SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to __________________
Commission File Number 0-010699
HUBCO, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
New Jersey 22-2405746
(STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
3100 Bergenline Avenue
Union City, New Jersey 07087
---------------------- -----
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
(201)-348-2300
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Not Applicable
--------------
FORMER NAME, FORMER ADDRESS, AND FORMAL FISCAL YEAR,
IF CHANGED SINCE LAST REPORT.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date:
6,501,536 shares, no par value, outstanding as of August 4, 1994
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
----------------------------
INDEX
-----
Page
PART I. FINANCIAL INFORMATION
- - ------------------------------
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets
June 30, 1994 and December 31, 1993 . . . . . . . . . 1
Consolidated Statements of Income
Six Months Ended June 30, 1994
and June 30, 1993 . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Income
Three Months Ended June 30, 1994
and June 30, 1993 . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows
Six Months ended June 30, 1994
and June 30, 1993 . . . . . . . . . . . . . . . . . . . 4
S.E.C. Guide 3 - Item III
Loan Portfolio. . . . . . . . . . . . . . . . . . . . 5
Asset Quality Schedule - Quarterly Recap. . . . . . . . 6
S.E.C. Guide 3 - Item IV
Summary of loan loss experience . . . . . . . . . . . . 7
Notes to Consolidated Financial Statements. . . . . . . 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . 9-16
PART II. OTHER INFORMATION
-----------------
Item 5. Other Information . . . . . . . . . . . . . . . . . . . 17
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . 18
Signatures. . . . . . . . . . . . . . . . . . . . . . . 19
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<TABLE>
<CAPTION>
Page 1
HUBCO, Inc. and Subsidiaries
- - --------------------------------------------------------------------------------
PART I. FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)
June 30 December 31
1994 1993
------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks $ 54,891 $ 49,542
Investment Securities (Note - B)
Available for Sale, at market value
(amortized cost of $55,245 and $123,833
in 1994 and 1993, respectively) 56,669 130,555
Held to maturity, at cost (market value of $476,434
and $301,692 for 1994 and 1993, respectively) 483,770 296,130
----------- ----------
540,439 426,685
Federal funds sold and securities
purchased under agreements to resell 5,000 9,800
Loans:
Real estate-mortgage 239,618 246,647
Commercial and financial 189,548 178,827
Consumer credit 98,405 109,169
Direct lease financing -- 122
----------- ----------
527,571 534,765
Less:
Allowance for possible loan losses 10,589 10,811
Deferred loan fees 610 676
Unearned income 3,504 4,699
----------- ----------
NET LOANS 512,868 518,579
----------- ----------
Property and equipment, net 22,937 18,001
Other real estate 1,873 2,311
Accrued interest receivable 12,214 10,259
Other assets 16,109 6,648
----------- ----------
TOTAL ASSETS $1,166,331 $1,041,825
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 204,453 $ 205,233
Interest bearing 834,643 730,455
---------- ----------
TOTAL DEPOSITS 1,039,096 935,688
---------- ----------
Federal funds purchased and securities
sold under agreements to repurchase 18,985 19,629
Treasury tax and loan note 785 1,000
Accrued taxes and other liabilities 6,316 6,554
----------- ----------
TOTAL LIABILITIES 1,065,182 962,871
----------- ----------
Subordinated Debt (Note - C) 25,000 0
Stockholders' equity:
Common stock, no par value, issued
6,933,361 and outstanding 6,501,536 shares
(1994); issued 6,933,361 and outstanding
6,724,661 shares (1993) 18,492 18,492
Capital in excess of par 49,047 49,048
Retained earnings 18,808 12,669
Treasury stock, at cost, 431,825 shares
in 1994 and 208,700 shares in 1993 (9,623) (4,571)
Unearned Compensation-Restricted stock awards (1,053) (946)
Unrealized gain on investment securities
available for sale, net of income taxes of $251 and
$2,460 in 1994 and 1993, respectively 477 4,262
----------- ----------
TOTAL STOCKHOLDERS' EQUITY 76,148 78,954
----------- ----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 1,166,331 $ 1,041,825
=========== ===========
</TABLE>
See notes to consolidated financial statements
<PAGE>
Page 2
HUBCO, Inc. and Subsidiaries
- - --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME SIX MONTHS ENDED
(In Thousands) ----------------
JUNE 30
----------------
1994 1993
---- ----
INTEREST INCOME
Interest & fees on loans:
Taxable $21,308 $21,023
Tax exempt 195 169
------- -------
21,503 21,192
------- -------
Interest & dividends on investment securities:
Taxable 13,643 10,659
Tax exempt 694 477
------- -------
14,337 11,136
------- -------
Interest on federal funds sold 291 384
Other 0 0
------- -------
TOTAL INTEREST INCOME 36,131 32,712
------- -------
INTEREST EXPENSE
Interest on deposits:
Savings deposits 6,279 5,619
Time deposits 3,420 4,491
Interest on borrowings 1,057 154
------- -------
TOTAL INTEREST EXPENSE 10,756 10,264
------- -------
NET INTEREST INCOME 25,375 22,448
------- -------
Provision for possible loan losses 900 1,500
------- -------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 24,475 20,948
OTHER INCOME
Trust department income 309 213
Service charges on deposit accounts 3,351 2,690
Investment securities gains (losses) 0 2
Other 986 1,109
------- -------
4,646 4,014
------- -------
29,121 24,962
------- -------
OTHER EXPENSES
Salaries 6,202 5,609
Pension and other employee benefits 3,055 2,374
Occupancy expense of property 1,867 1,584
Equipment expense 884 862
Miscellaneous 4,806 4,106
------- -------
16,814 14,535
------- -------
INCOME BEFORE INCOME TAXES 12,307 10,427
INCOME TAXES - Federal 3,613 3,192
- State 1,003 524
------- -------
NET INCOME $ 7,691 $ 6,711
======= =======
Earnings per share:
(Based on weighted average shares
outstanding of 6,506,704 in 1994 $ 1.18 $ .97
and 6,915,612 in 1993) ======= =======
See notes to consolidated financial statements
<PAGE>
Page 3
HUBCO, Inc. and Subsidiaries
- - --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS ENDED
(In Thousands) ------------------
JUNE 30
------------------
1994 1993
---- ----
INTEREST INCOME
Interest & fees on loans:
Taxable $10,793 $10,475
Tax exempt 134 96
------- -------
10,927 10,571
------- -------
Interest & dividends on investment securities:
Taxable 7,123 5,363
Tax exempt 385 236
------- -------
7,508 5,599
------- -------
Interest on federal funds sold 202 153
Other (16) --
------- -------
TOTAL INTEREST INCOME 18,621 16,323
------- -------
INTEREST EXPENSE
Interest on deposits:
Savings deposits 3,425 2,772
Time deposits 1,682 2,121
Interest on borrowings 518 74
------- -------
TOTAL INTEREST EXPENSE 5,625 4,967
------- -------
NET INTEREST INCOME 12,996 11,356
------- -------
Provision for possible loan losses 450 750
------- -------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 12,546 10,606
OTHER INCOME
Trust department income 136 102
Service charges on deposit accounts 1,775 1,417
Investment securities gains (losses) -- (2)
Other 525 676
------- -------
2,436 2,193
------- -------
14,982 12,799
------- -------
OTHER EXPENSES
Salaries 3,097 2,814
Pension and other employee benefits 1,496 1,052
Occupancy expense of property 953 983
Equipment expense 456 436
Miscellaneous 2,806 2,166
------- -------
8,808 7,451
------- -------
INCOME BEFORE INCOME TAXES 6,174 5,348
INCOME TAXES - Federal 1,751 1,658
- State 519 186
------- -------
NET INCOME $ 3,904 $ 3,504
======= =======
Earnings per share:
(Based on weighted average shares
outstanding of 6,491,945 in 1994 $ .60 $ .51
and 6,917,795 in 1993) ======= =======
See notes to consolidated financial statements
<PAGE>
Page 4
- - --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (NET)
HUBCO, INC. and Subsidiaries
(in thousands)
Six Months Ended
June 30
----------------
1994 1993
---- -----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 7,691 $ 6,711
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Provision for possible loan losses 900 1,500
Provision for depreciation and amortization 1,149 514
Amortization of investment security premiums 667 577
Accretion of investment security discount (212) (163)
Realized investment security (gains) losses -- (2)
Deferred income taxes 640 640
(Increase) in interest receivable (1,955) (107)
Increase (decrease) in interest payable 781 (438)
Increase in accrued taxes and other
liabilities 565 3,493
(Increase) decrease in other assets (9,931) 4,225
------- -------
NET CASH PROVIDED
BY OPERATING ACTIVITIES 295 16,950
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of investment securities -- 61
Proceeds from maturities of investment securities 65,307 21,932
Net cash acquired from acquisitions 110,257 43,134
Net cash paid for acquisitions (6,180) (227)
Net decrease in loans 5,267 7,247
Purchase of investment securities (185,511) (39,148)
Purchases of premises and equipment (5,786) (3,580)
(Decrease) increase in other real estate 438 (578)
------- -------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (16,208) 28,841
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits,
NOW accounts and savings accounts 1,020 17,868
Net (decrease) in certificates
of deposit (2,058) (33,418)
Net (decrease) in federal funds
purchased and securities sold under
agreements to repurchase (644) (2,225)
Subordinated Debt 25,000 --
New stock issue -- 378
Cash dividends (1,558) (1,465)
Purchase of treasury stock (5,298) --
------- -------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 16,462 (18,862)
------- -------
INCREASE IN CASH
AND CASH EQUIVALENTS 549 26,929
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD $59,342 61,700
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $59,891 $88,629
======= =======
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Page 5
HUBCO, Inc. and Subsidiaries
----------------------------
S.E.C. GUIDE 3 - ITEM III
-------------------------
LOAN PORTFOLIO
--------------
Types of Loans at Each Reported Period
--------------------------------------
(In Thousands of Dollars)
6/30/94 12/31/93
------- --------
Commercial, Financial, and
Agricultural $134,219 $119,563
Real Estate - Construction 7,513 7,117
Real Estate - Mortgage 320,106 330,018
Consumer Loans 65,733 77,945
Other - 122
-------- --------
Total $527,571 $534,765
======== ========
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Page 6
HUBCO, Inc. and Subsidiaries
- - --------------------------------------------------------------------------------
ASSET QUALITY SCHEDULE - QUARTERLY RECAP
----------------------------------------
(In Thousands)
6/30/94 3/31/94 12/31/93 9/30/93
------- ------- -------- -------
Non-Accruing Loans:
Commercial $1,943 $1,559 $ 1,391 $1,382
Real Estate 3,725 3,457 3,398 3,212
Installment 384 634 745 853
------ ------ ------- ------
Total Non-Accruing Loans 6,052 5,650 5,534 5,447
------ ------ ------- ------
Renegotiated Loans 713 1,816 2,177 2,177
------ ------ ------- ------
Total Non-Performing Loans $6,765 $7,466 $ 7,711 $7,624
Other Real Estate 1,873 813 2,311 2,305
------ ------ ------- ------
Total Non-Performing Assets $8,638 $8,279 $10,022 $9,929
====== ====== ======= ======
Non-Accruing Loans to Total
Loans, Net 1.16% 1.08% 1.05% .99%
Non-Performing Loans to Total
Loans, Net 1.29 1.43 1.46 1.39
Non-Performing Assets to
Total Assets .74 .77 .96 .96
Non-Performing Assets to
Total Loans, Net Plus
Other Real Estate 1.64 1.58 1.88 1.80
Loans Past Due 90 Days or
More and Accruing:
Commercial $ 622 $ 602 $1,139 $ 862
Real Estate 209 656 225 692
Installment 229 72 79 10
------ ------ ------- ------
Total Past Due Loans $1,060 $1,330 $1,443 $1,564
====== ====== ====== ======
<PAGE>
Page 7
HUBCO, Inc. and Subsidiaries
----------------------------
S.E.C. GUIDE 3 ITEM IV
----------------------
SUMMARY OF LOAN LOSS EXPERIENCE
-------------------------------
Summary of Activity in the Allowance,
Broken Down by Loan Category
-------------------------------------
Six Months Ended Year Ended
6/30/94 12/31/93
---------------- ---------
(In Thousands of Dollars)
Amount of Loans Outstanding $527,571 $534,765
======= =======
Daily Average Amount of Loans $528,622 $529,340
======= =======
Balance of Allowance for
Possible Loan Losses at
Beginning of Period $ 10,811 $ 7,605
Loans Charged Off:
Commercial, Financial,
and Agricultural (1,147) (637)
Real Estate - Mortgage (95) (138)
Installment (146) (283)
Lease Financing (14) (122)
-------- --------
Total Loans Charged Off (1,402) (1,180)
-------- --------
Recoveries of Loans Previously
Charged Off:
Commercial, Financial,
and Agricultural 226 141
Real Estate - Mortgage - 59
Installment 24 104
Lease Financing 30 82
-------- --------
Total Recoveries 280 386
-------- --------
Net Loans Charged Off (1,122) (794)
Addition to Allowance
Charged to Operations 900 3,600
Additions Acquired Through Acquisitions - 400
-------- --------
Balance at End of Period $ 10,589 $ 10,811
======== ========
Ratio of Net Loans Charged-Off
During Period to Average
Loans Outstanding .42% .15%
<PAGE>
Page 8
HUBCO, Inc. and Subsidiaries
- - -------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 1994
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form l0-Q and Rule l0-0l of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles to complete
financial statements. In the opinion of management, the information presented
includes all adjustments considered necessary to a fair presentation of the
interim period results.
NOTE B - INVESTMENT SECURITIES
The amortized cost and estimated market value of investment securities are
summarized as follows:
June 30 1994
--------------------------------------------------
Gross Unrealized Estimated
Amortized ---------------- Market
Cost Gains (Losses) Value
--------- ----- ------ ----------
Available for Sale
U.S. Government $ 34,123 $ 196 ($13) $ 34,306
U.S. Government
agencies 1,000 3 - 1,003
State and political
subdivisions 13,792 1 (17) 13,776
Other securities 1,249 20 - 1,269
Equity securities 5,081 1,253 (19) 6,315
-------- ------ ------ --------
$ 55,245 $1,473 ($ 49) $ 56,669
======== ====== ====== ========
June 30, 1994
------------------------------------------------------
Gross Unrealized Estimated
Amortized ---------------- Market
Cost Gains (Losses) Value
--------- ----- ------ ---------
Held to Maturity
U.S. Government $214,791 $ 665 ($1,785) $213,671
U.S. Government
agencies 245,407 534 (6,723) 239,218
State and political
subdivisions 21,194 103 (137) 21,160
Other securities 2,378 44 (37) 2,385
-------- ------ ------- --------
$483,770 $1,346 ($8,682) $476,434
======== ====== ======= ========
<PAGE>
Page 9
1993
--------------------------------------------------
Gross Unrealized Estimated
Amortized ---------------- Market
Cost Gains (Losses) Value
--------- ----- ------ ---------
Available for Sale
U.S. Government $104,728 $ 5,580 - $110,308
U.S. Government
Agencies 10,482 502 (1) 10,983
States and Political
Subdivisions 1,600 237 - 1,837
Other securities 2,107 223 (5) 2,325
Equity securities 4,916 381 (195) 5,102
-------- ------- ----- --------
$123,833 $ 6,923 ($201) $130,555
======== ======= ===== ========
1993
--------------------------------------------------
Gross Unrealized Estimated
Amortized ---------------- Market
Cost Gains (Losses) Value
--------- ----- ------ ---------
Held to Maturity
U.S. Government $104,957 $ 2,648 ($125) $107,480
U.S. Government
Agencies 164,850 3,104 (651) 167,303
State and Political
Subdivisions 23,815 496 (4) 24,307
Other securities 2,508 94 - 2,602
-------- ------- ----- --------
$296,130 $ 6,342 $(780) $301,692
======== ======= ===== ========
NOTE C - SUBORDINATED DEBT
In January 1994, the Company sold $25 million aggregate principal amount of
subordinated debentures in a private placement. The debentures, which mature
2004, bear interest at 7.75% per annum payable semi-annually. The Company
registered the debentures with the Securities and Exchange Commission in May
1994 in connection with an exchange offer and pursuant to the exchange offer,
all of the outstanding debentures were exchanged for the registered debentures
on July 20, 1994. On March 18, 1994, HUBCO entered into an interest rate
exchange agreement intended to hedge the interest rate risk related to the $25
million subordinated debt. The agreement is a contractual agreement between
HUBCO and its counter-party to exchange fixed and floating rate interest
obligations. HUBCO's counter-party to the agreement is the fixed rate payor, and
HUBCO is the floating rate payor. The floating rate is reset every three months.
The term of the agreement is three years.
<PAGE>
Page 10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
This financial review presents management's discussion and analysis of financial
condition and results of operations. It should be read in conjunction with the
Company's Consolidated Financial Statements and the accompanying notes. Unless
otherwise noted, all dollar amounts, other than per share information, are
presented in thousands.
On June 30, 1993 the Company, through Hudson United Bank, acquired deposits and
certain assets of Pilgrim State Bank ("Pilgrim") from the Ramapo Bank ("Ramapo")
immediately following a merger of Pilgrim into Ramapo. The merger and the
acquisition occurred pursuant to a Purchase and Assumption Agreement previously
entered into between the parties. The income statement comparison is influenced
by the Pilgrim transaction.
On May 6, 1994 the Company, through Hudson United Bank, acquired deposits and
certain assets of Polifly Federal Savings and Loan Association ("Polifly") from
the Resolution Trust Corporation ("RTC"). The balance sheet and income statement
comparisons are influenced by the Polifly transaction.
On June 1, 1993, the Company paid a ten percent stock dividend to stockholders
of record May 11, 1993, which resulted in the issuance of 628,011 new shares of
common stock. Per share amounts have been restated to reflect the ten percent
stock dividend.
On July 1, 1994, the Company acquired Washington Bancorp, Inc. The merger
occurred pursuant to an Agreement and Plan of Merger previously entered into
between the parties (See Item 5 of this Form 10Q). The Financial Statements
included herein do not include the effects of the merger.
RESULTS OF OPERATIONS
The Company earned net income of $7,691, or $1.18 per share, for the six month
period ended June 30, 1994, compared to $6,711, or $.97 per share, for the same
period in 1993. The increase in earnings of $980, or 14.6%, is primarily
attributable to a 13.0% increase in net interest income, from $22,448 for the
six months ended June 30, 1993 to $25,375 for the same period in 1994. Earnings
for the period were also improved by an increase in other income of $632, or
15.7%, and by a decrease in the provision for possible loan losses of $600, or
40.0%. Partially offsetting these gains was an increase in other expenses of
$2,279, or 15.7%, and an increase in income taxes of $900, or 24.2%.
The increase in net interest income of $2,927, or 13.0%, reflects the increase
in average net interest earning assets for the current six-month period
resulting from the Pilgrim and Polifly transactions, as well as the related
changes in yield/rate on the new product mix. Average net interest earning
assets (average earning assets minus average paying liabilities) increased by
$50,546, or 28.2%, from $179,185 for the six-month period ending June 30, 1993
to $229,731 for the current six-month period. Partially offsetting the increased
earnings was the interest paid on the subordinated
<PAGE>
Page 11
debentures issued in January, 1994 (see "Financial Condition"). As a result, the
net interest margin (fully tax equivalent) declined 21 basis points to 5.05% for
the six-month period ended June 30, 1994 from 5.26% for the comparable period in
1993. (See table on p. 13).
Total other income for the six-month period in 1994 increased by $632, or 15.7%,
as a result of increases in trust income and deposit account service charges of
$96, or 45.1%, and $661, or 24.6%, respectively. The increased trust income is
due to an increase in the number of estate accounts and investment management
accounts that were created through a restructured business development program
in the trust area. The increase in service charges on deposit accounts results
from a 16.3% increase in average deposits for the six-month period, from
$838,853 in 1993 to $975,771 in 1994, which arose from the Pilgrim and Polifly
acquisitions. Slightly offsetting these gains was a decrease of $123, or 11.1%,
in other income which is the result of non-recurring income in 1993 which arose
from regulatory acquisitions.
The level of the provision for possible loan losses was decreased by $600, or
40.0%, from $1,500 for the six-month period ended June 30, 1993 to $900 for the
comparable period in 1994. During 1993, the provision had been increased in
order to build the allowance to a level deemed adequate to support the increase
in non-performing loans as a result of the Pilgrim transaction and to reflect
the continued weak New Jersey economy.
Other expenses for the six-month period ended June 30, 1994 increased by $2,279,
or 15.7%, over the comparable period last year. Of that amount, $1,274, or 55.9%
of the total increase, was in salaries and benefits, an increase of 16.0% for
that category. This increase is primarily attributable to the additional
personnel expense incurred as a result of the addition of the six Pilgrim
branches for the entire period ($398); the additional personnel expense incurred
as a result of the addition of the four Polifly branches for an eight-week
period ($63); an increase in the 1994 performance bonus accrual based on
increased earnings ($152); the provision for severance packages related to the
updating of the Bank's deposit and mortgage servicing operations and the planned
move of the Company's data processing subsidiary ($218); and salary increases of
approximately 3.0% with the associated salary-related increases in payroll
taxes. Occupancy expense increased by $283, or 17.9%, for the current six-month
period compared to the same period last year. Of that amount, $192 represents
the cost attributable to the six additional Pilgrim branches and $13 represents
the additional cost to operate the four Polifly branches. The remaining increase
is primarily due to unusual building repair and service costs incurred as a
result of an extremely severe winter season, and costs related to the Company's
new corporate headquarters, which was purchased in April, 1994. Equipment
expense increased very slightly -- by $22, or 2.6% -- due primarily to equipment
needs at the ten additional branches. Other expenses increased by $700, or
17.0%, which is primarily attributable to the write-off of $652 of capitalized
expenses associated with the Company's terminated merger agreement with
Statewide Savings Bank, an increase of $421 in total acquisition costs over the
comparable period in 1993. Other factors contributing to the increase include
$99 in additional FDIC insurance premiums related to the acquired deposits, $155
in core deposit amortization
<PAGE>
Page 12
expense related to the Polifly acquisition, and $65 in additional telephone
expense related to the new locations and the installation of voice mail and
voice response telephone systems, both of which are generating savings in other
areas.
Income taxes (state and federal) for the six-month period ended June 30, 1994
increased by $900, or 24.2%, due to an 18% increase in net income before taxes,
coupled with a change in the effective tax rate for the period from 36% in 1993
to 38% in 1994.
For the three-month period ended June 30, 1994, the Company earned net income of
$3,904, or $.60 per share, compared to $3,504, or $.51 per share, for the same
period in 1993 and compared to $3,786, or $.58 per share, for the first quarter
in 1994. Net interest income for the current three-month period increased by
$1,640, or 14.4%, compared to the corresponding period in 1993 and by $617, or
5.0%, compared to the previous quarter ended March 31, 1994. The increases are
due to increases in the average net interest earning assets for the comparable
three-month periods, and to an increase in prime on a larger earning asset base
for the current versus prior quarter (see table on p. 13). Total other income
increased by $243, or 11.1%, to $2,436 for the three-month period ended June 30,
1994 compared to the same period last year and increased by $227, or 10.3%, from
$2,209 for the three-month period ended March 31, 1994. The increases over both
periods were primarily attributable to increased service charges on deposit
accounts and other deposit and loan related fee income. The increased earnings
for the second quarter of 1994 compared to the second quarter of 1993 were also
attributable to a decrease in the provision for possible loan losses of $300, or
40.0%, for the reasons discussed above in the six-month review.
In each income comparison, increased earnings were partially offset by increases
in other expenses. For the three-month period ended June 30, 1994, other
expenses increased by $1,357, or 18.2%, over the comparable period last year due
primarily to an increase in salaries and benefits of $727, or 18.8%, primarily
resulting from the additional personnel from the acquisitions. Other key factors
in the increase are the increased acquisition costs related to the Statewide
write-off and the Polifly core deposit amortization (discussed above), and a $50
increase in FDIC insurance premiums related to the higher volume of deposits.
Compared to the first quarter of 1994, the increase in other expenses of $802,
or 10.0%, in the current three-month period is entirely attributable to the
Statewide write-off and the Polifly core deposit amortization.
The increases in net interest income as previously discussed are produced by
rate/volume changes and changes in product mix and are summarized for the
comparative three-month and six-month periods, on a tax equivalent basis, in the
following table. The average net interest earning assets and the tax equivalent
interest margins are also provided. The tax equivalent interest margin, which
measures net interest income as a percent of average earning assets, was 5.05%
for the six months ended June 30, 1994, compared to 5.26% for the comparable
period in 1993. The tax equivalent interest margin was 5.05% for the three-month
period ended June 30, 1994, compared to 5.33% for the comparable period in 1993.
In each case, the decline is primarily
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attributable to a greater reduction in the yield on earning assets than on
paying liabilities, which was impacted by the cost of the Subordinated Debt.
Under both comparisons, net interest income still increased due to the
significant increases in average net interest earning assets.
Year-To-Date 1994 vs. Year-To-Date 1993
(In Thousands of Dollars)
Volume Rate Mix Net
------ ---- --- ---
Total Interest Income $ 6,026 $(2,078) $ (383) $ 3,565
Total Interest Expense 1,952 (1,236) (224) 492
------- ------- ------- -------
Net Interest Earnings $ 4,074 $( 842) $ (159) $ 3,073
======= ======= ======= =======
2nd Quarter 1994 vs. 2nd Quarter 1993
-------------------------------------
(In Thousands of Dollars)
Volume Rate Mix Net
------ ---- --- ---
Total Interest Income $ 3,559 $(951) $ (200) $ 2,408
Total Interest Expense 1,232 (461) (113) 658
------- ------- ------- -------
Net Interest Earnings $ 2,327 $ (490) $ ( 87) $ 1,750
======= ======= ======= =======
2nd Quarter 1994 vs. 1st Quarter 1994
-------------------------------------
(In Thousands of Dollars
Volume Rate Mix Net
------ ---- --- ---
Total Interest Income $ 992 $ 174 $ 26 $ 1,192
Total Interest Expense 469 20 5 494
------- ------- ------- -------
Net Interest Earnings $ 523 $ 154 $ 21 $ 698
======= ======= ======= =======
2nd Quarter Year-To-Date 1st Quarter
----------- ------------ -----------
1994 1993 1994 1993 1994
---- ---- ---- ---- ----
Average Net
Interest Earning
Assets $198,926 $181,759 $206,527 $179,185 $214,211
Net Interest
Margin (FTE) 5.05% 5.26% 5.05% 5.33% 5.05%
FINANCIAL CONDITION
Total assets at June 30, 1994 increased by $124,506, or 12.0%, over December 31,
1993 and by $87,700, or 8.2%, over March 31, 1994 as a result of the issuance of
$25,000 in subordinated debt in January, 1994 and the assumption of the deposits
of Polifly in May, 1994. In connection with the Polifly acquisition the Company,
through its wholly-owned subsidiary Hudson United Bank, assumed deposits of
approximately $104.4 million, received $104.0 million in cash and cash
equivalents, and acquired $.5 million in loans and
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$87 in other liabilities. The Company paid $6.2 million in settlement of the
transaction.
The Company's gross loan portfolio decreased from $534,765 at December 31, 1993
to $527,571 at June 30, 1994, a decrease of $7,194, or 1.3%. The decrease is the
result of net runoff in the loan portfolio due to a reduction in the indirect
automobile loan portfolio and the selling in the secondary market of certain
mortgage loans. The commercial loan portfolio at June 30, 1994 showed an
increase of $10,721, or 6.0%, over December 31, 1993 and is expected to show
continued growth throughout the year.
Total non-performing loans, which include non-accruing and renegotiated loans,
decreased by $946, or 12.3%, from $7,711 at December 31, 1993 to $6,765 at June
30, 1994. The decrease is in renegotiated loans and is due to two large
commercial loans coming out of restructured status, and the addition of two
smaller loans being restructured during the period. Non-accruing loans increased
by $518, or 9.4%, as a result of the implementation of FASB 114, which
transferred $708 from ORE to this category, offsetting a reduction in
non-accruing loans. ORE decreased from $2,311 at December 31, 1993 to $1,952 at
June 30, 1994 due to the FASB implementation. In summary, total non-performing
assets decreased from $10,022 at December 31, 1993 to $8,717 at June 30, 1994, a
decrease of $1,305, or 13.0%.
Loans past due 90 days or more and still accruing decreased by $383, or 26.5%,
from $1,443 at December 31, 1993 to $1,060 at June 30, 1994 as a result of
collection efforts.
Overall asset quality ratios at June 30, 1994 improved, with the ratios for
non-performing loans to total loans net, at 1.29% and non-performing assets to
total assets at .75%. These are down from the comparable ratios at December 31,
1993 of 1.46% and .96%, respectively.
The allowance for possible loan losses decreased by $222, or 2.1%, as a result
of net charge-offs of $1,122, which exceeded the year-to-date provision of $900.
At June 30, 1994, the reserve represents 156.5% of non-performing loans compared
to 140.2% of non-performing loans at December 31, 1993, despite the FASB 114
implementation.
The investment portfolio increased by $113,754, or 26.7%, as a result of the
inflow of funds generated by the assumption of the Polifly deposits. Investments
were limited to U.S. Government Obligations including Agencies and highly rated
municipal securities, in keeping with the Company's investment policy. The
investment portfolio increase was partially offset by a decrease of $5,298 in
the mark-to-market accounting for the portion of the portfolio categorized as
"available for sale". In addition, in analyzing the portfolio impact of the
Polifly acquisition, the Company reallocated its securities between the held to
maturity and available for sale categories. At June 30, 1994, approximately 10%
of the portfolio is "available for sale", compared to 31% of the total portfolio
at December 31, 1993. Historically, the company has not traded its investment
portfolio.
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Property and equipment increased by $4,936, or 27.4%, from $18,001 at December
31, 1993 to $22,937 at June 30, 1994. The increase is primarily attributable to
the Company's $4,000 purchase of its new corporate headquarters. The remaining
increase is due to the Polifly buildings and equipment.
Accrued interest receivable increased by $1,956, or 19.1%, as a result of the
increase in the investment portfolio.
Other assets increased from $6,648 at December 31, 1993 to $16,109 at June 30,
1994 -- an increase of $9,461, or 142.3%. The increase is primarily attributable
to the core deposit intangible established for the Polifly transaction ($6,026)
and capitalized acquisition costs for the now completed Washington Bancorp
acquisition, along with the issuance and registration costs for the new
preferred stock issue ($1,154). The remaining increase is due to increases in
accounts receivable and growth of the company.
Total deposits at June 30, 1994 increased by $103,408, or 11.1%, from $935,688
at December 31, 1993 to $1,039,096 at June 30, 1994. The increase is
attributable to the acquired Polifly deposits. Non-interest bearing deposits
remain in the historical range of 18-22% of deposits, and were at 19.7% on June
30, 1994.
All other liability categories were basically unchanged from December 31, 1993
levels, reflecting only modest changes based on daily activity.
On January 14, 1994, HUBCO sold $25 million aggregate principal amount of
subordinated debt in a private placement. The subordinated debentures bear
interest at 7.75% per annum payable semi-annually. The debentures mature in
2004. In March, 1994, the Company entered into an interest rate exchange on a
notional amount of $25,000 for a three-year period which was intended to hedge
the interest risk associated with the debentures.
In April of 1994, HUBCO purchased for $4,000 a 64,350 square foot building on 17
acres in Mahwah, New Jersey to house the executive offices of HUBCO and its data
processing subsidiary. The site can accommodate an approximate doubling of
building space.
On November 8, 1993, HUBCO'S Board of Directors authorized a stock repurchase
plan and authorized management to repurchase up to 10% of its outstanding common
stock per year beginning immediately. At that time, HUBCO had approximately 6.9
million shares outstanding. As of June 30, 1994, HUBCO had repurchased 431,825
shares (net of restricted stock issued) at a net cost of $9.6 million. During
the first quarter of 1994, $5.2 million of stock repurchases were settled,
causing a reduction in stockholders' equity from the December 31, 1993 level.
The Treasury shares may be used to fund the conversion of the Convertible
Preferred Stock issued in conjunction with the Washington Bancorp acquisition.
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At the end of the reporting period, the Company is not aware of any current
recommendations by the regulatory authorities which would have a material
adverse effect on the Company's capital resources or operations.
The capital ratios for HUBCO, Inc. and Subsidiaries at June 30, 1994, and the
minimum regulatory requirements for such capital ratios, are as follows:
Ratios At 1994 Minimum
June 30, 1994 Requirements*
------------- -------------
Tier I Risk-Based Capital Ratio 12.30% 6.0%
Total Risk-Based Capital Ratio 17.97% 10.0%
Leverage Capital Ratio 5.99% 5.0%
*For qualification as a well-capitalized institution.
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Item 5: Other Information
1) In May 1994, the Federal Deposit Insurance Corporation ("FDIC") issued
a letter of objection to the notice of mutual to stock conversion
filed by Statewide Savings Bank ("Statewide") in connection with the
proposed acquisition of Statewide by HUBCO. HUBCO has decided not to
pursue revised applications to acquire Statewide. The Merger Agreement
between HUBCO and Statewide effectively expired on June 30, 1994 and
will not be extended or amended.
2) On July 1, 1994, HUBCO merged with Washington Bancorp, Inc., and
Washington Savings Bank merged into Hudson United Bank. As a result of
the merger, each share of Washington Common Stock was converted into
the right to receive $16.10 in cash or 0.6708 of a share of HUBCO's
Series A Preferred Stock ("HUBCO Preferred Stock"), a new series
established in connection with the merger, subject to limitations and
allocation provisions set forth in the Merger Agreement. Each full
share of HUBCO Preferred Stock has a stated value of $24. Each full
share of HUBCO Preferred Stock is convertible into one share of HUBCO
Common Stock.
3) In May 1994, HUBCO registered its $25 million aggregate principal
amount of outstanding 7.75% subordinated debentures with the
Securities and Exchange Commission in connection with an exchange
offer. All of the outstanding debentures were exchanged for the
registered debentures pursuant to the exchange offer which was
consummated on July 20, 1994. (See Note C to the Consolidated
Financial Statements contained herein.)
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Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K
-------------------
On May 10, 1994, HUBCO filed a Form 8-K to report its announcement on May
6, 1994 that its subsidiary, Hudson United Bank (the "Bank"), acquired the
deposits of four branches of Polifly Federal Savings and Loan Association
("Polifly") from the Resolution Trust Corporation (the "RTC"). The Bank
assumed deposits of approximately $105 million, received approximately $98
million in cash and cash equivalents and acquired approximately $500,000 in
passbook loans. The Bank paid the RTC a premium of $6,180,000 in connection
with the acquisition of deposits.
On June 2, 1994, HUBCO filed a Form 8-K to report that the Federal Deposit
Insurance Corporation ("FDIC") issued a letter of objection to the notice
of mutual to stock conversion filed by Statewide Savings Bank ("Statewide")
in connection with the proposed acquisition of Statewide by HUBCO.
On July 11, 1994, HUBCO filed a Form 8-K to report its announcement on July
7, 1994 that it will not pursue revised applications to acquire Statewide
Savings Bank, SLA ("Statewide") in a merger conversion transaction. The
merger agreement between HUBCO and Statewide expired on June 30, 1994 and
will not be extended or amended.
On July 18, 1994, HUBCO filed a Form 8-K to report under Item 2 the
consummation on July 1, 1994 of the merger of Washington Bancorp into HUBCO
and Washington Savings Bank into Hudson United Bank. The merger was
pursuant to the Agreement and Plan of Merger dated as of November 8, 1993,
as amended as of May 10, 1994, between HUBCO, Washington Bancorp, the Bank
and Washington Savings Bank. HUBCO expects to amend this Form 8-K to add
certain financial information, including proforma financial information.
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Page 19
SIGNATURES
----------
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HUBCO, Inc.
August 11, 1994 S - Kenneth T. Neilson
- - --------------------------- ----------------------------------------
Date Kenneth T. Neilson
President & Chief Executive Officer
August 11, 1994 S - Christina L. Maier
- - --------------------------- ----------------------------------------
Date Christina L. Maier
Assistant Treasurer
