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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT
(DATE OF EARLIEST EVENT REPORTED) - JULY 1, 1994
HUBCO, INC.
(Exact Name of Registrant as Specified in Its Charter)
NEW JERSEY
(State or Other Jurisdiction of Incorporation)
1-10699 22-2405746
(Commission File Number) (I.R.S. Employer
Identification No.)
3100 BERGENLINE AVENUE, UNION CITY, NEW JERSEY 07087
(Address of Principal Executive Offices)
(201) 348-2300
(Registrant's Telephone Number)
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<PAGE>
Item 2. Acquisition or Disposition of Assets.
Effective on July 1, 1994 (the "Effective Time"), Washington Bancorp,
Inc. ("Washington") merged with and into HUBCO, Inc. ("HUBCO") and Washington
Savings Bank (the "Savings Bank") merged with and into Hudson United Bank (the
"Bank") pursuant to the Agreement and Plan of Merger dated as of November 8,
1993, as amended by Amendment No. 1 to the Agreement and Plan of Merger dated
as of May 10, 1994 (the "Agreement"), between HUBCO, Washington, the Bank and
the Savings Bank (the "Merger").
HUBCO is a bank holding company whose principal operating subsidiary
is the Bank, a state-chartered commercial bank. The corporate headquarters of
HUBCO and the main office of the Bank are located at 3100 Bergenline Avenue,
Union City, New Jersey 07087. The Bank is a commercial bank which primarily
serves small and mid-sized businesses and consumers in Northern New Jersey and
operated, prior to the Merger, 41 branches in Hudson, Bergen, Passaic, Essex,
Middlesex and Morris counties. As of March 31, 1994, HUBCO's total assets,
loans and deposits were $1.079 billion, $512 million and $953 million,
respectively.
Washington is a registered bank holding company subject to the Bank
Holding Company Act of 1956, as amended, which conducted its operations
through its sole direct subsidiary, the Savings Bank, a New Jersey chartered
FDIC insured non-member savings bank. Prior to the Effective Time of the
Merger, the Savings Bank conducted business in New Jersey through eight
branches located in the counties of Bergen and Hudson. As of March 31, 1994,
Washington had assets, loans, deposits (excluding escrow) and stockholders'
equity of $279.5 million, $163.0 million, $243.2 million and $33.0 million,
respectively. In connection with the Merger, Savings Bank was first converted
into Washington Commercial Bank, a New Jersey chartered commercial bank, and
then immediately merged into the Bank.
As a result of the Merger, each share of Washington Common Stock was
converted into the right to receive either $16.10 in cash or 0.6708 of a share
of a new series of HUBCO's Series A Preferred Stock ("HUBCO Preferred Stock"),
with cash paid in lieu of fractional shares at $16.10 per share of Washington
Common Stock. Pursuant to the Agreement, 51% of Washington's 2,336,237 shares
of outstanding Common Stock were converted into HUBCO Preferred Stock and the
rest were converted into cash. The HUBCO Preferred Stock is redeemable for
$24.00 per share at HUBCO's option at any time after the later of (i) one year
from the date of closing and (ii) the date on which the market price for the
HUBCO Common Stock is $24.00 or more for twenty (20) consecutive days. Each
full share of HUBCO Preferred Stock is convertible into one share of HUBCO
Common Stock. The holders of HUBCO Preferred Stock are entitled to receive an
annual dividend of $1.44 per share. The consideration involved in the Merger
was a result of negotiations between HUBCO and Washington and was evaluated
and determined to be fair by Washington's financial advisors.
2
<PAGE>
Pursuant to the Agreement, each officer, director or employee of
Washington who was holding options to purchase Washington Common Stock as of
the Effective Time could convert an unexercised option to purchase one share
of Washington Common Stock, at the holder's election, to (i) cash equal to the
difference between the exercise price and $16.10 (the "Cash-Out Amount"), (ii)
shares of HUBCO Preferred Stock in an amount equal to the Cash-Out Amount
divided by $24.00, or (iii) an option to purchase 0.6708 of a share of HUBCO
Preferred Stock.
Pursuant to the Merger, HUBCO issued 814,663 shares of HUBCO
Preferred Stock and paid $19,311,980 in cash. The HUBCO Preferred Stock is
listed on the NASDAQ.
HUBCO filed a registration statement on Form S-4 (File No. 33-53197)
with the Securities and Exchange Commission (the "Commission") to register
under the Securities Act of 1933 the securities issued by HUBCO connection
with the Merger. The Merger was approved by the shareholders of Washington at
an annual meeting held on June 21, 1994. The Merger was accounted for as a
purchase for financial reporting purposes.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
The following financial statements of Washington are filed with this
report at the conclusion of this Item 7:
Consolidated Statements of Operations for Each of the Three Years
in the Period Ended December 31, 1993
Consolidated Balance Sheets as of December 31, 1993 and 1992
Consolidated Statements of Changes in Stockholders' Equity for
Each of the Three Years in the Period Ended December 31, 1993
Consolidated Statements of Cash Flows for Each of the Three Years
in the Period Ended December 31, 1993
Notes to Consolidated Financial Statements
The related, manually signed accountants' report and the consent of the
accountants to incorporation by reference of their report into HUBCO's
registration statement on Form S-8 are not available at the time this Current
Report on Form 8-K is filed. Pursuant to Item 7(a)(4) of Form 8-K, these items
will be filed with the Commission under cover of Form 8-K/A as soon as
practicable, but not later than 60 days after the date on which this Current
Report on Form 8-K is filed.
The following required interim financial statements are not available
at the time this Current Report on Form 8-K is filed. Pursuant to Item 7(a)(4)
of Form 8-K, these statements will be filed with the Commission under cover of
Form 8-K/A as soon as practicable, but not later than 60 days after the date on
which this Current Report on Form 8-K is filed:
Unaudited Financial Statements for the Periods Ended June 30,
1993 and 1994
3
<PAGE>
Unaudited Balance Sheets as of June 30, 1994
(b) Pro Forma Financial Information
The following required pro forma financial information is not
available at the time this Current Report on Form 8-K is filed. Pursuant to
Items 7(b)(2) and 7(a)(4) of Form 8-K, this information will be filed with the
Commission under cover of Form 8-K/A as soon as practicable, but not later than
60 days after the date on which this Current Report on Form 8-K is filed:
HUBCO's pro forma balance sheet as of June 30, 1994 and pro
forma statements of income for the periods ended December 31,
1993 and June 30, 1994.
(c) Exhibits
2.1 Agreement and Plan of Merger, dated as of November 8, 1993, among
HUBCO, Washington, the Bank and the Savings Bank. (Incorporated by reference to
HUBCO's Current Report on Form 8-K dated November 8, 1993.)
2.2 Amendment Number 1 to Agreement and Plan of Merger, dated as of
May 10, 1994, among HUBCO, Washington, the Bank and the Savings Bank.
(Incorporated by reference to Appendix A-1 of Amendment No. 1 to HUBCO's
Registration Statement (File No. 33-53197) on Form S-4 filed with the
Commission on May 11, 1994.)
4.1 HUBCO's Certificate of Incorporation, as amended to date.
4.2 HUBCO's By-laws, as amended. (Incorporated by reference from
HUBCO's Annual Report on Form 10-K for the fiscal year ended December 31,
1993.)
23 Consent of Coopers & Lybrand (To be filed by amendment)
99 Press Release dated July 1, 1994
4
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31,
-------------------------------------
1993 1992 1991
---- ---- ----
Interest income:
Loans, including fees . . . . . . $14,781,686 $18,041,437 $22,616,388
U.S. Treasury obligations . . . . 1,766,978 2,833,951 1,995,094
Mortgage-backed securities. . . . 915,652 193,365 849,600
Federal funds sold. . . . . . . . 171,990 380,910 372,369
Dividends . . . . . . . . . . . . 150,639 155,715 199,088
Due from banks. . . . . . . . . . 48,311 50,378 22,719
Other investment securities . . . 722,669 223,335 1,538,383
----------- ----------- -----------
Total interest income . . . . . . 18,557,925 21,879,091 27,593,641
----------- ----------- -----------
Interest expense:
Deposits. . . . . . . . . . . . . 8,794,623 12,189,233 17,148,425
Borrowed funds. . . . . . . . . . 17,809 1,350 1,970,423
----------- ----------- -----------
Total interest expense. . . . . . 8,812,432 12,190,583 19,118,848
----------- ----------- -----------
Net interest income. . . . . . . 9,745,493 9,688,508 8,474,793
----------- ----------- -----------
Provision for losses on loans. . . 420,000 1,100,000 1,500,000
----------- ----------- -----------
Net interest income after provision
for losses on loans. . . . . . . 9,325,493 8,588,508 6,974,793
----------- ----------- -----------
Other income:
Service charges on deposit
accounts . . . . . . . . . . . . 186,459 181,743 149,163
Gain on sale of loans, net. . . . 157,030 196,845 1,275,976
Security gains, net . . . . . . . 22,450 1,638,132 856,843
Gain on sale of bank building . . 186,519 -- --
Other . . . . . . . . . . . . . . 396,675 273,536 287,286
----------- ----------- -----------
Total other income. . . . . . . . 949,133 2,290,256 2,569,268
----------- ----------- -----------
Other expenses:
Salaries and employee benefits. . 3,468,089 3,519,704 3,924,724
REO expense, net. . . . . . . . . 1,457,341 1,171,544 1,935,927
Occupancy and equipment expenses,
net . . . . . . . . . . . . . . 797,303 1,010,739 869,705
Federal Deposit Insurance
Corporation ("FDIC") assessment. 690,516 597,054 577,945
Other . . . . . . . . . . . . . . 2,354,923 2,394,742 1,997,571
----------- ----------- -----------
Total other expenses. . . . . . . 8,768,172 8,693,783 9,305,872
----------- ----------- -----------
Income before income taxes,
extraordinary items and
cumulative effect of change in
accounting principle. . . . . . 1,506,454 2,184,981 238,189
Income tax benefit/(expense) . . 1,018,000 (628,000) (552,000)
----------- ----------- -----------
Income/(loss) before extraordinary
items and cumulative effect of
change in accounting
principle . . . . . . . . . . . 2,524,454 1,556,981 (313,811)
Extraordinary items:
Utilization of net operating
loss ("NOL") carryforward. . . -- 539,000 --
Loss on early extinguishment of
FHLB advances (net of applicable
income tax effect of $-0-) . . -- -- (1,034,319)
Cumulative effect of change in
accounting principle. . . . . . 300,000 -- --
----------- ----------- -----------
NET INCOME/(LOSS). . . . . . . . $ 2,824,454 $ 2,095,981 $(1,348,130)
=========== =========== ===========
Income/(loss) per share:
Income/(loss) before extraordinary
items and cumulative effect of
change in accounting
principle . . . . . . . . . . . $ 1.10 $ 0.68 $ (0.14)
Extraordinary items. . . . . . . -- 0.24 (0.46)
Cumulative effect of change in
accounting principle. . . . . . .13 -- --
----------- ----------- -----------
NET INCOME/(LOSS). . . . . . . . $ 1.23 $ 0.92 $ (0.60)
=========== =========== ===========
Weighted average number of shares
outstanding . . . . . . . . . . . 2,296,876 2,276,035 2,263,547
=========== =========== ===========
See notes to consolidated financial statements
5
<PAGE>
WASHINGTON BANCORP, INC. & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31,
-------------------------
1993 1992
----- -----
Assets
Cash and due from banks . . . . . . . . $ 4,283,032 $ 4,336,433
Federal funds sold. . . . . . . . . . . 1,900,000 3,000,000
------------ ------------
Cash and cash equivalents. . . . . . . 6,183,032 7,336,433
Investment securities:
Available-for-sale . . . . . . . . . . 57,740,195 1,936,700
Held-to-maturity (market value
$14,128,000 and $57,430,000). . . . . 13,848,830 56,793,662
Mortgage-backed securities:
Available-for-sale . . . . . . . . . . 9,516,832 --
Held-to-maturity (market value
$9,365,000 and $7,197,000). . . . . . 9,447,366 7,213,343
Loans:
Held-for-sale (market value
$4,909,000 and $9,032,000). . . . . . 4,852,000 9,000,000
In portfolio (net of allowance for
losses of $2,828,000 and
$2,776,000) . . . . . . . . . . . . . 165,332,900 182,500,728
Other real estate owned ("REO") (net
of allowance for losses of $1,880,000
and $1,802,000). . . . . . . . . . . . 7,078,038 12,998,022
Accrued interest receivable . . . . . . 2,563,176 2,606,893
Premises and equipment, net . . . . . . 2,614,031 2,840,090
Federal Home Loan Bank stock, at cost . 1,711,300 1,632,000
Income tax refund . . . . . . . . . . . -- 320,000
Deferred income tax asset . . . . . . . 1,369,000 250,000
Other assets. . . . . . . . . . . . . . 378,636 342,758
------------ ------------
TOTAL ASSETS. . . . . . . . . . . . . $282,635,336 $285,770,629
============ ============
Liabilities and Stockholders' Equity
Liabilities:
Interest-bearing deposits. . . . . . . $237,026,264 $244,249,625
Noninterest-bearing deposits . . . . . 9,016,464 8,373,055
------------ ------------
Total deposits. . . . . . . . . . . . 246,042,728 252,622,680
Advances from Federal Home Loan
Bank ("FHLB") . . . . . . . . . . . . 400,000 --
Mortgage escrow deposits . . . . . . . 1,276,819 1,393,709
Accrued interest payable . . . . . . . 189,154 336,657
Other liabilities. . . . . . . . . . . 1,185,136 948,538
------------ ------------
TOTAL LIABILITIES . . . . . . . . . . 249,093,837 255,301,584
------------ ------------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, par value $.10 per
share, 3,000,000 shares authorized,
no shares issued and outstanding. . . -- --
Common stock, par value $.10 per share,
6,000,000 shares authorized,
shares issued and outstanding--
2,307,687 in 1993
and 2,307,187 in 1992 . . . . . . . . 230,768 230,718
Paid-in capital. . . . . . . . . . . . 22,500,728 22,498,778
Retained earnings. . . . . . . . . . . 10,744,003 7,919,549
Unrealized gain on available-for-sale
securities, net of tax. . . . . . . . 186,000 --
------------ ------------
33,661,499 30,649,045
Deferred compensation--Management
Recognition and Retention Plan
("MRP"). . . . . . . . . . . . . . . . (120,000) (180,000)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY . . . . . 33,541,499 30,469,045
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY. . . . . . . . . . . . . . . $282,635,336 $285,770,629
============ ============
See notes to consolidated financial statements
6
<PAGE>
<TABLE>
<CAPTION>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Unrealized
gain on Deferred
available- compensation
Preferred Common Paid-in for-sale Retained -------------
stock stock capital securities earnings ESOP MRP Total
---------- ------- ------- ---------- -------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1991. . $ -- $230,718 $22,498,778 $ -- $ 7,171,698 $(386,400) $(300,000) $29,214,794
Recognition of deferred
compensation
expense. . . . . . . . . . -- -- -- -- -- 289,800 60,000 349,800
Net loss. . . . . . . . . . -- -- -- -- (1,348,130) -- -- (1,348,130)
----- -------- ----------- -------- ----------- --------- --------- -----------
BALANCE, December 31, 1991. -- 230,718 22,498,778 -- 5,823,568 (96,600) (240,000) 28,216,464
Recognition of deferred
compensation expense . . . -- -- -- -- -- 96,600 60,000 156,600
Net income. . . . . . . . . -- -- -- -- 2,095,981 -- -- 2,095,981
----- -------- ----------- -------- ----------- --------- --------- -----------
BALANCE, December 31, 1992. -- 230,718 22,498,778 -- 7,919,549 -- (180,000) 30,469,045
Recognition of deferred
compensation expense . . . -- -- -- -- -- -- 60,000 60,000
Excercise of stock options. -- 50 1,950 -- -- -- -- 2,000
Adoption of SFAS 115. . . . -- -- -- 186,000 -- -- -- 186,000
Net income. . . . . . . . . -- -- -- -- 2,824,454 -- -- 2,824,454
----- -------- ----------- -------- ----------- --------- --------- -----------
BALANCE, December 31, 1993. $ -- $230,768 $22,500,728 $186,000 $10,744,003 $ -- $(120,000) $33,541,499
===== ======== =========== ======== =========== ========= ========= ===========
See notes to consolidated financial statements
</TABLE>
7
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
--------------------------------------
1993 1992 1991
---- ---- ----
Cash Flows from Operating Activities:
Interest received . . . . . . . $ 20,368,341 $ 22,383,276 $ 27,978,824
Loan fees received . . . . . . 288,037 449,833 406,092
Service charges on deposits
received . . . . . . . . . . . 186,459 181,743 149,163
Miscellaneous other income
received . . . . . . . . . . . 260,392 273,536 287,286
Income tax refund received . . 1,196,969 -- 1,105,511
Income taxes paid . . . . . . . (545,107) (609,000) --
Loans originated for resale . . (852,000) -- --
Interest paid . . . . . . . . . (8,959,935) (12,520,427) (19,699,816)
Cash paid to employees and for
other expenses . . . . . . . . (7,630,874) (7,863,590) (5,278,204)
----------- ----------- ------------
Net cash provided by operating
activities . . . . . . . . . 4,312,282 2,295,371 4,948,856
----------- ----------- ------------
Cash Flows from Investing Activities:
Proceeds from maturity of term
federal funds sold. . . . . . . -- 9,000,000 --
Purchase of term federal funds
sold . . . . . . . . . . . . . -- -- (9,000,000)
Proceeds from sales of securities
available-for-sale . . . . . . 3,375,706 19,834,531 --
Proceeds from maturities of
securities available-for-
sale. . . . . . . . . . . . . . 500,000 -- --
Purchase of securities available-
for-sale . . . . . . . . . . . (60,197,058) (21,353,814) --
Principal collected on mortgage-
backed securities available-
for-sale. . . . . . . . . . . . 2,967,578 -- --
Purchase of mortgage-backed
securities available-
for-sale .. . . . . . . . . . . (10,847,957) -- --
Proceeds from sales of loans
held for sale . . . . . . . . . 7,021,863 15,717,358 34,600,519
Proceeds from sales of investment
securities . . . . . . . . . . 9,248,633 54,466,694 68,049,943
Proceeds from maturities of
investment securities . . . . . 35,371,615 10,445,843 52,378,000
Purchase of investment securities (2,452,068) (68,592,457)(117,910,408)
Principal collected on
mortgage-backed securities. . . 5,769,780 532,190 1,042,580
Proceeds from sales of
mortgage-backed securities. . . 2,028,385 1,533,314 27,191,360
Purchase of mortgage-backed
securities . . . . . . . . . . (10,534,937) (7,785,292) --
Purchase of loans . . . . . . . -- (10,086,000) --
Net decrease/(increase) in loans
and loans held for sale . . . . 14,240,619 (7,095,165) (11,481,243)
Recoveries on loans charged-off 261,348 257,045 240,898
Proceeds from sale of bank
building . . . . . . . . . . . 224,100 -- --
Capital expenditures . . . . . (64,614) (312,723) (261,474)
Proceeds from sales of REO, net of
financed sales and closing costs 3,995,466 1,126,761 2,658,486
Proceeds from redemption of FHLB
stock . . . . . . . . . . . . -- 520,300 104,600
Purchase of FHLB stock . . . . (79,300) -- --
----------- ----------- ------------
Net cash (used in)/provided by
investing activities . . . . 829,159 (1,791,415) 47,613,261
----------- ----------- ------------
Cash Flows from Financing Activities:
Net increase in savings and
transaction accounts. . . . . . 4,164,930 14,330,173 5,693,096
Net decrease in certificates of
deposit . . . . . . . . . . . (10,744,882) (20,728,505) (21,998,795)
Net increase/(decrease) in mortgage
escrow deposits . . . . . . . (116,890) (739,381) 149,309
Repayment of advances from FHLB -- -- (45,134,319)
Advances from FHLB . . . . . . 400,000 -- 15,600,000
Exercise of stock options . . . 2,000 -- --
----------- ----------- ------------
Net cash used in financing
activities . . . . . . . . . (6,294,842) (7,137,713) (45,690,709)
----------- ----------- ------------
Net Increase/(Decrease) in Cash and
Cash Equivalents . . . . . . . (1,153,401) (6,633,757) 6,871,408
Cash and Cash Equivalents,
beginning of year. . . . . . . . 7,336,433 13,970,190 7,098,782
----------- ----------- ------------
Cash and Cash Equivalents, end of
year . . . . . . . . . . . . . $ 6,183,032 $ 7,336,433 $ 13,970,190
=========== =========== ============
See notes to consolidated financial statements
8
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
Year ended December 31,
---------------------------------
1993 1992 1991
---- ---- ----
Reconciliation of Net Income/(Loss)
to Net Cash Provided by
Operating Activities:
Net income/(loss) . . . . . . . . $ 2,824,454 $ 2,095,981 $ (1,348,130)
Adjustments to reconcile net income/
(loss) to net cash
provided by operating activities:
Depreciation . . . . . . . . . 253,092 372,186 319,678
Provision for losses on loans and
REO . . . . . . . . . . . . . 1,443,965 1,951,900 2,670,206
Recognition of deferred
compensation expense . . . . . 60,000 156,600 349,800
Deferred loan fees . . . . . . (194,779) (163,765) (248,842)
Deferred taxes . . . . . . . . (699,000) (250,000) 552,000
Gain on sales of investment and
mortgage-backed securities . (67,623) (1,671,946) (1,078,931)
Loss on sales of investment and
mortgage-backed securities . 45,173 33,814 222,088
Gain on sale of bank building (186,519) -- --
Gain on sales of REO . . . . . (429,255) (454,734) (329,927)
Loss on sales of REO . . . . . 125,355 53,887 153,157
Gain on sale of loans . . . . (157,030) (206,314) (1,275,976)
Loss on sale of loans . . . . -- 9,469 --
Premium amortization, net of
discount earned. . . . . . . . 2,249,515 817,490 243,249
Extraordinary loss on early
extinguishment of FHLB
advances . . . . . . . . . . -- -- 1,034,319
Changes in operating assets and
liabilities:
(Increase) in loans originated
for resale. . . . . . . . . . (852,000) -- --
(Increase)/decrease in income
tax refund receivable . . . . 320,000 (320,000) 243,000
(Increase)/decrease in accrued
interest receivable . . . . 43,717 300,293 796,868
(Increase)/decrease in other
assets . . . . . . . . . . (35,878) 83,567 890,585
Increase/(decrease) in accrued
interest payable . . . . . . (147,503) (329,844) (580,968)
Increase/(decrease) in other
liabilities . . . . . . . . (283,402) (183,213) 2,336,680
----------- ----------- -----------
Net cash provided by operating
activities . . . . . . . . . . . $ 4,312,282 $ 2,295,371 $ 4,948,856
=========== =========== ===========
Supplemental Schedule of Noncash
Investing and Financing
Activities:
Transfer of loans to REO . . . $ 3,705,035 $ 5,330,339 $ 9,571,387
=========== =========== ===========
Portion of REO sales financed
by the Bank. . . . . . . . . . $ 5,427,475 $ 3,486,900 $ 4,700,200
=========== =========== ===========
Transfer of loans to loans held
for sale, net . . . . . . . . $ -- $24,520,513 $ --
=========== =========== ===========
Exchange of loans for
mortgage-backed securities . . $ 1,788,408 $ -- $ 6,732,250
=========== =========== ===========
Available-for-sale securities
market value change. . . . . . $ 186,000 $ -- $ --
=========== =========== ===========
See notes to consolidated financial statements
9
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Washington Bancorp, Inc. and
Subsidiary follow generally accepted accounting principles and general
practices applicable to the banking industry. The policies which materially
affect the determination of financial position, results of operations and cash
flows are summarized below.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Washington
Bancorp, Inc, (the "Company") and its wholly-owned subsidiary, Washington
Savings Bank (the "Bank"). All significant intercompany balances and
transactions have been eliminated.
STATEMENTS OF CASH FLOWS
The statements of cash flows are presented using the direct method. For
purposes of reporting cash flows, cash and cash equivalents are cash on hand,
amounts due from banks and Federal funds sold (generally due within a one-week
period).
SECURITIES
During 1993, the Financial Accounting Standards Board (the "FASB") issued
and the Company adopted Statement of Financial Accounting Standards No. 115:
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
115"). SFAS 115 requires entities to classify their securities into either a
held-to-maturity, available-for-sale or trading category. Each of these
classifications require a different basis of accounting.
Securities in which there is both the positive intent and ability to hold
until call date, if any, or maturity are classified as held-to-maturity and
carried at cost, adjusted for amortization of premiums and accretion of
discounts. Premiums are amortized and discounts are accreted using the level
yield method over the period to call, if any, or maturity for investments, and
over the estimated remaining lives based on anticipated prepayments for
mortgage-backed securities. Gains and losses, if any, are recognized when
securities are sold by the specific identification method.
Securities which may be sold prior to maturity for either asset/liability
purposes or for other reasons are classified as available-for-sale and are
accounted for at fair value with fair value changes, net of tax, reported as a
net amount in a separate component of stockholders' equity.
The Company does not engage in trading securities; however, such
securities would be accounted for at fair value with fair value changes
reported in the income statement.
The effect of adopting SFAS 115 as of December 31, 1993 was to increase
securities by $286,000, reduce the net deferred tax asset by $100,000 and
increase stockholders' equity by $186,000. There was no effect on the results
of operations.
The Bank, as a member of the Federal Home Loan Bank of New York ("FHLB"),
is required to hold shares of capital stock in the FHLB in an amount equal to
one percent of the outstanding balance of mortgage loans or five percent of
its outstanding advances from the FHLB, whichever is greater.
LOANS
Loans in which there is both the intent and ability to hold until
maturity are carried at their principal amounts outstanding. Generally, when a
loan is past due as to payment of principal or interest for ninety days or
when, in the opinion of management, the accrual of interest should be ceased
before ninety days, it is the Company's policy to cease accruing interest and
to place such a loan on a "nonaccrual status". Any accrued but unpaid interest
previously recorded, if not adequately collateralized, is charged against
current period interest income. Cash receipts on nonaccrual loans are recorded
as either income or as a reduction of principal, according to management's
judgement as to the collectibility of principal.
10
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Loan origination fees and certain direct loan origination costs are
offset, and the resulting net amount is deferred and amortized as an
adjustment of the loans' yields. Net loan fees are generally amortized over
the contractual lives of the related loans.
Loans held for sale are carried at the lower of aggregate cost or market.
No valuation allowance was required at December 31, 1993 or 1992. Gains and
losses, including deferred loan origination fees, are recognized when loans
are sold by the specific identification method.
In May 1993, the FASB issued Statement of Financial Accounting Standards
No. 114, "Accounting by Creditors for Impairment of a Loan" ("SFAS 114").
SFAS 114 establishes criteria for accounting for loans that have been
impaired. It requires that impaired loans be measured based on the present
value of expected future cash flows discounted at the loan's effective
interest rate or at the loan's observable market price or the fair value of
the collateral if the loan is collateral dependent. The Company has not fully
evaluated the effect of SFAS 114 on its financial statements. SFAS 114 is
effective for fiscal years beginning after December 15, 1994. The Company
plans to adopt SFAS 114 in 1995 with no prior period restatement.
ALLOWANCE FOR LOSSES ON LOANS
The allowance for losses on loans is established through charges to
operations in the form of a provision for losses on loans. Loans which are
determined to be uncollectible are charged against the allowance account and
subsequent recoveries, if any, are credited to the account. The provision for
losses on loans is based upon percentage allocations with regard to the
performing loan portfolio, as well as specific allocations for classified
loans. Loans are classified in accordance with their estimated risk based on
various factors, including: (a) the financial status and credit history of the
borrower; (b) collateral value; (c) loan documentation; (d) prevailing and
anticipated economic conditions; and (e) such other factors that, in
management's judgement, warrant current recognition in providing an adequate
allowance.
OTHER REAL ESTATE OWNED ("REO"), NET
REO consists of real estate properties acquired through foreclosure or
deed in lieu of foreclosure and "in-substance" foreclosures ("ISF"). A loan is
classified as an in-substance foreclosure even though actual foreclosure has
not occurred based upon the following criteria: the borrower has little or no
equity in the collateral based upon its current estimated fair value; proceeds
for repayment are expected to come only from the operations or sale of the
collateral; and either the borrower has abandoned control of the collateral or
it is doubtful that the borrower will rebuild equity in the collateral or
repay the loan by other means in the foreseeable future.
REO is carried at the lower of cost (principal balance of the former loan
plus cost of obtaining title and possession) or fair value less estimated cost
to sell. When a property is transferred to ISF, the excess of the loan balance
over market or the the fair value less estimated cost to sell is charged to the
allowance for losses on loans.
The allowance for losses on REO is established through charges to
operations in the form of a provision for losses on REO that is reflected in
the expense caption--"REO expense, net." Factors considered in establishing
the allowance for losses on REO include appraisals of the fair market value of
a property and management's assessment of the overall real estate market for
that type of property and its location. In addition, carrying costs (e.g. real
estate taxes, repairs and maintenance, and insurance), net of rental income,
are charged to operations in the current period and are reflected in the
expense caption--"REO expense, net".
PREMISES AND EQUIPMENT, NET
Land is carried at cost. Buildings, building improvements, and furniture
and equipment are stated at cost less accumulated depreciation computed on the
straight-line basis over the estimated useful lives of each type of asset.
Leasehold improvements are stated at cost less accumulated amortization
computed on a straight-line basis over the term of the lease or useful life,
whichever is less. Expenditures for maintenance and repairs are charged to
expense; major replacements and betterments are capitalized. Gains and losses
on dispositions are reflected in current operations.
11
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
INCOME TAXES
The Company and the Bank file a consolidated federal income tax return.
State income tax returns are filed on a separate basis.
Prior to 1993, the Company recorded income tax provisions in accordance
with Accounting Principles Board Opinion No.11: "Income Taxes" ("APB 11"),
which recorded deferred income taxes on transactions which are reported for
financial statement purposes in different years than for income tax
purposes--principally loan fees, interest on nonaccrual loans and carrying
costs of REO.
On January 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109: "Accounting for Income Taxes" ("SFAS 109") with no prior
period adjustment. SFAS 109 requires an asset and liability approach, the
objective of which is to establish deferred tax assets and liabilities for
temporary differences between the financial reporting basis and the tax basis
of assets and liabilities at enacted tax rates expected to be in effect when
such amounts are realized or settled. The effect of adopting SFAS 109, as of
January 1, 1993, was to increase assets and net earnings by $300,000, or $.13
per share.
PENSION PLAN AND POSTRETIREMENT BENEFITS
A noncontributory defined benefit pension plan is provided through
Retirement System Group Inc. that covers substantially all employees. Benefits
are based upon years of service and generally upon the employee's average
compensation during the three consecutive years prior to normal retirement.
The funding policy is generally to make the minimum annual contributions
required by applicable regulations. Pension cost is determined by Statement of
Financial Accounting Standards No. 87: "Employers' Accounting for Pensions."
The Entry Age Normal Cost Method was used to determine the actuarial present
value of accumulated and projected benefit obligations.
During 1992, the Company undertook a policy to eliminate its balance sheet
liability under the new Statement of Financial Accounting Standards No. 106:
"Accounting for Postretirement Benefits Other Than Pensions" ("SFAS 106").
This goal was achieved in a two step process. First, current retirees were
offered, and accepted, a lump sum payment equal to a percentage of the
estimated cost to the Company of each retiree's future health insurance
premiums in exchange for the Company's liability for future coverage. The
aggregate lump sum amount for all such retirees approximated $77,000 and was
paid in two equal installments in January 1992 and 1993. Second, the
obligation for future retirees was moved to the tax-qualified pension plan.
Future retirees who meet certain age and service requirements will be awarded
a supplemental pension benefit equal to a percentage of estimated future
health insurance premiums.
During 1992 and prior periods, postretirement health care benefits were
recognized in the year that the benefits were paid to certain retired
employees--the "pay-as-you-go" or cash basis. The costs of providing
postretirement health care benefits approximated $42,000 and $38,000 for the
years ended December 31, 1992 and 1991, respectively.
POSTEMPLOYMENT BENEFITS
In December 1992, the FASB issued Statement of Financial Accounting
Standards No. 112: "Employers' Accounting for Postemployment Benefits" ("SFAS
112"). SFAS 112 requires accrual accounting for benefits provided to former or
inactive employees after employment but before retirement--including salary
continuation, disability benefits, severance pay and continuation of health
care benefits. Under SFAS 112, each benefit will be accrued either over the
employee's working career for benefits that vest or vary based on an
employee's years of service, or as an expense at the date of the event giving
rise to the benefits (e.g., at the date of disability). SFAS 112 is effective
for fiscal years beginning after December 15, 1993. Earlier application is not
required by the FASB. The Company plans to adopt SFAS 112 in 1994 with no
prior period restatement. Management believes that the effect of adopting SFAS
112 will not be significant on the financial position or results of operations
of the Company.
FINANCIAL INSTRUMENTS
Disclosures are made of the fair value of financial instruments, both
assets and liabilities recognized and not recognized in the consolidated
balance sheet, for which it is practicable to estimate fair value as of the
balance sheet
12
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
date. Changes in market conditions subsequent to that date are not reflected
and the fair value of financial instruments are not representative of the
Company's total value. For example, when quoted market prices are not
available, the Company calculates the present value of anticipated future cash
flows. In that regard, the estimated fair value will be affected by prepayment
and discount rate assumptions. Such method may not provide the actual amount
which would be realized in the ultimate sale of the financial instrument.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practical to
estimate that value:
Cash and short-term investments
The carrying amount is a reasonable estimate of fair value.
Securities
Fair values are based on quoted market prices as published by various
quotation services or, if quoted market prices are not available, on dealer
quotes. Fair value of the investment in FHLB is its carrying amount.
Loan receivables and commitments to extend credit
Loans are grouped into homogeneous categories, such as one-to-four family
mortgages, consumer loans, and loans held for sale. Fair value is based on
either a quoted market price from a dealer for similar maturities, interest
rate and type of collateral or the present value of anticipated future cash
flows using the current rates at which similar loans would be made to
borrowers with similar credit risks and for the same remaining maturities.
Deposit liabilities
Carrying amount is a reasonable estimate of fair value for savings,
demand deposit, and money market accounts. Fair value of certificates of
deposit is estimated by discounting the future cash flows using the rates
currently offered for deposits of similar remaining maturities.
PER SHARE DATA
Income/(loss) per share was computed by dividing net income/(loss) for
each year by the weighted average number of shares outstanding (which excludes
unvested shares of the MRP).
RECLASSIFICATIONS
Certain reclassifications have been made to the 1992 and 1991 financial
statements to conform to the 1993 presentation.
2. CASH AND DUE FROM BANKS
Reserves maintained to meet Federal Reserve Board regulations amounted to
$331,000 and $280,000 during the bi-weekly maintenance periods that included
December 31, 1993 and 1992, respectively.
13
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
3. SECURITIES
December 31, 1993 December 31, 1992
---------------------------------------------- -------------------------------------------
Gross Gross
Weighted Unrealized Weighted Unrealized
Average Carrying --------------- Market Average Carrying ------------- Market
Yield Value Gains Losses Value Yield Value Gains Losses Value
------ ------- ----- ------ ----- ------ ----- ----- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT SECURITIES HELD TO
MATURITY
U.S. Treasury:
Maturing between 1-5 years . . . 5.45% $13,546 $275 $ (1) $13,820 5.95% $19,090 $453 $ -- $19,543
---- ------- ---- ------ ------- ----- ------- ---- ------ -------
U.S. Government agencies:
Maturing within 1 year . . . . . -- -- -- -- -- 3.74 5,611 2 (7) 5,606
---- ------- ---- ------ ------- ----- ------- ---- ------ -------
Corporate Bonds and Notes:
Maturing within 1 year . . . . . -- -- -- -- -- 4.00 19,754 187 (37) 19,904
Maturing between 1-5 years . . . 4.28 303 5 -- 308 4.53 3,151 46 (2) 3,195
---- ------- ---- ------ ------- ----- ------- ---- ------ -------
4.28 303 5 -- 308 4.07 22,905 233 (39) 23,099
---- ------- ---- ------ ------- ----- ------- ---- ------ -------
Other Securities:
Maturing within 1 year . . . . . -- -- -- -- -- 3.65 9,188 2 (8) 9,182
---- ------- ---- ------ ------- ----- ------- ---- ------ -------
5.43% $13,849 $280 $ (1) $14,128 4.58% $56,794 $690 $(54) $57,430
==== ======= ==== ====== ======= ===== ======= ==== ===== =======
MORTGAGED-BACKED SECURITIES HELD
TO MATURITY
Government National
Mortgage Association ("GNMA")
pass-through certificates. . . . 6.24% $ 7,155 $ 14 $ (75) $ 7,094 7.12% $ 7,213 $ 16 $(32) $ 7,197
Federal National Mortgage
Association ("FNMA") pass-through
certificates . . . . . . . . . . 5.85 1,582 5 (21) 1,566 -- -- -- -- --
Federal Home Loan Mortgage
Association (FHLMC") pass-through
certificates . . . . . . . . . . 5.67 710 -- (5) 705 -- -- -- -- --
---- ------- ---- ------ ------- ----- ------- ---- ------ -------
6.13% $ 9,447 $ 19 $(101) $ 9,365 7.12% $ 7,213 $ 16 $(32) $ 7,197
==== ======= ==== ====== ======= ===== ======= ==== ===== =======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1993 December 31, 1992
-------------------- -------------------------------------------
Gross
Weighted Carrying/ Weighted Unrealized
Average Market Average Carrying ------------- Market
Yield Value Yield Value Gains Losses Value
------ -------- ------ ----- ----- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT SECURITIES AVAILABLE
FOR SALE
U.S. Treasury:
Maturing between 1-5 years . . . 4.69% $51,822 --% $ -- $ -- $ -- $ --
U.S. Government agencies:
Maturing within 1 year . . . . . 3.59 505 -- -- -- -- --
Corporate Bonds and Notes:
Maturing within 1 year . . . . . 4.12 3,836 4.64 1,937 17 -- 1,954
Other Securities:
Maturing within 1 year . . . . . 4.50 1,577 -- -- -- -- --
---- ------- ---- ------ ----- ----- ------
4.64% $57,740 4.64% $1,937 $ 17 $ -- $1,954
==== ======= ==== ===== ===== ===== ======
MORTGAGED-BACKED SECURITIES
AVAILABLE FOR SALE
GNMA pass-through certificates. . 6.82% $ 5,986 --% $ -- $ -- $ -- $ --
FHLMC pass-through certificates . 7.82 2,558 -- -- -- -- --
FNMA pass-through certificates. . 5.53 973 -- -- -- -- --
---- ------- ---- ------ ----- ----- ------
6.95% $ 9,517 --% $ -- $ -- $ -- $ --
==== ======= ==== ====== ===== ===== ======
</TABLE>
During 1993, the Company adopted SFAS 115 which increased the carrying
value of the available-for-sale securities by $286,000 for unrealized gains.
The carrying value of securities pledged to collateralize public deposits
approximated $828,000 and $1,454,000 at December 31, 1993 and 1992,
respectively.
14
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. LOANS AND REO
Loans
The primary market area for lending encompasses Hudson and Bergen
Counties, New Jersey. The following table sets forth the composition of the
loan portfolio:
December 31,
---------------------------
1993 1992
------------ ------------
Real estate:
1-4 family . . . . . . . . . . . . . . . . . $109,211,067 $125,858,058
Multi-family/commercial. . . . . . . . . . . 53,860,461 52,742,859
Construction . . . . . . . . . . . . . . . . 3,282,555 2,533,164
------------ ------------
Total real estate loans . . . . . . . . . . 166,354,083 181,134,081
Commercial/financial. . . . . . . . . . . . . 1,421,985 3,551,679
Consumer and other loans. . . . . . . . . . . 1,322,178 1,731,241
------------ ------------
Total loans . . . . . . . . . . . . . . . . 169,098,246 186,417,001
Less:
Unearned interest. . . . . . . . . . . . . . 79,393 87,541
Deferred loan fees . . . . . . . . . . . . . 857,953 1,052,732
Allowance for losses . . . . . . . . . . . . 2,828,000 2,776,000
------------ ------------
Loans, net. . . . . . . . . . . . . . . . . $165,332,900 $182,500,728
============ ============
Nonperforming loans
Nonperforming loans, which are a component of loans, include loans which
are accounted for on a nonaccrual basis and troubled debt restructurings.
December 31,
---------------------------
1993 1992
------------ ------------
Nonaccrual loans:
Real estate loans:
1-4 family. . . . . . . . . . . . . . . . . $ 2,783,813 $5,527,941
Multi-family/commercial . . . . . . . . . . 9,981,691 1,648,146
Construction. . . . . . . . . . . . . . . . -- 944,000
----------- ----------
Total real estate loans. . . . . . . . . . 12,765,504 8,120,087
Commercial/financial . . . . . . . . . . . . -- 224,591
Consumer and other loans . . . . . . . . . . 32,647 254,571
----------- ----------
Total nonaccrual loans . . . . . . . . . . 12,798,151 8,599,249
Troubled debt restructurings:
Commercial/financial. . . . . . . . . . . . 151,788 207,088
----------- ----------
Total nonperforming loans. . . . . . . . . $12,949,939 $8,806,337
=========== ==========
Interest on nonperforming loans which would have been recorded had such
loans been performing (based upon original contract terms) throughout the
period approximated $826,000, $609,000 and $975,000 for the years ended
December 31, 1993, 1992 and 1991, respectively. Interest income on those
loans, which is recorded only when received, amounted to $223,000, $416,000
and $548,000 for the years ended December 31, 1993, 1992 and 1991,
respectively.
During the first quarter of 1993, a Chapter 11 bankruptcy petition was
filed by the obligor of an approximately $9.0 million loan, a loan on which
the Bank currently has a first mortgage and an assignment-of-rents (the
15
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
"Bankruptcy Loan"). On November 10, 1993, the Court dismissed the bankruptcy
petition. Nevertheless, the Bank did not receive any of the rental payments
from April 1993 through November 1993, as the payments were made to a
debtor-in-possession account and pursuant to a Court Order were released to
the City of Philadelphia (and not to the Bank) to pay a substantial portion of
property tax arrearages. Rental payments were resumed to the Bank in December
1993. On January 29, 1994, the Bank paid approximately $450,000 to the City
of Philadelphia to resolve all remaining property tax arrearages and to pay
1994 property taxes. The amount of such payment was capitalized into the
Bankruptcy Loan balance. The Bank anticipates that the Bankruptcy Loan will
be renegotiated during 1994. The Bank has classified the Bankruptcy Loan as
a nonaccrual loan included in the multi-family/commercial category. Management
believes that the Bank has adequate collateral with respect to the Bankruptcy
Loan and anticipates collection of the outstanding principal balance.
REO
December 31,
-----------------------
1993 1992
--------- -----------
Acquired by foreclosure or deed in
lieu of foreclosure. . . . . . . . $3,920,667 $ 7,460,541
Loans foreclosed in-substance . . . 5,037,371 7,339,481
Less: Allowance for losses on REO . 1,880,000 1,802,000
---------- -----------
REO, net . . . . . . . . . . . . . $7,078,038 $12,998,022
========== ===========
Allowance for losses on loans and REO
Loans REO Total
---------- ---------- ----------
Balance, December 31, 1990. . . . . $2,579,000 $ 976,000 $3,555,000
Provision for losses. . . . . . . . 1,500,000 1,170,206 2,670,206
Recoveries. . . . . . . . . . . . . 240,898 -- 240,898
Losses charged off. . . . . . . . . (1,330,898) (818,206) (2,149,104)
---------- ---------- ----------
Balance, December 31, 1991. . . . . 2,989,000 1,328,000 4,317,000
Provision for losses. . . . . . . . 1,100,000 851,900 1,951,900
Recoveries. . . . . . . . . . . . . 257,045 -- 257,045
Losses charged off. . . . . . . . . (1,570,045) (377,900) (1,947,945)
---------- ---------- ----------
Balance, December 31, 1992. . . . . 2,776,000 1,802,000 4,578,000
Provision for losses. . . . . . . . 420,000 1,023,965 1,443,965
Recoveries. . . . . . . . . . . . . 261,319 -- 261,319
Losses charged off. . . . . . . . . (629,319) (945,965) (1,575,284)
---------- ---------- ----------
Balance, December 31, 1993. . . . . $2,828,000 $1,880,000 $4,708,000
========== ========== ==========
Related-Party Loans
An analysis of activity with respect to loans outstanding to directors,
officers, their entities and immediate family is as follows:
Year ended December 31,
----------------------
1993 1992
--------- ----------
Balance, beginning of year. . . . . . . . . . . $ 866,000 $1,007,000
New loans. . . . . . . . . . . . . . . . . . . -- 356,000
Repayments/reductions. . . . . . . . . . . . . (320,000) (497,000)
--------- ----------
Balance, end of year. . . . . . . . . . . . . . $ 546,000 $ 866,000
========= ==========
As of December 31, 1993 and 1992, $543,000 and $842,000, respectively, of
such loans represented collateralized real estate loans and $3,000 and
$24,000, respectively, represented uncollateralized loans. All such loans
were, in the opinion of management, made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with outside third parties.
16
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. PREMISES AND EQUIPMENT
December 31,
------------
1993 1992
---------- ----------
Land. . . . . . . . . . . . . . . . . . . . . . . . $ 513,570 $ 532,496
Buildings . . . . . . . . . . . . . . . . . . . . . 3,185,933 3,211,426
Leasehold improvements. . . . . . . . . . . . . . . 145,123 356,462
Equipment . . . . . . . . . . . . . . . . . . . . . 2,483,214 2,423,942
---------- ----------
6,327,840 6,524,326
Less: Accumulated depreciation and amortization . . 3,713,809 3,684,236
---------- ----------
$2,614,031 $2,840,090
========== ==========
During 1993, a building used to store bank-owned vehicles (i.e., a
garage) with a net book value of $37,000 was sold for $224,000.
6. INTEREST-BEARING DEPOSITS
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------
1993 1992
----------------------- ------------------------
Average Average
effective effective
interest rate Amount interest rate Amount
------------- ------ ------------- -------
<S> <C> <C> <C> <C>
Regular savings accounts. . . . . . . . . . . . . . . . . . . 2.50% $103,033,812 3.25% $ 99,347,342
Money market accounts . . . . . . . . . . . . . . . . . . . . 2.25 6,700,155 3.15 7,369,440
Checking accounts . . . . . . . . . . . . . . . . . . . . . . 2.00 4,690,136 2.90 4,185,800
---- ------------ ---- ------------
Total savings and transaction deposits . . . . . . . . . . . 2.47 114,424,103 3.23 110,902,582
---- ------------ ---- ------------
Market-rate certificates under $100,000 maturing:
Three months or less . . . . . . . . . . . . . . . . . . . . 3.84 37,909,328 4.86 45,781,741
Three months to six months . . . . . . . . . . . . . . . . . 3.69 22,848,926 4.97 29,851,480
Six months to one year . . . . . . . . . . . . . . . . . . . 3.65 26,694,662 4.79 33,046,983
One to two years . . . . . . . . . . . . . . . . . . . . . . 4.36 10,430,845 6.22 11,860,462
Two to three years . . . . . . . . . . . . . . . . . . . . . 4.91 10,514,059 4.91 3,212,207
Three to five years. . . . . . . . . . . . . . . . . . . . . 5.07 5,576,637 6.11 1,225,039
Market-rate certificates $100,000 and over maturing:
Three months or less . . . . . . . . . . . . . . . . . . . . 4.02 2,754,760 4.90 3,294,615
Three months to six months . . . . . . . . . . . . . . . . . 3.32 1,710,739 4.68 2,014,480
Six months to one year . . . . . . . . . . . . . . . . . . . 4.12 1,819,949 5.16 2,417,186
One to two years . . . . . . . . . . . . . . . . . . . . . . 4.51 527,622 6.89 428,375
Two to three years . . . . . . . . . . . . . . . . . . . . . 4.99 701,366 5.30 214,475
Three to five year . . . . . . . . . . . . . . . . . . . . . 5.05 1,113,268 -- --
---- ------------ ---- ------------
Total certificates of deposit . . . . . . . . . . . . . . . 3.98 122,602,161 5.01 133,347,043
---- ------------ ---- ------------
Total interest-bearing deposits. . . . . . . . . . . . . . 3.25% $237,026,264 4.20% $244,249,625
==== ============ ==== ============
Average effective interest rate on all deposits . . . . . . . 3.13% 4.04%
==== ====
</TABLE>
7. BORROWINGS
On February 1, 1993, the FHLB advanced the Company $400,000, maturing on
February 1, 1996. There were no advances during 1992. The average amount
outstanding during 1993 and 1991 was $367,000 and $23,308,000, respectively,
with a weighted average rate of 4.9% and 8.4%, respectively. The FHLB advance
is collateralized by
17
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
mortgage-backed securities and the mortgage loan portfolio. During the fourth
quarter of 1991, the proceeds primarily from the sale of one-to-four family
performing mortgage loans and investment securities were used to prepay
$15,900,000 of FHLB advances, incurring approximately $1,034,000 of early
extinguishment costs. The costs have been included in the consolidated
statements of operations as an extraordinary item. Due to the net operating
loss carryforward position, there was no income tax effect for these
transactions.
In 1987, the Bank established an Employee Stock Ownership Plan ("ESOP"),
which borrowed $l,449,000 from an unrelated third party lender to acquire
138,000 shares of the Company's Common Stock at $10.50 per share (secured by
the shares purchased). The loan was scheduled to mature in 1997; however, the
ESOP, at its option, repaid the remaining balance of the loan during 1992 with
no penalty. The ESOP repaid the loan as contributions were received from the
Bank. Interest was paid and accrued monthly at a variable rate which
approximated the prime rate. The related interest expense incurred for the
years ended December 31, 1992 and 1991 approximated $1,000 and $23,000, at an
effective rate of 3.9% and 9.3%, respectively.
The Bank also has a line of credit, which expires on September 1, 1994,
of approximately $14.3 million with the FHLB, none of which was in use at
December 31, 1993.
8. PENSION PLAN
The components of net periodic pension cost include the following:
Year ended December 31,
-------------------------------
1993 1992 1991
-------- -------- --------
Service cost of benefits earned . . . . . $131,925 $122,405 $102,672
Interest cost on projected benefit
obligation . . . . . . . . . . . . . . . 220,512 209,194 205,182
Actual return on plan assets. . . . . . . (408,089) (279,886) (210,743)
Net amortization:
Deferred investment liability. . . . . . 147,402 33,433 --
Unrecognized net transition asset. . . . (58,356) (58,356) (58,356)
Unrecognized prior service liability . . (254) 1,456 1,456
-------- -------- --------
Net periodic pension cost . . . . . . . . $ 33,140 $ 28,246 $ 40,211
======== ======== ========
18
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The funded status of the plan, which invests primarily in marketable
equity and debt securities, and the amounts recognized in the consolidated
balance sheets are as follows:
December 31,
--------------------------
1993 1992
----------- -----------
Actuarial present value of accumulated benefit
obligation:
Vested benefits. . . . . . . . . . . . . . . . $(2,838,600) $(2,338,576)
Nonvested benefits . . . . . . . . . . . . . . (182,800) (150,610)
----------- -----------
Accumulated benefit obligation . . . . . . . . (3,021,400) (2,489,186)
Effect of assumed increase in future
compensation levels. . . . . . . . . . . . . . (415,000) (341,898)
----------- -----------
Projected benefit obligation. . . . . . . . . . (3,436,400) (2,831,084)
Plan assets at fair value . . . . . . . . . . . 3,617,300 3,333,266
----------- -----------
Plan assets in excess of projected
benefit obligation . . . . . . . . . . . . . . 180,900 502,182
Unrecognized net transition asset . . . . . . . (242,200) (300,524)
Unrecognized net (gain)/loss. . . . . . . . . . 87,200 (142,334)
Unrecognized prior service liability. . . . . . (7,500) (7,784)
----------- -----------
Net pension asset . . . . . . . . . . . . . . . $ 18,400 $ 51,540
========== ==========
The expected long-term rate of return on plan assets used in determining
the net periodic pension cost was 8.00% in 1993, 1992 and 1991. The projected
benefit obligation is based on an assumed discount rate of 7.00% in 1993 and
8.00% in 1992, and an assumed rate of compensation increase of 5.5% and 6.00%
in 1993 and 1992, respectively. The original net transition asset of $650,660
is being amortized over approximately eleven years and is due to expire in
1998.
9. BENEFIT PLANS
The expense charged to operations for the following benefit plans during
the years ended December 31, 1993, 1992 and 1991 approximated $151,000,
$193,000 and $376,000, respectively.
Incentive Stock Option Plan ("Option Plan")
The Option Plan authorizes the granting of 172,500 nonqualified and
incentive stock options through 1997 to certain officers and other key
employees. Each option entitles the holder to purchase one share of Common
Stock at an exercise price equal to the fair market value as of the date of
grant. Options may be exercisable at such times (not after ten years from
grant) as the Stock Option Plan Committee determines. The exercise price may
be paid in cash or Common Stock. The following table summarizes stock option
transactions during the three years ended December 31, 1993:
Balance at January 1, 1991, exercisable between $5.25
and $18.75 . . . . . . . . . . . . . . . . . . . . . . . . 58,000
Granted in 1992 at $4.00. . . . . . . . . . . . . . . . . 26,500
Granted in 1993 at $7.25. . . . . . . . . . . . . . . . . 88,000
Exercised in 1993 at $4.00. . . . . . . . . . . . . . . . (500)
-------
Balance at December 31, 1993, exercisable between $4.00
and $18.75 . . . . . . . . . . . . . . . . . . . . . . . . 172,000
=======
Exercisable at December 31, 1993. . . . . . . . . . . . . . 74,700
=======
Available for future grant of stock options . . . . . . . . --
=======
19
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Employee Stock Ownership Plan ("ESOP")
The ESOP, established for employees age 21 or older who have at least one
year of credited service, was funded by discretionary cash contributions that
are invested in the Common Stock. Benefits may be paid either in shares of
Common Stock or in cash. Shares purchased with such proceeds are held in a
suspense account by the ESOP Trustee for allocation among members. Benefits
become 20% vested each year of credited service, with 100% vesting after 5
years of credited service. Forfeitures will be reallocated among remaining
participating employees. Benefits may be payable upon retirement, early
retirement, disability or separation from service.
The ESOP Trustee must vote all allocated shares held in the ESOP in
accordance with the instructions of the participating employees. Shares for
which employees do not give instructions, shares held by the ESOP trustee and
unallocated shares will be voted in the same proportion as the shares with
respect to which instructions have been given.
The ESOP is subject to the requirements of the Employee Retirement Income
Security Act of 1974, as amended (which applies to all employee stock
ownership plans), and the regulations of the Internal Revenue Service and the
Department of Labor thereunder. The Company has begun to terminate the ESOP.
The effect of terminating the ESOP will not be significant to the financial
position or results of operations of the Company.
Management Recognition Plan ("MRP")
The MRP was established as a method of providing employees in key
positions with a proprietary interest in a manner designed to encourage such
key employees to remain with the Company. The Company contributed $630,000 to
the MRP to enable it to acquire 60,000 shares of Common Stock. Such amount
represents deferred compensation and has been accounted for as a reduction of
stockholders' equity. Awards generally vest over either a three or five year
period and will be 100% vested upon termination of employment by death,
disability, retirement, or following a change in control of the Company.
Option Plan for Outside Directors ("Directors' Option Plan")
Each member of the Board of Directors who is not an officer or employee
of the Company was granted a single non-qualified option to purchase 7,187.5
shares (aggregate 57,500 shares) of the Common Stock at an exercise price
equal to the fair market value as of the date of grant. Each option granted
under the Directors' Option Plan expires upon the earlier of ten years
following the date of the option or thirty days following the date the
optionee ceases to be a director. The following table summarizes the
Directors' Option Plan transactions during the three years ended December 31,
1993:
Balance at January 1, 1991, exercisable between $10.50
and $13.00 . . . . . . . . . . . . . . . . . . . . . . . . 50,312.50
Granted in 1993 at $7.25. . . . . . . . . . . . . . . . . 10,782.00
Options returned for granting in 1993 . . . . . . . . . . (10,782.00)
----------
Balance at December 31, 1993, excersisable between $7.25
and $13.00 . . . . . . . . . . . . . . . . . . . . . . . . 50,312.50
==========
Exercisable at December 31, 1993. . . . . . . . . . . . . . 50,312.50
==========
Available for future grant of stock options . . . . . . . . --
==========
Deferred Compensation Plan for Outside Directors ("DCP")
During 1993, the DCP, a plan which covers any outside director who has
served in that capacity for at least five consecutive calendar years, was
approved in principle subject to certain conditions. Eligibility, benefits and
vesting will continue should an outside director subsequently become an
officer or employee. An outside director becomes fully vested upon either
fifteen years of service as director, sixty-five years of age, death, or
change in control of the Company, as described below. Subsequent to
retirement, the DCP provides an annual benefit equal to (a) 50% of the outside
director's annual retainer in effect at the time of retirement (the "then
current retainer"), plus (b) 5% of the then current retainer for each
additional year of service in excess of 5 years (up to a maximum of 10
additional years).
20
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Benefits are based on actuarial assumptions then in effect under the
Retirement Plan of the Bank. Benefits payable under the DCP shall be paid
directly from the general assets of the Company. The Company is not obligated
to set aside, earmark or escrow funds or other assets to satisfy its
obligations under the DCP. At December 31, 1993, the accumulated
postretirement benefit obligation reflected on the consolidated balance sheet
in other liabilities was $25,000.
In the event of a change in control of the Company, each outside director
(regardless of whether he has served as a director for five years) who is
neither an officer nor an employee shall receive a single cash payment equal
to four times the then current retainer. The cumulative liability under a
change in control of the Company is approximately $252,000. Such cumulative
liability in excess of the aforementioned $25,000 was not reflected in the
consolidated financial statements as of December 31, 1993.
Bonus programs
Employees of the Bank are awarded cash bonuses based upon length of
service, responsibility level and performance.
10. INCOME TAX EXPENSE/(BENEFIT)
Year ended December 31,
----------------------
1993 1992 1991
---- ---- ----
(Dollars in thousands)
Current:
Federal. . . . . . . . . . . . . . . . . . . $ 396 $ 288 $ --
State. . . . . . . . . . . . . . . . . . . . 32 51 --
------- ----- -----
428 339 --
Deferred. . . . . . . . . . . . . . . . . . . 110 (250) --
Elimination of valuation allowance. . . . . . (809) -- --
Income tax refund . . . . . . . . . . . . . . (747) -- --
Charge in lieu of income taxes. . . . . . . . -- 539 --
Write-off of net deferred tax asset . . . . . -- -- 552
------- ----- -----
$(1,018) $ 628 $ 552
======= ===== =====
Upon adoption of SFAS 109, deferred tax assets of $2.4 million, deferred
tax liabilities of $1.0 million and a valuation allowance of $809,000 were
established, resulting in a net deferred tax asset of $550,000 as of January
1, 1993. As of December 31, 1993, the $809,000 valuation allowance was reduced
to zero as a result of taxes paid in prior and current years and anticipated
future taxable income sufficient to realize these tax benefits. Based upon the
Company's historical and current pretax earnings, management believes it is
more likely than not that the Company will generate future net taxable income
in sufficient amounts to realize its net deferred tax asset at December 31,
1993, however, there can be no assurance that the Company will generate any
earnings or any specific level of continuing earnings. In addition during
1993, an income tax refund of $747,000 was received as a result of an
overassessment of previously paid federal income taxes.
During 1992, the Company utilized its remaining net operating loss
carryforwards of approximately $754,000 for federal income tax purposes and
approximately $1,700,000 for financial reporting purposes to record an
extraordinary credit in the amount of $539,000, which partially offset income
tax expense of $628,000. During 1991, the $552,000 of expense was primarily a
result of the write-off of the net deferred tax asset as a result of the
Company's tax loss carryforward position.
21
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A reconciliation between the reported income tax expense/(benefit) and
the amount computed by multiplying income before income taxes, extraordinary
items and cumulative effect of change in accounting principle by the statutory
Federal income tax rate is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------------
1993 1992 1991
--------------- --------------- --------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Statutory expense . . . . . . . . . . . . . . . . . . . . $ 512 34.0% $ 743 34.0% $ 81 34.0%
(Deductible)/ nondeductible provision
for losses on loans. . . . . . . . . . . . . . . . . . . -- -- (151) (6.9) 160 67.3
State income tax, net of federal benefit. . . . . . . . . 30 2.0 35 1.6 -- --
Reduction in valuation allowance. . . . . . . . . . . . . (809) (53.7) -- -- -- --
Income tax refunds. . . . . . . . . . . . . . . . . . . . (747) (49.6) -- -- -- --
Write-off of deferred tax asset, net of
benefit. . . . . . . . . . . . . . . . . . . . . . . . . -- -- -- -- 310 130.2
Other . . . . . . . . . . . . . . . . . . . . . . . . . . (4) (.3) 1 -- 1 (.2)
------- ------ ----- ---- ----- -----
$(1,018) (67.6)% $ 628 28.7% $ 552 231.7%
======= ====== ===== ==== ===== =====
</TABLE>
Temporary differences, which give rise to deferred tax assets and
liabilities under SFAS 109, as of December 31, 1993, are as follows:
Deferred Tax
---------------------
Assets Liabilities
------ -----------
(Dollars in thousands)
Financial basis reserve for losses on loans and REO . . $1,710 $ --
Tax basis reserve for losses on loans and REO
in excess of base year tax reserve . . . . . . . . . . -- 1,088
Deferred loan origination fees. . . . . . . . . . . . . 309 --
Interest on nonaccrual loans. . . . . . . . . . . . . . 262 --
Premises and equipment. . . . . . . . . . . . . . . . . 146 --
Deferred compensation . . . . . . . . . . . . . . . . . 83 --
Unrealized gain on available for sale securities. . . . -- 100
Other . . . . . . . . . . . . . . . . . . . . . . . . . 54 7
------ ------
Deferred taxes/liabilities. . . . . . . . . . . . . . . $2,564 $1,195
====== ======
Net deferred tax asset. . . . . . . . . . . . . . . . . $1,369
======
Under APB 11, the provision for losses on loans and REO was treated as a
permanent difference which did not require deferred taxes. Under SFAS 109,
differences between the book and tax basis reserve for losses on loans and REO
are treated as temporary differences requiring deferred taxes, except that no
deferred tax liability is required for the base year tax reserve of
approximately $270,000 as of December 31, 1993.
22
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The deferred income tax provision/(benefit) on income from operations is
due to the following items:
Year ended December 31,
------------------------
1993 1992 1991
---- ---- ----
(Dollars in thousands)
Financial basis reserve for losses on loans and
REO. . . . . . . . . . . . . . . . . . . . . . $ 63 $ -- $ --
Tax basis reserve for losses on loans and REO in
excess of base year tax reserve. . . . . . . . (87) -- --
Deferred loan origination fees. . . . . . . . . (70) (248) --
Interest on nonaccrual loans. . . . . . . . . . 186 23 --
Deferred compensation . . . . . . . . . . . . . (26) (28) --
Other . . . . . . . . . . . . . . . . . . . . . 44 3 --
---- ----- ----
$110 $(250) $ --
==== ===== ====
11. COMMITMENTS AND CONTINGENCIES
Total rent expense for all bank branches under operating leases was
approximately $73,000, $130,000 and $105,000 for the years ended December 31,
1993, 1992 and 1991, respectively. Future minimum lease payments required
under noncancellable operating leases for bank branches as of December 31,
1993 are as follows:
1994 . . . . . . . . . . . . . $ 71,000
1995 . . . . . . . . . . . . . 71,000
1996 . . . . . . . . . . . . . 71,000
1997 . . . . . . . . . . . . . 50,000
1998 . . . . . . . . . . . . . 7,000
Thereafter . . . . . . . . . . --
--------
$270,000
========
Certain of the above leases contain renewal options which provide for
increased rental payments as a result of increases in real estate taxes. It is
generally expected that in the normal course of business, leases that expire
will be renewed or replaced by other leases with similar terms.
The Company has entered into a severance agreement with a certain key
executive. In the event of a change in control of the Company (such as the
Merger referred to in Note 15), this executive will receive a payment equal to
three times his average annual compensation over the five previous years of
his employment with the Bank, if terminated for other than cause or upon
certain other events of termination of employment. In the event that severance
payments combined with other payments to be made to this executive by the
Company in connection with the Merger would constitute an excess parachute
payment under Section 280 G of the Internal Revenue Code of 1986, as amended,
then the executive will receive a combination of benefits and payments which
will equal the maximum aggregate amount which can be paid to the executive
without constituting such an excess parachute payment.
In October 1991, a complaint was filed by a former officer in New Jersey
Superior Court against the Company, the Bank and certain directors and
officers seeking unspecified damages relating to the termination of such
officer's employment. The Company and individual defendants have filed an
answer and have asserted certain counterclaims. Although this complaint was
recently dismissed, it was dismissed without prejudice to the plaintiff's
right to refile the complaint by March 31, 1994. In April 1992, a complaint
was filed in the New Jersey Superior Court against the Company and the Bank
seeking unspecified damages and alleging violations of state securities laws,
certain banking laws and state common law. This lawsuit is in the discovery
stage. The plaintiffs recently amended their complaint to add claims against
nine individual defendants, including current and former officers and
directors of the Company and the Bank. Management believes that the defendants
have meritorious defenses in both of these matters and
23
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
intends to vigorously defend these matters. Given the uncertainties involved in
judicial proceedings and the preliminary stage of discovery in these matters,
management cannot determine the precise amount of any potential loss that may
arise in these matters. Accordingly, no provision for loss, if any, that may
result upon resolution of these matters has been recorded in the Company's
consolidated financial statements.
The Bank is also subject to other legal proceedings involving collection
matters, contract claims and miscellaneous items arising in the normal course
of business. It is the opinion of management that the resolution of such legal
proceedings will not have a material impact on the financial statements of the
Company or the Bank.
12. FINANCIAL INSTRUMENTS
Off-Balance-Sheet Risk
In the normal course of business, the Company is a party to financial
instruments with off-balance-sheet risk which are properly not recorded in the
consolidated financial statements. These financial instruments principally
represent commitments to extend credit to potential borrowers and involve, to
varying degrees, elements of credit and interest-rate risk. At December 31,
1993 and 1992, the exposure to credit loss in the event of nonperformance by
potential customers was represented by the contractual amount of the financial
instruments as follows:
Expiration
Contractual Interest Dates
Amount Rates Through
---------- ------- ----------
At December 31, 1993:
Loan commitments--variable . . . . . $1,575,000 6.3%- 9.5% March 1994
Loan commitments--fixed. . . . . . . 4,939,000 6.3 -10.5 March 1994
Lines of credit--variable. . . . . . 1,081,000 7.5 -11.0 September 1994
Undisbursed construction loans--
fixed . . . . . . . . . . . . . . . 853,000 8.0 -10.0 August 1995
At December 31, 1992:
Loan commitments--variable . . . . . $2,628,000 5.8%- 8.0% March 1993
Loan commitments--fixed. . . . . . . 2,519,000 7.8 -10.5 March 1993
Lines of credit--variable. . . . . . 808,000 8.0 -11.0 November 1993
Undisbursed construction loans--
fixed . . . . . . . . . . . . . . . 197,000 7.0 -10.0 October 1993
Since loan commitments and lines of credit may expire without being
exercised, the total commitment amount does not necessarily represent future
cash requirements. In addition, expiration dates may be extended. The amount of
collateral obtained upon originating the loan is based upon management's credit
evaluation of the potential borrower and the real estate financed.
Concentrations of Credit Risk
The Company's exposure to credit risk is dependent upon the economic
condition of its primary market areas for lending--Bergen and Hudson counties,
New Jersey. In addition, as of December 31, 1993, the Bankruptcy Loan is the
only loan to any one borrower whose aggregate loan concentration was greater
than 10% of stockholders' equity. Refer to Note 4 for a discussion of the
Bankruptcy Loan. Furthermore, another borrower whose aggregate loan balance was
greater than 10% of stockholders' equity as of December 31, 1992, prepaid such
loan during 1993.
The Company originates adjustable-rate loans to manage its interest
exposure on its deposits. The adjustable-rate loans have interest rate
adjustment limitations with annual and lifetime caps and are generally indexed
to the 1 and 3 year Treasury indices. Future market factors may affect the
correlation of the interest rate adjustment with the rates paid on deposits that
have been primarily utilized to fund such loans. No loans had reached their
interest rate adjustment limitation ceiling as of December 31, 1993.
24
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Fair Value of Financial Instruments
The estimated fair values of financial instruments, for which it is
practicable to estimate fair values, as of December 31, 1993 and 1992 are as
follows:
December 31,
---------------------------------------
1993 1992
------------------ -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- ------- -----
(in thousands)
Financial assets:
Cash and Federal funds sold. . . $ 6,183 $ 6,183 $ 7,336 $ 7,336
Investments available for sale . 57,740 57,740 1,936 1,954
Mortgage-backed securities
available for sale. . . . . . . 9,517 9,517 -- --
Loans held for sale. . . . . . . 4,852 4,909 9,000 9,032
Investment securities. . . . . . 13,849 14,128 56,794 57,430
Mortgage-backed securities . . . 9,447 9,365 7,213 7,197
Loans. . . . . . . . . . . . . . 169,098 186,417
Less: allowance for losses. . . (2,828) (2,776)
unearned income. . . . . . . (937) (1,140)
------- -------
165,333 169,292 182,501 182,283
Investment in FHLB . . . . . . . 1,711 1,711 1,632 1,632
Financial liabilities:
Deposits . . . . . . . . . . . . 246,043 246,305 252,623 253,287
Advances . . . . . . . . . . . . 400 401 -- --
13. STOCKHOLDERS' EQUITY AND DIVIDEND RESTRICTIONS
In 1987, when the Bank converted from a savings bank in mutual form to a
savings bank in stock form, the Company established a liquidation account in
an amount equal to the Bank's surplus and reserves at December 31, 1986
($14,351,000). The liquidation account will be maintained for the benefit of
eligible depositors who held deposit accounts of $50 or more in the Bank as of
December 31, 1985 and who continue to maintain their accounts in the Bank. The
liquidation account is reduced annually to the extent that eligible depositors
have reduced their eligible deposits (subsequent increases will not restore an
interest in the liquidation account). In the unlikely event of a complete
liquidation, each eligible depositor will be entitled to receive a
distribution from the liquidation account in a proportionate amount to the
then current adjusted eligible balances for accounts then held. No dividends
may be paid to stockholders if such dividends reduce stockholders' equity
below the liquidation account, which was approximately $1.4 million at
December 31, 1993.
Certain restrictions exist regarding the ability of the Bank to transfer
funds to the Company in the form of cash dividends, loans or advances. FDIC
regulations limit the amount of dividends that may be paid by the Bank to the
Company without prior approval of the FDIC to net profits (as defined) for the
current year and the retained net profits (as defined) for the preceding two
years. In addition, State banking regulations allow for the payment of
dividends in any amount provided that capital stock will be unimpaired and
there remains an additional amount of paid-in capital of not less than 50% of
the capital stock amount. As of December 31, 1993, the undistributed earnings
of the Bank approximated $11.6 million, of which $3.6 million was available
for the payment of dividends to the Company.
14. REGULATORY MATTERS
During the third quarter, the Federal Deposit Insurance Corporation (the
"FDIC") completed its examination of the Bank as of August 2, 1993. As a
result of that examination, the FDIC rescinded its Memorandum of
Understanding which the Bank had signed on December 22, 1992 with the FDIC and
the State of New Jersey Department of Banking in connection with their
examination as of July 13, 1992.
25
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Subsequently, the Federal Reserve Bank of New York (the "FRB") completed
an off-site analysis of the Company. As a result of that analysis, the FRB
rescinded its Memorandum of Understanding, which the Company had originally
signed on August 13, 1991 in connection with the FRB's examination as of
December 31, 1990.
Under banking policies issued by the FDIC and the FRB, the Company and
the Bank must maintain an adequate level of capital sufficient to meet a
leverage capital ratio, a core risk-based capital ratio and a total risk-based
capital ratio. The leverage capital ratio is calculated by dividing core
capital by average total assets of the most recent quarter-end. The risk-based
capital ratios require the Company and the Bank to classify their assets and
certain off-balance-sheet activities into categories, and maintain specified
levels of capital for each category. The least capital is required for the
category deemed to have the least risk, and the most capital is required for
the category deemed to have the greatest risk. For purposes of leverage and
risk-based capital guidelines, core capital (also known as Tier 1 capital)
consists of common equity in accordance with generally accepted accounting
principles ("GAAP") excluding net unrealized gains or losses on
available-for-sale securities and deferred tax assets that are dependent on
the future taxable income greater than one year, and total capital consists of
core capital plus a portion of the allowance for losses on loans. The
qualifying portion of the allowance for losses on loans for the Company and
the Bank was approximately $1.8 million and $2.3 million as of December 31,
1993 and 1992, respectively. As of December 31, 1993 and 1992, capital ratios
were as follows:
December 31,
------------------------------------
1993 1992
---------------- ----------------
Capital ratios: Required* Company Bank Company Bank
- - --------------- -------- ------- ---- ------- ----
Leverage. . . . . . . . . . 5.00% 11.70% 11.38% 10.62% 10.33%
Core risk-based . . . . . . 6.00 23.55 22.90 16.32 15.87
Total risk-based. . . . . . 10.00 24.81 24.16 17.58 17.12
- - ------------
*For qualification as a well-capitalized institution.
15. MERGER AGREEMENT
On November 8, 1993, the Company signed a definitive agreement (the
"Agreement") providing for the merger of the Company with and into Hubco, Inc.
of Union City, New Jersey. Under the terms of the Agreement, shareholders of
the Company will receive either $16.10 in cash or .6708 of a share of new
Series A Convertible Preferred Stock of Hubco, Inc. for each share of the
Company's common stock. In addition, the Company issued an option to Hubco,
Inc., exercisable in certain circumstances, to acquire 765,000 shares of its
authorized but unissued stock at a price of $11.50 per share. The Agreement is
subject to several conditions, including regulatory and shareholder approvals.
Since significant conditions to effect the merger have not occurred, most
merger costs are not included in the 1993 results of operations in the
accompanying financial statements.
26
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. PARENT ONLY FINANCIAL INFORMATION
The following are the balance sheets as of December 31, 1993 and 1992,
and the statements of operations and retained earnings and the statements of
cash flows for the years ended December 31, 1993, 1992 and 1991 for Washington
Bancorp, Inc. (parent company only).
BALANCE SHEETS
December 31,
--------------------------
1993 1992
----------- -----------
Assets:
Due from banks. . . . . . . . . . . . . . . . . $ 1,002,000 $ 1,000,000
Investment in wholly-owned subsidiary,
equity basis . . . . . . . . . . . . . . . . . 32,539,499 29,469,045
----------- -----------
$33,541,499 $30,469,045
=========== ===========
Stockholders' Equity:
Preferred stock, par value $.10 per share,
3,000,000 shares authorized, no shares issued
and outstanding. . . . . . . . . . . . . . . . $ -- $ --
Common stock, par value $.10 per share,
6,000,000 shares authorized, shares issued
and outstanding--2,307,687 in 1993
and 2,307,187 in 1992 . . . . . . . . . . . . 230,768 230,718
Paid-in capital . . . . . . . . . . . . . . . . 22,500,728 22,498,778
Retained earnings . . . . . . . . . . . . . . . 10,744,003 7,919,549
Unrealized gain on available-for-sale
securities, net of tax . . . . . . . . . . . . 186,000 --
----------- -----------
33,661,499 30,649,045
Deferred compensation--MRP. . . . . . . . . . . (120,000) (180,000)
----------- -----------
$33,541,499 $30,469,045
=========== ===========
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
Year ended December 31,
----------------------------------------
1993 1992 1991
----------- ----------- -----------
Equity in undistributed earnings/
(loss) of subsidiary . . . . . . $ 2,824,454 $ 2,095,981 $ (1,348,130)
Retained earnings, beginning of
year . . . . . . . . . . . . . . 7,919,549 5,823,568 7,171,698
----------- ----------- ------------
Retained earnings, end of year. . $10,744,003 $ 7,919,549 $ 5,823,568
=========== =========== ============
STATEMENTS OF CASH FLOWS
Year ended December 31,
----------------------------------------
1993 1992 1991
----------- ----------- -----------
Cash Flows from Financing Activities:
Exercise of stock options . . . . $ 2,000 $ -- $ --
Cash, at beginning of year. . . . 1,000,000 1,000,000 1,000,000
---------- ---------- ----------
Cash, at end of year. . . . . . . $1,002,000 $1,000,000 $1,000,000
========== ========== ==========
27
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. Summary of Quarterly Results (Unaudited)
<TABLE>
<CAPTION>
The results of operations on a quarterly basis are presented in the
following tables:
1993 1992
------------------------------------- --------------------------------------
Fourth Third Second First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------ ------- ------- ------- ------- ------- ------- -------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income . . . . . . . . . . . . . . . $4,452 $4,634 $4,669 $4,802 $5,030 $5,442 $5,688 $5,719
Interest expense. . . . . . . . . . . . . . . 1,987 2,153 2,260 2,412 2,664 2,891 3,136 3,499
------ ------ ------ ------ ------ ------ ------ ------
Net interest income . . . . . . . . . . . . . 2,465 2,481 2,409 2,390 2,366 2,551 2,552 2,220
Provision for losses on loans . . . . . . . . 70 50 100 200 350 400 200 150
------ ------ ------ ------ ------ ------ ------ ------
Net interest income after provision
for losses on loans. . . . . . . . . . . . . 2,395 2,431 2,309 2,190 2,016 2,151 2,352 2,070
Net security transactions . . . . . . . . . . (7) (13) 12 30 426 1,197 10 5
Net gain on sale of loans . . . . . . . . . . 16 (3) 144 -- -- 132 65 --
Other non-interest income . . . . . . . . . . 304 110 116 240 99 134 111 111
REO expense, net. . . . . . . . . . . . . . . 533 372 116 436 556 251 145 219
Other non-interest expense. . . . . . . . . . 1,885 1,666 1,903 1,857 1,673 1,839 2,095 1,916
------ ------ ------ ------ ------ ------ ------ ------
Income before income taxes,
extraordinary item and cumulative
effect of change in accounting
principle. . . . . . . . . . . . . . . . . . 290 487 562 167 312 1,524 298 51
Income tax benefit/(expense)(1) . . . . . . . 703 (179) (201) 695 11 (559) (62) (18)
------ ------ ------ ------ ------ ------ ------ ------
Income before extraordinary item and
cumulative effect of change in
accounting principle . . . . . . . . . . . . 993 308 361 862 323 965 236 33
Extraordinary item. . . . . . . . . . . . . . -- -- -- -- (17) 481 57 18
Cumulative effect of change in
accounting principle(2) . . . . . . . . . . -- -- -- 300 -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Net income. . . . . . . . . . . . . . . . . . $ 993 $ 308 $ 361 $1,162 $ 306 $1,446 $ 293 $ 51
====== ====== ====== ====== ====== ====== ====== ======
Per share data:
Income before extraordinary
items and cumulative effect of change
in accounting principle. . . . . . . . . . . $0.43 $0.14 $0.16 $.38 $0.14 $0.43 $0.10 $0.01
Extraordinary items . . . . . . . . . . . . . -- -- -- -- (0.01) 0.21 0.03 0.01
Cumulative effect of change in
accounting principle . . . . . . . . . . . . -- -- -- 0.13 -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Net income. . . . . . . . . . . . . . . . . . $0.43 $0.14 $0.16 $0.51 $0.13 $0.64 $0.13 $0.02
====== ====== ====== ====== ====== ====== ====== ======
- - ----------
<FN>
(1) The first quarter of 1993 includes an income tax refund of $747,000 and the
fourth quarter of 1993 includes a deferred tax adjustment of $809,000 in
order to reduce the deferred tax asset valuation allowance (to a zero balance).
(2) The cumulative effect of change in accounting principle resulted from the
adoption of SFAS 109 -- "Accounting for Income Taxes".
</FN>
</TABLE>
28
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
HUBCO has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HUBCO, Inc.
Dated : July 15, 1994 By: /s/ KENNETH T. NEILSON
_________________________
Kenneth T. Neilson
President and
Chief Executive Officer
29
CERTIFICATE OF INCORPORATION
OF
HUBCO, INC.
(As amended to date)
ARTICLE I
CORPORATE NAME
The name of the Corporation shall be HUBCO, Inc.
(hereinafter the "Corporation").
ARTICLE II
CURRENT REGISTERED OFFICE
AND CURRENT REGISTERED AGENT
The address of the Corporation's initial registered
office is 80 Park Plaza, 23rd Floor, Newark, New Jersey 07102.
The name of the current registered agent at that address is
Ronald H. Janis.
ARTICLE III
INITIAL BOARD OF DIRECTORS
AND NUMBER OF DIRECTORS
The number of directors shall be governed by the by-
laws of the Corporation. The number of directors constituting
the initial Board of Directors shall be twelve. The names and
addresses of the initial Board of Directors are as follows:
Name Address
John T. Clark 3100 Bergenline Avenue
Union City, New Jersey 07087
James C. McClave 3100 Bergenline Avenue
Union City, New Jersey 07087
Ronald David 2 Broadway
New York, New York 10004
Arthur L. Dickson 51 Newark Street
Hoboken, New Jersey 07030
Henry Hugelheim 752 Greeley Avenue
Fairview, New Jersey 07022
Harry J. Leber 2000 Kennedy Boulevard
Union City, New Jersey 07087
George P. Moser, Sr. 415 32nd Street
Union City, New Jersey 07087
Harold J. Olsen 638 Anderson Avenue
Cliffside Park, New Jersey 07010
Charles F.X. Poggi 15th and Adams Street
Hoboken, New Jersey 07030
James E. Schierloh East 210 Route 4
Paramus, New Jersey 07652
Sister Grace 308 Willow Avenue
Frances Strauber Hoboken, New Jersey 07030
Robert J. Burke Foot of Pershing Road
Weehawken, New Jersey 07087
Shareholders shall have no right to increase or
decrease the number of directors constituting the Board,
except by the affirmative vote of at least three-quarters of
all of the outstanding shares of common stock entitled to vote
thereon, said vote to take place at an annual or special
meeting of the Corporation's stockholders called for the
purpose of considering such matter. Any director may be
removed from office by the stockholders of the Corporation,
but only for cause.
Notwithstanding anything else in this Certificate of
Incorporation to the contrary (and notwithstanding the fact
that a lesser percentage may be permitted by law, this
Certificate of Incorporation or the by-laws of the
Corporation), the provisions of this Article III may not be
amended, altered, changed or repealed in any respect, nor may
any provision inconsistent herewith be adopted, unless such
action is approved by the affirmative vote of at least three-
quarters of all of the outstanding shares of common stock
entitled to vote thereon, said vote to take place at an annual
or special meeting of the Corporation's stockholders called
for the purpose of considering such matter.
1
<PAGE>
ARTICLE IV
CORPORATE PURPOSE
The purpose for which the Corporation is organized is to
engage in any activities for which corporations may be organized
under the New Jersey Business Corporation Act, subject to any
restrictions which may be imposed from time to time by the laws
of the United States or the State of New Jersey with regard to
the activities of a bank holding company.
ARTICLE V
CAPITAL STOCK
(A) The total authorized capital stock of the Corporation
shall be 16,500,000 shares, consisting of 13,200,000 shares of
common stock and 3,300,000 shares of Preferred Stock which may be
issued in one or more classes or series. The shares of common
stock shall constitute a single class and shall be without
nominal or par value, except that the amendment authorizing the
initial issuance of any class or series, adopted by the Board of
Directors, as provided herein, may provide that shares of any
class or series shall have a specific par value per share, in
which event all of the shares of such class of series shall have
the par value so specified.
(B) The Board of Directors of the Corporation is
expressly authorized from time to time to adopt and to cause
to be executed and filed without further approval of the
shareholders amendments to this Certificate of Incorporation
authorizing the issuance of one or more classes or series of
Preferred Stock for such consideration as the Board of
Directors may fix. In an amendment authorizing any class or
series of Preferred Stock, the Board of Directors is expressly
authorized to determine:
(a) The distinctive designation of the class or
series and the number of shares which will constitute the
class or series, which number may be increased or
decreased (but not below the number of shares then
outstanding in that class or above the total shares
authorized herein) from time to time by action of the
Board of Directors.
(b) The dividend rate of the shares of the class or
series, whether dividends will be cumulative, and, if so,
from what date or dates;
(c) The price or prices at which, and the terms and
conditions on which, the shares of the class or series
may be redeemed at the option of the Corporation;
(d) Whether or not the shares of the class or
series will be entitled to the benefit of a retirement of
sinking fund to be applied to the purchase or redemption
of such shares and, if so entitled, the amount of such
fund and the terms and provisions relative to the
operation thereof;
(e) Whether or not the shares of the class or
series will be convertible into, or exchangeable for, any
other shares of stock of the Corporation or other
securities, and if so convertible or exchangeable, the
conversion price or prices, or the rates of exchange, and
any adjustments thereof, at which such conversion or
exchange may be made, and any other terms and conditions
of such conversion or exchange;
(f) The rights of the shares of the class or series
in the event of voluntary or involuntary liquidation,
dissolution or winding up of the Corporation;
(g) Whether or not the shares of the class or
series will have priority over, parity with, or be junior
to the shares of any other class or series in any
respect, whether or not the shares of the class or series
will be entitled to the benefit of limitations
restricting the issuance of shares of any other class or
series having priority over or on parity with the shares
of such class or series and whether or not the shares of
the class or series are entitled to restrictions on the
payment of dividends on, the making of other
distributions in respect of, and the purchase or
redemption of shares of any other class or series of
Preferred Stock or Common Stock ranking junior to the
shares of the class or series;
2
<PAGE>
(h) Whether the class or series will have voting
rights,, in addition to any voting rights provided by
law, and if so, the terms of such voting rights; and
(i) Any other preferences, qualifications,
privileges, options and other relative or special rights
and limitations of that class or series.
(C) The Series A Preferred Stock, shall have a stated value
of $24.00 per share, and the shares therefore, when issued for
such amount, shall be fully paid and non-assessable. The Series A
Preferred Stock shall consist of 938,690 shares, which number may
be increased (but only in connection with a stock split or stock
dividend) or decreased from time to time (but not below the
number thereof then outstanding) by the Board of Directors. Upon
the reacquisition of any of the Series A Preferred Stock, through
redemption, conversion or otherwise, such reacquired Shares shall
be canceled and shall become part of the authorized and unissued
Preferred Stock, but shall not be authorized and unissued Series
A Preferred Stock. The rights, preferences and limitations of the
Series A Preferred Stock are as follows:
(a) Rank. The Series A Preferred Stock shall be senior to
any other class or series of Preferred Stock in respect of (1)
payment of dividends, (2) payment upon dissolution, liquidation
or winding up and (3) redemption.
(b) Dividends. The holders of Series A Preferred Stock, in
preference to the holders of the Common Stock and any other class
or series of Preferred Stock, shall be entitled to receive, when
as, and if declared by the Board of Directors, out of funds
legally available therefor, cumulative cash dividends at the
annual rate per share of $1.44, and no more, payable in
quarter-annual installments on the 15th day of February, May,
August and November in each year, from the date of issuance. If
the dividends on the Series A Preferred Stock for any
quarter-annual dividend period shall not have been paid or
declared for payment to the holders of Series A Preferred Stock
by the last day of such quarter annual dividend period, the
aggregate deficiency shall be cumulative and shall be fully paid
or declared and set apart for payment before any cash dividends
or other distribution shall be paid or set apart for payment to
the holders of the Common Stock or any other class or series of
Preferred Stock of the Corporation. Accumulations of dividends on
the Series A Preferred Stock shall not bear interest.
(c) Liquidation Preference. Upon the voluntary or
involuntary liquidation, dissolution, or winding up of the
affairs of the Corporation, the holders of Series A Preferred
Stock shall be entitled to receive out of the assets of the
Corporation $24.00 per share, together with cumulative dividends
accrued and unpaid to the date of payment of such $24.00
distribution preference, and no more, before any amount shall be
paid to, or distributed among the holders of Common Stock or any
other class or series of Preferred Stock. For the purpose of this
paragraph (c), dividends shall be deemed to accrue on a daily
basis. The merger or consolidation of the Corporation into or
with any other corporation, or the merger of any other
corporation into the Corporation, or the sale, lease or
conveyance of all or substantially all of the property or
business of the Corporation, shall not be deemed to be a
dissolution, liquidation or winding up for purposes of this
paragraph (c).
(d) Redemption.
(i) Option to Redeem. The Corporation shall not redeem any
other class or series of Preferred Stock unless and until all
shares of the Series A Preferred Stock have been redeemed. The
Corporation shall not redeem the Series A Preferred Stock without
the prior approval of the Board of Governors of the Federal
Reserve System. Outstanding shares of Series A Preferred Stock
may be redeemed, as a whole (or in part but only with the consent
of the holder of the Shares to be redeemed) at the option of the
Corporation by vote of its Board of Directors at any time from
and after one year from the date of original issuance and after
the date on which the market price (as defined in subparagraph
(e)(iii)) for the Corporation's Common Stock is $24.00 or more
for 20 consecutive business days, or pursuant to paragraph (e)(v)
hereof. The $24.00 market price referred to in the previous
sentence shall be adjusted appropriately each time the Conversion
Ratio is required to be adjusted under subparagraph (e)(iv) and
in the same proportion as the Conversion Ratio is adjusted.
3
<PAGE>
Without limiting the foregoing, the $24.00 market price of the
Common Stock referred to herein will be reduced to reflect stock
splits and stock dividends effected with respect to the Common
Stock. If less than all the outstanding shares of the Series A
Preferred Stock are to be redeemed, the shares to be redeemed
shall be determined in such manner as the Board of Directors may
prescribe. The redemption price for shares of the Series A
Preferred Stock shall be $24.00 per share, plus all accrued and
unpaid dividends through the date fixed for redemption. For the
purpose of this paragraph (d), dividends shall be deemed to
accrue on a daily basis.
(ii) Notice. Written notice of redemption shall be given to
each holder of record of the shares of Series A Preferred Stock
to be redeemed, by mailing a notice of redemption to such holder
by first class mail, at such holder's address as it shall appear
on the stock books of the Corporation, in each case at least 15
days and not more than 45 days prior to the date fixed for
redemption; provided however, if fewer than 25 days prior notice
is given to holders, then at least one follow-up written notice
must be sent to holders who have not converted by 7 days prior to
the redemption date. Each such notice shall specify the shares of
stock to be redeemed, the redemption price, the date fixed for
redemption, the place for payment of the redemption price and for
surrender of the certificate or certificates representing the
shares to be redeemed, and if less than the total number of
shares held by such holder are to be redeemed, the number of
shares of such holder to be redeemed. No defect in such notice
nor any defect in the mailing thereof shall in and of itself
affect the validity of the proceedings for redemption, except as
to any holder to whom the corporation has failed to mail such
notice, or as to whom the notice was defective.
(iii) Deposit of Redemption Funds. If notice of redemption
shall have been given as herein provided and if, on or before the
date fixed for redemption, the redemption price shall have been
provided and set aside by the Corporation with a bank with trust
powers for the pro rata benefit of the holders of the shares so
called for redemption, then, from and after the date fixed for
redemption, the shares of Series A Preferred Stock called for
redemption shall no longer be deemed outstanding, the dividends
thereon shall cease to accumulate, and all rights with respect to
such shares shall forthwith cease. The only right of the holders
of the redeemed shares after such date shall be the right to
receive the redemption price for the shares called for
redemption, without interest. If the Board of Directors
designates a bank with trust powers as a depository of the funds
to be used for redemption and as agent of the Corporation for the
giving of the notices of redemption, the receipt of the shares
and the payment of the redemption price, the acts of such
designated agent on behalf of the Corporation shall have the same
effect as if all such acts were done by the Corporation.
Any monies deposited by the Corporation with such designated
bank which shall not be required for the redemption of shares
because of the conversion of such shares subsequent to the date
of deposit, shall be promptly repaid to the Corporation. Any
other monies so deposited by the Corporation with a designated
bank and unclaimed at the end of one year from the date fixed for
redemption shall be repaid to the Corporation upon its request,
after which the holders of the shares called for redemption shall
look only to the Corporation for payment of the redemption price.
The Corporation may use one of its subsidiary banks with
trust powers as the depository and agent for such redemption.
(iv) No Sinking Fund. The Corporation shall not be obligated
to make payments into or to maintain any sinking fund for the
Series A Preferred Stock.
(e) Conversion.
(i) Conversion Privilege. The holder of any shares of Series
A Preferred Stock at any time prior to the date fixed for
redemption as provided in paragraph (d), shall have the right to
surrender the certificates evidencing such shares and receive, in
conversion of each share of Series A Preferred Stock, one share
(the "Conversion Ratio") of the Common Stock, no par value of the
Corporation.
4
<PAGE>
(ii) Manner of Exercising Conversion Privilege. The
conversion privilege may be exercised at any time including from
and after the date on which a notice of redemption was given and
prior to the close of business on the last day before the date of
redemption stated in the notice. To exercise the conversion
privilege, the holder of Series A Preferred Stock shall surrender
the certificates representing the shares to be converted at the
office of the Transfer Agent of the Corporation and shall give
written notice to the Corporation at such office that the holder
elects to convert such shares. Such certificates shall be duly
endorsed or assigned to the Corporation, or in blank. Conversion
shall be deemed to have been effected immediately prior to the
close of business on the date upon which such surrender is made,
and such date is referred to in this paragraph (e) as the
"Conversion Date." On the Conversion Date or as promptly
thereafter as practicable, the Corporation shall deliver to the
holder of the stock surrendered for conversion, or as otherwise
directed by him in writing, a certificate for the number of full
shares of Common Stock deliverable upon conversion of such Series
A Preferred Stock and, if applicable, a check in respect to any
fraction of a share as provided in subparagraph (e) (iii).
(iii) Cash Adjustment for Fractional Share Upon Conversion.
The Corporation shall not deliver fractional shares of Common
Stock upon conversion of shares of Series A Preferred Stock. In
lieu of any fractional share of Common Stock that would otherwise
be deliverable upon conversion, the Corporation shall pay an
amount in cash equal to the current market value of the
fractional share, computed on the basis of the market price on
the last business day before the Conversion Date. For purposes of
this section, the "market price" on any business day shall be the
closing price per share of Common Stock in the NASDAQ National
Market System or, if the shares of Common Stock are listed or
admitted to trading on any national securities exchange, the
reported closing price per share of Common Stock on such exchange
on such day.
(iv) Adjustment of Conversion Ratio. The Conversion Ratio of
the Series A Preferred Stock shall be adjusted from time to time
as follows:
(A) If at any time while any of the Series A Preferred Stock
is outstanding the Corporation shall (i) pay a dividend on its
Common Stock in shares of its capital stock, including Common
Stock and Preferred Stock, (ii) subdivide its outstanding shares
of Common Stock into a greater number of shares, (iii) combine
the outstanding shares of Common Stock into a smaller number of
shares, or (iv) issue by reclassification of its shares of Common
Stock any shares of stock of the Corporation, the Conversion
Ratio in effect immediately prior thereto shall be adjusted so
that the holder of any share of Series A Preferred Stock
thereafter surrendered for conversion shall be entitled to
receive the number of shares of Common Stock or other securities
of the Corporation which he would have owned or have been
entitled to receive after the happening of any of the events
described above had such share of Series A Preferred Stock been
converted immediately prior to the happening of such event. An
adjustment made pursuant to this subparagraph (e) (iv) (A) shall
become effective in the case of a dividend immediately after the
opening of business on the day following the record date for the
determination of shareholders entitled to receive such dividend,
and shall become effective in the case of a subdivision,
combination or reclassification immediately after the opening of
business on the day following the day when such subdivision,
combination, or reclassification becomes effective.
(B) If while any of the Series A Preferred Stock is
outstanding, the Corporation shall issue rights or warrants
ratably to the holders of shares of its Common Stock entitling
them to subscribe for or purchase shares of Common Stock at a
price per share less than the market price per share of Common
Stock on the record date for the determination of shareholders
entitled to receive such rights and warrants, the Conversion
Ratio in effect immediately before that record date shall be
adjusted as of the day following that record date so that it
shall equal the ratio determined by multiplying the Conversion
Ratio in effect immediately before that record date by a
fraction, of which the numerator shall be the number of shares of
5
<PAGE>
Common Stock outstanding on that record date plus the number of
shares of Common Stock offered for subscription or purchase and
the denominator shall be the number of shares of Common Stock
outstanding on that record date plus the number of shares of
Common Stock that the aggregate offering price of the total
number of shares so offered would purchase at such current market
price per share of Common Stock. To the extent that such rights
or warrants are not exercised before the expiration thereof, the
Conversion Ratio shall be readjusted as of the close of business
on the expiration date to the Conversion Ratio that would then be
in effect based upon the number of shares of Common Stock
actually delivered upon the exercise of such rights or warrants.
(C) If the Corporation shall distribute, to all holders of
shares of its Common Stock, evidences of its indebtedness or of
its assets (excluding cash distributions made out of current or
retained earnings) the Conversion Ratio in effect immediately
before the record date for the determination of shareholders
entitled to receive such distribution shall be adjusted
immediately after the opening of business on the day following
that record date so that it shall equal the ratio determined by
multiplying the Conversion Ratio in effect immediately prior
thereto by a fraction, of which the numerator shall be the total
number of shares of Common Stock outstanding on that record date
multiplied by such current market price per share on that record
date, and of which one denominator shall be determined by
subtracting the aggregate face value of evidences of indebtedness
or the aggregate fair market value of evidences of its assets
from an amount equal to the total number of shares of Common
Stock outstanding on such record date multiplied by the current
market price per share of Common Stock on that record date.
(D) For the purpose of any computation under subparagraphs
(e) (iv) (B) and (C) above, the current market price per share of
Common Stock at any date shall be deemed to be the average of the
market prices for the thirty consecutive business days
terminating fifteen calendar days before the day in question. The
market price for each day shall be determined as provided in
subparagraph (e) (iii) hereof.
(E) No adjustment in the Conversion Ratio for the Series A
Preferred Stock shall be made if, at the same time that the
Corporation takes an action with respect to the Common Stock that
would otherwise require adjustment under subparagraphs (A)
through (C) above, the Corporation shall take the same action
with respect to the Series A Preferred Stock in the same
proportion as if each share of Series A Preferred Stock had been
converted into shares of Common Stock at the then applicable
Conversion Ratio immediately before the record date for the
determination of holders of Common Stock entitled to receive the
dividends, rights, warrants, or distributions.
(F) Except as herein otherwise provided, no adjustment in
the Conversion Ratio shall be made by reason of the issuance of
shares of Common Stock, or any securities convertible into or
exchangeable for shares of Common Stock, or any securities
carrying the right to purchase any of the foregoing or for any
other reason whatsoever.
(G) No adjustment in the Conversion Ratio shall be required
unless such adjustment would require an increase or decrease of
at least one percent (1%) of such Ratio; provided, however, that
any adjustments which by reason of this subparagraph (e) (iv) (G)
are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under
this subparagraph (e) (iv) shall be made to the nearest hundredth
of a share.
(H) Whenever the Conversion Ratio is adjusted as provided in
this subparagraph (e) (iv), the Corporation shall promptly file
with the Transfer Agent for the Series A Preferred Stock a
statement signed by the Chairman of the Board, President or Vice
President of the Corporation and by its Treasurer or its
Secretary showing in detail the facts requiring such adjustment
and shall exhibit the statement to any holder of Series A
Preferred Stock desiring to inspect the statement. In addition,
with respect to adjustments made while any Series A Preferred
Stock is outstanding, the Corporation shall state to the Transfer
Agent and in the next quarterly and annual report that an
adjustment has been effected and give the adjusted Conversion
Ratio in the Corporation's next quarterly and annual report to
shareholders. Such quarterly and annual report shall be mailed to
all holders of record of the Series A Preferred Stock on the
record date used for mailing such quarterly and annual report to
holders of Common Stock.
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(v) Effect of Consolidations, Mergers or Sales on Conversion
Privilege. If at any time while any shares of the Series A
Preferred Stock are outstanding, the Corporation is consolidated
or merged with or into any other corporation or sells or conveys
all or substantially all of its assets, and pursuant to the
provisions of the New Jersey Business Corporation Act or the
Corporation's certificate of incorporation the approval of the
holders of the Common Stock of the Corporation is required for
such transaction, then such transaction shall also require for
approval the affirmative vote of a majority of the outstanding
Series A Preferred Stock, voting as a separate class.
Notwithstanding the foregoing, the Corporation shall be entitled
to redeem the Series A Preferred Stock pursuant to the provisions
of paragraph (d) prior to or simultaneously with the consummation
of any such transaction and if such redemption does take place,
the consent of the holders of the Series A Preferred Stock shall
not be required and if any vote upon such a transaction by the
holders of Series A Preferred Stock has been taken, such vote
shall be disregarded.
(vi) Notice of Certain Transactions Required. In addition to
any other notice required by this Article V, if at any time while
Series A Preferred Shares are outstanding the Corporation shall
(i) declare a dividend (or any other distribution) on its Common
Stock other than a cash dividend out of current retained earnings
or surplus; or (ii) authorize the issuance to all holders of its
Common Stock of rights or warrants to subscribe for or purchase
shares of its Common Stock or of any other subscription rights or
warrants; or (iii) reclassify its Common Stock (other than
through a subdivision or combination or by changing the par
value); or (iv) take any other action which requires the
Conversion Ratio to be adjusted under paragraph (e) (iv); or (v)
become a party to any consolidation or merger or sell or transfer
all or substantially all of the assets of the Corporation, then
the Corporation shall notify by regular mail the holders of
record of the Series A Preferred Shares at least 15 days prior to
the appropriate record date. The notice shall briefly describe
the transaction and state (i) the record date which will be used
for the purpose of determining which holders will receive such
dividend or distribution, of rights or warrants, or (ii) the date
on which any such reclassification, consolidation, merger, sale
or transfer is expected to become effective, and the record date
as of which it will be determined which holders shall be entitled
to exchange their Common Stock for securities or other property
delivered upon such reclassification, consolidation, merger, sale
or transfer. The Corporation shall mail a notice of all meetings
of shareholders (and any accompanying proxy statement) to the
holders of Series A Preferred Stock at the same time the notice
(and proxy statement) is mailed to holders of Common Stock and
shall mail all other notices and financial statements to the
holders of Preferred Stock at the same time such notices and
financial statements are mailed to holders of Common Stock. If
any action is taken by means of consent, notice of such action by
consent shall be sent to the holders of Series A Preferred Stock
at least 20 days prior to the effective date of such consent.
Failure to give or receive the notice required by this
subparagraph (e) (vi) or any defect therein shall not affect the
legality or validity or any such dividend, distribution, right or
warrant or other action but such failure shall not affect the
rights of the holders of Series A Preferred Stock to obtain an
appropriate remedy on account of such failure.
(vii) Corporation to Reserve Stock for Conversion. As long
as any Series A Preferred Stock remains outstanding, the
Corporation shall reserve out of its authorized but unissued
Common Stock the full number of shares of Common Stock
deliverable upon the conversion of all outstanding Series A
Preferred Stock.
(f) Voting Rights.
(i) Except as otherwise required by the New Jersey Business
Corporation Act and as otherwise provided in subparagraph (e) (v)
and in this paragraph (f), the holders of Series A Preferred
Stock shall have no voting rights.
(ii) Any other provisions herein notwithstanding, if at any
time the Corporation shall have failed to pay for 2 quarters,
whether or not consecutive, the full quarter-annual dividends
payable on the Series A Preferred Stock, the holders of the
Series A Preferred Stock shall have the right, voting as a
separate class, to elect a total of two directors to the class of
directors elected at the next annual meeting of shareholders (the
"Preferred Directors"). A dividend default with respect to the
Series A Preferred Stock, giving rise to the right to elect the
Preferred Directors, shall be deemed to continue to exist until
all accrued dividends on all outstanding shares of the Series A
Preferred Stock shall have been paid to the end of the past
preceding quarterly dividend period.
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(A) Subject to the limitations set forth in subparagraph (B)
below, the Preferred Directors shall be elected to a term of
office the same as the term of office of the other directors in
the class to which they are elected. At each subsequent annual
meeting of shareholders at which directors of such class are
elected, until all dividends in default on the Series A Preferred
Stock shall have been paid or declared and set apart for payment,
the holders of Series A Preferred Stock shall have the right to
vote for the election of Preferred Directors in the manner
described in this subparagraph (ii).
(B) The Preferred Directors shall hold office only until the
first meeting of shareholders following the payment, or the
declaration and setting apart for payment, of all dividends in
default on the Series A Preferred Stock, notwithstanding that the
term of the other directors in the class to which they are a
member does not expire at the time of such meeting. The
successors to the Preferred Directors shall be elected by the
shareholders at such meeting to a term of office which shall
expire at the same time as the term of office of the other
directors in the class to which they are elected.
(C) At any meeting of shareholders held while holders of
Series A Preferred Stock have the voting power to elect Preferred
Directors, the holders of a majority of the then outstanding
Series A Preferred Stock who are present in person or by proxy
shall be sufficient to constitute a quorum for the election of
the Preferred Directors as herein provided.
(D) Any vacancy caused by the death, resignation, or removal
of a Preferred Director may be filled by the remaining Preferred
Director, or if there is no remaining Preferred Director, by a
majority of the holders of Series A Preferred Stock. In the event
there is no remaining Preferred Director to fill a vacancy, a
holder(s) of 10% or more of the outstanding Series A Preferred
Stock shall have the right to require the Corporation to hold a
meeting of shareholders within 20 days (or such greater time as
shall be required by law) to fill the vacancy, unless when so
requested a shareholders' meeting is scheduled to occur in 60
days or less. Any Preferred Director so elected shall hold office
until the next annual meeting of shareholders, at which time the
holders of the Series A Preferred Stock shall elect a Preferred
Director to fill the vacancy if the term of office of the
Preferred Director who was replaced does not expire at the time
of such meeting.
(iii) While any Series A Preferred Stock is outstanding, the
amendment of any provision of this Section C of Article V of the
Certificate of Incorporation (except amendments relating to a
stock split or reduction in the authorized shares of the series
that the New Jersey Business Corporation Act authorizes the Board
of Directors to adopt without shareholder approval) shall require
the affirmative vote of a majority of the outstanding Series A
Preferred Stock.
(iv) On any matter on which the holders of Series A
Preferred Stock shall be entitled to vote, they shall be entitled
to one vote for each share held. The holders of Series A
Preferred Stock shall vote only as a separate class; their votes
shall not be counted together with the holders of the Common
Stock or any other class or series of Preferred Stock as a single
class.
ARTICLE VI
INDEMNIFICATION
The Corporation shall indemnify its officers,
directors, employees, and agents and former officers,
directors, employees and agents, and any other persons serving
at the request of the Corporation as an officer, director,
employee or agent of another corporation, association,
partnership, joint venture, trust, or other enterprise,
against expenses (including attorneys' fees, judgments, fines,
and amounts paid in settlement) incurred in connection with any
pending or threatened action, suit, or proceeding, whether
civil, criminal, administrative or investigative, with respect
to which such officer, director, employee, agent or other
person is a party, or is threatened to be made a party, to
the full extent permitted by the New Jersey Business
Corporation Act. The indemnification provided herein shall
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not be deemed exclusive of any other right to which any person
seeking indemnification may be entitled under any by-law,
agreement, or vote of stockholders or disinterested directors
or otherwise, both as to action in his official capacity and
as to action in another capacity, and shall inure to the
benefit of the heirs, executors, and the administrators of any
such person. The Corporation shall have this power to
purchase and maintain insurance on behalf of any persons
enumerated above against any liability asserted against him
and incurred by him in any such capacity, arising out of his
status as such, whether or not the Corporation would have the
power to indemnify him against such liability under the
provisions of this Article.
ARTICLE VII
NAME AND ADDRESS OF INCORPORATOR
The name and address of the incorporator is: Ronald
H. Janis, c/o Clapp & Eisenberg, 80 Park Plaza, 23rd Floor,
Newark, New Jersey 07102.
ARTICLE VIII
CLASSIFICATION OF DIRECTORS
The directors shall be divided into three classes,
as nearly equal in number as possible, with the term of office
of the first class to expire at the first annual meeting of
stockholders following the meeting at which this Article VIII
is adopted, the term of office of the second class to expire
at the second annual meeting of stockholders following the
meeting at which this Article VIII is adopted and the term of
office of the third class to expire at the third annual
meeting of stockholders following the meeting at which this
Article VIII is adopted.
If this Article VIII is adopted at a special
meeting of stockholders, directors of the second and
third classes shall be elected to their terms at such special
meeting, and directors of the first class shall be designated
in advance of such special meeting by the Board of Directors
from among the directors elected at the preceding annual
meeting of stockholders and shall not be required to stand for
election at such special meetings of stockholders. If this
Article VIII is adopted at an annual meeting of stockholders,
all three classes of directors shall be elected to their terms
at such annual meeting. At each annual meeting of
stockholders following the initial classification and
election, directors elected to succeed those directors whose
terms expire shall be elected for a term of office to expire
at the third succeeding annual meeting of stockholders after
their election or as soon thereafter as their successors have
been elected and qualified.
Notwithstanding anything else in this Certificate of
Incorporation to the contrary (and notwithstanding the fact
that a lesser percentage may be permitted by law, this
Certificate of Incorporation or the by-laws of the
Corporation), the provisions of this Article VIII may not be
amended, altered, changed or repealed in any respect, nor may
any provision inconsistent herewith be adopted, unless such
action is approved by the affirmative vote of at least three-
quarters of all of the outstanding shares of common stock
entitled to vote thereon, said vote to take place at an annual
or special meeting of the Corporation's stockholders called
for the purpose of considering such matter.
ARTICLE IX
MINIMUM PRICE
The stockholder vote required to approve a Business
Combination (as hereinafter defined) shall be as set forth in
this section.
A. (1) Except as otherwise expressly provided in this
section, the affirmative vote of at least three-
quarters of all of the outstanding shares of common
stock entitled to vote thereon shall be required in
order to authorize any of the following:
(a) any merger or consolidation of the Corporation
or any subsidiary thereof with a Related
Person (as hereinafter defined) or any other
corporation which after such merger or
consolidation would be a Related Person;
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(b) any sale, lease, exchange, transfer or other
disposition, including without limitation, a
mortgage, or any other security device, of all
or any Substantial Part (as hereinafter
defined) of the assets of the Corporation
(including without limitation any voting
securities of subsidiary) or of a subsidiary,
to a Related Person;
(c) the issuance or transfer by the Corporation or
any subsidiary thereof of any securities of
the Corporation or a subsidiary of the
Corporation to a Related Person;
(d) the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation
proposed by or on behalf of a Related Person;
(e) any reclassification of securities (including
any reverse stock split) or recapitalization
of the Corporation, or any merger or
consolidation of the Corporation,
with any of its Subsidiaries or any other
transaction (whether or not with or otherwise
involving Related Person) which has the
effect, directly or indirectly, of increasing
the proportionate share of any class of equity
or convertible securities of the Corporation
or any Subsidiary which is directly or
indirectly beneficially owned by any Related
Person;
(f) any agreement, contract or other arrangement
providing for any of the transactions
described in this section of the Certificate
of Incorporation.
(2) Such affirmative vote shall be required
notwithstanding any other provision of this
Certificate of Incorporation, any provision of law
or any agreement with any national securities
exchange which might otherwise permit a lesser vote
or no vote.
(3) The Term Business Combination" as used in this
section shall mean any transaction which is
referred to in any one or more of subparagraphs (a)
through (f) above.
B. The provisions of Part A of this section shall not be
applicable to any particular Business Combination, and
such Business Combination shall require only such
affirmative shareholder vote and such approval by the
Board of Directors as is required by any other provision
of this Certificate of Incorporation, any provision of
law or any agreement with any national securities
exchange, if all of the conditions specified in either of
the following subparagraphs (1) or (2) are met:
(1) The Business Combination shall have been approved
by a majority of the directors of the Corporation
then in office.
(2) All the following conditions have been met:
(a) The aggregate amount of (x) cash and (y) Fair
Market Value (as hereinafter defined), as of
the date of the consummation of the Business
Combination, of consideration other than cash
to be received per share by holders of common
stock in such Business Combination shall be at
least equal to the amount determined under
sub-clauses (i) and (ii) below:
(i) if the Related Person has acquired shares
of the Corporation's common stock in a
tender offer for or has requested or
invited the tender of the Corporation's
common stock in a transaction subject to
the provisions of Section 14(d) of the
Securities Exchange Act of 1934, the
highest per share price (including any
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brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by the
Related Person for any share of common
stock acquired by it (a) within the one-
year period immediately prior to the
first public announcement of the proposal
of the Business Combination (the
"Announcement Date") or (b) in connection
with the tender offer or request or
invitation of tenders, whichever is
higher;
(ii) if the Related Person has not made such a
tender offer for or invited or requested
the tender of the Corporation's common
stock, two time the highest Fair Market
Value per share of the Corporation's
common stock during the one-year period
ending with the Announcement Date.
(b) The consideration to be received by holders of
a particular class of outstanding voting stock
shall be in cash or in the same form as the
Related Person has previously paid for shares
of such class of voting stock. If the Related
Person has paid for shares of any class of
voting stock with varying forms of
consideration, the form of consideration such
class of voting stock shall be either cash or
the form used to acquire the largest number of
shares of such class of voting stock
previously acquired by it.
C. For the purpose of this section the following definitions
apply:
(1) The term "Related Person" shall mean and include
(a) any individual, corporation, partnership or
other person or entity which together with its
"affiliates" (as that term is defined in Rule 12b-2
of the General Rules and Regulations under the
Securities Exchange Act of 1934), is the
"beneficial owner" (as that term is defined in Rule
13d-3 of the General Rules and Regulations under
the Securities Exchange Act of 1934) in the
aggregate of 10 percent or more of the outstanding
shares of the common stock of the Corporation; and
(b) any "affiliate" (as that term is defined in
Rule 12b-2 under the Securities Exchange Act of
1934) of any such individual, corporation,
partnership or other person or entity. Without
limitation, any shares of the common stock of the
Corporation which any Related Person has the right
to acquire pursuant to any agreement, or upon
exercise of conversion rights, warrants or options
or otherwise, shall be deemed "beneficially owned"
by such Related Person.
(2) The term "Substantial Part" shall mean more than 25
percent of the total assets of the Corporation, as
of the end of its most recent fiscal year ending
prior to the time the determination is made.
(3) The term "Fair Market Value" shall mean: (a) in the
case of stock, the highest closing sale price
during the 30-day period immediately preceding the
date in question if a specific date for valuation
thereof is specified or during the period in
question if a period for valuation thereof is
specified of a share of such stock on the Composite
Tape for American Stock Exchange-Listed Stocks, or,
if such stock is not quoted on the Composite Tape,
on the America Stock Exchange, or, if such stock is
not listed on such Exchange, on the principal
United States securities exchange registered under
the Securities Exchange Act of 1934 on which such
stock is listed, or, if such stock is not listed on
any such exchange, the highest closing price or
closing bid quotation with respect to a share of
such stock during the 30-day period preceding such
date in question or during such period in question
11
<PAGE>
on the National Association of Securities Dealers,
Inc. Automated Quotation System or any system then
in use, or if no such quotations are available, the
fair market value on the date in question of a
share of such stock as determined by the Board of
Directors, in good faith; and (b) in the case of
property other than cash or stock, the fair market
value of such property on the date in question as
determined by the Board of Directors in good faith.
(4) In the event of any Business Combination in which
the Corporation survives, the phrase "consideration
other than cash to be received" as used in
paragraph (2)(a) of Part B of this Article shall
include the shares of common stock and/or the
shares of any other class of outstanding voting
stock retained by the holders of such shares.
D. Nothing contained in this section shall be construed to
relieve any related Party from any fiduciary obligation
imposed by law.
E. If any question shall arise as to the applicability of
this Article IX or as to the interpretation of any of its
provisions, such question shall be resolved by the Board
of Directors, and the Board's resolution shall be final
and binding.
F. Notwithstanding any other provision of this Certificate
of Incorporation ( and notwithstanding the fact that a
lesser percentage may be permitted by law, this
Certificate of Incorporation or the by-laws of the
Corporation), the provisions of this Article IX may not
be amended, altered, changed or repealed in any respect,
nor may any provision inconsistent herewith be adopted,
unless such action is approved by the affirmative vote of
the holders of at least three-quarters of all of the
outstanding shares of common stock entitled to vote
thereon, said vote to take place at an annual or special
meeting of the Corporation's stockholders called for the
purpose of considering such matter.
ARTICLE X
LIMITATION ON LIABILITY OF DIRECTORS AND OFFICERS
A director or officer of the Corporation shall not
be personally liable to the Corporation or its shareholders
for damages for breach of any duty owed to the Corporation or
its shareholders, except that such provision shall not relieve
a director or officer from liability for ant breach of duty
based upon an act or omission (i) in breach of such person's
duty of loyalty to the Corporation or its shareholders, (ii)
not in good faith or involving a knowing violation of law, or
(iii) resulting in receipt by such person of an improper
personal benefit. If the New Jersey Business Corporation Act
is amended after approval by the shareholders of this
provision to authorize corporate action further eliminating or
limiting the personal liability of directors officers, then
the liability of a director and/or officer of the Corporation
shall be eliminated or limited to the fullest extent permitted
by the New Jersey Business Corporation Act as so amended.
Any repeal or modification of the foregoing
paragraph by the shareholders of the Corporation or otherwise
shall not adversely affect any right or protection of a
director or officer of the Corporation existing at the time of
such repeal or modification.
12
Exhibit 99 - Press Release
A PRESS RELEASE FROM:
HUBCO, INC., 3100 BERGENLINE AVENUE, UNION CITY, NJ 07087
CONTACT: KENNETH T. NEILSON, CEO & PRES, 201/348-2322 D. L. VAN
BORKULO-NUZZO, CORPORATE SECRETARY & FIRST SENIOR
V.P., 210/348-2300
FOR IMMEDIATE RELEASE
July 1, 1994
HUBCO AND WASHINGTON BANCORP COMPLETE MERGER
Union City, New Jersey, July 1, 1994 -- HUBCO, Inc. (NASDAQ: HUBC) today
announced it has completed the merger of Washington Bancorp into HUBCO. "This
acquisition fits nicely into our expansion strategy, since it enables us to
realize operating synergies with our existing branch locations," stated HUBCO
and Hudson United Bank President and Chief Executive Officer, Kenneth T.
Neilson.
The Washington merger will increase HUBCO's assets to $1.4 billion and
expand its branch network to 45 locations in New Jersey. All branches of
Washington Savings Bank will become branches of Hudson United Bank on July 1,
1994.
"We believe that Washington's customers will clearly benefit from this
association. As part of Hudson United, they will have access to an expanded
line of financial products and services including all types of consumer and
commercial loans including mortgages, Trust Department services, and 24 hour
banking through MAC and HUB-LINK, our telephone banking service" continued Mr.
Neilson.
Over the past four years, HUBCO has completed eight acquisitions in the
northern part of New Jersey and nearly tripled in size.
According to the terms of the merger agreement, shareholders of
Washington have the right to receive, for each share of Washington Common
Stock, either $16.10 in cash or 0.6708 of a share of HUBCO's new Series A
Preferred Stock.
HUBCO, Inc. is the bank holding company for Hudson United Bank which has
locations in Hudson, Bergen, Essex, Middlesex, Morris and Passaic Counties.
