital                                                      | 4,500                                           |    | 4,500        |    |
| Retained earnings                                                               | 24,517                                          |    | 23,540       |    |
| Treasury stock - 164,945 shares in 2001 and  2000                               | (3,079                                          | )       | (3,079       | )       |
| Accumulated other comprehensive income (loss),  net of tax                      | 429                                             |    | (64          | )       |
|                                                                            |                                                 |    |              |    |
|                                                                            | **Total Shareholders'  Equity**                 | 27,367  |         | 25,897  |   |
|                                                                            |                                            |         |         |         |   |
|                                                                            | **Total Liabilities  and Shareholders' Equity** | $       | 409,811      |    | $ | 396,671 |   |
|                                                                            |                                                 |    |              |    |

*Seeaccompanying notes to unaudited consolidated financial statements*

**UPBANCORP, INC.CONSOLIDATED STATEMENTS OF INCOME**

|                                                            | For the three months ended  June 30, |   | For the six months ended  June 30, |   |
|-----------------------------------------------------------------|--------------------------------------|--------|------------------------------------|--------|
| **For the three and six months  ended June 30,**                |                                      |   |                                    |   |
| ***(Dollars in  thousands, except per share data)(Unaudited)*** | 2001                                 |   | 2000                               |   | 2001 |   | 2000 |   |
| ******                                                          |                                      |   |                                    |   |  |   |  |   |
| **Interest Income**                                             |                                 |   |                               |   |   |   |   |   |
| Interest and fees on loans                                      | $                                    | 6,639  |                               | $      | 6,411 |   | $ | 13,328 |   | $ | 12,077 |   |
| Interest on mortgages held-for-sale                             | 13                                   |   | 0                                  |   | 28 |   | 0 |   |
| Interest on federal funds sold                                  | 185                                  |   | 2                                  |   | 312 |   | 78 |   |
| Interest and dividends on securities                            |                                 |   |                               |   |   |   |   |   |
|                                                            | Taxable                              | 881    |                               | 669    |   | 1,960 |   | 1,332 |   |
|                                                            | Non-taxable                          | 95     |                               | 99     |   | 182 |   | 197 |   |
|                                                            |                                 |        |                               |        |   |  |   |  |   |
| Total interest income                                           | 7,813                                |   | 7,181                              |   | 15,810 |   | 13,684 |   |
|                                                            |                                      |   |                                    |   |  |   |  |   |
| **Interest Expense**                                            |                                 |   |                               |   |   |   |   |   |
| Interest on savings, NOW and money market  deposits             | 953                                  |   | 939                                |   | 2,097 |   | 1,836 |   |
| Interest on other time deposits                                 | 2,415                                |   | 1,330                              |   | 4,896 |   | 2,642 |   |
| Interest on borrowed funds                                      | 282                                  |   | 572                                |   | 585 |   | 879 |   |
| Interest on note payable                                        | 47                                   |   | 20                                 |   | 109 |   | 20 |   |
|                                                            |                                      |   |                                    |   |  |   |  |   |
| Total interest expense                                          | 3,697                                |   | 2,861                              |   | 7,687 |   | 5,377 |   |
|                                                            |                                      |   |                                    |   |  |   |  |   |
| **Net Interest Income**                                         | 4,116                                |   | 4,320                              |   | 8,123 |   | 8,307 |   |
| **Provision for Loan Losses**                                   | 150                                  |   | 150                                |   | 300 |   | 335 |   |
|                                                            |                                      |   |                                    |   |  |   |  |   |
| **Net Interest Income after  Provision for Loan Losses**        | 3,966                                |   | 4,170                              |   | 7,823 |   | 7,972 |   |
|                                                            |                                      |   |                                    |   |  |   |  |   |
| **Noninterest Income**                                          |                                 |   |                               |   |   |   |   |   |
| Service charges on deposit accounts                             | 355                                  |   | 417                                |   | 797 |   | 861 |   |
| Other noninterest income                                        | 119                                  |   | 105                                |   | 235 |   | 231 |   |
| Net gains (losses) on sale of loans                             | 0                                    |   | 17                                 |   | 0 |   | 27 |   |
| Net gains (losses) on securities transactions                   | 0                                    |   | 0                                  |   | 253 |   | 0 |   |
|                                                            |                                      |   |                                    |   |  |   |  |   |
| Total noninterest income                                        | 474                                  |   | 539                                |   | 1,285 |   | 1,119 |   |
|                                                            |                                      |   |                                    |   |  |   |  |   |
| **Noninterest Expense**                                         |                                 |   |                               |   |   |   |   |   |
| Salaries and employee benefits                                  | 1,915                                |   | 1,860                              |   | 3,893 |   | 3,918 |   |
| Net occupancy expense                                           | 220                                  |   | 156                                |   | 446 |   | 334 |   |
| Equipment expense                                               | 249                                  |   | 230                                |   | 487 |   | 449 |   |
| Outside fees & services                                     | 237                                  |   | 274                                |   | 428 |   | 484 |   |
| Advertising & business development  expenses                | 130                                  |   | 80                                 |   | 209 |   | 154 |   |
| Supplies and postage expense                                    | 142                                  |   | 159                                |   | 261 |   | 275 |   |
| Data processing expense                                         | 345                                  |   | 274                                |   | 676 |   | 509 |   |
| Regulatory fees and insurance                                   | 73                                   |   | 87                                 |   | 164 |   | 124 |   |
| Other operating expense                                         | 303                                  |   | 338                                |   | 713 |   | 726 |   |
|                                                            |                                      |   |                                    |   |  |   |  |   |
| Total noninterest expense                                       | 3,614                                |   | 3,458                              |   | 7,277 |   | 6,973 |   |
|                                                            |                                      |   |                                    |   |  |   |  |   |
| **Income Before Income Taxes**                                  | 826                                  |   | 1,251                              |   | 1,831 |   | 2,118 |   |
| Income taxes                                                    | 279                                  |   | 438                                |   | 637 |   | 748 |   |
|                                                            |                                      |   |                                    |   |  |   |  |   |
| **Net Income**                                                  | $                                    | 547    |                               | $      | 813 |   | $ | 1,194 |   | $ | 1,370 |   |
|                                                            |                                      |   |                                    |   |  |   |  |   |
| **Basic Earnings Per Share**                                    | $                                    | 0.66   |                               | $      | 0.97 |   | $ | 1.43 |   | $ | 1.64 |   |
|                                                            |                                      |   |                                    |   |  |   |  |   |
| **Weighted Average Shares  Outstanding**                        | 835,055                              |   | 837,154                            |   | 835,055 |   | 837,231 |   |
|                                                            |                                      |   |                                    |   |  |   |  |   |
| **Cash Dividends Paid**                                         | $                                    | 108    |                               | $      | 108 |   | $ | 217 |   | $ | 217 |   |
|                                                            |                                      |   |                                    |   |  |   |  |   |
| **Payout Ratio**                                                | 19.74                                | %      | 13.28                              | %      | 18.17 | % | 15.84 | % |
|                                                            |                                      |   |                                    |   |  |   |  |   |

*See accompanying notes tounaudited consolidated financial statements*

**UPBANCORP, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS**

|                                                            |                                                                               |     |    |    |
|-----------------------------------------------------------------|------------------------------------------------------------------------------------|----------|---------|---------|
| **For the six months ended June  30,**                          |                                                                               |     |    |    |
| ***(Dollars in  thousands, except per share data)(Unaudited)*** | 2001                                                                               |     | 2000    |    |
| ******                                                          |                                                                                    |     |         |    |
| **Cash Flows from Operating  Activities**                       |                                                                               |     |    |    |
|                                                            | Net Income                                                                         | $        | 1,194   |    | $ | 1,370 |   |
|                                                            | Adjustments  to reconcile net income to net cash provided by operating activities: |     |    |    |   |
|                                                            | Provision for loan losses                                                          | 300      |    | 335     |   |
|                                                            | Depreciation and amortization                                                      | 645      |    | 641     |   |
|                                                            | Net (gain) loss on sale of  securities                                             | (253     | )       | 0       |   |
|                                                            | Net (gain) loss on sale of mortgage  loans                                         | 0        |    | 0       |   |
|                                                            | Change in deferred income taxes                                                    | (475     | )       | (54     | ) |
|                                                            | Amortization (Accretion) on  securities, net                                       | (243     | )       | (133    | ) |
|                                                            | Originations of mortgages  held-for-sale                                           | (6,188   | )       | (938    | ) |
|                                                            | Proceeds from sales of mortgages  held-for-sale                                    | 5,541    |    | 2,202   |   |
|                                                            | Changes  in assets and liabilities:                                                |     |    |    |   |
|                                                            | (Increase) decrease in accrued  interest receivable and other assets               | (7       | )       | (243    | ) |
|                                                            | Increase (decrease) in accrued  interest payable and other liabilities             | 442      |    | (64     | ) |
|                                                            |                                                                               |          |    |         |   |
| **Net cash provided by (used  in) operating activities**        | 956                                                                                |     | 3,116   |    |
|                                                            |                                                                                    |     |         |    |
|                                                            |                                                                               |     |    |    |
| **Cash Flows from Investing  Activities**                       |                                                                               |     |    |    |
|                                                            | Net (increase) decrease in federal  funds sold                                     | 11,600   |    | 4,730   |   |
|                                                            | Purchases of available-for-sale securities                                         | (27,369  | )       | 0       |   |
|                                                            | Proceeds from maturities and  redemptions of available-for-sale securities         | 27,748   |    | 0       |   |
|                                                            | Proceeds from sale of available-for-sale securities                                | 0        |    | 0       |   |
|                                                            | Net (increase) decrease in loans                                                   | (16,774  | )       | (35,787 | ) |
|                                                            | Purchases of premises and equipment                                                | (509     | )       | (577    | ) |
|                                                            | Proceeds from redemptions of  nonmarketable equity securities                      | 102      |    | 0       |   |
|                                                            | Purchases of nonmarketable equity  securities                                      | (82      | )       | (302    | ) |
|                                                            |                                                                               |          |    |         |   |
| **Net cash provided by (used  in) investing activities**        | (5,284                                                                             | )        | (31,936 | )       |
|                                                            |                                                                                    |     |         |    |
|                                                            |                                                                               |     |    |    |
| **Cash Flows from Financing  Activities**                       |                                                                               |     |    |    |
|                                                            | Net increase (decrease) in total  deposits                                         | 4,168    |    | 16,737  |   |
|                                                            | Net increase (decrease) in borrowed  funds                                         | 7,060    |    | 15,380  |   |
|                                                            | Net increase (decrease) in note  payable                                           | 0        |    | 2,000   |   |
|                                                            | Cash dividends paid                                                                | (217     | )       | (217    | ) |
|                                                            | Purchase of treasury stock                                                         | 0        |    | (21     | ) |
|                                                            |                                                                               |          |    |         |   |
| **Net cash provided by (used  in) financing activities**        | 11,011                                                                             |     | 33,879  |    |
|                                                            |                                                                                    |     |         |    |
|                                                            |                                                                               |     |    |    |
| Net increase (decrease) in cash and due from  banks             | 6,683                                                                              |     | 5,059   |    |
| Cash and due from banks at beginning of period                  | 16,319                                                                             |     | 11,526  |    |
|                                                            |                                                                                    |     |         |    |
| Cash and due from banks at end of period                        | $                                                                                  | 23,002   |    | $       | 16,585 |   |
|                                                            |                                                                                    |     |         |    |
|                                                            |                                                                               |     |    |    |
| Supplemental disclosure of cash flow  information:              |                                                                               |     |    |    |
|                                                            | Cash payments for:                                                                 | Interest | $       | 7,007   |   | $ | 5,623 |   |
|                                                            | Income taxes                                                                       | 1,110    |    | 915     |   |
|                                                            |                                                                               |     |    |    |
| Supplemental schedule of non-cash investing  activities:        |                                                                               |     |    |    |
|                                                            | Other real estate acquired in  settlement of loans                                 | $        | 98      |    | $ | 0 |   |
|                                                            |                                                                                    |     |         |    |
|                                                                 |                                                                                    |          |         |         |  |  |  |  |  |  |  |  |

*See accompanying notes tounaudited consolidated financial statements*

**UPBANCORP, INC.****CONSOLIDATED STATEMENTS OFCHANGES IN SHAREHOLDERS' EQUITY*********(Dollars in thousands, except per sharedata)(Unaudited)***

|                            | Common  Stock                                                                |   | Additional  Paid In  Capital |   | Retained  Earnings |   | Treasury  Stock |   | Accumulated  OtherComprehensive  Income |   | Total   |   |
|---------------------------------|------------------------------------------------------------------------------|--------|------------------------------|--------|--------------------|--------|-----------------|--------|-----------------------------------------|--------|---------|--------|
|                            |                                                                              |   |                              |   |                    |   |                 |   |                                         |   |         |   |
| **Balance, January 1, 2001**    | $                                                                            | 1,000  |                         | $      | 4,500              |   | $               | 23,540 |                                    | $      | (3,079) |   | $ | (64) |   | $ | 25,897 |   |
| Comprehensive  Income:          |                                                                         |   |                         |   |               |   |            |   |                                    |   |         |   |
|                            | Net  income for the six months ended June 30, 2001                           |   |                         |   |               | 1,194  |            |   |                                    |   |    | 1,194  |   |
|                            | Unrealized  gain (loss) on securities available-for-sale, net of tax of $316 |   |                         |   |               |   |            |   |                                    | 493    |    | 493    |   |
|                            |                                                                         |   |                         |   |               |   |            |   |                                    |   |    |        |   |
|                            | Comprehensive  Income                                                        |   |                         |   |               |   |            |   |                                    |   |    | 1,687  |   |
|                            |                                                                         |   |                         |   |               |   |            |   |                                    |   |    |        |   |
| Cash  dividends: $.26 per share |                                                                         |   |                         |   | (217               | )      |            |   |                                    |   | (217    | )      |
|                            |                                                                              |   |                              |   |                    |   |                 |   |                                         |   |         |   |
| **Balance June 30, 2001**       | $                                                                            | 1,000  |                         | $      | 4,500              |   | $               | 24,517 |                                    | $      | (3,079  | )      | $ | 429 |   | $ | 27,367 |   |
|                            |                                                                              |   |                              |   |                    |   |                 |   |                                         |   |         |   |
|                                 |                                                                              |        |                              |        |                    |        |                 |        |                                         |        |         |        |  |  |  |  |  |  |  |  |

*See accompanying notes tounaudited consolidated financial statements*

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS*********(Dollars in thousands, except per share data)(Unaudited)***

**NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBasis of presentation**Theaccompanying unaudited financial statements have been prepared in accordancewith generally accepted accounting principles in the United States of Americafor interim financial information and with the instructions to Form 10-Q andRule 10-01 of Regulation S-X. Accordingly, they do not include all of theinformation and footnotes required by generally accepted accounting principlesin the United States of America for complete financial statements. In theopinion of management, all adjustments (consisting of normal recurringaccruals) considered necessary for fair presentation have been included.

Operatingresults of the three and six months ended June 30, 2001 are not necessarilyindicative of the results that may be expected for the year ended December 31,2001. For further information, refer to the consolidated financial statementsand footnotes thereto included in the Company's annual report on Form 10-K forthe year ended December 31, 2000.

Priorperiod's amounts included in these financial statements have been reclassifiedto place them on a basis consistent with the current period's financialstatements.

**Emerging Accounting Standards**InJuly 2001, the FASB issued Statement No. 141, "Business Combinations"(SFAS 141) and Statement No. 142, "Goodwill and Other IntangibleAssets" (SFAS 142). SFAS No. 141 addresses financial accounting andreporting for business combinations and is effective for all businesscombinations initiated after June 30, 2001. SFAS No. 142 addresses financialand reporting for acquired goodwill and other intangible assets and iseffective for fiscal years beginning after December 15, 2001. The Company hasnot yet quantified the impact of adopting these statements on its financialposition or results of operations.

**NOTE B: SECURITIESSecurities available-for-sale**Theamortized cost and fair value of these are as follows at June 30, 2001:

|                                | Amortized Cost |   | Gross  Unrealized  Gains |   | Gross  Unrealized  Losses |   | Fair Value |   |
|-------------------------------------|----------------|--------|--------------------------|--------|---------------------------|--------|------------|--------|
|                                |                |   |                          |   |                           |   |            |   |
| U. S. Treasury Securities           | $              | 350    |                     | $      | 2                         |   | $          | 0      |   | $ | 352 |   |
| U. S. Government agencies           | 49,844         |   | 582                      |   | 40                        |   | 50,386     |   |
| States and political subdivisions   | 8,091          |   | 89                       |   | 46                        |   | 8,134      |   |
| Mortgage-backed securities          | 5,701          |   | 0                        |   | 38                        |   | 5,663      |   |
|                                |                |   |                          |   |                           |   |            |   |
| Total debt securities               | 63,986         |   | 673                      |   | 124                       |   | 64,535     |   |
| Equity securities                   | 1,753          |   | 212                      |   | 57                        |   | 1,908      |   |
|                                |                |   |                          |   |                           |   |            |   |
| Total securities available-for-sale | $              | 65,739 |                     | $      | 885                       |   | $          | 181    |   | $ | 66,443 |   |
|                                |                |   |                          |   |                           |   |            |   |

**NOTE C: LOANS AND NONPERFORMING ASSETS**The followingsummarizes loans at the dates indicated:

|                                                  | June 30, |    | Dec. 31, |   |
|-------------------------------------------------------|----------|---------|----------|--------|
|                                                  | 2001     |    | 2000     |   |
|                                                  |          |    |          |   |
| Commercial - Aircraft related                         | $        | 59,968  |     | $      | 54,614 |   |
| Commercial - Other                                    | 59,589   |    | 58,404   |   |
| Secured by real estate - Construction                 | 61,632   |    | 52,637   |   |
| Secured by real estate - Residential (1 to 4  family) | 33,956   |    | 32,431   |   |
| Secured by real estate - Residential (5 or  more)     | 35,563   |    | 30,264   |   |
| Secured by real estate - Non-Residential              | 54,144   |    | 58,467   |   |
| Consumer and all other                                | 4,322    |    | 5,986    |   |
| Deferred loan fees, net                               | (500     | )       | (498     | )      |
|                                                  |          |    |          |   |
| Total loans                                           | 308,674  |    | 292,305  |   |
| Less: Allowance for loan losses                       | (3,712   | )       | (3,817   | )      |
|                                                  |          |    |          |   |
| Total loans, net of allowance for loan losses         | $        | 304,962 |     | $      | 288,488 |   |
|                                                  |          |    |          |   |

The following summarizes the analysis of theallowance for loan losses for the six months ended:

|                         | June 30,                                          | ** ** | June 30, | ** ** |
|------------------------------|---------------------------------------------------|------------|----------|------------|
|                         | 2001                                              |       | 2000     |       |
|                         |                                                   |       |          |       |
| Balance at beginning of year | $                                                 | 3,817      |     | $          | 3,114 |   |
| Charge-offs:                 |                                              |       |     |       |
|                         | Commercial - Other                                | 335        |     | 8          |   |
|                         | Secured by real estate - Residential  (5 or more) | 1          |     | 0          |   |
|                         | Secured by real estate -  Non-Residential         | 49         |     | 0          |   |
|                         | Consumer and all other                            | 20         |     | 1          |   |
|                         |                                              |            |     |            |   |
| Total charge-offs            | 405                                               |       | 9        |       |
|                         |                                              |       |     |       |
| Recoveries:                  |                                              |       |     |       |
|                         | Consumer and all other                            | 0          |     | 3          |   |
|                         |                                              |            |     |            |   |
| Total recoveries             | 0                                                 |       | 3        |       |
|                         |                                              |       |     |       |
| Net recoveries (charge-offs) | (405                                              | )          | (6       | )          |
| Provision for loan losses    | 300                                               |       | 335      |       |
|                         |                                                   |       |          |       |
| Balance at end of period     | $                                                 | 3,712      |     | $          | 3,443 |   |
|                         |                                                   |       |          |       |

The following summarizes nonperforming assets atthe dates indicated:

|                           | June 30,                  |   | Dec. 31, |   |
|--------------------------------|---------------------------|--------|----------|--------|
|                           | 2001                      |   | 2000     |   |
|                           |                           |   |          |   |
| Nonaccrual loans               | $                         | 2,558  |     | $      | 1,299 |   |
| Restructured loans             | 412                       |   | 422      |   |
|                           |                           |   |          |   |
|                           | Total nonperforming loans | 2,970  |     | 1,721  |   |
| Other real estate owned (OREO) | 98                        |   | 0        |   |
|                           |                           |   |          |   |
| Total nonperforming assets     | $                         | 3,068  |     | $      | 1,721 |   |
|                           |                           |   |          |   |
|                                |                           |        |          |        |  |  |  |

**NOTE D: NOTE PAYABLE**The Company hasa $5 million line of credit, a secured revolving note payable, with acorrespondent bank at June 30, 2001. This note has an outstanding balance of $3million. Interest is calculated on the basis of 3-month LIBOR plus 150 basispoints with interest due and payable quarterly (5.34% at June 30, 2001). The expirationdate of the line is April 1, 2002. The note also contains certain covenantswhich limit changes in capital structure, the purchase of, or merger with otherbanks and/or businesses, and the guarantees of other liabilities andobligations. In addition, the Company must meet certain financial ratios. TheCompany was in compliance with all covenants of the agreement at June 30, 2001.

 

**ITEM2. MANAGEMENT'S DISCUSSION AND ANALYSIS ON FINANCIAL CONDITION ANDRESULTS OF OPERATIONS***(Dollarsin thousands, except per share data)(Unaudited)*

The following is management's discussion andanalysis of certain significant factors which have affected the Company'sfinancial condition and results of operations during the periods included inthe consolidated financial statements set forth in this filing. The Company'sForm 10-Q for the quarter ended June 30, 2000 is incorporated by reference.

**RESULTS OF OPERATIONS**The Company's netincome for the six months ended June 30, 2001 was $1,194 compared to $1,370 in 2000.Basic earnings per share was $1.43, a 12.80% decrease from last year's $1.64.Return on average equity was 9.07% in 2001 compared to 11.46% in2000, a 26.26% decrease. Return on average assets was .59% for 2001 compared to .82% in the previous year, a28.05% decrease, due in part to the 13.88% increase in assets and the decrease in our interest margin.

The Company's net interest income was $8,123 forthe first six months of 2001, compared with the $8,307 registered in the same period of 2000. Theincrease in average earning assets was effectively neutralized by a lower net margin of 4.38% in 2001 ascompared to 5.37% for 2000, as average rates paid on deposits increased almost one full percentage point,while rates earned on loans decreased slightly. The results for the first six months of 2001, when comparedto the same period in 2000, reflect a greater reliance on time deposits to continue funding the growthin the loan portfolio, particularly in construction related real estate lending.

The provision for loan losses was $300 in 2001and $335 in 2000, reflecting management's assessment of overall risk in the loan portfolio. Netcharge-offs were $405 for the first six months of 2001, compared to $6 in net charge-offs during the same period in 2000.The allowance for loan losses as a percent of total loans was 1.20% at June 30, 2001 and 1.31% at December 31,2000. Total nonperforming assets as a percent of total assets were .75% at June 30, 2001 and .43% atDecember 31, 2000.

Total noninterest income, excluding securitiesgains of $253, decreased 7.77% to $1,032, for the first six months of 2001 over the previous year, due toregular seasonal fluctuations in client activity subject to service charges. The securities gain of $253 arosebecause the Chicago branch held an investment in common stock in Cash Station (an ATM consortium), the costbasis of which was $0. Cash Station entered into a merger transaction with a listed public company,Concord EFS, Inc. (Concord), whereby the shareholders of Cash Station received common stock of Concord inexchange for their common stock. The fair value of the Concord stock at the merger date was $253, and isincluded in gross realized gains at June 30, 2001.

Total noninterest expense for the first sixmonths of 2001 increased 4.36% to $7,277 from the year earlier total of $6,973. The decrease in salaries andemployee benefits in 2001 to $3,893 from $3,918 in 2000, is a direct result of heavier staffing needs atstart-up for the new Chicago branches, due to training expenses, temporary help, etc., required for the initialpush in 2000, than were required in 2001. Net occupancy and equipment expense increased $150 to $933 from$783 in 2000, due primarily to full period rental and other related expenses atthe new Chicago branches, as well as higher maintenance costs at the mainChicago branch. Other noninterest expense increased 7.88% to $2,451 in thefirst quarter of 2001 from $2,272 in the comparable 2000 period, due primarily toone-time merger related data processing costs.

**FINANCIAL CONDITIONCHANGES**Total assets were$409,811 at June 30, 2001 compared to $396,671 at December 31, 2000. Theoverall decrease in cash and due from banks andfederal funds sold are a function of regular deposit activity and seasonal fluctuation.The slight increase in the securities portfolio is a reflection of active fundsmanagement and the calendar timing of investmentmaturities and sales and the reinvestment of those funds. The increase in the loan portfolio was funded by depositgrowth and greater use of borrowed funds.

Total deposits increased $4,168 or 1.20% fromyear-end. Noninterest bearing deposits increased 18.27% or $12,041, due to core growth, as well asseasonal fluctuations at each of the branches. Interest bearing deposits decreased $7,873 as a result of highvolatility Certificates of Deposit purchased in 2000, and not renewed at Uptown's currently offered rates.Borrowed funds increased $7,060 from year-end levels as a result of a leveraging strategy employed byUptown National Bank of Chicago ("Uptown").

**LIQUIDITY AND CAPITALRESOURCES**The maintenanceof an adequate level of liquidity is necessary to ensure that sufficient fundsare available to meet customers' loan demands and deposit withdrawal requests.The banking subsidiary's liquidity sources consist of investment securities,maturing loans and other short-term investments. Liquidity can also be obtainedthrough liabilities such as core deposits, borrowed funds, certificates ofdeposit and public fund deposits.

AtJune 30, 2001, Shareholders' Equity was $27,367 compared to $25,897 at December31, 2000, an increase of $1,470, or 5.68%. Accumulated other comprehensiveincome at mid-year increased $493 due to unrealized gains in securitiesavailable-for-sale, net of tax. Shareholders' Equity as a percentage of totalassets at June 30, 2001 was 6.68%. The following table represents the Company'sconsolidated regulatory capital position as of June 30, 2001.

Regulatorycapital at June 30, 2001:

|                     | Leverage  Ratio |   | Tier 1Risk-Based  Capital |   | Total  Risk-Based  Capital |   |
|--------------------------|-----------------|--------|---------------------------|--------|----------------------------|--------|
|                     |                 |   |                           |   |                            |   |
| Upbancorp, Inc. ratio    | 6.5             | %      | 8.1                       | %      | 9.3                        | %      |
| Regulatory minimum ratio | 4.0             | %      | 4.0                       | %      | 8.0                        | %      |

TheCompany operates a full-service community bank through eight banking officesand one loan production office in the Chicagoland area and metropolitan Phoenixarea. Uptown's branches in the Phoenix area operate under the name of HeritageBank ("Heritage"). Heritage will continue to retain its name in thePhoenix area.

**FORWARD LOOKING STATEMENTS**Statements madeabout the Company's future economic performance, strategic plans or objectives,revenue or earnings projections, or other financial items and similarstatements are not guarantees of future performance, but are forward lookingstatements. By their nature, these statements are subject to numerousuncertainties that could cause actual results to differ materially from thosein the statements. Important factors that might cause the Company's actualresults 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  market place;                                           |
| – | Upbancorp's ability to access cost  effective funding;                                                                                                                         |
| – | Economic conditions and                                                                                                                                                        |
| – | Recently enacted financial  modernization legislation.                                                                                                                         |

**ITEM 3. QUANTITATIVE ANDQUALITATIVE DISCLOSURES ON MARKET RISK**

Management, to augmentstatic gap analysis, uses an additional measurement tool to evaluate its asset/liabilitysensitivity, which determines exposure to changes in interest rates bymeasuring the change in net interest income as a percentage of Capital, due tochanges in rates over a one-year horizon.

Management measures suchchange assuming an immediate and sustained parallel shift in rates of 50, 100and 200 basis points, both upward and downward. The model uses scheduledamortization, call date or final maturity as appropriate on all non-ratesensitive assets. The model uses repricing frequency on all variable rateassets and liabilities, it also uses a 5-year decay analysis on all non-ratesensitive deposits. Prepayment rates on fixed rate loans have been adjusted upor down by 10% per year to incorporate historical experience in both an up-rateand down-rate environment.

Utilizing thismeasurement concept, the interest rate risk of the Company, expressed as changein net interest income as a percentage of capital over a 1-year time horizondue to changes in interest rates is as follows:

|                  | **Basis  Point Change** |   |
|-----------------------|-------------------------|--------|
|                  | ****                    |   |
|                  | +200                    |   | +100 |   | +50 |   | -50 |   | -100 |   | -200 |   |
|                  |                         |   |  |   |  |   |  |   |  |   |  |   |
| At  June 30, 2001     | -2.10                   | %      | -1.07 | % | -0.70 | % | 0.13 | % | 0.19 | % | -0.38 | % |
| At  December 31, 2000 | -0.70                   | %      | -0.28 | % | -0.23 | % | 0.13 | % | 0.11 | % | -0.26 | % |

Based upon theseanalyses, management has determined that there has been no material change at June30, 2001 in interest rate risk for the Company, from the December 31, 2000calculated results.

**PART2. - 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 ofSecurity Holders**

**            **None required

**Item 5 - Other Information**

**            **None required

**Item 6 - Exhibits and Reports on Form 8-K**

**            **None required

**SIGNATURES**

**Pursuant to the requirements of Section 13 or 15(d) of theSecurities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the undersigned, thereunto duly authorized.**

| Date: August 9, 2001 | UPBANCORP, INC.                                                                    |
|----------------------|------------------------------------------------------------------------------------|
|                 |                                                                                    |
|                 | (The Registrant)                                                                   |
|                 |                                                                               |
|                 |                                                                               |
|                 | /s/ Richard K. Ostrom                                                              |
|                 |                                                                                    |
|                 | Richard K. Ostrom   Chairman of the Board,   President and Chief Executive Officer |