UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

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

For the quarterly period ended June 30, 2002		Commission file number 01-12292

UPBANCORP, INC.

(Exact name of registrant as specified in its charter)

Delaware		36-3207297
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer 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 ý No o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date: Eight hundred thirty five thousand fifty five (835,055) common shares were outstanding as of August 9, 2002.

URBANCORP, INC.

INDEX — 10Q 6/30/02

Index

	Description	Page #
	Cover Page
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Statements of Condition	2

	Consolidated Statements of Income and Comprehensive Income	3

	Consolidated Statements of Cash flow	4

	Consolidated Statements of Changes in Equity Capital and Notes to Consolidated Financial Statements	5 & 6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	7-10

Item 3.	Quantitative and Qualitative Disclosures on Market Risk	10

PART II	OTHER INFORMATION	11

	Signature Page	12

	Certification	13

PART 1 - Financial Information

Item 1. Financial Statements

UPBANCORP, INC.

CONSOLIDATED STATEMENTS OF CONDITION

*(Dollars in thousands, except share data) (Unaudited)*	June 30, 2002			December 31, 2001
Assets
Cash and due from banks	$	16,750		$	14,736
Federal funds sold	6,800			0
Securities available-for-sale	60,309			60,614
Nonmarketable equity securities	1,855			1,818
Mortgages held-for-sale	0			945
Loans (net of allowance for loan losses of $4,363 and $4,098 in 2002 and 2001)	297,491			299,630
Premises and equipment, net	5,415			5,146
Accrued interest and other assets	6,474			6,564
Total Assets	$	395,094		$	389,453

Liabilities and Shareholders’ Equity
Liabilities
Noninterest bearing	$	76,609		$	72,472
Savings, NOW and money market deposits	122,945			130,309
Other time deposits	131,380			121,244
Total deposits	330,934			324,025
Borrowed funds - short term	7,907			7,880
Borrowed funds - long term	21,500			24,500
Accrued interest and other liabilities	3,063			3,692
Total Liabilities	363,404			360,097

Shareholders’ Equity
Common stock, $1 par value: 3,000,000 shares authorized: 1,000,000 issued in 2002 and 2001	1,000			1,000
Additional paid in capital	4,500			4,500
Retained earnings	28,665			26,588
Treasury stock - 164,945 shares in 2002 and 2001	(3,079		)	(3,079		)
Accumulated other comprehensive income (loss)	604			347
Total Shareholders’ Equity	31,690			29,356
Total Liabilities and Shareholders’ Equity	$	395,094		$	389,453

See accompanying notes to consolidated financial statements

UPBANCORP, INC.

CONSOLIDATED STATEMENTS OF INCOME

	For the three months ended						For the six months ended
	June 30,						June 30,
*(Dollars in thousands, except per share data) (Unaudited)*	2002			2001			2002			2001
Interest Income
Interest and fees on loans	$	6,157		$	6,639		$	12,273		$	13,328
Interest on mortgages held-for-sale	3			13			6			28
Interest on federal funds sold	33			185			33			312
Interest and dividends on securities
Taxable	781			881			1,544			1,960
Non-taxable	132			95			250			182
Total interest income	7,106			7,813			14,106			15,810

Interest Expense
Interest on savings, NOW and money market deposits	518			953			1,010			2,097
Interest on other time deposits	1,138			2,415			2,289			4,896
Interest on borrowed funds - short term	50			7			112			15
Interest on borrowed funds - long term	240			322			508			679
Total interest expense	1,946			3,697			3,919			7,687

Net Interest Income	5,160			4,116			10,187			8,123
Provision for Loan Losses	225			150			450			300
Net Interest Income after Provision for Loan Losses	4,935			3,966			9,737			7,823

Noninterest Income
Service charges on deposit accounts	371			355			757			797
Other noninterest income	88			119			178			235
Net loss on sales of loans	(18		)	0			(18		)	0
Net gain on sales of other real estate owned	65			0			65			0
Net gain on sales of securities	0			0			0			253
Total noninterest income	506			474			982			1,285

Noninterest Expense
Salaries and employee benefits	1,923			1,915			3,909			3,893
Net occupancy expense	207			220			424			446
Equipment expense	256			249			513			487
Outside fees & services	264			237			491			428
Advertising & business development expenses	94			130			241			209
Supplies and postage expense	131			142			249			261
Data processing expense	336			345			661			676
Regulatory fees and insurance	73			73			137			164
Other operating expense	255			303			546			713
Total noninterest expense	3,539			3,614			7,171			7,277

Income Before Income Taxes	1,902			826			3,548			1,831
Income taxes	658			279			1,255			637
Net Income	$	1,244		$	547		$	2,293		$	1,194

Basic Earnings Per Share	$	1.49		$	0.66		$	2.75		$	1.43

Weighted Average Shares Outstanding	835,055			835,055			835,055			835,055

Cash Dividends Paid	$	108		$	108		$	216		$	217

Payout Ratio	8.68		%	19.74		%	9.42		%	18.17		%

See accompanying notes to consolidated financial statements

UPBANCORP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

		For the six months ended June 30,
*(Dollars in thousands) (Unaudited)*		2002			2001
Cash Flows from Operating Activities
Net Income		$	2,293		$	1,194
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		450			300
Depreciation and amortization		680			645
Net gain on sales of securities		0			(253		)
Net gain on sales of other real estate owned		(65		)	0
Net loss on sales of loans		18			0
Change in deferred income taxes		(403		)	(475		)
Accretion on securities, net		(929		)	(243		)
Changes in assets and liabilities:
(Increase)decrease in accrued interest receivable and other assets		654			(7		)
Increase (decrease) in accrued interest payable and other liabilities		(629		)	442
Net cash provided by operating activities before loan originations and sales		2,069			1,603
Originations of mortgages held-for-sale		(5,069		)	(6,188		)
Proceeds from sales of mortgages held-for-sale		6,014			5,541
Net cash provided by operating activities		3,014			956

Cash Flows from Investing Activities
Net (increase) decrease in federal funds sold		(6,800		)	11,600
Purchases of available-for-sale and nonmarketable equity securities		(10,382		)	(27,451		)
Proceeds from maturities and redemptions of available-for-sale and nonmarketable equity securities		12,000			27,850
Proceeds from sale of available-for-sale securities		0			0
Proceeds from sale of other real estate owned		870			0
Net (increase) decrease in loans		532			(16,774		)
Purchases of premises and equipment		(940		)	(509		)
Net cash used in investing activities		(4,720		)	(5,284		)

Cash Flows from Financing Activities
Net increase in total deposits		6,909			4,168
Proceeds from borrowed funds - short term		3,527			60
Payments on borrowed funds - short term		(3,500		)	0
Proceeds from borrowed funds - long term		0			12,000
Payments on borrowed funds - long term		(3,000		)	(5,000		)
Cash dividends paid		(216		)	(217		)
Net cash provided by financing activities		3,720			11,011

Net increase in cash and due from banks		2,014			6,683
Cash and due from banks at beginning of period		14,736			16,319
Cash and due from banks at end of period		$	16,750		$	23,002

Supplemental disclosure of cash flow information:
Cash payments for:	Interest	$	4,401		$	7,007
	Income taxes	1,657			1,110
Supplemental schedule of non-cash investing activities:
Other real estate acquired in settlement of loans		$	1,139		$	98

See accompanying notes to consolidated financial statements

UPBANCORP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Dollars in thousands, except per share data) (Unaudited)

	Common Stock		Additional Paid In Capital		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income		Total
Balance, January 1, 2002	$	1,000	$	4,500	$	26,588		$	(3,079	)	$	347	$	29,356
Comprehensive Income:
Net income for the six months ended June 30, 2002					2,293								2,293
Unrealized gain on securities available-for-sale, net of tax of $165											257		257
Comprehensive Income													2,550
Cash dividends: $.26 per share					(216		)						(216		)
Purchase of treasury stock								0					0
Balance June 30, 2002	$	1,000	$	4,500	$	28,665		$	(3,079	)	$	604	$	31,690

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 accounting principles generally accepted in the United States of America 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 accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included.

Operating results of the three and six months ended June 30, 2002 are not necessarily indicative of the results that may be expected for the year ended December 31, 2002. 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, 2001.

Prior period amounts included in these financial statements have been reclassified to place them on a basis consistent with the current period’s financial statements.

Current Accounting Developments

In August 2001, the Financial Accounting Standards Board issued Statement 143, Accounting for Asset Retirement Obligations and Statement 144, Accounting for Impairment or Disposal of Long-lived Assets. Statement 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated retirement costs are capitalized as part of the carrying amount of the long-lived asset. Statement 144 supersedes Statement 121 and the accounting and reporting provisions of APB Opinion No. 30. Statement 144 establishes a single accounting model for long-lived assets to be disposed of by sale which includes measuring a long-lived asset classified as held for sale at the lower of its carrying amount or its fair value less costs to sell and to cease depreciation or amortization. For the Company, the provisions of Statement 144 were effective January 1, 2002 and Statement 143 will be effective January 1, 2003. Implementation of the Statements are not expected to have a material impact on the company’s financial Statements.

NOTE B: SECURITIES

Securities available-for-sale

The amortized cost and fair value of these are as follows at June 30 , 2002:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U. S. Government agencies	$	47,009	$	915	$	163	$	47,761
States and political subdivisions	10,722		329		64		10,987
Mortgage-backed securities	88		3		0		91
Total debt securities	57,819		1,247		227		58,839
Equity securities	1,500		5		35		1,470
Total securities available-for-sale	$	59,319	$	1,252	$	262	$	60,309

NOTE C: LOANS AND NONPERFORMING ASSETS

The following summarizes loans at the dates indicated:

	June 30, 2002			Dec. 31, 2001
Commercial - Aircraft related	$	33,739		$	45,726
Commercial - Other	55,590			56,453
Secured by real estate - Construction	75,963			65,821
Secured by real estate - Residential (1 to 4 family)	29,805			33,998
Secured by real estate - Residential (5 or more)	39,465			37,522
Secured by real estate - Non-Residential	65,610			61,798
Consumer and all other	2,210			2,946
Deferred loan income	(528		)	(536		)
Total loans	301,854			303,728
Less: Allowance for loan losses	(4,363		)	(4,098		)
Total loans, net of allowance for loan losses	$	297,491		$	299,630

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

	June 30, 2002			June 30, 2001
Balance at beginning of year	$	4,098		$	3,817
Charge-offs:
Commercial - Other	82			335
Secured by real estate - Residential (1 to 4 family)	150			0
Secured by real estate - Residential (5 or more)	0			1
Secured by real estate - Non-Residential	0			49
Consumer and all other	17			20
Total charge-offs	249			405

Recoveries:
Commercial - Other	63			0
Secured by real estate - Non-Residential	1			0
Total recoveries	64			0

Net charge-offs	(185		)	(405		)
Provision for loan losses	450			300
Balance at end of period	$	4,363		$	3,712

The following summarizes nonperforming assets at the dates indicated:

	June 30, 2002		Dec. 31, 2001
Nonaccrual loans	$	5,441	$	4,692
Restructured loans	383		399
Total nonperforming loans	5,824		5,091
Other real estate owned (OREO)	334		0
Total nonperforming assets	$	6,158	$	5,091

NOTE D: NOTE PAYABLE

The Company had a $10 million line of credit, a secured revolving note payable, with a correspondent bank at June 30, 2002. This note has an outstanding balance of $3 million. Interest is calculated on the basis of 3-month LIBOR plus 150 basis points with interest due and payable quarterly (3.36% at June 30, 2002). The expiration date of the line is March 1, 2003. The note also contains certain covenants which limit changes in capital structure, the purchase of, or merger with other banks and/or businesses, and the guarantees of other liabilities and obligations. In addition, the Company must meet certain financial ratios.

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 Company’s financial condition and results of operations during the periods included in the consolidated financial statements set forth in this filing. The Company’s Form 10-Q for the quarter ended June 30, 2001 is incorporated by reference.

The Company operates a full-service community bank through eight banking offices and one loan production office in the Chicago and Phoenix metropolitan areas. Uptown’s branches in the Phoenix area operate under the name of Heritage Bank (“Heritage”).

RESULTS OF OPERATIONS

The Company’s net income for the quarter ended June 30, 2002 was $1,244, compared to $547 in the same period in 2001, an increase of $697, or 127.42%. On a per share basis, earnings increased to $1.49 in the quarter, from $.66 in the previous year. The improvement in the second quarter net income results is due to the increase in net interest income, which is described in its entirety below.

The Company’s net income for the six months ended June 30, 2002 was $2,293 compared to $1,194 in 2001. Basic earnings per share was $2.75, a 92.31% increase from last year’s $1.43. Return on average equity was 15.30%, compared to 9.07% in the previous year, an increase of 68.69%. Return on average assets was 1.18% for 2002, compared to .59% in 2001. Most of these increases are due to the 25.41 % increase in net interest income in 2002.

Net Interest Income

The Company’s net interest income was $10,187 for the first six months of 2002, compared with the $8,123 registered in the same period of 2001. The decrease in yields on average earning assets, from 8.46% in 2001 to 7.88% in 2002, was more than offset, by lower average rates paid on deposits, 2.72% in 2002, as comparedto 5.01% in 2001. The decrease in rates earned on assets was eased by an increase in loan fees earned, to $1,109 in 2002, versus $593 in 2001. The majority of these fees were earned on loans with a 1 year or less term, and therefore not subject to deferral. The single largest factor in the decrease in interest expense was the roll-off/maturity of time deposits that carried a significantly higher rate at issue in 2001, than is currently available for such deposits. This resulted in the higher net margin of 5.71% in 2002, compared to the 4.37% net margin for 2001.

The following tables summarize the Company’s average earning assets and interest bearing liabilities for both the six month and three month periods ended June 30, 2002 and June 30, 2001.

Table 1

Net Interest Income and Margin Analysis

	Six Months Ended June 30,
	2002						2001
	Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate
Interest Earning Assets
Federal Funds Sold	$	4,209	$	33	1.56	%	$	12,749	$	312	4.94	%
Investment Securities:
Taxable	45,730		1,495		6.59	%	60,130		1,897		6.36	%
Nontaxable (3)	10,069		376		7.42	%	7,448		274		7.42	%
Nonmarketable Equity Securities	1,846		49		5.30	%	1,938		63		6.60	%
Mortgages held-for-sale	159		6		7.52	%	649		28		8.63	%
Loans, net of deferred loan income(1)(2)	307,476		12,273		7.94	%	298,268		13,328		8.94	%
Total Interest Earning Assets	$	369,489	$	14,232	7.88	%	$	381,182	$	15,902	8.46	%

Interest Bearing Liabilities
Savings, NOW & money market deposits	$	128,191	$	1,010	1.59	%	$	129,950	$	2,097	3.25	%
Other Time Deposits	129,210		2,289		3.57	%	153,842		4,896		6.42	%
Borrowed Funds - Short Term	6,159		112		3.62	%	659		15		4.53	%
Borrowed Funds - Long Term	26,781		508		3.77	%	25,044		679		5.39	%
Total Interest Bearing Liabilities	$	290,341	$	3,919	2.72	%	$	309,495	$	7,687	5.01	%
Net interest income/interest rate spread(4)			$	10,313	5.16	%			$	8,215	3.45	%
Net interest margin(5)					5.71	%					4.37	%

(1) -	Nonaccrual loans are included in average loans.
(2) -	Interest income includes loan origination fees of $1,109 and $593 for the six months ended June 30, 2002 and 2001
(3) -	Nontaxable interest income is presented on a fully tax equivalent basis assuming a 35% tax rate.
(4) -	Interest rate spread represents the difference between the average yield on interest earning assets and the average cost of interest bearing liabilities and is presented on a fully tax equivalent basis.
(5) -	Net interest margin represents net interest income as a percentage of average earning assets.

Table 2

Net Interest Income and Margin Analysis

	Three Months Ended June 30,
	2002						2001
	Average Balance		Interest		Yield/ Rate		Average Balance		Interest		Yield/ Rate
Interest Earning Assets
Federal Funds Sold	$	8,208	$	33	1.59	%	$	15,767	$	185	4.64	%
Investment Securities:
Taxable	45,885		757		6.62	%	54,275		849		6.27	%
Nontaxable (3)	10,592		212		7.92	%	7,714		95		7.48	%
Nonmarketable Equity Securities	1,849		24		5.25	%	1,991		32		6.45	%
Mortgages held-for-sale	142		3		8.35	%	602		13		8.54	%
Loans, net of deferred loan income(1)(2)	307,453		6,157		7.92	%	302,778		6,639		8.67	%
Total Interest Earning Assets	$	374,130	$	7,186	7.81	%	$	383,127	$	7,813	8.30	%

Interest Bearing Liabilities
Savings, NOW & money market deposits	$	127,463	$	518	1.63	%	$	128,261	$	953	2.98	%
Other Time Deposits	137,785		1,138		3.31	%	154,011		2,415		6.29	%
Borrowed Funds - Short Term	7,005		50		2.82	%	721		7		3.84	%
Borrowed Funds - Long Term	21,820		240		4.35	%	25,358		322		5.02	%
Total Interest Bearing Liabilities	$	294,072	$	1,946	2.65	%	$	308,351	$	3,697	4.81	%
Net interest income/interest rate spread(4)			5,240		5.16	%			4,116		3.49	%
Net interest margin(5)					5.70	%					4.40	%

(1) -	Nonaccrual loans are included in average loans.
(2) -	Interest income includes loan origination fees of $536 and $292 for the three months ended June 30, 2002 and 2001
(3) -	Nontaxable interest income is presented on a fully tax equivalent basis assuming a 35% tax rate.
(4) -	Interest rate spread represents the difference between the average yield on interest earning assets and the average cost of interest bearing liabilities and is presented on a fully tax equivalent basis.
(5) -	Net interest margin represents net interest income as a percentage of average earning assets.

Provision for Loan Losses

The provision for loan losses was $450 in 2002 and $300 in 2001, reflecting management’s assessment of overall risk in the loan portfolio. Net charge-offs were $185 for the first six months of 2002, compared to $405 during the same period in 2001. The allowance for loan losses as a percent of total loans was 1.45% at June 30, 2002, and 1.35% at December 31, 2001. Total nonperforming assets as a percent of total assets were 1.56% at June 30, 2002 and 1.31% at December 31, 2001.

Noninterest Income and Expense

Total noninterest income, excluding the securities gains, decreased 4.85% to $982 in the first six months of 2002, compared to the same period in 2001, due to regular seasonal fluctuations in client activity subject to service charges. The securities gains of $253, recognized in 2001, arose because the Chicago branch held an investment in common stock in Cash Station (an ATM consortium), the cost basis 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 in exchange for their common stock. The fair value of the Concord stock at the merger date was $253 and is included as a part of gains on securities transactions in 2001.

Total noninterest expense for the first six months of 2002 decreased 1.46% to $7,171 from the year earlier total of $7,277. The increase in salaries and employee benefits in 2002 to $3,909 from $3,893 in 2001, is a result of higher payroll taxes and benefits payments required. Net occupancy and equipment expense increased $4 to $937 from $933 in 2001, primarily due to higher utilities cost. Other noninterest expense decreased $126 or 5.42% to $2,325 from $2,451 the preceding year.

FINANCIAL CONDITION CHANGES

Total assets were $395,094 at June 30, 2002 compared to $389,453 at December 31, 2001. The overall increase in cash and due from banks is a function of regular deposit activity and seasonal fluctuation. The decrease in the securities portfolio is a reflection of active funds management and the calendar timing of investment maturities and the reinvestment of those funds. The decrease in the loan portfolio is a result of a decrease in demand.

Total deposits increased $6,909 or 2.13% from year-end. Noninterest bearing deposits increased 5.71% or $4,137, due to core growth, as well as seasonal fluctuations at each of the branches. Interest bearing deposits increased $2,772 as a result of the issuance of short term, non-core, certificates of deposit purchased in 2002, at rates profitable to Uptown. Borrowed funds decreased $2,973 from year-end levels as a result of reduced need brought about by the increased deposits.

Allowance for Loan Losses

Uptown National Bank("Uptown") utilizes an internal classification system as a means of reporting problem and potential problem assets. A classified loan analysis is presented quarterly to the Company's Board of Directors, showing all assets listed as "Special Mention", "Substandard", "Doubtful" and "Loss". An asset is classified as Substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard assets include those characterized by the distinct possibility that Uptown will sustain some loss if the deficiencies are not corrected. Assets classified as Doubtful have all the weaknesses inherent in those classified Substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Assets classified as Loss are those considered uncollectible and viewed as nonbankable assets worthy of charge-off. Assets which do not currently expose Uptown to sufficient risk to warrant classification in one of the aforementioned categories, but possess weaknesses which may or may not be out of the control of the customer, are deemed to be Special Mention.

Uptown's determination as to the classification of its assets and the amount of its valuation allowances is subject to review by their primary regulators, as well as external loan review auditors, who can order the establishment of additional general or specific loss allowances. The OCC, in conjunction with the other federal banking agencies, has adopted an interagency policy statement on the allowance for loan losses. The policy statement provides guidance for financial institutions on both the responsibilities of management for the assessment and establishment of adequate allowances and guidance for banking agency examiners to use in determining the adequacy of general valuation guidelines. Generally, the policy statement recommends that (i) institutions have effective systems and controls to identify, monitor and address asset quality problems; (ii) management has analyzed all significant factors that affect collectibility of the portfolio in a reasonable manner; and (iii) management has established acceptable allowance evaluation processes that meet the objectives set forth in the policy statement. Management believes it has established an adequate allowance for loan losses. Uptown analyzes its process regularly, with modifications made if needed, and reports those results quarterly at Board of Directors meetings. However, there can be no assurance that the regulators, in reviewing Uptown's loan portfolio, will not request Uptown to materially increase it allowance for loan losses at the time. Although management believes that adequate specific and general loan loss allowances have been established, actual losses are dependent upon future events and as such, further additions to the level of specific and general loss allowance may become necessary.

The aggregate principal amount of potential problem loans as of June 30, 2002 and 2001 were approximately $16.3 million and $6.3 million, respectively. Include in these problem loan totals are non-accrual, Special Mention, Substandard and Doubtful classifications, which represent the watch list presented to the Board of Directors. All loans classified as Loss have been charged-off. Loans in this category generally include loans that are classified for regulatory purposes.

Nonperforming Assets

Another measurement used by management in assessing the risk inherent in the loan portfolio is the level of nonperforming assets. Nonperforming assets consists of nonaccrual loans, restructured loans, investments and other real estate owned. Nonaccrual loans are those loans which have been determined to have reasonable doubt as to the timely collection of interest or principal. Restructured loans are those loans whose terms or conditions have been changed and have resulted in a negative impact on the Subsidiary Bank (“Bank”) compared to the original terms. Other real estate owned (“OREO”) represents real property which has been acquired through foreclosure or real estate which the Bank has obtained possession of in satisfaction of a debt. OREO is carried at the lower of the recorded investment value of the loan, or the estimated fair market value, less estimated costs of sale, of the related real estate. The majority of the balance in nonaccrual loans relates to three loans, secured by real estate, totaling $4,017 to two borrowers, placed on nonaccrual status during the past year. These loans have been analyzed and included in the Banks measurement process when reviewing the allowance for loan losses as performed.

LIQUIDITY AND CAPITAL RESOURCES

The maintenance of an adequate level of liquidity is necessary to ensure that sufficient funds are available to meet customer’s 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 obtained through liabilities such as core deposits, borrowed funds, certificates of deposit and public fund deposits.

The Company’s cash flows are composed of three classifications: cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities. Net cash provided by operating activities, consisting primarily of earnings, was $3,014 for the six months ended June 30, 2002 and $956 for the same period in 2001. A significant component in the net fluctuation of net cash provided by or used in operating activities is the timing of the sale of loans held-for-sale to permanent investors. Net cash used in investing activities, consisting primarily of loan and investment funding was $4,720 and $5,284 for the six months ended June 30, 2002 and 2001, respectively. Net cash provided by financing activities, consisting of deposit growth and borrowed funds, was $3,720 and $11,011 for the six months ended June 30, 2002 and 2001.

At June 30, 2002, Shareholders’ Equity was $31,690 compared to $29,356 at December 31, 2001, an increase of $2,334, or 7.95%. Accumulated other comprehensive income at June 30, increased $257 due to unrealized gains in securities available-for-sale, net of tax. Shareholders’ Equity as a percentage of total assets at June 30, 2002 was 8.02%. The following table represents the Company’s consolidated regulatory capital position as of June 30, 2002.

Regulatory capital at June 30, 2002:

	Leverage Ratio		Tier 1 Risk-Based Capital		Total Risk-Based Capital
Upbancorp, Inc. ratio	7.8	%	9.8	%	11.0	%
Regulatory minimum ratio	4.0	%	4.0	%	8.0	%

FORWARD LOOKING STATEMENTS

The preceding “Management Discussion and Analysis of Financial Condition and Results of Operations” section of this Form 10-Q contains various “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended, which represents the Company’s expectations and beliefs concerning future events including, without limitation the following: the company’s efforts in retaining and expanding its customer base and differentiating it from its competition; the FDIC insurance premium assessments; the impact from liabilities arising from legal proceedings on its financial condition; the impact of interest rates in general on the volatility of its net interest income; the impact of policy guidelines and strategies on net interest income based on future rate projections; the ability to provide funding sources for both the Bank and the Company; the payment of future dividends based upon Company performance and prospects; the impact of portfolio diversification and the real estate lending and future levels of loan losses; the effect of loan growth generally on the improvement in net interestincome; and the assessment of its provision and reserve for loan loss levels based upon future changes in the composition of its loan portfolio, loan losses, collateral value and economic conditions.

The Company cautions that these statements are further qualified by important factors that could cause actual results to differ materially from those set forth in the forward looking statements due to market, economic and other business-related risks and uncertainties affecting the realization of such statements. Certain of these risks and uncertainties included in such forward looking statements include, without limitation, the following; dynamics of the market served in terms of competition from traditional and nontraditional financial service providers can affect both the funding capabilities of the Company in terms of deposit gathering as well as the ability to compete for loans and generate the higher yielding assets necessary to improve net interest income; future legislation and action by the Federal Reserve Board may result in the imposition of costs and constraints on the Company through higher FDIC insurance premiums, significant fluctuations in market interest rates and operational limitations; significant fluctuations in market interest rates may affect the ability to reinvest proceeds from the maturities and prepayments on certain categories of securities and the overall yield of the portfolio; business expansion activities and other efforts to retain customers may increase the need for staffing and the resulting personnel expense in future periods; and deviations from the assumptions used to evaluate the appropriate level of the reserve for loan losses as well as future purchases and sales of loans may affect the appropriate level of the reserve for loan losses and thereby affect future provisions.

Additional risks and uncertainties include: general economic or industry conditions, nationally and/or in the communities in which the Company conducts business, changes in the interest rate environment, legislation or regulatory requirements, conditions of the securities markets, deposit flows, cost of funds, demand for loan products, demand for financial services, competition, changes in the quality or composition of the Company’s loan and investment portfolios, acts of war or terrorism, other economic, competitive, governmental, regulatory and technical factors affecting the Company’s operations, products, services and prices.

Accordingly, results actually achieved may differ materially from expected results in these statements. The Company does not undertake, and specifically disclaims, any obligation to update any forward looking statements to reflect events or circumstances occurring after the date of such statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ON MARKET RISK

Management, to augment static gap analysis, uses an additional measurement tool to evaluate its asset/liability sensitivity, which determines exposure to changes in interest rates by measuring the change in net interest income as a percentage of Capital, due to changes in rates over a one-year horizon.

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

Utilizing this measurement concept, the interest rate risk of the Company, expressed as change in net interest income as a percentage of capital (subject to a policy limit of 2.5% of capital) over a 1-year time horizon due to changes in interest rates is as follows:

	Basis Point Change
	+200		+100		+50		-50		-100		-200
At June 30, 2002	-0.96	%	-0.95	%	-0.24	%	0.03	%	0.07	%	-0.76	%
At December 31, 2001	-1.19	%	-0.62	%	-0.40	%	-0.04	%	-0.32	%	-0.66	%

Based upon these analyses, management has determined that there has been no material change at June 30, 2002 in interest rate risk for the Company, from the December 31, 2001 calculated results.

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

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, thereunto duly authorized.

Date: August 9, 2002		UPBANCORP, INC.
		(The Registrant)

		\s\Richard K. Ostrom
		Richard K. Ostrom
		Chairman of the Board,
		President and Chief
		Executive Officer

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Upbancorp, Inc. (the “Company”) on Form 10Q for the period ending June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Richard K. Ostrom, Chairman of the Board, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

\s\ Richard K. Ostrom

Richard K. Ostrom

Chairman of the Board,

President and Chief

Executive Officer

August 9, 2002

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Upbancorp, Inc. (the “Company”) on Form 10Q for the period ending June 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kathleen L. Harris, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

\s\ Kathleen L. Harris

Kathleen L. Harris

Senior Vice President and

Chief Financial Officer

August 9, 2002

UPBANCORP INC 10-Q