As filed with the Securities and Exchange Commission on May 11, 1994
Registration No. 33-53203
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
HUBCO, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW JERSEY 6712 22-2405746
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S.EMPLOYER
JURISDICTION OF CLASSIFICATION CODE IDENTIFICATION NO.)
INCORPORATION OR NUMBER)
ORGANIZATION)
3100 BERGENLINE AVENUE
UNION CITY, NEW JERSEY 07087
(201) 348-2300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
KENNETH T. NEILSON, PRESIDENT
3100 BERGENLINE AVENUE
UNION CITY, NEW JERSEY 07087
(201) 348-2300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
--------------------
WITH A COPY TO:
MICHAEL W. ZELENTY, ESQ.
CLAPP & EISENBERG, P.C.
ONE NEWARK CENTER
NEWARK, NJ 07102
(201) 642-3900
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
IF THE ONLY SECURITIES BEING REGISTERED ON THIS FORM ARE BEING OFFERED IN
CONNECTION WITH THE FORMATION OF A HOLDING COMPANY AND THERE IS COMPLIANCE
WITH GENERAL INSTRUCTION G, CHECK THE FOLLOWING BOX. / /
--------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
==========================================================================================
Title of each class Proposed maximum Proposed maximum Amount of
of securities to be Amount to be offering price aggregate offering registration
registered registered per unit (1) price (1) fee (1)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
7.75% Exchange
Subordinated
Debentures, $25,000,000 100% $25,000,000 $8,621
due 2004
==========================================================================================
<FN>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
</FN>
</TABLE>
--------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
==============================================================================
<PAGE>
HUBCO, INC.
CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K Showing Location in
Prospectus of Items of Form S-4
Form S-4 Item No. Caption in Prospectus
----------------- ---------------------
1. Forepart of Registration
Statement and Outside Front
Cover Page of Prospectus . . . Facing Page, Outside Front Cover Page;
Cross Reference Sheet
2. Inside Front and Outside Back
Cover Pages of Prospectus . . . Inside Front Cover Page; Available
Information; Incorporation of Certain
Documents by Reference; Table of
Contents
3. Risk Factors, Ratio of Earnings
to Fixed Charges and Other
Information . . . . . . . . . . Prospectus Summary; Special
Considerations; The Company; Selected
Consolidated Financial Data
4. Terms of the Transaction . . . The Exchange Offer; Description of
Debentures
5. Pro Forma Financial Information Not Applicable
6. Material Contacts with the
Company Being Acquired . . . . Not Applicable
7. Additional Information Required
for Reoffering by Persons and
Parties Deemed to be
Underwriters . . . . . . . . . Not Applicable
8. Interests of Named Experts and
Counsel . . . . . . . . . . . . Not Applicable
9. Disclosure of Commission
Position on Indemnification for
Securities Act Liabilities . . Part II-Indemnification of Directors
and Officers
10. Information with Respect to S-3
Registrants . . . . . . . . . . Incorporation of Certain Documents by
Reference; Recent Developments
11. Incorporation of Certain
Information by Reference . . . Incorporation of Certain Documents by
Reference
12. Information with Respect to S-2
or S-3 Registrants . . . . . . Not Applicable
-i-
<PAGE>
Form S-4 Item No. Caption in Prospectus
----------------- ---------------------
13. Incorporation of Certain
Information by Reference . . . Not Applicable
14. Information with Respect to
Registrants Other than S-3 or
S-2 Registrants . . . . . . . . Not Applicable
15. Information with Respect to S-3
Companies . . . . . . . . . . . Not Applicable
16. Information with Respect to S-2
or S-3 Companies . . . . . . . Not Applicable
17. Information with Respect to
Companies Other Than S-3 or S-2
Companies . . . . . . . . . . . Not Applicable
18. Information if Proxies, Consent
or Authorizations are to be
Solicited . . . . . . . . . . . Not Applicable
19. Information if Proxies,
Consents or Authorizations are
to be Solicited . . . . . . . . Not Applicable
-ii-
<PAGE>
SUBJECT TO COMPLETION - DATED May 10, 1994
PROSPECTUS
TENDER FOR ALL OUTSTANDING
7.75% SUBORDINATED DEBENTURES DUE 2004
IN EXCHANGE FOR
7.75% EXCHANGE SUBORDINATED DEBENTURES DUE 2004
OF
HUBCO, INC.
--------------------
THE EXCHANGE OFFER
WILL EXPIRE AT 5:00 p.m., NEW YORK CITY TIME,
ON July 13, 1994, UNLESS EXTENDED
HUBCO, Inc. ("HUBCO" or the "Company"), a New Jersey corporation, hereby
offers, upon terms and subject to the conditions set forth in this Prospectus
(the "Prospectus") and the accompanying Letter of Transmittal (the "Letter of
Transmittal" which, together with the Prospectus, constitutes the "Exchange
Offer"), to exchange its 7.75% Exchange Subordinated Debentures due 2004 (the
"New Debentures"), which have been registered under the Securities Act of
1933, as amended (the "Securities Act"), pursuant to the Registration
Statement of which this Prospectus is a part, for a like principal amount of
its issued and outstanding 7.75% Subordinated Debentures due 2004 (the "Old
Debentures"), of which an aggregate of $25,000,000 in principal amount is
outstanding. The Old Debentures and the New Debentures are referred to herein
collectively as the "Debentures."
(Continued on Next Page)
SEE "SPECIAL CONSIDERATIONS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD
BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER AND AN INVESTMENT IN THE
NEW DEBENTURES.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
--------------------
The date of this Prospectus is May ____, 1994
*********************************************************
* Information contained herein is subject to completion *
* or amendment. A registration statement relating to *
* these securities has been filed with the Securities *
* and Exchange Commission. These securities may not be *
* sold nor may offers to buy be accepted prior to the *
* time the registration statement becomes effective. *
* This prospectus shall not constitute an offer to sell *
* or the solicitation of an offer to buy nor shall *
* there be any sale of these securities in any State in *
* which such offer, solicitation or sale would be *
* unlawful prior to registration or qualification under *
* the securities laws of any such state. *
*********************************************************
<PAGE>
(Cover Page Continued)
The form and terms of the New Debentures will be identical in all
material respects to the form and terms of the Old Debentures, except that (i)
the New Debentures will have been registered under the Securities Act and,
therefore, will not bear legends restricting the transfer thereof, and (ii)
holders of New Debentures will not be entitled to the prospective increase in
interest rate contained in the Old Debentures. See "The Exchange Offer" and
"Description of Debentures."
The Company will accept for exchange any and all Old Debentures validly
tendered and not withdrawn prior to 5:00 p.m, New York City time, on
July 13, 1994, unless extended (such date, or such later date to which
the Exchange Offer may be extended, the "Expiration Date"). Tenders of Old
Debentures may be withdrawn at any time prior to 5:00 p.m., New York City
time, on the Expiration Date. The Exchange Offer is not conditioned upon any
minimum principal amount of Old Debentures being tendered for exchange.
However, the Exchange Offer is subject to certain conditions, which may be
waived by the Company. See "The Exchange Offer." It is expected that the
Registration Statement will be effective prior to 180 days after the original
issuance of the Old Debentures and, therefore, holders of Old Debentures,
whether or not tendered, will not be entitled to the contingent increase in
interest rate provided for in the Old Debentures.
Based on no-action letters issued by the staff of the Securities and
Exchange Commission to third parties, the Company believes that New Debentures
issued pursuant to the Exchange Offer in exchange for Old Debentures may be
offered for resale, resold, and otherwise transferred by a holder thereof
(other than broker-dealers and any holder that is an "affiliate" of the
Company within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that the holder is acquiring the New Debentures in
the ordinary course of its business and has no arrangement or understanding
with any person to participate in the distribution of the New Debentures. See
"Morgan Stanley & Co., Inc.", SEC No-Action Letter (available June 5, 1991),
and "Exxon Capital Holdings Corporation", SEC No-Action Letter (available May
13, 1988). Each Holder wishing to accept the Exchange Offer must represent to
the Company in the Letter of Transmittal that such conditions have been met in
connection with its proposed acquisition of New Debentures. See "The Exchange
Offer-Purpose and Effect of the Exchange Offer."
The New Debentures will mature on January 15, 2004. Interest on the New
Debentures is payable semi-annually on January 15 and July 15 beginning July
15, 1994. The New Debentures are unsecured and subordinate in right of
payment to all Senior Indebtedness (as defined herein) of HUBCO. See
"Description of the New Debentures-Subordination".
PAYMENT OF PRINCIPAL OF THE NEW DEBENTURES MAY BE ACCELERATED ONLY IN THE
CASE OF BANKRUPTCY, INSOLVENCY, REORGANIZATION, RECEIVERSHIP OR CONSERVATORSHIP
OF THE COMPANY OR A MAJOR BANK SUBSIDIARY (AS DEFINED HEREIN). THERE IS NO RIGHT
OF ACCELERATION IN THE CASE OF DEFAULT IN THE PAYMENT OF PRINCIPAL OF OR
INTEREST ON ANY NEW DEBENTURE OR IN THE PERFORMANCE OF ANY OTHER COVENANT
OF THE COMPANY.
-2-
<PAGE>
THE NEW DEBENTURES ARE NOT DEPOSITS OF HUBCO OR ANY BANKING SUBSIDIARY
THEREOF AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR
ANY OTHER FEDERAL AGENCY.
The New Debentures constitute new issues of securities with no
established trading market. The Company does not intend to list the New
Debentures on any securities exchange or to seek approval for quotation
through any automated quotation system. Any Old Debentures not tendered and
accepted in the Exchange Offer will remain outstanding and will be entitled to
all the rights and preferences and will be subject to the limitations
applicable thereto under the Indenture (as defined below). Following
consummation of the Exchange Offer, the holders of Old Debentures will
continue to be subject to the existing restriction upon transfer thereof and
the Company will have no further obligation to such holders to provide for the
registration under the Securities Act of the Old Debentures held by them. To
the extent that Old Debentures are tendered and accepted in the Exchange
Offer, a holder's ability to sell untendered Old Debentures could be adversely
affected. There can be no assurance that an active market for either the Old
Debentures or the New Debentures will develop.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OTHER THAN THE DEBENTURES OFFERED HEREBY NOR AN OFFER OF
SUCH DEBENTURES TO ANY PERSON IN ANY STATE OR OTHER JURISDICTION IN WHICH SUCH
OFFER WOULD BE UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT
IMPLY THAT INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
This Prospectus, together with the Letter of Transmittal, is being sent
to all registered holders of Old Debentures as of May 12, 1994.
(End of Cover Page)
-3-
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and in
accordance therewith files reports, proxy and information statements and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy and information statements and other information filed by
the Company can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices located at 500 West
Madison Street-Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center,
New York, New York 10048, and copies of such materials can be obtained from
the Public Reference Section of the Commission, Washington, D.C. 20549, at
prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by the Company are
incorporated herein by reference:
(a) The Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993, as amended by a Form 10-K/A filed with the
Commission on April 19, 1994; and
(b) The Company's Current Reports on Form 8-K filed with the
Commission on January 20, March 3, and May 10, 1994.
All documents filed by the Company with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of the Exchange Offer shall be deemed
to be incorporated by reference in this Prospectus and to be a part hereof
from the date of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall
be deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
This Prospectus incorporates documents by reference which are not
represented herein or delivered herewith. These documents are available upon
request from D. Lynn Van Borkulo-Nuzzo, Esq., Corporate Secretary, HUBCO,
Inc., 3100 Bergenline Avenue, Union City, New Jersey 07087, (201) 348-2326.
In order to ensure timely delivery of the documents, any request should be
made by July 6, 1994.
TABLE OF CONTENTS PAGE
----
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE . . . . . . 4
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . 5
SPECIAL CONSIDERATIONS . . . . . . . . . . . . . . . . . . 9
THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . 11
SELECTED CONSOLIDATED FINANCIAL
STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . 14
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . 18
THE EXCHANGE OFFER . . . . . . . . . . . . . . . . . . . . 18
DESCRIPTION OF DEBENTURES . . . . . . . . . . . . . . . . . 27
VALIDITY OF NEW DEBENTURES . . . . . . . . . . . . . . . . 34
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . 35
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . F-1
APPENDIX A: PRO FORMA COMBINED CONSOLIDATED
UNAUDITED FINANCIAL STATEMENTS . . . . . . . . . . . . . A-1
APPENDIX B: STATEWIDE INFORMATION . . . . . . . . . . . . B-1
APPENDIX C: WASHINGTON INFORMATION . . . . . . . . . . . . C-1
-4-
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the detailed
information and consolidated financial statements (including notes thereto)
appearing elsewhere or incorporated by reference in this Prospectus.
The Company
HUBCO, Inc., a New Jersey corporation (the "Company" or "HUBCO"), is a
registered bank holding company headquartered in Union City, New Jersey. The
Company operates one bank subsidiary in northern New Jersey: Hudson United
Bank (the "Bank"), a state chartered non-member bank with 41 branches. The
deposits of the Bank are insured by the Federal Deposit Insurance Corporation
(the "FDIC"). The Company, through the Bank, offers a wide range of banking,
trust and related financial services to small and mid-sized businesses and
consumers.
Since 1990, the Company has grown through a series of mergers and
acquisitions involving various banks, and purchases of insured deposits and
loans of failed institutions. See "The Company." On March 21, 1993, the
Company announced that it and the Bank had entered into an Agreement and Plan
of Reorganization, as subsequently amended pursuant to an Amended and Restated
Agreement and Plan of Reorganization, dated as of November 23, 1993 with
Statewide Savings Bank, S.L.A. ("Statewide"), as further amended by Amendment
No.1 to Amended and Restated Agreement and Plan of Reorganization, dated as of
February 25, 1994, and Amendment No. 2 to Amended and Restated Agreement and
Plan of Reorganization, dated as of April 14, 1994, pursuant to which the
Company will acquire Statewide. On November 8, 1993, the Company announced
that it and the Bank had entered into an Agreement and Plan of Merger with
Washington Bancorp, Inc. ("Washington") and Washington Savings Bank, pursuant
to which the Company will acquire Washington.
The Exchange Offer
The Exchange Offer . . $100,000 principal amount of New Debentures in
exchange for each $100,000 principal amount of
Old Debentures, duly tendered and not withdrawn
prior to acceptance thereof. The Company will
issue the New Debentures to holders (who have
properly tendered and not withdrawn their Old
Debentures) as promptly as practicable after the
Expiration Date.
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued
to third parties, the Company believes that New
Debentures issued pursuant to the Exchange Offer
in exchange for Old Debentures may be offered
for resale, resold and otherwise transferred by
any holder thereof (other than broker-dealers
and any such holder that is an "affiliate" of
the Company within the meaning of Rule 405 under
the Securities Act) without compliance with the
registration and prospectus delivery provisions
of the Securities Act,
-5-
<PAGE>
provided that such New Debentures are acquired
in the ordinary course of such holder's business
and that such holder has no arrangement or
understanding with any person to participate in
the distribution of such New Debentures. Any
holder who tenders in the Exchange Offer with
the intention to participate, or for the purpose
of participating, in a distribution of the New
Debentures could not rely on the position of the
staff of the Commission enunciated in "Exxon
Capital Holdings Corporation," (available May
13, 1988) or similar no-action letters and, in
the absence of an exemption therefrom, must
comply with the registration and prospectus
delivery requirements of the Securities Act in
connection with a secondary resale transaction.
Failure to comply with such requirements in such
instance may result in such holder incurring
liability under the Securities Act for which the
holder is not indemnified by the Company.
This Exchange Offer is not being made to, nor
will the Company accept surrenders for exchange
from, holders of Old Debentures in any
jurisdiction in which this Exchange Offer or the
acceptance thereof would not be in compliance
with the securities or blue sky laws of such
jurisdiction.
Expiration Date . . . . 5:00 p.m., New York City time, on July 13,
1994 unless the Exchange Offer is extended, in
which case the term "Expiration Date" means the
latest date and time to which the Exchange Offer
is extended.
Accrued Interest on the
New Debentures and Old
Debentures . . . . . . Holders of Old Debentures that are accepted for
exchange will not receive any accrued interest
thereon. However, each New Debenture will bear
interest from the most recent date to which
interest has been paid on the Old Debenture for
which such New Debenture was exchanged, or if no
interest has been paid, from January 14, 1994.
Conditions to the
Exchange Offer . . . . The Exchange Offer is subject to certain
conditions, which may be waived by the Company.
See "The Exchange Offer -- Conditions to the
Exchange Offer." The Exchange Offer is not
conditioned upon any minimum principal amount of
Old Debentures being tendered.
Procedures for Tendering
Debentures . . . . . . Each holder of an Old Debenture wishing to
accept the Exchange Offer must complete, sign
and date the Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions contained herein and therein, and
mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with
the Old Debentures and any other required
documentation to the Exchange Agent at the
address set forth
-6-
<PAGE>
herein prior to 5:00 p.m., New York City time,
on the Expiration Date.
By executing a Letter of Transmittal, each
holder will represent to the Company that, among
other things, the New Debentures acquired
pursuant to the Exchange Offer are being
obtained in the ordinary course of business of
the person receiving such New Debentures,
whether or not such person is the holder, and
that neither the holder nor any such other
person has any arrangement or understanding with
any person to participate in the distribution of
such New Debentures, nor is engaged in or intends
to participate in the distribution of such New
Debentures, and that neither the holder
nor any such other person is an "affiliate" of
the Company, as defined under Rule 405 of the
Securities Act, or a broker-dealer. See "The
Exchange Offer --Purpose and Effect of the
Exchange Offer."
Special Procedure for
Beneficial Owners . . . Any beneficial owner whose Old Debentures are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender should contact such
registered holder promptly and instruct such
registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes
to tender on such owner's own behalf, such owner
must, prior to completing and executing a Letter
of Transmittal and delivering his Old
Debentures, either make appropriate arrangements
to register ownership of the Old Debentures in
such owner's name or obtain a properly completed
bond power from the registered holder. The
transfer of registered ownership may take
considerable time and may not be able to be
completed prior to the Expiration Date. See
"The Exchange Offer -- Procedures for
Tendering."
Guaranteed Delivery
Procedures . . . . . . Holders of Old Debentures who wish to tender
their Old Debentures and whose Old Debentures
are not immediately available or who cannot
deliver their Old Debentures, a Letter of
Transmittal or any other documents required by
the Letter of Transmittal to the Exchange Agent
prior to the Expiration Date, must tender their
Old Debentures according to the guaranteed
delivery procedures set forth in "The Exchange
Offer -- Guaranteed Delivery Procedures."
Withdrawal Rights . . . Subject to the conditions set forth herein,
tenders of Old Debentures may be withdrawn at
any time prior to 5:00 pm., New York City time,
on the Expiration Date. See "The Exchange Offer
-- Withdrawal of Tenders."
Acceptance of Old
Debentures and Delivery
of New Debentures . . . Subject to the terms and conditions of the
Exchange Offer, including the reservation of
certain rights by the Company, the Company will
-7-
<PAGE>
accept for exchange any and all Old Debentures
which are properly tendered in the Exchange
Offer, and not withdrawn, prior to 5:00 p.m.,
New York City time, on the Expiration Date.
Subject to such terms and conditions, the New
Debentures issued pursuant to the Exchange Offer
will be delivered promptly following the
Expiration Date. See "The Exchange Offer --
Terms of the Exchange Offer" and "-- Conditions
to the Exchange Offer."
Certain Federal
Income Tax
Consequences . . . . . Based upon current provisions of the Internal
Revenue Code of 1986, as amended, applicable
Treasury regulations (including proposed
Treasury regulations), judicial authority and
administrative rulings and practice the exchange
of an Old Debenture for a New Debenture pursuant
to the Exchange Offer will not constitute a
taxable exchange for U.S. federal income tax
purposes, provided that the Registration
Statement has become effective prior to July 13,
1994. There can be no assurance that the
Internal Revenue Service will not take a
contrary view, and no ruling from the Internal
Revenue Service has been or will be sought.
Legislative, judicial or administrative changes
or interpretations may be forthcoming that could
alter or modify this result. EACH HOLDER SHOULD
CONSULT SUCH HOLDER'S OWN TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES OF EXCHANGING SUCH
HOLDER'S OLD DEBENTURES FOR NEW DEBENTURES,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY
STATE, LOCAL OR FOREIGN TAX LAWS. See "Certain
Federal Income Tax Consequences of the
Exchange."
Exchange Agent . . . . Chemical Bank is acting as the Exchange Agent
(the "Exchange Agent") in connection with the
Exchange Offer. The Exchange Agent's telephone
number is 212-971-3276.
The New Debentures
The terms of the New Debentures are identical in all material respects to
the terms of the Old Debentures, except that (i) the New Debentures will have
been registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof, and (ii) holders of New Debentures will not
be entitled to the prospective increase in the interest rate
contained in the Old Debentures.
Issuer . . . . . . . . The New Debentures will be issued by HUBCO, Inc.
New Debentures . . . . $25,000,000 aggregate principal amount of 7.75%
Exchange Subordinated Debentures due 2004.
-8-
<PAGE>
Interest Payment Dates Semiannually, on January 15 and July 15 of each
year (each, an "Interest Payment Date")
commencing July 15, 1994.
Special Considerations For a discussion of certain factors that should
be considered in deciding whether or not to
accept the Exchange Offer, see "Special
Considerations."
Maturity Dates . . . . The New Debentures will mature on January 15,
2004.
Debentures Not Redeemable
by the Company . . . . The New Debentures are not callable or
redeemable by the Company.
No Amortization . . . . No sinking fund will be established for
repayment of the New Debentures.
Subordination . . . . . The New Debentures are unsecured and subordinate
in right of payment to all Senior Indebtedness
(as defined herein) of the Company.
SPECIAL CONSIDERATIONS
In addition to the other information contained in the Prospectus, the
following factors should be carefully considered prior to deciding whether or
not to accept the Exchange Offer.
Holding Company
The Debentures are obligations exclusively of the Company. The Company
is a non-operating holding company which conducts business through its
subsidiaries. The Company anticipates relying primarily on payments from its
subsidiaries to repay the Debentures.
Debentures to Qualify as Tier 2 Capital
Under current rules and regulations of the Board of Governors of the
Federal Reserve (the "Board"), in order for subordinated debt of a bank
holding company to be included in its Tier 2 capital, such debt must meet
certain criteria which the Board has determined are necessary for safe and
sound banking practice. Through published interpretations, the Board
explicitly has stated that in order for a bank holding company to include
subordinated debt in capital, such debt may not contain provisions permitting
debt holders to accelerate payment of principal upon the occurrence of any
event other than bankruptcy, insolvency, reorganization, receivership or
conservatorship, or include covenants that would adversely affect
liquidity or unduly restrict management's flexibility to run the organization
in times of financial difficulty, such as limitations on additional secured or
senior borrowings, sales or dispositions
-9-
<PAGE>
of assets or changes in control. So that the Company can include the
Debentures in its capital, the Debentures contain minimal covenants and provide
for acceleration of the payment of the principal of the Debentures only upon an
event of voluntary or involuntary bankruptcy or insolvency.
Source of Strength
Federal Reserve Board policy requires bank holding companies to act as a
source of financial strength to each subsidiary bank and to commit resources
to support each such subsidiary. As a bank holding company, HUBCO is subject
to this policy and therefore could be required to provide support to its
banking subsidiaries at a time when it might not be able to both provide such
support and service the Debentures.
Growth Strategy of the Company
The Company has grown in recent years through a series of mergers,
acquisitions and purchases involving various banks, insured deposits and loans
of failed institutions. The Company continues actively to seek, consider and
evaluate on an on-going basis further opportunities for growth consistent with
its objectives and recent activities.
Consequences of the Exchange Offer to Non-Tendering Holders of the Old
Debentures
In the event the Exchange Offer is consummated, the Company would not be
required to register the Old Debentures. In such event, the New Debentures
would rank pari passu with the Old Debentures and holders of Old Debentures
seeking liquidity in their investment would have to rely on exemptions to
registration requirements under the securities laws, including the Securities
Act. A reduction in the principal amount of the Old Debentures as a result of
this Exchange Offer may have an adverse effect on the ability of holders of
the Old Debentures to transfer such Old Debentures.
-10-
<PAGE>
THE COMPANY
General
HUBCO is a registered bank holding company headquartered in Union City,
New Jersey. The Company operates one bank subsidiary in northern New Jersey,
Hudson United Bank (the "Bank"), a state chartered non-member bank with 41
branches. The deposits of the Bank are insured by the Federal Deposit
Insurance Corporation (the "FDIC"). The Company, through the Bank, offers a
wide range of banking, trust and related financial services to small and mid-
sized businesses and consumers.
As of December 31, 1993, the Company had consolidated assets of $1.042
billion, consolidated deposits of $935.7 million and consolidated stockholders'
equity of $79 million. Based on assets, at December 31, 1993, the Company is
the 12th largest commercial bank holding company headquartered in New Jersey.
The Bank is administratively divided into three divisions, one of which
is unionized. In February 1993, a three-year collective bargaining agreement
was negotiated which expires February 28, 1996.
The Company was incorporated in New Jersey as a bank holding company in
1982. The Company's principal executive offices are located at 3100
Bergenline Avenue, Union City, New Jersey 07087 and its telephone number is
(201) 348-2300.
Since 1990, the Company has grown through a series of mergers and
acquisitions involving various banks, and purchases of insured deposits and
loans of failed institutions. Appendix A to this Prospectus contains pro
forma combined consolidated unaudited financial statements reflecting the
proposed Statewide and Washington acquisitions discussed below.
Although this Prospectus contains substantial financial information about
Statewide and Washington, the Exchange Offer is expected to close prior to the
acquisition of either Statewide or Washington and is not conditioned upon
either acquisition. The acquisitions of Statewide and Washington are subject
to a number of conditions, which are unrelated to the Exchange Offer.
Statewide Acquisition
Statewide Savings Bank ("Statewide"), headquartered in Jersey City, New
Jersey, was organized in 1943 as a state-chartered savings and loan
association under the name First Savings and Loan Association of Jersey City.
In 1973, Statewide changed its name to Statewide Savings and Loan Association,
and in 1988, to Statewide Savings Bank, S.L.A. As of December 1, 1993,
Statewide had total assets of $500.3 million, total deposits of $425.8
million, and total retained earnings of $32.2 million, of which $14.9 million
represented goodwill. Statewide's principal business is attracting deposits
and investing primarily in one to four family mortgage loans and mortgage-
backed securities and, to a lesser extent, consumer loans and investment
securities. Through its wholly owned subsidiary, Statewide Financial
Services, Inc., Statewide also engages in the sale of annuity products.
Statewide's deposits are insured by the Savings Association Insurance Fund
(the "SAIF") of the FDIC. The primary market area for Statewide includes the
neighborhoods surrounding its 13 branch offices in Northern New Jersey.
-11-
<PAGE>
HUBCO has entered into an Amended and Restated Agreement and Plan of
Reorganization, as amended, with Statewide which, together with Statewide's
plan of conversion (the "Conversion"), provides for (i) the conversion of
Statewide from a state-chartered mutual savings and loan association to a
state-chartered savings bank, (ii) the conversion of Statewide from the
mutual to the stock form of organization, (iii) the conversion of Statewide to
a state-chartered commercial bank, (iv) the acquisition by HUBCO of all of the
outstanding shares of capital stock to be issued by Statewide in exchange for
cash in an amount equal to Statewide's appraised value, (v) the offering of
stock in a like amount and (vi) the merger of Statewide with and into the Bank
(collectively, the "Statewide Acquisition"). For financial information
regarding Statewide, see Appendix B to this Prospectus. The Statewide
Acquisition is subject to various conditions. These conditions include
approval of Statewide's plan of conversion by Statewide's depositors, receipt
of regulatory approvals, the absence of a material adverse change in the
business or financial condition of Statewide since March 31, 1993, the receipt
by HUBCO and Statewide of certain legal opinions and the sale of an aggregate
dollar amount of HUBCO's Common Stock equal to the appraised value of
Statewide. There can be no assurance that the conditions necessary to
consummate the Statewide Acquisition will be satisfied. Consummation of the
Exchange Offer is not contingent on consummation of the Statewide Acquisition.
Consummation of the Statewide Acquisition has been delayed as a result of
increased regulatory scrutiny of mutual-to-stock conversions and certain
proposed legislation. Because of such delays, HUBCO and Statewide have
extended the period during which the Conversion may occur. The agreement
between HUBCO and Statewide currently provides that either HUBCO or Statewide
may terminate the transaction if any required application for regulatory
approval is denied or is approved with certain adverse conditions or if the
Conversion is not consummated by June 30, 1994.
Adverse Impact on HUBCO's Earnings if Statewide Acquisition Terminated
The proposed acquisition of Statewide has taken HUBCO longer than HUBCO
anticipated due to a variety of factors. As a consequence, HUBCO has incurred
and continues to incur substantial expenses for legal, accounting and printing
costs in connection with the Statewide Acquisition. If the Statewide Acquisition
is not consummated, these expenses, which have been capitalized, would adversely
impact the Company's earnings and there probably would be a decline in earnings
for the quarter in which the Statewide Acquisition agreement was terminated.
Throughout the last two years, HUBCO has reported increases in quarter-to-
quarter earnings.
Washington Acquisition
On November 8, 1993, HUBCO and the Bank entered into an Agreement and Plan
of Merger (as amended from time to time, the "Washington Merger Agreement") with
Washington Bancorp, Inc., a Delaware corporation and registered bank holding
company ("Washington"), and Washington Savings Bank, a New Jersey chartered
stock savings bank wholly owned by Washington ("Washington Savings"), pursuant
to which HUBCO will acquire Washington for a combination of securities and cash.
Under the terms of the Washington Merger Agreement, Washington shareholders will
receive, for each common share of Washington, either $16.10 in cash or .6708 of
a share of new Series A Preferred Stock of HUBCO. Each full share of Preferred
Stock will have a stated value of, and be redeemable after one year in certain
circumstances for, $24.00. Each full share of Preferred Stock also will be
convertible into one share of HUBCO Common Stock. The Preferred Stock will
have an annual dividend to be fixed at the date of closing of the Washington
acquisition on the basis of the average market price of HUBCO Common Stock
during a twenty consecutive business day period ending two days prior to the
closing. The dividend will range from $1.32 per share of Preferred Stock if
such average market price is at $21.00 or higher, up to $1.68 per share if
such average market price is below $19.00. If such average market price is
between $19.00 and $19.99, the dividend will be $1.56 per share and if such
average market price is between $20.00 and $20.99, the dividend will be $1.44
per share. In the transaction, 51% of Washington's shares will be converted to
Preferred Stock and 49% will be converted to cash, with Washington
shareholders having the right to elect cash or Preferred Stock. As part of the
merger, Washington Savings will be merged into the Bank and two directors of
Washington Savings will join the Board of Directors of the Bank.
-12-
<PAGE>
In connection with the execution of the Washington Merger Agreement,
Washington issued HUBCO an option exercisable in certain circumstances to
acquire up to 765,000 shares of Washington common stock at a price of $11.50
per share.
Washington had $282.6 million in assets, including $20.0 million in non-
performing assets, at December 31, 1993 and eight branch offices serving
Northern New Jersey markets.
Consummation of the Washington Merger Agreement is subject to a
number of conditions, including obtaining all necessary regulatory approvals
and the approval of Washington's shareholders, the receipt by Washington of a
fairness opinion and, to the extent necessary, the approval of HUBCO's
shareholders. The Washington Merger Agreement, as recently amended, may be
terminated by HUBCO unless (a) Washington's largest non-performing loan, a
loan of approximately $9.0 million, representing approximately 44% of
Washington's non-performing assets as of December 31, 1993, is brought to
performing status as of the effective date of the Washington acquisition (the
"Washington Closing"), (b) Washington has taken substantial steps to foreclose
the loan as of the Washington Closing, (c) Washington has restructured the
loan in accordance with certain conditions agreed to among the parties to the
Washington Merger Agreement or (d) as of the Washington Closing, the Bank has
entered into a contract to sell the loan after the Washington Closing in an
amount in excess of a threshold agreed to among the parties. The loan
currently is in foreclosure. Washington does not intend to abandon the
foreclosure proceedings unless it has restructured the loan in a manner
consistent with the Washington Merger Agreement as amended. The parties have
agreed to cooperate in preparing this non-performing loan for sale by the Bank
to a third party following the Washington Closing. No assurance can be given,
however, that Washington will satisfy, or that HUBCO will waive, the foregoing
conditions and that the Washington acquisition will be consummated, or that if
the Washington acquisition does close, the Bank will be able to sell such
loan, or what the terms of any such sale will be. See Appendix C to this
Prospectus for financial information about Washington.
Recent Developments
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 March 1, 1994, HUBCO
had repurchased 455,081 shares at a cost of $10,131,898, of which 12,300
shares have been reissued by HUBCO as awards under its restricted stock plan.
HUBCO's management currently does not have intentions to purchase additional
shares under the stock repurchase plan but intends to re-examine the issue
from time to time. HUBCO's last repurchase of shares was on January 24, 1994.
On March 18, 1994, HUBCO entered into an interest rate exchange agreement
(the "Agreement") for the purpose of hedging the interest rate related to the
Debentures. The agreement is a contractual agreement between HUBCO and its
counterparty to exchange fixed and floating rate interest obligations without
exchange of the underlying notional amount of $25,000,000. The agreement was
entered into in an effort to lower the overall cost of borrowings. Such
agreement involves interest rate risk. If interest rates increase, the
benefit resulting from the agreement will be diminished. The notional
principal amount is used to express the volume of the transaction involved in
this agreement; however, this amount does not represent exposure to credit
loss. HUBCO's counterparty to the agreement is the fixed rate payor on the
agreement and HUBCO is the floating rate payor on the agreement. The floating
rate is reset every three months. As of the date of the agreement, the net
reduction in the interest rate on the subordinated debt was 1.62%. The
term of this agreement is 3 years.
On April 13, 1994 HUBCO issued a press release announcing that its net
income for the first quarter ended March 31, 1994 had increased to $3,786,000,
or $.58 per share, from $3,207,000, or $.46 per share for the year ago period.
HUBCO's net income for the quarter ended December 31, 1993 was $3,755,000, or
$.55 per share. For the first quarter of March of 1994, net interest income
increased to $12,379,000, up 12% from $11,092,000 from the year ago period.
The net interest margin was 5.05%, which is lower than last year partially
due to the subordinated debt which was issued in January 1994. The provision
for possible loan losses decreased to $450,000 for the first quarter of 1994,
compared to $750,000 in the same quarter of last year. At March 31, 1994,
HUBCO reported total assets increased to $1.079 billion, total loans were
$512 million and deposits were $953 million. As of March 31, 1994, HUBCO
reported total non-performing assets of $8,279,000, up $285,000 from the first
quarter of 1993, but down $1,743,000 from December 31, 1993. HUBCO is expected
to file its quarterly report on Form 10-Q for the period ended March 31, 1994
on or before May 15, 1994 and the Form 10-Q may be requested from HUBCO. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
HUBCO has outgrown the space at its headquarters office and commencing in
the second half of 1993 HUBCO actively undertook a search for additional space
to expand its headquarters operations. In April 1994, HUBCO purchased a
64,350 square foot building in Mahwah, New Jersey to house the executive
offices of HUBCO and HUBCO's data processing subsidiary, which will service
the Bank's data processing and check processing needs and will offer its
services to smaller banks in the New York and New Jersey area. The net
increase in HUBCO's total other expenses directly attributable to this
purchase is anticipated to be approximately one percent.
On May 2, 1994, Washington issued a press release announcing that its net
income for the quarter ended March 31, 1994 was $392,000 or $.17 per share,
compared to $1,162,000, or $.51 per share, for the first quarter of 1993. Net
income for the 1993 period included an income tax refund of $747,000 and
interest of $136,000 on such amount, as well as a $300,000 benefit upon the
adoption of SFAS 109 -- "Accounting for Income Taxes". Excluding these amounts,
net income improved $413,000 from the first quarter of 1993 to the first quarter
of 1994, primarily as a result of a $286,000 improvement in net interest income,
a $231,000 reduction in non-interest expense and a $125,000 decrease in the
provision for losses on loans, partially offset by a $167,000 increases in the
provision for income taxes. Washington's interest rate spread increased to 3.53%
for the three months ended March 31, 1994, from 3.16% for the comparable period
of 1993, due primarily to a reduction in real estate owned and the fact that
rates paid on interest-bearing liabilities declined more rapidly than yields on
interest-earning assets. The decrease in the provision for loan losses reflects
an approximately 60% decrease in non-performing loans (excluding Washington's
largest non-performing loan, which had a principal balance at March 31, 1994 of
$9.2 million and which Washington's management believes to be adequately
collateralized). At March 31, 1994 Washington had consolidated total assets,
loans, deposits (including escrow) and stockholders' equity of $279.5 million,
$163.0 million, $243.2 million and $33.0 million, respectively.
-13-
<PAGE>
On May 6, 1994, Hudson United Bank acquired certain deposits and loans of
Polifly Federal Savings and Loan Association ("Polifly") from the Resolution
Trust Corporation (the "RTC"). In connection with the acquisition, 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. Effective May 7, 1994, the Bank opened branches at four
locations formerly housing Polifly branches, including two locations in
Bergenfield, one in Maywood and one in Hackensack, New Jersey. The Bank also
acquired an option to buy the bank premises formerly owned by Polifly at three
of the four acquired branches at 93% of their fair market value. The Bank paid
the RTC a premium of $6,180,000 in connection with the acquisition of the
deposits. HUBCO will continue to evaluate opportunities to acquire deposits
and loans in government-assisted transactions in the future. See "Growth
Strategy of the Company," below.
Growth Strategy of the Company
The Company has grown in recent years through a series of mergers,
acquisitions and purchases involving various banks, insured deposits and
loans of failed institutions. The Company continues actively to seek,
consider and evaluate on an on-going basis further opportunities for growth
consistent with its objectives and recent activities.
In December 1993, the government appropriated money to allow the RTC to
sell the remaining thrift institutions that are presently under RTC
conservatorship, including a number of such institutions in New Jersey. The
bidding process for such institutions has commenced and is expected to continue
during the next several months. As it has in the past, HUBCO may bid on such
institutions. HUBCO anticipates that if it does acquire any such institutions it
will only acquire branches and deposit liabilities. Management does not believe
that the acquisition of such branches and deposit liabilities would have a
material impact on HUBCO's earnings or reduce its capital ratios below the
well-capitalized classification, although HUBCO may experience some growth in
assets and in the number of branches as a result of such acquisitions. There can
be no assurance that HUBCO will be able to acquire additional financial
institutions or, if additonal financial institutions are acquired, that these
acquisitions can be managed successfully to enhance the profitability of HUBCO.
SELECTED CONSOLIDATED FINANCIAL DATA
The following tables present selected consolidated financial and other
data of HUBCO, Statewide and Washington. Results of operations for the nine
months ended December 31, 1993 for Statewide are derived in part from the
unaudited consolidated financial statements included elsewhere in this
Prospectus. The interim data have been prepared on the same basis as the
other consolidated financial statements including, in the opinion of
management of Statewide, all adjustments (which consist solely of normal
recurring accruals except for the effects of the adoption of Statement of
Financial Accounting Standard No. 109 "Accounting for Income Taxes" for
Statewide) necessary for a fair presentation of the results for the unaudited
periods. The results of operations for the period ended December 31, 1993 for
Statewide are not necessarily indicative of the results that may be expected
for any other period. This financial data should be read in conjunction with
the Consolidated Financial Statements and Notes thereto for HUBCO incorporated
by reference into this Prospectus and the Consolidated Financial Statements and
Notes thereto for each of Statewide and Washington beginning on Page F-1 of this
Prospectus, and the other information contained in this Prospectus.
-14-
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF HUBCO
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
(In thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Earnings Summary:
Interest income ................................ $ 67,759 $ 67,646 $ 51,759 $ 49,809 $ 51,113
Interest expense ............................... 20,741 26,633 25,287 26,818 27,820
---------- ---------- ---------- ---------- ----------
Net interest income ............................ 47,018 41,013 26,472 22,991 23,293
Provision for possible loan losses ............. 3,600 4,116 2,312 4,150 1,860
---------- ---------- ---------- ---------- ----------
Net interest income after provision for possible
loan losses ................................... 43,418 36,897 24,160 18,841 21,433
Other income ................................... 8,606 7,657 5,471 4,532 4,196
Other expenses ................................. 29,971 34,349 22,274 20,013 19,863
---------- ---------- ---------- ---------- ----------
Income before income taxes ..................... 22,053 10,205 7,357 3,360 5,766
Income tax provision ........................... 7,851 564 2,336 1,145 2,457
---------- ---------- ---------- ---------- ----------
Net Income ..................................... $ 14,202 $ 9,641 $ 5,021 $ 2,215 $ 3,309
========== ========== ========== ========== ==========
Per Share Data:
Weighted average common shares
outstanding ................................... 6,909 6,091 4,955 4,941 4,969
Net income per common share(1) ................. $2.06 $1.58 $1.01 $0.45 $0.67
Cash dividends per common share(1) ............. $0.47 $0.40 $0.33 $0.33 $0.33
Balance Sheet Summary:
Investment securities .......................... $ 426,685 $ 322,522 $ 138,915 $ 150,536 $ 89,177
Loans, net ..................................... 529,390 513,448 465,883 371,700 369,232
Total assets ................................... 1,041,825 931,911 673,159 595,128 548,132
Deposits ....................................... 935,688 843,226 608,857 512,823 484,192
Stockholders' equity ........................... 78,954 68,313 41,099 37,567 37,400
Performance Ratios:
Return on average assets ....................... 1.44% 1.05% 0.82% 0.40% 0.62%
Return on average equity ....................... 19.34 17.38 12.75 5.89 8.91
Dividend payout ................................ 23.01 25.04 33.44 73.63 49.65
Average equity to average assets ............... 7.44 6.04 6.45 6.85 7.00
Net interest margin(2) ......................... 5.20 4.97 4.94 4.72 4.92
Ratio of Earnings to Fixed Charges: (3)
Excluding Interest on Deposits ................ 33.91 13.37 8.31 3.85 4.68
Including Interest on Deposits ................ 2.05 1.38 1.29 1.12 1.21
Asset Quality Ratios:
Allowance for possible loan losses to total
loans, net(4) ................................. 2.04 1.48 1.44 1.41 .82
Allowance for possible loan losses to
non-performing loans(5) ....................... 118.10 96.10 75.53 52.71 58.93
Allowance for possible loan losses to non-
performing assets (excluding loans past
due 90 days or more and accruing) ............. 107.87 98.04 50.10 39.39 90.40
Non-performing loans to total loans,
net(4)(5) ..................................... 1.73 1.54 1.90 2.67 1.38
Non-performing assets to total loans, net
plus other real estate(4)(6) .................. 2.16 1.78 3.09 3.77 1.38
Non-performing assets (excluding loans past
due 90 days or more and accruing) to total
loans, net plus other real estate(4)(6) ....... 1.88 1.51 2.84 3.53 .90
Net charge-offs to average loans, net .......... .15 .91 .58 .54 .28
- ---------
<FN>
(1) Income per share and dividends paid have been restated to reflect a 10%
stock dividend paid June 1, 1993.
(2) Computed on a tax equivalent basis.
(3) The ratio of earnings to fixed charges is computed by dividing the sum of
income before taxes and fixed charges by the sum of fixed charges. Fixed
charges represents interest expenses, including interest attributable
to capital leases, the estimated interest component of operating lease
rental payments and both excluding and including interest on deposits.
(4) Total loans are net of unearned income and deferred loan fees.
(5) Non-performing loans include non-accruing loans, loans past due 90 days or
more and accruing and renegotiated loans.
(6) Non-performing assets include non-performing loans plus other real estate.
</FN>
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA OF STATEWIDE
Nine Months Ended
December 31, Year Ended March 31,
--------------------- ---------------------------------------------------------
1993 1992 1993 1992 1991 1990 1989
--------- --------- --------- --------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement of Operations:
Interest and dividend income .............. $ 26,120 $ 30,860 $ 39,822 $ 44,400 $ 48,150 $ 52,202 $ 56,452
Interest expense .......................... 12,857 17,073 21,829 30,605 37,387 42,252 42,928
--------- --------- --------- --------- --------- --------- ---------
Net interest and dividend income before
provision for loan losses ................ 13,263 13,787 17,993 13,795 10,763 9,950 13,524
Provision for loan losses ................. 360 182 193 1,933 186 3,762 194
--------- --------- --------- --------- --------- --------- ---------
Net interest and dividend income after
provision for loan losses ................ 12,903 13,605 17,800 11,862 10,577 6,188 13,330
Other income .............................. 1,102 1,402 2,010 3,564 1,739 4,122 (2,720)
Operating expenses ........................ 9,045 8,911 12,233 12,964 13,611 13,386 11,586
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes
and extraordinary credit ................. 4,960 6,096 7,577 2,462 (1,295) (3,076) (976)
Income taxes .............................. 1,700 2,052 2,490 1,461 35 77 64
Income before extraordinary credit and
change in accounting principle ........... 3,260 4,044 5,087 1,001 (1,330) (3,153) (1,040)
Extraordinary credit from utilization of
net operating loss carryforward .......... 0 0 0 1,233 0 0 0
--------- --------- --------- --------- --------- --------- ---------
Cumulative effect of change in
accounting principle ..................... 669 0 0 0 0 0 0
Net income (loss) ......................... $ 3,929 $ 4,044 $ 5,087 $ 2,234 $ (1,330) $ (3,153) $ (1,040)
========= ========= ========= ========= ========= ========= =========
At December 31, At March 31,
--------------------- ---------------------------------------------------------
1993 1992 1993 1992 1991 1990 1989
--------- --------- --------- --------- --------- --------- ---------
(In thousands)
Consolidated Statement of
Financial Condition:
Total assets .............................. $ 500,275 $ 525,596 $ 517,885 $ 531,785 $ 529,225 $ 564,786 $ 599,125
Deposits .................................. 425,802 443,210 440,034 460,926 454,783 484,939 488,317
Investment securities ..................... 46,176 24,954 18,224 23,945 23,580 38,694 37,764
Mortgage-backed securities available
for sale ................................. 4,789 0 7,517 0 0 0 0
Mortgage-backed securities ................ 201,397 205,644 208,248 180,304 142,693 133,331 141,526
Loans receivable, net ..................... 186,453 240,012 230,929 264,914 308,905 343,320 373,547
Federal Home Loan Bank advances ........... 39,367 51,667 45,092 43,392 49,192 46,492 52,792
Retained earnings, substantially restricted 32,240 27,268 28,312 23,225 20,991 22,321 25,474
Selected Financial Ratios:
Return on average total assets ............ 1.03% 1.01% 0.96% 0.42% (0.24)% (0.54)% (0.16)%
Return on average retained earnings ....... 17.16 21.20 19.43 10.16 (6.14) (12.19) (3.90)
Average retained earnings to average
total assets ............................. 6.02 4.78 4.95 4.15 3.98 4.42 4.21
Allowance for loan losses to total loans
at end of period ......................... 0.58 0.16 0.59 0.69 0.54 0.57 0.02
Nonperforming loans to total loans at
end of period ............................ 1.44 1.79 1.23 1.22 4.17 2.24 0.71
Allowance for loan losses to
nonperforming loans ...................... 40.22 40.35 47.23 56.42 13.00 25.49 2.85
Nonperforming assets to total loans and
real estate owned ........................ 6.28 5.86 5.77 6.51 7.10 4.58 0.82
Other Data:
Number of:
Outstanding real estate loans originated . 1,966 2,357 2,280 2,578 2,851 3,058 3,199
Deposit accounts ......................... 49,215 54,580 50,807 6,671 56,531 60,996 64,560
Full service offices open ................ 13 13 13 13 13 13 15
</TABLE>
16
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA OF WASHINGTON
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1993 1992 1991 1990 1989
--------- --------- --------- --------- ---------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Operating Data:
Interest income ....................................... $ 18,557 $ 21,879 $ 27,594 $ 31,301 $ 33,142
Interest expense ...................................... 8,812 12,190 19,119 22,543 23,730
--------- --------- --------- --------- ---------
Net interest income ................................... 9,745 9,689 8,475 8,758 9,412
Provision for losses on loans ......................... 420 1,100 1,500 2,350 6,927
--------- --------- --------- --------- ---------
Net interest income after provision for losses on loans 9,325 8,589 6,975 6,408 2,485
Other income .......................................... 949 2,290 2,569 859 585
Other expenses ........................................ 8,768 8,694 9,306 10,674 7,959
--------- --------- --------- --------- ---------
Income/(loss) before income taxes, extraordinary items
and change in accounting principle ................... 1,506 2,185 238 (3,407) (4,889)
Income tax expense/(benefit) .......................... (1,018) 628 552 (1,538) (989)
--------- --------- --------- --------- ---------
Income/(loss) before extraordinary items and change
in accounting principle .............................. 2,524 1,557 (314) (1,869) (3,900)
Extraordinary items ................................... -- 539 (1,034) -- --
Change in accounting principle ........................ 300 -- -- -- --
--------- --------- --------- --------- ---------
Net income/(loss) ..................................... $ 2,824 $ 2,096 $ (1,348) $ (1,869) $ (3,900)
========= ========= ========= ========= =========
Per Share Data:
Weighted average number of common shares
outstanding (in thousands) ........................... 2,297 2,276 2,264 2,264 2,262
Dividends per share ................................... $ -- $ -- $ -- $ 0.07 $ 0.28
Income/(loss) per share:
Income/(loss) before extraordinary item and cumulative
effect of change in accounting principle ............ $ 1.10 $ 0.68 $ (0.14) $ (0.83) $ (1.72)
Extraordinary items .................................. -- 0.24 (.46) -- --
Cumulative effect of change in accounting principle .. .13 -- -- -- --
--------- --------- --------- --------- ---------
Net income/(loss) per share .......................... $ 1.23 $ 0.92 $ (0.60) $ (0.83) $ (1.72)
========= ========= ========= ========= =========
Balance Sheet Summary:
Investment and mortgage-backed securities ............. $ 92,264 $ 67,576 $ 56,455 $ 79,904 $ 57,677
Loans, net ............................................ 170,185 191,501 195,508 230,557 244,714
Total assets .......................................... 282,635 285,771 293,727 337,626 351,281
Deposits .............................................. 246,043 252,623 259,021 275,327 273,383
Advances from FHLB .................................... 400 -- -- 28,500 40,500
Stockholders' equity .................................. 33,541 30,469 28,216 29,215 30,830
Performance Ratios:
Return on average assets .............................. 0.99% 0.72% (0.42%) (0.54%) (1.08%)
Return on average equity .............................. 8.98 7.21 (4.72) (6.16) (11.16)
Dividend payout ....................................... -- -- -- (8.43) (16.54)
Average equity to average assets ...................... 11.04 10.03 8.91 8.78 9.70
Net interest margin ................................... 3.58 3.55 2.80 2.65 2.69
Asset Quality Ratios:
Allowance for losses on loans to total loans, net ..... 1.66% 1.45% 1.53% 1.12% 1.93%
Allowance for losses on loans to non-performing loans . 21.84 31.52 17.97 14.86 27.01
Allowance for losses on loans and REO to non-
performing assets ................................... 21.49 19.39 14.14 12.00 18.77
Non-performing loans to total loans, net .............. 7.61 4.60 8.51 7.52 7.14
Non-performing assets to total loans, net plus other
real estate, net ..................................... 11.30 10.66 14.03 11.83 9.96
Net charge-offs to average loans, net ................. 0.19 0.66 0.47 1.89 2.07
</TABLE>
17
<PAGE>
USE OF PROCEEDS
There will be no cash proceeds to the Company from the Exchange Offer.
HUBCO intends to use the net proceeds from the sale of the Old Debentures
(approximately $24.7 million) for general corporate purposes, including
investments in and advances to HUBCO's subsidiaries, and for financing
possible or future acquisitions of deposits and banking assets. Pending such
use, HUBCO or its subsidiaries may temporarily invest the net proceeds in
investment grade securities.
THE EXCHANGE OFFER
Purpose and Effect of the Exchange Offer
The Old Debentures were sold by the Company on January 14, 1994 to
certain institutional investors (the "Initial Purchasers"). In connection
therewith, the Company entered into a Registration Rights Agreement, which
provides that, within 180 days after the original issuance of the Old
Debentures (by July 13, 1994), the Company will use its best efforts to
cause a registration statement under the Securities Act with respect to an
issue of New Debentures of the Company identical in all materials respects to
the Old Debentures to become effective under the Securities Act and, upon the
effectiveness of that registration statement, will offer to the Holders of the
Old Debentures the opportunity to exchange their Old Debentures for a like
principal amount of New Debentures which will be issued without restrictive
legends. Unless the context otherwise requires, the term "Holder" with respect
to the Exchange Offer means any person in whose name Old Debentures are
registered on the books of the Company or any person whose Old Debentures are
held of record by the Depository Trust Company who desires to deliver such Old
Debentures by book-entry transfer at the Depository Trust Company.
The Company has not requested, and does not intend to request, an
interpretation by the staff of the Commission with respect to whether the New
Debentures issued pursuant to the Exchange Offer in exchange for the Old
Debentures may be offered for sale, resold or otherwise transferred by any
holder without compliance with the registration and prospectus delivery
provisions of the Securities Act. Based on an interpretation by the staff of
the Commission set forth in no-action letters issued to third parties, the
Company believes that New Debentures issued pursuant to the Exchange Offer in
exchange for Old Debentures may be offered for resale, resold and otherwise
transferred by any Holder of such New Debentures (other than any such Holder
that is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act or any broker-dealers) without compliance with the registration
and prospectus delivery provisions of the Securities Act, provided that such
New Debentures are acquired in the ordinary course of such Holder's business
and such Holder has no arrangement or understanding with any person to
participate in the distribution of such New Debentures. See "Morgan Stanley &
Co., Inc.", SEC No-Action Letter (available June 5, 1991), and "Exxon Capital
Holdings Corporation", SEC No-Action Letter (available May 13, 1988). Any
Holder who tenders in the Exchange Offer for the purpose of participating in a
distribution of the New Debentures could not rely on such interpretation by
the staff of the Commission and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction.
-18-
<PAGE>
By tendering in the Exchange Offer, each Holder of Old Debentures will
represent to the Company that, among other things, (i) the New Debentures
acquired pursuant to the Exchange Offer are being obtained in the ordinary
course of business of the person receiving such New Debentures, whether or not
such person is such Holder, (ii) neither the Holder of Old Debentures nor any
such other person has an arrangement or understanding with any person to
participate in the distribution of such New Debentures, (iii) neither the Holder
nor any such other person is engaged in or intends to participate in the
distribution of such New Debentures and (iv) neither the Holder nor any such
other person is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act or a broker-dealer.
Following the consummation of the Exchange Offer, Holders of Old
Debentures not tendered will not have further registration rights and the Old
Debentures will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for the Old Debentures could be
adversely affected.
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old
Debentures validly tendered and not withdrawn prior to 5:00 p.m., New York
City time, on the Expiration Date. Subject to the minimum denomination
requirements of the New Debentures, the Company will issue $100,000 principal
amount of New Debentures in exchange for each $100,000 principal amount of
outstanding Old Debentures accepted in the Exchange Offer. Holders may tender
some or all of their Old Debentures pursuant to the Exchange Offer. However,
Old Debentures may be tendered only in integral multiples of $100,000.
The form and terms of the New Debentures will be identical in all
material respects to the form and terms of the Old Debentures, except that (i)
the New Debentures will have been registered under the Securities Act and,
therefore, will not bear legends restricting the transfer thereof and (ii)
Holders of New Debentures will not be entitled to the prospective increase in
interest rate contained in the Old Debentures. The Exchange Offer is not
conditioned upon any minimum aggregate principal amount of Old Debentures
being tendered for exchange.
As of May 10, 1994, $25,000,000 of the Old Debentures were outstanding
and there was one registered Holder of the Old Debentures. This Prospectus,
together with the Letter of Transmittal, is being sent to such registered
Holder as of May 12, 1994.
Holders of Old Debentures do not have any appraisal or dissenters' rights
under the Business Corporation Law of the State of New Jersey or the Indenture
in connection with the Exchange Offer. The Company intends to conduct the
Exchange Offer in accordance with the applicable requirements of the Exchange
Act and the rules and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Old
Debentures when, as and if the Company has given oral or written notice
thereof to the Exchange Agent. The Exchange Agent will act as agent for the
tendering Holders for the purpose of receiving the New Debentures from the
Company.
-19-
<PAGE>
If any tendered Old Debentures are not accepted for exchange because of
an invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Debentures will be
returned, without expense, to the tendering Holder thereof as promptly as
practicable after the Expiration Date.
Holders who tender Old Debentures in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the Instructions
in the Letter of Transmittal, transfer taxes with respect to the exchange of
Old Debentures pursuant to the Exchange Offer. The Company will pay all
charges and expenses, other than certain applicable taxes, in connection with
the Exchange Offer. See "- - Fees and Expenses."
Expiration Date; Extensions
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1994, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
The Company reserves the right to extend the Exchange Offer at any time
and from time to time by giving oral or written notice to the Exchange Agent
and by timely public announcement communicated, unless otherwise required by
applicable law or regulation, by making a release to the Dow Jones News
Service. During any extension of the Exchange Offer, all Old Debentures
previously tendered pursuant to the Exchange Offer and not withdrawn will
remain subject to the Exchange Offer. The date of the exchange of the New
Debentures for Old Debentures will be the first business day following the
Expiration Date.
The Company expressly reserves the right to (i) terminate the Exchange
Offer and not accept for exchange any Old Debentures if any of the events set
forth below under "Conditions to the Exchange Offer" shall have occurred and
shall not have been waived by the Company and (ii) amend the terms of the
Exchange Offer in any manner which, in its good faith judgment, is
advantageous to the Holders of the Old Debentures, whether before or after any
tender of the Old Debentures.
-20-
<PAGE>
Interest on the New Debentures
Holders of Old Debentures that are accepted for exchange will not receive
accrued interest thereon. However, each New Debenture will bear interest from
the most recent date to which interest has been paid on the Old Debenture for
which such New Debenture was exchanged, or if no interest has been paid, from
January 14, 1994.
Procedures for Tendering
The tender to the Company of Old Debentures by a Holder thereof pursuant
to one of the procedures set forth below will constitute an agreement between
such Holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
A Holder of the Old Debentures may tender the same by (i) properly
completing and signing the Letter of Transmittal or a facsimile thereof (all
references in this Prospectus to the Letter of Transmittal shall be deemed to
include a facsimile thereof) and delivering the same, together with the
certificate or certificates representing the Old Debentures being tendered (if
in certificated form) and any required signature guarantees, to the Exchange
Agent at its address set forth in the Letter of Transmittal on or prior to the
Expiration Date (or complying with the procedure for book-entry transfer
described below) or (ii) complying with the guaranteed delivery procedures
described below.
If tendered Old Debentures are registered in the name of the signer of
the Letter of Transmittal and the New Debentures to be issued in exchange
therefor are to be issued (and any untendered Old Debentures are to be
reissued) in the name of the registered Holder (which term, for the purposes
described herein, shall include any participant in The Depository Trust
Company (also referred to as the "Book-Entry Transfer Facility") whose name
appears on a security listing as the owner of Old Debentures), no separate
written instruments of transfer or exchange are required and the signature
of such signer need not be guaranteed. In any other case, the tendered Old
Debentures must be endorsed or accompanied by written instruments of transfer
in form satisfactory to the Company and duly executed by the registered Holder
and the signature on the endorsement or instrument of transfer must be
guaranteed by a commercial bank or trust company located or having an office
or correspondent in the United States, or by a member firm of a national
securities exchange or of the National Association of Securities Dealers, Inc.
(any of the foregoing hereinafter referred to as an "Eligible Institution").
If the New Debentures and/or Old Debentures not exchanged are to be delivered
to an address other than that of the registered Holder appearing on the
register for the Old Debentures, the signature in the Letter of Transmittal
must be guaranteed by an Eligible Institution.
The method of delivery of Old Debentures and all other documents is at
the election and risk of the Holder. If sent by mail, it is recommended that
registered mail, return receipt requested, be used, prior insurance obtained,
and the mailing be made sufficiently in advance of the Expiration Date to
permit delivery to the Exchange Agent on or before the Expiration Date.
-21-
<PAGE>
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish accounts with respect
to the Old Debentures at the Book-Entry Transfer Facility for the purpose of
facilitating the Exchange Offer, and subject to the establishment thereof, any
financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Old Debentures by causing
the Book-Entry Transfer Facility to transfer such Old Debentures into the
Exchange Agent's account with respect to the Old Debentures in accordance with
the Book-Entry Transfer Facility's procedure for such transfer. Although
delivery of the Old Debentures may be effected through book-entry transfer
into the Exchange Agent's account at the Book-Entry Transfer Facility, an
appropriate Letter of Transmittal with any required signature guarantee and
all other required documents must in each case be transmitted to and received
or confirmed by the Exchange Agent at the address set forth in the Letter of
Transmittal on or prior to the Expiration Date, or, if the guaranteed delivery
procedures described below are complied with, within the time period provided
under such procedures.
If the Holder desires to accept the Exchange Offer and time will not
permit a Letter of Transmittal or Old Debentures to reach the Exchange Agent
before the Expiration Date or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if the Exchange Agent
has received at its office on or prior the Expiration Date, a letter, telegram
or facsimile transmission from an Eligible Institution setting forth the name
and address of the tendering Holder, the name(s) in which the Old Debentures
are registered and, if possible, the certificate number(s) of the Old
Debentures to be tendered, and stating that the tender is being made thereby
and guaranteeing that within five New York Stock Exchange trading days after
the date of execution of such letter, telegram or facsimile transmission by
the Eligible Institution, the Old Debentures, in proper form for transfer (or
a confirmation of book-entry transfer of such Old Debentures into the Exchange
Agent's account at the Book-Entry Transfer Facility), will be delivered by
such Eligible Institution together with a properly completed and duly executed
Letter of Transmittal (and any other required documents). Unless Old
Debentures being tendered by the above-described method are deposited with the
Exchange Agent within the time period set forth above (accompanied or preceded
by a properly completed Letter of Transmittal and any other required
documents), the Company may, at its option, reject the tender. Copies of a
Notice of Guaranteed Delivery which may be used by Eligible Institutions for
the purposes described in this paragraph are available from the Exchange
Agent.
A tender will be deemed to have been received as of the date when (i) the
tendering Holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old Debentures (or a confirmation of book-entry transfer of
such Old Debentures into the Exchange Agent's account at the Book-Entry
Transfer Facility) is received by the Exchange Agent, or (ii) a Notice of
Guaranteed Delivery or letter, telegram or facsimile transmission to similar
effect (as provided above) from an Eligible Institution is received by the
Exchange Agent. Issuances of New Debentures in exchange for Old Debentures
tendered pursuant to a Notice of Guaranteed Delivery or letter, telegram or
facsimile transmission to similar effect (as provided above) by an Eligible
Institution will be made only against deposit of the Letter of Transmittal
(and any other required documents) and the tendered Old Debentures.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Old Debentures will be
determined by the Company, whose
-22-
<PAGE>
determination will be final and binding. The Company reserves the absolute
right to reject any or all tenders not in proper form or the acceptance for
exchange of which may, in the option of the Company's counsel, be unlawful.
The Company also reserves the absolute right to waive any of the conditions
of the Exchange Offer or any defect or irregularity in the tender of any Old
Debentures. None of the Company, the Exchange Agent or any other person will
be under any duty to give notification of any defects or irregularities in
tenders or incur any liability for failure to give any such notification.
Terms and Conditions of the Letter of Transmittal
The Letter of Transmittal contains, among other things, the following
terms and conditions, which are part of the Exchange Offer.
The party tendering Old Debentures for exchange (the "Transferor")
exchanges, assigns and transfers the Old Debentures to the Company and
irrevocably constitutes and appoints the Exchange Agent as the Transferor's
agent and attorney-in-fact to cause the Old Debentures to be assigned,
transferred and exchanged. The Transferor represents and warrants that it has
full power and authority to tender, exchange, assign and transfer the Old
Debentures and to acquire New Debentures issuable upon the exchange of such
tendered Old Debentures, and that, when the same are accepted for exchange,
the Company will acquire good and unencumbered title to the tendered Old
Debentures, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim. The Transferor also
warrants that it will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
exchange, assignment and transfer of tendered Old Debentures or transfer
ownership of such Old Debentures on the account books maintained by the Book-
Entry Transfer Facility. All authority conferred by the Transferor will
survive the death, bankruptcy or incapacity of the Transferor and every
obligation of the Transferor shall be binding upon the heirs, legal
representatives, successors, assigns, executors and administrators of such
Transferor.
By executing the Letter of Transmittal, each Holder will make to the
Company the representations set forth under the heading "-- Purpose and Effect
of the Exchange Offer."
Withdrawal of Tenders
Tenders of Old Debentures pursuant to the Exchange Offer are irrevocable,
except that Old Debentures tendered pursuant to the Exchange Offer may be
withdrawn at any time prior to the Expiration Date.
To be effective, a written, telegraphic, telex or facsimile transmission
notice of withdrawal must be timely received by the Exchange Agent at the
address set forth in the Letter of Transmittal. Any such notice of withdrawal
must specify the Holder named in the Letter of Transmittal as having tendered
Old Debentures to be withdrawn, the certificate numbers of Old Debentures to
be withdrawn, a statement that such Holder is withdrawing his election to have
such Old Debentures exchanged, and the name of the registered Holder of such
Old Debentures, and must be signed by the Holder in the same manner as the
original signature on the Letter of Transmittal (including any required
signature guarantees) or be accompanied by evidence satisfactory to the
Company that the person withdrawing the tender has succeeded to the
-23-
<PAGE>
beneficial ownership of the Old Debentures being withdrawn. The Exchange Agent
will return the properly withdrawn Old Debentures promptly following receipt of
notice of withdrawal. If Old Debentures have been tendered pursuant to the
procedure for book-entry transfer, any notice of withdrawal must specify the
name and number of the account at the Book-Entry Transfer Facility to be
credited with the withdrawn Old Debentures or otherwise comply with the Book-
Entry Transfer Facility procedure. All questions as to the validity of
notices of withdrawal, including time of receipt, will be determined by the
Company, and such determination will be final and binding on all parties.
Conditions to the Exchange Offer
Notwithstanding any other provision of the Exchange Offer, or any
extension of the Exchange Offer, the Company will not be required to issue New
Debentures in exchange for any properly tendered Old Debentures not previously
accepted and may terminate the Exchange Offer (by oral or written notice to
the Exchange Agent and by timely public announcement communicated, unless
otherwise required by applicable law or regulation, by making a release to the
Dow Jones News Service), or, at its option, modify or otherwise amend the
Exchange Offer, if either of the following events occur:
(a) any statute, rule or regulation shall have been enacted, or any
action shall have been taken by any court or governmental authority
which, in the sole judgment of the Company, would prohibit, restrict or
otherwise render illegal consummation of the Exchange Offer, or
(b) there shall occur a change in the current interpretation by the
staff of the Commission which permits the New Debentures issued pursuant
to the Exchange Offer in exchange for Old Debentures to be offered for
resale, resold and otherwise transferred by Holders thereof (other than
broker-dealers and any such Holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of
the Securities Act provided that such New Debentures are acquired in the
ordinary course of such Holders' business and such Holders have no
arrangement or understanding with any person to participate in the
distribution of such New Debentures.
The Company expressly reserves the right to terminate the Exchange Offer
and not accept for exchange any Old Debentures upon the occurrence of either
of the foregoing conditions (which represent all of the material conditions to
the acceptance by the Company of properly tendered Old Debentures). In
addition, the Company may amend the Exchange Offer at any time prior to the
Expiration Date if either of the conditions set forth above occur. Moreover,
regardless of whether either of such conditions has occurred, the Company may
amend the Exchange Offer in any manner which, in its good faith judgment, is
advantageous to Holders of the Old Debentures.
The foregoing conditions are for the sole benefit of the Company and may
be waived by the Company, in whole or in part, in its sole discretion. Any
determination made by the Company concerning an event, development or
circumstance described or referred to above will be final and binding on all
parties.
-24-
<PAGE>
Exchange Agent
Chemical Bank is acting as the Exchange Agent for the Exchange Offer.
Questions and requests for assistance, requests for additional copies of this
Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
By Mail (registered or certified mail recommended):
Chemical Bank/Geoserve
Corporate Trust/IDS Mail
P.O. Box 2862
New York, NY 10116
By Overnight Courier:
Chemical Bank/Geoserve
Corporate Trust/IDS Mail
450 West 33rd Street, Bay 13
New York, NY 10001
By Hand:
Chemical Bank/Geoserve
Corporate Trust Securities Window
55 Water Street, Room 234, North Building
New York, NY 10041
By Facsimile:
(212) 971-3498 or 3499
Confirm by Telephone:
Michael J. McCarthy
(212) 971-3276
Fees and Expenses
The expense of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates. No additional compensation will
be paid to any such officers and employees who engage in soliciting tenders.
The Company has not retained any dealer-manager or other soliciting agent
in connection with the Exchange Offer and will not make any payments to
brokers, dealers or others soliciting acceptances of the Exchange Offer. The
Company, however, will pay the Exchange Agent
-25-
<PAGE>
reasonable and customary fees for its services and will reimburse it for its
reasonable out-of-pocket expenses in connection therewith.
The Company will pay all transfer taxes, if any, applicable to the
exchange of Old Debentures pursuant to the Exchange Offer. If, however,
certificates representing New Debentures, or Old Debentures for principal
amounts not tendered or accepted for exchange, are to be delivered to, or are
to be issued in the name of, any person other than the registered Holder of
the Old Debentures tendered or if a transfer tax is imposed for any reason
other than the exchange of Old Debentures pursuant to the Exchange Offer, then
the amount of any such transfer taxes (whether imposed on the registered
Holder or any other persons) will be payable by the tendering Holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes
will be billed directly to such tendering Holder.
Certain Federal Income Tax Consequences of the Exchange
Based upon current provisions of the Internal Revenue Code of 1986, as
amended, applicable Treasury regulations (including proposed Treasury
regulations), judicial authority and administrative rulings and practice the
exchange of an Old Debenture for a New Debenture pursuant to the Exchange
Offer will not constitute a taxable exchange for U.S. federal income tax
purposes, provided that the Registration Statement has become effective prior
to July 13, 1994. There can be no assurance that the Internal Revenue Service
will not take a contrary view, and no ruling from the Internal Revenue Service
has been or will be sought. Legislative, judicial or administrative changes
or interpretations may be forthcoming that could alter or modify this result.
EACH HOLDER SHOULD CONSULT SUCH HOLDER'S OWN TAX ADVISOR AS TO THE PARTICULAR
TAX CONSEQUENCES OF EXCHANGING SUCH HOLDER'S OLD DEBENTURES FOR NEW
DEBENTURES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR
FOREIGN TAX LAWS.
Other
Participation in the Exchange Offer is voluntary and Holders should
carefully consider whether to accept. Holders of the Old Debentures are urged
to consult their financial and tax advisors in making their own decisions.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those
contained in this Prospectus. If given or made, such information or
representations should not be relied upon as having been authorized by the
Company. Neither the delivery of this Prospectus nor any exchange made
hereunder shall, under any circumstances, create any implication that there
has been no change in the affairs of the Company since the respective dates as
of which information is given herein. The Exchange Offer is not being made to
(nor will tenders be accepted from or on behalf of) Holders of Old Debentures
in any jurisdiction in which the making of the Exchange Offer or the
acceptance thereof would not be in compliance with the laws of such
jurisdiction. However, the Company may, at its discretion, take such action
as it may deem necessary to make the Exchange Offer in any such jurisdiction
and extend the Exchange Offer to Holders of Old Debentures in such
jurisdiction. In any such jurisdiction the securities laws or blue sky laws
of
-26-
<PAGE>
which require the Exchange Offer to be made by a licensed broker or dealer,
the Exchange Offer is being made on behalf of the Company by one or more
registered brokers or dealers which are licensed under the laws of such
jurisdiction.
As a result of the making of the Exchange Offer, the Company will have
fulfilled a covenant contained in the terms of the Old Debentures and the
Registration Rights Agreement. Holders of the Old Debentures who do not
tender their certificates in the Exchange Offer will continue to hold such
certificates and will be entitled to all the rights, and limitations
applicable thereto under the Indenture except for any such rights under the
Registration Rights Agreement and except that the Old Debentures will not be
entitled to the contingent increase in the interest rate provided for in the
Indenture and the Registration Rights Agreement. All untendered Old
Debentures will continue to be subject to the restrictions on transfer set
forth in the Indenture and the Old Debentures. To the extent that Old
Debentures are tendered and accepted in the Exchange Offer, the trading
market, if any, for untendered Old Debentures could be adversely affected.
DESCRIPTION OF DEBENTURES
The Old Debentures were issued under, and the New Debentures will be
issuable under, an Indenture, dated as of January 14, 1994 (the "Indenture"),
between the Company and Summit Bank, as Trustee (the "Trustee"). The
following statements are subject to the detailed provisions of the Trust
Indenture Act of 1939, as amended ("TIA"), and the Indenture, which has been
incorporated by reference as an exhibit to the Registration Statement.
The description of the Debentures contained herein is a summary only and is
qualified in its entirety by the terms and provisions of the Indenture, which
are incorporated by reference as part of the statements made herein.
General
The Debentures are general unsecured obligations of the Company limited
to an aggregate principal amount of $25,000,000. The Debentures bear interest
at the rate of 7.75% per annum from the date of original issuance (January 14,
1994) payable semiannually on each January 15 and July 15, beginning July 15,
1994, to Holders of record at the close of business on the Record Date
immediately preceding the relevant Interest Payment Date. Interest will be
computed on the basis of a 360-day year of twelve 30-day months. The
Debentures mature on January 15, 2004 and initially have been issued in global
form, without coupons. As indicated under "Subordination," payment of the
Debentures is subordinated to the prior payment in full of all Senior
Indebtedness.
The Debentures are not deposits of the Company or any banking subsidiary
of the Company and are not insured by the FDIC or any other federal agency.
The Indenture does not contain any provisions which would protect Holders
of the Debentures against a decline in credit quality resulting from
takeovers, recapitalizations or similar restructurings.
-27-
<PAGE>
The Indenture does not permit acceleration of payment of principal of the
Debentures upon an Event of Default (other than upon an Event of Default
resulting from certain events of bankruptcy, insolvency, reorganization
receivership or conservatorship of the Company or a Major Bank Subsidiary).
The transfer and exchange of Old Debentures may be effected in global
form only if such Debentures are being transferred to a qualified
institutional buyer (as defined in Rule 144A under the Securities Act) in
accordance with Rule 144A under the Securities Act.
No Redemption or Amortization
The Debentures may not be called or redeemed by the Company. No sinking
fund will be established for repayment of the New Debentures.
Form of New Debentures
The New Debentures will be issued in fully registered form, without
coupons. Investors may elect to hold their New Debentures directly or,
subject to the rules and procedures of The Depository Trust Company, New York,
New York ("DTC") described below, hold interests in a global debenture (the
"Global Debenture") registered in the name of DTC or its nominee. The Old
Debentures are currently held in global form. The form in which a Holder
tenders its Old Debentures is the form in which the New Debentures will be
issued to such Holder.
DTC has advised the Company as follows: DTC is a limited-purpose trust
company organized under the Banking Law of the State of New York, a member of
the Federal Reserve System, a "clearing corporation" within the meaning of the
New York Uniform Commercial Code, and a "clearing agency" registered pursuant
to the provisions of section 17A of the Exchange Act. DTC was created to hold
securities of its participants (the "Participants") and to facilitate the
clearance and settlement of securities transactions among its Participants in
such securities through electronic book-entry changes in accounts of the
Participants, thereby eliminating the need for physical movement of securities
certificates. DTC's participants include securities brokers and dealers,
banks, trust companies, clearing corporations, and certain other
organizations, some of whom (and/or their representatives) own DTC. Access to
DTC's book-entry system is also available to others, such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly.
Upon the issuance of the Global Debenture, DTC will credit on its book-
entry registration and transfer system, the respective principal amounts of
the New Debentures represented by such Global Debenture to the accounts of
institutions that have accounts with DTC. The accounts to be credited shall
be designated by the Holders that acquired such New Debentures. Ownership of
beneficial interests in the Global Debenture will be limited to Participants
or persons that may hold interests through Participants. Ownership of
beneficial interests in the Global Debenture will be shown on, and the
transfer of that ownership will be effected only through, records maintained
by DTC for such Global Debenture and on the records of Participants (with
respect to the interests of persons holding through Participants). So long as
DTC, or its nominee, is the owner of the Global Debenture, DTC or such
nominee, as the case may be, will be considered the sole owner or holder of
the Debentures represented by such Global Debenture for all purposes under the
Indenture.
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<PAGE>
Each person owning a beneficial interest in the Global Debenture must
rely on the procedures of DTC and, if such person is not a Participant, on the
procedures of the Participant through which such person owns its interest, to
exercise any rights of a holder under the Indenture. The Company understands
that under existing industry practices, if it requests any action of holders
or if an owner of a beneficial interest in the Global Debenture desires to
give or take any action which a holder is entitled to give or take under the
Indenture, DTC would authorize the Participants holding the relevant
beneficial interests to give or take such action, and such Participants would
authorize beneficial owners owning through such Participants to give or take
such action or would otherwise act upon the instructions of beneficial owners
holding through them.
The Company expects that DTC, upon receipt of any payment of principal or
interest in respect of the Global Debenture, will credit immediately
Participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the Debenture represented by the Global
Debenture as shown on the records of DTC. The Company also expects that
payment by Participants to owners of beneficial interests in such Global
Debenture held through such Participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name,"
and will be the responsibility of such Participants. Accordingly, although
owners who hold New Debentures through Participants will not possess New
Debentures in definitive form, the Participants will provide a mechanism by
which holders of New Debentures will receive payments and will be able to
transfer their interests.
Principal and interest payments on New Debentures represented by the
Global Debenture registered in the name of DTC or its nominee will be made to
DTC or its nominee, as the case may be, as the registered owner of such Global
Debenture. None of the Company, the Trustee or any other agent of the Company
will have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in
such Global Debenture or for maintaining, supervising or reviewing any records
relating to such beneficial ownership interests.
If DTC or a successor depository is at any time unwilling or unable to
continue as depository of the Global Debenture and a successor depository is
not appointed by the Company within ninety days, the Company will issue
Debentures in certificated form ("Certificated Debentures") in exchange for
beneficial interests in the Global Debenture. In addition, the Company may at
any time determine not to have New Debentures represented by a Global
Debenture and, in such event, will issue Certificated Debentures in exchange
for beneficial interests in the Global Debenture. In either case, an owner of
a beneficial interest in the Global Debenture will be entitled to have
Certificated Debentures equal in principal amount to such beneficial
interest registered in its name and will be entitled to physical delivery
of such Certificated Debentures.
Same-Day Settlement In Respect of Global Debentures
So long as any New Debentures are represented by the Global Debenture
registered in the name of DTC or its nominee, such New Debentures will trade
in DTC's Same-Day Funds Settlement System, and secondary market trading
activity in such Debentures will therefore be required by DTC to settle in
immediately available funds. No assurance can be given as to the
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<PAGE>
effect, if any, of settlement in immediately available funds on trading
activity in the New Debentures.
Subordination
The payment of the principal of, premium, if any, and interest on the
Debentures will be subordinated to the prior payment in full of all Senior
Indebtedness. The Indenture does not limit the amount of Senior Indebtedness
or other indebtedness, secured or unsecured, that the Company or any
Subsidiary may incur. The Company (excluding its subsidiaries) currently has
no other indebtedness either senior or subordinate to the Debentures.
Upon any payment or distribution of assets or securities of the Company
upon a dissolution, winding up, liquidation or reorganization of the Company,
payment of the principal of, premium, if any, and interest on the Debentures
will be subordinated, to the extent and in the manner set forth in the
Indenture, to the prior payment in full of all Senior Indebtedness. Upon any
default by the Company in the payment of all or any portion of principal of,
premium, if any, or interest on any Senior Indebtedness when due and payable,
no payment may be made on or in respect of the Debentures unless or until such
default has been cured or waived.
Except as described above, the obligation of the Company to make payment
of the principal of, premium, if any, or interest on the Debentures will not
be affected. The rights of the holders of the Debentures shall be subrogated
equally and ratably to the rights of the holders of Senior Indebtedness to the
extent of payments or distributions of assets of the Company made on such Senior
Indebtedness. By reason of such subordination, in the event of a distribution of
assets in any such proceeding, certain general creditors of the Company may
recover more, ratably, than holders of the Debentures.
The Debentures are obligations of the Company only, are not obligations
of or deposits in a bank and are not insured by any government agency.
Because the Company is a holding company, its rights and the rights of its
creditors, including the Holders, to participate in any distribution of the
assets of the Bank or any of the Company's other subsidiaries upon a
liquidation, reorganization or insolvency of such Subsidiary (and the
consequent right of the Holders of the Debentures to participate in those
assets) will be subject to the claims of the creditors of the Subsidiaries
(including depositors in the Bank or other bank or thrift Subsidiary).
The Company's sole source of funds for the payment of principal and
interest on the Debentures is dividends from its Bank Subsidiary. From time
to time while the Debentures are outstanding, the Company's Bank Subsidiary
may be subject to regulatory or contractual constraints that restrict its
ability to pay dividends to the Company.
-30-
<PAGE>
Certain Covenants
The Indenture contains, among others, the covenant described below.
Mergers and Consolidations. The Indenture provides that the Company will
not consolidate or merge with or into, or sell, assign, transfer, lease or
otherwise dispose of all or substantially all of its assets to, any Person
unless: (1) the Person formed by or surviving any such consolidation or merger
(if other than the Company), or to which such sale, assignment, transfer, lease
or other disposition shall have been made, is a corporation organized and
existing under the laws of the United States, any state thereof or the District
of Columbia; (2) the corporation formed by or surviving any such consolidation
or merger (if other than the Company), or to which such sale, assignment,
transfer, lease or other disposition shall have been made, expressly assumes by
supplemental indenture all the obligations of the Company under the Debentures
and the Indenture; and (3)immediately before and immediately after such
transaction, and giving effect thereto, no Default shall have occurred and be
continuing.
Defaults and Remedies
An "Event of Default," as defined in the Indenture, is (i) the failure of
the Company to pay (x) interest for a period of 20 consecutive days after the
same becomes due or (y) principal (including premium, if any) when due on any
of the Debentures (in each case, whether or not such payment is prohibited by
the subordination provisions), (ii) the failure of the Company to perform any
other covenant or breach of any warranty continuing for 30 days after the
Company receives written notice of such failure or breach, (iii) the existence
of certain undischarged and unbonded final judgments against the Company or
any Subsidiary of the Company in the aggregate amount exceeding $5,000,000
which remain unsatisfied for a period of 60 days after the Company receives
notice of such judgments and (iv) certain events of bankruptcy, insolvency,
reorganization, receivership or conservatorship involving the Company or
certain of its Subsidiaries.
The Indenture provides that the Trustee will, within 90 days after the
occurrence of any default known to it, mail to the Holders notice of such
default, provided that, except in the case of default in the payment of
principal of or interest on any of the Debentures, the Trustee shall be
protected in withholding such notice if it in good faith determines that the
withholding of such notice is in the interest of the Holders.
The Indenture does not permit acceleration of payment of principal of the
Debentures upon an Event of Default (other than an Event of Default resulting
from certain events of bankruptcy, insolvency, reorganization, receivership or
conservatorship of the Company or a Major Bank Subsidiary). If an Event of
Default resulting from certain events of bankruptcy, insolvency or
reorganization shall have occurred and be continuing, the principal of and
accrued interest on the Debentures shall become and be immediately due and
payable without any action on the part of any Holder of the Debentures. An
acceleration and its consequences may be rescinded and past defaults waived by
Holders of a majority in principal amount of the Debentures then outstanding
upon conditions provided in the Indenture. Except to enforce the right to
receive payment of principal of, premium, if any, or interest on the
Debentures after such payment becomes due, no Holder may pursue any remedy
under the Indenture unless such Holder has previously given to the Trustee
written notice of a continuing Event of Default and unless the Holders of at
least 25% in
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<PAGE>
aggregate principal amount of the Debentures then outstanding have requested
the Trustee in writing to pursue the remedy and offered the Trustee indemnity
satisfactory to the Trustee against loss, liability and expense to be thereby
incurred and the Trustee has failed so to act within 60 days after receipt of
the same.
The Indenture requires the Company to file periodic reports with the
Trustee and any Qualified Holder as to the absence of defaults.
No Personal Liability
No director, officer, employee or shareholder, as such, of the Company
shall have any liability for any obligations of the Company under the
Debentures or the Indenture. Each Holder by accepting a Debenture waives and
releases all such liability. The waiver and release are part of the
consideration for the issue of the Debentures.
Modification of the Indenture
The Indenture contains provisions permitting the Company and the Trustee,
without the consent of any Holder, to supplement or amend the Indenture under
certain specified circumstances, including to cure any ambiguity, defect or
inconsistency, to comply with the TIA, to evidence the succession of a
successor to the Company or the Trustee, or to add any other provisions with
respect to matters or questions arising thereunder that the Company and the
Trustee deem necessary or desirable and which do not adversely affect the
interests of the Holders, except changes that adversely affect the rights of
any holders of Senior Indebtedness. Otherwise, the rights and obligations of the
Company and the rights of the Holders may be modified by the Company and the
Trustee only with the consent of the Holders of a majority in principal amount
of the Debentures then outstanding. No reduction in the principal of or the
interest rate on the Debentures or change in the percentage of Holders required
for modification of the Indenture and no change in the maturity of any Debenture
or in the time of payment of interest will be effective against any Holder
without his consent. The Indenture also requires the consent of each Holder
affected by certain other specified amendments or waivers under the
Indenture.
Satisfaction and Discharge of Indenture
The Indenture will be discharged and canceled upon payment of all the
Debentures or upon the deposit with the Trustee, within not more than one year
prior to the maturity of all the Debentures, of funds sufficient for such
payment or redemption.
The Trustee
The Holders of a majority in aggregate principal amount of all
outstanding Debentures have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
provided that such direction would not conflict with any rule of law or with
the Indenture, would not be unduly prejudicial to the rights of another Holder
and would not subject the Trustee to personal liability. The Indenture
provides that in case an Event of Default should occur and be known to the
Trustee and not be cured, the Trustee will be required to use the degree of
care of a prudent person in the conduct of his own affairs in the
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<PAGE>
exercise of its power. Subject to such provisions, the Trustee will be under
no obligation to exercise any of its rights or powers under the Indenture at
the request of any of the Holders unless they shall have offered to the
Trustee security and indemnity satisfactory to it.
Paying Agents and Registrars
The Old Debentures are currently evidenced by a Debenture in global form.
It is currently anticipated that the New Debentures will initially be evidenced
by a Global Debenture registered in the name of Cede & Co., a nominee of DTC as
holder of record of the Global Debenture. Principal, premium, if any, and
interest on the Debentures will be payable (i) with respect to Debentures
represented by the Global Debenture, by wire transfer of immediately available
funds to Cede & Co., a nominee of DTC as holder of record of the Global
Debenture, for credit to the account of each holder of a beneficial interest
in such Global Debenture and (ii) with respect to Debentures represented by
definitive Securities, by wire transfer of immediately available funds to
the account designated on a timely basis in writing by each holder of any
such definitive Security to the Trustee and the Registrar. The Debentures
may be presented for registration of transfer or exchange, at the offices or
agencies of the Trustee or Registrar. Under certain circumstances, interest
on the Debentures may be paid by check mailed to the Holders of definitive
Securities. The Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection with certain
transfers or exchanges. Initially, the Trustee will act as paying agent and
registrar under the Indenture. The Company may act as agent and registrar
under the Indenture and may change any paying agent and registrar.
Certain Definitions used in the Indenture
"Bank" means Hudson United Bank, a New Jersey state-chartered commercial
bank, and a wholly-owned Subsidiary of the Company.
"Capitalized Lease Obligation" means any lease obligation of a Person
incurred with respect to any property (whether real, personal or mixed)
acquired or leased by such Person and used in its business that is required to
be recorded as a capitalized lease in accordance with generally accepted
accounting principles.
"Capital Stock" means any and all shares, interests, participation rights
or other equivalents (however designated) of corporate stock.
"Holder" means the Person in whose name a Security is registered on the
Registrar's books.
"Indebtedness" means (a) all Obligations of the Company for borrowed
money (whether or not the recourse of the lender is to the whole of the assets
of the Company or only to a portion thereof), (b) all indebtedness of the
Company which is evidenced by a note, debenture, bond or other similar
instrument, including Capitalized Lease Obligations, or representing the
balance deferred and unpaid of the purchase price of any property or services,
(c) all indebtedness of the Company, including Capitalized Lease Obligations,
incurred, assumed or given in an acquisition (whether by way of purchase,
merger or otherwise) of any business, real property or other assets, (d) all
obligations of the Company to purchase securities or other property which arise
out of or in connection with the sale of the same or substantially similar
securities or property ("Repurchase Agreements,") (e) any indebtedness of others
described in the preceding clauses (a), (b), (c) and (d) that the Company has
guaranteed or for which it is otherwise liable and (e) any amendment, renewal,
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<PAGE>
extension, deferral, modification, restructuring or refunding of any such
indebtedness, obligation or guarantee.
"Major Bank Subsidiary" means a Subsidiary of the Company that is a bank,
as defined in 12 U.S.C. 1813 or any successor law, the assets of which as
reported on Schedule RC of its most recent Consolidated Report of Condition and
Income that had been filed prior to the date of the Indenture equal or exceed
80% of the assets reported on the most recent Quarterly Report on Form 10-Q that
had been filed prior to the date of the Indenture for the Consolidated Company.
"Obligations" means, with respect to any Indebtedness, any principal,
premium, interest, penalties, fees and other liabilities payable from time to
time and any convenants or conditions to be performed or observed under the
documentation governing such Indebtedness.
"Person" means any individual, corporation, partnership, association, joint
venture, trust, entity, unincorporated organization or government or any agency
or political subdivision thereof.
"Registrar" means the office or agency in the State of New Jersey or the
City of New York, New York where the Debentures may be presented for
registration of transfer or for exchange. The term "Registrar" includes any
co-registrars appointed by the Company.
"Securities" means the 7.75% Subordinated Debentures due in 2004 of the
Company issued pursuant to the Indenture and, from and after the consummation
of the Exchange Offer, any New Debentures issued in exchange therefor.
"Senior Indebtedness" means any and all Indebtedness of the Company
except any particular Indebtedness, for which the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall be subordinate or shall rank pari passu
in right of payment to the Debentures.
"Subsidiary" means, with respect to the Company, any corporation, bank,
association, partnership or other business entity of which more than 50% of
the Voting Stock or other ownership interests entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, officers
or trustees thereof or other persons performing similar functions is at the
time owned in the aggregate, directly or indirectly, by the Company and its
Subsidiaries.
"Voting Stock" means Capital Stock which ordinarily has voting power for
the election of directors, whether at all times or only so long as no senior
class of Capital Stock has such voting power by reason of any contingency.
VALIDITY OF NEW DEBENTURES
The validity of the New Debentures will be passed upon for the Company by
Clapp & Eisenberg, P.C., Newark, New Jersey.
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<PAGE>
EXPERTS
The audited consolidated financial statements of HUBCO and subsidiaries
for the three years ended December 31, 1993, 1992 and 1991 incorporated herein
by reference, have been audited by Arthur Andersen & Co., independent public
accountants, as indicated in their reports with respect thereto.
The consolidated financial statements of Statewide as of March 31, 1993
and 1992 and for each of the three years in the period ended March 31, 1993,
included in this Prospectus have been audited by Deloitte & Touche,
independent auditors, as stated in their report appearing herein (which report
expresses an unqualified opinion and includes explanatory paragraphs regarding
restatement of 1993 and 1992 financial statements and matters regarding
regulatory capital compliance), and have been so included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
The consolidated financial statements of Washington as of and for the
years ended December 31, 1993, 1992 and 1991 included in this Prospectus have
been audited by Coopers & Lybrand, independent public accountants, as indicated
in their report with respect thereto appearing elsewhere herein and upon the
authority of said firm as experts in giving said report.
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<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM PAGE
- ---- ----
STATEWIDE SAVINGS BANK, S.L.A.:
Report of Independent Public Accountants . . . . . . . . . . . F-2
Consolidated Statements of Financial Condition at December 31,
1993 (Unaudited) and at March 31, 1993 and 1992 (Audited) . . F-3
Consolidated Statements of Operations and Retained Earnings
for the Nine Months Ended December 31, 1993 and 1992
(Unaudited) and for the Three Years Ended March 31, 1993,
1992 and 1991 (Audited) . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Cash Flows for the Nine Months Ended
December 31, 1993 and 1992 (Unaudited) and for the Three
Years Ended March 31, 1993, 1992 and 1991 (Audited) . . . . . F-6 and F-7
Notes to Consolidated Financial Statements . . . . . . . . . . F-8 to F-25
WASHINGTON BANCORP. INC.:
Report of Independent Public Accountants . . . . . . . . . . . F-26
Consolidated Balance Sheets at December 31, 1993 and 1992. . . F-27
Consolidated Statements of Operations for the Years Ended
December 31, 1993, 1992 and 1991. . . . . . . . . . . . . . . F-28
Consolidated Statements of Changes in Stockholders' Equity for
the Years Ended December 31, 1993, 1992 and 1991 . . . . . . F-29
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1993, 1992 and 1991. . . . . . . . . . . . . . . F-30 and F-31
Notes to Consolidated Financial Statements . . . . . . . . . . F-32 to F-48
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of
Statewide Savings Bank, S.L.A.
Jersey City, New Jersey
We have audited the accompanying consolidated statements of financial
condition of Statewide Savings Bank, S.L.A. and subsidiaries (the "Bank") as
of March 31, 1993 and 1992 and the related consolidated statements of
operations and retained earnings and of cash flows for each of the three years
in the period ended March 31, 1993. These consolidated financial statements
are the responsibility of the Bank's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our report.
In our opinion, the accompanying consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Statewide Savings Bank, S.L.A. and subsidiaries as of
March 31, 1993 and 1992, and the results of operations and their cash flows
for each of the three years in the period ended March 31, 1993 in conformity
with generally accepted accounting principles.
As discussed in Note 22, the accompanying 1993 and 1992 financial
statements have been restated.
As discussed in Note 17, although the Bank was in compliance with
minimum regulatory capital requirements of the OTS as of March 31, 1993,
the Bank's leverage ratio at the date resulted in the Bank falling within
the "undercapitalized" category for purposes of determining the scope and
severity of corrective actions that regulators must take. As a result, the
Bank may be subject to regulatory sanctions. The financial statement impact,
if any, that might result from the failure of the Bank to maintain capital
levels at least equal to the "adequately capitalized" category cannot
presently be determined. Accordingly, no adjustments that may result from the
ultimate resolution of this uncertainty have been made in the accompanying
consolidated financial statements.
DELOITTE & TOUCHE
Parsippany, New Jersey
June 11, 1993
February 15, 1994 as to Note 22
F-2
<PAGE>
STATEWIDE SAVINGS BANK, S.L.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, 1993 AND 1992 AND (UNAUDITED) DECEMBER 31, 1993
MARCH 31,
ASSETS DECEMBER 31, ------------------------
1993 1993 1992
------------ ----------- -----------
(UNAUDITED) (RESTATED) (RESTATED)
Cash and amounts due from
depository institutions . . . . . . $ 7,477,870 $ 5,211,833 $ 6,393,445
Federal funds sold . . . . . . . . . 16,075,000 6,100,000 6,000,000
----------- ----------- -----------
Total cash and cash
equivalents . . . . . . . . . . . 23,552,870 11,311,833 12,393,445
Investment securities (estimated
market value of $46,767,000,
$19,169,750 and $24,384,344
at December 31, 1993 and
March 31, 1993 and 1992,
respectively) . . . . . . . . . . . 46,176,486 18,224,440 23,945,102
Mortgage-backed securities,
net of amortization
(estimated market value of
$205,879,291, $215,480,381
and $181,784,075 at
December 31, 1993 and
March 31, 1993 and 1992,
respectively) . . . . . . . . . . . 201,396,736 208,248,187 180,303,895
Mortgage-backed securities
available for sale
(estimated market value of
$5,003,884 and $7,870,900
at December 31 and March
31, 1993, respectively) . . . . . . 4,788,557 7,516,517 --
Loans receivable, less allowance
for loan losses of $1,094,460,
$1,366,001 and $1,841,404 at
December 31, 1993 and
March 31, 1993 and 1992,
respectively. . . . . . . . . . . . 186,453,460 230,928,846 264,914,246
Accrued interest receivable,
net . . . . . . . . . . . . . . . . 3,161,230 4,557,502 6,175,588
Real estate owned, net . . . . . . . 9,740,953 11,538,974 15,204,455
Federal Home Loan Bank of
New York stock, at cost . . . . . . 4,170,200 4,492,600 4,492,600
Premises and equipment,
net . . . . . . . . . . . . . . . . 3,941,840 3,940,211 4,287,925
Excess of cost over fair
value of assets acquired. . . . . . 14,929,779 15,636,517 16,578,835
Other assets . . . . . . . . . . . . 1,962,691 1,465,067 3,264,876
Investment in real estate
venture, net. . . . . . . . . . . . -- 23,806 224,144
------------ ----------- -----------
$500,274,803 $517,884,500 $531,785,111
============ =========== ===========
LIABILITIES AND RETAINED EARNINGS
LIABILITIES:
Deposits . . . . . . . . . . . . . $425,802,115 $440,033,959 $460,925,889
Borrowed funds . . . . . . . . . . 39,366,666 45,091,666 43,391,666
Advance payments by borrowers
for taxes and insurance . . . . . 1,200,689 1,844,246 2,546,772
Accounts payable and other
liabilities . . . . . . . . . . . 1,665,054 2,603,039 1,695,980
------------ ----------- -----------
Total liabilities. . . . . . . . 468,034,524 489,572,910 508,560,307
COMMITMENTS AND CONTINGENCIES
RETAINED EARNINGS -- Substantially
restricted . . . . . . . . . . . 32,240,279 28,311,590 23,224,804
------------ ----------- -----------
$500,274,803 $517,884,500 $531,785,111
============ =========== ===========
See notes to consolidated financial statements.
F-3
<PAGE>
<TABLE>
STATEWIDE SAVINGS BANK, S.L.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
YEARS ENDED MARCH 31, 1993, 1992 AND 1991 AND THE (UNAUDITED) NINE MONTHS ENDED
DECEMBER 31, 1993 AND 1992
<CAPTION>
FOR THE NINE MONTHS
ENDED DECEMBER 31, FOR THE YEARS ENDED MARCH 31,
-------------------------- ------------------------------------------
1993 1992 1993 1992 1991
---------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (RESTATED) (RESTATED
<S> <C> <C> <C> <C> <C>
INTEREST AND DIVIDEND INCOME:
Interest and fees on loans . . . . . . .. . . $13,988,010 $17,769,489 $22,435,670 $28,389,922 $33,076,126
Interest on mortgage-backed
securities. . . . . . . . . . . . . .. . . . 10,609,758 11,175,779 14,961,347 13,393,415 12,011,959
Interest and dividends on
investment securities . . . . . . . . . . . 1,226,495 1,569,908 1,981,349 2,239,760 2,623,014
Dividends on Federal Home
Loan Bank Stock . . . . . . . . . . .. . . . 295,877 344,420 444,118 376,255 438,478
----------- ----------- ----------- ----------- -----------
26,120,140 30,859,596 39,822,484 44,399,352 48,149,577
----------- ----------- ----------- ----------- -----------
INTEREST EXPENSE:
Deposits . . . . . . . . . . . . . . .. . . . 10,559,943 14,417,409 18,299,668 26,742,663 32,885,843
Borrowed funds . . . . . . . . . . . .. . . . 2,297,026 2,655,958 3,529,200 3,862,905 4,501,451
----------- ----------- ----------- ----------- -----------
12,856,969 17,073,367 21,828,868 30,605,568 37,387,294
----------- ----------- ----------- ----------- -----------
NET INTEREST AND DIVIDEND
INCOME BEFORE PROVISION
FOR LOAN LOSSES . . . . . . . . . . . . . . . 13,263,171 13,786,229 17,993,616 13,793,784 10,762,283
PROVISION FOR LOAN LOSSES. . . . . . . . . . . 359,841 181,818 193,654 1,932,503 185,800
----------- ----------- ----------- ----------- -----------
NET INTEREST AND DIVIDEND
INCOME AFTER PROVISION
FOR LOAN LOSSES . . . . . . . . . . . . . . . 12,903,330 13,604,411 17,799,962 11,861,281 10,576,483
----------- ----------- ----------- ----------- -----------
OTHER INCOME:
Service charges . . . . . . . . . . . . . . . 771,101 537,639 814,096 737,477 715,388
Net gain on sales of mortgage-
backed and investment securities . . . . . . -- 529,775 529,775 1,763,509 20,090
Gain on pension plan termination. . . . . . . -- -- -- 867,000 --
Other income. . . . . . . . . . . . . . . . . 331,196 335,212 666,119 196,420 1,003,947
----------- ----------- ----------- ----------- -----------
1,102,297 1,402,626 2,009,990 3,564,406 1,739,425
----------- ----------- ----------- ----------- -----------
OPERATING EXPENSES:
Salaries and employee benefits. . . . . . . . 4,473,976 4,024,610 5,460,939 5,097,646 4,972,769
Net occupancy expense of premises . . . . . . 1,361,800 1,300,874 1,767,632 1,977,097 2,054,684
Advertising and promotion . . . . . . . . . . 120,000 195,000 262,279 252,500 180,218
Federal insurance premiums. . . . . . . . . . 887,387 739,688 954,084 969,497 916,141
Amortization of intangibles . . . . . . . . . 706,737 706,737 942,318 942,318 942,318
Foreclosed real estate expense, net . . . . . (36,742) 489,664 886,160 1,345,872 1,747,266
Loss on investment in real estate
venture. . . . . . . . . . . . . . . . . . . -- 140,000 140,000 334,575 960,000
Other . . . . . . . . . . . . . . . . . . . . 1,531,905 1,314,766 1,819,326 2,044,135 1,837,567
----------- ----------- ----------- ----------- -----------
9,045,063 8,911,339 12,232,738 12,963,640 13,610,963
----------- ----------- ----------- ----------- -----------
(Continued)
F-4
</TABLE>
<PAGE>
<TABLE>
STATEWIDE SAVINGS BANK, S.L.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1993, 1992 AND 1991 AND (UNAUDITED) THE NINE MONTHS ENDED
DECEMBER 31, 1993 AND 1992
<CAPTION>
FOR THE NINE MONTHS FOR THE YEARS ENDED
ENDED DECEMBER 31, MARCH 31,
-------------------------- ------------------------------------------
1993 1992 1993 1992 1991
(UNAUDITED) (UNAUDITED) (RESTATED) (RESTATED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss). . . . . . . . . . . . . . . $ 3,928,689 $ 4,043,797 $ 5,086,786 $ 2,233,944 $ (1,329,909)
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for loan losses . . . . . . . . . . 359,841 181,818 193,654 1,932,503 185,800
Provision for losses on foreclosed
real estate. . . . . . . . . . . . . . . . . 179,978 297,931 465,790 601,509 1,588,754
Provision for losses on real estate
ventures . . . . . . . . . . . . . . . . . . -- 140,000 140,000 334,575 960,000
Amortization of deferred premiums
and unearned discounts--net. . . . . . . . . 442,941 (840,312) (1,362,249) (371,484) (993,467)
Depreciation and amortization . . . . . . . . 1,063,626 1,081,775 1,438,143 1,619,257 1,724,528
Net gain on sales of mortgage-backed
and investment securities. . . . . . . . . . -- (529,775) (529,775) (1,763,509) (20,090)
Loss (gain) on sale of premises and
equipment. . . . . . . . . . . . . . . . . . -- -- -- 1,218 (28,690)
(Gain) loss on sale of real estate
owned. . . . . . . . . . . . . . . . . . . . (290,220) (84,399) (80,016) 11,398 (21,589)
Equity in loss of joint venture . . . . . . . 23,806 60,338 60,337 125,444 80,410
Changes in assets and liabilities:
Decrease in accrued interest
receivable . . . . . . . . . . . . . . . . . 1,396,272 519,310 1,618,086 323,896 (18,731)
Increase (decrease) in accrued
interest payable . . . . . . . . . . . . . . (65,285) (44,571) (29,750) (109,388) (48,460)
Decrease (increase) in other assets . . . . . (497,624) 2,249,470 1,799,809 (1,649,008) (953,896)
(Decrease) increase in accounts
payable and other liabilities. . . . . . . . (894,303) 487,466 921,910 626,115 (79,527)
---------- ---------- ---------- ---------- ---------
Net cash provided by operating
activities . . . . . . . . . . . . . . . . . 5,647,721 7,562,848 9,722,725 3,916,470 1,045,133
---------- ---------- ---------- ---------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from principal collections
and repayments of loans net of
originations . . . . . . . . . . . . . . . . 43,596,796 24,804,661 34,063,625 33,827,049 31,841,285
Proceeds from mortgage-backed
securities principal repayments. . . . . . . 66,311,254 30,320,295 44,105,654 15,101,748 10,508,814
Proceeds from sale of mortgage-
backed securities. . . . . . . . . . . . . . -- 10,697,723 11,232,594 39,626,639 3,043,125
Purchase of mortgage-backed
securities . . . . . . . . . . . . . . . . . (57,377,096) (65,346,983) (89,186,951) (90,684,869) (22,844,896)
Purchase of investment securities . . . . . . (31,019,758) (8,098,750) (8,098,750) (24,298,090) (5,989,028)
Proceeds from sale of investment
securities . . . . . . . . . . . . . . . . . -- -- 1,000,000 2,697,047 --
Proceeds from maturities of
investment securities. . . . . . . . . . . . 3,000,000 7,000,000 12,700,000 21,190,000 13,650,000
Proceeds from redemption of Federal Home
Loan Bank stock. . . . . . . . . . . . . . . 322,400 -- -- -- --
Proceeds from sale of and payments on
real estate owned. . . . . . . . . . . . . . 2,728,518 5,107,929 3,648,558 2,561,321 191,857
F-5
</TABLE>
<PAGE>
<TABLE>
STATEWIDE SAVINGS BANK, S.L.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
YEARS ENDED MARCH 31, 1993, 1992 AND 1991 AND (UNAUDITED) THE NINE MONTHS ENDED
DECEMBER 31, 1993 AND 1992
<CAPTION>
FOR THE NINE MONTHS FOR THE YEARS ENDED
ENDED DECEMBER 31, MARCH 31,
-------------------------- ------------------------------------------
1993 1992 1993 1992 1991
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Improvements to real estate owned. . . . . . . (31,482) (215,154) (241,400) (381,559) (730,420)
Purchases of premises and equipment. . . . . . (358,517) (134,733) (148,110) (123,764) (134,191)
Proceeds from repayment of advances
to real estate ventures . . . . . . . . . . . -- -- -- -- 33,000
Proceeds from sale of premises and
equipment . . . . . . . . . . . . . . . . . . -- -- -- -- 28,690
----------- ----------- ----------- ---------- ----------
Net cash provided by (used in)
investing activities. . . . . . . . . . . . 27,172,115 4,134,988 9,075,220 (484,478) 29,598,236
----------- ----------- ----------- ---------- ----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net (decrease) increase in deposit
accounts . . . . . . . . . . . . . . . . . . $(14,210,242) $(17,684,462) $(20,877,031) $ 6,208,853 $(30,153,198)
Repayment of Federal Home Loan
Bank advances. . . . . . . . . . . . . . . . (6,775,000) (31,725,000) (7,800,000) (20,800,000) (6,300,000)
Advances from the Federal Home
Loan Bank. . . . . . . . . . . . . . . . . . 1,050,000 40,000,000 9,500,000 15,000,000 9,000,000
Net decrease in securities sold under
agreements to repurchase . . . . . . . . . . -- -- -- -- (6,043,000)
(Decrease) increase in advance
payments by borrowers for taxes
and insurance. . . . . . . . . . . . . . . . (643,557) (1,265,846) (702,526) 988,004 (107,703)
----------- ----------- ----------- ---------- ----------
Net cash (used in) provided by
financing activities. . . . . . . . . . . . (20,578,799) (10,675,308) (19,879,557) 1,396,857 (33,603,901)
----------- ----------- ----------- ---------- ----------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS. . . . . . . . . . . . . 12,241,037 1,022,528 (1,081,612) 4,828,849 (2,960,532)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD . . . . . . . . . . . . . 11,311,833 12,393,445 12,393,445 7,564,596 10,525,128
----------- ----------- ----------- ---------- ----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD . . . . . . . . . . . . . . . . $23,552,870 $13,415,973 $11,311,833 $12,393,445 $ 7,564,596
=========== =========== =========== =========== ==========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the year for:
Interest. . . . . . . . . . . . . . . . . . $12,922,254 $17,117,940 $21,858,618 $30,714,956 $37,387,294
=========== =========== =========== =========== ==========
Income taxes. . . . . . . . . . . . . . . . . $ 2,200,183 $ 1,044,772 $ 1,626,162 $ 91,500 $ 191,879
=========== =========== =========== =========== ==========
SUPPLEMENTAL NON-CASH
INVESTING ACTIVITIES:
Transfer from loans receivable to
real estate owned, net . . . . . . . . . . . $ 788,773 $ 363,334 $ 1,286,971 $ 12,119,925 $ 3,328,840
=========== =========== =========== =========== ===========
Loans to facilitate the sale of
property . . . . . . . . . . . . . . . . . . $ 105,000 $ 812,820 $ 1,159,520 $ 3,362,985 $ --
=========== =========== =========== =========== ===========
Transfer of mortgage-backed
securities to mortgage-backed
securities available for sale. . . . . . . . $ -- $ -- $ 7,516,517 $ -- $ --
=========== =========== =========== =========== ===========
See notes to consolidated financial statements.
F-6
</TABLE>
<PAGE>
STATEWIDE SAVINGS BANK, S.L.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1993, 1992 AND 1991 AND (UNAUDITED) THE NINE MONTHS
ENDED DECEMBER 31, 1993 AND 1992
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation--The consolidated financial statements include
the accounts of Statewide Savings Bank, S.L.A. (the "Bank") and its
wholly-owned subsidiaries, Seventy Sip Corporation, Statewide Atlantic
Corporation and Statewide Financial Services Inc. All significant
intercompany balances and transactions have been eliminated. Certain
reclassifications have been made to the prior year's financial statements to
conform to the current year's presentation.
Investment Securities and Mortgage-Backed Securities--Investment and
mortgage-backed securities held for investment are stated at cost, adjusted
for amortization of premiums and accretion of discounts. Investment
securities gains and losses are determined on a specific identification basis.
Investment and mortgage-backed securities are stated at amortized cost because
the Bank has both the ability to hold the securities to maturity and the
intent of management is to hold such securities to maturity. In the event
that management determines to hold securities for an indefinite period of
time, including securities that management intends to use as part of its
asset/liability strategy, or securities that may be sold in response to
changes in interest rates, changes in prepayment risks, the need to increase
capital or similar factors, such securities are classified as available for
sale. Securities available for sale are carried at the lower of amortized
cost or market value.
Marketable equity securities are carried at the lower of cost or market
with any market adjustments recorded to equity.
Loan Fees and Discounts--Nonrefundable loan origination fees net of
certain direct loan origination costs are deferred. Net deferred fees are
amortized as an adjustment of the yield over the life of the loan by use of
the effective interest method. Fees and costs associated with lending
transactions prior to April 1, 1988 are amortized on a straight-line basis.
Discounts on loans purchased which are probable of collection are recognized
as an adjustment to the yield over the life of the loans by use of the
effective interest method.
Non-performing loans are defined as loans where management has determined
that the borrowers may be unable to meet contractual principal or interest
obligations or where interest or principal is 90 days or more past due, unless
the loans are well secured and in the process of collection. The Bank's
policy with regard to non-performing loans is to continue to accrue interest
but to provide a full reserve against the amount accrued including interest
previously accrued. Therefore, interest income is not recognized unless the
financial condition and payment record of the borrower warrant the recognition
of interest income. Interest on loans that have been restructured is accrued
according to the renegotiated terms.
Provision for Loan Losses--Provision for loan losses is established
through charges to earnings. Loan losses (loans charged off net of
recoveries) are charged against the allowance for loan losses when management
believes that the recovery of principal is unlikely. If, as a result of loans
charged off or increases in the size or risk characteristics of the loan
portfolio, the allowance is below the level considered by management to be
adequate to absorb future loan losses on existing loans, the provision for
loan losses is increased to the level considered necessary to provide an
adequate allowance. The allowance is an amount that management believes will
be adequate to absorb possible losses on existing loans that may become
uncollectible, based on evaluations of the collectibility of the loans. The
evaluations take into consideration such factors as changes in the nature and
volume of the loan portfolio, overall portfolio quality, review of specific
problem loans and economic conditions that may affect the borrowers' ability
to pay. Economic conditions may result in the necessity to change the
allowance quickly in order to react to deteriorating financial conditions of
the Bank's borrowers. As a result, additional provisions on existing loans
may be required in the future if borrowers' financial conditions deteriorate
or if real estate values decline.
Real Estate Owned--Real estate properties acquired through loan
foreclosure or that are in-substance foreclosures are recorded at the lower of
cost or estimated fair value at time of foreclosure with any write-down
charged against the allowance for loan losses. Subsequent valuations are
periodically performed by management and the carrying value is adjusted by a
charge to expense to reflect any subsequent declines in the estimated fair
value. Further declines in real estate values may result in increased
foreclosed real estate expense in the future. Routine
F-7
<PAGE>
STATEWIDE SAVINGS BANK, S.L.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1993, 1992 AND 1991 AND (UNAUDITED) THE NINE MONTHS
ENDED DECEMBER 31, 1993 AND 1992
holding costs are charged to expense as incurred and improvements to real
estate owned that enhance the value of real estate owned are capitalized.
Gains on the sale of real estate are recognized upon disposition of the
property to the extent allowable based upon certain down payment and other
requirements. Losses are charged to operations as incurred.
Premises and Equipment--Premises and equipment are stated at cost, less
accumulated depreciation and amortization. Provisions for depreciation of
premises and equipment are computed using the straight-line method over three
to ten years for furniture, fixtures and equipment and forty years for
buildings. Amortization of leasehold improvements is provided using the
straight-line method over the terms of the respective lease or the estimated
useful life of the improvement, whichever is shorter.
Excess of Cost Over Assets Acquired, Net of Amortization--The cost in
excess of fair value of net assets acquired in business combinations
("goodwill") is amortized to expense over a period of twenty years using the
straight-line method.
Under the capital standards contained in the Financial Institutions
Reform, Recovery and Enforcement Act of 1989 (FIRREA), goodwill is a reduction
from retained income in calculating tangible capital. The Bank must maintain
tangible capital of not less than l.5% of total adjusted assets and must have
core capital equal to 3% of total adjusted assets, of which qualifying
supervisory goodwill may be included in core capital not to exceed 1% of total
adjusted assets through December 31, 1992 and declining annually thereafter
until it is completely phased out on January 1, 1995. Additionally, for
capital purposes, qualifying supervisory goodwill is amortized over a
twenty-year period. At March 31, 1993, all of the Bank's goodwill qualified
as supervisory goodwill. This supervisory goodwill represents approximately
3.0% of total assets.
Investment in Real Estate Venture--One of the Bank's subsidiaries is a
participant in a joint venture engaged in the development and sale of
residential land and homes. The Bank's investment in such venture is
accounted for by the equity method. The joint venture follows the policy of
capitalizing interest and real estate taxes incurred as a cost of the property
under development.
Income Taxes--The Bank and its subsidiaries file a consolidated Federal
income tax return on a calendar year basis. Income taxes are allocated to the
Bank and its subsidiaries based on the use of their income or loss in the
consolidated return. Separate state income tax returns are filed by the Bank
and its subsidiaries.
The provision for income taxes is based upon earnings reported, after
permanent differences. Deferred income taxes are provided for timing
differences in the reporting of income and expenses for financial statement
and income tax purposes.
Effective April 1, 1993, the Bank was required to change its method of
accounting for income taxes to comply with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). This Statement
will require the Bank to use an asset and liability method for financial
accounting and reporting for income taxes. Bank management has determined the
effect on the Bank from adoption of this new standard will not be material to
the financial statements.
Cash and Cash Equivalents--For purposes of reporting cash flows, the
Bank considers cash and amounts due from depository institutions and Federal
funds sold as cash and cash equivalents.
2. FEDERAL FUNDS SOLD
Federal funds sold consist of the following:
MARCH 31,
-----------------
1993 1992
---- -----
Federal funds sold:
Due within one day with an interest rate of
3.25% and 3.875% at March 31, 1993
and 1992, respectively. . . . . . . . . . $6,100,000 $6,000,000
========== ==========
F-8
<PAGE>
STATEWIDE SAVINGS BANK, S.L.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1993, 1992 AND 1991 AND (UNAUDITED) THE NINE MONTHS
ENDED DECEMBER 31, 1993 AND 1992
3. INVESTMENT SECURITIES
The amortized cost and estimated market values of investments in debt
securities are as follows:
MARCH 31, 1993
---------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---- ----- ------ -----
U.S. Treasury securities
and obligations of U.S.
government corporations and
agencies maturing:
Within one year. . . . . . $ 4,027,939 $ 22,061 $ -- $ 4,050,000
After one year but within
five years. . . . . . . . 11,151,816 597,247 -- 11,749,062
More than five years . . . 3,013,085 266,602 -- 3,279,688
Other. . . . . . . . . . . . 31,600 59,400 -- 91,000
---------- -------- ---- -----------
$18,224,440 $945,310 $ -- $19,169,750
=========== ======== ==== ===========
MARCH 31, 1992
---------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---- ----- ------ -----
U.S. Treasury securities
and obligations of U.S.
government corporations and
agencies maturing:
Within one year. . . . . . $12,717,849 $262,370 $ -- $12,980,219
After one year but within
five years. . . . . . . . 6,052,605 107,808 17,913 6,142,500
More than five years . . . 5,143,048 4,144 4,692 5,142,500
Other. . . . . . . . . . . . 31,600 87,525 -- 119,125
---------- -------- ---- -----------
$23,945,102 $461,847 $22,605 $24,384,344
=========== ======== ======= ===========
Investment securities, with an amortized cost totalling $3,865,413 and
$5,163,225 were pledged at March 31, 1993 and 1992, respectively, to secure
public deposits.
Proceeds from the sale of investment securities were $1,000,000,
$2,697,047 and $-0- in 1993, 1992 and 1991, respectively. The 1993 sales
resulted in no gross realized gains or losses. The 1992 sales resulted in
gross realized gains of $1,896 and no gross realized losses.
4. MORTGAGE-BACKED SECURITIES
The amortized cost and estimated market values of mortgage-backed
securities are as follows:
MARCH 31, 1993
---------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---- ----- ------ -----
GNMA guaranteed pass-through
certificates (net of
deferred premiums of
$75,038). . . . . . . . . .$ 56,531,911 $3,187,578 $16,078 $ 59,703,411
FHLMC pass-through
certificates (net of
deferred premiums of
$1,031,143) . . . . . . . . 72,923,047 2,383,193 25,603 75,280,637
FNMA pass-through
certificates (net of
deferred premiums of
$1,578,577) . . . . . . . . 78,793,229 1,720,494 17,390 80,496,333
------------ ---------- ------- -----------
$208,248,187 $7,291,265 $59,071 $215,480,381
============ ========== ======= ============
F-9
<PAGE>
STATEWIDE SAVINGS BANK, S.L.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1993, 1992 AND 1991 AND (UNAUDITED) THE NINE MONTHS
ENDED DECEMBER 31, 1993 AND 1992
MARCH 31, 1992
----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
---- ----- ------ -----
GNMA guaranteed pass-through
certificates (net of
deferred premiums of
$104,356) . . . . . . . . .$ 57,453,437 $1,179,192 $ 535,821 $ 58,096,808
FHLMC pass-through
certificates (net of
deferred premiums of
$1,157,198) . . . . . . . . 99,215,197 1,340,922 451,129 100,104,990
FNMA pass-through
certificates (net of
deferred premiums of
$549,869) . . . . . . . . . 23,635,261 216,913 269,897 23,582,277
----------- ---------- ---------- ------------
$180,303,895 $2,737,027 $1,256,847 $181,784,075
============ ========== ========== ============
Issuers of these securities have the ability to prepay them.
Mortgage-backed securities with an amortized cost totalling $60,571,375 and
$55,702,919 were pledged at March 31, 1993 and 1992 to secure Federal Home
Loan Bank of New York advances.
Proceeds from the sales of mortgage-backed securities were $11,232,594,
$39,626,639 and $3,043,125 in 1993, 1992 and 1991, respectively. The 1993,
1992 and 1991 sales resulted in gross realized gains of $529,775, $1,761,613
and $20,090, respectively, and no gross realized losses.
5. LOANS RECEIVABLE, NET
Loans consist of the following:
MARCH 31,
---------------------------
1993 1992
---- ----
First mortgage loans:
Conventional. . . . . . . . . . . $183,534,608 $213,242,034
FHA insured and VA guaranteed . . 28,854,964 33,864,490
Construction. . . . . . . . . . . 248,853 248,853
------------ ------------
212,638,425 247,355,377
------------ ------------
Consumer loans:
Home improvement. . . . . . . . . 10,054,618 11,359,827
Second mortgage . . . . . . . . . 8,394,583 6,966,409
Student . . . . . . . . . . . . . 146,080 229,382
Passbook. . . . . . . . . . . . . 450,555 567,071
Automobile. . . . . . . . . . . . 2,820 10,636
Home equity line of credit. . . . 1,790,718 1,876,246
Personal line of credit . . . . . 219,110 21,411
------------ ------------
21,058,484 21,030,982
------------ ------------
Total loans. . . . . . . . . . . . 233,696,909 268,386,359
------------ ------------
Less:
Deferred loan fees. . . . . . . . (654,773) (663,105)
Unearned discounts . . . . . . . (747,289) (967,604)
Allowance for losses. . . . . . . (1,366,001) (1,841,404)
------------ ------------
(2,768,063) (3,472,113)
------------ ------------
$230,928,846 $264,914,246
============ ============
F-10
<PAGE>
STATEWIDE SAVINGS BANK, S.L.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1993, 1992 AND 1991 AND (UNAUDITED) THE NINE MONTHS
ENDED DECEMBER 31, 1993 AND 1992
At March 31, 1993 and 1992, the Bank serviced loans for others amounting
to $15,875,647 and $23,235,536, respectively. Servicing loans for others
generally consists of collecting mortgage payments, maintaining escrow
accounts, disbursing payments to investors and foreclosure processing. Loan
servicing income is recorded on the accrual basis and includes servicing fees
from investors and certain charges collected from borrowers, such as late
payment fees. In connection with these loans serviced for others, the Bank
held borrowers' escrow balances of $219,338 and $370,546 at March 31, 1993 and
1992, respectively.
Loans three or more months in arrears or in the process of foreclosure
were: Conventional first mortgage loans -- $1,449,559 and $1,908,726; FHA
insured and VA guaranteed -- $666,584 and $670,622; consumer loans -- $509,097
and $603,110; and construction loans $248,853 and $-0- at March 31, 1993 and
1992, respectively.
The amount of non-accruing loans at March 31, 1993 and 1992 was
$2,133,466 and $2,511,835, respectively, which represents .91% and .94%,
respectively, of total loans outstanding. The total interest income that
would have been recorded for the years ended March 31, 1993 and 1992, had
these loans been current in accordance with their original terms, or since the
date of origination if outstanding for only part of the year, was
approximately $188,822 and $94,560, respectively.
Activity in the allowance for loan losses was as follows:
YEAR ENDED MARCH 31,
------------------------------------
1993 1992 1991
---- ---- ----
Balance, beginning of year . . $1,841,404 $1,697,711 $2,048,391
Provision for loan losses. . . 193,654 1,932,503 185,800
Charge-offs. . . . . . . . . . (688,332) (1,788,810) (537,480)
Recoveries . . . . . . . . . . 19,275 -- --
---------- ---------- ----------
Balance, end of year . . . . . $1,366,001 $1,841,404 $1,697,711
========== ========== ==========
Residential mortgage loans totalled approximately $189 million and $225
million at March 31, 1993 and 1992, respectively. These loans are primarily
secured by real estate in New Jersey.
The Bank holds in their portfolio commercial real estate loans,
multi-family residential loans, construction loans and land loans which
totalled approximately $23.6 million and $22.5 million, net of loans in
process and allowance for losses, at March 31, 1993 and 1992, respectively.
These loans are considered by management to be of somewhat greater risk of
uncollectibility due to the dependency on income production or future
development of the real estate.
Of these commercial real estate loans at March 31, 1993, $4.8 million are
collateralized by multi-family residential properties, $249,000 by
construction properties, $2.2 million by land properties and $16.3 million by
commercial properties. Additionally, the majority of these loans are
collateralized by real estate in New Jersey, which, in general, is
experiencing a weak real estate market.
The Office of Thrift Supervision (OTS) regulatory capital regulations,
issued November 6, 1989, require that the portion of nonresidential
construction and land loans in excess of 80% loan-to-value ratio be deducted
from total capital for purposes of the risk-based capital standard over a
5-year-phase-in period commencing July 1, 1990. At March 31, 1993, the Bank
had no investment in loans subject to this deduction.
F-11
<PAGE>
STATEWIDE SAVINGS BANK, S.L.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1993, 1992 AND 1991 AND (UNAUDITED) THE NINE MONTHS
ENDED DECEMBER 31, 1993 AND 1992
The Bank's loan portfolio includes both adjustable and fixed interest
rate loans. At March 31, 1993, the approximate composition of these loans was
as follows:
FIXED RATE ADJUSTABLE RATE
- ---------------------------------- ------------------------------------
TERM TO BOOK TERM TO RATE BOOK
MATURITY VALUE ADJUSTMENT VALUE
-------- ----- ------------ -----
Within 1 year . . . . $ 15,659,000 Within 1 year . . . . . . $ 81,947,000
1 to 3 years. . . . . 3,461,000 1 to 3 years. . . . . . . 11,269,000
3 to 5 years. . . . . 9,071,000 3 to 5 years. . . . . . . 7,559,000
5 to 10 years . . . . 28,686,000 5 to 10 years . . . . . . 1,977,000
10 to 20 years. . . . 41,981,000
Over 20 years . . . . 32,087,000
----------- ------------
$130,945,000 $102,752,000
============ ============
The adjustable rate loans have interest rate adjustment limitations and
are generally indexed to the prime rate, the appropriate treasury constant
maturity rate, or the Federal Home Loan Bank advance rate. Future market
factors may affect the correlation of the interest rate adjustments with the
rates the Bank pays on short-term deposits and borrowings that have been
primarily utilized to fund these loans.
Under FIRREA, the Bank may not originate real estate loans to one
borrower in excess of 15% of its unimpaired capital except for loans that do
not exceed $500,000. This results in a dollar limitation of approximately
$2,000,000 at March 31, 1993.
6. PREMISES AND EQUIPMENT, NET
Premises and equipment consists of the following:
MARCH 31,
---------------------------
1993 1992
---- ----
Land . . . . . . . . . . . . . . . . . . $ 1,056,425 $ 1,056,425
Buildings. . . . . . . . . . . . . . . . 4,157,035 4,139,744
Leasehold improvements . . . . . . . . . 444,677 444,677
Furniture, fixtures and equipment. . . . 4,809,687 4,773,456
----------- -----------
10,467,824 10,414,302
Less accumulated depreciation and
amortization. . . . . . . . . . . . . . (6,527,613) (6,126,377
----------- -----------
$ 3,940,211 $ 4,287,925
=========== ===========
Depreciation expense included in occupancy and office operations in the
consolidated statements of operations and retained earnings amounted to
$495,825, $676,939 and $782,209 for the years ended March 31, 1993, 1992 and
1991, respectively.
7. INVESTMENT IN REAL ESTATE VENTURE, NET
The Bank, through its subsidiary, has an investment in a real estate
venture engaged in the acquisition and development of real estate at March 31,
1993. The Bank's investment in such venture is as follows:
MARCH 31,
--------------------------
1993 1992
---- -----
Capital contributions to real estate
venture . . . . . . . . . . . . . . . . $1,443,500 $1,443,500
Equity in retained earnings (accumulated
deficit) of real estate venture . . . . (945,119) (884,781)
Allowance for losses . . . . . . . . . . (474,575) (334,575)
---------- ----------
$ 23,806 $ 224,144
========== ==========
F-12
<PAGE>
STATEWIDE SAVINGS BANK, S.L.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1993, 1992 AND 1991 AND (UNAUDITED) THE NINE MONTHS
ENDED DECEMBER 31, 1993 AND 1992
The Bank's equity in the income (loss) of the real estate venture, which
is included in other operating expenses in the consolidated statements of
income and retained earnings amounted to $(60,337) and $(125,444) and
$(67,286) for the years ended March 31, 1993, 1992 and 1991, respectively.
Included in loss on investment in real estate venture in the consolidated
statements of income and retained earnings for the years ended March 31, 1993,
1992 and 1991 are provisions for losses of $140,000, $334,575 and $96,000,
respectively.
The ability of the Bank (and its service corporation) to recover the
carrying value of its investment in the real estate venture is based upon
future sales of the single family residences the joint venture is developing.
The ability to affect such sales is subject to market conditions and other
factors, all of which are beyond the Bank's control.
8. REAL ESTATE OWNED, NET
MARCH 31,
-------------------------
1993 1992
---- ----
Acquired by foreclosure or deed in
lieu of foreclosure . . . . . . . . $ 1,833,120 $ 2,039,016
Loans foreclosed in-substance. . . . 11,532,333 15,092,519
13,365,453 17,131,535
Less allowance for losses. . . . . . (1,826,479) (1,927,080)
----------- -----------
$11,538,974 $15,204,455
=========== ===========
Activity in the allowance for losses for real estate owned was as
follows:
MARCH 31,
------------------------------------
1993 1992 1991
---- ---- ----
Balance, beginning of year . . $1,927,080 $1,588,754 $ 24,121
Provision for losses . . . . . 465,790 601,509 1,588,754
Charge-offs. . . . . . . . . . (566,391) (263,183) (24,121)
---------- ---------- ----------
Balance, end of year . . . . . $1,826,479 $1,927,080 $1,588,754
========== ========== ==========
Results of real estate operations were as follows:
March 31,
-----------------------------------
1993 1992 1991
---- ---- ----
Acquired by foreclosure or deed
in lieu of foreclosure:
Net loss on sales of real
estate . . . . . . . . . . . $ 55,334 $ 39,263 $ --
Holding costs . . . . . . . . 365,036 705,100 158,512
Provision charged to
operations . . . . . . . . . 465,790 601,509 1,588,754
-------- ---------- ----------
Foreclosed real estate expense,
net . . . . . . . . . . . . . $886,160 $1,345,872 $1,747,266
======== ========== ==========
9. ACCRUED INTEREST RECEIVABLE, NET
Accrued interest receivable consists of the following:
MARCH 31,
-------------------------
1993 1992
---- ----
Loans. . . . . . . . . . . . . . . . $2,720,095 $4,241,640
Investment securities. . . . . . . . 305,876 395,293
Mortgage-backed securities . . . . . 1,531,531 1,538,655
---------- ----------
$4,557,502 $6,175,588
========== ==========
F-13
<PAGE>
STATEWIDE SAVINGS BANK, S.L.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1993, 1992 AND 1991 AND (UNAUDITED) THE NINE MONTHS
ENDED DECEMBER 31, 1993 AND 1992
10. DEPOSITS
The weighted average cost of funds on deposit at March 31, 1993 and 1992
was 3.55% and 4.92%, respectively. A summary of deposits by type of account
is as follows:
MARCH 31, 1993 MARCH 31, 1992
-------------------------- --------------------------
WEIGHTED AVG. WEIGHTED AVG.
AMOUNT INTEREST RATE AMOUNT INTEREST RATE
------- ------------- ------ -------------
Passbook Savings . . $106,078,461 3.05% $ 98,353,635 4.15%
Money Market
Passbook. . . . . . 54,555,647 3.05% 55,565,699 4.15%
Club Accounts. . . . 1,790,112 4.00% 2,028,446 4.00%
Non-Interest Bearing
Demand Accounts . . 7,796,933 7,113,614
Super NOW Accounts . 70,889,233 3.40% 67,359,727 4.77%
Money Market NOW
Accounts. . . . . . 529,897 3.05% 499,426 4.15%
Certificates of deposit
maturing:
One year or less . 165,509,381 3.67% 174,286,970 5.34%
One to three years 27,489,871 5.60% 46,418,709 7.19%
Three to five
years . . . . . . 4,761,078 7.78% 8,651,172 8.15%
Thereafter . . . . 592,325 8.30% 592,571 7.69%
------------ ------------
Total certificates . 198,352,655 3.99% 229,949,422 5.57%
Accrued interest
payable on savings
deposits. . . . . . 41,021 55,920
------------ ------------
$440,033,959 $460,925,889
============ ============
At March 31, 1993, the Bank had approximately $26,410,000 of certificates
of deposit and other deposits of $100,000 or more.
11. BORROWED FUNDS
Borrowed funds at March 31, 1993 and 1992 which consist of advances from
the Federal Home Loan Bank of New York ("FHLBNY") are collateralized by
$60,571,375 and $55,702,900, respectively, of pledged mortgage-backed
securities, as well as stock in the Federal Home Loan Bank of New York. These
advances had interest rates payable ranging from 3.63% to 9.30% and 4.18% to
9.26%, at March 31, 1993 and 1992, respectively. The weighted average rate
payable at such dates was 7.64% and 8.23%, respectively. Such advances mature
as follows:
MARCH 31,
-------------------------
1993 1992
MATURITY AMOUNT AMOUNT
- -------- ------ ------
One year or less . . . . . . . . . . $15,800,000 $15,800,000
One to two years . . . . . . . . . . 6,300,000 6,300,000
Two to three years . . . . . . . . . 6,300,000 6,300,000
Three to four years. . . . . . . . . 6,300,000 6,300,000
Four to five years . . . . . . . . . 2,391,666 6,300,000
Thereafter . . . . . . . . . . . . . 8,000,000 2,391,666
----------- -----------
$45,091,666 $43,391,666
=========== ===========
At March 31, 1993, the Bank had available from the FHLBNY a line of
credit for $26,723,650 at an interest rate of 3.63% which expires October 30,
1993. At March 31, 1993, the Bank borrowed $9,500,000 from this credit line
which is included in the borrowed funds above.
F-14
<PAGE>
STATEWIDE SAVINGS BANK, S.L.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1993, 1992 AND 1991 AND (UNAUDITED) THE NINE MONTHS
ENDED DECEMBER 31, 1993 AND 1992
The following table sets forth the maximum month-end balance and average
balance of FHLBNY advances for the periods indicated:
MARCH 31,
-----------------------------
1993 1992
AMOUNT AMOUNT
------ ------
Maximum balance:
FHLBNY advances . . . . . . . $55,216,666 $52,149,999
Average balance:
FHLBNY advances . . . . . . . 48,729,166 45,154,166
Weighted average interest
rate of FHLBNY advances. . . 6.16% 7.50%
12. INCOME TAXES
The Bank qualifies as a thrift institution under the provisions of the
Internal Revenue Code and is therefore permitted to deduct from taxable income
an allowance for bad debts based on a percentage of taxable income before such
deduction less certain adjustments or actual loan loss write-offs. For tax
years beginning after December 31, 1986, the percentage is 8%. In the future,
if the Bank fails to meet the federal income tax requirements necessary to
permit it to deduct an allowance for bad debts, the Bank's effective federal
income rate could increase to the maximum rate prevailing under the law at
that time.
Retained earnings at March 31, 1993 and 1992, includes approximately
$5,903,000 of such bad debt, for which federal income taxes have not been
provided. If such amount is used for purposes other than for bad debt losses,
including distributions in liquidation, it will be subject to federal income
tax at the then current rate.
YEAR ENDED MARCH 31,
-------------------------------
1993 1992 1991
---- ---- ----
Current provision:
Federal . . . . . . . . . . . . $1,416,117 $ 140,616 $ --
State . . . . . . . . . . . . . 223,384 87,487 34,854
Tax equivalent of the operating
loss utilized. . . . . . . . . -- 1,233,283 --
---------- ---------- -------
1,639,501 1,461,386 34,854
---------- ---------- -------
Deferred income tax:
Federal . . . . . . . . . . . . 849,594 -- --
State . . . . . . . . . . . . . 1,333 -- --
---------- ---------- -------
850,927 -- --
---------- ---------- -------
$2,490,428 $1,461,386 $34,854
========== ========== =======
Deferred taxes arise from the recognition of certain items of revenue and
expense for tax purposes in years different from those in which they are
recognized in the financial statements. Deferred income taxes result from
timing differences primarily related to accelerated tax depreciation and the
recognition of loan fees and discounts on securities.
During 1992, the Bank utilized the remaining amount of its book and tax
net operating loss carryforward.
F-15
<PAGE>
STATEWIDE SAVINGS BANK, S.L.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1993, 1992 AND 1991 AND (UNAUDITED) THE NINE MONTHS
ENDED DECEMBER 31, 1993 AND 1992
A reconciliation of the statutory Federal income tax rate to the
effective income tax rate follows:
YEAR ENDED MARCH 31,
-----------------------
1993 1992 1991
---- ---- ----
Statutory Federal income
tax rate. . . . . . . . . . . . . 34.0% 34.0% (34.0)%
Statutory Federal bad debt
deduction . . . . . . . . . . . . 1.8 7.8 4.1
Amortization of goodwill . . . . . 3.9 13.1 24.7
Excise tax . . . . . . . . . . . . -- 5.5 --
Net amortization of discounts and
premiums of acquired association. (.6) (2.6) (7.8)
State income tax . . . . . . . . . (.1) (1.2) 1.8
Unrecognized benefit of net
operating loss carryforward to
future years. . . . . . . . . . . -- -- 13.9
Other. . . . . . . . . . . . . . . -- (.8) 13.9
---- ---- -----
Effective income tax rate. . . . . 39.0% 55.8% 2.7%
==== ==== =====
Savings and loan associations that meet certain definitional tests and
other conditions prescribed by the Internal Revenue Code are allowed to
deduct, within limitations, a bad debt deduction. This deduction can be
computed as a percentage of taxable income before such deduction or based upon
actual loss experience. For the years ended March 31, 1993, 1992 and 1991,
the Bank employed the actual loss experience method.
Prepaid income taxes, amounting to approximately $212,883 and $88,000 at
March 31, 1993 and 1992, respectively, are included in other assets in the
statements of consolidated financial condition.
13. EMPLOYEE BENEFIT PLAN
On August 19, 1991, the Board of Directors authorized the termination of
the Bank's non-contributory defined benefit plan which covered substantially
all full-time employees. The termination was effective December 31, 1991 and
participants in the plan became fully vested on that date. The Bank recorded
a pretax curtailment gain of $867,000 (net of $400,000 excise tax) which is
included in the statement of consolidated income and retained earnings, for
the year ended March 31, 1992.
In conjunction with the Bank's termination of the non-contributory
defined benefit plan, the Bank established a 401(k) Profit Sharing Plan (the
"Plan") covering all employees; whereby employees can invest up to 18% of
their earnings. The Bank will contribute 50% of each employee's contribution,
not to exceed 6% of their annual earnings. The Bank made matching
contributions of $40,148 and $18,676 in 1993 and 1992, respectively.
Additionally, the Bank, at the Board of Directors' discretion, will make
annual profit-sharing contributions to the Plan. Over the next six years, the
Bank intends to contribute $407,470 to the Plan. This amount represents 25%
of the defined benefit plan employer reversion amount to the 401(k) Profit
Sharing Plan. During 1993, the Bank contributed $109,844 to the Plan.
F-16
<PAGE>
STATEWIDE SAVINGS BANK, S.L.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1993, 1992 AND 1991 AND (UNAUDITED) THE NINE MONTHS
ENDED DECEMBER 31, 1993 AND 1992
The funded status of the pension plan and the amounts recognized in the
Bank's financial statements as of March 31, 1991 is as follows:
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits
of $4,478,000. . . . . . . . . . . . . . . . . . . . . . $ 4,604,000
-----------
Projected benefit obligation for service rendered to date $ 5,634,000
Plan assets at fair value, primarily a U.S. Treasury
obligations Money-Market Fund. . . . . . . . . . . . . . 6,615,000
-----------
Plan assets in excess of projected benefit obligation. . . (981,000)
Unrecognized gain (loss) from past experience different
from that assumed . . . . . . . . . . . . . . . . . . . . (1,000)
Unrecognized net asset at January 1, 1987 being recognized
over 17 years . . . . . . . . . . . . . . . . . . . . . . 249,000
-----------
(Prepaid) accrued pension cost . . . . . . . . . . . . . . $ (733,000)
===========
Net periodic pension cost (benefit) recognized by the Bank for the year
ended March 31, 1991 is as follows:
Amortization of gain . . . . . . . . . . . . . . . . . . . $(1,055,000)
Service cost on benefits earned during the year. . . . . . 263,000
Interest cost on projected benefit obligation. . . . . . . 437,000
Actual return on plan assets . . . . . . . . . . . . . . . (529,000)
Net amortization and deferral. . . . . . . . . . . . . . . (19,000)
-----------
Net periodic pension cost (benefit). . . . . . . . . . . . $ (903,000)
===========
The weighted average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation was 8% at 1991. The expected long-term rate of
return on assets was 8%.
During 1992 and 1991, the Bank made contributions to the pension plan of
$17,783 and $213,400, respectively.
14. COMMITMENTS AND CONTINGENCIES
Leases--Certain premises are leased under operating leases with terms
expiring through the year 2000, exclusive of renewal options. The Bank has
the option to renew or extend certain of the leases from two years to
twenty-five years beyond the original term. Some leases require the Bank to
pay for insurance, increases in property taxes and other incidental costs.
Future minimum rental payments due under noncancellable operating leases for
years ending March 31 are as follows:
1994 . . . . . . . . . . . . . $ 157,667
1995 . . . . . . . . . . . . . 158,929
1996 . . . . . . . . . . . . . 156,437
1997 . . . . . . . . . . . . . 40,800
1998 . . . . . . . . . . . . . 10,800
Thereafter . . . . . . . . . . 7,350
--------
Total. . . . . . . . . . . . . $531,983
========
Net rental expense included in occupancy and office operations in the
statements of consolidated income and retained earnings amounted to $176,000,
$172,000 and $171,000 for the years ended March 31, 1993, 1992 and 1991,
respectively.
Financial Instruments With Off-Balance-Sheet Risk--The Bank is a party
to financial instruments with off-balance-sheet risk in the normal course of
business to meet the financing needs of its customers. These financial
instruments include commitments to extend credit and standby letters of
credit. These instruments involve, to varying degrees, elements of credit
risk in excess of the amount recognized in the consolidated statement of
financial condition.
F-17
<PAGE>
STATEWIDE SAVINGS BANK, S.L.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1993, 1992 AND 1991 AND (UNAUDITED) THE NINE MONTHS
ENDED DECEMBER 31, 1993 AND 1992
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual notional amount of
these instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
1993 1992
---- ----
Financial instruments whose contract
amounts represent credit risk
(contract or notional amount):
Commitments to extend credit . . . . . $1,756,000 $3,962,000
Standby letters of credit. . . . . . . 779,000 2,455,000
Unused lines of credit . . . . . . . . 1,404,000 1,234,000
Commitments to extend credit are legally binding agreements to lend to a
customer as long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since some of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
Bank evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained by the Bank upon extension of credit is based on
management's credit evaluation of the borrower. Collateral held varies but
may include mortgages on commercial and residential real estate, deposit
accounts with the Bank, and automobiles.
Standby letters of credit are conditional commitments issued by the Bank
to assure the performance of financial obligations of a customer to a third
party. These commitments are primarily issued to support performance bonds in
favor of local municipalities and private obligations of customers for work
performed by third parties. Most of the Bank's standby letters of credit
extend for less than one year. The credit risk involved in issuing standby
letters of credit is essentially the same as that involved in extending loan
facilities to customers. The Bank obtains personal guarantees supporting
these commitments.
Unused lines of credit are legally binding agreements to lend to a
customer as long as there is no violation of any condition established in the
contract. Lines of credit generally have fixed expiration dates or other
termination clauses. The amount of collateral obtained, if deemed necessary
by the Bank, is based on management's credit evaluation of the borrower.
15. BUSINESS COMBINATION
Goodwill resulting from the use of the purchase method of accounting from
acquisitions made prior to 1983, is being amortized to expense over a period
of twenty years using the straight-line method. The net discount arising from
the valuation of various mortgage assets is being accreted into income over
the estimated remaining life of the assets acquired, adjusted for prepayments
and subsequent mortgage asset sales, using the level yield method.
For the years ended March 31, 1993, 1992 and 1991, the effect of
amortization of goodwill was to reduce net income by approximately $942,000
each of the years, and the effect of the accretion of the purchase accounting
discounts was to increase net income by approximately $148,000, $188,000, and
$188,000, respectively.
F-18
<PAGE>
STATEWIDE SAVINGS BANK, S.L.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1993, 1992 AND 1991 AND (UNAUDITED) THE NINE MONTHS
ENDED DECEMBER 31, 1993 AND 1992
16. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and estimated fair values of the Bank's financial
instruments at March 31, 1993 are as follows:
CARRYING ESTIMATED
AMOUNT FAIR VALUE
-------- ----------
Financial assets:
Cash and amounts due from depository
institutions . . . . . . . . . . . . . . . $ 5,212,000 $ 5,212,000
Federal funds sold. . . . . . . . . . . . . 6,100,000 6,100,000
Investment securities . . . . . . . . . . . 18,225,000 19,170,000
Mortgage-backed securities. . . . . . . . . 208,248,000 215,480,000
Mortgage-backed securities available
for sale . . . . . . . . . . . . . . . . . 7,517,000 7,871,000
------------ ------------
245,302,000 253,833,000
------------ ------------
Performing loans, less allowance for loan
losses . . . . . . . . . . . . . . . . . . 226,999,000 231,654,000
Nonperforming loans, less allowance for loan
losses . . . . . . . . . . . . . . . . . . 3,930,000 4,118,000
------------ ------------
Total loans. . . . . . . . . . . . . . . 230,929,000 235,772,000
------------ ------------
Federal Home Loan Bank of New York stock 4,493,000 4,493,000
Accrued interest receivable . . . . . . . . 4,558,000 4,558,000
------------ ------------
Total financial assets . . . . . . . . . . . $485,282,000 $498,656,000
============ ============
Financial liabilities:
Deposits. . . . . . . . . . . . . . . . . . $440,034,000 $442,751,000
Advance payments by borrowers for taxes and
insurance. . . . . . . . . . . . . . . . . 1,844,000 1,844,000
Accounts payable and other liabilities. . . 1,946,000 1,946,000
Borrowed funds. . . . . . . . . . . . . . . 45,092,000 49,032,000
------------ ------------
Total financial liabilities. . . . . . . . . $488,916,000 $495,573,000
============ ============
Off-balance-sheet financial instruments:
Commitments to extend credit. . . . . . . . $ 1,756,000 $ 1,756,000
Standby letters of credit . . . . . . . . . 779,000 779,000
Unused lines of credit. . . . . . . . . . . 1,404,000 1,404,000
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate fair value:
Cash and Amounts Due from Depository Institutions and Federal Funds
Sold--For these short-term instruments, the carrying amount is a reasonable
estimate of fair value.
Investment, Mortgage-Backed Securities and Mortgage-Backed Securities
Available for Sale--For investment, mortgage-backed securities and
mortgage-backed securities available for sale, fair values are based on quoted
market prices.
Loans--Fair values are estimated for portfolios of loans with similar
financial characteristics. The total loan portfolio is first divided into
performing and nonperforming categories. Performing loans are then segregated
into adjustable and fixed rate interest terms. Fixed rate loans are segmented
by type, such as construction and land development, other loans secured by
real estate, commercial and industrial loans, and loans to individuals.
Certain types, such as commercial loans and loans to individuals, are further
segmented by maturity and type of collateral.
For adjustable rate performing loans, the carrying amount less a credit
risk adjustment based on internal loan classifications is a reasonable
estimate of fair value. For fixed rate performing loans, fair value is
calculated by discounting scheduled future cash flows through estimated
maturity using a discount rate equivalent to the rate at which the Bank would
currently make loans which are similar with regard to collateral, maturity,
and the type of
F-19
<PAGE>
STATEWIDE SAVINGS BANK, S.L.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1993, 1992 AND 1991 AND (UNAUDITED) THE NINE MONTHS
ENDED DECEMBER 31, 1993 AND 1992
borrower. The discounted value of the cash flows is reduced by a credit risk
adjustment based on internal loan classifications. Based on the current
composition of the Bank's loan portfolio, as well as both past experience and
current economic conditions and trends, future prepayments are not expected to
materially impact scheduled future maturities and accordingly have not been
considered in calculating fair value.
For nonperforming loans, fair value is calculated by first reducing the
carrying value by a credit risk adjustment based on internal loan
classifications, and then discounting the estimated future cash flows from the
remaining carrying value at the rate at which the Bank would currently make
similar loans to credit worthy borrowers.
Federal Home Loan Bank of New York Stock--The carrying amount of the
Federal Home Loan Bank of New York Stock is equal to its fair value.
Deposit Liabilities--The fair value of deposits with no stated maturity,
such as noninterest-bearing demand deposits, money market accounts, interest
checking accounts, and savings accounts is equal to the amount payable on
demand as of March 31, 1993. Time deposits are segregated by type, size, and
remaining maturity. The fair value of time deposits is based on the
discounted value of contractual cash flows. The discount rate is equivalent
to the rate currently offered by the Bank for deposits of similar size, type,
and maturity.
Borrowed Funds--The fair value of the Bank's borrowed funds is estimated
based on the discounted value of future contractual payments. The discount
rate is equivalent to the estimated rate at which the Bank could currently
obtain similar financing.
Accrued Interest Receivable, Advance Payments by Borrowers for Taxes and
Insurance, and Accounts Payable and Other Liabilities--For these short-term
instruments, the carrying amount is a reasonable estimate of fair value.
Commitments to Extend Credit, Standby Letters of Credit, and Unused Lines
of Credit--The fair value of commitments is estimated using the fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present credit worthiness of the
counterparties. For fixed-rate rate loan commitments, fair value also
considers the difference between current levels of interest rates of the
committed rates. The fair value of letters of credit and lines of credit is
based on fees currently charged for similar agreements or on the estimated
cost to terminate them or otherwise settle the obligations with the
counterparties at the reporting date.
17. REGULATORY CAPITAL REQUIREMENTS
The Bank is required to maintain certain levels of capital in accordance
with the Financial Institutions Reform, Recovery and Enforcement Act of 1989
(FIRREA) and Office of Thrift Supervision (OTS) regulations. Savings
associations must maintain tangible capital of 1.5% of tangible assets.
Tangible capital, as defined by FIRREA and the OTS regulations, consists
generally of retained income less most intangible assets including supervisory
goodwill. The OTS requires that savings associations maintain core capital of
3% of adjusted tangible assets. Core capital consists of tangible capital
plus certain intangible assets such as certain qualifying supervisory goodwill
which meets the requirements of FIRREA. The amount of such qualifying
supervisory goodwill includable in core capital is limited to one-half of core
capital and declines each year through December 31, 1994, when supervisory
goodwill may no longer be included in core capital.
On April 22, 1991, the OTS issued a notice of proposed rulemaking
establishing a new minimum leverage ratio of 3% for savings associations
without any supervisory, financial, or operational deficiencies, that is,
associations receiving a composite rating of one on their regulatory
examinations under the OTS MACRO system. Leverage ratio is defined as the
ratio of core capital to adjusted total assets. Higher leverage ratios,
generally 100 to 200 basis points higher, will be required for all other
associations, as warranted by particular circumstances or risk profiles.
Thus, for all but the most highly rated institutions meeting the conditions
set forth in the notice, the minimum leverage ratio is 3% plus an additional
amount of core capital, determined on a case-by-case basis. In all cases,
savings institutions will be required to hold capital commensurate with the
quality of risk management systems and the level of overall risk in
F-20
<PAGE>
STATEWIDE SAVINGS BANK, S.L.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1993, 1992 AND 1991 AND (UNAUDITED) THE NINE MONTHS
ENDED DECEMBER 31, 1993 AND 1992
each individual savings association through the supervisory process on a
case-by-case basis. Savings associations that no longer pass the minimum
capital standards because of the new core capital leverage ratio requirement
will be required to submit capital plans that detail the steps they will take
to reach compliance. These capital plans will be due within 60 days of the
effective date of the rule. Had these regulations been adopted at March 31,
1993, the Bank would not have met the minimum leverage ratio. Additionally,
under the prompt corrective action rule which was issued by the federal
banking agencies on September 29, 1992 and which became final on December 19,
1992, an institution must have a leverage ratio of 4% or greater in order to
be considered adequately capitalized. The Bank did not meet the 4% leverage
ratio and therefore fell within the undercapitalized category for purposes of
determining the scope and severity of corrective actions that regulators must
take. Management is currently operating under a capital plan which provides
for achieving the 4% leverage ratio through earnings.
There is also a risk-based capital requirement of 8% of risk-weighted
assets for savings associations which is to be phased in over three years
according to a schedule that follows the Office of Comptroller of the
Currency's schedule. Such thrifts were required to meet 80% of the
requirement, or 6.4% on December 31, 1989, 90% on December 31, 1990, and 100%
on January 1, 1993. The OTS risk-based capital component does not include an
interest rate risk component which, under previously proposed FHLBB
regulations, would have been approximately 20% of risk-weighted assets.
Therefore, the risk-based capital component has been increased from 6% to 8%
until the OTS finalizes the interest rate risk portion of the regulations. In
December 1990, the OTS proposed its interest rate risk component. This
proposal would require savings associations to hold capital as a safeguard
against interest rate exposure in an amount equal to 50% of the decline in the
market value of portfolio equity that would result from an immediate parallel
shift in the term structure of interest rates of plus or minus 200 basis
points. Management believes that the Bank will meet the requirements
concerning the interest rate risk component, if adopted as proposed.
Associations which failed to meet any of the three capital standards on
December 7, 1989, are subject to certain restrictions which include growth
restrictions and a limitation on capital distributions. These thrifts were
also required to develop and submit to the OTS by January 8, 1990, acceptable
capital restoration plans which demonstrate the strategies to be utilized to
meet the capital standards. At December 7, 1989, the Bank did not meet the
capital standards set for in FIRREA and the OTS regulations implementing the
FIRREA capital standards. As a result, the Bank was required to submit a
capital plan to the OTS which included provisions requiring the Bank to meet
the minimum capital requirements prescribed by the OTS. Currently, the Bank
is in compliance with these requirements.
At periodic intervals, the OTS routinely examines the Bank's financial
statements as part of their legally prescribed oversight of the thrift
industry. Based upon these examinations, the regulators can direct that the
Bank's financial statements be adjusted in accordance with their findings.
At March 31, 1993, the Bank had the following capital ratios:
Tangible capital to adjusted total assets . . . . 2.5%
Core capital to adjusted total assets . . . . . . 3.3%
Total capital to risk-weighted assets . . . . . . 9.4%
18. INTEREST RATE RISK
At March 31, 1993, the Bank had average interest earning assets of
approximately $475 million having a weighted average effective yield of 8.43%
and a duration of 2.38 years and average interest bearing liabilities of
approximately $487 million having a weighted average effective interest rate
of 4.49% and a duration of 1.79 years. Because the interest-sensitive
liabilities reprice sooner on average than do the Bank's interest earning
assets, the Bank is exposed to interest rate risk in a rising rate
environment. Such risk occurs in a rising rate environment because
liabilities will be repricing faster at higher interest rates, thereby
reducing the market value of long-term assets and net interest income. Net
interest income will fluctuate based on changes in interest rates and changes
in the levels of interest sensitive assets and liabilities.
F-21
<PAGE>
STATEWIDE SAVINGS BANK, S.L.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1993, 1992 AND 1991 AND (UNAUDITED) THE NINE MONTHS
ENDED DECEMBER 31, 1993 AND 1992
19. LOANS TO RELATED PARTIES
The Bank has had, and expects to have in the future, banking
transactions in the ordinary course of business with directors, executive
officers and their affiliates on the same terms as those prevailing for
comparable transactions with other borrowers. These loans amounted to
$230,103 and $235,182 at March 31, 1993 and 1992, respectively, and do not
involve more than normal risks of repayment. At March 31, 1993 and 1992 these
loans represent 1% of retained earnings. During 1993, no new loans were made
to related parties and repayments were $5,079.
20. RECENTLY ISSUED ACCOUNTING STANDARDS
In May 1993, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standard 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 Bank 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.
In May 1993, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standard No. 115 "Accounting for
Certain Investments in Debt and Equity Securities" ("SFAS 115"). SFAS 115
establishes accounting and reporting for investments in equity securities that
have readily determinable fair values and for all investments in debt
securities. The impact on the Bank of implementing SFAS 115 will not be
material to the financial statements. SFAS 115 is effective for fiscal years
beginning after December 15, 1993.
21. SUBSEQUENT EVENT
Effective May 21, 1993, the Bank entered into an Agreement and Plan of
Reorganization with HUBCO Inc. Under this plan, the Bank will convert from a
State Mutual Savings and Loan Association to a State Chartered Stock Savings
Association, and then convert into a State Chartered Commercial Bank. At such
time the Bank will be merged into HUBCO through an offering to qualified bank
depositors. This plan is subject to the approval of the OTS and the State of
New Jersey Banking Commissioner.
22. RESTATEMENT
In its previously issued financial statements as of and for the years ended,
March 31, 1993 and 1992 the Bank erroneously recognized certain extraordinary
credits related to the utilization of net operating loss carryforwards whose
realization was uncertain. The accompanying 1993 and 1992 financial statements
have been restated to reflect the reduction of these extraordinary credits.
The principal effects of this restatement are as follows:
1993 1992
-------------------------- --------------------------
As previously As previously
stated As restated stated As restated
------------- ----------- ------------- -----------
Accounts Payable
and Other
Liabilities. . . . $ 1,946,039 $ 2,603,039 $ 1,562,263 $ 1,695,980
Retained Earnings-
substantially
restated . . . . . 28,968,590 28,311,590 23,358,521 23,224,804
Income (loss) before
extraordinary
credit . . . . . . 7,637,214 7,577,214
Extraordinary Credit 463,283 -- 1,367,000 1,233,283
Net Income. . . . . 5,610,069 5,086,786 2,367,661 2,233,944
F-22
<PAGE>
STATEWIDE SAVINGS BANK, S.L.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1993, 1992 AND 1991 AND (UNAUDITED) THE NINE MONTHS
ENDED DECEMBER 31, 1993 AND 1992
23. NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
A. General--The accompanying interim consolidated statement of
financial condition and the comparative interim consolidated statements of
operations and retained earnings and statements of cash flows are condensed.
The statements do not contain all of the information and footnotes required by
generally accepted accounting principles to be included in a full set of
financial statements, and have not been independently audited.
Such interim consolidated financial statements are unaudited but include
all adjustments which consist solely of normal recurring accruals and the
effect of the adoption of Statement of Financial Accounting Standard No.
109 "Accounting for Income Taxes" discussed in note D below, which are, in the
opinion of management, considered necessary for a fair presentation of the
financial condition and results of operations for the interim periods. The
interim results of operations presented in this report may not necessarily be
indicative of the consolidated results for the full year. The accompanying
financial statements should be read in conjunction with the Bank's annual
financial statements included elsewhere herein.
B. Allowance for Loan Losses--An analysis of the allowance for loan
losses follows:
FOR THE NINE MONTHS
ENDED DECEMBER 31,
-----------------------
1993 1992
---- ----
Balance, beginning of period . . . $1,366,001 $1,841,404
Provision for loan losses 359,841 181,818
Charge-offs. . . . . . . . . . . . (686,011) (497,490)
Recoveries . . . . . . . . . . . . 54,629 45,580
---------- ----------
Balance, end of period . . . . . . $1,094,460 $1,571,312
========== ==========
C. Nonperforming Loans--Loans three or more months in arrears or in the
process of foreclosure were: Conventional first mortgage loans--$1,605,374
and $2,938,401; FHA insured and VA guaranteed--$755,942 and $607,005;
consumer loans--$359,473 and $549,090; and construction loans $0 and $248,253 at
December 31, 1993 and 1992, respectively.
The amount of non-accruing loans at December 31, 1993 and 1992 was
$1,759,811 and $3,318,846, respectively, which represents .93% and 1.37%,
respectively, of total loans outstanding. The total interest income that
would have been recorded for the nine months ended December 31, 1993 and 1992,
had these loans been current in accordance with their original terms, or since
the date of origination if outstanding for only part of the year, was
approximately $100,893 and $216,007, respectively.
D. Income Taxes--Effective April 1, 1993, the Bank adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"), which requires a change from the "deferred method" to the "liability
method" of accounting for income taxes. The cumulative effect of adopting
SFAS 109 on years prior to 1993 aggregated to an increase in net income of
$668,841 due to the accelerated recognition of the deferred tax assets, net of
a valuation allowance. Financial statements for periods prior to April 1,
1993 have not been restated.
The provision for income taxes is based on pre-tax income which differs
in some respects from taxable income. In years prior to 1993, when income and
expenses were recognized in different periods for financial reporting purposes
than for income tax reporting purposes, deferred taxes were provided on timing
differences at the effective tax rate and the resulting deferred tax asset or
liability was not adjusted for subsequent changes in the tax rate. Beginning
April 1, 1993, all cumulative temporary differences, as defined by SFAS 109,
are tax effected using the current tax rate.
F-23
<PAGE>
STATEWIDE SAVINGS BANK, S.L.A. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED MARCH 31, 1993, 1992 AND 1991 AND (UNAUDITED) THE NINE MONTHS
ENDED DECEMBER 31, 1993 AND 1992
The tax effects of significant items comprising the net deferred tax
asset as of April 1, 1993 were as follows:
Temporary differences
Allowance for loan losses. . . . . . . . . . . . $539,700
Allowance for losses on Joint Venture. . . . . . 332,084
Purchase accounting discount on mortgage loans . 220,708
Deferred loan fees . . . . . . . . . . . . . . . 224,314
Accelerated depreciation . . . . . . . . . . . . (148,861)
Discount on dollar rolls . . . . . . . . . . . . (224,834)
Other. . . . . . . . . . . . . . . . . . . . . . (11,379)
--------
931,732
Valuation allowance. . . . . . . . . . . . . . . 381,732
--------
Net deferred tax asset . . . . . . . . . . . . . $550,000
========
The net deferred tax asset is included in other assets on the consolidated
balance sheet. The Bank expects that it will generate future taxable income
sufficient to enable the bank to realize these tax benefits; however, there
can be no assurance that the Bank will generate any earnings or any specific
level of continuing earnings. The valuation allowance relating to the net
deferred tax asset primarily relates to a capital loss incurred by the Bank.
Since capital losses are only deductible from capital gains and since it was
very unlikely that the Bank would generate sufficient capital gains to provide
for the use of the tax benefit related to the capital loss, the Bank concluded
that it was more likely than not that the related tax asset would not be
recognized and established a valuation allowance in accordance with SFAS 109.
The Bank in determining the adequacy of the valuation allowance took into
consideration the current results of operations, adequacy of the loan loss
less allowance and capital.
E. Subsequent Event--Statewide had a participation interest in a $159
million acquisition, development and construction loan. The property securing
the loan, located in Jersey City, New Jersey, is being managed and marketed
for sale by the R.T.C. The sale of the property was approved by the
former participants in January 1994. No contract has been executed at
this time, but the letter of intent provides for payments to be made to former
participants over a protracted build-out period estimated to be five to eight
years. Due to the uncertainty of receiving any proceeds, in March 1994
Statewide decided to charge off its insubstance foreclosure balance relating
to this former participation. The March 1994 charge off, net of taxes,
amounted to $365,000.
F-24
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and
Stockholders of Washington Bancorp, Inc.
Hoboken, New Jersey
We have audited the accompanying consolidated balance sheets of
Washington Bancorp, Inc. and Subsidiary as of December 31, 1993 and 1992, and
the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for each of the three years in the period ended
December 31, 1993. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Washington Bancorp, Inc. and Subsidiary as of December 31, 1993 and 1992, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1993 in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1993
the Company changed its method of accounting for income taxes and its method
of accounting for investments in debt and equity securities.
As discussed in Note 11 to the consolidated financial statements,
the Company is presently a defendant in two lawsuits. One lawsuit seeks
unspecified damages and alleges violations of state securities laws, certain
banking laws and state common law. The other was filed by a former Bank
officer and alleges wrongful termination and seeks unspecified damages. Legal
counsel has advised the Company that the effect, if any, of the ultimate
outcome of these actions cannot presently be determined, and accordingly, no
provision for loss, if any, that may result upon resolution of these matters
has been made in the accompanying consolidated financial statements.
/s/ Coopers & Lybrand
COOPERS & LYBRAND
Parsippany, New Jersey
January 28, 1994
F-25
<PAGE>
WASHINGTON BANCORP, INC. AND 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
F-26
<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
F-27
<PAGE>
<TABLE>
<CAPTION>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Unrealized
gain on
available- Deferred 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
F-28
</TABLE>
<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
F-29
<PAGE>
<TABLE>
<CAPTION>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS--(continued)
Year ended December 31,
-------------------------------------
1993 1992 1991
---------- ---------- ------------
<S> <C> <C> <C>
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 Washington . $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
F-30
</TABLE>
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Washington and Washington
Savings 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
and its wholly-owned subsidiary, Washington Savings. 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 Washington 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.
Washington 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.
Washington Savings, 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 Washington'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
F-31
<PAGE>
nonaccrual loans are recorded as either income or as a reduction of principal,
according to management's judgement as to the collectibility of principal.
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. Washington 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. Washington 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 fair market 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.
F-32
<PAGE>
Income taxes
Washington and Washington Savings file a consolidated federal income tax
return. State income tax returns are filed on a separate basis.
Prior to 1993, Washington 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, Washington 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, Washington 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 Washington of each retiree's future health insurance
premiums in exchange for Washington'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. Washington 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
Washington.
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
F-33
<PAGE>
date. Changes in market conditions subsequent to that date are not
reflected and the fair value of financial instruments are not representative
of Washington's total value. For example, when quoted market prices are
not available, Washington 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.
F-34
<PAGE>
<TABLE>
<CAPTION>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3. SECURITIES
December 31, 1993 December 31, 1992
----------------- -----------------
Weighted Gross Unrealized Weighted Gross Unrealized
Average Carrying ---------------- Market Average Carrying ----------------- Market
Yield Value Gains Losses Value Yield Value Gains Losses Value
------ -------- ----- ------ ------- -------- -------- ----- ------ -------
(Dollars in thousands) (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
===== ======= ==== ====== ======= ==== ======= ==== ===== =======
<CAPTION>
December 31, 1993 December 31, 1992
----------------- -----------------
Weighted Carrying Weighted Gross Unrealized
Average Market Average Carrying ----------------- Market
Yield Value Yield Value Gains Losses Value
------ -------- -------- -------- ----- ------ -------
(Dollars in thousands) (Dollars in thousands)
<S> <C> <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, Washington 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.
F-35
<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.
F-36
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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
Washington Savings currently has a first mortgage and an assignment-of-rents
(the "Bankruptcy Loan"). On November 10, 1993, the Court dismissed the
bankruptcy petition. Nevertheless, Washington Savings 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 Washington Savings) to pay a
substantial portion of property tax arrearages. Rental payments were resumed
to Washington Savings 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. Washington Savings
anticipates that the Bankruptcy Loan will be renegotiated during 1994.
Washington Savings has classified the Bankruptcy Loan as a nonaccrual loan
included in the multi-family/commercial category. Management believes that
Washington Savings 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
======== ==========
F-37
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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.
F-38
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 Washington Savings $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 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, Washington Savings established an Employee Stock Ownership Plan
("ESOP"), which borrowed $l,449,000 from an unrelated third party lender to
acquire 138,000 shares of Washington'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 Washington Savings. 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.
Washington Savings 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.
F-39
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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
======== ======== ========
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 5.50 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
F-40
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 . . . . . . . . . --
=======
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. Washington 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 Washington.
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 Washington. Washington 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 Washington.
Option Plan for Outside Directors ("Directors' Option Plan")
Each member of the Board of Directors who is not an officer or employee
of Washington 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 . . . . . . . . . --
==========
F-41
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements--(CONTINUED)
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 Washington, 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).
Benefits are based on actuarial assumptions then in effect under the
Retirement Plan of Washington Savings. Benefits payable under the DCP shall be
paid directly from the general assets of Washington. Washington 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 Washington, 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 Washington 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 Washington Savings 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
Washington'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 Washington 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, Washington 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
Washington's tax loss carryforward position.
F-42
<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.
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) $ --
===== ===== ====
F-43
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
Washington has entered into a severance agreement with a certain key
executive. In the event of a change in control of Washington (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 Washington Savings, 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 Washington 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 Washington, Washington Savings and certain directors
and officers seeking unspecified damages relating to the termination of such
officer's employment. Washington 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, which was exercised, to refile the complaint by March 31, 1994. In
April 1992, a complaint was filed in the New Jersey Superior Court against
Washington and Washington Savings 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 Washington and Washington Savings.
Management believes that the defendants have meritorious defenses in both of
these matters and 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 Washington's financial statements.
Washington Savings 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 Washington or Washington Savings.
12. FINANCIAL INSTRUMENTS
Off-Balance-Sheet Risk
In the normal course of business, Washington Savings 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:
F-44
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
Expiration
Contractual Interest Dates
Amount Rates Through
---------- -------- ----------
<S> <C> <C> <C>
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
</TABLE>
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
Washington'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.
Washington Savings 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.
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:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------
1993 1992
----------------------------- -------------------------------
Carrying Amount Fair Value Carrying Amount Fair Value
--------------- ---------- --------------- -----------
(in thousands)
<S> <C> <C> <C> <C>
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 -- --
</TABLE>
F-45
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. STOCKHOLDERS' EQUITY AND DIVIDEND RESTRICTIONS
In 1987, when Washington Savings converted from a savings bank in mutual
form to a savings bank in stock form, Washington established a liquidation
account in an amount equal to Washington Savings'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 Washington Savings as of December 31, 1985 and who continue to
maintain their accounts in Washington Savings. 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 Washington Savings to
transfer funds to Washington in the form of cash dividends, loans or advances.
FDIC regulations limit the amount of dividends that may be paid by Washington
Savings to Washington 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 Washington Savings approximated $11.6 million, of
which $3.6 million was available for the payment of dividends to Washington.
14. REGULATORY MATTERS
During the third quarter, the Federal Deposit Insurance Corporation (the
"FDIC") completed its examination of Washington Savings as of August 2, 1993.
As a result of that examination, the FDIC rescinded its Memorandum of
Understanding which Washington Savings 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.
Subsequently, the Federal Reserve Bank of New York (the "FRB") completed
an off-site analysis of Washington. As a result of that analysis, the FRB
rescinded its Memorandum of Understanding, which Washington 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, Washington and
Washington Savings 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 Washington and Washington Savings 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
Washington and Washington Savings 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:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------
1993 1992
------------------------ -----------------------
Washington Washington
Capital ratios: Required* Washington Savings Washington Savings
- --------------- --------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
- ------------
* For qualification as a well-capitalized institution.
F-46
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
15. MERGER AGREEMENT
On November 8, 1993, Washington signed a definitive agreement (the
"Agreement") providing for the merger of Washington with and into Hubco, Inc.
of Union City, New Jersey. Under the terms of the Agreement, shareholders of
Washington 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
Washington's common stock. In addition, Washington 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.
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
(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
========== ========== ==========
F-47
<PAGE>
APPENDIX A
PRO FORMA COMBINED CONDENSED UNAUDITED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial information presents
the Pro Forma Combined Condensed Statement of Condition of HUBCO Inc. ("HUBCO"),
Statewide Savings Bank, S.L.A. ("Statewide") and Washington Bancorp, Inc.
("Washington") at December 31, 1993, after giving effect to the Statewide
acquisition (sometimes referred to as the "Merger Conversion"), the acquisition
of Washington, the issuance of $25,000,000 of 7.75% subordinated debentures due
2004 (completed in January 1994) and the purchase by HUBCO of 442,781 shares of
Common Stock at a cost of $9,869,000 under its stock repurchase plan, which
shares are available for reissuance in the Merger Conversion, as if such
transactions were consummated on December 31, 1993. See "THE COMPANY--Recent
Developments." Also presented is the Pro Forma Combined Condensed Statement
of Income for the year ended December 31, 1993 after giving effect to the Merger
Conversion, the acquisition of Washington, the subordinated debt issuance and
HUBCO's repurchase of shares of Common Stock as if such transactions had been
consummated on January 1, 1993. The unaudited pro forma information is based on
the historical financial statements of HUBCO, Statewide and Washington after
giving effect to the contemplated transactions using the purchase method of
accounting with respect to the Merger Conversion and the acquisition of
Washington and based upon the assumptions and adjustments contained in the
accompanying "Notes to the Pro Forma Combined Condensed Unaudited Financial
Statements." The pro forma statements assume a Subscription Purchase Price (as
defined below) of $18.00 per share for the Merger Conversion and the issuance
of 1,944,444 shares of Common Stock. The Subscription Purchase Price is the
price at which shares of HUBCO Common Stock are offered in connection with the
Merger Conversion to certain depositors of Statewide and others eligible to
purchase Common Stock in a subscription offering and to HUBCO stockholders
eligible to purchase Common Stock in a stockholder offering. The pro forma
statements assume a purchase price of $16.10 in cash or 0.6708 of a share of
Series A Preferred Stock of HUBCO for the Washington merger and, in accordance
with the allocation required under the Washington Merger Agreement, the
conversion of 51% of Washington shares into HUBCO Series A Preferred Stock and
the conversion of 49% of Washington shares to cash.
The unaudited pro forma information presented herein does not give effect
to the operating results of HUBCO, Statewide or Washington subsequent to
December 31, 1993. Purchase accounting adjustments to estimated fair values
have been made with respect to the assets and liabilities of Statewide and
Washington and related income and expense accounts based upon preliminary
estimates and evaluations as of December 31, 1993. Such preliminary estimates
and assumptions are subject to change as additional information is obtained.
The allocations of purchase cost are subject to final determination, based
upon estimates and other evaluations of fair value, as of the close of the
respective transactions. Therefore, the allocations reflected in the Pro Forma
Combined Condensed Unaudited Financial Statements may differ from the amounts
ultimately determined.
The unaudited pro forma information has been prepared by Hubco management
based upon the Consolidated Financial Statements and related notes thereto of
HUBCO incorporated by reference into this Prospectus and the Consolidated
Financial Statements and related notes thereto of each of Statewide and
Washington beginning on page F-1 of this Prospectus. The unaudited pro forma
information should be read in conjunction with such historical statements and
notes. The Pro Forma Combined Condensed Statement of Income is not necessarily
indicative of operating results which would have been achieved had the above
mentioned transactions been consummated as of the above mentioned dates and
should not be construed as being representative of future periods.
A-1
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED STATEMENT OF CONDITION
(Unaudited)
Dollars in Thousands
As of December 31, 1993
Pro Forma
Historical Adjustments Pro Forma
Hubco Hubco Hubco
---------- ----------- ----------
<S> <C> <C> <C>
ASSETS
- ------
Cash and Due
From Banks ..................... $ 49,542 $ (5,298)(1)(8) $ 44,244
Investment
Securities ..................... 296,130 24,671(2) 320,801
Investments
Available
for Sale ....................... 130,555 0 130,555
Federal Funds
Sold ........................... 9,800 0 9,800
Loans ............................ 529,390 0 529,390
Allowance for
Possible
Loan Losses .................... (10,811) 0 (10,811)
Premises and
Equipment ...................... 18,001 0 18,001
Other Real Estate ................ 2,311 0 2,311
Excess of Cost over Fair Value
of Assets Acquired, Net ........ 0 0 0
Other Assets ..................... 16,907 329(1) 17,236
---------- -------- ----------
Total Assets ................... $1,041,825 $ 19,702 $1,061,527
========== ======== ==========
LIABILITIES
- -----------
Deposits ......................... $ 935,688 $ 0 $ 935,688
Borrowed Money ................... 19,629 0 19,629
Other Liabilities ................ 7,554 0 7,554
---------- -------- ----------
Total Liabilities .............. 962,871 0 962,871
---------- -------- ----------
Subordinated Debentures .......... 0 25,000(3) 25,000
---------- -------- ----------
STOCKHOLDERS' EQUITY
- --------------------
Preferred Stock .................. 0 0 0
Common Stock ..................... 18,492 0 18,492
Capital in Excess of
Par Value ....................... 49,048 0 49,048
Retained Earnings ................ 12,669 0 12,669
Unrealized Gain on Investment
Securities available for sale,
net of Taxes .................... 4,262 0 4,262
Treasury Stock ................... (4,571) (5,298)(8) (9,869)
Restricted Stock Award ........... (946) 0 (946)
---------- -------- ----------
Total Stockholders'
Equity ........................ 78,954 (5,298) 73,656
---------- -------- ----------
Total Liabilities and
Stockholders' Equity ........... $1,041,825 $ 19,702 $1,061,527
========== ======== ==========
</TABLE>
See accompanying notes to pro forma combined condensed financial statements.
A-2
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED STATEMENT OF CONDITION
(Unaudited)
Dollars in Thousands
As of December 31, 1993
Pro Forma Pro Forma
Pro Forma Combined Pro Forma Combined
Historical Adjustments Hubco and Historical Adjustments Hubco and Pro Forma
Statewide Statewide Statewide Washington Washington Washington Combined
--------- ---------- --------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
- ------
Cash and Due
From Banks ..................... $ 7,478 $ 0(a) $ 51,722 $ 4,283 $ 0 $ 48,527 $ 56,005
Investment
Securities ..................... 251,743 5,652(b) 578,196 25,007 (18,960)(aa) 326,848 584,243
Investments
Available
for Sale ....................... 4,789 0 135,344 67,257 0 197,812 202,601
Federal Funds
Sold ........................... 16,075 0 25,875 1,900 0 11,700 27,775
Loans ............................ 187,547 5,730(c) 722,667 173,013 1,016(bb) 703,419 896,696
Allowance for
Possible
Loan Losses .................... (1,094) 0 (11,905) (2,828) 0 (13,639) (14,733)
Premises and
Equipment ...................... 3,942 (3,942)(d) 18,001 2,614 2,953(cc) 23,568 23,568
Other Real Estate ................ 9,741 (4,393)(e) 7,659 7,078 0 9,389 14,737
Excess of Cost over Fair Value of
Assets Acquired, Net ........... 14,930 (14,930)(f) 0 0 5,049(dd) 5,049 5,049
Other Assets ..................... 5,124 (796)(g) 21,564 4,311 (92)(ee) 21,455 25,783
-------- -------- ---------- -------- ------- ---------- ----------
Total Assets ................... $500,275 ($12,679) $1,549,123 $282,635 ($10,034) $1,334,128 $1,821,724
======== ======== ========== ======== ======= ========== ==========
LIABILITIES
- -----------
Deposits ......................... $427,003 $ 1,300(h) $1,363,991 $247,320 $ 712(ff) $1,183,720 $1,612,023
Borrowed Money ................... 39,367 (30,867)(i) 28,129 400 0 20,029 28,529
Other Liabilities ................ 1,665 16,501(j) 25,720 1,374 2,875(gg) 11,803 29,969
-------- -------- ---------- -------- ------- ---------- ----------
Total Liabilities .............. 468,035 (13,066) 1,417,840 249,094 3,587 1,215,552 1,670,521
-------- -------- ---------- -------- ------- ---------- ----------
Subordinated Debentures .......... 0 0 25,000 0 0 25,000 25,000
-------- -------- ---------- -------- ------- ---------- ----------
STOCKHOLDERS' EQUITY
- --------------------
Preferred Stock .................. 0 0 0 0 19,920(hh) 19,920 19,920
Common Stock ..................... 0 4,005(k) 22,497 231 (231)(ii) 18,492 22,497
Capital in Excess of
Par Value ....................... 0 18,753(k) 67,801 22,500 (22,500)(ii) 49,048 67,801
Retained Earnings ................ 32,240 (32,240)(l) 12,669 10,744 (10,744)(ii) 12,669 12,669
Unrealized Gain on Investment
Securities available for sale,
net of Taxes .................... 0 0 4,262 186 (186)(ii) 4,262 4,262
Treasury Stock ................... 0 9,869(k) 0 0 0 (9,869) 0
Restricted Stock Award 0 0 (946) (120) 120(ii) (946) (946)
-------- -------- ---------- -------- ------- ---------- ----------
Total Stockholders'
Equity ........................ 32,240 387 106,283 33,541 (13,621) 93,576 126,203
-------- -------- ---------- -------- ------- ---------- ----------
Total Liabilities and
Stockholders' Equity ........... $500,275 ($12,679) $1,549,123 $282,635 ($10,034) $1,334,128 $1,821,724
======== ======== ========== ======== ======= ========== ==========
</TABLE>
See accompanying notes to pro forma combined condensed financial statements.
A-3
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(Unaudited)
Dollars in Thousands, Except for Per Share Amounts
For the Year Ended December 31, 1993
Pro Forma
Historical Adjustments Pro Forma
Hubco Hubco Hubco
---------- ----------- ----------
<S> <C> <C> <C>
Interest Income:
Interest and
Fees on Loans ................. $ 43,546 $ 0 $ 43,546
Interest and
Dividends on
Investments .................... 23,442 1,419(4) 24,623
(238)(9)
Interest on Federal
Funds Sold ..................... 771 0 771
---------- ------- ----------
Total Interest
Income ....................... 67,759 1,181 68,940
---------- ------- ----------
Interest Expense:
Interest on
Deposits ...................... 20,379 0 20,379
Interest on
Borrowings .................... 362 0 362
Interest on
Subordinated Debt ............. 0 1,938(5) 1,971
33(6)
---------- ------- ----------
Total Interest
Expense ....................... 20,741 1,971 22,712
---------- ------- ----------
Net Interest Income
Before Provision for
Possible Loan Losses ........... 47,018 (790) 46,228
Provision for Possible
Loan Losses .................... 3,600 0 3,600
---------- ------- ----------
Net Interest Income
After Provision for
Possible Loan Losses ........... 43,418 (790) 42,628
---------- ------- ----------
Other Income ..................... 8,606 0 8,606
---------- ------- ----------
Other Expenses:
Salaries and Other
Employee Benefits .............. 16,501 0 16,501
Occupancy and
Equipment Expense .............. 5,016 0 5,016
Other Expenses .................. 8,454 0 8,454
---------- ------- ----------
Total Other Expenses............. 29,971 0 29,971
---------- ------- ----------
Income Before Taxes ............. 22,053 (790) 21,263
---------- ------- ----------
Income Taxes .................... 7,851 (300)(7) 7,551
---------- ------- ----------
Net Income before
Cumulative effect of
Change in Accounting
Principle ....................... $ 14,202 ($ 490) $ 13,712
========== ======= ==========
Earnings per
Share--Primary** ................ $ 2.06 $ 2.05
Earnings per
Share--Fully
Diluted** ....................... $ 2.06 $ 2.05
Book Value per
Common Share** .................. $ 11.74 $ 11.35
Dividends per Share--
Common .......................... $ 0.47 $ 0.47
Weighted Average Number
of Common Shares
Outstanding** ................... 6,909 6,675
<FN>
- -------------
* After payment of Series A preferred dividends of $1,394 (representing
an annual dividend of $1.68 per share), the maximum dividend payable
under the proposed Washington Merger Agreement.
** See Note 15 in accompanying notes to proforma combined condensed financial
statements.
</FN>
</TABLE>
See accompanying notes to pro forma combined condensed financial statements.
A-4
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(Unaudited)
Dollars in Thousands, Except for Per Share Amounts
For the Year Ended December 31, 1993
Pro Forma Pro Forma
Pro Forma Combined Pro Forma Combined
Historical Adjustments Hubco and Historical Adjustments Hubco and Pro Forma
Statewide Statewide Statewide Washington Washington Washington Combined
---------- ---------- --------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Income:
Interest and
Fees on Loans ................. $ 18,654 ($ 955)(m) $ 61,245 $ 14,782 ($ 669)(jj) $ 57,659 $ 75,358
Interest and
Dividends on
Investments .................... 16,207 1,504(n) 39,226 3,604 (79)(kk) 28,125 42,728
(2,050)(o) (23)(ll)
(1,058)(p)
Interest on Federal
Funds Sold ..................... 222 0 993 172 0 943 1,165
-------- -------- -------- -------- ------- -------- --------
Total Interest
Income ....................... 35,083 (2,559) 101,464 18,558 (771) 86,727 119,251
-------- -------- -------- -------- ------- -------- --------
Interest Expense:
Interest on
Deposits ...................... 14,442 (1,300)(q) 33,521 8,795 (712)(mm) 28,462 41,604
Interest on
Borrowings .................... 3,170 (2,916)(r) 616 18 0 380 634
Interest on
Subordinated Debt ............. 0 0 1,971 0 0 1,971 1,971
-------- -------- ---------- -------- ------- -------- --------
Total Interest
Expense ....................... 17,612 (4,216) 36,108 8,813 (712) 30,813 44,209
-------- -------- ---------- -------- ------- -------- --------
Net Interest Income
Before Provision for
Possible Loan Losses ............ 17,471 1,657 65,356 9,745 (59) 55,914 75,042
Provision for Possible
Loan Losses .................... 720 0 4,320 420 0 4,020 4,740
-------- -------- ---------- -------- ------- -------- --------
Net Interest Income
After Provision for
Possible Loan Losses ............ 16,751 1,657 61,036 9,325 (59) 51,894 70,302
-------- -------- ---------- -------- ------- -------- --------
Other Income ..................... 1,785 0 10,391 949 0 9,555 11,340
-------- -------- -------- -------- ------- -------- --------
Other Expenses:
Salaries and Other
Employee Benefits .............. 5,910 0 22,411 3,468 0 19,969 25,879
Occupancy and
Equipment Expense .............. 1,829 (478)(s) 6,367 797 34(nn) 5,847 7,198
Other Expenses .................. 4,195 (942)(t) 9,874 4,503 505(oo) 13,462 14,882
(1,833)(u)
-------- -------- -------- -------- ------- -------- --------
Total Other Expenses............. 11,934 (3,253) 38,652 8,768 539 39,278 47,959
-------- -------- -------- -------- ------- -------- --------
Income Before Taxes ............. 6,602 4,910 32,775 1,506 (598) 22,171 33,683
-------- -------- -------- -------- ------- -------- --------
Income Taxes .................... 2,299 1,866(v) 11,716 (1,018) (227)(pp) 6,306 10,471
-------- -------- -------- -------- ------- -------- --------
Net Income before
Cumulative effect of
Change in Accounting
Principle ....................... $ 4,303 $ 3,044 $ 21,059 $ 2,524 ($ 371) $ 15,865 $ 23,212
======== ======== ======== ======== ======= ======== ========
Earnings per
Share--Primary** ................ $ 2.44 $ 2.17* $ 2.53*
Earnings per
Share--Fully
Diluted** ....................... $ 2.44 $ 2.11 $ 2.46
Book Value per
Common Share** .................. $ 12.60 $ 11.35 $ 12.60
Dividends per Share--
Common .......................... $ 0.47 $ 0.47 $ 0.47
Weighted Average Number
of Common Shares
Outstanding** ................... 8,619 6,675 8,619
<FN>
- -------------
* After payment of Series A preferred dividends of $1,394 (representing
an annual dividend of $1.68 per share), the maximum dividend payable
under the proposed Washington Merger Agreement.
** See Note 15 in accompanying notes to proforma combined condensed financial
statements.
</FN>
</TABLE>
See accompanying notes to pro forma combined condensed financial statements.
A-5
<PAGE>
<TABLE>
<CAPTION>
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share Data)
<S> <C>
1) The following summarizes the transaction related to the issuance of
$25,000,000 of 7.75% subordinated debentures due 2004 which was completed
on January 14, 1994.
1) Proceeds from the sale of 7.75% subordinated debentures .................................... $25,000
Less: Applicable financing costs ........................................................... ($329)
-------
Net proceeds--recorded as an increase to cash and then transferred
to the investment portfolio ................................................................ $24,671
=======
2) Investment of proceeds from sale of subordinated debentures ................................ $24,671
=======
3) Issuance of subordinated debentures ........................................................ $25,000
=======
4) To reflect interest income as a result of the investment of the
proceeds of the subordinated debt at 5.75%.
5) To reflect interest expense on the subordinated debentures at 7.75%.
6) To reflect as interest expense the amortization of deferred financing
costs on the subordinated debt.
7) To reflect the anticipated taxes on the pro forma adjustments.
2) On November 8, 1993, HUBCO's board of directors authorized management to
repurchase up to 10 percent of its outstanding Common Stock. The following
summarizes the repurchase of shares as reflected in the accompanying pro
forma combined condensed financial statements:
8) To reflect the repurchase of 234,081 shares of treasury stock from January 1, 1994
through March 1, 1994 ...................................................................... ($5,298)
=======
9) To reflect a loss of interest income for the use of funds to purchase
treasury shares at 4.50%
3) The following summarizes the Statewide purchase transaction as reflected in
the accompanying proforma combined condensed financial statements:
Reissuance of 442,781 shares of HUBCO Common Stock from treasury shares ....................... $ 7,970
Issuance of 1,501,663 shares of Hubco Common stock at $18 per share, net of
estimated issuance expenses of $2,373 ($796(g) has been
paid as of December, 1993) .................................................................. $25,453
=======
$33,423(k)
=======
Estimate of Fair Value of Statewide
Retained earnings at December 31, 1993 as reported ............................................ $32,240(l)
Excess of fair value over book value of:
Mortgage-backed and other investment securities ................................ $5,290
Loans receivable ............................................................... 5,730(c)
Land and buildings ............................................................. 2,535
------ 13,555
Fair value in excess of book value of time deposits ............................ ($1,300)(h)
Prepayment penalty on advances from Federal Home Loan Bank ..................... (2,194)
------ (3,494)
Other adjustments:
Elimination of historical Statewide excess of cost over fair
value of assets previously acquired by Statewide.............................................. (14,930)(f)
Reduction in value of other real estate intended to
be liquidated by HUBCO shortly after acquisition ............................................ *(4,393)(e)
Reserve for payment of deferred income taxes on recapture
of allowance for possible loan losses ....................................................... (2,250)
Recognition of certain other liabilities related to the acquisition ........................... (1,775)
Tax effect where appropriate, of purchase accounting adjustments .............................. (1,479)
=======
Excess of fair value over cost (negative goodwill) ............................................ $17,474
=======
Applied to reduction in value of premises and equipment ....................................... $ 6,477
Recorded as a liability in the pro-forma financial statements ................................. 10,997
=======
$17,474
=======
<FN>
- ------------
* Statewide's current intent is to hold its other real estate properties
until such properties have their improvements completed. HUBCO's intent
is to liquidate such properties shortly after its acquisition of Statewide.
This adjustment is an estimate reflecting the demonstrably different
recovery plans of the two entities that will be reflected as part of the
ultimate purchase accounting adjustments.
</FN>
</TABLE>
A-6
<PAGE>
<TABLE>
<CAPTION>
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS-(Continued)
(Dollars in Thousands, Except Share Data)
<S> <C>
4) Cash and Due from Banks Pro-Forma Adjustments
Record the receipt of the net proceeds from the sale of Hubco common stock .................... $33,423
Transfer proceeds to investment portfolio ..................................................... (33,423)
Transfer proceeds from investment portfolio ................................................... 33,061
Repayment of advances to the Federal Home Loan Bank of New York ............................... (33,061)
=======
$ 0(a)
=======
5) Investment Securities Pro-Forma Adjustments
Record the excess of the fair market value over the
book value of the investment securities ..................................................... $ 5,290
Record the receipt of the net proceeds from the sale of HUBCO common stock .................... 33,423
Repayment of advances to the Federal Home Loan Bank
of New York ................................................................................. (33,061)
=======
$ 5,652(b)
=======
6) Premises and Equipment Pro-Forma Adjustments
Record the excess of the fair market value over the book value for land and buildings ......... $2,535
Allocation of negative goodwill applied to premises and equipment ............................. (6,477)
=======
($3,942)(d)
=======
7) Borrowed Money Pro-Forma Adjustments
Record book value in excess of market value of Federal Home Loan Bank advances ................ $ 2,194
Repayment of advances to the Federal Home Loan Bank of New York ............................... (33,061)
=======
($30,867)(i)
=======
8) Other Liabilities Pro-Forma Adjustments
Record liability for deferred income taxes on recapture of
allowance for possible loan losses of Statewide ............................................. $ 2,250
Recognition of certain other liabilities related to the acquisition of Statewide .............. 1,775
Tax effect of purchase accounting adjustments ................................................. 1,479
Record remaining excess of fair value over cost (negative goodwill) ........................... 10,997
=======
$16,501(j)
=======
9) The following is a summary of the adjustments required to the combined
statements of income assuming the adjustments above were made as of the
beginning of the periods presented:
(m) To record the amortization on a straight line basis (which is not
materially different than the level yield basis) of the premium on the
loan portfolio over 6 years, the estimated average life of the loans
acquired.
(n) To reflect interest income as a result of the investment of the proceeds
of issuance of Common Stock at 4.50%.
(o) To reflect a loss of interest income due to use of funds to repay
outstanding FHLB advances at 6.20%.
(p) To record the amortization on a straight line basis (which is not
materially different than the level yield basis) of the premium on the
investment portfolio over its 5 year estimated life.
(q) To record the amortization of the premium on deposits.
(r) To reflect a reduction in interest expense from the repayment of FHLB
advances.
(s) To reflect a reduction in depreciation expense reflecting the net
decreased carrying value of premises and equipment after reflecting the
premium and allocating negative goodwill.
(t) To reflect the reduction in expense from the write off of the historical
excess of cost over fair value of Statewide.
(u) To reflect the reduction in expense from the amortization of negative
goodwill resulting from the Merger Conversion based on a 6 year life of
the interest earning assets.
</TABLE>
A-7
<PAGE>
<TABLE>
<CAPTION>
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS-(Continued)
(Dollars in Thousands, Except Share Data)
<S> <C>
(v) To reflect the anticipated taxes on proforma adjustments.
10) The following summarizes the purchase transaction of Washington as reflected
in the accompanying proforma combined condensed financial statements:
Issuance of 829,995 shares of Hubco preferred stock at $24 per share .......................... $19,920(hh)
Cash payment to shareholders .................................................................. 19,139
Washington shares currently held by HUBCO ..................................................... 1,338
-------
Aggregate Cost ................................................................................ 40,397
Add: Acquisition Costs of $610 of which $92 has been paid as of December, 1993(ee) ............ 610
-------
$41,007
Estimate of Fair Value of Washington
Stockholders' equity at December 31, 1993, as reported ............................ $33,541(ii)
Additional capital from exercising stock options prior to acquisition ............. 1,838
------
Adjusted stockholders' equity ..................................................... 35,379
Fair value adjustments:
Excess of fair value over book value of:
Mortgage-backed and other Investments securities .................... $ 197
Loans receivable .................................................... 4,016
Land and buildings .................................................. 2,953(cc)
-------- 7,166
Fair value in excess of book value of time deposits ............................... (712)(ff)
Other adjustments:
Reduction in value of a real estate loan intended to be liquidated by
HUBCO shortly after acquisition ................................................. (3,000)*
Recognition of liability for payment of income taxes on recapture
of allowance for possible loan losses ........................................... (1,252)
Recognition of certain other liabilities related to the
acquisition, primarily severance and estimated liabilities for
existing contingencies .......................................................... (1,186)
Tax effect where appropriate, of purchase accounting adjustments .................. (437)
-------
Estimated fair value, as adjusted ............................................................. 35,958
-------
Excess of cost over fair value ................................................................ $ 5,049(dd)
=======
11) Investment Securities Pro-forma Adjustment
Record the excess of the fair market value
over the book value of the investment portfolio ............................................. $ 197
Record the receipt of the proceeds from the exercising
of Washington stock options prior to acquistion ............................................. 1,838
Eliminate HUBCO's existing investment in Washington ........................................... (1,338)
Cash payment of acquisition costs ............................................................. (518)
Cash payment to shareholders' of Washington of 49% of the purchase price ...................... (19,139)
=======
($18,960)(aa)
- ----------------------- =======
* Washington's current intent is to hold a commercial real estate loan in its
portfolio and to restructure the loan. HUBCO's intent is to liquidate the
loan shortly after its acquisition of Washington. This adjustment is an
estimate reflecting the demonstrably different plans of the two entities that
will be reflected as part of the ultimate purchase accounting adjustments.
</TABLE>
A-8
<PAGE>
<TABLE>
<CAPTION>
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS-(Continued)
(Dollars in Thousands, Except Share Data)
<S> <C>
12) Loans Pro-Forma Adjustments
Record the excess of the fair market value over the book value of the loan portfolio ......... $4,016
Establish reserve for liquidation of a commercial real estate loan subsequent to
acquisition ................................................................................. (3,000)
------
$1,016 (bb)
======
13) Other Liabilities Pro-forma Adjustments
Record liability for income taxes on recapture of allowance for possible loan
losses of Washington ........................................................................ $1,252
Recognition of certain other liabilities related to the acquisition of Washington Bancorp .... 1,186
Tax effect where appropriate, of purchase accounting adjustments ............................. 437
------
$2,875 (gg)
======
</TABLE>
14) The following is a summary of the adjustments required to the combined
statements of income and Combined Pro Forma Hubco and Statewide and
Historical Washington Bancorp assuming the adjustments above were made as
of the beginning of the periods presented:
(jj) To record the amortization on a straight line basis (which is not
materially different than the level yield basis) of the premium on
the loan portfolio over 6 years.
(kk) To record the amortization on a straight line basis (which is not
materially different than the level yield basis) of the premium on
the investment portfolio over its estimated life of 2.5 years.
(ll) To reflect a loss of interest income for the use of funds
for
acquisition expenses at 4.50%.
(mm) To record the amortization of the premium on deposits.
(nn) To reflect an increase in depreciation expense reflecting the net
increased carrying value of premises and equipment.
(oo) To reflect the increase in expense from the amortization of cost over
fair value of the Washington acquisition based on a 10 year life.
(pp) To reflect the anticipated tax benefit on the proforma adjustments.
15) The pro forma financial information assumes the issuance of common stock
based on a preliminary appraised value of $35,000,000, which represents the
midpoint of the appraisal range. The following represents the pro forma
combined per share data for the twelve months ended December 31, 1993, based
upon the estimated minimum and maximum appraised values of $29,750,000 and
$40,250,000, respectively:
Minimum Maximum
------- -------
Earnings per share--Primary ............. $ 2.60* $ 2.46*
Earnings per share--Fully Diluted ....... 2.52 2.40
Book value per Common share ............ 12.42 12.77
Weighted average number of Common
shares outstanding ................... 8,328 8,911
- -------------
* After payment of Series A preferred dividends of $1,394 (representing
an annual dividend of $1.68 per share), the maximum dividend payable
under the proposed Washington Merger Agreement.
A-9
<PAGE>
APPENDIX B
SELECTED FINANCIAL INFORMATION OF STATEWIDE
Set forth below are selected consolidated financial and other data of
Statewide Savings Bank, S.L.A. ("Statewide"). This financial data (other than
ratios) for the five years ended March 31, 1993 are derived from the
Consolidated Financial Statements of Statewide. The financial data for the
nine month periods ended December 31, 1993 and 1992 are derived from
unaudited financial statements. The unaudited financial statements include
all adjustments, consisting of normal recurring accruals, which the management
of Statewide considers necessary for a fair representation of the financial
position and the results of operations for these periods. Operating results for
the nine months ended December 31, 1993 are not necessarily indicative of the
results that may be expected for the entire year ending March 31, 1994. The data
should be read in conjunction with the consolidated financial statements,
related notes, and other financial information included in this Prospectus.
<TABLE>
<CAPTION>
Nine Months Ended
December 31, Years Ended March 31,
--------------------- ---------------------------------------------------------
1993 1992 1993 1992 1991 1990 1989
--------- --------- --------- --------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement of Operations:
Interest and dividend income ............ $ 26,120 $ 30,860 $ 39,822 $ 44,400 $ 48,150 $ 52,202 $ 56,452
Interest expense ........................ 12,857 17,073 21,829 30,605 37,387 42,252 42,928
--------- --------- --------- --------- --------- --------- ---------
Net interest and dividend income before
provision for loan losses .............. 13,263 13,787 17,993 13,795 10,763 9,950 13,524
Provision for loan losses ............... 360 182 193 1,933 186 3,762 194
--------- --------- --------- --------- --------- --------- ---------
Net interest and dividend income after
provision for loan losses .............. 12,903 13,605 17,800 11,862 10,577 6,188 13,330
Other income ............................ 1,102 1,402 2,010 3,564 1,739 4,122 (2,720)
Operating expenses ...................... 9,045 8,911 12,233 12,964 13,611 13,386 11,586
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes, extraordi-
nary credit and change in accounting
principle .............................. 4,960 6,096 7,577 2,462 (1,295) (3,076) (976)
Income taxes ............................ 1,700 2,052 2,490 1,461 35 77 64
--------- --------- --------- --------- --------- --------- ---------
Income before extraordinary credit and
change in accounting principle ......... 3,260 4,044 5,087 1,001 (1,330) (3,153) (1,040)
Extraordinary credit from utilization of
net operating loss carryforward ........ 0 0 0 1,233 0 0 0
Cumulative effect of change in account-
ing principle .......................... 669 0 0 0 0 0 0
--------- --------- --------- --------- --------- --------- ---------
Net income .............................. $ 3,929 $ 4,044 $ 5,087 $ 2,234 $ (1,330) $ (3,153) $ (1,040)
========= ========= ========= ========= ========= ========= =========
Consolidated Statement of
Financial Condition:
Total assets ............................ $ 500,275 $ 525,596 $ 517,885 $ 531,785 $ 529,225 $ 564,786 $ 599,125
Deposits ................................ 425,802 443,210 440,034 460,926 454,783 484,939 488,317
Investment securities ................... 46,176 24,954 18,224 23,945 23,580 38,694 37,764
Mortgage-backed securities available
for sale ............................... 4,789 0 7,517 0 0 0 0
Mortgage-backed securities .............. 201,397 205,644 208,248 180,304 142,693 133,331 141,526
Loans receivable, net ................... 186,453 240,012 230,929 264,914 308,905 343,320 373,547
Federal Home Loan Bank advances ......... 39,367 51,667 45,092 43,392 49,192 46,492 52,792
Retained earnings, substantially
restricted ............................. 32,240 27,268 28,312 23,225 20,991 22,321 25,474
Selected Financial Ratios:
Return on average total assets .......... 1.03% 1.01% 0.96% 0.42% (0.24)% (0.54)% (0.16)%
Return on average retained earnings ..... 17.16 21.20 19.43 10.16 (6.14) (12.19) (3.90)
Average retained earnings to average
total assets ........................... 6.02 4.78 4.95 4.15 3.98 4.42 4.21
Allowance for loan losses to total loans
at end of period ....................... .58 0.16 0.59 0.69 0.54 0.57 0.02
Nonperforming loans to total loans at
end of period .......................... 1.44 1.79 1.23 1.22 4.17 2.24 0.71
Allowance for loan losses to nonper-
forming loans .......................... 40.22 40.35 47.23 56.42 13.00 25.49 2.85
Nonperforming assets to total loans
and real estate owned .................. 6.28 5.86 5.77 6.51 7.10 4.58 0.82
Other Data:
Number of:
Outstanding real estate loans originated 1,966 2,357 2,280 2,578 2,851 3,058 3,199
Deposit accounts ....................... 49,215 54,580 50,807 56,671 56,531 60,996 64,560
Full service offices open .............. 13 13 13 13 13 13 15
</TABLE>
B-1
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF STATEWIDE
The following discussion and analysis is intended to assist readers in
understanding Statewide's results of operations and changes in financial
position for the nine months ended December 31, 1993 and 1992 and for the fiscal
years ended March 31, 1993, 1992 and 1991, which should be read in conjunction
with the Consolidated Financial Statements of Statewide and Notes thereto
beginning on Page F-3 of this Prospectus and the other information about
Statewide contained in this Appendix B.
Financial Condition
At March 31, 1993, Statewide had total assets of $517.9 million, a decrease
of $13.9 million, or 2.6%, from March 31, 1992. The reduction in Statewide's
assets over the past fiscal year resulted from the funding of a $20.9 million,
or 4.5%, net decrease in deposits over the fiscal year, which was partially
funded through a $1.7 million increase in borrowings and a $5.1 million increase
in retained earnings. Total assets continued to decrease during the period March
31, 1993 to December 31, 1993. At December 31, 1993, Statewide had total assets
of $500.3 million, a decrease of $17.6 million, or 3.4%, from March 31, 1993.
Deposits decreased by $14.2 million, or 3.2%, over the nine months ended
December 31, 1993.
Loans receivable decreased from March 31, 1993 to December 31, 1993 by $44
million, or 19.3%, to $186.5 million at December 31, 1993. This decrease was
primarily the result of increased prepayments and lower loan demand.
Mortgage-backed securities, including mortgage-backed securities available
for sale, totalled $206.2 million at December 31, 1993, a decrease of $9.6
million or 4.4% from March 31, 1993. This decrease was primarily the result of
increased prepayments and lower loan demand.
Investment securities totalled $46.2 million at December 31, 1993, an
increase of $28 million, or 153.4%, from March 31, 1993. This increase
represents management's decision to purchase additional shorter term securities
in anticipation of an upward movement in interest rates.
Comparison of Operating Results for the Nine Months Ended December 31, 1993 and
December 31, 1992.
General. Net income for the nine months ended December 31, 1993 decreased
by $0.1 million, or 2.5%, to $3.9 million from $4.0 million for the nine months
ended December 31, 1992.
Interest and Dividend Income. Interest and dividend income decreased by
$4.8 million, or 15.5%, to $26.1 million for the nine months ended December 31,
1993 from $30.9 million for the nine months ended December 31, 1992. The
decrease was due to the average yield on interest-earning assets decreasing from
8.50% for the nine months ended December 31, 1992 to 7.51% for the nine months
ended December 31, 1993. This decrease of 99 basis points, or 11.6%, is
primarily due to the significant loan and mortgage-backed securities prepayments
being invested at lower interest rates.
Interest Expense. Interest expense decreased by $4.2 million, or 24.6%,
from $17.1 million for the nine months ended December 31, 1992 to $12.9 million
for the nine months ended December 31, 1993. Weighted average deposit rates
decreased 100 basis points, or 23.4% to 3.28% for the nine months ended December
31, 1993 from 4.28% for the nine months ended December 31, 1992.
Net Interest and Dividend Income Before Provision for Loan Losses. Net
interest and dividend income before provision for loan losses decreased $0.5
million, or 3.6%, to $13.3 million for the nine months ended December 31, 1993
from $13.8 million for the nine months ended December 31, 1992. This relative
stability is due to the fact that decreases in interest and dividend income
which were substantially offset by decreases in interest expense.
Provision for Loan Losses. Provision for loan losses increased by $178,000
to $360,000 for the nine months ended December 31, 1993 from $182,000 for the
nine months ended December 31, 1992. The allowance for loan losses to total
loans at December 31, 1993 was .6% compared with .7% at December 31, 1992. The
allowance for loan losses to nonperforming loans at December 31, 1993 was 40.2%
compared to 36.2% at December 31, 1992. Management of Statewide believes that
the allowance for loan losses is adequate based upon Statewide management's
ongoing review of Statewide's loan portfolio, general economic conditions and
the financial condition of particular borrowers.
Other Income. Other income decreased $300,000, or 21.4%, to $1.1 million
for the nine months ended December 31, 1993. The decrease is due primarily to a
decrease in net gains on sale of mortgage-backed securities
B-2
<PAGE>
from $530,000 for the nine months ended December 31, 1992 to none for the nine
months ended December 31, 1993. This decrease was partially offset by an
increase in service charge income of $233,000.
Operating Expenses. Operating expenses increased by $134,000 or 1.5%, to
$9.0 million for the nine months ended December 31, 1993.
Income Taxes. Federal and state income taxes decreased by $0.4 million, or
19.1%, to $1.7 million for the nine months ended December 31, 1993 compared with
$2.1 million for the nine months ended December 31, 1992. The decrease is due
primarily to a decrease in net income before income taxes.
Comparison of Operating Results for the Years Ended March 31, 1993 and 1992
General. Net income for the fiscal year ended March 31, 1993 increased by
$2.9 million, or 131.8%, to $5.1 million from $2.2 million for the fiscal year
ended March 31, 1992. The primary reason for the increase was an increase in net
interest and dividend income before provision for loan losses of $4.2 million.
The increase in net interest and dividend income before provision for loan
losses was primarily due to a net interest margin of 3.40% for fiscal year 1993,
compared with a net interest margin of 2.60% for fiscal year 1992, as the rates
Statewide paid on deposits declined faster than the return Statewide earned on
its loans and mortgage-backed securities.
Interest and Dividend Income. Interest and dividend income decreased by
$4.6 million, or 10.4%, to $39.8 million in fiscal year 1993 from $44.4 million
in fiscal year 1992. The decrease was due to the average yield on
interest-earning assets decreasing from 9.23% in fiscal year 1992 to 8.25% in
fiscal year 1993. This 98 basis point decrease represents a decline of 10.6% and
is primarily due to lower interest income on mortgage loans due to significant
loan prepayments being reinvested in shorter term mortgage-backed securities
with lower interest rates.
Interest Expense. Interest expense decreased $8.8 million, or 28.7%, from
$30.6 million in fiscal year 1992 to $21.8 million in fiscal year 1993. Weighted
average deposit rates decreased 183 basis points, or 31.1%, to 4.12% for fiscal
year 1993 from 5.95% for fiscal year 1992. In addition, there was a shift from
higher rate interest-bearing certificates of deposit to lower rate passbook and
other demand type deposit accounts. Total average certificates of deposit, as a
percentage of total average deposits, decreased from 53.4% to 47.2%.
Net Interest and Dividend Income Before Provision for Loan Losses. Net
interest and dividend income before provision for loan losses increased $4.2
million, or 30.4%, to $18.0 million for fiscal year 1993 from $13.8 million for
fiscal year 1992. The increase resulted from a period of declining interest
rates in which interest expense decreased more rapidly than interest income.
Provision for Loan Losses. Statewide's provision for loan losses
decreased by $1.7 million, to $0.2 million for fiscal year 1993 compared to a
provision of $1.9 million for fiscal year 1992. The decrease was the result of
Statewide's recording a $1.5 million provision for loan losses related to a
single loan in 1992. The allowance for loan losses to total loans at March 31,
1993 was .6% compared with .7% at March 31, 1992. The allowance for loan
losses to nonperforming loans at March 31, 1993 was 47.2% compared to 56.4% at
March 31, 1992. Management of Statewide believes that the allowance for
loan losses is adequate based upon Statewide management's ongoing review of
Statewide's loan portfolio, general economic conditions and the financial
condition of particular borrowers.
Other Income. Other income decreased by $1.6 million, or 43.6%, from $3.6
million in fiscal year 1992 to $2.0 million in fiscal year 1993. The decrease
was primarily due to a decrease in net gains on sales of investment and
mortgage-backed securities from $1.8 million in fiscal year 1992 to $530,000 in
fiscal year 1993. The high level of gains in 1992 resulted from the
restructuring of Statewide's mortgage-backed securities portfolio in order to
decrease Statewide's vulnerability to interest rate risk. In addition, a gain of
$867,000 upon the termination of Statewide's defined benefit pension plan took
place during fiscal year 1992. The decrease in other income from the prior year
was partially offset by increases in income from service charges of $76,000 and
other income of $470,000, which was primarily due to an increase in net
commissions on the sale of annuities of $263,000.
Operating Expenses. Operating expenses decreased by $731,000, or 5.6%, in
fiscal year 1993 compared to fiscal year 1992. The decrease was primarily due to
a $460,000 reduction in net foreclosed real estate expense, a decrease of
$209,000 in net occupancy expenses and a decrease of $485,000 in other expenses.
These decreases were partially offset by increases in salaries and employee
benefits of $363,000.
Income Taxes. Federal and state income taxes increased $1.0 million, or
70.4%, during fiscal year 1993 compared to fiscal year 1992. The increase in
income tax was due to the increase in pre-tax income for fiscal year
B-3
<PAGE>
1993. The effective income tax rate was 39.0% for fiscal year 1993 and 55.8%
for fiscal year 1992. The level of the effective income tax rate in 1992 was
increased due to the application of a federal excise tax related to the
termination of Statewide's defined benefit pension plan. The income tax
provision for fiscal year 1992 was substantially offset by the application
of income tax benefits of $1.2 million from the utilization of a net
operating loss carryforward.
Comparison of Operating Results for the Years Ended March 31, 1992 and 1991
General. Net income for the fiscal year ended March 31, 1992 increased by
$3.7 million, to $2.4 million, from a net loss of $1.3 million for the fiscal
year ended March 31, 1991. The primary reason for the increase was an increase
in net interest and dividend income before provision for loan losses of $3.0
million, which was primarily due to a net interest margin of 2.60% for fiscal
year 1992 compared with 1.98% for fiscal year 1991, an increase in total other
income of $1.8 million and a decrease in other expenses of $647,000. This was
partially offset by an increase in the provision for loan losses of $1.7
million.
Interest and Dividend Income. Interest and dividend income decreased by
$3.7 million, or 7.8%, to $44.4 million in fiscal year 1992 from $48.1 million
in fiscal year 1991. The decrease was due to the average yield on
interest-earning assets dropping from 9.65% in fiscal year 1991 to 9.23% in
fiscal year 1992. This 42 basis point decrease represents a decline of 4.4% and
is primarily due to lower interest income on mortgage loans due to significant
loan repayments being reinvested in shorter term mortgage-backed securities with
lower interest rates.
Interest Expense. Interest expense decreased $6.8 million, or 18.1%, from
$37.4 million in fiscal year 1991 to $30.6 million in fiscal year 1992. Weighted
average deposit rates decreased 132 basis points, or 18.2%, to 5.95% for fiscal
year 1992, from 7.27% for fiscal year 1991. In addition, a shift from higher
rate interest-bearing certificates of deposit to lower rate passbook and other
demand type deposit accounts also contributed to the decrease. Total average
certificates of deposit as a percentage of total average deposits decreased from
59.3% to 53.4%.
Net Interest and Dividend Income Before Provision for Loan Losses. Net
interest and dividend income before provision for loan losses increased $3.0
million, or 28.2% to $13.8 million for fiscal year 1992 from $10.8 million for
fiscal year 1991. The increase resulted from a falling interest rate environment
which caused interest expense to decrease more rapidly than interest income.
Provision for Loan Losses. Statewide's provision for loan losses increased
by $1.7 million to $1.9 million for fiscal year 1992 compared to a provision of
$0.2 million for fiscal year 1991. The majority of the increase was the result
of a $1.5 million increase in the allowance for loan losses related to a single
$5.5 million loan to a developer for the acquisition, development and
construction of single family residential homes in Hunterdon County, New Jersey.
The allowance for loan losses to total loans at March 31, 1992 was .7% compared
with .5% at March 31, 1991. The allowance for loan losses to nonperforming loans
at March 31, 1992 was 56.4% compared to 13.0% at March 31, 1991.
Other Income. Other income increased by $1.8 million, or 104.9%, to $3.5
million in fiscal year 1992 from $1.7 million in fiscal year 1991. The increase
was primarily due to an increase in net gains on the sale of investment and
mortgage-backed securities of $1.7 million and a gain of $867,000 as a result of
the termination of Statewide's defined benefit pension plan, which was partially
offset by a gain of $903,000 in fiscal year 1991 resulting from previously
unrecognized past experience gains related to Statewide's defined benefit
pension plan.
Operating Expenses. Operating expenses decreased by $647,000, or 4.8%, in
fiscal year 1992 compared with fiscal year 1991. The decrease was primarily due
to decreases in net foreclosed real estate expense, which decreased by $401,000,
and a reduction in the loss realized on the investment in real estate ventures,
which decreased by $625,000. These decreases were partially offset by increases
in salaries and employee benefits of $125,000 and other operating expense of
$254,000.
Income Taxes. Federal and state income taxes increased by $1.4 million in
fiscal year 1992 from $35,000 in fiscal year 1991. The increase in income tax
was due to the increase in pre-tax income during fiscal year 1992, compared to a
net loss for fiscal year 1991. The effective income tax rate was 55.8% for
fiscal year 1992 and 2.7% for fiscal year 1991. The income tax provision for
fiscal year 1992 was substantially offset by the application of an income tax
benefit of $1.2 million from the utilization of a net operating loss
carryforward.
Interest Rate Sensitivity
Since the mid-1980's, Statewide has made asset/liability management a
primary focus in strategic planning. The asset/liability policy is developed and
carried out by the Asset/Liability Committee ("ALCO") with oversight
B-4
<PAGE>
provided by the Board of Directors. The ALCO has taken a number of steps to
reduce Statewide's susceptibility to damaging interest rate risk.
Throughout the 1980's, Statewide focused on the origination of adjustable
rate mortgage products as an integral part of its asset/liability management
policy. However, due to various market conditions, the recent originations of
adjustable rate products has declined. Since the beginning of 1991, the ALCO
asset/liability policy has been one of selectively restructuring the balance
sheet in the following ways: sales of small amounts of the mortgage-backed
securities with longer maturities, purchase or origination of assets with a
final maturity of seven years or less, purchase of adjustable rate securities,
and lengthening of liabilities through advances from the FHLBNY. This
combination of shortening the maturity of assets, through replacing longer term
assets lost through sales or prepayment run-off with shorter term assets, and
the lengthening of liabilities through FHLBNY borrowings and increases in stable
core deposits has led to an improvement of Statewide's asset/liability risk
profile.
Management of interest rate risk is a major determinant of the
profitability of Statewide's operations. Interest rate risk arises when an asset
matures or when the instrument's rate of interest changes in a time frame that
is different from that of the underlying liability. The difference between
interest-earning assets subject to rate change over a specific period and
interest-bearing liabilities subject to rate change over the same period is
called the interest rate sensitivity gap or "gap position." The gap position is
considered positive when the amount of interest rate sensitive assets exceeds
the amount of interest rate sensitive liabilities. The gap position is
considered negative when the amount of interest rate sensitive liabilities is
greater than the amount of interest rate sensitive assets. During a period of
rising rates, a negative gap position tends to adversely affect earnings, while
a positive gap position tends to result in an increase in earnings. During a
period of falling interest rates, a negative gap position would result in an
increase in earnings, while a positive gap position would adversely affect
earnings.
The table set forth below presents the amounts of interest-earning assets
and interest-bearing liabilities outstanding at December 31, 1993 which are
anticipated by Statewide, based upon certain assumptions, to reprice or mature
in each of the future time periods illustrated. The amount of assets and
liabilities shown, except as noted, which reprice or mature during a particular
period were determined in accordance with the earlier of term to repricing or
the contractual terms of the asset or liability. Statewide's loan prepayment
assumptions are based upon the OTS's latest available figures which are 15% for
ARM loans, 18% for consumer loans, and a range of 13% to 37% (based upon
interest rate) for fixed rate loans.
With respect to liabilities, Statewide, based on historical data, used a
decay rate of 17% for all age groups of money market deposit accounts, passbook
accounts and N.O.W. accounts.
The table set forth below represents Statewide's interest rate sensitivity
gap at December 31, 1993:
B-5
<PAGE>
<TABLE>
<CAPTION>
At December 31, 1993
---------------------------------------------------------
Three More than
Months Four to One Year to More than
or Less 12 Months Five Years Five Years Total
--------- --------- ---------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Interest-earning assets
Mortgage loans ......................... $ 10,239 $ 84,243 $ 50,116 $ 18,112 $ 162,710
Other loans ............................ 1,068 3,072 16,682 2,922 23,744
Money market investments ............... 16,075 0 0 0 16,075
Mortgage-backed securities (1) ......... 13,947 31,628 115,251 43,370 204,196
FHLBNY stock ........................... 4,170 0 0 0 4,170
Investment securities .................. 1,011 2,001 43,164 0 46,176
--------- --------- --------- --------- ---------
Total interest-earning assets........ 46,510 120,944 225,213 64,404 457,071
--------- --------- --------- --------- ---------
Less:
Net unamortized premiums and
deferred fees ........................ 29 86 406 271 792
--------- --------- --------- --------- ---------
Net interest-earning assets .......... $ 46,539 $ 121,030 $ 225,619 $ 64,675 $ 457,863
--------- --------- --------- --------- ---------
Interest-bearing liabilities
Passbook accounts ...................... 4,683 13,453 62,600 29,459 110,195
N.O.W. accounts ........................ 3,090 8,875 41,298 19,434 72,697
Money market accounts .................. 2,206 6,335 29,481 13,873 51,895
Certificate accounts ................... 68,343 79,208 35,849 0 183,400
Borrowed funds ......................... 10,075 4,725 21,292 3,275 39,367
--------- --------- --------- --------- ---------
Total interest-bearing liabilities... $ 88,397 $ 112,596 $ 190,520 $ 66,041 $ 457,554
--------- --------- --------- --------- ---------
Interest sensitivity gap .................. $ (41,858) $ 8,434 $ 35,099 $ (1,366) $ 309
========= ========= ========= ========= =========
Cumulative interest sensitivity gap ....... (41,858) (33,424) 1,675 309 309
========= ========= ========= ========= =========
Cumulative interest sensitivity gap as a
percentage of total assets ............. (8.37%) (6.68%) .33% .06% .06%
Cumulative net interest-earning assets as a
percentage of cumulative total interest-
bearing liabilities .................... 52.65% 83.37% 112.45% 100.07% 100.07%
- --------------
(1) Includes $4.8 million of mortgage-backed securities available for sale.
</TABLE>
B-6
<PAGE>
Market Value of Portfolio Equity
In addition to the use of interest rate "gap" as a measure of interest rate
risk, the concept of the change in the market value of portfolio equity has been
utilized by the OTS.
The change in market value of portfolio equity measures an institution's
vulnerability to changes in interest rates. The interest rate risk is measured
by estimating the change in the market value of an institution's assets,
liabilities, and off-balance sheet contracts in response to an instantaneous
change in the general level of interest rates. The market value of portfolio
equity is defined as the current market value of assets, minus the current
market value of liabilities, plus or minus the current market value of
off-balance sheet items. The market values are estimated by discounting the
estimated cash flow of each instrument by appropriate discount rates.
The OTS uses as a critical point a change of plus or minus 200 basis points
in interest rates to set its "normal" institutional results and peer
comparisons. The greater the change, positive or negative, in market value of
portfolio equity, the more interest rate risk within the institution. The
following table lists Statewide's percentage change in the market value of
portfolio equity at plus and minus 200 basis points ("bps") from the level of
interest rates at December 31, 1993 and March 31, 1993:
December 31, March 31,
------------- -----------------------
1993 1992 1993 1992 1991
---- ---- ---- ---- ----
+200bps ........... -26% -32% -34% -64% -137%
-200 bps .......... 17% 13% 22% 26% 70%
Average Balance, Interest Rates and Yields
The tables on the following two pages represent for the periods indicated
the total dollar amount of interest income from average interest-earning assets
and the resulting yields, as well as the interest expense on average
interest-bearing liabilities, expressed both in dollars and in rates. All
average balances are based on month end balances, which do not differ materially
from average daily balances:
B-7
<PAGE>
<TABLE>
<CAPTION>
(In Thousands)
Nine Months Ended Nine Months Ended
December 31, 1993 December 31, 1992
----------------------------- -------------------------------
Average
Average Yield/ Average Average
Balance Interest Cost Balance Interest Yield/Cost
--------- -------- ------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Mortgage loans ................ $ 187,706 $ 12,849 9.13% $ 230,621 $ 16,576 9.58%
Other loans ................... 22,960 1,138 6.61 20,618 1,194 7.72
Mortgage-backed
securities(1) ............... 215,845 10,610 6.55 196,971 11,176 7.57
Money market investments ...... 8,571 231 3.59 4,689 168 4.78
Investment securities ......... 24,367 996 5.45 26,971 1,402 6.93
FHLB stock .................... 4,457 296 8.85 4,493 344 10.21
--------- --------- ---- --------- --------- -----
Total interest-earning assets . 463,906 26,120 7.51% 484,363 30,860 8.50%
Noninterest-earning assets ........ 42,807 47,501
--------- ---------
Total assets ...................... $ 506,713 $ 531,864
========= =========
Liabilities and retained earnings:
Interest-bearing liabilities:
Passbook accounts ............. $ 109,898 $ 2,258 2.74% $ 104,177 $ 2,749 3.52%
Certificate accounts .......... 190,343 5,526 3.87 221,265 8,068 4.86
N.O.W. accounts ............... 71,808 1,694 3.15 69,681 2,121 4.06
Money market accounts ......... 53,130 1,082 2.72 55,714 1,479 3.54
Borrowed funds ................ 39,148 2,297 7.82 47,677 2,656 7.43
--------- --------- ---- --------- --------- -----
Total interest-bearing
liabilities .................. 464,327 12,857 3.69% 498,514 17,073 4.57%
Noninterest bearing liabilities 11,858 8,049
--------- ---------
Total Liabilities ............. 476,185 506,563
Retained earnings ............ 30,528 25,301
--------- ---------
Total liabilities and retained
earnings ..................... $ 506,713 $ 531,864
========= =========
Net interest income/net interest
rate spread .................... $ 13,263 3.82% $ 13,787 3.93%
========= ==== ========= ====
Net interest earning assets/net
interest margin ................ $(421) 3.49% $(14,151) 3.46%
===== ========
Ratio of average interest-earning
assets to average interest-
bearing liabilities ............ 1.00x .97x
==== =======
- --------------
<FN>
(1) Includes $4.8 million of mortgage-backed securities available for sale in 1993.
</FN>
</TABLE>
B-8
<PAGE>
<TABLE>
<CAPTION>
(In Thousands)
Years Ended March 31,
---------------------------------------------------------------------------------------------
1993 1992 1991
--------------------------- ----------------------------- -------------------------------
Average Average
Average
Average Yield/ Average Yield/ Average
Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
--------- --------- ----- --------- --------- ------ --------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Mortgage loans ................... $ 226,378 $ 20,100 8.88% $ 262,903 $ 25,649 9.76% $ 297,575 $ 29,694 9.98%
Other loans ...................... 20,680 2,335 11.29 22,469 2,741 12.20 26,600 3,382 12.71
Mortgage-backed securities(1) .... 200,849 14,961 7.45 160,567 13,393 8.34 138,765 12,012 8.66
Money market investments ......... 4,707 211 4.48 6,313 365 5.78 3,784 381 10.07
Investment securities ............ 25,512 1,771 6.94 24,084 1,875 7.79 27,990 2,242 8.01
FHLB stock ....................... 4,493 444 9.88 4,493 376 8.37 4,493 438 9.75
--------- --------- ----- --------- --------- ------ --------- --------- ------
Total interest-earning assets .... 482,619 39,822 8.25 480,829 44,399 9.23 499,207 48,149 9.65
Noninterest-earning assets ........ 46,310 48,732 44,496
--------- --------- ---------
Total assets .................... $ 528,929 $ 529,561 $ 543,703
========= ========= =========
Liabilities and retained earnings:
Interest-bearing liabilities:
Passbook accounts ................ $ 104,767 $ 3,544 3.38% $ 95,522 $ 4,720 4.94% $ 92,336 $ 5,107
5.53%
Certificate accounts ............. 212,235 10,139 4.78% 244,647 15,970 6.53% 276,726 22,053 7.97%
N.O.W. accounts .................. 69,840 2,712 3.88% 56,332 3,215 5.71% 34,866 2,391 6.86%
Money market accounts ............ 55,532 1,905 3.43% 55,549 2,838 5.11% 56,990 3,335 5.85%
Borrowed funds ................... 49,552 3,529 7.12% 46,623 3,863 8.29% 53,700 4,501 8.38%
--------- --------- ----- --------- --------- ------ --------- --------- ------
Total interest-bearing liabilities 491,926 21,829 4.44% 498,673 30,606 6.14% 514,618 37,387 7.27%
Noninterest bearing liabilities ... 11,027 8,938 7,421
--------- --------- ---------
Total Liabilities .................. 502,953 507,611 522,039
Retained earnings ................. 25,976 21,950 21,664
--------- --------- ---------
Total liabilities and retained
earnings ........................ $ 528,929 $ 529,561 $ 543,703
========= ========= =========
Net interest income/net interest
rate spread ....................... $ 17,993 3.81% $ 13,793 3.09% $ 10,762 2.38%
========= ===== ========= ===== ========= =====
Net interest earning assets/net
interest margin ................... $ (9,307) 3.40% $ (17,844) 2.60% $ (15,411) 1.98%
========= ========= ========= ========= ========= =========
Ratio of average interest-earning
assets to average interest-bearing
liabilities ....................... .98x .96x .97x
========= ========= =========
- --------------
<FN>
(1) Includes $7.5 million of mortgage-backed securities available for sale in
1993.
</FN>
</TABLE>
B-9
<PAGE>
Rate/Volume Analysis
The following schedule presents the dollar amount of changes in interest
income and interest expense for major components of interest-earning assets and
interest-bearing liabilities. The table distinguishes between increases related
to higher outstanding balances and those due to the volatility of interest
rates. For each category of interest earning assets and interest-bearing
liabilities, information is provided on changes attributable to (i) changes in
rate (i.e., changes in rate multiplied by prior volume) and (ii) changes in
volume (i.e., changes in volume multiplied by the prior rate).
<TABLE>
<CAPTION>
Year Ended Year Ended
March 31, 1993 March 31, 1992
Compared to Compared to
Year Ended Year Ended
March 31, 1992 March 31, 1991
Increase (Decrease) Increase (Decrease)
------------------------------ ------------------------------
Due to Due to
------------------- -------------------
Volume Rate Net Volume Rate Net
------- ------- ------- ------- ------- -------
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans ............................ $(3,364) $(2,185) $(5,549) $(3,387) $ (658) $(4,045)
Other loans ............................... (202) (204) ( 406) (505) (136) (641)
Mortgage-backed securities(1) ............. 2,993 (1,425) 1,568 1,839 (458) 1,381
Money market investments .................. (72) (82) (154) 146 (162) (16)
Investment securities ..................... 83 (187) (104) (305) (62) (367)
FHLB stock ................................ 0 68 68 0 (62) (62)
------- ------- ------- ------- ------- -------
Total .................................... (562) (4,015) (4,577) (2,212) (1,538) (3,750)
Interest-bearing liabilities:
Deposits .................................. (402) (8,041) (8,443) (523) (5,620) (6,143)
Borrowed funds ............................ 208 (542) (334) (585) (53) (638)
------- ------- ------- ------- ------- -------
Total .................................... (194) (8,583) (8,777) (1,108) (5,673) (6,781)
------- ------- ------- ------- ------- -------
Net change in net interest income .......... (368) 4,568 4,200 (1,104) 4,135 3,031
======= ======= ======= ======= ======= =======
- -------------
(1) Includes the increase or decrease in net interest income attributable to
mortgage-backed securities available for sale.
</TABLE>
Nine Months Ended
December 31, 1993
Compared to
Nine Months Ended
December 31, 1992
Increase (Decrease)
---------------------------------
Due to
--------------------
Volume Rate Net
------- ------- -------
(in thousands)
Interest-earning assets:
Mortgage loans ...................... $(3,085) $ (642) $(3,727)
Other loans ......................... 136 (192) (56)
Mortgage-backed securities(1) ....... 1,071 (1,637) (566)
Money market investments ............ 139 (76) 63
Investment securities ............... (135) (271) (406)
FHLB stock .......................... (3) (45) (48)
------- ------- -------
Total .............................. (1,877) (2,863) (4,740)
------- ------- -------
Interest-bearing liabilities:
Deposits ............................ (820) (3,037) (3,857)
Borrowed funds ...................... (475) 116 (359)
------- ------- -------
Total .............................. (1,295) (2,921) (4,216)
------- ------- -------
Net change in net interest income .... $ (582) $ 58 $ (524)
======= ======= =======
- --------------
(1) Includes the increase or decrease in net interest income attributable to
mortgage-backed securities available for sale in 1993.
B-10
<PAGE>
Liquidity and Capital Resources
Statewide's primary sources of funds are deposits, principal and interest
payments on loans and mortgage-backed securities, advances from the Federal
Home Loan Bank of New York (the "FHLBNY") and retained earnings.
Statewide is required to maintain minimum levels of liquid assets as
defined by Office of Thrift Supervision ("OTS") regulations. This requirement,
which may be varied at the direction of OTS, depending upon economic conditions
and deposit flows, is based upon a percentage of deposits and short-term
borrowings. The required ratio is currently 5%. Statewide's liquidity ratios
were 21.02% and 10.85% at December 31, 1993 and 1992 and 10.45%, 10.68% and
8.26% at March 31, 1993, 1992 and 1991, respectively. Management currently
attempts to keep Statewide's liquidity ratio at least twice the regulatory
minimum. This reflects Statewide's strategy to reduce the risk from changes
in interest rates by having assets available to reinvest at higher rates in
the event the general level of interest rates greatly increase in the future.
Statewide utilizes the FHLBNY as an additional source of liquidity. As of
December 31, 1993, total advances outstanding amounted to $39.4 million. Short
term advances due within one year amounted to $14.8 million and long term
advances due after one year amounted to $24.6 million.
Statewide has a pre-approved overnight line of credit at the FHLBNY which
amounted to $26.7 million at December 31, 1993. At December 31, 1993, $8.5
million was outstanding under this line.
Additionally, Statewide can pledge certain mortgage loans and
mortgage-backed securities as collateral to secure additional advances from the
FHLBNY. As of March 31, 1993, mortgage loans and mortgage-backed securities
available for pledging purposes amounted to $366.8 million and as of December
31, 1993, the amount of such loans and securities available for pledging
purposes was $367.4 million.
Impact of Inflation and Changing Prices. The financial statements of
Statewide and the notes thereto, presented elsewhere herein, have been prepared
in accordance with generally accepted accounting principles, which require the
measurement of financial position and operating results in terms of historical
dollars without considering the change in the relative purchasing power of money
over time and due to inflation. The impact of inflation is reflected in the
increased cost of Statewide's operation. Unlike most industrial companies,
nearly all the assets and liabilities of Statewide are monetary. As a result,
interest rates have a greater impact on Statewide's performance than do the
effects of general levels of inflation. Interest rates do not necessarily move
in the same direction or to the same extent as the price of goods and services.
Recently Issued Accounting Standards. In May 1993, the Financial Accounting
Standards Board (the "FASB") issued Statement of Financial Accounting Standard
No. 114, "Accounting for 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. Statewide 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.
In May 1993, the FASB also issued Statement of Financial Accounting
Standard No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("SFAS 115"). SFAS 115 establishes accounting and reporting for
investments in equity securities that have readily determinable fair values
and for all investments in debt securities. Management of Statewide does not
expect that the impact on Statewide of implementing SFAS 115 will be material
to Statewide's financial statements. SFAS 115 is effective for fiscal years
beginning after December 15, 1993.
BUSINESS OF STATEWIDE
General
Statewide was organized in 1943 as a New Jersey chartered savings and loan
association under the name First Savings and Loan Association of Jersey City. In
1973 Statewide changed its name to Statewide Savings and Loan Association, and
in 1988, to Statewide Savings Bank, S.L.A. Statewide will be the successor to
Statewide Savings Bank, S.L.A upon its conversion from a New Jersey
state-chartered mutual savings and loan association to a state-chartered mutual
savings bank. The eligible voting members of Statewide Savings Bank, S.L.A. have
approved this charter conversion at a special meeting of members held October 5,
1993 and the OTS and the Commission approved applications for the charter
conversion on December 23 and December 29, 1993, respectively.
B-11
<PAGE>
Statewide's principal business is attracting deposits from the general
public and investing those deposits primarily in one to four-family mortgage
loans and mortgage-backed securities and, to a lesser extent, consumer loans and
investment securities. Statewide's revenues are derived principally from
interest on its mortgage loan and mortgage-backed securities portfolio and
interest and dividends on its investment securities. Statewide's primary sources
of funds are deposits, principal and interest payments on loans and mortgage-
backed securities and advances from the FHLBNY. Through its wholly owned
subsidiary, Statewide Financial Services, Inc., Statewide also engages in the
sale of annuity products.
Statewide's primary market area includes the neighborhoods surrounding its
thirteen branch offices. Six branches are located in Hudson County, two in
Bergen County and five branches are located in Union County, New Jersey.
Statewide has been adversely affected by banking legislation since 1989,
primarily the Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA"). In 1982, Statewide acquired a federally chartered savings and
loan association headquartered in Elizabeth, New Jersey. In connection with that
acquisition, Statewide recorded $27.6 million in goodwill to its statement of
financial condition, which was the excess of the fair market value of the
acquired association's liabilities over the fair market value of its assets.
Under the regulations applicable at the time of the acquisition, this goodwill
was counted as an asset of Statewide in calculating regulatory capital. Pursuant
to FIRREA, Statewide's ability to count goodwill towards regulatory capital was
substantially reduced, and is to be progressively phased out until January 1,
1995, when no goodwill may be included in calculating capital. Because of the
restrictions on goodwill imposed by FIRREA, and because of losses incurred in
Statewide's real estate loan portfolio, Statewide did not meet the minimum
capital requirements applicable to it under FIRREA and the regulations of the
OTS implementing the terms of FIRREA at their effective dates. While Statewide
met the minimum capital requirements applicable to it under FIRREA as of
December 31, 1993, its capital continues to include a portion of its goodwill.
Without this goodwill it would not meet such minimums. The amount of this
goodwill which may be counted toward capital is to be phased out over time.
As of March 31, 1993, the significance of goodwill on Statewide's Capital
Ratios is as follows:
(i) Tangible Capital Ratio of 2.5% does not include any goodwill and is
unaffected.
(ii) Core Capital Ratio of 3.3% includes $3,767,000 of qualifying
supervisory goodwill which, if eliminated, would result in a Ratio of
2.5%.
(iii) Risk based Capital Ratio of 9.4% includes $3,767,000 of qualifying
supervisory goodwill which, if eliminated, would result in a Ratio of
7.3%.
As of December 31, 1993, the significance of goodwill on Statewide's
Capital Ratios is as follows:
(i) Tangible Capital Ratio of 3.6% does not include any goodwill and is
unaffected.
(ii) Core Capital Ratio of 4.4% includes $3,654,000 of qualifying
supervisory goodwill, which, if eliminated, would result in a Ratio of
3.6%.
(iii) Risk based Capital Ratio of 14.4% includes $3,654,000 of qualifying
supervisory goodwill, which, if eliminated, would result in a Ratio of
12.0%.
Because Statewide was undercapitalized, it was required to file a capital
plan with the OTS. The capital plan provides for Statewide to increase its
capital levels through retained earnings and to thereby meet all minimum
regulatory requirements by the end of 1994. The OTS accepted Statewide's capital
plan, and issued a Capital Directive dated June 13, 1991 (the "Directive"),
which embodies the terms of the capital plan. As of December 31, 1993, Statewide
meets the capital targets required by the Directive and exceeds the minimum OTS
regulatory capital requirements.
Lending Activities
General. The primary source of income to Statewide is interest from lending
activities. The principal lending activity of Statewide is originating first
mortgage real estate loans to enable borrowers to purchase or refinance one to
four family residential real properties.
Loan Portfolio Composition. The table on the following page sets forth
information concerning the composition of Statewide's loan and mortgage-backed
securities portfolio, by type of security, in dollar amounts and in percentages
as of the dates indicated:
B-12
<PAGE>
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------
1993 1992
------------------------ ----------------------
Amount Percent Amount Percent
-------- ------- -------- -------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
Mortgage loans:
One to four family residential .......................... $157,678 83.51% $198,627 81.82%
Multi family residential ................................ 4,660 2.47 4,852 2.00
Non residential ......................................... 2,169 1.15 16,675 6.87
Acquisition, development and construction ............... 0 .00 249 0.10
Land .................................................... 455 0.24 1,100 0.45
-------- ------ -------- ------
Total mortgage loans .................................. 164,962 87.37 221,503 91.25
Other loans:
Second mortgage loans ................................... 11,209 5.94 8,281 3.41
Home equity lines of credit ............................. 1,736 0.92 1,900 0.78
FHA insured improvement loans ........................... 9,972 5.28 10,148 4.18
Unsecured consumer loans ................................ 357 0.19 153 0.06
Guaranteed student loans ................................ 90 0.05 166 0.07
Loans on deposit accounts ............................... 407 0.22 474 0.20
Automobile loans ........................................ 80 0.04 122 0.05
-------- ------ -------- ------
Total other loans ..................................... 23,851 12.63 21,244 8.75
-------- ------ -------- ------
Total loans .......................................... 188,813 100.00 242,747 100.00
====== ======
Less:
Unearned discounts and deferred loan fees, net .......... (1,266) (1,412)
Allowance for loan losses ............................... (1,094) (1,571)
-------- --------
Loans, net .............................................. $186,453 $239,764
======== ========
Mortgage-backed securities
GNMA ................................................... $ 52,108 25.53% $51,168 25.20%
FHLMC .................................................. 74,162 36.33 81,443 40.11
FNMA ................................................... 73,085 35.80 70,418 34.68
-------- ------ -------- ------
Total mortgage-backed securities ........................ 199,355 97.65 203,029 100.00
Mortgage-backed securities available for sale ........... 4,789 2.35 0 .00
-------- ------ -------- ------
Total mortgage-backed securities and mortgage-
backed securities available for sale ................... 204,144 100.00 203,029 100.00
Unamortized premiums, net ............................... 2,041 ====== 2,615 ======
-------- --------
Net mortgage-backed securities .......................... $206,185 $205,644
======== ========
</TABLE>
B-13
<PAGE>
<TABLE>
<CAPTION>
At March 31,
----------------------------------------------------------
1993 1992 1991
---------------- ------------------ --------------------
Amount Percent Amount Percent Amount Percent
------ ------- --------- ------- -------- -------
(In Thousands) (In Thousands) (In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage Loans:
One to four family residential ...... $190,212 81.39% $224,802 83.76% $254,409 81.30%
Multi family residential ............ 4,805 2.06 4,988 1.86 6,780 2.17
Non residential ..................... 16,324 6.99 17,316 6.45 16,153 5.16
Acquisition, development and
construction ....................... 249 0.11 249 0.09 7,590 2.43
Land ................................ 1,048 0.45 0 .00 3,846 1.23
------- ------ ------- ------ ------- ------
Total mortgage loans .............. 212,638 90.99 247,355 92.16 288,778 92.29
Other loans:
Second mortgage loans ............... 8,394 3.59 6,966 2.60 5,812 1.86
Home equity lines of credit ......... 1,569 0.67 1,855 0.69 1,648 0.53
FHA insured improvement loans ....... 10,055 4.30 11,361 4.23 15,521 4.96
Unsecured consumer loans ............ 223 0.10 21 0.01 0 0.00
Guaranteed student loans ............ 146 0.06 229 0.09 355 0.11
Loans on deposit accounts ........... 450 0.19 567 0.21 755 0.24
Automobile loans .................... 222 0.10 32 0.01 43 0.01
------- ------ ------- ------ ------- ------
Total other loans ................. 21,059 9.01 21,031 7.84 24,134 7.71
------- ------ ------- ------ ------- ------
Total loans ....................... 233,697 100.00 268,386 100.00 312,912 100.00
====== ====== ======
Less:
Loans in process .................... 0 0 (241)
Unearned discounts and deferred loan
fees, net .......................... (1,402) (1,631) (2,069)
Allowance for loan losses ........... (1,366) (1,841) (1,697)
-------- -------- --------
Loans, net .......................... $230,929 $264,914 $308,905
======== ======== ========
Mortgage-backed securities
GNMA ............................... $ 56,457 26.50% $ 57,558 32.21% $ 70,368 49.32%
FHLMC .............................. 71,890 33.74 98,058 54.87 72,294 50.68
FNMA ............................... 77,215 36.24 23,085 12.92 0 0.00
------- ------ ------- ------ ------- ------
Total mortgage-backed securities .. 205,562 96.48 178,701 100.00 142,662 100.00
Mortgage-backed securities available
for sale ........................... 7,517 3.52 0 0.00 0 0.00
------- ------ ------- ------ ------- ------
Total mortgage-backed securities and
mortgage-backed securities available
for sale ........................... 213,079 100.00 178,701 100.00 142,692 100.00
Unamortized premiums, net ........... 2,686 ====== 1,603 ====== 31 ======
-------- -------- --------
Net mortgage-backed securities ...... $215,765 $180,304 $142,693
======== ======== ========
</TABLE>
B-14
<PAGE>
Loan and Mortgage-Backed Securities Maturity Schedule. The following table
sets forth certain information at December 31, 1993 regarding the dollar amount
of loans and mortgage-backed securities in Statewide's portfolio maturing at
various periods, based upon the contractual terms to maturity or period to
repricing, after giving effect to net items:
<TABLE>
<CAPTION>
One to
Four Multi Mortgage-
Family Family Non Construc- Total Loans Backed
Residential Residential Residential tion(1) Consumer Receivable Securities(2) Total
----------- ----------- ----------- ----------- --------- ---------- ------------- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Amounts Due:
Within one year .............. $ 58,593 $ 368 $ 526 $ 455 $ 549 $ 60,491 $ 0 $ 60,491
After one year:
One to three years .......... 11,574 0 210 0 1,239 13,023 8,115 21,138
Three to five years ......... 10,537 222 1,276 0 5,366 17,401 29,245 46,646
Five to 10 years ............ 22,629 217 72 0 8,501 31,419 104,006 135,425
10 to 20 years .............. 34,383 1,860 85 0 8,196 44,524 14,623 59,147
Over 20 years ............... 19,962 1,993 0 0 0 21,955 48,155 70,110
--------- --------- --------- --------- --------- --------- --------- ---------
Total due after one year .... 99,085 4,292 1,643 0 23,302 128,322 204,144 332,466
--------- --------- --------- --------- --------- --------- --------- ---------
Total amounts due ........... 157,678 4,660 2,169 455 23,851 188,813 204,144 392,957
Less (Plus):
Unearned discounts, (premiums)
and deferred loan fees, net . 1,278 0 0 0 (13) 1,265 (2,041) (776)
Allowance for loan losses .... 932 5 11 5 141 1,094 0 1,094
--------- --------- --------- --------- --------- --------- --------- ---------
Loans, net .................... $ 155,468 $ 4,655 $ 2,158 $ 450 $ 23,723 $ 186,454 $ 206,185 $ 392,639
========= ========= ========= ========= ========= ========= ========= =========
- -----------------
(1) As of December 31, 1993, Statewide had no acquisition and development loans
in its portfolio.
(2) Includes $4.8 million of mortgage-backed securities available for sale.
</TABLE>
The following table sets forth certain information at March 31, 1993
regarding the dollar amount of loans and mortgage-backed securities in
Statewide's portfolio maturing at various periods, based upon the contractual
terms to maturity or period to repricing, after giving effect to net items:
<TABLE>
<CAPTION>
One to
Four Multi Mortgage-
Family Family Non Construc- Total Loans Backed
Residential Residential Residential tion(1) Consumer Receivable Securities(2) Total
----------- ----------- ----------- ----------- --------- ---------- ------------- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Amounts Due:
Within one year .............. $ 74,572 $ 385 $ 14,000 $ 249 $ 2,451 $ 91,657 $ 7,543 $ 99,200
After one year:
One to three years .......... 13,001 17 93 1,048 1,183 15,342 3,395 18,737
Three to five years ......... 10,488 154 1,388 0 4,747 16,777 13,919 30,696
Five to 10 years ............ 23,312 450 485 0 7,623 31,870 122,164 154,034
10 to 20 years .............. 36,654 0 0 0 5,030 41,684 20,646 62,330
Over 20 years ............... 32,185 3,799 358 0 25 36,367 45,412 81,779
--------- --------- --------- --------- --------- --------- --------- ---------
Total due after one year .... 115,640 4,420 2,324 1,048 18,608 142,040 205,536 347,576
--------- --------- --------- --------- --------- --------- --------- ---------
Total amounts due ........... 190,212 4,805 16,324 1,297 21,059 233,697 213,079 446,776
Less (Plus):
Unearned discounts, (premiums)
and deferred loan fees, net . 1,402 0 0 0 0 1,402 (2,686) (1,284)
Allowance for possible loan
losses ...................... 1,194 5 82 13 72 1,366 0 1,366
--------- --------- --------- --------- --------- --------- --------- ---------
Loans, net .................... $ 187,616 $ 4,800 $ 16,242 $ 1,284 $ 20,987 $ 230,929 $ 215,765 $ 446,694
========= ========= ========= ========= ========= ========= ========= =========
- -----------------
(1) As of March 31, 1993, Statewide had no acquisition and development loans in
its portfolio.
(2) Includes $7.5 million of mortgage-backed securities available for sale.
</TABLE>
B-15
<PAGE>
The following table sets forth the dollar amount of all loans and
mortgage-backed securities at December 31, 1993, and due one year after December
31, 1993, which have predetermined interest rates and floating or adjustable
interest rates:
Predetermined Floating or
Rates Adjustable Rates
------------- ----------------
(In Thousands)
Real Estate Mortgage ..... $ 81,432 $ 23,588
Mortgage-backed Securities 189,599 14,545
Other Loans .............. 21,566 1,736
-------- --------
Total ................... $292,597 $ 39,869
======== ========
Residential Mortgage Lending. Statewide offers first mortgage loans secured
by one to four family residences, including townhouse and condominium units.
Typically, such residences are single family homes that serve as the primary
residence of the owner. Loan originations are generally obtained from existing
or past customers and referrals from local real estate agents, builders and
members of the local communities in which Statewide has offices. All residential
mortgage loans made by Statewide are for properties located in New Jersey.
At December 31, 1993, 83.5% of Statewide's total loans consisted of one to
four family residential loans, of which 51.3% were loans with adjustable rates.
Statewide currently offers adjustable rate mortgage ("ARM") loans on which the
interest rate adjusts annually. Statewide also periodically offers ARM loans on
which the interest rate for an initial period may be less than the fully indexed
rate, although to be eligible, Statewide requires that the borrower qualify for
the maximum payment possible after the initial interest rate adjustment. ARM and
fixed-rate loans are originated for a term of up to 30 years. Statewide
currently charges origination fees of up to 2.5% on one to four family
residential mortgage loans.
Generally, ARM loans pose credit risks different from the risks inherent in
fixed-rate loans, primarily because as interest rates rise, the underlying
payments of the borrower rise, thereby increasing the potential for default. At
the same time, the marketability of the underlying property may be adversely
affected by higher interest rates.
Statewide's policy is to lend up to 80% of the appraised value of property
securing a single family residential loan, and up to 90% of the appraised value
if private mortgage insurance is obtained on the amount of the loan which
exceeds 80% of the appraised value.
One to four family residential mortgage loans are generally underwritten
according to FNMA or the Federal Home Loan Mortgage Corporation ("FHLMC")
guidelines, except that loans may exceed the maximum loan limits for the FNMA
or FHLMC. Statewide has, in the past, sold mortgage loans to FHLMC and other
investors. Statewide has the intent and ability to hold the loans in its
portfolio as of December 31, 1993 until maturity.
Statewide has originated, or purchased participating interests in, a
limited number of multi-family mortgage loans. As of December 31, 1993 $4.7
million, or 2.5% of Statewide's total loan portfolio, consisted of multi-family
residential mortgage loans. Currently, Statewide is not originating or
purchasing participating interests in multi-family mortgage loans.
Nonresidential Real Estate Lending. At December 31, 1993 Statewide's
nonresidential real estate loan portfolio totalled $2.2 million or 1.2% of
Statewide's total loan portfolio. At December 31, 1993, Statewide's
nonresidential real estate loan portfolio consisted of loans secured by
properties approximately as follows: $1.2 million on a medium size office
building and $1.0 million on several small office buildings.
The largest nonresidential real estate loan had an outstanding balance of
$1.2 million. The loan is secured by a 23,000 sq. ft. office building located in
North Bergen, New Jersey. It is a loan to facilitate the sale of the building,
which was acquired by Statewide in a foreclosure action due to the default of
the previous borrower. Scheduled payments on the loan are current.
Statewide does not currently intend to increase its nonresidential real
estate loan portfolio.
Other Loans. As of December 31, 1993, other loans totalled $23.9 million or
12.6% of Statewide's total loan portfolio. Statewide offers other loans in the
form of insured and uninsured home equity lines of credit, home
B-16
<PAGE>
improvement loans, secured equity loans and secured and unsecured personal
loans. Statewide also originates other loans secured by second mortgages on
one to four family residences. These second mortgage loans are secured by
owner-occupied residences and the property may not be encumbered by other than
a first mortgage loan. These loans are generally subject to a 75% combined
loan-to-value limitation, including any other outstanding mortgage or lien on
the property. As of December 31, 1993, second mortgage loans amounted to $11.2
million, or 5.9% of total loans.
Statewide also originates Federal Housing Administration ("FHA") Title I
improvement loans. Statewide originates FHA Title I Improvement Loans both on a
direct basis and through a network of improvement contractor/dealers who are
approved by Statewide in accordance with FHA guidelines. The loans are
underwritten in accordance with FHA guidelines which provide for more liberal
equity and debt to income ratio requirements than for non-insured improvement
loans. In the event of default, the FHA insures 90% of the principal balance
plus accrued interest. The interest rates are normally higher than the interest
rates for one to four family mortgage loans due to the more liberal underwriting
standards.
For all loans originated by Statewide, upon receipt of a completed loan
application from a prospective borrower, a credit report is ordered and certain
other information is verified by an independent credit agency and, if necessary,
additional financial information is required. An appraisal of the real estate
intended to secure the proposed loan is required. Such appraisal is performed by
an independent appraiser designated and approved by Statewide. The Board of
Directors annually approves the independent appraisers used by Statewide and
approves Statewide's appraisal policy. It is Statewide's policy to obtain title
insurance on all first mortgage loans. Borrowers must also obtain hazard
insurance prior to closing. Borrowers generally are required to advance funds on
a monthly basis together with each payment of principal and interest to a
mortgage escrow account from which Statewide makes disbursements for items such
as real estate taxes and, in some cases, hazard insurance premiums.
Mortgage-Backed Securities. Statewide invests in mortgage-backed securities
and utilizes such investments to complement its mortgage lending activities. At
December 31, 1993, mortgage-backed securities, including mortgage-backed
securities available for sale, totalled $206.2 million or 41.2% of total assets.
At March 31, 1993, all of Statewide's mortgage-backed securities portfolio
was directly insured or guaranteed by the Government National Mortgage
Association ("GNMA"), the FNMA or the FHLMC. Statewide's current policy is to
purchase mortgage-backed securities that are backed by ARM loans or have final
balloon maturities of seven years or less. As of December 31, 1993, such
mortgage-backed securities totalled $151.1 million or 73.3% of the total
mortgage-backed securities portfolio.
Statewide generally purchases mortgage-backed securities with the express
intent of holding the securities until maturity. Management has, in the past,
sold mortgage-backed securities with longer terms to maturity in order to reduce
Statewide's exposure to interest rate risk. As of December 31, 1993, Statewide
had $4.8 million in mortgage-backed securities available for sale which are
accounted for at the lower of cost or market value. At December 31, 1993, the
market value of these securities was $5.0 million.
Nonperforming Assets, Classified Assets, Loan Delinquencies and Defaults.
Maintenance of asset quality is one of management's most important tasks.
Management reviews delinquent loans on a continuous basis and the Board of
Directors reviews delinquent loans monthly. Statewide also established an Asset
Classification Committee in 1989, which meets quarterly to review Statewide's
loan portfolio, makes changes in the classification of assets which the
committee deems necessary and reports its findings to the Board of Directors.
Statewide hires outside counsel experienced in collections and foreclosure to
pursue collections and to institute foreclosure and other procedures on
Statewide's delinquent loans.
Federal regulations provide for the classification of loans and other
assets such as debt and equity securities considered by the OTS to be of lesser
quality as "substandard," "doubtful," or "loss" assets. An asset is considered
"substandard" if it is inadequately protected by the current net worth and
paying capacity of the obligor or of the collateral pledged, if any.
"Substandard" assets include those characterized by the distinct possibility
that the savings institution will sustain "some loss" if the deficiencies are
not corrected. Assets classified as "doubtful" have all of the weaknesses
inherent in those classified "substandard," with the added characteristic that
the weaknesses present make "collection or liquidation in full," on the basis of
currently existing facts, conditions, and values, "highly questionable and
improbable." Assets classified as "loss" are those considered "uncollectible"
and of such little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted. Assets that do not
expose the savings institution to risk sufficient to warrant classification in
one of the aforementioned
B-17
<PAGE>
categories, but which possess some weaknesses, are required to be designated
"special mention" by management. Loans designated as special mention are
generally loans that, while current in required payments, have exhibited
some potential weaknesses that, if not corrected, could increase the level of
risk in the future.
At December 31, 1993, Statewide had special mention loans of $0.9 million
which consisted of twelve one-to-four family mortgage loans where the borrower
is making payments through a bankruptcy plan or a special negotiated repayment
plan. At December 31, 1993, all of these loans were current or paid ahead.
At December 31, 1993, Statewide had substandard assets of $12.7 million,
which consisted of $9.3 million in real estate owned, $3.1 million in first and
second mortgage loans and $0.3 in consumer loans.
At December 31, 1993, Statewide had assets classified as doubtful of
$548,000 which represents Statewide's in-substance foreclosed interest in a $159
million acquisition, development and construction loan located in Jersey City.
The lead lender had previously failed and the project is currently being
marketed by the RTC. Management believes that the level of loss allowances is
adequate to absorb losses resulting from this asset if it becomes unrecoverable
in the future.
With respect to originated mortgage loans, Statewide's collection
procedures include sending a past due notice when the regular monthly payment is
not received by the 16th day of the month in which the payment is due. In the
event that payment is not received following notice of late payment, letters are
sent and phone calls are made to the borrower. When contact is made with the
borrower at any time prior to foreclosure, Statewide will attempt to obtain full
payment or work out a repayment schedule with the borrower to avoid foreclosure.
Foreclosure notices are sent when a loan is 90 days delinquent.
Statewide has experienced a decrease in loans delinquent 90 days or more.
Consequently, there has also been a decrease in the amount of foreclosed real
estate and in-substance foreclosed real estate (real estate owned) held by
Statewide. Statewide attributes these decreases, in large part, to the improved
economic conditions of its borrowers and to the resolution of a number of
properties under foreclosure.
The tables on the following three pages set forth information concerning
delinquent loans as of the periods indicated. The amounts represent the total
remaining balances of the related loans and percentage of total loans
outstanding, rather than the actual payment amounts which are overdue.
At December 31, 1993
-------------------------------------------
60-89 Days 90 Days or More
-------------------- -------------------
Principal Principal
Number of Balance Number of Balance
Loans of Loans Loans of Loans
--------- -------- --------- ---------
One to four family ............ 16 $ 351 61 $2,361
Multi-family Residential/
Non Residential .............. 0 0 0 0
Acquisition, Development
and Construction ............. 0 0 0 0
Other loans ................... 30 185 56 359
-- ------ --- ------
Total delinquent loans ....... 46 $ 536 117 $2,720
== ====== === ======
Delinquent loans to total loans .28% 1.45%
B-18
<PAGE>
(Dollars in thousands)
<TABLE>
<CAPTION>
At December 31, 1992
--------------------------------------------------
60-89 Days 90 Days or More
--------------------------------------------------
Principal Principal
Number of Balance Number of Balance
Loans of Loans Loans of Loans
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
One to four family ..................................... 43 $1,815 74 $3,545
Multi-family Residential/Non Residential ............... 0 0 0 0
Acquisition, Development and Construction .............. 0 0 1 249
Other loans ............................................ 50 319 69 549
--- ------ --- -------
Total delinquent loans ................................ 93 $2,134 144 $4,343
=== ====== === =======
Delinquent loans to total loans .88% 1.79%
At March 31, 1993
--------------------------------------------------
60-89 Days 90 Days or More
--------------------------------------------------
Principal Principal
Number of Balance Number of Balance
Loans of Loans Loans of Loans
--------- -------- --------- ---------
One to four family ..................................... 34 $1,183 64 $2,116
Multi-family Residential/Non Residential ............... 0 0 0 0
Acquisition, Development and Construction .............. 0 0 1 249
Other loans ............................................ 27 159 63 509
--- ------ --- -------
Total delinquent loans ................................ 61 $1,342 128 $2,874
=== ====== === =======
Delinquent loans to total loans ........................ .57% 1.23%
At March 31, 1992
--------------------------------------------------
60-89 Days 90 Days or More
--------------------------------------------------
Principal Principal
Number of Balance Number of Balance
Loans of Loans Loans of Loans
--------- -------- --------- ---------
One to four family ..................................... 35 $2,125 67 $2,661
Multi-family Residential/Non Residential ............... 0 0 0 0
Acquisition, Development and Construction .............. 0 0 0 0
Other loans ............................................ 37 202 88 603
--- ------ --- -------
Total delinquent loans ................................ 72 $2,327 155 $3,264
=== ====== === =======
Delinquent loans to total loans ........................ .87% 1.22%
At March 31, 1991
--------------------------------------------------
60-89 Days 90 Days or More
--------------------------------------------------
Principal Principal
Number of Balance Number of Balance
Loans of Loans Loans of Loans
--------- -------- --------- ---------
One to four family ..................................... 37 $744 79 $5,642
Multi-family Residential/Non Residential ............... 0 0 0 0
Acquisition, Development and Construction .............. 0 0 3 3,850
Other loans ............................................ 68 335 90 556
--- ------ --- -------
Total delinquent loans ................................ 105 $1,079 172 $10,048
=== ====== === =======
Delinquent loans to total loans ........................ .34% 3.21%
</TABLE>
Real estate owned acquired through loan foreclosure or properties that are
in-substance foreclosures are recorded at the lower of cost or estimated fair
value. Subsequent valuations are periodically performed by management and the
carrying value is adjusted to reflect any subsequent declines in the estimated
fair value.
B-19
<PAGE>
Interest income is reduced by the full amount of accrued and uncollected
interest on all loans once they become 90 days delinquent, are placed in
foreclosure or are otherwise determined to be uncollectible, unless the loans
are insured or guaranteed.
The table below sets forth information regarding Statewide's nonperforming
assets. At December 31, 1993, Statewide had no restructured loans within the
meaning of Statement of Financial Accounting Standard No. 15., issued
by the FASB:
<TABLE>
<CAPTION>
At December 31, At March 31,
----------------- -------------------------------------
1993 1992 1993 1992 1991 1990
------- ------- ------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans delinquent 90
days or more ................. $ 843 $ 655 $ 740 $ 752 $ 5,438 $ 908
Nonaccrual delinquent
mortgage loans ............... 1,518 3,139 1,625 1,909 7,056 6,645
Other loans delinquent 90 days
or more ...................... 359 549 509 603 556 482
------- ------- ------- ------- ------- -------
Total nonperforming
loans ...................... 2,720 4,343 2,874 3,264 13,050 8,035
Total investment in real estate
and real estate owned
(including in-substance
foreclosures) ................ 9,741 10,505 11,563 15,428 9,924 8,673
------- ------- ------- ------- ------- -------
Total nonperforming
assets ..................... $12,461 $14,848 $14,437 $18,692 $22,974 $16,708
======= ======= ======= ======= ======= =======
Nonperforming loans to total
loans ........................ 1.44% 1.79% 1.23% 1.22% 4.17% 2.24%
Nonperforming assets to total
loans and real estate owned .. 6.28% 5.86% 5.77% 6.51% 7.10% 4.58%
Nonperforming loans to total
assets ....................... 0.54 .83 0.55 0.61 2.47 1.42
Nonperforming assets to total
assets ....................... 2.49 2.82 2.78 3.51 4.34 2.96
</TABLE>
In addition to the loans included in the risk element table above,
Statewide's internal loan review identified approximately $787,000 in loans
classified as substandard at December 31, 1993. These loans, as well as the
loans included in the risk elements, have been considered in the analysis of the
adequacy of the allowance for loan losses.
During the years ended March 31, 1992 and 1993, the amounts of additional
interest income that would have been recorded on nonaccrual loans, had they been
current, totalled $94,560 and $188,822 respectively.
At December 31, 1993, four parcels of real estate with a value of $6.2
million represented 63.9% of Statewide's total real estate owned. The balance
consists of 38 separate properties with an average balance of $96,000.
The largest parcel of real estate owned ("REO") is an in-substance
foreclosure of a loan originally granted in 1985 for the purpose of building 172
single family homes in Raritan Township, New Jersey. After experiencing
financial difficulty, the developer filed a petition for reorganization under
Chapter 11 of the Bankruptcy Code during calendar year 1991. At December 31,
1993, Statewide's total investment in this loan was $2.8 million net of related
loss allowances. At December 31, 1993, the property consisted of 63 building
lots with various preliminary and final building permit approvals and site
improvements in place. In March of 1993, a plan of reorganization was approved
by the bankruptcy court whereby the builder would continue to build and sell
homes and sell building lots while
B-20
<PAGE>
repaying creditors. Statewide would receive approximately $4.6 million in
payments from these activities through calendar year 1997. No additional
advances to the builder would be made by Statewide. During fiscal 1993,
payments totalling $593,340 were received by Statewide from sales activities.
Management currently does not anticipate any additional losses in connection
with this parcel.
A second large parcel of real estate owned resulted from a separate loan to
the same borrower in 1987 to develop a 48 acre tract of land in Raritan Borough,
New Jersey into residential dwelling units. At December 31, 1993, the
in-substance foreclosure balance for this parcel totalled $2.2 million. This
parcel is covered by the same plan of reorganization as to the Raritan Township
parcel described above and calls for Statewide to receive all principal and
interest due on the original loan from the sale of 119 single family homes
through calendar year 1996. The plan anticipates that Statewide would receive
approximately $3.4 million in payments from building and sale activities through
calendar year 1996. Statewide will not be advancing any additional funds to the
developer. Management does not currently anticipate any additional losses on
this parcel.
The third largest parcel of REO is the in-substance foreclosure of an
acquisition, development and construction loan made to a developer to build
twenty single family luxury homes in Chester, New Jersey. At December 31, 1993
Statewide's investment totalled $546,000 and consisted of 9 improved building
lots. The developer is operating under the protection of Chapter 11 bankruptcy
with a formal plan of reorganization currently being developed. Under a previous
order of the bankruptcy court, the developer has been making interest payments
to Statewide since September 1992 at an interest rate of the prime rate plus
1.5%. During fiscal 1993, principal and interest payments totalling $510,938
have been received by Statewide. Statewide is making no additional advances to
the developer. Management does not currently anticipate any additional losses on
this parcel.
The fourth largest parcel of REO is the in-substance foreclosure of
Statewide's interest in a $159 million acquisition, development and construction
loan located in Jersey City, New Jersey. At December 31, 1993, Statewide's total
investment in this loan was $548,000 net of related loss allowances. The
property is currently being managed and marketed for sale by the RTC. Management
believes that the level of loss allowances is adequate to absorb losses
resulting from this asset if it becomes unrecoverable in the future.
Provisions for Loan Losses. A provision for loan losses is established
through charges to earnings. Loan losses (loans charged off net of recoveries)
are charged against the allowance for loan losses when management believes that
the recovery of principal is unlikely. If the risk characteristics of the loan
portfolio change and the allowance is deemed below the level considered by
management to be adequate to absorb future loan losses on existing loans, the
provision for loan losses is increased to the level considered necessary to
provide an adequate allowance. Management's evaluations take into consideration
such factors as changes in the nature and volume of the loan portfolio, overall
portfolio quality, review of specific problem loans and economic conditions that
may affect the borrower's ability to pay. Economic conditions may result in the
necessity to change the allowance quickly in order to react to deteriorating
financial conditions of Statewide's borrowers. As a result, additional
provisions on existing loans may be required in the future if borrower's
financial conditions deteriorate or if real estate values decline.
B-21
<PAGE>
The following table presents an analysis of Statewide's allowance for loan
losses at the dates indicated:
<TABLE>
<CAPTION>
(Dollars in thousands)
Nine Months Ended
December 31, Years Ended March 31,
--------------- ------------------------------------------
1993 1992 1993 1992 1991 1990 1989
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, beginning of period ............. $1,366 $1,841 $1,841 $1,697 $2,048 $ 80 $ 46
Provisions charged to operations ......... 360 182 194 1,933 186 3,711 194
Loans charged off:
One to Four Family Residential ........ 600 314 446 160 67 65 103
Multi Family Residential .............. 0 0 75 0 0 0 0
Non Residential ....................... 0 121 122 0 0 122 0
Land and Construction ................. 0 0 0 1,565 435 1,538 0
Other Loans ........................... 86 36 45 64 35 90 58
------ ------ ------ ------ ------ ------ ------
Total loans charged off .................. 686 471 688 1,789 537 1,815 161
Recovery on loans:
One to Four Family Residential ........ 1 19 19 0 0 0 0
Multi Family Residential .............. 0 0 0 0 0 72 0
Non Residential ....................... 0 0 0 0 0 0 1
Land and Construction ................. 13 0 0 0 0 0 0
Other Loans ........................... 40 0 0 0 0 0 0
------ ------ ------ ------ ------ ------ ------
Total recovery on loans .................. 54 19 19 0 0 72 1
------ ------ ------ ------ ------ ------ ------
Net loans charged off .................... 632 452 669 1,789 537 1,743 160
------ ------ ------ ------ ------ ------ ------
Balance, end of period ................... $1,094 $1,571 $1,366 $1,841 $1,697 $2,048 $ 80
====== ====== ====== ====== ====== ====== ======
Ratio of net charge offs during the period
to average loans outstanding
during the period ....................... .30% .18% .27% .63% .17% .47% .04%
ALLOCATION OF THE ALLOWANCE
FOR LOAN LOSSES
One to Four Family Residential ........ $ 75 $ 118 $ 266 $ 279 $ 146 $ 15 $ 14
Multi Family Residential .............. 0 0 0 0 0 0 0
Non Residential ....................... 0 0 0 0 0 0 0
Land and Construction ................. 5 12 12 732 1,043 1,599 0
Other Loans ........................... 43 72 72 80 39 34 64
Unallocated ........................... 971 1,369 1,016 750 469 400 2
------ ------ ------ ------ ------ ------ ------
Total..................................... $1,094 $1,571 $1,366 $1,841 $1,697 $2,048 $ 80
====== ====== ====== ====== ====== ====== ======
</TABLE>
B-22
<PAGE>
Investment Activities
Statewide's assets, other than loans receivable and mortgage-backed
securities, are invested primarily in U.S. Government and agency securities and
in Federal Funds Sold. Statewide is required by OTS regulations to maintain a
minimum amount of liquid assets that may be invested in specific securities and
is also permitted to make certain other investments in certain securities.
Liquidity may increase or decrease depending upon the availability of funds and
comparative yields on investments in relation to the return on loans and
mortgage-backed securities. Historically, Statewide has maintained its liquid
assets above the minimum requirements imposed by Federal regulations and at a
level believed adequate to meet the cash requirements of normal daily
activities, repayment of maturing debt and potential deposit outflows. Cash flow
projections are regularly reviewed and updated to assure that adequate liquidity
is provided. As of December 31, 1993, Statewide's liquidity ratio (liquid assets
as a percentage of net withdrawable savings and current borrowings) was 21.02%
as compared to the OTS minimum requirement of 5%.
The following table shows the composition and maturities of Statewide's
investment securities portfolio, excluding FHLBNY stock for the periods
indicated:
<TABLE>
<CAPTION>
(In thousands)
At December 31, 1993
-----------------------------------------------------------------------------------------------
Less than 1-5 5-10 Over 10 Total Investment
1 year years years years Securities
---------- ---------- ---------- ---------- ---------------------------
Book Value Book Value Book Value Book Value Book Value Mkt. Value
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
US Government &
Agency obligations .. $ 3,004 $43,163 $ 0 $ 0 $46,167 $46,700
Other ................ 10 0 0 0 10 67
------- ------- ------- ------- ------- -------
Total investment
securities .......... $ 3,014 $43,163 $ 0 $ 0 $46,177 $46,767
======= ======= ======= ======= ======= =======
Weighted average yield 4.95% 5.44% .00% .00% 5.41%
At March 31, 1993
-----------------------------------------------------------------------------------------------
Less than 1-5 5-10 Over 10 Total Investment
1 year years years years Securities
---------- ---------- ---------- ---------- ---------------------------
Book Value Book Value Book Value Book Value Book Value Mkt. Value
---------- ---------- ---------- ---------- ---------- ----------
US Government &
Agency obligations .. $ 4,027 $11,152 $ 3,013 $ 0 $18,192 $19,098
Other ................ 32 0 0 0 32 72
------- ------- ------- ------- ------- -------
Total investment
securities .......... $ 4,059 $11,152 $ 3,013 $ 0 $18,224 $19,170
======= ======= ======= ======= ======= =======
Weighted average yield 6.50% 6.98% 7.47% 0% 6.95%
</TABLE>
The following table sets forth the composition of Statewide's investment in
Federal Funds Sold and investment securities portfolio at the dates indicated:
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------
1993 1992
--------------------------- ---------------------------
Book Value % of Total Book Value % of Total
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Federal Funds Sold ................. $11,250 18.26% $ 5,750 16.34%
Investment Securities:
U.S. Govt & Agency securities ..... 46,167 74.95 24,923 70.81
Other ............................. 10 0.02 32 0.09
------- ------ ------- ------
Sub-total ........................ 57,427 93.23 30,705 87.24
FHLBNY stock ...................... 4,170 6.77 4,493 12.76
------- ------ ------- ------
Total Federal Funds Sold, Investment
Securities and FHLBNY stock ....... $61,597 100.00% $35,198 100.00%
======= ====== ======= ======
</TABLE>
B-23
<PAGE>
<TABLE>
<CAPTION>
(In thousands)
March 31,
-------------------------------------------------------------------------
1993 1992 1991
----------------------- ----------------------- -----------------------
Book Value % of Total Book Value % of Total Book Value % of Total
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Federal Funds Sold ................. $ 6,100 21.17% $ 6,000 17.42% $ 4,735 14.43%
Investment Securities:
U.S. Govt & Agency securities ..... 18,192 63.13 23,913 69.44 23,548 71.78
Other ............................. 32 0.11 32 0.09 32 0.10
------- ------ ------- ------ ------- ------
Sub-total ........................ 24,324 84.41 29,945 86.95 28,315 86.31
FHLBNY stock ...................... 4,493 15.59 4,493 13.05 4,493 13.69
------- ------ ------- ------ ------- ------
Total Federal Funds Sold, Investment
Securities and FHLBNY stock ....... $28,817 100.00% $34,438 100.00% $32,808 100.00%
======= ====== ======= ====== ======= ======
</TABLE>
Sources of Funds
General. Deposit accounts have traditionally been the principal source of
Statewide's funds for use in lending and for other general business purposes. In
addition to deposits, Statewide's available sources of funds are loan and
mortgage-backed security repayments, cash flows generated from operations
including interest payments on loans and investment securities and fees, and
FHLBNY advances.
Deposits. Statewide attracts both short-term and long-term deposits from
the general public by offering a wide assortment of accounts and rates.
Statewide offers passbook accounts, checking accounts, N.O.W. accounts, money
market accounts, fixed interest rate certificates of deposit with varying
maturities and individual retirement accounts ("IRA's"). In recent years,
Statewide has de-emphasized the reliance on certificates of deposit and has
attempted to increase the relative volume of core deposits, which it considers
to be of passbook, checking, N.O.W. and money market accounts. Management
believes that core deposits are a much more stable source of funds and are less
sensitive to changes in the market level of interest rates. The percentage of
average certificates of deposits to average total deposits was 47.2%, 53.4% and
59.3% for the years ending March 31, 1993, 1992 and 1991, respectively.
Maturity terms, service fees and withdrawal penalties are established by
Statewide on a periodic basis. Rates and terms governing accounts are determined
based upon funding and liquidity requirements, rates paid by competitors and
federal regulations.
The tables on the following two pages set forth the average dollar amount
of deposits in the various types of savings programs, along with the weighted
average effective interest rates paid for the periods indicated.
B-24
<PAGE>
<TABLE>
<CAPTION>
For The Nine Months Ended December 31,
------------------------------------------------------------------------------
1993 1992
-------------------------------------- -------------------------------------
Percent Weighted Percent Weighted
of Average of Average
Average Total Effective Average Total Effective
Balance Deposits Rate Balance Deposits Rate
------------- -------- --------- ------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Checking Accounts ... $ 7,589,449 1.75% .00% $ 7,536,664 1.66% .00%
N.O.W. Accounts ..... 71,808,419 16.59 3.12 69,680,392 15.37 4.05
Money Market Accounts 53,129,761 12.28 2.74 55,713,584 12.29 3.62
Passbook Accounts ... 109,897,842 25.39 2.74 104,177,143 22.98 3.57
------------- ------ ---- ------------- ------ ----
Total Core Deposits . $ 242,425,471 56.02% 2.77% $ 237,107,784 52.31% 3.61%
Certificate Accounts
31 Day ............. 42,200 .01% .69% 214,635 .05% 3.63%
91 Day ............. 7,319,059 1.69 3.04 7,706,925 1.70 3.79
6 Mo ............... 66,556,947 15.38 3.20 76,843,351 16.95 4.21
7-9 Mo ............. 9,281,795 2.14 3.23 12,272,670 2.71 4.28
12 Mo .............. 51,086,853 11.80 3.72 62,087,439 13.70 5.11
18 Mo .............. 2,176,133 .50 3.95 2,434,809 .54 5.88
24 Mo .............. 13,786,654 3.19 4.97 8,857,133 1.95 6.14
30 Mo .............. 6,797,938 1.57 5.30 8,738,908 1.93 7.22
48 Mo .............. 2,784,491 .64 6.79 780,743 .17 7.78
72 Mo .............. 645,066 .15 7.00 109,225 .02 8.20
96 Mo .............. 590,580 .14 8.35 473,282 .10 8.35
36-60 Mo ........... 3,139,550 .73 5.58 3,514,177 .78 7.34
Fixed Rate IRA ..... 20,838,093 4.82 5.51 16,870,096 3.72 6.61
Variable Rate IRA .. 4,432,933 1.02 3.50 14,614,987 3.22 5.48
Passbook Rate IRA .. 864,375 .20 2.74 640,609 .14 3.66
------------- ------ ---- ------------- ------ ----
Total Certificates .. 190,342,664 43.98% 3.93% 216,158,990 47.69% 5.03%
------------- ------ ---- ------------- ------ ----
Total Deposits ...... $ 432,768,135 100.00% 3.28% $ 453,266,774 100.00% 4.28%
============= ====== ==== ============= ====== ====
</TABLE>
B-25
<PAGE>
<TABLE>
<CAPTION>
For The Year Ended March 31,
-------------------------------------------------------------------------------------------
1993 1992 1991
------------------------------ ---------------------------- -------------------------------
Percent Weighted Percent Weighted Percent Weighted
Of Average Of Average Of Average
Average Total Effective Average Total Effective Average Total Effective
Balance Deposits Rate Balance Deposits Rate Balance Deposits Rate
------------ -------- ------- ------------ -------- ------ ------------ -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Checking Accounts ... $ 7,680,359 1.71% 0.00% $ 6,213,093 1.36% 0.00% $ 5,409,146 1.16% 0.00%
N.O.W. Accounts ..... 69,840,110 15.52 3.90 56,331,922 12.29 5.91 34,866,359 7.48 7.14
Money Market Accounts 55,531,697 12.34 3.48 55,548,807 12.12 5.16 56,989,912 12.22 6.01
Passbook Accounts ... 104,767,161 23.27 3.44 95,521,914 20.84 5.11 92,336,786 19.80 5.73
------------ ------ ---- ------------ ------ ---- ------------ ------ ----
Total Core Deposits . $237,819,327 52.84% 3.47% $213,615,736 46.61% 5.18% $189,602,203 40.66% 5.91%
Certificate Accounts
31 Day ............. 215,524 .05% 3.51% 206,475 .05% 5.38% 209,804 .04% 5.73%
91 Day ............. 7,649,230 1.70 3.65 11,079,242 2.42 5.47 15,154,225 3.25 7.74
6 Mo ............... 75,742,148 16.83 4.05 89,473,210 19.52 6.11 97,477,192 20.90 7.94
7-9 Mo ............. 11,891,180 2.64 4.13 17,242,331 3.76 6.34 25,767,049 5.53 8.13
12 Mo .............. 60,049,853 13.34 4.85 71,440,807 15.59 6.95 80,218,042 17.20 8.35
18 Mo .............. 2,373,312 .53 5.58 2,748,535 .60 7.28 2,732,419 .59 8.21
24 Mo .............. 9,387,674 2.09 5.94 5,740,406 1.25 7.66 5,641,624 1.21 8.31
30 Mo .............. 8,419,580 1.87 6.92 9,612,155 2.10 7.85 11,517,452 2.47 8.23
48 Mo .............. 782,155 .17 7.78 896,069 .20 7.77 947,620 .20 7.82
72 Mo .............. 105,312 .02 8.19 119,218 .03 7.93 185,161 .04 8.17
96 Mo .............. 477,028 .11 8.35 443,328 .10 8.35 414,848 .09 8.36
36-60 Mo ........... 3,751,888 .83 7.12 2,605,028 .57 8.08 2,041,067 .44 8.23
Fixed Rate IRA ...... 17,487,115 3.89 6.43 12,845,794 2.80 7.16 2,678,634 .57 6.82
Variable Rate IRA ... 13,232,944 2.94 5.31 19,681,342 4.29 6.93 31,686,441 6.79 8.92
Passbook Rate IRA ... 670,320 .15 3.51 513,191 .11 5.22 54,739 .01 5.97
------------ ------ ---- ------------ ------ ---- ------------ ------ ----
Total Certificates .. 212,235,263 47.16% 4.84% 244,647,131 53.39% 6.62% 276,726,317 59.34% 8.20%
------------ ------ ---- ------------ ------ ---- ------------ ------ ----
Total Deposits ...... $450,054,590 100.00% 4.12% $458,262,867 100.00% 5.95% $466,328,520 100.00% 7.27%
============ ====== ==== ============ ====== ==== ============ ====== ====
</TABLE>
B-26
<PAGE>
The following table shows rate information for Statewide's certificates of
deposits at the dates indicated and maturity information at December 31, 1993.
<TABLE>
<CAPTION>
Period to Maturity from December 31, 1993
At December 31, ----------------------------------------------------------------------------
---------------------------- Within One to Two to Over
1993 1992 One Year Two Years Three Years Three Years Total
------------ ------------ ------------ ------------ ------------ ------------ ------------
<C> <C> <C> <C> <C> <C> <C> <C>
Certificates
of Deposits
3.99% or less $144,612,901 $115,750,306 $135,286,255 $ 9,326,646 $ 0 $ 0 $144,612,901
4.00% to 4.99% 18,479,143 46,865,831 6,243,091 8,843,898 3,350,482 41,672 18,479,143
5.00% to 5.99% 11,364,586 19,361,136 4,568,977 1,499,504 4,025,986 1,270,119 11,364,586
6.00% to 6.99% 2,574,503 10,849,903 1,371,906 990,056 212,541 0 2,574,503
7.00% to 7.99% 5,751,406 9,621,628 784,009 3,901,399 1,065,998 0 5,751,406
8.00% to 8.99% 617,181 766,525 155,199 447,429 14,553 0 617,181
------------ ------------ ------------ ------------ ------------ ------------ ------------
Total ....... $183,399,720 $203,215,329 $148,409,437 $ 25,008,932 $ 8,669,560 $ 1,311,791 $183,399,720
============ ============ ============ ============ ============ ============ ============
</TABLE>
The following table shows rate information for Statewide's certificates of
deposits at the dates indicated and maturity information at March 31, 1993.
<TABLE>
<CAPTION>
Period to Maturity from December 31, 1993
At March 31, --------------------------------------------------------------------
---------------------------------------- Within One to Two to Over
1993 1992 1991 One Year Two Years Three Years Three Years Total
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
Certificates
of Deposits
3.99% or less $152,794,397 $ 0 $ 0 $150,121,273 $ 2,673,124 $ 0 $ 0 $152,794,397
4.00% to 4.99% 14,902,944 94,427,222 0 737,142 10,476,576 3,540,224 148,002 14,902,944
5.00% to 5.99% 14,604,298 76,241,070 1,874,000 6,366,092 2,890,588 1,378,713 3,968,905 14,604,298
6.00% to 6.99% 8,212,159 38,527,114 67,102,000 5,568,906 256,243 1,835,406 551,604 8,212,159
7.00% to 7.99% 7,178,212 19,326,405 170,417,062 2,549,839 1,953,169 1,991,312 683,892 7,178,212
8.00% to 8.99% 660,645 1,427,611 24,608,000 166,129 478,938 15,578 0 660,645
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
Total ....... $198,352,655 $229,949,422 $264,001,962 $165,509,381 $ 18,728,638 $ 8,761,233 $ 5,353,403 $198,352,655
============ ============ ============ ============ ============ ============ ============ ============
</TABLE>
The following table sets forth the maturity dates of Statewide's
certificates of deposit and other deposits of $100,000 or more:
Amount
------
Maturity Period (In Thousands)
---------------
Three Months or Less ........ $21,410
Three Through Six Months .... 1,672
Six Through Twelve Months ... 2,028
Over Twelve Months .......... 1,800
-------
Total ..................... $26,910
=======
Borrowings. Statewide's principal source of borrowings in past years has
been advances from the FHLBNY. Statewide has utilized these advances when
available loan and investment yields significantly exceeded the cost of
borrowings and as an interest rate risk management tool when the cost of longer
term advances is significantly lower than the rates required to attract longer
term certificates of deposit.
The following table sets forth the maximum month-end balance and average
balance of FHLBNY advances for the periods indicated:
<TABLE>
<CAPTION>
For the Nine Months Ended
December 31, For the Year Ended March 31,
--------------------------- -------------------------------------------
1993 1992 1993 1992 1991
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
MAXIMUM BALANCE:
FHLBNY Advances ............ $48,966,666 $55,216,666 $55,216,666 $52,149,999 $65,329,981
AVERAGE BALANCE:
FHLBNY Advances ............ 39,148,348 47,677,058 48,729,166 45,154,166 46,912,499
Weighted average interest
rate of FHLBNY Advances ... 7.41% 7.18% 6.16% 7.50% 8.84%
</TABLE>
B-27
<PAGE>
The following table sets forth certain information as to FHLBNY advances at
the dates indicated:
<TABLE>
<CAPTION>
At December 31, At March 31,
----------------------------- ----------------------------------------------
1993 1992 1993 1992 1991
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
FHLBNY Advances ................. $39,366,666 $51,666,666 $45,091,666 $43,391,666 $49,191,666
Weighted average interest
rate of FHLBNY Advances ........ 7.41% 7.18% 7.64% 8.23% 8.69%
</TABLE>
Competition
Statewide faces substantial competition in attracting deposits and
creditworthy borrowers from other savings institutions, commercial banks, money
market and mutual funds, credit unions and other investment vehicles. The
ability of Statewide to attract and retain deposits depends on its ability to
provide an investment opportunity that satisfies the requirements of investors
as to a rate of return, liquidity, risk and other factors. Competition for
depositors funds and for creditworthy loan customers in Statewide's Northern New
Jersey market area is intense and involves local institutions as well as large
New York City institutions.
Properties
Statewide conducts its business through 13 branch offices, including its
home office at 70 Sip Avenue, Jersey City, New Jersey.
Legal Proceedings
Statewide is involved from time to time as a party to legal proceedings
occurring in the ordinary course of its business. Statewide believes that none
of these proceedings would, if adversely determined, have a material effect on
Statewide's consolidated financial condition or results of operations.
Employees
At December 31, 1993, Statewide had a total of 149 full-time employees and
43 part-time employees. None of Statewide's employees are represented by a
collective bargaining unit. Management considers its employee relations to be
good.
Subsidiary Activities
As of December 31, 1993, Statewide was the 100% owner of the following
subsidiaries:
Statewide Financial Services, Inc. Statewide Financial Services, Inc. holds
a New Jersey corporate insurance license. Statewide sells tax-deferred annuity
investment products and term life insurance to its customers through Statewide
Financial Services, Inc. During the fiscal years ended March 31, 1993 and March
31, 1992, Statewide Financial Services, Inc. earned $456,120 and $187,749 in
commission income, respectively. During the nine months ended December 31, 1993
and December 31, 1992, commission earnings were $312,956 and $292,951,
respectively.
Seventy Sip Corp. Seventy Sip Corp. is a joint venture partner in a
residential real estate development project located in Little Egg Harbor, New
Jersey. Due to a decrease in sales activity, the joint venture is experiencing
financial difficulty. Statewide does not intend to invest any additional funds
in Seventy Sip Corp. to support the joint venture, nor is it obligated to do so.
In April 1993, the construction lender to the joint venture accepted a deed to
the real estate development in lieu of repayment of the construction loan. In
addition, the construction lender agreed to replace letters of credit that were
issued by Statewide to secure improvements that were to be made by the joint
venture. These letters of credit totalled $1.8 million. As of December 31, 1993,
Statewide's investment in the joint venture was zero. See "BUSINESS OF
STATEWIDE--Investment Activities."
B-28
<PAGE>
APPENDIX C
SELECTED CONSOLIDATED FINANCIAL DATA OF WASHINGTON
Set forth below are selected consolidated financial and other data of
Washington Bancorp, Inc. ("Washington"). This financial data (other than
ratios) for the five years ended December 31, 1993 are derived from the
Consolidated Financial Statements of Washington. The data should be read in
conjunction with the consolidated financial statements, related notes, and
other financial information included in this Appendix C.
C-1
<PAGE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA OF WASHINGTON
Year Ended December 31,
---------------------------------------------------------
1993 1992 1991 1990 1989
--------- --------- --------- --------- ---------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Operating Data:
Interest income ....................................... $ 18,557 $ 21,879 $ 27,594 $ 31,301 $ 33,142
Interest expense ...................................... 8,812 12,190 19,119 22,543 23,730
--------- --------- --------- --------- ---------
Net interest income ................................... 9,745 9,689 8,475 8,758 9,412
Provision for losses on loans ......................... 420 1,100 1,500 2,350 6,927
--------- --------- --------- --------- ---------
Net interest income after provision for losses on loans 9,325 8,589 6,975 6,408 2,485
Other income .......................................... 949 2,290 2,569 859 585
Other expenses ........................................ 8,768 8,694 9,306 10,674 7,959
--------- --------- --------- --------- ---------
Income/(loss) before income taxes, extraordinary items
and change in accounting principle ................... 1,506 2,185 238 (3,407) (4,889)
Income tax expense/(benefit) .......................... (1,018) 628 552 (1,538) (989)
--------- --------- --------- --------- ---------
Income/(loss) before extraordinary items and change
in accounting principle .............................. 2,524 1,557 (314) (1,869) (3,900)
Extraordinary items ................................... -- 539 (1,034) -- --
Change in accounting principle ........................ 300 -- -- -- --
--------- --------- --------- --------- ---------
Net income/(loss) ..................................... $ 2,824 $ 2,096 $ (1,348) $ (1,869) $ (3,900)
========= ========= ========= ========= =========
Per Share Data:
Weighted average number of common shares
outstanding (in thousands) ........................... 2,297 2,276 2,264 2,264 2,262
Dividends per share ................................... $ -- $ -- $ -- $ 0.07 $ 0.28
Income/(loss) per share:
Income/(loss) before extraordinary item and cumulative
effect of change in accounting principle ............ $ 1.10 $ 0.68 $ (0.14) $ (0.83) $ (1.72)
Extraordinary items .................................. -- 0.24 (.46) -- --
Cumulative effect of change in accounting principle .. .13 -- -- -- --
--------- --------- --------- --------- ---------
Net income/(loss) per share .......................... $ 1.23 $ 0.92 $ (0.60) $ (0.83) $ (1.72)
========= ========= ========= ========= =========
Balance Sheet Summary:
Investment and mortgage-backed securities ............. $ 92,264 $ 67,576 $ 56,455 $ 79,904 $ 57,677
Loans, net ............................................ 170,185 191,501 195,508 230,557 244,714
Total assets .......................................... 282,635 285,771 293,727 337,626 351,281
Deposits .............................................. 246,043 252,623 259,021 275,327 273,383
Advances from FHLB .................................... 400 -- -- 28,500 40,500
Stockholders' equity .................................. 33,541 30,469 28,216 29,215 30,830
Performance Ratios:
Return on average assets .............................. 0.99% 0.72% (0.42%) (0.54%) (1.08%)
Return on average equity .............................. 8.98 7.21 (4.72) (6.16) (11.16)
Dividend payout ....................................... -- -- -- (8.43) (16.54)
Average equity to average assets ...................... 11.04 10.03 8.91 8.78 9.70
Net interest margin ................................... 3.58 3.55 2.80 2.65 2.69
Asset Quality Ratios:
Allowance for losses on loans to total loans, net ..... 1.66% 1.45% 1.53% 1.12% 1.93%
Allowance for losses on loans to non-performing loans . 21.84 31.52 17.97 14.86 27.01
Allowance for losses on loans and REO to non-performing
assets ............................................... 21.49 19.39 14.14 12.00 18.77
Non-performing loans to total loans, net .............. 7.61 4.60 8.51 7.52 7.14
Non-performing assets to total loans, net plus other
real estate, net ..................................... 11.30 10.66 14.03 11.83 9.96
Net charge-offs to average loans, net ................. 0.19 0.66 0.47 1.89 2.07
</TABLE>
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is an analysis of the financial condition and
results of operations of Washington for the years ended December 31, 1993,
1992 and 1991 and should be read in conjunction with the Consolidated
Financial Statements of Washington and accompanying Notes thereto, which are
presented elsewhere herein.
Overview
During 1993, Washington and Washington Savings Bank ("Washington
Savings") experienced the following:
(A) The Bankruptcy Loan. During the first quarter, a Chapter 11 bankruptcy
petition was filed by the obligor of an approximately $9.0 million loan, a loan
on which Washington Savings currently has a first mortgage and an
assignment-of-rents (the "Bankruptcy Loan"). On November 10, 1993, the Court
dismissed the bankruptcy petition. Nevertheless, Washington 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 to pay a substantial portion of property
tax arrearages. Rental payments were resumed to Washington 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 interest income which would have been recorded had the rental
payments been received and the actual income recorded approximated $580,000
and $295,000, respectively, for the year ended December 31, 1993. Washington
continues to classify the Bankruptcy Loan as a nonaccrual loan.
Management believes that, based on an August 2, 1993 appraisal of $12.2
million, Washington has adequate collateral with respect to the Bankruptcy Loan
and anticipates collection of the outstanding principal balance thereof.
Washington anticipates that the Bankruptcy Loan will be renegotiated during
1994. At December 31, 1993, there was no accrued interest receivable on
Washington's financial statements for the Bankruptcy Loan and approximately
$264,000 of the general reserve of the allowance for losses on loans was
allocated for the Bankruptcy Loan.
The Bankruptcy Loan is secured by an approximately 450,000 square foot
building which is rented to the IRS under a lease which is cancelable by the IRS
upon 60 days' notice. The building is situated in northeast Philadelphia in a
site with two other IRS facilities. The IRS announced in early December 1993
that this site will be converted into a customer service center with an
approximate loss of 2,500 permanent and seasonal jobs. It has been reported in
the press that the process of reducing the workforce at the northeast
Philadelphia center will begin in 1996 and be completed in 1999. The effect, if
any, of the conversion and reduction in workforce on the building securing this
loan is unknown at this time.
(B) Regulatory Restrictions Rescinded. During the third quarter, the FDIC
completed its examination of Washington Savings as of August 2, 1993. As a
result of that examination, the FDIC and the Banking Department rescinded the
Memorandum of Understanding which Washington Savings had signed on December 22,
1992 with the FDIC and the Banking Department in connection with their
examination as of July 13, 1992.
Subsequently, the FRB completed an off-site analysis of Washington. As a
result of that analysis, in January 1994, the FRB rescinded the Memorandum of
Understanding, which Washington had signed on August 13, 1991 with the FRB in
connection with its examination as of December 31, 1990.
(C) Prepayment. During the fourth quarter, a first mortgage of $7.0 million
and a revolving line of credit of $1.4 million to one borrower were prepaid (the
"Prepaid Loan"). These performing loans, which had a weighted average yield of
9.8%, had collectively been Washington's second largest loan concentration and
had been one of two loan concentrations, the other being the Bankruptcy Loan,
with a concentration greater than 10% of stockholders' equity.
Net Income
Net income for the year ended December 31, 1993 was $2.8 million, or $1.23
per share, as compared with net income of $2.1 million, or $0.92 per share, for
the year ended December 31, 1992. Income before extraordinary item and change in
accounting principle for the year ended December 31, 1993 was $2.5 million, or
$1.10 per share, as compared with income before extraordinary item and change in
accounting principle of $1.6 million, or $.68 per share, for the year ended
December 31, 1992. Included in 1993 net income is $300,000, or $0.13 per share,
due to the cumulative effect of a change in accounting for income taxes. During
1992, an extraordinary credit in the amount of $539,000, or $.24 per share, was
recorded to utilize net operating loss carryforwards. There were no
extraordinary items in 1993.
A comparison between the two most recent years' net income, and income
before extraordinary items and cumulative effect of change in accounting
principle, is significantly affected by income tax matters. In 1993, an
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<PAGE>
income tax benefit of $1.0 million was recorded as a result of a $809,000
reduction in the deferred tax asset valuation allowance (to a zero balance)
and an income tax refund of $747,000, offset by current taxes of approximately
$538,000. In 1992, income tax expense of $628,000 was a result of current taxes.
Excluding the above items, income before income taxes, extraordinary items,
and cumulative effect of change in accounting principle decreased to $1.5
million for the year ended December 31, 1993 from $2.2 million for the year
ended December 31, 1992. The decrease of approximately $700,000 was primarily
the result of a decrease in net security gains of $1.6 million; an increase in
REO expense (net) of $286,000; and a decrease in gains on sale of loans of
$40,000. These items were partially offset by a decrease in the provision for
losses on loans of $680,000; a decrease of $214,000 in occupancy and equipment
expense; a $187,000 gain on sale of a bank building in 1993; interest income of
$136,000 on the aforementioned income tax refund; and an increase in net
interest income of $57,000. For a more detailed discussion of each such item,
see "Results of Operations--1993 Compared to 1992."
Securities Portfolio
Two main objectives of the securities portfolio is to maintain a high
standard of quality and liquidity. Quality is dictated by the investment policy
which permits, but is not limited to, investment in Federal funds sold, U.S.
Treasury securities, U.S. government agency securities, corporate bonds and
notes with a minimum rating of AA, commercial paper, bankers acceptances and
certain mortgage-backed securities. Except for the required investment in equity
securities of the Federal Home Loan Bank of New York (the "FHLB"), investment in
equity securities is not permitted by the investment policy. The liquidity
objective is to maintain sufficient liquidity for deposit withdrawals, loan
demand and operating expenses.
During 1993, the Financial Accounting Standards Board (the "FASB") issued
and Washington 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. Most of Washington's
securities are classified as available-for-sale securities because such
securities may be sold prior to maturity for various reasons, even though
management currently does not intend to sell such securities. Available-for-sale
securities are accounted for at fair value with fair value changes reported as a
separate component of stockholders' equity, net of applicable taxes. The
cumulative effect of the change in accounting principle as of the end of fiscal
year 1993 was to increase the carrying value of securities by $286,000, decrease
the net deferred tax asset by $100,000 and increase stockholders' equity by
$186,000.
Below are the combined carrying values of securities available-for-sale and
held-to-maturity at year-end for the last three years:
December 31,
---------------------------------
1993 1992 1991
------- ------- -------
(Dollars in thousands)
Short-term securities:
Federal funds sold ..................... $ 1,900 $ 3,000 $18,300
------- ------- -------
Investment securities:
U.S. Treasury .......................... 65,368 19,090 52,786
U.S. Government agencies ............... 505 5,611 --
Corporate bonds and notes .............. 4,139 24,841 --
Other securities ....................... 1,577 9,188 --
------- ------- -------
Total investment securities ........... 71,589 58,730 52,786
------- ------- -------
Mortgage-backed securities .............. 18,964 7,213 1,517
------- ------- -------
Total securities portfolio ............ $92,453 $68,943 $72,603
======= ======= =======
At December 31, 1993 and 1991, there were no securities to any one issuer
(other than the Federal government) which exceeded 10% of stockholders' equity.
At December 31, 1992, aggregate securities totalling $4.2 million with General
Electric Corporation and $3.6 million with IBM Credit Corporation were the only
securities to any one issuer (other than the Federal government) which exceeded
10% of stockholders' equity. Reference is made to footnote 3 of the Notes to
Consolidated Financial Statements for information concerning market values,
gross unrealized gains and losses, and weighted average yields of investment and
mortgage-backed securities.
Short-term securities. Short-term securities are comprised solely of
overnight Federal funds sold. Federal funds sold averaged $6 million, $12
million and $7 million in 1993, 1992 and 1991, respectively, while year end
balances were $1.9 million, $3.0 million and $18.3 million, respectively. The
average amount of Federal funds sold for 1992 was higher than comparable years
because Washington Savings had excess funds from the sale of U.S.
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<PAGE>
Treasury securities which were invested in overnight Federal funds sold until
certain callable securities were available. The large Federal funds position at
year end 1991 was due to sales of performing loans during the last week of
1991.
Investment securities. Investment securities (including securities
available for sale) were $71.6 million at December 31, 1993 as compared to $58.7
million at December 31, 1992, and averaged $54.3 million in 1993 as compared to
$53.0 million in 1992. The 1993 year end balance is significantly higher than
the comparable 1992 balance because funds from the Prepaid Loan were placed in
investment securities. The 1993 average balance is only slightly more than the
comparable 1992 average balance because the Prepaid Loan was prepaid in the
fourth quarter of 1993. As of December 31, 1992, 75% of U.S. Government agencies
and corporate bonds and notes had call dates at various times during 1993 and
1994. As anticipated, $18.8 million of such investment securities were called
during 1993. In addition, there were $12.6 million of sales and $17.0 million of
maturities. A portion of the proceeds from such calls, sales, and maturities
were used to purchase $62.6 million of investment securities with a weighted
average yield of 4.28% and a weighted average maturity of 3.1 years. The
majority of the purchases were U.S. Treasury securities. At December 31, 1993,
there were $5.6 million of securities with 1994 call dates.
Mortgage-Backed Securities. Mortgage-backed securities (including
securities available for sale) were $19.0 million at December 31, 1993 as
compared to $7.2 million at December 31, 1992, and averaged $18.9 million in
1993 as compared to $2.6 million in 1992. The increases in both the 1993
year-end balance and 1993 average balance were due to a change in investment
strategy. Proceeds from loan payoffs and investment security maturities and
calls were used to purchase mortgage-backed securities of $23.2 million during
1993. At the time of purchase, these securities had an estimated weighted
average life of approximately 2.9 years and a weighted average yield to average
life of 6.05%. However, due to declining interest rates during 1993, prepayments
on the mortgage-backed securities portfolio occurred more rapidly than
originally anticipated, resulting in increased premium amortization of $227,000
during 1993. The effect of increasing premium amortization was to decrease the
weighted average yield on the mortgage-backed portfolio 120 basis points to
4.85% for 1993.
Loans; Nonperforming Assets; REO; and Allowance for Losses on Loans and REO
Loans. Total loans (including loans held for sale) were $174.0 million at
December 31, 1993 as compared to $195.4 million at December 31, 1992, and
averaged $189.2 million in 1993 as compared to $201.8 million in 1992. The
primary reasons for the decrease in loans was the prepayment of the Prepaid Loan
and the sale of $8.7 million of one-to-four family performing mortgage loans. As
of December 31, 1993, there were approximately $4.9 million of loans classified
as held for sale as compared to $9.0 million at December 31, 1992. The primary
market area for lending encompasses Hudson and Bergen counties, New Jersey.
Below are the year-end balances and percentages of year-end total loans,
excluding loans held for sale, for the most recent five years:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------------------------------------
1993 1992 1991 1990 1989
----------------- ----------------- ----------------- ------------------- -------------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate:
1-4 family ........ $109,211 64.58% $125,858 67.51% $135,133 67.64% $162,612 69.22% $166,823 66.37%
Multifamily/
commercial ....... 53,860 31.85 52,743 28.29 55,940 28.00 58,993 25.11 58,561 23.30
Construction ...... 3,283 1.95 2,533 1.36 1,449 0.73 2,192 0.93 3,530 1.41
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
TOTAL REAL ESTATE
LOANS ............. 166,354 98.38 181,134 97.16 192,522 96.37 223,797 95.26 228,914 91.08
Commercial/financial 1,422 0.84 3,552 1.91 4,081 2.04 5,275 2.25 11,539 4.59
Consumer and other
loans ............. 1,322 0.78 1,731 0.93 3,176 1.59 5,859 2.49 10,894 4.33
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
TOTAL LOANS ........ 169,098 100.00% 186,417 100.00% 199,779 100.00% 234,931 100.00% 251,347 100.00%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
Less: Allowance for
losses on loans,
deferred loan fees
and unearned
income ............ 3,765 3,916 4,271 4,374 6,633
-------- -------- -------- -------- --------
NET LOANS .......... $165,333 $182,501 $195,508 $230,557 $244,714
======== ======== ======== ======== ========
</TABLE>
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<PAGE>
One-to-Four Family Mortgage Loans--Conventional mortgage loans
collateralized by mortgages on one-to-four family residences are obtained
primarily from existing customers, mortgage brokers, and referrals by real
estate brokers and local attorneys. Washington offers fixed rate loans and
adjustable rate mortgage ("ARM") loans, the interest rates on which adjust
generally based on half-year, 1 year and 3 year Treasury indices. During 1993,
Washington originated approximately $11.4 million of one-to-four family loans,
sold or identified for sale $9.5 million, transferred to REO $1.5 million,
incurred charge offs of $0.3 million and received principal payments of $16.8
million.
Of the one-to-four family loans, 82.2% and 88.1% were ARM loans at December
31, 1993 and 1992, respectively. ARM loans generally have annual interest rate
adjustment limitations of 1% to 2% and a lifetime interest rate adjustment
limitation of 6%. These limitations, based on the initial rate, limit the
interest rate sensitivity of such loans during a period of rapidly changing
interest rates. The interest rate adjustments of ARM loans may increase the
likelihood of refinances during periods of substantial declining interest rates
and increase the likelihood of delinquencies during periods of substantial
rising interest rates.
Multi-family/Commercial Real Estate Loans--The mortgage loan portfolio
includes mortgage loans collateralized by multi-family, mixed-use and commercial
real property. The multi-family real property serving as collateral for these
loans consists primarily of residential buildings with ten or fewer residential
units, as well as buildings with four or fewer residential units where at least
one of the units is used for commercial purposes. During 1993, Washington
originated $11.6 million of multi-family/commercial real estate loans,
transferred to REO $1.9 million, charged off $0.2 million and received principal
payments of $8.3 million, the largest of which was the $7.0 million first
mortgage relating to the Prepaid Loan.
As of December 31, 1993, there were seven commercial real property loans
greater than $1 million, which loans approximated $20.2 million, or 37.5%, of
the multi-family/commercial real estate portfolio. The largest of these loans is
the Bankruptcy Loan. The remaining six loans are performing. Refer to the
"Overview" section for a discussion of the Bankruptcy Loan.
Certain of the multi-family/commercial mortgage loans are "balloon" loans,
which are amortized over significantly longer periods than their term to
maturity. These loans involve a greater risk to Washington because the principal
amount may not be significantly reduced prior to maturity. Moreover, upon
maturity, changes in the financial condition of the borrower may affect the
ability of the borrower to repay the loan. At December 31, 1993 and 1992, the
multi-family/commercial mortgage loan portfolio included $29.4 million and $17.9
million of "balloon" loans, comprising 54.6% and 34.0% of
multi-family/commercial loans, and comprising 17.4% and 9.6% of total loans
(excluding loans held for sale), respectively.
Construction Loans--Washington has granted construction loans primarily for
the purpose of rehabilitating multi-family/commercial dwellings. Such loans are
generally one year, floating-rate loans. During 1993, Washington originated $3.5
million of construction loans, transferred to REO $0.3 million and refinanced
$2.4 million into first mortgages. The amount of undisbursed construction funds
was $0.9 million as of December 31, 1993 and $0.2 million as of the prior
year-end.
Commercial/Financial Loans--At year end 1993, the commercial/financial loan
portfolio consisted primarily of two revolving lines of credit to one borrower
whose collective balance was $1.2 million. These lines of credit are used for
real estate development and are collateralized by various properties with an
aggregate loan-to-value ratio of less than than 50%. Washington has discontinued
making commercial and financial loans except to honor existing revolving lines
of credit to such borrower.
During 1993, Washington honored $1.1 million of drawdowns against existing
lines of credit to performing loan borrowers, transferred to REO $0.2 million,
and received principal payments of $3.1 million, the largest of which was a $1.4
million line of credit prepayment relating to the Prepaid Loan.
Consumer and Other Loans--Washington has granted both collateralized and
uncollateralized personal loans, automobile loans, loans collateralized by
deposit accounts, second mortgages on principal residences and second mortgages
on investment residential properties. Such second mortgages represented $0.7
million, or 53.8%, of total consumer and other loans as of December 31, 1993, as
compared to $1.1 million, or 64.5%, of total consumer and other loans as of
December 31, 1992. Such second mortgages generally are limited to the difference
between 75% of
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<PAGE>
the appraised value of the property and the amount of other
indebtedness collateralized thereby. Generally, the current terms of second
mortgage loans have maturities of 1 or 3 years with a maximum 15-year
amortization. Upon maturity, Washington will either demand repayment or
renegotiate the loan. Also during 1993, a new home improvement loan product was
offered to low and moderate income households and provided home improvement
loans aggregating $106,000 to homeowners in Bergen County.
During 1993, Washington granted $0.4 million of consumer and other loans,
transferred to REO $0.3 million, charged-off $0.1 million and received principal
payments of $0.4 million.
Nonperforming Assets. Nonperforming assets are comprised of nonperforming
loans (i.e., nonaccrual loans, loans past due over 90 days and still accruing,
and troubled-debt restructurings) and REO. Reference is made to footnote 1 of
the Notes to Consolidated Financial Statements for an explanation of the
accounting policies regarding nonaccrual loans and REO. Troubled-debt
restructurings represent loans (other than loans to individuals for household,
family, and other expenditures; and real estate loans secured by one-to-four
family residential properties) to borrowers who experienced repayment
difficulties for which concessions were granted that provide for more
preferential terms than the current market for new debt with similar risks.
Interest on loans that have been restructured is recognized according to the new
terms.
Below are year-end balances of nonperforming assets and the ratio of
nonperforming assets to total assets for the most recent five years:
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------
1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans ........................................ $ 12,798 $ 8,599 $ 16,022 $ 17,351 $ 17,474
Troubled-debt restructurings ............................ 152 207 612 -- --
Loans past due over 90 days and still accruing .......... -- -- -- -- --
-------- -------- -------- -------- --------
Nonperforming loans ..................................... 12,950 8,806 16,634 17,351 17,474
REO, net ................................................ 7,078 12,998 12,563 11,294 7,674
-------- -------- -------- -------- --------
Nonperforming assets .................................... $ 20,028 $ 21,804 $ 29,197 $ 28,645 $ 25,148
======== ======== ======== ======== ========
Nonperforming assets to total assets .................... 7.1% 7.6% 9.9% 8.5% 7.2%
======== ======== ======== ======== ========
</TABLE>
During 1993, nonperforming loans and nonaccrual loans increased 47.1% and
48.8%, respectively, primarily due to the addition of the Bankruptcy Loan to
nonaccrual status. Excluding the Bankruptcy Loan, nonaccrual loans were $4.0
million as of December 31, 1993 as compared to $8.6 million as of December 31,
1992, a decrease of 53.5%. The decrease in nonperforming loans, excluding the
Bankruptcy Loan, was primarily attributable to bringing current $2.9 million,
transferring to REO $2.5 million, receiving repayments of $2.0 million and
charging off $0.3 million, offset by additional nonperforming loans of $3.1
million. Refer to the "Overview" section for a discussion of the Bankruptcy
Loan.
With regards to the $152,000 troubled-debt restructured loan, the borrower
has remained current with the restructured terms since the restructuring in
1991. At that time, the loan was $616,000; it has been reduced to $612,000 as of
December 31, 1991 through payments. During 1992, the loan was partially
charged-off in the amount of $285,000 based on data available to Washington.
That amount may be recovered in the future if the borrower continues to remain
current, although no assurances can be given that such a recovery will occur.
All other declines in the loan balance are attributable to repayment of
principal. Washington did not recognize any income on this loan during 1993.
Based upon the accounting policies as more fully described in Note 1 to the
Consolidated Financial Statements, there are no loans past due more than 90 days
and still accruing.
Interest on nonperforming loans which would have been recorded based upon
original contract terms would have approximated $826,000, $609,000, $975,000,
$824,000 and $222,000 for the years 1993, 1992, 1991, 1990 and 1989,
respectively. Interest income on those loans, which was recorded only when
received, amounted to $223,000, $416,000, $548,000, $536,000 and $140,000 for
the years 1993, 1992, 1991, 1990 and 1989, respectively.
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<PAGE>
Other Real Estate Owned
REO consists of real estate properties acquired through foreclosure or deed
in lieu of foreclosure and "in-substance" foreclosures ("ISF"). ISF represent
loans accounted for as foreclosed property even though Washington does not have
title to the property. (For an explanation as to why a loan is classified as an
ISF, refer to footnote 1 of the Notes to Consolidated Financial Statements).
When all other efforts to restructure a loan have failed to produce an equitable
resolution of the delinquency, the often time-consuming foreclosure process is
initiated. Foreclosure is the final step in the process of realizing some value
on a seriously delinquent loan. Management would prefer not to have to foreclose
but in order to protect its interest this action sometimes must be taken.
For the most part, REO is geographically concentrated in New Jersey as
described in the table below:
Amount Percentage
------ ----------
(Dollars in thousands)
Hudson County .................. $4,704 66.4%
Bergen County .................. 804 11.4
Other Counties ................. 1,570 22.2
------ -----
Total REO ...................... $7,078 100.0%
====== =====
Such geographic concentration has enabled management to develop some
expertise in ascertaining property market values and establishing contact with
potential purchasers. Below is the activity in REO for the last three years:
<TABLE>
<CAPTION>
1993 1992 1991
---------------------- ---------------------- ----------------------
Number of Number of Number of
Properties Amount Properties Amount Properties Amount
---------- ------ ---------- ------ ---------- ------
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Beginning of year ........................ 69 $13.0 64 $12.6 58 $11.3
Additions ................................ 34 4.2 33 5.3 45 9.6
Sales .................................... (43) (9.1) (28) (4.0) (39) (7.1)
Provision for losses ..................... -- (1.0) -- (0.9) -- (1.2)
--- ----- --- ----- --- -----
End of year .............................. 60 $ 7.1 69 $13.0 64 $12.6
=== ===== === ===== === =====
</TABLE>
Management generally attempts to sell REO as quickly as possible, as is
illustrated by the sales of REO as a percent of prior year balances. However, in
most situations, the lengthy foreclosure process has hindered management from
taking title to REO for at least two years. In certain other cases, management
has decided to hold collateral until it is more marketable. In such instances,
management may seek to enhance the value of such properties through various
means, including capital improvements, tax appeals, and procurement of
development approvals. Of the properties that were in REO as of December 31,
1992, 33 were still in REO as of December 31, 1993 and had a carrying value of
$4.2 million as of year-end 1993. Of such 33 properties, the titles to 15
properties aggregating $1.6 million have still not been obtained, primarily due
to the lengthy foreclosure process.
The dollar distribution of REO properties, as of December 31, 1993, is as
follows:
<TABLE>
<CAPTION>
Number of
Properties Amount Average Balance
---------- ----------- ---------------
<S> <C> <C> <C> <C>
Greater than $500,000 .................................. 1 $ 1,500,000 $ 1,500,000
Greater than $250,000 and less than or equal to $500,000 2 900,000 450,000
Greater than $100,000 and less than or equal to $250,000 21 3,278,000 156,000
Greater than $50,000 and less than or equal to $100,000 9 702,000 78,000
Greater than $0 and less than or equal to $50,000 ...... 21 698,000 33,000
Equal to $0 ............................................ 6 -- --
-- ----------- -----------
Total ................................................ 60 $ 7,078,000 $ 118,000
== =========== ===========
</TABLE>
The largest REO property is a six-story 128,000 square foot commercial use
building located in Jersey City, New Jersey. The carrying value of $1.5 million
at December 31, 1993 represented 21.1% of REO, net at December 31, 1993. For the
year ended December 31, 1993, this property incurred carrying costs (net of
rental income) of $101,000, while being approximately 70% rented.
C-8
<PAGE>
Allowance for Losses on Loans and Allowance for Losses on REO
The following table presents, for the past five years, information
demonstrating the relationship among the allowance for losses on loans, the
provision for losses on loans, charge-offs, recoveries, and total and average
loans outstanding.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------
1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Allowance, beginning of year ................. $ 2,776 $ 2,989 $ 2,579 $ 4,720 $ 3,782
-------- -------- -------- -------- --------
Loans charged-off:
Real estate ................................. 524 932 719 1,525 2,503
Commercial .................................. 26 325 194 1,434 2,123
Consumer .................................... 79 313 418 1,880 1,420
-------- -------- -------- -------- --------
Total loans charged-off ..................... 629 1,570 1,331 4,839 6,046
-------- -------- -------- -------- --------
Recoveries on loans:
Real estate ................................. 124 97 32 105 1
Commercial .................................. 81 67 165 77 6
Consumer .................................... 56 93 44 166 51
-------- -------- -------- -------- --------
Total recoveries ............................ 261 257 241 348 58
-------- -------- -------- -------- --------
Net loans charged-off ........................ 368 1,313 1,090 4,491 5,988
-------- -------- -------- -------- --------
Provision for losses on loans ................ 420 1,100 1,500 2,350 6,926
-------- -------- -------- -------- --------
Allowance, end of year ....................... $ 2,828 $ 2,776 $ 2,989 $ 2,579 $ 4,720
======== ======== ======== ======== ========
Total loans outstanding ...................... $169,098 $186,417 $199,779 $234,931 $251,347
======== ======== ======== ======== ========
Average loans outstanding during the year .... $189,233 $201,829 $236,267 $240,008 $294,046
======== ======== ======== ======== ========
Net loans charged-off as a percent of
average loans outstanding ................... 0.19% 0.65% 0.46% 1.87% 2.04%
======== ======== ======== ======== ========
Allowance for losses on loans as a percent of:
total loans outstanding ..................... 1.67% 1.49% 1.50% 1.10% 1.88%
======== ======== ======== ======== ========
total nonperforming loans outstanding ....... 21.84% 31.52% 17.97% 14.86% 27.01%
======== ======== ======== ======== ========
</TABLE>
The 62% reduction in the provision for losses on loans for 1993 reflects a
53% decrease in nonaccrual loans (excluding the Bankruptcy Loan, the principal
of which is perceived by management to be adequately collateralized) to $4.0
million; a 6.2% reduction in average loan balances, of which one was the Prepaid
Loan; and a decrease in the ratio of net loans charged-off as a percentage of
average loans outstanding to 0.19% in 1993 from 0.65% in 1992.
Asset quality and adequacy of the allowance for losses is monitored on a
periodic basis. Additions to the allowance for losses on loans are made through
charges against earnings (the provision for losses on loans) and recoveries on
previously charged-off loans; the allowance is reduced when loans are determined
to be uncollectible and are charged-off. In establishing the amount of the
allowance (and hence the amount of the provision) for losses on loans,
management establishes percentage allocations with respect to the performing
loan portfolio and classified loans. In addition, specific allocations are made
for classified loans. In determining percentage allocations for the performing
loan portfolio and classified loans, management considers prevailing and
anticipated economic conditions, past and anticipated loss experience, the
diversification and size of the portfolio, off-balance sheet risks, and the
nature and level of nonperforming assets. In analyzing classified loans,
management considers the financial status and credit history of the borrower,
the value of collateral, the sufficiency of loan documentation, analyses of bank
regulators, and other factors considered relevant by management on a
loan-by-loan basis.
The entire allowance for losses on loans is available to absorb potential
losses from all loans. At the same time, the allowance may be allocated to
specific loans or loan categories. For purposes of complying with Securities and
Exchange Commission disclosure requirements, the table below presents an
allocation of the entire allowance for
C-9
<PAGE>
losses on loans for the past five years. The allocation of the allowance
for losses on loans should neither be interpreted as an indication of
future charge-offs, nor as an indication that charge-offs in future periods
will necessarily occur in these amounts or in the implied proportions. See the
table at the beginning of "Loans; Nonperforming Assets; REO; and Allowance
for Losses on Loans and REO" for information regarding loans outstanding in
each loan category.
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1993 1992 1991 1990 1989
------ ------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Real estate:
1-4 family .................................... $1,485 $1,313 $ 953 $1,081 $ 905
Multifamily/commercial ........................ 1,287 1,286 1,324 665 1,334
Construction .................................. 17 11 4 5 35
------ ------ ------ ------ ------
Total allowance for losses on real estate loans 2,789 2,610 2,281 1,751 2,274
Commercial/financial .......................... 21 110 458 447 1,219
Consumer and other loans ...................... 18 56 250 381 1,227
------ ------ ------ ------ ------
Total allowance for losses on loans ........... $2,828 $2,776 $2,989 $2,579 $4,720
====== ====== ====== ====== ======
</TABLE>
The following table presents, for the past five years, information
demonstrating the relationship among the allowance for losses on REO, the
provision for losses on REO, charge-offs on REO sold, and total and average REO
outstanding:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------
1993 1992 1991 1990 1989
--------- --------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Allowance, beginning of year ...................... $ 1,802 $ 1,328 $ 976 $ -- $ --
Provision for losses on REO ....................... 1,024 852 1,170 1,673 --
Losses charged-off on REO sold .................... (946) (378) (818) (697) --
--------- --------- --------- --------- ---------
Allowance, end of year ............................ $ 1,880 $ 1,802 $ 1,328 $ 976 $ --
========= ========= ========= ========= =========
Total REO outstanding ............................. $ 8,958 $ 14,800 $ 13,891 $ 12,270 $ 7,674
========= ========= ========= ========= =========
Average REO outstanding during the year ........... $ 10,689 $ 14,182 $ 10,147 $ 9,596 $ 1,910
========= ========= ========= ========= =========
Provision for losses on REO as a percent of
average REO outstanding .......................... 9.58% 6.01% 11.53% 17.43% N/A
========= ========= ========= ========= =========
Allowance for losses on REO as a percent of
total REO outstanding ............................ 20.99% 12.18% 9.56% 7.95% N/A
========= ========= ========= ========= =========
</TABLE>
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 (along
with real estate taxes, repairs and maintenance, and insurance, net of rental
income and net gains on sales of REO) 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 each property and/or management's
assessment of the overall real estate market for that type of property in its
condition and location.
The 1993 provision for losses on REO increased over the 1992 provision for
losses on REO primarily due to reducing the carrying value on Washington's
largest REO property by $100,000 in 1993. The provision for losses on REO as a
percent of average REO outstanding increased to 9.58% from 6.01% due to the sale
of a $3.2 million parcel of REO in early 1993. The average balance of REO in
1992 included the $3.2 million and thus lowered the provision for losses as a
percent of average REO outstanding. There was no allowance established against
the $3.2 million loan.
The allowance for losses on REO as a percent of total REO outstanding
increased to 20.99% in 1993 from 12.18% in 1992 partly due to the aforementioned
sale of a $3.2 million parcel of REO, as well as accumulated provisions against
the 33 properties aggregating $4.2 million which were included in REO as of
December 31, 1993 and 1992.
In total, during 1993, the provision for losses on loans and REO
approximated $1.4 million, of which $420,000 was a provision for losses on loans
and $1.0 million was a reduction in the carrying value of REO. The allowances
for
C-10
<PAGE>
losses on loans and REO represented 36% of gross non-performing assets
(excluding the Bankruptcy Loan) at December 31, 1993 as compared to 21% at
December 31, 1992, and represented 21% of gross non-performing assets (including
the Bankruptcy Loan) at December 31, 1993 and 1992.
Deposits and FHLB advances
Washington Savings offers a broad line of deposit accounts, including, but
not limited to, savings accounts, certificates of deposit ("CDs"), interest and
non-interest bearing checking accounts, individual retirement accounts, holiday
club accounts, business checking accounts and low-cost checking accounts. The
low-cost checking accounts are offered in connection with the New Jersey
Consumer Checking Account Law which recognizes the need to offer low cost
checking accounts to all people. Bank policy does not permit funding by brokered
certificates of deposit.
During 1993, Washington Savings continued to reduce rates on its deposit
base, reflecting market conditions. The rates on passbook savings decreased 75
basis points to 2.50% at December 31, 1993 from 3.25% at December 31, 1992, a
decrease of 23%. The weighted average cost of funds for CDs at December 31, 1993
was 3.98%, as compared to 5.01% at December 31, 1992. As a result of the lower
yields on interest-bearing deposits, net withdrawals of CDs were $10.7 million
and total interest-bearing deposits decreased $7.2 million during 1993. The
average balance of CDs decreased from $142.1 million in 1992 to $127.2 million
in 1993, while the average balance of regular savings increased from $95.3
million in 1992 to $102.1 million in 1993. The migration into regular savings
accounts improved net interest income since, on average, the rates on regular
savings accounts were 141 basis points less than the rates on CDs.
A maturity distribution of Washington's CDs of $100,000 and over at
December 31, 1993 is presented in the following table:
December 31, 1993
--------------------------
Average
effective
Interest rate Amount
------------- ---------
Market-rate certificates $100,000 and over maturing:
Three months or less .............................. 4.02% $2,754,760
Three months to six months ........................ 3.32 1,710,739
Six months to one year ............................ 4.12 1,819,949
One to two years .................................. 4.51 527,622
Two to five years ................................. 4.99 701,366
Three to five years ............................... 5.05 1,113,268
---- ----------
Total certificates of deposit $100,000 and over .. 4.14% $8,627,704
==== ==========
Washington borrowed $400,000 in long term advances from the FHLB through
its Community Investment Program at a below-market interest rate of 4.88% during
1993. The funds were used to originate a below-market interest rate loan to a
borrower that provides training and job placement assistance for vocationally
handicapped and economically disadvantaged individuals.
Results of Operations--1993 Compared to 1992
Net Interest Income
Washington is principally engaged in the business of attracting deposits
from the general public and investing those funds in adjustable-rate mortgage
loans and investment securities. Accordingly, net interest income (the
difference between the income from interest-earning assets, such as loans and
investments, and the cost of interest-bearing liabilities, such as deposit
accounts and borrowed funds) remains a significant element in earnings.
The Yield/Cost Analysis sets forth, for the three years ended December 31,
1993, (i) average assets, liabilities and stockholders' equity, (ii) interest
income earned on interest-earning assets and interest expense paid on
interest-bearing liabilities, (iii) average yields earned on interest-earning
assets and average rates paid on interest-bearing liabilities, (iv) the interest
rate spread (i.e., the difference between the average yield on
C-11
<PAGE>
interest-earning assets and the average cost of interest-bearing liabilities),
(v) the net yield on interest-earning assets (i.e., net interest income as a
percentage of average interest-earning assets), and (vi) the ratio of average
interest-earning assets to average interest-bearing liabilities. Yields and
costs are derived by dividing the interest income and interest expense by
the average balance of interest-earning assets and interest-bearing
liabilities, respectively, for the years shown. As a result, the effect of
including nonperforming loans in the average balances of loans outstanding is
to reduce the average yield earned on loans.
<TABLE>
<CAPTION>
Yield/Cost Analysis
December 31,
----------------------------------------------------------------------------------------------
1993 1992 1991
---------------------------- ----------------------------- --------------------------------
Interest Average Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Cost Balance Expense Cost Balance Expense Cost
-------- -------- ---- ------- -------- ------- ------- -------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Loans (1):
Mortgage ...................... $185,046 $ 14,419 7.79% $195,565 $ 17,548 8.97% $227,139 $ 21,790 9.59%
Commercial and consumer ....... 4,187 363 8.67 6,264 493 7.87 9,128 826 9.05
-------- -------- -------- -------- -------- --------
Total loans .................. 189,233 14,782 7.81 201,829 18,041 8.94 236,267 22,616 9.57
Investment securities .......... 54,295 2,488 4.58 53,048 3,057 5.76 46,882 3,535 7.54
Mortgage-backed securities ..... 18,899 916 4.85 2,606 193 7.41 10,438 849 8.13
Federal funds sold ............. 5,958 172 2.89 12,412 381 3.07 6,813 372 5.46
Deposits due from banks ........ 1,847 48 2.60 1,683 51 3.03 485 23 4.74
Federal Home Loan Bank
stock, at cost ................ 1,708 151 8.84 1,702 156 9.17 2,170 199 9.17
-------- -------- -------- -------- -------- --------
Total interest-earnings assets . 271,940 18,557 6.83 273,280 21,879 8.01 303,055 27,594 9.11
-------- -------- ---- -------- -------- ------- -------- -------- -----------
Noninterest-earnings assets .... 12,892 16,481 17,159
-------- -------- --------
Total assets ................... $284,832 $289,761 $320,214
======== ======== ========
Liabilities and Stockholders'
Equity:
Interest-bearing liabilities:
Regular savings ............... $102,071 2,976 2.92 $ 95,305 3,764 3.95 $ 80,326 4,356 5.42
Market-rate certificates ...... 127,197 5,510 4.33 142,107 8,004 5.63 164,756 12,148 7.37
Checking and money market
accounts ...................... 11,590 308 2.66 11,517 422 3.66 11,704 645 5.51
Advances from FHLB and
ESOP debt ..................... 363 18 4.96 26 1 3.85 23,558 1,970 8.36
-------- -------- -------- -------- -------- --------
Total interest-bearing
liabilities ................... 241,221 8,812 3.65 248,955 12,191 4.90 280,344 19,119 6.82
-------- -------- -------- -------- -------- --------
Noninterest-bearing liabilities:
Other deposits (2) ............ 10,844 11,085 8,469
Other liabilities ............. 1,332 647 2,859
-------- -------- --------
Total noninterest-
bearing liabilities ......... 12,176 11,732 11,328
Stockholders' equity ........... 31,435 29,074 28,542
-------- -------- --------
Total liabilities and
stockholders' equity ........ $284,832 $289,761 $320,214
======== ======== ========
Net interest income/interest
rate spread ................... $ 9,745 3.18% $ 9,688 3.11% $ 8,475 2.29%
======== ==== ======== ======= ======== ===========
Net interest-earnings assets/net
yield on interest-earnings
assets ........................ $ 30,719 3.58% $24,325 3.55% $ 22,711 2.80%
======== ==== ======= ======= ======== ===========
Ratio of interest-earning
assets to interest-bearing
liabilities .................. 1.13x 1.10x 1.08x
==== ======= ===========
<FN>
- ---------------
(1) Includes nonperforming loans and loans held for sale, and excludes REO
(in-substance and by deed). Also, loan fees are included in interest income.
(2) Includes regular checking and escrow accounts.
</FN>
</TABLE>
C-12
<PAGE>
Changes in net interest income are a result of the relative volume of
interest-earning assets and interest-bearing liabilities and the rates earned
and paid on them, respectively. Net interest income can also be analyzed in
terms of the impact of changing rates and changing volumes. Washington's
Rate/Volume Analysis reflects the extent to which changes in interest rates and
changes in the volume of interest-earning assets and interest-bearing
liabilities have affected Washington's interest income and interest expense
during the periods indicated. Changes attributable to both volume and rate have
been allocated proportionately.
Rate/Volume Analysis
<TABLE>
<CAPTION>
1993 compared to 1992 1992 compared to 1991
--------------------------------- ---------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
-------------------- --------------------
Volume Rate Net Volume Rate Net
------- ------- ------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Income:
Mortgage loans (1) ............................ $ (944) $(2,185) $(3,129) $(3,029) $(1,213) $(4,242)
Commercial and consumer loans (1) ............. (163) 33 (130) (259) (74) (333)
Investment securities ......................... 72 (641) (569) 465 (942) (477)
Mortgage-backed securities .................... 1,207 (484) 723 (637) (19) (656)
Federal funds sold ............................ (198) (11) (209) 306 (297) 9
Federal Home Loan Bank stock .................. 1 (6) (5) (43) -- (43)
Deposits due from banks ....................... 5 (8) (3) 57 (29) 28
------- ------- ------- ------- ------- -------
Total interest income ........................ (20) (3,302) (3,322) (3,140) (2,574) (5,714)
------- ------- ------- ------- ------- -------
Interest Expense:
Regular savings ............................... 267 (1,055) (788) 812 (1,404) (592)
Market rate certificates ...................... (840) (1,654) (2,494) (1,670) (2,474) (4,144)
Checking and money market accounts ............ 3 (117) (114) (10) (213) (223)
Advances from FHLB and ESOP debt .............. 13 4 17 (1,968) (1) (1,969)
------- ------- ------- ------- ------- -------
Total interest expense ....................... (557) (2,822) (3,379) (2,836) (4,092) (6,928)
------- ------- ------- ------- ------- -------
Changes in net interest income ................. $ 537 $ (480) $ 57 $ (304) $ 1,518 $ 1,214
======= ======= ======= ======= ======= =======
<FN>
- ---------------
(1) Includes nonperforming loans and loans held for sale, and excludes
REO(in-substance and by-deed). Also, loan fees are included in interest
income.
</FN>
</TABLE>
Net interest income increased $57,000, or 0.60%, to $9.7 million in 1993.
During 1993, net interest-earning assets increased (primarily due to a reduction
in REO), yields of interest-bearing liabilities declined more rapidly than
yields of interest-earning assets, and higher costing CDs migrated into lower
costing passbook savings accounts. These factors were largely offset by $580,000
of foregone interest from the Bankruptcy Loan. During 1993, the interest rate
spread increased slightly to 3.18% from 3.11% in 1992.
Total interest income decreased $3.3 million, or 15.2%, during 1993,
primarily due to $580,000 of foregone interest from the Bankruptcy Loan, lower
yields earned on substantially all interest-earning asset categories, and a
change in the mix of interest-earning assets. Average yields on Washington's two
largest interest-earning assets, the mortgage loan and investment portfolios,
declined 118 basis points during 1993. Such declines reflect declining market
interest rates and the foregone interest on the Bankruptcy Loan. In addition,
the mix of interest-earning assets negatively impacted interest income, as
higher yielding assets, such as mortgage loans which earned 7.79% on average in
1993, were sold and reinvested in lower yielding assets, such as mortgage-backed
securities which yielded 4.85%. The average balance of mortgage-backed
securities increased from $2.6 million in 1992 to $18.9 million in 1993, while
the average balances of mortgages loans and commercial and consumer loans
decreased from $195.6 million and $6.3 million, respectively, in 1992 to $185.0
million and $4.2 million, respectively, in 1993. The average balance of
mortgage-backed securities increased due to purchases which were funded by calls
and maturities of investment securities and loan payoffs. The average balance of
mortgage loans decreased due to sales of one-to-four family performing mortgage
loans and the prepayment of the first mortgage portion of the Prepaid Loan. The
decrease in the average balance of commercial and consumer loans reflects the
prepayment of the line of credit portion of the Prepaid Loan and other
prepayments.
C-13
<PAGE>
Total interest expense decreased $3.4 million, or 27.7%, in 1993 due to
lower rates paid on most interest-bearing liabilities, a lower average balance
of interest-bearing liabilities and a change in the liability mix. Lower rates
paid were a result of the declining rate environment. On average, interest rates
paid on CDs and regular savings accounts declined 130 basis points and 103 basis
points, respectively. The average balance of interest-bearing liabilities
decreased $7.7 million, primarily due to a decrease in the average balance of
CDs of $14.9 million partially offset by an increase of $6.8 million in the
average balance of regular savings accounts. Such liability mix change decreased
interest expense since, on average, regular savings accounts cost 141 basis
points less than CDs.
Provision for Losses on Loans
(Reference is made to "Loans; Nonperforming Assets; REO and Allowance for
Losses on Loans and Allowance for Losses on REO" and to footnotes 1 and 4 of the
Notes to Consolidated Financial Statements). A provision for losses on loans of
$420,000 was recorded in 1993 as compared to $1.1 million in 1992, a decline of
62%. Such lower amount of a provision for losses on loans in 1993 versus 1992
reflects a decrease of 53% in nonaccrual loans (excluding the Bankruptcy Loan,
the principal of which is perceived by management to be adequately
collateralized) to $4.0 million; a 6.2% reduction in net average loan balances,
of which one was the Prepaid Loan; and a decrease in the ratio of net loans
charged-off as a percentage of average loans outstanding to 0.19% in 1993 from
0.65% in 1992.
There can be no assurance that the decreasing provision trend over the last
five years will continue into the future.
Other Income
Total other (i.e. non-interest) income decreased $1.3 million, or 58.6%,
during 1993 primarily due to a decrease in gains on sales of securities of $1.6
million, partially offset by a gain on sale of a bank building of $187,000 and
interest income of $136,000 on an income tax refund. The decline in gains on
sale of securities was due to a decrease in sales volume of $59.6 million, to
$14.6 million in 1993 versus $74.2 million in 1992.
Other Expenses
Total other (i.e. non-interest) expenses increased $74,000, or 0.86%, for
1993 versus 1992. The increase was due to an increase of $286,000, or 24.4%, in
REO expense (net) as described in the following table and an increase of
$93,000, or 15.7%, in FDIC expense due to an increase in the assessment rate.
Offsetting such increases were a decrease of $213,000, or 21.1%, in occupancy
expense, due primarily to recognizing costs for a branch closing which took
place during 1992; a decrease of $52,000, or 1.5%, in salaries and employee
benefits due to reductions in the number of employees and some employee
benefits; and a decrease of $40,000, or 1.7%, in other expenses.
The components of REO expense, net are as follows:
Year ended December 31,
-----------------------
1993 1992
-------- --------
(Dollars in thousands)
REO expense, net:
Provision for losses .......................... $ 1,024 $ 852
Carrying costs, net of rental income .......... 737 721
Gain on sale, net ............................. (304) (401)
------- -------
Total REO expense, net ........................ $ 1,457 $ 1,172
======= =======
The increase in the provision for losses on REO was primarily due to
recognizing market value writedowns of $100,000 on Washington's largest REO
property in 1993.
Income Tax Expense
On January 1, 1993, Washington adopted Statement of Financial Accounting
Standards No. 109: "Accounting for Income Taxes" ("SFAS 109"), which resulted in
a change in accounting principle and a cumulative benefit of $300,000, or $.13
per share. 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.
During 1993, an income tax benefit of $1.0 million was recorded, reflecting
an income tax refund of $747,000, a deferred tax adjustment of $809,000 in order
to reduce the valuation allowance since the time of adopting SFAS 109,
C-14
<PAGE>
and a tax provision of $538,000. Excluding the income tax refund and the
deferred tax adjustment, the effective tax rate was 35.7% for 1993. In 1992,
income tax expense was $628,000, which was partially offset by the utilization
of $539,000 of the 1991 net operating loss carryforward. The effective tax
rate in 1992 was 28.7%.
Results of Operations--1992 Compared to 1991
General
During 1992, Washington reported a profit for the first time in five years,
reporting net income of $2.1 million as compared to a net loss of $1.3 million
in 1991. Results from core business operations were $500,000 (net of tax and
extraordinary item), while gains from the sale of securities were $1.6 million
(net of tax and extraordinary item). Much of the improvement in operations
resulted from an increase in net interest income. A substantial part of the
improvement in net interest income stemmed from an increase in the interest rate
spread caused by the downward spiral of interest rates and the reduction in the
cost of funds resulting from the prepayment of FHLB advances at the conclusion
of 1991. The gain from the sales of securities was also a direct reflection of
the downward spiral of interest rates, since the market value of such assets
move in the opposite direction of interest rates.
Net interest income
Net interest income increased $1.2 million, or 14.3%, to $9.7 million in
1992. The increase from 1991 was partially due to an improvement in the interest
rate spread as the cost of "borrowing" funds from depositors declined more
rapidly than the decline in interest rates earned on loans to mortgage customers
and partially due to a decrease in the average balance of nonperforming assets
from December 31, 1991 to December 31, 1992. As a result, the interest rate
spread and net yield on interest-earning assets increased from 2.29% and 2.80%,
respectively, in 1991 to 3.11% and 3.55%, respectively, in 1992.
Total interest income decreased $5.7 million, or 20.7%, during 1992 due to
a reduction in the volume of most interest-earning assets, lower yields earned
on substantially all interest-earning asset categories, and a change in the mix
of interest-earning assets. The average balance of mortgage-backed securities,
mortgage loans, and commercial and consumer loans decreased from $10.4 million,
$227.1 million and $9.1 million, respectively, in 1991 to $2.6 million, $195.6
million and $6.3 million, respectively, in 1992. The average balance of
mortgage-backed securities decreased due to liquidating the portfolio at the end
of 1991; the average balance of mortgage loans decreased due to sales of one to
four family performing mortgage loans during the fourth quarter of 1991 and
during 1992; and the decrease in the average balance of commercial and consumer
loans reflects the fact that Washington has virtually discontinued originating
commercial and consumer loans since 1988. Average yields on the two largest
earning assets, the mortgage loan and investment portfolios, declined 62 and 178
basis points, respectively, during 1992. Such declines reflected declining
market interest rates. In addition, the mix of interest-earning assets
negatively impacted interest income as the higher yielding assets mentioned
above (mortgage loans earning 8.97%, commercial and consumer loans earning
7.87%, and mortgage-backed securities earning 7.41%) were sold in 1991 and
reinvested in lower yielding assets, such as investment securities yielding
5.76% and federal funds sold yielding 3.07%.
Total interest expense decreased $6.9 million, or 36.2%, in 1992 due to
lower rates paid on all interest-bearing liabilities, a lower average balance of
interest-bearing liabilities and a change in the liability mix. Lower rates paid
were a result of the declining rate environment. On average, interest rates paid
on CDs and regular savings accounts declined 174 basis points and 147 basis
points, respectively. The average balance of interest-bearing liabilities
decreased $31.4 million partially due to repayments of FHLB and ESOP borrowings
during 1991, which lowered the average balance $23.6 million, and secondarily,
to net withdrawals of $6.7 million in other interest-bearing deposits. The total
decrease in the average balance of CDs of $22.6 million was partially offset by
a $15.0 million increase in the average balance of regular savings accounts,
from $80.3 million in 1991 to $95.3 million in 1992. The liability mix change
continued a trend that began in 1991 whereby CD withdrawals are "temporarily"
placed in regular savings accounts. Such liability mix change decreased interest
expense since the cost of regular savings accounts during 1992 was 10 basis
points and 30 basis points less on average than a six-month and one year CD,
respectively.
Provision for Losses on Loans
A provision for losses on loans of $1.1 million was recorded in 1992 as
compared to $1.5 million in 1991, a decline of 27%. Such lower amount of a
provision for losses on loans in 1992 versus 1991 reflected a decrease of $6.8
million, or 34%, in the average balance of nonaccrual loans to $13.4 million in
1992 as compared to $20.2 million in
C-15
<PAGE>
1991. Although the 1992 provision represented an improvement over the
provision for the four preceding years, the absolute dollar amount of the
provision, especially when coupled with net REO expenses, continued to act
as a limitation on profitability.
Other Income
Total other (i.e. non-interest) income decreased $279,000, or 10.9%, during
1992 due to a decrease in gains on sales of one-to-four family performing
mortgage loans of $1.1 million, offset by an increase in net gains on security
sales of $781,000. The lower gains on sales of one-to-four family performing
mortgage loans was due to a decrease in sales volume of $24.8 million, or 61.5%,
to $15.5 million in 1992 versus $40.3 million in 1991.
Other Expenses
Total other (i.e. non-interest) expenses decreased $612,000, or 6.6%, for
1992 versus 1991. Contributing to the improvement in other expenses were a
decrease of $764,000, or 39.5%, in REO expense (net); and a $405,000, or 10.3%,
decrease in salaries and employee benefits due to lower deferred compensation
expense as a result of the fully funded ESOP, a decrease of 9% in full-time
equivalent employees and lower costs for some employee benefit plans. Offsetting
such improvements were increases in other expenses of $397,000, or 19.9%, due
primarily to legal matters, consulting fees, and miscellaneous other operating
expenses, and occupancy expense(net) of $141,000, or 16.2%, due primarily to
recognizing costs for a branch closing which took place during the third quarter
of 1992.
Income Tax Expense
During 1992, income tax expense of $628,000 was recorded which reflects an
effective tax rate of 28.7%. The effective tax rate differed from the statutory
Federal income tax rate of 34% due to a greater bad debts deduction for tax
purposes than for financial reporting purposes. Partially offsetting income tax
expense was the utilization of $539,000 of the 1991 net operating loss
carryforward. Total income tax expense during 1991 was $552,000, primarily due
to writing-off the net deferred tax asset as a result of the tax loss
carryforward position.
Asset and Liability Management
The principal objectives of asset and liability management are to manage
exposure to changes in the interest rate environment, maintain adequate
liquidity and sustain a strong capital base. Asset and liability management is
directed by Washington's Operations Committee, whose members consist of certain
members of the Board of Directors and senior management. The Asset and Liability
Committee ("ALCO"), comprised of certain key officers, is a subcommittee of the
Operations Committee that makes recommendations to the Operations Committee
regarding the objectives described above.
Interest Rate Sensitivity
One of the tools that ALCO utilizes to manage exposure to changes in the
interest rate environment is a static GAP analysis, which is a general indicator
of the potential future effect that changing rates may have on net interest
income. A static GAP analysis demonstrates, as of a particular date, the extent
to which assets and liabilities will mature or reprice within a specific time
frame. A financial institution is considered asset sensitive within a particular
time frame if maturing and repricing assets exceed maturing and repricing
liabilities during such time frame. Likewise, a financial institution is
considered liability sensitive within a particular time frame if maturing and
repricing liabilities exceed maturing and repricing assets during such time
frame. In general, asset sensitive positions will maximize net interest income
during periods of increasing interest rates and liability sensitive positions
will maximize net interest income during periods of declining interest rates.
A static GAP analysis is not a complete picture of the impact of interest
rate changes on net interest income. First, changes in the general level of
interest rates will not affect all categories of assets and liabilities in the
same manner or at the same time. Second, a static GAP analysis represents a
one-day position; variations actually occur on a daily basis as financial
institutions adjust their interest sensitivity throughout the year. Third,
assumptions must be made regarding the manner in which specific assets and
liabilities will reprice. A goal of the current operating strategy is to have
interest-bearing liabilities maturing and repricing within one year exceed
interest-earning assets maturing and repricing within that period. The static
cumulative one-year GAP position was a negative $34.9 million, or 12.3%, at
December 31, 1993. The following Interest Sensitivity Static GAP Analysis
presents the consolidated interest rate sensitivity position at December 31,
1993.
C-16
<PAGE>
Interest Sensitivity GAP Analysis
<TABLE>
<CAPTION>
3 months 3 months to 6 months 1 year to 3 years to 5 years to Over 10
or less 6 months to 1 year 3 years 5 years 10 years years Total
-------- -------- --------- -------- -------- --------- -------- --------
(Dollars in thousands )
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets (1):
Real Estate Loans (2):
1-4 Family:
Adjustable rate ................ $ 9,710 $ 12,404 $ 45,316 $ 13,336 $ 7,907 $ 1,150 $ -- $ 89,823
Fixed .......................... 1,116 39 613 248 991 2,846 14,387 20,240
Other Real Estate:
Adjustable rate ................ 6,658 2,783 9,179 2,333 1,105 3,279 1,673 27,010
Fixed .......................... 4,076 146 1,991 9,914 1,266 3,895 12,845 34,133
All other loans (2):
Adjustable rate (3) ............... 1,136 -- -- 152 -- 134 -- 1,422
Fixed (4) ......................... 637 56 -- 108 246 198 77 1,322
Mortgage-backed securities (5) ..... -- -- -- -- 174 2,461 16,329 18,964
Investment securities (5):
U.S Treasury ..................... -- -- -- 47,497 17,871 -- -- 65,368
U.S. Government agencies ......... -- 505 -- -- -- -- -- 505
Corporate bonds and notes ........ 2,709 102 1,025 303 -- -- -- 4,139
Other securities ................. 22 -- 1,555 -- -- -- -- 1,577
Federal funds sold ................. 1,900 -- -- -- -- -- -- 1,900
Due from banks ..................... 1,735 -- -- -- -- -- -- 1,735
-------- -------- -------- -------- -------- -------- -------- --------
Total interest-earning assets .... 29,699 16,035 59,679 73,891 29,560 13,963 45,311 268,138
-------- -------- -------- -------- -------- -------- -------- --------
Interest-Bearing Liabilities:
Regular savings (6) .............. 28,121 2,341 4,682 22,630 17,167 20,289 7,804 103,034
Market rate certificates ......... 40,664 24,559 28,515 22,174 6,690 -- -- 122,602
Money market deposit accounts .... 6,700 -- -- -- -- -- -- 6,700
Checking accounts ................ 4,690 -- -- -- -- -- -- 4,690
-------- -------- -------- -------- -------- -------- -------- --------
Total interest-bearing liabilities 80,175 26,900 33,197 44,804 23,857 20,289 7,804 237,026
-------- -------- -------- -------- -------- -------- -------- --------
Interest rate sensitivity gap
per period (7) ................... $(50,476) $(10,865) $ 26,482 $ 29,087 $ 5,703 $ (6,326) $ 37,507 $ 31,112
======== ======== ======== ======== ======== ======== ======== ========
Cumulative interest rate sensitivity
gap (7) .......................... $(50,476) $(61,341) $(34,859) $ (5,772) $ (69) $ (6,395) $ 31,112
Cumulative interest rate sensitivity
gap as a percent of total assets . (17.9)% (21.7)% (12.3)% (2.0)% (0.0%) (2.3)% 11.0%
Cumulative percentage of
Interest-sensitive assets to
Interest-sensitive liabilities ... 37.0% 42.7% 75.1% 96.9% 100.0% 97.2% 113.1%
<FN>
- ---------------
(1) Excludes common stock of the FHLB of New York ($1,711).
(2) Includes nonperforming loans and loans held for sale, and excludes REO. If
nonperforming loans were excluded, the 1 year or less cumulative GAP would
have been ($37,030) or (13.1)% of total assets and the cumulative
percentage of interest-sensitive assets to interest-sensitive liabilities
would have been 73.0%.
(3) Represents commercial/financial loans.
(4) Represents consumer and other loans.
(5) Call dates, if any, are used to indicate repricing dates if it is more
likely than not that the investment will be called. Includes securities
available for sale.
(6) $25 million of regular savings deposits are assumed to reprice within 3
months; the remaining balance is assumed to reprice at the rate of 4%
within 3 months, 4% within 3 to 6 months, 6% within 6 months to 1 year, 29%
within 1 to 3 years, 22% within 3 to 5 years, 26% within 5 to 10 years, and
10% over ten years.
(7) If all regular savings were to reprice within 1 year or less, the one-year
cumulative GAP as of December 31, 1993 would have been ($101,926) or
(36.1)% of total assets and the cumulative percentage of interest-sensitive
assets to interest-sensitive liabilities would have been 51.0%.
</FN>
</TABLE>
C-17
<PAGE>
Liquidity
Liquidity is the ability to meet current cash needs in order to fund loans
and deposit withdrawals, make debt payments, and cover operating expenses. The
primary sources of funds are deposits, amortization, prepayments and sales of
loans, maturities of investment securities, and amortization and prepayments of
mortgage-backed securities. While scheduled loan payments and maturing
investment securities represent a relatively predictable source of funds,
deposit flows and loan and mortgage-backed securities prepayments are greatly
influenced by the general interest rate climate, economic conditions, and
competition.
The FDIC defines a bank's liquidity ratio as the sum of net cash,
short-term investments and marketable securities divided by the sum of net
deposits and short-term liabilities. Washington Savings liquidity ratio at
December 31, 1993 and 1992, as calculated according to FDIC guidelines, was
38.8% and 28.8%, respectively. The amount of assets used in the liquidity ratio
calculation was $96.4 million and $73.4 million as of December 31, 1993 and
1992, respectively. The increase in the liquidity ratio is due to loan
prepayments, especially the Prepaid Loan, and sales of REO.
In addition to the liquidity ratio, liquidity can also be described in
terms of cash and cash equivalents. Cash and cash equivalents, which are cash on
hand, amounts due from banks and Federal funds sold (generally due within
one-week periods), declined $1.2 million during 1993. During 1993, operating
activities provided $4.3 million and investment activities provided $829,000 in
cash flow while financing activities used $6.3 million. The $4.3 million of cash
provided by operating activities was primarily the result of interest income
earned on loans, and an income tax refund received and interest thereon; these
items were offset by interest paid on deposits, cash paid to employees and for
other expenses, and loans originated for resale. The $6.3 million used in
financing activities primarily funded net deposit outflows.
As of December 31, 1993 and 1992, Washington held $1.0 million of cash and
cash equivalents at the holding company level. Management does not regard the
amount of such cash and cash equivalents to be significant from a liquidity
perspective except in terms of a potential source of future contributions to
Washington Savings.
A line of credit in the amount of $14.3 million with the FHLB is also
available to meet liquidity purposes. Such line of credit, none of which was in
use at December 31, 1993, must be renewed annually.
Capital Resources
Under banking policies issued by the FRB and the FDIC, an adequate level of
regulatory capital sufficient to meet minimum leverage, core and total
risk-based capital ratios must be maintained. The minimum 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 assets and certain
off-balance-sheet activities to be classified into categories, and specified
levels of capital to be maintained 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 I
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
projected taxable income greater than one year in the future, 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 approximated $1.8
million as of December 31, 1993 and $2.3 million as of December 31, 1992.
As of December 31, 1993 and 1992, capital ratios were as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------
1993 1992
------------------------- --------------------------
Washington Washington
Capital Ratios Required* Washington Savings Washington Savings
-------------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
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
<FN>
- ---------------
* For qualification as a well-capitalized institution.
</FN>
</TABLE>
C-18
<PAGE>
As noted in the above table, Washington's and Washington Savings's capital
ratios substantially exceed the minimum capital requirements of a
well-capitalized institution. The increase during 1993 in the leverage ratio is
due primarily to net income and, secondarily, to a lower level of assets in 1993
than in 1992. The increase in the risk-based capital ratios is due primarily to
increases in U.S. Treasury and mortgage-backed securities, and decreases in
loans and corporate bonds and notes.
The FDIC and the FRB (collectively referred to as the "Regulators") have
issued proposed guidelines to the risk-based capital ratios which would
incorporate an interest-rate risk component. Complete implementation of the
guidelines for assessing the adequacy of capital would become effective December
31, 1994. However, the Regulators have also proposed that examiners apply the
guidelines on an advisory basis beginning with examinations starting after
December 31, 1993. If such proposed guidelines were applied as of December 31,
1993, the revised risk-based capital ratios would still be in compliance with
minimum capital requirements.
Stockholders' equity increased from $30.5 million at December 31, 1992 to
$33.5 million at December 31, 1993, reflecting net income of $2.8 million and
credits resulting from recognition of deferred compensation of the Management
Retention Plan and adoption of SFAS 115.
Recently Issued Accounting Standards
In May 1993, the Financial Accounting Standards Board (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. Washington
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. Washington
plans to adopt SFAS 114 in 1995 with no prior period restatement.
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.
Impact of Inflation and Changing Prices
The impact of inflation is reflected primarily in the increased cost of
operations. Unlike most industrial companies, the primary assets and liabilities
of Washington are monetary. As a result, interest rates have a more significant
impact on Washington's performance than do the effects of general levels of
inflation. Interest rates do not necessarily move in the same direction or in
the same magnitude as the prices of goods and services.
BUSINESS OF WASHINGTON
General
Washington, a Delaware business corporation, is a bank holding company
whose principal subsidiary is Washington Savings, a New Jersey-chartered capital
stock savings bank, headquartered in Hoboken, New Jersey, whose deposits are
insured by the FDIC. The sole activity of Washington at this time is its
ownership of all of the outstanding capital stock of Washington Savings. At
December 31, 1993, Washington had unconsolidated total assets and stockholders'
equity of $33.5 million and $33.5 million, respectively.
Washington Savings, organized in 1857, is headquartered in Hoboken, New
Jersey. Washington Savings conducts its business through three full-service
banking offices and a Loan Center in Hoboken, and five other full-service
banking offices located in Guttenberg, Lyndhurst, Ridgefield Park, Wallington
and Weehawken, New
C-19
<PAGE>
Jersey. At December 31, 1993, Washington Savings had total assets of $282.8
million deposits of $247.0 million, and stockholder's equity of $32.7 million.
Washington Savings is principally engaged in the business of attracting
deposits from the general public and investing those funds in adjustable-rate
residential mortgage loans and investment securities.
For information regarding Washington Savings' lending business, securities
portfolio, results of operations, asset quality and financial condition, see
"Management Discussion and Analysis of Washington's Financial Condition and
Results of Operations."
Competition
Washington Savings faces significant competition both in originating
mortgage, consumer and other loans and in attracting deposits. Washington
Savings' competition for loans comes principally from savings and loan
associations, savings banks, mortgage banking companies (many of which are
subsidiaries of major commercial banks), insurance companies and other
institutional lenders. Its most direct competition for deposits has historically
come from savings and loan associations, savings banks, commercial banks, credit
unions and other financial institutions. Competition may increase as a result of
the continuing reduction in the restrictions on the interstate operations of
financial institutions. Washington Savings faces additional competition for
deposits from short-term money market funds and other corporate and government
securities funds. Many of Washington Savings' competitors, whether traditional
financial institutions or otherwise, have much greater financial and marketing
resources than those of Washington Savings.
Washington Savings competes for loans principally through the interest
rates and loan fees it charges and the efficiency and quality of services it
provides borrowers and their real estate brokers. Washington Savings competes
for deposits through pricing, the offering of a variety of deposit accounts and
by providing personal service.
Litigation
In October 1991, a complaint was filed by a former officer against
Washington, Washington Savings and certain directors and officers seeking
unspecified damages relating to the termination of such officer's employment.
Although this complaint was recently dismissed, it was dismissed without
prejudice to the plaintiff's right, which was exercised, to refile the complaint
by March 31, 1994.
In April 1992, a complaint was filed against Washington and Washington
Savings seeking unspecified damages and alleging violations of state securities
laws, certain banking laws and state common law. In February 1994, the
plaintiffs recently amended their complaints to add claims against nine
individual defendants, including current and former officers and directors of
Washington and Washington Savings. This lawsuit is in the discovery stage.
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 provisions for loss, if any, that may result upon resolution of
these matters has been recorded in Washington's financial statements.
Washington Savings 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 Washington's management that the
resolution of such legal proceedings will not have a material impact on the
financial statements of Washington or Washington Savings. See Note 11 of the
Notes to the Consolidated Financial Statements of Washington.
Personnel
As of December 31, 1993 Washington Savings had 108 employees, of whom 80
were full-time and 28 were part-time. The employees are not represented by a
collective bargaining unit.
C-20
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Certificate of Incorporation and By-Laws; New Jersey Law
(i) Limitation of Liability of Directors and Officers. Section 14A:2-
7(3) of the New Jersey Business Corporation Act permits a corporation to
provide in its Certificate of Incorporation that a director or officer shall
not be personally liable to the corporation or its shareholders 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 any
breach of duty based upon an act or omission (a) in breach of such persons'
duty of loyalty to the corporation or its shareholders, (b) not in good faith
or involving a knowing violation of law or (c) resulting in receipt by such
person of any improper personal benefit. HUBCO's Certificate of Incorporation
includes limitations on the liability of officers and directors to the full
extent permitted by New Jersey law.
(ii) Indemnification of Directors, Officers, Employees and Agents. Under
Article X of its Certificate of Incorporation, HUBCO must, to the full extent
permitted by law, indemnify its directors, officers, employees and agents.
Section 14A:3-5 of the New Jersey Business Corporation Act provides that a
corporation may indemnify its directors, officers, employees and agents
against judgments, fines, penalties, amounts paid in settlement, and expenses,
including attorney's fees, resulting from various types of legal actions or
proceedings if the actions of the party being indemnified meet the standards
of conduct specified therein. Determinations concerning whether or not the
applicable standard of conduct has been met can be made by (a) a disinterested
majority of the Board of Directors, (b) independent legal counsel, or (c) an
affirmative vote of a majority of shares held by the shareholders. No
indemnification is permitted to be made to or on behalf of a corporate
director, officer, employee or agent if a judgment or other final adjudication
adverse to such person establishes that his acts or omissions (a) were in
breach of his duty of loyalty in the corporation or its shareholders, (b) were
not in good faith or involved a knowing violation of law or (c) resulted in
receipt by such person of an improper personal benefit.
Insurance. HUBCO's directors and officers are insured against losses
arising from any claim against them such as wrongful acts or omissions,
subject to certain limitations.
II-1
<PAGE>
Item 21. Exhibits and Financial Statement Schedules
Exhibits are listed by number corresponding to the Exhibit Table of Item
601 of Regulation S-K.
Exhibits
2(a)* Amended and Restated Agreement and Plan of Reorganization, dated
as of November 23, 1993, between Statewide Savings Bank, S.L.A.,
HUBCO, Inc. and Hudson United Bank, as amended by Amendment No.
1 to Amended and Restated Agreement and Plan of Reorganization,
dated as of February 25, 1994.
2(b)** Amendment No. 2 to Amended and Restated Agreement and Plan of
Reorganization, dated as of April 14, 1994.
2(c)*** Agreement and Plan of Merger, dated as of November 8, 1993,
between HUBCO, Inc., Hudson United Bank, Washington Bancorp,
Inc. and Washington Savings Bank.
4(a)****Indenture dated as of January 14, 1994 between HUBCO, Inc. and
Summit Bank, as Trustee.
4(b)** Registration Rights Agreement dated as of January 14, 1994,
among HUBCO, Inc. and the Purchasers named therein.
5** Opinion of Clapp & Eisenberg, P.C., as to the legality of the
securities being registered.
12** Computation of Ratio of Earnings to Fixed Charges.
23(a) Consent of Arthur Andersen & Co.
23(b) Consent of Deloitte & Touche.
23(c) Consent of Coopers & Lybrand.
23(d) Consent of Clapp & Eisenberg, P.C. (included in Exhibit 5
hereto).
24 Powers of Attorney of directors of HUBCO, Inc. in favor of
Kenneth T. Neilson.
25 Form T-1, Statement of Eligibility under the Trust Indenture Act
of 1939 of Summit Bank.
99(a) Form of Letter of Transmittal.
99(b)** Form of Notice of Guaranteed Delivery.
99(c)** Form of Instructions to Registered Holder and/or Book-Entry
Transfer Facility Participant From Owner.
99(d)** Form of Exchange Agent Agreement.
- ---------------
* Incorporated by reference from Registrant's Registration Statement (No.
33-72330) on Form S-3.
** Previously filed
*** Incorporated by reference from Registrant's Current Report on Form 8-K
dated November 8, 1993.
**** Incorporated by reference from Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993.
II-2
<PAGE>
Item 22. Undertakings.
The undersigned registrant hereby undertakes:
To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
(d) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant
to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated
by reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be the initial bona fide
offering thereof.
(e) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the
II-3
<PAGE>
foregoing provisions, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
(f) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(g) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all the requirements for filing on Form S-4 and has duly caused this
registration statement or amendment thereto to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Union City, State of
New Jersey, on the 11th day of May, 1994.
HUBCO, INC.
By:/s/ Kenneth T. Neilson, President
---------------------------------
Kenneth T. Neilson, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chairman of the Board and Director May 11, 1994
- ---------------------------------
James E. Schierloh`
/s/ Kenneth T. Neilson President and Director May 11, 1994
- --------------------------------- (Chief Executive Officer)
Kenneth T. Neilson
* Director May 11, 1994
- ---------------------------------
Robert J. Burke
* Director May 11, 1994
- ---------------------------------
Henry G. Hugelheim
Director
- --------------------------------
Harry J. Leber
* Director May 11, 1994
- ---------------------------------
Charles F.X. Poggi
* Director May 11, 1994
- ---------------------------------
Sister Grace Frances Strauber
* Director May 11, 1994
- ---------------------------------
Edwin Wachtel
* Assistant Treasurer (Principal May 11, 1994
- --------------------------------- Financial Officer and Principal
Christina L. Maier Accounting Officer)
*By: /s/ Kenneth T. Neilson
----------------------------
KENNETH T. NEILSON
AS ATTORNEY-IN-FACT
II-5
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibits Description
- -------- -----------
2(a)* Amended and Restated Agreement and Plan of Reorganization, dated as
of November 23, 1993, between Statewide Savings Bank, S.L.A.,
HUBCO, Inc. and Hudson United Bank, as amended by Amendment No. 1
to Amended and Restated Agreement and Plan of Reorganization, dated
as of February 25, 1994.
2(b)** Amendment No. 2 to Amended and Restated Agreement and Plan of
Reorganization, dated as of April 14, 1994.
2(c)*** Agreement and Plan of Merger, dated as of November 8, 1993, between
HUBCO, Inc., Hudson United Bank, Washington Bancorp, Inc. and
Washington Savings Bank.
4(a)**** Indenture dated as of January 14, 1994 between HUBCO, Inc. and
Summit Bank, as Trustee.
4(b)** Registration Rights Agreement dated as of January 14, 1994, among
HUBCO, Inc. and the Purchasers named therein.
5** Opinion of Clapp & Eisenberg, P.C., as to the legality of the
securities being registered.
12** Computation of Ratio of Earnings to Fixed Charges.
23(a) Consent of Arthur Andersen & Co.
23(b) Consent of Deloitte & Touche.
23(c) Consent of Coopers & Lybrand.
23(d) Consent of Clapp & Eisenberg, P.C. (included in Exhibit 5 hereto).
24 Powers of Attorney of directors of HUBCO, Inc. in favor of Kenneth
T. Neilson.
25 Form T-1, Statement of Eligibility under the Trust Indenture Act of
1939 of Summit Bank.
99(a) Form of Letter of Transmittal.
99(b)** Form of Notice of Guaranteed Delivery.
99(c)** Form of Instructions to Registered Holder and/or Book-Entry
Transfer Facility Participant From Owner.
99(d)** Form of Exchange Agent Agreement.
__________________
* Incorporated by reference from Registrant's Registration Statement (No.
33-72330) on Form S-3.
** Previously filed
*** Incorporated by reference from Registrant's Current Report on Form 8-K
dated November 8, 1993.
**** Incorporated by reference from Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993.
EXHIBIT 23(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report and to all references to our firm included in or made part of this
registration statement.
/s/ Arthur Andersen & Co.
ARTHUR ANDERSEN & CO.
Roseland, New Jersey
May 9, 1994
EXHIBIT 23(b)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of HUBCO, Inc. on
Amendment No. 1 to Form S-4 (File No. 33-53203) dated on or about May 9, 1994 of
our report (which expresses an unqualified opinion and includes explanatory
paragraphs regarding restatement of 1993 and 1992 financial statements and
matters regarding regulatory capital compliance) dated on June 11, 1993
(February 15, 1994 as to Note 22) relating to the consolidated financial
statements of Statewide Savings Bank, S.L.A., appearing in the Prospectus, which
is part of this Registration Statement, and the reference to us under the
heading "Experts" in such Prospectus.
/s/ Deloitte & Touche
Parsippany, New Jersey
May 6, 1994
EXHIBIT 23(c)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement of HUBCO, Inc.
on Amendment No. 1 to Form S-4 (File No. 33-53203) of our report which
includes an explanatory paragraph regarding changes in accounting principles
and includes an explanatory paragraph regarding an action seeking unspecified
damages and alleging violations of state securities laws, certain banking laws
and state common law and a lawsuit filed by a former Bank officer which
alleges wrongful termination and seeks unspecified damages, dated January 28,
1994, on our audits of the consolidated financial statements of Washington
Bancorp, Inc. and Subsidiary as of December 31, 1993 and 1992 and for each of
the three years in the period ended December 31, 1993. We also consent to the
reference to our firm under the caption "Experts".
/s/ COOPERS & LYBRAND
Coopers & Lybrand
Parsippany, New Jersey
May 9, 1994
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Kenneth T. Neilson, his attorney-in-fact, with
power of substitution, for him in any and all capacities, to sign any and all
amendments (whether pre- or post-effective), to this Registration Statement on
Form S-4 of Hubco, Inc. (SEC File Number 33-53203) and to file the same,
with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact, or his substitute or substitutes, may do or cause to be
done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ James E. Shierloh Chairman of the Board and Director April 21, 1994
- ------------------------------ -----------
James E. Schierloh
/s/ Kenneth T. Neilson President and Director April 21, 1994
- ------------------------------ (Chief Executive Officer) -----------
Kenneth T. Neilson
/s/ Robert J. Burke Director April 21, 1994
- ------------------------------ -----------
Robert J. Burke
/s/ Henry G. Hugelheim Director April 21, 1994
- ------------------------------ -----------
Henry G. Hugelheim
Director , 1994
- ------------------------------ -----------
Harry J. Leber
/s/ Charles F.X. Poggi Director April 21, 1994
- ------------------------------ -----------
Charles F.X. Poggi
/s/ Sister Grace Frances Strauber Director April 21, 1994
- ------------------------------ -----------
Sister Grace Frances Strauber
/s/ Edwin Wachtel Director April 21, 1994
- ------------------------------ -----------
Edwin Wachtel
/s/ Chistina L. Maier Assistant Treasurer (Principal April 21, 1994
- ------------------------------ Financial Officer and Principal -----------
Christina L. Maier Accounting Officer)
</TABLE>
EXHIBIT 25
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF
1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
___________________________
CHECK IN AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305(b)(2) _____
SUMMIT BANK
(Exact name of trustee as specified in its charter)
New Jersey
(Jurisdiction of incorporation or
organization if not a U.S. national bank)
22-0818450
(I.R.S. Employer Identification No.)
367 Springfield Avenue 07901
Summit, New Jersey (Zip Code)
(Address of principal executive offices)
Joseph Mate, Assistant Vice President and Trust Officer
Summit Bank
367 Springfield Avenue
Summit, New Jersey 07901
(908) 522-8446
(Name, address and telephone number of agent for service)
HUBCO, INC.
(Exact name of obligor as specified in its charter)
New Jersey
(State or other jurisdiction
of incorporation or organization)
22-2405746
(I.R.S. Employer Identification No.)
3100 Bergenline Avenue 07087
Union City, New Jersey (Zip Code)
(Address of principal executive offices)
7.75% EXCHANGE SUBORDINATED
DEBENTURES DUE 2004
(Title of the indenture securities)
<PAGE>
1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Federal Deposit Insurance Corporation, Washington, D.C.
New Jersey Department of Banking, Trenton, New Jersey.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with the Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
3. Voting Securities of the Trustee.
Furnish the following information as to each class of voting securities
of the trustee:
As of March 31, 1994
____________________________________________________________________________
Col. A Col. B
____________________________________________________________________________
Title of Class Amount Outstanding
Capital Stock
($4.50 par value) 13,060,041
___________________________________________________________________________
4. Trusteeships under Other Indentures.
If the trustee is a trustee under another indenture under which any other
securities, or certificates of interest or participation in any other
securities, of the obligor are outstanding, furnish the following information:
-2-
<PAGE>
(a) Title of the securities outstanding under each other indenture.
None.
(b) A brief statement of the facts relied upon as a basis for the claim
that no conflicting interest within the meaning of Section 310(b)(1) of the
Act arises as a result of the trusteeship under any such other indenture,
including a statement as to how the indenture securities will rank as compared
with the securities issued under such other indenture.
Inapplicable.
5. Interlocking Directorates and Similar Relationships With the obligor or
Underwriters.
If the trustee or any of the directors or executive officers of the
trustee is a director, officer, partner, employee, appointee, or
representative of the obligor or of any underwriter for the obligor, identify
each such person having any such connection and state the nature of each such
connection.
None.
(See Note following Item 16.)
6. Voting Securities of the Trustee Owned by the Obligor or its Officials.
Furnish the following information as to the voting securities of the
trustee owned beneficially by the obligor and each director, partner and
executive officer of the obligor:
As of March 31, 1994
_______________________________________________________________________
Col. A Col. B Col. C Col. D
_______________________________________________________________________
Name of Owner Title of Amount owned Percentage
Class beneficially of voting
securities
represented
by amount
given in
Col. C
_______________________________________________________________________
The obligor of the securities proposed to be offered has advised the
trustee that the amount of voting securities of the
-3-
<PAGE>
trustee owned beneficially by it and its directors, partners and executive
officers, taken as a group, is less than 1% of the outstanding voting
securities of the trustee.
(See Note following Item 16)
7. Voting Securities of the Trustee Owned by Underwriters or their
officials.
Furnish the following information as to the voting securities of the
trustee owned beneficially by each underwriter for the obligor and each
director, partner and executive officer of each such underwriter:
As of March 31, 1994
_______________________________________________________________________
Col. A Col. B Col. C Col. D
_______________________________________________________________________
Name of Owner Title of Amount owned Percentage
Class beneficially of voting
securities
represented
by amount
given in
Col. C
_______________________________________________________________________
None.
(See Note following Item 16)
8. Securities of the Obligor Owned or Held by the Trustee.
Furnish the following information as to securities of the obligor owned
beneficially or held as collateral security for obligations in default by the
trustee.
-4-
<PAGE>
As of March 31, 1994
_______________________________________________________________________
Col. A Col. B Col. C Col. D
_______________________________________________________________________
Title of Class Whether the Amount owned Percent of
securities beneficially Class re-
are voting or held as presented
or non- collateral by amount
voting shares security for given in
obligations Col. C
in default
_______________________________________________________________________
None.
(See Note following Item 16)
9. Securities or Underwriters Owned or Held by the Trustee.
If the trustee owns beneficially or holds as collateral security for
obligations in default any securities of underwriter for the obligor, furnish
the following information as to each class of securities of such underwriter
any of which are so owned or held by the trustee.
As of March 31, 1994
_______________________________________________________________________
Col. A Col. B Col. C Col. D
_______________________________________________________________________
Title of Issuer Amount Amount owned Percent of
and Title of outstanding beneficially Class re-
Class or held as presented
collateral by amount
security for given in
obligations Col. C
in default
by trustee
_______________________________________________________________________
None.
(See Note following Item 16)
10. Ownership or Holdings by the Trustee of Voting Securities of Certain
Affiliates or Security Holders of the Obligor.
If the trustee owns beneficially or holds as collateral
-5-
<PAGE>
security for obligations in default voting securities of a person who, to the
knowledge of the trustee (1) owns 10 percent or more of the voting securities
of the obligor or (2) is an affiliate, other than a subsidiary, of the
obligor, furnish the following information as to the voting securities of such
person.
As of March 31, 1994
_______________________________________________________________________
Col. A Col. B Col. C Col. D
_______________________________________________________________________
Title of Issuer Amount Amount owned Percent of
and Title of outstanding beneficially Class re-
Class or held as presented
collateral by amount
security for given in
obligations Col. C
in default
by trustee
_______________________________________________________________________
None, to the knowledge of trustee.
(See Note following Item 16)
11. Ownership or Holdings by the Trustee of any Securities of a Person owning
50 Percent or More of the Voting Securities of the obligor.
If the trustee owns beneficially or holds as collateral security for
obligations in default any securities of a person who, to the knowledge of the
trustee, owns 50 percent or more of the voting securities of the obligor,
furnish the following information as to each class of securities of such
person any of which are so owned or held by the trustee.
-6-
<PAGE>
As of March 31, 1994
_______________________________________________________________________
Col. A Col. B Col. C Col. D
_______________________________________________________________________
Title of Issuer Amount Amount owned Percent of
and Title of outstanding beneficially Class re-
Class or held as presented
collateral by amount
security for given in
obligations Col. C
in default
by trustee
_______________________________________________________________________
None, to the knowledge of the trustee.
(See Note following Item 16)
12. Indebtedness of the Obligor to the Trustee.
Except as noted in the instructions, if the obligor is indebted to the
trustee, furnish the following information:
As of March 31, 1994
_______________________________________________________________________
Col. A Col. B Col. C.
_______________________________________________________________________
Nature of Amount Date
Indebtedness Outstanding Due
_______________________________________________________________________
None.
13. Defaults by the Obligor.
(a) State whether there is or has been a default with respect to the
securities under the indenture. Explain the nature of any such default.
None.
(b) If the trustee is a trustee under another indenture under which any
other securities, or certificates of interest or participation in any other
securities, of the obligor are outstanding, or is trustee for more than one
outstanding series of securities under the indenture, state whether there has
been a
-7-
<PAGE>
default under any such indenture or series, identify the indenture or series
affected, and explain the nature of any such default.
None.
14. Affiliation with the Underwriters.
If any underwriter is an affiliate of the trustee, describe each such
affiliation.
None.
(See Note following Item 16)
15. Foreign Trustee.
Identify the order or rule pursuant to which the foreign trustee is
authorized to act as sole trustee under indentures qualified or to be
qualified under the Act.
Not applicable.
16. List of Exhibits.
List below all exhibits filed as a part of this Statement of Eligibility
and Qualification.
Exhibit 1 - Copy of Trustee's Certificate of Incorporation.
Exhibit 2 - Copy of certificate of authority of the trustee to commence
business. Included in Exhibit 1.
Exhibit 3 - Copy of authorization of the trustee to exercise corporate
trust powers. Included in Exhibit 1.
Exhibit 4 - Copy of existing By-Laws of the Trustee.
Exhibit 5 - Inapplicable.
Exhibit 6 - The consent of the trustee required by Section 321(b) of the
Trust Indenture Act of 1939.
Exhibit 7 - Copy of Report of Condition of the Trustee as of March 31,
1994. (Filed in paper format under cover of Form SE on May 10, 1994)
Exhibit 8 - Inapplicable.
Exhibit 9 - Inapplicable.
-8-
<PAGE>
NOTE
The obligor has represented to the trustee that there are no underwriters
for the obligor, as such term is used in General Instruction F to Form T-1.
In answering any item in this statement of eligibility and qualification
which relates to matters peculiarly within the knowledge of the obligor, or
its directors or officers, or an underwriter for the obligor, the undersigned,
Summit Bank, has relied upon information furnished to it by the obligor,
including the obligor's representation that there are no underwriters, and
disclaims responsibility for the accuracy or completeness of such information.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, Summit Bank, a banking corporation organized and existing under the
laws of the State of New Jersey, has duly caused this statement of eligibility
to be signed on its behalf by the undersigned, thereunto, duly authorized, in
The City of Summit and State of New Jersey, on the 18th day of April, 1994.
SUMMIT BANK
By:/s/ JOSEPH MATE
------------------------
Joseph Mate, Assistant
Vice President and Trust
Officer
-9-
EXHIBIT 1 TO FORM T-1 OF SUMMIT BANK
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
SUMMIT BANK
(formerly The Summit Trust Company)
First: The name by which the Bank shall be known is SUMMIT BANK.
Second: The principal office of the Bank is located at number 367
Springfield Avenue, Summit, New Jersey.
Third: The Bank shall have power to transact the business of banking
and, in addition thereto, to transact business as a qualified bank as defined
in The Banking Act of 1948, as supplemented and amended; and, to those ends,
the Bank shall have and may exercise all those powers authorized to be
exercised by banks and by qualified banks under the provisions of The Banking
Act of 1948 as presently enacted, and as from time to time amended and
supplemented, and all those powers which are presently, or in the future may
be, authorized by any law applicable to banks of this State to be exercised by
banks and qualified banks, including, by way of description and not by way of
limitation, the powers specified in Sections 24, 25, and 28 of The Banking Act
of 1948, as supplemented and amended.
Fourth: (A) The amount of the capital stock of the Bank is $58,770,185,
divided into 13,060,041 shares of the par value of $4.50 each.
(B) The amount of issued capital stock of the Bank is
$58,770,185 divided into 13,060,041 shares of the par value of $4.50 each.
Fifth: The number of directors of the Bank shall be not less than 9
and not more than 25, as may from time to time be fixed by the Board of
Directors.
Sixth: The Board of Directors, subject to the limitations imposed by
law, shall have power to make, alter, and repeal bylaws, subject to alteration
or repeal by the stockholders at any meeting.
Seventh: The Board of Directors shall have power to appoint from time to
time an Executive Committee of the Board of Directors from among its members.
The Executive Committee shall have and may exercise such powers as are
authorized by law, subject to such terms and provisions as may be provided in
the bylaws of the Bank.
Eight: The Board of Directors shall have power to appoint,
-1-
<PAGE>
from time to time, a Trust Committee of the Bank, which shall have and may
exercise such powers and provisions as may be provided by the bylaws of the
Bank.
Ninth: Dividends may be paid as provided by law in the capital stock
of the Bank without an amendment of the Bank's certificate of incorporation
pursuant to Article 19 of the Banking Act of 1948, notwithstanding the payment
of such dividends effects an increase in the capital stock of the Bank.
Tenth: The Bank may, from time to time, pursuant to resolution of its
Board of Directors, adopt, maintain, and rescind a plan or plans for the
retirement of its officers and employees, as authorized by the Banks' and
Savings Banks' Officers and Employees' Retirement and Benefit Act, as amended
and supplemented from time to time, and may, by resolution of its Board of
Directors, alter such plan or plans from time to time, whether or not such
alteration is substantial.
Eleventh: The Board of Directors may, between annual meetings of the
Bank, increase the number of directors by not more than two, subject to the
limitation imposed by law upon the maximum number of directors, and may
appoint persons to fill the vacancies so created.
Twelfth: The Bank shall have perpetual existence, as provided by law,
subject to liquidation and dissolution as provided by law.
Thirteenth: No director or officer of the corporation shall 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 the provisions of
this Article shall not relieve a director or officer from liability for any
breach of duty based upon an act or omission (a) in breach of such person's
duty of loyalty to the corporation or its shareholders; (b) not in good faith
or involving a knowing violation of law; or (c) resulting in receipt by such
person of an improper personal benefit.
Fourteenth: Upon the effective date of this amended and restated
certificate of incorporation, the Bank's Board of Directors shall consist of
the following persons:
Eustace Anselmi - Maplewood, New Jersey
William O. Baker - Morristown, New Jersey*
S. Rodgers Benjamin - Flemington, New Jersey
James C. Brady, Jr. - Far Hills, New Jersey
John B. Cave - Summit, New Jersey
Robert G. Cox - Chatham, New Jersey
Samuel V. Gilman, Jr. - Rumson, New Jersey
Elsa Gomez - Cranford, New Jersey
Kathleen D. Hammond - Maplewood, New Jersey
Peter Kalkus - Morristown, New Jersey
-2-
<PAGE>
Warren S. Kimber, Jr. - Madison, New Jersey
William Boyce Lum - Short Hills, New Jersey
Donald P. Moriarty - Chatham, New Jersey (1)
Anthony Papetti - Elizabeth, New Jersey
Robert W. Parsons, Jr. - Chatham, New Jersey
Thomas D. Sayles, Jr. - Chatham, New Jersey
Orin R. Smith - Iselin, New Jersey
Douglas G. Watson - Summit, New Jersey
Kate B. Wood - Princeton, New Jersey
- -------------------
(1) Retired from the Board of Directors effective the close of business
on September 14, 1993.
-3-
<PAGE>
EXHIBIT 4 TO FORM T-1 OF SUMMIT BANK
AMENDED DECEMBER 11, 1990
BYLAWS
OF
THE SUMMIT TRUST COMPANY
ARTICLE I
Meetings of Stockholders
Section 1. Place of Meetings. All meetings of stockholders shall be
held at the principal office of the Corporation or at any location in any
municipality where the Corporation maintains its principal office or a branch
office.
Section 2. Annual Meeting. The annual meeting of stockholders shall be
held on the fourth Tuesday in April of each year at such time as the Board of
Directors shall appoint. At such annual meeting directors shall be elected
and such other business shall be transacted as may properly be brought before
the meeting.
Section 3. Special Meetings. Special meetings of stockholders may be
called at any time by the President, the Board of Directors or the holders of
not less than one-tenth of all shares of capital stock outstanding with voting
rights. Upon the written request of any person or persons entitled to call a
special meeting, the Secretary shall notify the stockholders of the meeting in
the manner provided in these bylaws.
Section 4. Stockholder Action Without a Meeting. Any action required or
permitted to be taken at a meeting of stockholders may be taken without a
meeting if all stockholders consent thereto in writing. Whenever action is
taken pursuant to this section, the written consents of the stockholders
consenting thereto shall be filed with the minutes of proceedings of
stockholders.
Section 5. Notice of Meetings. Written notice of all meetings of
stockholders specifying the place, day and hour of the meeting and the nature
of the business to be transacted shall be given by mail, postage prepaid, to
each stockholder at his address as it appears on the books of the Corporation
at least 10, but not more than 60, days prior to the meeting. Notice of the
annual meeting of stockholders shall be published once in a newspaper
published and circulated in the municipality in which the Corporation
maintains its principal office not less than 10 days prior to the date fixed
for the meeting.
-4-
Section 6. Adjournment of Meeting. Any meeting of stockholders may be
adjourned from time to time for any period of time and to any place where it
is lawful to hold a meeting. It shall not be necessary to give notice of the
adjourned meeting.
Section 7. Quorum. At all meetings of stockholders the presence in
person or by proxy of the holders of a majority of the outstanding shares
entitled to vote shall constitute a quorum for the transaction of business.
If a quorum is not present at a meeting, a majority in interest of the
stockholders present in person or by proxy may adjourn the meeting to a fixed
time.
Section 8. Voting. The holder of each outstanding share of capital
stock eligible to vote shall have one vote on each matter submitted to a vote
of stockholders. Stockholders may vote at all meetings either in person or by
proxy. Every proxy shall be executed in writing by the stockholder or his
agent and shall be filed with the Secretary of the Corporation.
Section 9. Judges of Election. Before any meeting of stockholders at
which one or more directors is to be elected, the Board of Directors shall
appoint either one or three judges of election. The judges may be
stockholders but may not be directors or candidates for the office of
director. Before entering upon his duties, each judge shall take and
subscribe an oath to perform the duties of his office impartially and in good
faith. The judge or judges shall determine the number of shares outstanding,
the number of shares represented at the meeting, the voting rights of each
share, the existence of a quorum and the authenticity, validity and effect of
proxies. In addition, the judge or judges shall hear and determine all
challenges and questions arising in connection with the right to ballot,
receive, count and tabulate all ballots, determine the results of balloting
and do such other acts as may be proper with respect to balloting. The judge
or judges shall execute a certificate of the result of any balloting and shall
deliver such certificate to the chairman of the meeting. Such certificate
shall be recorded in the minutes of the meeting and filed with the
Corporation.
Section 10. Chairman and Secretary of Meetings. The Chairman of the
Corporation shall preside at all meetings of stockholders and the Secretary of
the Corporation shall act as secretary of all meetings of stockholders and
record the minutes of each such meeting in the minute book of the Corporation.
In the absence of the Chairman or the Secretary, the stockholders shall elect
a person to preside at the meeting or to act as secretary of the meeting.
Section 11. Record Date. The Board of Directors may fix a date no more
than 60 days prior to the date of any meeting of stockholders as the record
date for the determination of the stockholders as the record date for the
determination of the
-5-
<PAGE>
stockholders who are entitled to notice of and to vote at such meeting and at
any adjournment thereof. If no such record date is fixed, only stockholders
of record at the close of business on the sixty-fifth day prior to the date of
such meeting shall be entitled to notice of and to vote at such meeting and at
any adjournment thereof.
ARTICLE II
Directors
Section 1. Number. The Board of Directors shall consist of no fewer
than 5 nor more than 25 members, the actual number to be fixed from time to
time by the Board of Directors.
Section 2. Term of Office. Directors shall be elected by ballot of the
stockholders at each annual meeting. The persons receiving the greatest
number of votes at such meeting shall be the directors. A director elected at
an annual meeting of stockholders shall hold office from the time when a
majority of all directors elected at such meeting shall have qualified until
the time when a majority of directors elected at the next annual meeting shall
have qualified.
Section 3. Vacancies. When an increase in the number of directors is
authorized, the newly created directorships shall be filled by the
stockholders. However, between annual stockholders meetings the Board of
Directors, at its option, may increase the Board membership by not more than
two and fill vacancies so created. The Board of Directors, at its option,
also may fill any other vacancy on the Board. A director otherwise elected or
appointed between annual meetings of stockholders shall hold office from the
time when he shall have qualified until the time when a majority of the
directors elected at the next annual meeting shall have qualified.
Section 4. Residency and Stock Ownership. A majority of the directors
at all times shall be residents of the State of New Jersey. Each director
shall own and hold in his own name unpledged shares of the capital stock of
The Summit Bancorporation having an aggregate book value of at least $500.00.
Section 5. Age. No person shall be elected a member of the Board of
Directors after he has attained the age of 70, unless he shall have attained
such age on or before August 1, 1985 and have been a member of the Board of
Directors prior to such date.
Section 6. Oath. Each director, following his election or appointment
and before entering upon the duties of his office, shall take an oath, as
prescribed by New Jersey law.
Section 7. Organization Meeting. The directors elected at the annual
meeting shall meet for the organization of the Board of Directors at such time
following the annual meeting and before the
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assumption of duties as directors and at such place as the Chairman may
determine. No notice of the organization meeting shall be required.
Section 8. Regular Meetings. Regular meetings of the Board of Directors
shall be held on the second Tuesday of each month at the principal office of
the Corporation or at such other time and place as the Board of Directors may
designate from time to time.
Section 9. Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman, the President and any Vice President who is a
member of the Board, and shall be called by the Secretary at the request of a
majority of the directors then in office. Notice of the time and place of any
special meeting may be given in such manner as the director calling such
meeting may determine, but in no event shall such notice be given less than 24
hours before the time appointed for such special meeting. The object of a
special meeting need not be specified but, when an object is specified, no
other business may be considered at such meeting without the concurrence of a
majority of the whole Board.
Section 10. Conference Call Meetings. Any or all directors may
participate in a meeting of the Board of Directors or a committee of the Board
by means of conference telephone or any means of communication by which all
persons participating in the meeting are able to hear each other.
Section 11. Director Action Without a Meeting. Any action required or
permitted to be taken at a meeting of the Board of Directors or a committee of
the Board may be taken without a meeting if, prior or subsequent to such
action, all members of the Board or of the committee, as the case may be,
consent thereto in writing and such written consents are filed with the
minutes of the proceedings of the Board or committee. Such consents shall
have the same effect as a unanimous vote of the Board or committee for all
purposes.
Section 12. Quorum. A majority of the entire Board of Directors shall
constitute a quorum. Any meeting at which a quorum is present may be
adjourned from time to time by vote of a majority of the directors present,
and any meeting at which a quorum is not present may be adjourned in like
manner until a quorum is obtained. Unless a quorum is present at a meeting,
no business may be transacted other than to adjourn the meeting. Action taken
by a majority of those present at a meeting at which a quorum is present shall
be the action of the Board, unless a greater number is required by the
Certificate of Incorporation or by law.
Section 13. Chairman and Secretary Of Meetings. The Chairman, or in his
absence, the President or a Vice President who is a member of the Board of
Directors, shall preside at all meetings of the Board. The presiding officer
shall be entitled to
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one vote on all questions. The Secretary of the Corporation shall act as
secretary of all meetings of the Board, but, in his absence, the presiding
officer may appoint any person to act as secretary.
ARTICLE III
Compensation of Directors
Section 1. Compensation. Directors shall receive such compensation, if
any, as the Board of Directors from time to time by resolution may provide.
ARTICLE IV
Committees and Advisory Councils
Section 1. Examining Committee. The Board of Directors annually shall
appoint a committee of at least three of its members, to be known as the
Examining Committee, none of whom shall be an officer of the Corporation, to
arrange for an examination by a certified public accountant of the condition
of the Corporation. The examination shall be made at least once every
calendar year and shall be commenced at least six months but not more than
fifteen months after the previous such examination. Additional examinations
may be required by the Board of Directors. Within 60 days after the
completion of each examination the Examining Committee shall report the
results of the examination to the Board and provide the Board with its
comments with respect thereto. A majority of the Examining Committee shall
constitute a quorum. Vacancies in the Examining Committee shall be filled by
the Board of Directors.
Section 2. Executive Committee. The Board of Directors annually shall
appoint from among its members an Executive Committee of not less than five
nor more than ten directors. Between meetings of the Board the Executive
Committee may exercise all the powers of the Board with respect to the affairs
of the Corporation, except that the Committee may not (a) declare a dividend
or approve any other distribution to stockholders; (b) make, alter or repeal
the bylaws of the Corporation; (c) elect or appoint an officer or director; or
(d) exercise any other power which by law may be exercised only by at least a
majority of all the directors. A majority of the Executive Committee shall
constitute a quorum. Vacancies in the Executive Committee shall be filled by
the Board of Directors. The minutes of each meeting of the Executive
Committee shall be presented to the Board at its next meeting following such
meeting of the Executive Committee; except that when the next meeting of the
Board occurs within two days following the day of such meeting, such minutes
may be presented to the Board at its second meeting following such meeting of
the Executive Committee.
Section 3. Trust Committee. The Board of Directors annually shall
appoint a Trust Committee of not less than five members of
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whom a majority shall be directors. The remaining members may be directors or
officers of the Corporation who are not directors. The Trust Committee may
exercise all the powers of the Board with respect to:
(a) acceptance or rejection of appointment in any fiduciary or agency
capacity;
(b) retention, sale or other disposition of real or personal property
held in any fiduciary or agency capacity;
(c) investment and disbursement of funds held in any fiduciary or agency
capacity;
(d) exercise of voting and all other rights arising out of or incidental
to any property, real or personal, held in any fiduciary or agency
capacity;
(e) reviews of administration, and of assets held in any fiduciary or
agency capacity;
(f) resignation as fiduciary or agent or other actions terminating
service as fiduciary or agent;
(g) authorizing the execution, sealing with the Corporation's seal and
delivery of any instrument necessary or appropriate to effectuate or
evidence any of the powers of the Trust Committee; and
(h) all other duties and powers of the Corporation in the administration
of its fiduciary and agency functions.
A majority of the Trust Committee shall constitute a quorum. Vacancies in the
Trust Committee shall be filled by the Board of Directors. The minutes of
each meeting of the Trust Committee as to sales and purchases of real and
personal property shall be presented to the Board at its next meeting
following such meeting of the Trust Committee; except that when the next
meeting of the Board occurs within two days following the day of such meeting,
such minutes may be presented to the Board at its second meeting following
such meeting of the Trust Committee.
Section 4. Advisory Council. The Board of Directors annually, at its
organization meeting, shall appoint an Advisory Council, each member of which
shall serve a branch designated by the Board. The members of the Advisory
Council shall serve until the next organizational meeting of the Board or
until their successors are appointed and qualify. The Advisory Council shall
hold regular meetings at such times and at such intervals as may be agreed
upon by the Board of Directors. The Advisory Council shall study and consider
matters of interest to the business and operation of the branches and advise
the Board of Directors and
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officers with respect thereto. Advisory Council members shall be compensated
for their attendance on such basis as may be approved from time to time by the
Board of Directors.
Section 5. Other Committee. The Board of Directors may provide for and
appoint the membership of other committees. Not less than a majority of the
members of each such committee shall be directors; the remaining members may
be directors or officers of the Corporation who are not directors. No such
committee shall be empowered to perform any act for the Corporation without
the approval of such act by the Board.
ARTICLE V
Officers
Section 1. Designation. At the Organization Meeting of the Board of
Directors following each annual meeting of stockholders the directors shall
elect a Chairman, a President and a Vice President from their own number.
They also shall elect at such meeting one or more additional Vice Presidents,
a Secretary, a Treasurer and a Trust Officer, none of whom need be a director.
Other officers, who need not be directors, may be elected or appointed from
time to time by the Board. Any two offices may be held by the same person
except that the same person shall not hold the offices of both President and
Vice President.
Section 2. Term of Office. Each officer shall hold office from the time
of his election or appointment until the first meeting of the Board of
Directors following the next annual meeting of stockholders at which officers
are elected or appointed.
Section 3. Removal and Resignation. Any officer elected or appointed by
the Board of Directors may be removed at any time, with or without cause, by
the Board, or otherwise as provided by law. Any officer may resign by written
notice to the Corporation.
Section 4. Vacancies. Vacancies in any office, however caused, shall be
filled by the Board of Directors.
Section 5. Powers and Duties. Officers elected or appointed by the
Board of Directors shall have the following powers and duties.
(a) Chairman. The Chairman shall preside at all meetings of the
Board of Directors, shall perform all duties incidental to his office and
shall perform such other duties as the Board from time to time may prescribe.
(b) President. The President shall be the chief executive and
administrative officer of the Corporation; he shall direct the policy and
management of the Corporation on behalf of the Board of Directors; he shall
manage the operations of the
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Corporation; and he shall perform all the duties incidental to his office.
The President shall preside at meetings of the Board in the absence of the
Chairman and shall serve as an ex officio member of all committees, except the
Examining Committee.
(c) Vice President and other Officers. The Vice Presidents and other
officers elected or appointed by the Board of Directors shall perform such
duties as may be delegated to them from time to time by the Board or by the
President.
Section 6. Bonding. All officers and employees of the Corporation shall
be bonded in such amounts and with such sureties as shall be approved from
time to time by the Board of Directors. A report describing the bonds and the
amounts thereof shall be prepared under the direction of the President and
submitted to the Board for its consideration once each year or more frequently
if requested by the Board.
ARTICLE VI
Corporate Seal
Section 1. Adoption and Use. The Board of Directors shall adopt a seal
for the Corporation. The Secretary or any Assistant Secretary shall have
authority to impress, reproduce or affix the seal, or a facsimile thereof, to
any document to be sealed.
ARTICLE VII
Fiscal Year
Section 1. Period. The fiscal year of the Corporation shall be the
calendar year, or such other period as shall be designated from time to time
by the Board of Directors.
ARTICLE VIII
Capital Stock
Section 1. Certificates. Certificates representing shares of capital
stock of the Corporation shall be issued to all stockholders of the
Corporation. The certificates shall be in such form as shall be approved by
the Board of Directors or required by law. The names and addresses of all
persons owning shares of capital stock of the Corporation, together with the
number of shares held by each, shall be entered in books kept for that purpose
by the appropriate officers or agents of the Corporation.
Section 2. Transfers of Stock. Transfers of stock shall be made only
upon the transfer books of the Corporation by the holder in person or by his
duly authorized attorney and on surrender of the certificate or certificates
representing the stock to be transferred. Every power of attorney of
authority to transfer stock shall be in writing and filed in the office of the
Corporation or with its transfer agent.
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Section 3. Lost, Stolen and Destroyed Certificates. In the event of the
loss, theft or destruction of certificates, new certificates shall be issued
upon receipt by the Corporation of such bond of indemnity as the Board of
Directors may require.
Article IX
Conveyance of Real Estate
Section 1. Authorization. All transfers and conveyances of real estate
owned by the Corporation in its own right shall be authorized by resolution of
the Board of Directors. Deeds and other documents of transfer shall be
executed in the name of the Corporation by the President or a Vice President
and, where required, attested by the Secretary or an Assistant Secretary.
ARTICLE X
Transfers of Securities
Section 1. Authorization. All contracts, assignments and other
documents of transfer for the sale, assignment or transfer of stock, bonds or
other securities owned by the Corporation in its own right shall be executed
on behalf of the Corporation by any two officers or by any one officer and any
employee authorized by the Board of Directors.
ARTICLE XI
Powers of Attorney, Authorizations and Acceptances
Section 1. Powers of Attorney and Authorizations. All powers of
attorney and all authorizations to an agent or representative of the
Corporation shall be executed by the President, a Vice President, or such
other officer or person specifically authorized to execute the same by the
Board of Directors.
Section 2. Acceptances. All acceptances shall be signed by the
President, a Vice President, the Secretary or an Assistant Secretary, and
countersigned by an officer or other person authorized by the Board of
Directors.
ARTICLE XII
Checks, Certifications and Signature Guarantees
Section 1. Authorization. The Vice President who heads each division of
the Corporation shall designate those individuals who have authority to sign
checks, certify checks and guarantee signatures on assignments of stock, other
than stock owned by the Corporation or in which it has an interest, and of
signatures on other documents which do not dispose of any property of the
Corporation. The divisional Vice President shall assign each such individual
to one of four groups and shall provide the Secretary with the names and
specimen signatures of the individuals assigned to each group. Only officers
may be assigned to Group 1, while any
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employees may be assigned to Groups 2, 3 and 4. Individuals assigned to one
of the four groups shall be authorized to act as follows:
Group 1: Individuals assigned to Group 1 may sign bank checks in amounts
up to $15,000, certify checks and guarantee signatures. Checks
in excess of $15,000 must be countersigned by another member of
Group 1 or a member of any other group.
Group 2: Individuals assigned to Group 2 may sign bank checks in amounts
up to $10,000, certify checks and guarantee signatures. Checks
in excess of $10,000 must be countersigned by another member of
Group 2 or a member of any other group.
Group 3: Individuals assigned to Group 3 may sign bank checks in amounts
up to $10,000 and certify checks. Checks in excess of $10,000
must be countersigned by another member of Group 3 or a member
of any other group.
Group 4: Individuals assigned to Group 4 may sign bank checks in amounts
up to $5,000. Checks in excess of $5,000 must be countersigned
by another member of Group 4 or a member of any other group.
ARTICLE XIII
Trust Property and Trust Functions
Section 1: General Authorization. The President, the Trust Officer, any
Vice President, any Assistant Trust Officer and the Secretary each shall have
power to execute, sign, countersign, authenticate or certify and deliver on
behalf of the Corporation (a) all indentures, agreements, and other
instruments by which the Corporation agrees to act as trustee or in any
fiduciary or representative capacity; (b) all deeds, mortgages, releases,
transfers, assignments, agreements, proxies, bills of sale, powers of
attorney, legal documents of any character, and all other instruments,
transferring, conveying or relating to property, real, personal or mixed,
including stocks, registered bonds and other securities, held by the
Corporation in trust or with respect to which the Corporation may be acting in
a fiduciary or representative capacity; and (c) all bonds, stocks, voting
trust certificates for stock, certificates of deposit, scrip certificates,
warrants or rights to subscribe, and all other similar instruments, where the
Corporation acts as trustee, transfer agent, registrar, depositary or in any
other fiduciary or representative capacity.
Section 2. Specific Authorization. The Board of Directors may
specifically authorize any person to exercise any of the powers
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described in Section 1, or to exercise any other power, with respect to
property held by the Corporation in trust or with respect to property
concerning which the Corporation may be acting in any fiduciary or
representative capacity.
ARTICLE XIV
Hours of Business
Section 1. Hours. The offices of the Corporation shall be open for
business at such times and for such periods as from time to time shall be
fixed by the Board of Directors and permitted by law.
ARTICLE XV
Indemnification
The Corporation shall indemnify each director, officer or employee to the
full extent permitted by law. The Corporation may, in a specific case,
indemnify any other corporate agent to any extent permitted by law. The first
sentence of this Article XV may not be modified, amended or rescinded in any
manner which would limit the obligation of the Corporation to indemnify as to
any matters arising from facts in existence as of the date of such
modification, amendment or rescission.
ARTICLE XVI
Amendments
Section 1. Amendments of By-laws. Except as set forth in Article XV
hereof, these by-laws may be altered or amended by the affirmative vote of a
majority of the capital stock issued and outstanding and entitled to vote at
any regular or special meeting of stockholders, provided notice of the
proposed alteration or amendment is contained in the notice of such meeting,
or by the affirmative vote of a majority of the Board of Directors at any
meeting thereof, provided notice of the proposed alteration or amendment is
contained in the notice of such meeting, except that the Board shall have no
authority to amend these By-laws relative to (a) fixing the number of
directors or the manner and time of determining such number; (b) establishing
the requirements for calling a special meeting of stockholders; or (c) setting
forth the manner in which the by-laws may be made, altered or replaced.
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EXHIBIT 6 TO FORM T-1 OF SUMMIT BANK
Consent of Summit Bank
Pursuant to Section 321 (b)
of the Trust Indenture Act of 1939
___________________________________
Summit Bank, a banking corporation organized under the laws of the State
of New Jersey, with its principal office located at 367 Springfield Avenue,
Summit, New Jersey, hereby gives to all federal and state authorities who have
examined or will examine Summit Bank the permission to furnish such reports of
examination to the Securities and Exchange Commission upon its request
therefor.
SUMMIT BANK
By:/s/ JOSEPH MATE
------------------------------
Joseph Mate
Assistant Vice President
and Trust Officer
EXHIBIT 99(a)
LETTER OF TRANSMITTAL
FOR
7.75% EXCHANGE SUBORDINATED DEBENTURES DUE 2004
HUBCO, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 PM., NEW YORK CITY TIME
ON July 13, 1994 (THE "EXPIRATION DATE") UNLESS EXTENDED
BY HUBCO, INC.
EXCHANGE AGENT:
CHEMICAL BANK
By Mail: By Overnight By Hand: By Facsimile:
(registered or Courier:
certified mail
recommended)
Chemical Bank/ Chemical Bank/ Chemical Bank/ (212)971-3498 or
Geoserve Geoserve Geoserve 3499
Corporate Trust/ Corporate Trust/ Corporate Trust
IDS Mail IDS Mail Securities
P.O. BOX 2862 450 W. 33rd St., Window
New York, NY 10116 Bay 13 55 Water Street
Room 234, North Building
New York, NY 10001 New York, NY 10041
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FASCIMILE TRANSMISSION TO A
NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
The undersigned acknowledges receipt of the Prospectus dated
,1994 (the "Prospectus") of Hubco, Inc. (the "Company") which, together with
this Letter of Transmittal (the "Letter of Transmittal"), describes the
Company's offer (the "Exchange Offer") to exchange (i) $100,000 in principal
amount of 7.75% Exchange Subordinated Debentures due 2004 (the "New
Debentures") for each $100,000 in principal amount of outstanding 7.75%
Subordinated Debentures due 2004 (the "Old Debentures"). The terms of the
New Debentures are identical in all material respects (including principal
amount, interest rate and maturity) to the terms of the Old Debentures for
which they may be exchanged pursuant to the Exchange Offer, except that (i)
the New Debentures will have been registered under the Securities Act of 1933,
as amended and, therefore, will not bear legends restricting the transfer
thereof, and (ii) holders of New Debentures will not be entitled to the
prospective increase in interest rate contained in the Old Debentures.
The undersigned has checked the appropriate boxes below and signed this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND
THE PROSPECTUS CAREFULLY BEFORE CHECKING ANY BOX BELOW
<PAGE>
THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE
FOLLOWED. QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF
THE PROSPECTUS AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE
AGENT.
List below the Old Debentures to which this Letter of Transmittal
relates. If the space provided below is inadequate, the Certificate Numbers
and Principal Amounts should be listed on a separate signed schedule affixed
hereto.
DESCRIPTION OF OLD DEBENTURES TENDERED HEREWITH
Aggregate
Principal
Amount Principal
Name(s)and Address(es)of Certificate Represented Amount
Registered Holder(s) Number(s)* by Debentures* Tendered**
(Please fill in) ___________________________________________
___________________________________________
___________________________________________
___________________________________________
___________________________________________
Total
______________________________________________________________________________
* Need not be completed by book-entry holders.
** Unless otherwise indicated, the holder will be deemed to have tendered the
full aggregate principal mount represented by old Debentures. See
Instruction 2.
This Letter of Transmittal is to be used either if certificates for Old
Debentures are to be forwarded herewith or if delivery of Old Debentures is to
be made by book-entry transfer to an account maintained by the Exchange Agent
at The Depository Trust Company ("DTC"), pursuant to the procedures set forth
in "The Exchange Offer -- Procedures for Tendering" in the Prospectus.
Delivery of documents to a book-entry transfer facility does not constitute
delivery to the Exchange Agent.
Unless the context requires otherwise, the term "Holder" for purposes of
this Letter of Transmittal means any person in whose name Old Debentures are
registered or any other person who has obtained a properly completed bond
power from the registered holder or any person whose Old Debentures are held
of record by DTC who desires to deliver such Old Debentures by book-entry
transfer at DTC.
Holders whose Old Debentures are not immediately available or who cannot
deliver their Old Debentures and all other documents required hereby to the
Exchange Agent on or prior to the Expiration Date may tender their Old
Debentures according to the guaranteed delivery procedure set forth in the
Prospectus under the caption "The Exchange Offer -- Procedures for Tendering."
/ / CHECK HERE IF TENDERED OLD DEBENTURES ARE BEING DELIVERED
BY BOOK-ENTRY TRANSFER MADE TO AN ACCOUNT MAINTAINED BY
THE EXCHANGE AGENT WITH THE DEPOSITORY TRUST COMPANY AND
COMPLETE THE FOlLOWING:
<PAGE>
Name of Tendering Institution
The Depository Trust Company ___________________________________________
Account Number ___________________ Transaction Code Number __________________
/ / CHECK HERE IF TENDERED OLD DEBENTURES ARE BEING DELIVERED
PURSUANT TO A NOTICE OF GUARANTEED DELIVERY AND COMPLETE
THE FOLLOWING:
Name of Registered Holder(s) _____________________________________________
Name of Eligible Institution that Guaranteed Delivery ___________________
IF DELIVERED BY BOOK-ENTRY TRANSFER:
Account Number __________________
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the above-described principal amount
of Old Debentures. Subject to, and effective upon, the acceptance for exchange
of the Old Debentures tendered herewith, the undersigned hereby exchanges,
assigns and transfers to, or upon the order of, the Company all right, title
and interest in and to such Old Debentures. The undersigned hereby irrevocably
constitutes and appoints the Exchange Agent as the true and lawful agent and
attorney-in-fact of the undersigned (with full knowledge that said Exchange
Agent acts as the agent of the undersigned in connection with the Exchange
Offer) to cause the Old Debentures to be assigned, transferred and exchanged.
The undersigned represents and warrants that it has full power and authority to
tender, exchange, assign and transfer the Old Debentures and to acquire New
Debentures issuable upon the exchange of such tendered Old Debentures, and
that, when the same are accepted for exchange, the Company will acquire good
and unencumbered title to the tendered Old Debentures, free and clear of all
liens, restrictions, charges and encumbrances and not subject to any adverse
claim. The undersigned also warrants that it will, upon request, execute and
deliver any additional documents deemed by the Exchange Agent or the Company
to be necessary or desirable to complete the exchange, assignment and transfer
of tendered Old Debentures or transfer ownership of such Old Debentures on the
account books maintained by The Depository Trust Company.
The Exchange Offer is subject to certain conditions as set forth in the
Prospectus under the caption "The Exchange Offer -- Conditions to the
Exchange." The undersigned recognizes that as a result of these conditions
(which may be waived, in whole or in part, by the Company), as more
particularly set forth in the Prospectus, the Company may not be required to
exchange any of the Old Debentures tendered hereby and, in such event, the Old
Debentures not exchanged will be returned to the undersigned at the address
shown below the signature of the undersigned.
<PAGE>
By tendering, each holder of Old Debentures represents to the Company
that (i) the New Debentures acquired in the Exchange Offer are being obtained
in the ordinary course of business of the person receiving such New
Debentures, whether or not such person is such holder, (ii) neither the holder
of the Old Debentures nor any such other person has an arrangement or
understanding with any person to participate in the distribution of such New
Debentures, (iii) if the holder is not a broker-dealer or is a broker-dealer
but will not receive New Debentures for its own account in exchange for Old
Debentures, neither the holder nor any such other person is engaged in or
intends to participate in a distribution of the New Debentures and (iv)
neither the holder nor any such other person is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act of 1933, as amended
(the "Act"). If the tendering holder is a broker-dealer that will receive New
Debentures for its own account in exchange for Old Debentures, it represents
that the Old Debentures to be exchanged for the New Debentures were acquired
by it as a result of market-making activities or other trading activities, and
acknowledges that it will deliver a prospectus meeting the requirements of the
Act in connection with any resale of such New Debentures; however, by so
acknowledging and by delivering a prospectus, the broker-deaier will not be
deemed to admit that it is an "underwriter" within the meaning of the "Act.
All authority herein conferred or agreed to be conferred shall survive the
death, bankruptcy or incapacity of the undersigned and every obligation of the
undersigned hereunder shall be binding upon the heirs, personal
representatives, successors and assigns of the undersigned. Tendered Old
Debentures may be withdrawn at any time prior to the Expiration Date.
Certificates for all New Debentures delivered in exchange for tendered
Old Debentures and any Old Debentures delivered herewith but not exchanged, in
each case registered in the name of the undersigned, shall be delivered to the
undersigned at the address shown below the signature of the undersigned.
<PAGE>
TENDERING HOLDER(S) SIGN HERE
(Complete accompanying substitute Form W-9)
____________________________________________________________________________
____________________________________________________________________________
Signature(s) of Holder(s)
Dated: ,1994
____________
(Must be signed by registered holder(s) exactly as name(s) appear(s) on
certificate(s) for Old Debentures or by any person(s) authorized to become
registered holder(s) by endorsements and documents transmitted herewith or, if
the Old Debentures are held of record by DTC, the person in whose name such
Old Debentures are registered on the books of DTC. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
please set forth the full titie of such person.) See Instruction 3.
Name(s)
___________________________________________________________________
___________________________________________________________________
(Please Print)
Capacity (full title):
_____________________________________________________
Address:
_________________________________________________________________
_________________________________________________________________
(Including Zip Code)
Area Code and Telephone No.
________________ _______________________
Tax Identification No.
GUARANTEE OF SIGNATURE(S)
(If Required - See Instruction 3)
Authorized Signature:
_____________________________________________________
Name:
_____________________________________________________________________
Title:
_____________________________________________________________________
Address:
___________________________________________________________________
Name of Firm:
_____________________________________________________________
Area Code and Telephone No.
_______________________________________________
Dated: , 1994
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INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. Delivery of this Letter of Transmittal and Certificates.
Certificates for all physically delivered Old Debentures or confirmation of
any book-entry transfer to the Exchange Agent's account at The Depository
Trust Company of Old Debentures tendered by book-entry transfer, as well as a
properly completed and a duly executed copy of this Letter of Transmittal or
facsimile thereof, and any other documents required by this Letter of
Transmittal, must be received by the Exchange Agent at any of its addresses
set forth herein on or prior to the Expiration Date (as defined in the
Prospectus).
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE OLD DEBENTURES
AND ANY OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER
AND, EXCEPT AS OTHERWISE PROVIDED BELOW, THE DELIVERY WILL BE DEEMED MADE ONLY
WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF SUCH DELIVERY IS BY MAIL, IT
IS SUGGESTED THAT REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY
INSURED, BE USED.
Holders whose Old Debentures are not immediately available or who cannot
deliver their Old Debentures and all other required documents to the Exchange
Agent on or prior to the Expiration Date or comply with book-entry transfer
procedures on a timely basis may tender their Old Debentures pursuant to the
guaranteed delivery procedure set forth in the Prospectus under "The Exchange
Offer -- Procedures for Tendenng." Pursuant to such procedure: (i) such tender
must be made by or through an Eligible Institution (as defined in the
Prospectus); (ii) on or prior to the Expiration Date the Exchange Agent must
have received from such Eligible Institution a letter, telex, telegram or
facsimile transmission setting forth the name and address of the tendering
holder, the names in which such Old Debentures are registered, and, if
possible, the certificate numbers of the Old Debentures to be tendered; and
(iii) all tendered Old Debentures (or a confirmation of any book-entry
transfer of such Old Debentures into the Exchange Agent's account at The
Depository Trust Company) as well as this Letter of Transmittal and all other
documents required by this Letter of Transmittal must be received by the
Exchange Agent within five New York Stock Exchange trading days after the date
of execution of such letter, telex, telegram or facsimile transmission, all as
provided in the Prospectus under the caption "The Exchange Offer -- Procedures
for Tendering."
No alternative, conditional, irregular or contingent tenders will be
accepted. All tendering holders, by execution of this Letter of Transmittal
(or facsimile thereof), shall waive any right to receive notice of the
acceptance of the Old Debentures for exchange.
2. Partial Tenders; Withdrawals. If less than the entire principal
amount of Old Debentures evidenced by a submitted certificate is tendered, the
tendering holder must fill in his principal amount tendered in the box
entitled "Principal Amount Tendered." A newly issued certificate for the
principal amount of Old Debentures submitted but not tendered will be sent to
such holder as soon as practicable after the Expiration Date. All Old
Debentures delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise indicated.
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Tenders of Old Debentures pursuant to the Exchange Offer are irrevocable,
except that Old Debentures tendered pursuant to the Exchange Offer may be
withdrawn at any time prior to the Expiration Date. To be effective, a
written, telegraphic, telex or facsimile transmission notice of withdrawal
must be timely received by the Exchange Agent. Any such notice of withdrawal
must specify the person named in the Letter of Transmittal as having tendered
Old Debentures to be withdrawn, the certificate numbers of the Old Debentures
to be withdrawn, the principal amount of Old Debentures delivered for exchange,
a statement that such a holder is withdrawing its election to have such Old
Debentures exchanged, and the name of the registered holder of such Old
Debentures, and must be signed by the holder in the same manner as the
original signature on the Letter of Transmittal (including any required
signature guarantees) or be accompanied by evidence satisfactory to the
Company that the person withdrawing the tender has succeeded to the beneficial
ownership of the Old Debentures being withdrawn. The Exchange Agent will
return the properly withdrawn Old Debentures promptly following receipt of
notice of withdrawal. If Old Debentures have been tendered pursuant to the
procedure for book-entry transfer, any notice of withdrawal must specify the
name and number of the account at The Depository Trust Company to be credited
with the withdrawn Old Debentures or otherwise comply with The Depository
Trust Company's procedures.
3. Signature on this Letter of Transmittal; Written Instruments and
Endorsements; Guarantee of Signatures. If this Letter of Transmittal is
signed by the registered holder(s) of the Old Debentures tendered hereby, the
signature must correspond with the name(s) as written on the face of the
certificates without alteration, enlargement or any change whatsoever.
If any of the Old Debentures tendered hereby are owned of record by two
or more joint owners, all such owners must sign this Letter of Transmittal.
If a number of Old Debentures registered in different names are tendered,
it will be necessary to complete, sign and submit as many separate copies of
this Letter of Transmittal as there are different registrations of Old
Debentures.
When this Letter of Transmittal is signed by the registered holder or
holders of Old Debentures listed and tendered hereby, no endorsements of
certificates or separate written instruments of transfer or exchange are
required.
If this Letter of Transmittal is signed by a person other than the
registered holder or holders of the Old Debentures (which term, for the
purposes described herein, shall include any participant in the Depository
Trust Company whose name appears on a security listing as the owner of Old
Debentures) listed, such tendered Old Debentures must be endorsed or
accompanied by separate written instruments of transfer or exchange in form
satisfactory to the Company and duly executed by the registered holder, in
either case signed exactly as the name or names of the registered holder or
holders appear(s) on the Old Debentures. Endorsements on certificates or
signatures on separate written instruments of transfer or exchange required
by this Instruction 3 must be guaranteed by an Eligible Institution.
If this Letter of Transmittal, any certificate or separate written
instruments of transfer or exchange are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or
others acting in a fiduciary or representative capacity, such persons should
so indicate when signing, and, unless waived by the Company, proper evidence
satisfactory to the Company of their authority so to act must be submitted.
<PAGE>
Signatures on this Letter of Transmittal need not be guaranteed by an
Eligible Institution, provided the Old Debentures are tendered: (i) by a
registered holder of such Old Debentures; or (ii) for the account of an
Eligible Institution.
4. Transfer Taxes. The Company shall pay all transfer taxes, if any,
applicable to the transfer and exchange of Old Debentures to it or its order
pursuant to the Exchange Offer. If, however, New Debentures are to be
delivered to, or are to be registered or issued in the name of, any person
other than the registered holder of the Old Debentures tendered hereby, or
if a transfer tax is imposed for any reason other than the transfer of Old
Debentures to the Company or its order pursuant to the Exchange Offer, the
amount of any such transfer taxes (whether imposed on the registered holder or
any other person) will be payable by the tendering holder. If satisfactory
evidence of payment of such taxes or exception therefrom is not submitted
herewith the amount of such transfer taxes will be billed directly to such
tendering holder.
Except as provided in this Instruction 4, it will not be necessary for
transfer tax stamps to be affixed to the Old Debentures listed in this Letter
of Transmittal.
5. Waiver of Conditions. The Company reserves the absolute right to
waive, in whole or in party, any of the conditions to the Exchange Offer set
forth in the Prospectus.
6. Mutilated, Lost, Stolen or Destroyed Debentures. Any holder whose
Old Debentures have been mutilated, lost, stolen or destroyed should contact
the Exchange Agent at the address indicated below for further instructions.
7. Requests for Assistance or Additional Copies. Questions relating
to the procedure for tendering, as well as requests for additional copies of
the Prospectus and this Letter of Transmittal, may be directed to the Exchange
Agent at the address and telephone number set forth below. In addition, all
questions relating to the Exchange Offer, as well as requests for assistance or
additional copies of the Prospectus and this Letter of Transmittal, may be
directed to the Company at
__________________________________________________
_____________________________________________________________________________
8. Irregularities. All questions as to the validity, form, eligibility
(including time of receipt), and acceptance of Letters of Transmittal or Old
Debentures will be resolved by the Company, whose determination will be final
and binding. The Company reserves the absolute fight to reject any or all
Letters of Transmittal or tenders that are not in proper form or the
acceptance of which would, in the opinion of the Company's counsel, be
unlawful. The Company also reserves the right to waive any irregularities or
conditions of tender as to the particular Old Debentures covered by any Letter
of Transmittal or tendered pursuant to such letter. None of the Company, the
Exchange Agent or any other person will be under any duty to give notification
of any defects or irregularities in tenders or incur any liability for failure
to give any such notification. The Company's interpretation of the terms and
conditions of the Exchange Offer sha11 be final and binding.
<PAGE>
9. Substitute Form W-9. Federal income tax laws require each tendering
holder to provide the Company with a correct taxpayer identification number
("TIN") on the Substitute Form W-9 which is provided under "Important Tax
Information" below, and to indicate whether or not the holder is not subject
to backup withholding. Failure to provide the information on the Form may
subject the tendering holder to 31% federal income tax withholding on the
payments made to the holder. The box in Part 2 of the Form may be checked if
the tendering holder has not been issued a TIN and has applied for a TIN or
intends to apply for TIN in the near future. If the box in Part 2 is checked
and the holder is not provided with a TIN within sixty (60) days, the Company
will withhold 31% on all such payments thereafter until a TIN is provided to
the Company.
10. Definitions. Capitalized terms used in this Letter of Transmittal
and not otherwise defined have the meanings given in the Prospectus.
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE THEREOF (TOGETHER
WITH CERTIFICATES FOR OLD DEBENTURES OR CONFIRMATION OF BOOK-ENTRY TRANSFER
AND ALL OTHER REQUIRED DOCUMENTS) OR A NOTICE OF GUARANTEED DELIVERY MUST BE
RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE.
IMPORTANT TAX INFORMATION
Under federal income tax law, a holder whose tendered Old Debentures are
accepted for exchange is required to provide the Company with such holder's
correct taxpayer identification number ("TIN") on Substitute Form W-9. If a
holder is an individual, the TIN is the holder's social security number. If
the Company is not provided with the correct TIN, the holder may be subject to
a penalty imposed by the Internal Revenue Service. In addition, payments that
are mare to such holder with respect to New Debentures acquired pursuant to
the Exchange Offer may be subject to backup withholding.
Certain holders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding requirements.
A corporation must, however, complete the Substitute Form W-9, including
providing its TIN and indicating that it is exempt from backup withholding, in
order to establish its exemption from backup withholding. In order for a
foreign individual to qualify as an exempt recipient, that holder must submit
a statement, signed under penalties of perjury, attesting to that individual's
exempt status. Such statements can be obtained from the Company. See the
enclosed Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 for additional instructions.
If backup withholding applies, the Company is required to withhold 31% of
all payments made to the holder. Backup withholding is not an additional tax.
Rather, the tax liability of person subject to backup withholding will be
reduced by the amount of tax withheld. If withholding result in an
overpayment of taxes, a refund may be obtained.
To prevent backup withholding on payments that are made to a holder with
respect to New Debentures, the holder is required to notify the Company of his
or its correct TIN by completing the Form below, certifying that the TIN
provided on Substitute Form W-9 is correct
<PAGE>
(or that such holder is awaiting a TIN) and whether or not (i) the holder has
not been notified by the Internal Revenue Service that the holder is subject
to backup withholding as a result of a failure to report all interest or
dividends or (ii) the Internal Revenue Service has notified the holder that
the holder is no longer subject to backup withholding.
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<TABLE>
<CAPTION>
PAYER'S NAME: HUBCO, INC.
<S> <C>
SUBSTITUTE Part 1 -- PLEASE PROVIDE Social Security Number
Form W-9 YOUR TIN IN THE BOX AT RIGHT /__________________/
AND CERTIFY BY SIGNING AND OR /__________________/
DATING BELOW Employer Identification Number
Department of the Part 2 - CERTIFICATION -- UNDER THE PENALTIES OF
Treasury Internal PERJURY, I CERTIFY THAT THE NUMBER SHOWN ON THIS FORM
Revenue Service IS MY CORRECT TAXPAYER IDENTIFICATION (OR I AM WRITING
FOR A NUMBER TO BE ISSUED TO ME) AND THAT I AM NOT
Payer's Request SUBJECT TO BACKUP WITHHOLDING BECAUSE: (A) I AM EXEMPT
for Taxpayer FROM BACKUP WITHHOLDING, OR (B) I HAVE NOT BEEN
Identification NOTIFIED BY THE INTERNAL REVENUE SERVICE ("IRS") THAT I
Number (TIN) AM SUBJECT TO BACKUP WITHHOLDING AS A RESULT OF A
FAILURE TO REPORT ALL INTEREST AND DIVIDENDS, OR (C)
THE IRS HAS NOTIFIED ME THAT I AM NO LONGER SUBJECT TO
BACKUP WITHHOLDING. [YOU MUST CROSS OUT THIS PART 2 IF
YOU ARE CURRENTLY SUBJECT TO BACKUP WITHHOLDING BECAUSE
OF UNDER-REPORTING OF INTEREST OR DIVIDENDS ON YOUR TAX
RETURN.]
</TABLE>
SIGNATURE________________________ DATE_________________ Awaiting TIN /______/
_______________________________________________________
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER.
PLEASE CONSULT THE INSTRUCTIONS TO FORM W-9, WHICH MAY BE OBTAINED UPON
REQUEST FROM THE EXCHANGE AGENT.
CERTIFICATE OF TAXPAYER AWAITING TIN
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to appropriate
Internal Revenue Service Center or Social Security Administration Office, or
(b) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a taxpayer identification number within 60
days, 31% of all reportable payments made to me thereafter will be withheld
until I provide a number.
Signature _______________________________________ Date __________________
