AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 25, 1994
REGISTRATION NO. 33-72330
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 3 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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HUBCO, INC.
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-2405746
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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)
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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)
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With Copies to:
RONALD H. JANIS, ESQ. MICHAEL M. HORN, ESQ. SOL GENAUER, ESQ.
CLAPP & EISENBERG, P.C. MCCARTER & ENGLISH BLANK, ROME, COMISKY
One Newark Center Four Gateway Center & MCCAULEY
Newark, NJ 07102 Newark, NJ 07101-0652 Four Penn Center Plaza
(201) 642-3900 (201) 622-4444 Philadelphia, PA 19103
(215) 569-5533
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /_/
If the Registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this form, check the following box. /_/
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CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
OFFERING AGGREGATE AMOUNT OF
TITLE OF SHARES AMOUNT TO BE PRICE PER OFFERING REGISTRATION
TO BE REGISTERED REGISTERED UNIT(1) PRICE(1) FEE(1)
- --------------------------------------------------------------------------------
Common Stock, No par value .. 2,236,111 shares $18.00 $40,250,000 $13,880
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457. A proposed maximum offering price per share of $18.00
is used for purposes of calculating the registration fee because it is the
maximum offering price at which the shares will be offered in the
Subscription and Stockholder Offerings. An aggregate dollar amount of
Common Stock equal to the Final Appraised Value will be offered in the
Offerings and, therefore, for purposes of determining the proposed maximum
aggregate offering price and calculating the registration fee we have
assumed a Final Appraised Value equal to the maximum of the Estimated
Valuation Range.
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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.
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<PAGE>
<PAGE>
SUBSCRIPTION, STOCKHOLDER AND COMMUNITY OFFERING PROSPECTUS
HUBCO, INC.
An Estimated 1,944,444 Shares
(representing the midpoint of the valuation range)
Common Stock (No par Value)
HUBCO, Inc. ("HUBCO"), a New Jersey corporation, is offering an estimated
1,944,444 shares of its common stock, no par value (the "Common Stock"), in
connection with the conversion of Statewide Savings Bank ("Statewide") from a
state-chartered mutual savings bank to a state-chartered stock savings bank,
immediately followed by its conversion to a state-chartered stock commercial
bank and merger with and into Hudson United Bank (the "Bank"), a wholly owned
subsidiary of HUBCO (these transactions together with the offer and sale of the
Common Stock by HUBCO, the "Merger Conversion"). The Merger Conversion is taking
place pursuant to Statewide's Amended and Restated Plan of Conversion (the
"Plan") and an Amended and Restated Agreement and Plan of Reorganization among
HUBCO, the Bank and Statewide, as amended (the "Agreement"). See "THE MERGER
CONVERSION--Overview."
(continued on next page)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, THE COMMISSIONER OF BANKING OF THE STATE OF NEW
JERSEY, THE FEDERAL DEPOSIT INSURANCE CORPORATION, OR ANY OTHER FEDERAL
AGENCY OR ANY STATE SECURITIES COMMISSION NOR HAS SUCH COMMISSION,
COMMISSIONER, CORPORATION OR OTHER AGENCY OR STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==========================================================================================================
Estimated
Estimated Underwriting and
Purchase Other Fees Estimated
Price(1) and Expenses(2) Net Proceeds
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share ................. Subscription Offering $18.00 $1.00 $17.00
Stockholder Offering $18.00 $1.00 $17.00
Community Offering $22.75 $1.21 $21.54
- ----------------------------------------------------------------------------------------------------------
Total (3) ................. Minimum(4) $29,750,000 $1,849,000 $27,901,000
Midpoint(4) $35,000,000 $1,954,000 $33,046,000
Maximum(4) $40,250,000 $2,059,000 $38,191,000
==========================================================================================================
<FN>
(1) The estimated purchase price in the Subscription Offering and Stockholder
Offering assumes that the Fixed Price is less than 95% of the Community
Purchase Price. The estimated purchased price in the Community Offering
assumes that the average of the closing prices of the Common Stock for the
ten trading days immediately preceding the day before the Closing Date is
$22.75. The actual purchase prices in the Subscription Offering,
Stockholder Offering and Community Offering could vary from the estimated
purchase prices if the Average Closing Price is different than $22.75. See
"Description of the Offerings." The number of shares being offered in the
Offerings (currently estimated at 1,944,444) will be determined on the
basis of the Final Appraised Value and the dollar amount of shares
subscribed for at the Subscription Purchase Price and the Community
Purchase Price. See "DESCRIPTION OF THE OFFERINGS."
(2) Consists of estimated expenses which will be incurred by HUBCO in
connection with the offering of shares in the Merger Conversion and the
Offerings. Estimated expenses include printing, postage, legal, accounting,
financial advisory, sales agency fees, appraisal and other costs. Sales
agency fees to be paid to Community Capital Group, a division of Ryan Beck
and Co., Inc. ("Community Capital"), are included in the amount and are
estimated to be $595,000, $700,000 and $805,000 at minimum, midpoint and
maximum, respectively. See "DESCRIPTION OF THE OFFERINGS--Plan of
Distribution." Estimated Underwriting and Other Fees and Expenses reflected
on a per share basis assumes that all of the shares of Common Stock offered
hereby will be sold in each of the Offerings.
(3) Assumes that all shares being offered in the Merger Conversion are sold in
the Offerings. The actual gross and net proceeds may be more or less than
the estimated amounts depending upon, among other things, the Final
Appraised Value and actual expenses incurred in connection with the Merger
Conversion and the Offerings.
(4) The midpoint is the Preliminary Appraised Value. The other values are a
range 15% below such number (the minimum) and 15% above such number (the
maximum). The number of shares offered will range from 1,652,778 shares at
the minimum value to 2,236,111 shares at the maximum value, assuming an $18
per share price. If the Final Appraised Value is between the minimum or
maximum, subscribers will not be resolicited. If the Final Appraised Value
is above or below the minimum or maximum, subscribers must be resolicited.
The aggregate dollar amount of shares sold will equal the Final Appraised
Value regardless of the price per share or the number of shares sold.
</FN>
</TABLE>
COMMUNITY CAPITAL GROUP
a division of
Ryan, Beck & Co.
The date of this Subscription, Stockholder and Community Offering
Prospectus is _____ _, 1994.
<PAGE>
<PAGE>
In accordance with the Plan, nontransferable rights to subscribe for the
Common Stock have been granted, in order of priority, to (i) depositors of
record on December 31, 1992 of Statewide Savings Bank, S.L.A., whose deposits in
Statewide eligible accounts ("Eligible Accounts") totalled at least $50 in the
aggregate ("Eligible Account Holders") and (ii) depositors and borrowers of
Statewide Savings Bank, S.L.A. eligible to vote on the Plan who are not Eligible
Account Holders and HUBCO's Recognition and Retention Plan and Trust Agreement
for the Statewide Division of Hudson United Bank (the "RRP") (collectively,
"Other Voting Members"), in a subscription offering (the "Subscription
Offering"). Eligible Accounts are any withdrawable or deposit account of
Statewide, but excluding any non-interest bearing (i) demand deposit, (ii)
negotiable order of withdrawal (NOW) deposit account, or (iii) other
non-interest bearing transaction account. Concurrently, subject to the prior
rights of subscribers in the Subscription Offering, HUBCO is offering for sale
in a stockholder offering the shares of Common Stock not subscribed for in the
Subscription Offering to holders of record on December 31, 1993 of HUBCO Common
Stock (the "Stockholder Offering") and, subject to the prior rights of
subscribers in the Subscription Offering and the prior rights of HUBCO
stockholders in the Stockholder Offering, HUBCO is offering for sale in a
community offering the shares of Common Stock not subscribed for in the
Subscription and Stockholder Offerings to certain members of the general public
with a preference, first to natural persons residing in counties in which
Statewide maintains offices and second to natural persons residing in the State
of New Jersey (the "Community Offering").
HUBCO has engaged Community Capital Group, a division of Ryan, Beck & Co.,
Inc., a registered broker dealer ("Community Capital"), to consult, advise and
assist in the distribution of shares of Common Stock in the Subscription,
Stockholder and Community Offerings. Community Capital has agreed to use its
best efforts to solicit subscriptions and purchase orders for shares of Common
Stock in the Subscription, Stockholder and Community Offerings. Depending upon
market conditions, shares may be offered in the Community Offering to certain
members of the general public on a best efforts basis by a selling group of
broker-dealers to be managed by Community Capital (the "Syndicated Community
Offering") or may be offered to the general public in an underwritten public
offering (the "Public Offering") to be managed by Ryan, Beck & Co., Inc., a
registered broker-dealer. The Subscription Offering, Stockholder Offering,
Community Offering and Syndicated Community Offering are referred to
collectively as the "Offerings." See "DESCRIPTION OF THE OFFERINGS".
Subscription rights in the Subscription Offering and Stockholder Offering
are nontransferable and will expire if properly completed order forms are not
received by the expiration of the Subscription, Stockholder and Community
Offerings, which is expected to be 5:00 p.m. New Jersey Time on _______, 1994,
unless extended by Statewide with the approval of HUBCO until ______, 1994 (the
"Subscription Expiration Date"), without further approval of the Commissioner of
Banking of the State of New Jersey (the "Commissioner") or additional notice to
subscribers. Subscriptions may not be cancelled or changed nor will subscription
payments be released until the Merger Conversion is completed or terminated;
provided, however, if the date of consummation of the Merger Conversion (the
"Closing Date") is not within 45 days after the close of the Offerings (i.e.
______, 1994), unless such period has been extended with the consent of the
Commissioner, all subscribers will have their funds returned promptly, with
interest, and all withdrawal authorizations will be canceled. If an extension of
time has been granted, all subscribers will be notified of such extension, of
their rights to modify or rescind their subscriptions and have their
subscription funds returned promptly with interest, and of the time period
within which the subscriber must notify HUBCO of his intention to modify or
rescind his subscription. The subscription of any subscriber that does not
respond to the resolicitation will be automatically rescinded. See "SUBSCRIPTION
PROCEDURES--Subscription Rights; Eligible Subscribers in Subscription Offering."
Subscribers must make payment for shares (or provide instructions for payment as
described below) prior to the Subscription Expiration Date.
The price at which shares of Common Stock are offered hereby in the
Subscription and Stockholder Offerings (the "Subscription Purchase Price") is
equal to the lesser of (i) $18.00 (the "Fixed Price") or (ii) 95% of the price
at which the shares are offered hereby in the Community Offering ("Community
Purchase Price"). The Community Purchase Price is equal to the average of the
closing prices of the Common Stock as reported on the NASDAQ National Market
System for the ten trading days immediately preceding the day before the Closing
Date rounded to the nearest cent, with any $.0050 rounded to the next highest
$.0100 (the "Average Closing Price"). The price at which the shares are offered
in the Public Offering ("Public Offering Price") will be determined by
negotiation between HUBCO and Ryan, Beck & Co., Inc. based on, among other
factors, market conditions and the market price of the Common Stock immediately
prior to commencement of the Public Offering. See "MARKET PRICE AND DIVIDENDS OF
HUBCO" and "DESCRIPTION OF THE OFFERINGS--Subscription and Stockholder
2<PAGE>
<PAGE>
Offerings." The Fixed Price is subject to adjustment upon the occurrence of
certain capital changes of HUBCO as provided in the Agreement.
The Common Stock is quoted on the NASDAQ National Market System under the
symbol "HUBC." The last reported sale price of the Common Stock prior to the
date of this Subscription, Stockholder and Community Offering Prospectus
("Prospectus") was $____ per share on _______ __, 1994. See "MARKET PRICE AND
DIVIDENDS OF HUBCO."
An order form (the "Subscription Form") accompanies this Prospectus. Any
person who wishes to subscribe for shares of Common Stock in the Subscription,
Stockholder or Community Offering must complete and execute the Subscription
Form, indicating the dollar amount of Common Stock subscribed for. The minimum
subscription in the Subscription Offering is 25 shares. The minimum subscription
in the Stockholder and Community Offerings is 100 shares. Each subscriber,
together with any associates of, or persons acting in concert with, such
subscriber, may subscribe for no more than 5% of the total number of shares of
Common Stock issued in the Merger Conversion or approximately 97,222 shares,
subject to decrease as described elsewhere in this Prospectus. See "SUBSCRIPTION
PROCEDURES--Minimum and Maximum Limitations on Purchases."
Each subscriber should remit full payment with the Subscription Form in
cash (only if delivered in person), or by check or money order. If the
subscription is made in the Subscription Offering, the subscriber may also pay
by authorizing withdrawal from a Statewide deposit account. Statewide will waive
any applicable penalties for early withdrawal from certificate of deposit
accounts in connection with the Offerings. See "SUBSCRIPTION PROCEDURES--Payment
for Shares." NO PERSON IS REQUIRED TO SUBSCRIBE FOR SHARES IN ANY OFFERING.
The subscriber may deliver the Subscription Form, together with payment,
either in person to any Statewide office, or by using the enclosed postage paid
return envelope. From the date payment is received until the Closing Date or the
date the Merger Conversion is terminated (the "Termination Date"), subscription
funds remitted will accrue interest at Statewide's passbook rate, which is
currently 2.50% per annum. Funds for which withdrawal is authorized from an
Eligible Statewide Account will continue to accrue interest at the account rate
until the Closing Date or the Termination Date. See "SUBSCRIPTION
PROCEDURES--Payment for Shares" and "CERTAIN FEDERAL INCOME TAX
CONSEQUENCES--Interest Payments and Backup Withholding." Each subscriber will
receive as many whole shares of Common Stock as are permitted to be purchased
with the amount of funds submitted by the subscriber, subject to certain
purchase limitations and subject also to reduction if the Offerings are
oversubscribed. See "SUBSCRIPTION PROCEDURES--Minimum and Maximum Limitations on
Purchases" and "--Settlement for Shares; Delivery of Certificates" and
"--Oversubscription."
Any questions concerning the subscription procedure or any related matters
should be directed to the Statewide Stock Information Center, 70 Sip Avenue,
Jersey City, New Jersey 07306, telephone number(201) 795-7689.
FOR A DISCUSSION OF CERTAIN FACTORS TO BE CONSIDERED BY SUBSCRIBERS, SEE
"INVESTMENT CONSIDERATIONS." Subscribers also should consider carefully the tax
consequences associated with purchasing shares of Common Stock at the
Subscription Purchase Price and certain related information. See "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES."
The number of shares of Common Stock being offered hereby is an estimate
based on a preliminary appraised value of Statewide prepared by Kaplan
Associates of $35 million ("Preliminary Appraised Value") and an assumption that
all shares being offered hereby will be sold in the Subscription and Stockholder
Offerings at a price of $18.00 per share. The Preliminary Appraised Value will
be updated promptly following the Subscription Expiration Date. The actual
number of shares of Common Stock being offered hereby may increase or decrease
without a resolicitation of subscribers if the updated appraised value (the
"Final Appraised Value") differs from the Preliminary Appraised Value, the
Subscription Purchase Price differs from $18.00 per share and/or not all shares
offered hereby are sold in the Subscription and Stockholder Offerings. Also, if
the price per share changes, no solicitation will be required. However, if the
Final Appraised Value is lower than $29.75 million or higher than $40.25 million
(the "Estimated Valuation Range"), approval of the Commissioner will be required
in order to complete the Offerings. Such approval would be conditioned upon a
resolicitation of subscribers, who would have the opportunity to increase,
decrease or rescind their subscriptions. Subscriptions that are not amended or
affirmed would be considered automatically rescinded. See "SUBSCRIPTION
PROCEDURES--Number of Shares of Common
3<PAGE>
<PAGE>
Stock." A copy of the updated appraisal will be filed with the Securities and
Exchange Commission by means of a post-effective amendment to the Registration
Statement of which this Prospectus is a part. See "AVAILABLE INFORMATION."
The consummation of the Merger Conversion is dependent upon the
satisfaction or, in certain cases, waiver of various conditions, including
receipt of all required regulatory approvals, the sale in the Offerings and, if
necessary, the Public Offering, of an aggregate dollar amount of Common Stock
equal to the Final Appraised Value and approval by the voting members of
Statewide of the Plan. If the conditions necessary to consummate the Merger
Conversion are not satisfied, all subscription payments received will be
promptly returned to subscribers, together with interest earned, and all
authorizations for withdrawal from accounts at Statewide will be cancelled. See
"THE MERGER CONVERSION--Conditions to Closing." The Agreement 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 Merger Conversion is not consummated by June 30,
1994. See "THE MERGER CONVERSION--Termination."
Although it is anticipated that the Closing Date and delivery of the stock
certificates will occur as soon as practicable after the expiration of the
Offerings, there can be no assurance that delays will not occur. Subscribers may
not be able to sell the shares purchased until certificates are delivered. See
"INVESTMENT CONSIDERATIONS."
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, COMMON STOCK IN THE PUBLIC OFFERING. THE COMMON STOCK, IF ANY,
TO BE OFFERED IN THE PUBLIC OFFERING WILL BE OFFERED ONLY BY MEANS OF A SEPARATE
PUBLIC OFFERING PROSPECTUS.
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FOR INFORMATION CONCERNING CERTAIN FACTORS THAT SHOULD BE CAREFULLY
CONSIDERED BY PROSPECTIVE INVESTORS, SEE "INVESTMENT CONSIDERATIONS."
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4<PAGE>
<PAGE>
(printed document contains a map of the State of New Jersey
illustrating the locations of Bank Branches of HUBCO, Inc.
Statewide Savings Bank and Washington Bancorp. Inc.)
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER
GOVERNMENT AGENCY.
5<PAGE>
<PAGE>
AVAILABLE INFORMATION
HUBCO 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 statements and other information with the
Securities and Exchange Commission (the "Commission").
All reports, proxy statements and other information filed by HUBCO may be
inspected and copied at the Commission's Public Reference Room at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549 or at the Commission's regional
offices at the Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511 and at 75 Park Plaza, 14th Floor, New York, New
York 10007. Copies of such material may also be obtained upon payment of
applicable charges from the Public Reference Section, Securities and Exchange
Commission, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549.
HUBCO has filed with the Commission under the Securities Act of 1933 a
Registration Statement on Form S-3 relating to the securities offered hereby
(together with all amendments and supplements thereto, the "Registration
Statement"), of which this Prospectus constitutes a part. This Prospectus omits
certain information and documents contained in the Registration Statement, and
reference is made to the Registration Statement, including the exhibits thereto,
for further information with respect to HUBCO and the securities offered hereby.
Statements contained in this Prospectus concerning the provisions of such
documents are necessarily summaries of such documents and each such statement is
qualified in its entirety by reference to the copy of the applicable document
filed with the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by HUBCO with the Commission are incorporated
in this Prospectus by reference:
(a) HUBCO's Annual Report on Form 10-K for the year ended December 31,
1992.
(b) HUBCO's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1993 and June 30, 1993 (as amended by Form 10-Q/A on September
23, 1993) and September 30, 1993.
(c) HUBCO's Current Reports on Form 8-K dated January 26, March 26,
April 14, May 21, June 30, July 9, October 12, and November 8, 1993 and
January 20, and March 3, 1994.
All documents filed by HUBCO pursuant to Sections 13(a), 13(c), 14, or
15(d) of the Exchange Act after the date hereof and prior to the completion of
the Offerings made hereby are incorporated herein by reference and shall be
deemed a part hereof from the respective dates such documents are filed. Any
statement contained in this Prospectus or 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.
These documents, other than exhibits to such documents not incorporated
therein by reference, are available to recipients of this Prospectus upon
written or oral request and without charge from D. Lynn Van Borkulo-Nuzzo, Esq.,
Corporate Secretary, HUBCO, Inc., 3100 Bergenline Avenue, Union City, New Jersey
07087, (201) 348-2326.
6<PAGE>
<PAGE>
RECENT DEVELOPMENTS
Recent Developments with Respect to HUBCO
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 January 14, 1994, HUBCO sold $25 million aggregate principal amount of
subordinated debt in a private placement. The subordinated debentures bear
interest at 7.75% per annum payable semi-annually. The debentures mature in 2004
(i.e., ten years after the date of original issuance) and payment of the
principal of the debentures may be accelerated only upon the bankruptcy or
insolvency of HUBCO or its major banking subsidiary. The debt was issued under
an indenture intended to comply with the terms and conditions of the Trust
Indenture Act of 1939 and HUBCO is obligated to register the subordinated debt
with the SEC by July 13, 1994, for an exchange offer for registered securities
or in a resale transaction. The subordinated debt has been structured to comply
with the current rules of the Board of Governors of the Federal Reserve System
regarding debt which will qualify as Tier 2 capital under the FRB capital
adequacy rules. HUBCO sold the debt as part of a long term strategy to raise
capital and did not need the additional capital or funds raised to pay for
existing acquisitions. HUBCO intends to use the net proceeds from the sale of
the subordinated debt 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.
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
$25,000,000 subordinated debt issued in January, 1994. 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 1.65%. The original term of this agreement
is 3 years.
HUBCO has outgrown the space at its headquarters office and commencing in
late December 1993 HUBCO actively undertook a search for additional space to
expand its headquarters operations. In March of 1994, HUBCO contracted to
purchase a 64,350 square foot building in Mahwah, New Jersey to house the
executive offices of HUBCO and the 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.
7<PAGE>
<PAGE>
SUMMARY
The following is a summary of certain portions of this Prospectus and is
qualified by and should be read in conjunction with the detailed information and
financial statements appearing herein or incorporated by reference into this
Prospectus. HUBCO's financial information presented herein, including historical
per share data and weighted average number of shares outstanding, has been
adjusted to reflect stock dividends declared by HUBCO on its Common Stock. The
financial statements contained herein relating to Statewide are the financial
statements of Statewide Savings Bank, S.L.A., the predecessor institution to
Statewide.
This Prospectus contains detailed information about and the financial
statements of Washington Bancorp. Inc., a bank holding company which HUBCO has
agreed to acquire pursuant to the terms of a certain Agreement and Plan of
Merger. The Merger Conversion and the sale of Common Stock offered hereby is
expected to be completed prior to HUBCO's acquisition of Washington Bancorp,
Inc. Completion of the acquisition of Washington Bancorp, Inc. is not a
condition precedent to completion of the Merger Conversion. Completion of the
acquisition of Washington Bancorp, Inc. is subject to a number of conditions
which are contained in the Agreement and Plan of Merger. There can be no
assurances that the acquisition of Washington Bancorp, Inc. will be completed.
HUBCO
HUBCO is a bank holding company whose principal operating subsidiary is
Hudson United Bank (the "Bank"), a state-chartered commercial bank. The
corporate headquarters of HUBCO and the main office of the Bank are located at
3100 Bergenline Avenue, Union City, New Jersey 07087; telephone (201) 348-2300.
Incorporated in 1890, the Bank is a full service commercial bank which
primarily serves small and mid-sized businesses and consumers in Northern New
Jersey, its primary market area. The Bank currently operates 37 branches in
Hudson, Bergen, Passaic, Essex, Middlesex and Morris Counties. The deposits of
the Bank are insured by the Bank Insurance Fund (the "BIF") of the Federal
Deposit Insurance Corporation (the "FDIC"). See "BUSINESS OF HUBCO--Hudson
United Bank."
As of December 31, 1993, HUBCO had consolidated assets of $1.042 billion,
consolidated deposits of $936 million and consolidated stockholders' equity of
$79 million. Based on assets, at December 31, 1993, HUBCO was the 12th largest
commercial bank holding company headquartered in New Jersey. See "BUSINESS OF
HUBCO--General."
HUBCO's strategy is to enhance profitability and build market share through
both internal growth and acquisitions. Since October 1990, HUBCO has acquired 24
branches, $802.1 million in deposits and $807.2 million in assets from six
financial institutions in both government-assisted and private transactions. As
a result of these transactions, HUBCO's asset base grew 38% to $932 million at
year end 1992 from $673 million at year end 1991. In 1993, HUBCO's asset base
grew 12% to $1.042 billion at December 31, 1993.
If consummated, the Merger Conversion will increase HUBCO's total assets by
approximately $507 million, or 48.7% of total assets at December 31, 1993, and
increase the number of Bank branches from 37 to 50. See "INVESTMENT
CONSIDERATIONS--Impact of Acquisitions on HUBCO" and "BUSINESS OF HUBCO--Recent
Acquisitions."
Financial highlights of HUBCO include the following:
Capital Position: At December 31, 1993, HUBCO had stockholders' equity
of $79.0 million, or 7.6% of total assets, compared to stockholders' equity
of $41.1 million, or 6.1% of total assets at December 31, 1991. This
increase in stockholders' equity resulted primarily from the issuance of
1,897,500 shares of common stock in June 1992. At December 31, 1993, HUBCO
exceeded all regulatory capital requirements, as its Tier 1 Risk Based
Capital, Total Risk Based Capital and leverage capital ratios were 13.60%,
14.85% and 7.22%, respectively.
Performance Ratios: Return on average assets was 1.44% for the year
ended December 31, 1993, up from 1.05% in 1992 and 0.82% in 1991. Return on
average stockholders' equity was 19.34% for 1993. This compares to 17.38%
in 1992 and 12.75% in 1991.
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Net interest margin: The net interest margin increased to 5.20% in
1993 from 4.97% in 1992 and 4.94% in 1991, primarily as a result of lower
funding costs and an increase in net interest earnings assets.
Expenses: HUBCO's efficiency ratio, which measures operating expenses
as a percentage of recurring revenue, improved to 53.2% for the year ended
December 31, 1993 compared to 69.6% for the year ended December 31, 1992.
Allowance for Possible Loan Losses: The allowance for possible loan
losses represented 140.20% of nonperforming loans (excluding loans 90 days
or more past due and still accruing) at the end of 1993 compared with
116.91% and 87.13% of nonperforming loans at December 31, 1992 and December
31, 1991, respectively.
Proposed Acquisition of Washington Bancorp, Inc.
On November 8, 1993, HUBCO, the Bank, Washington Bancorp, Inc., a
Delaware corporation and bank holding company ("Washington"), and Washington
Savings Bank, a New Jersey chartered stock savings bank wholly owned by
Washington ("Washington Savings"), entered into an Agreement and Plan of Merger
(the "Washington Merger Agreement") which, subject to the terms and conditions
contained therein, provides for the merger of Washington with and into HUBCO and
the merger of Washington Savings with and into the Bank. Under the terms of the
Washington Merger Agreement, Washington shareholders will receive at their
election, for each common share of Washington outstanding immediately prior to
the merger, either $16.10 in cash or .6708 of a share of a new Series A
Preferred Stock of HUBCO, provided, however, that no more than 49% of
Washington's common stock may be exchanged for cash and no more than 51% may be
exchanged for Preferred Stock. Each full share of Preferred Stock will have a
stated value of, and be redeemable for, $24.00. Each full share of Preferred
Stock also will be convertible into one share of HUBCO Common Stock. The holders
of the Preferred Stock will be entitled to receive an annual dividend to be set
annually on the basis of the average market price of HUBCO's Common Stock during
a twenty consecutive business day period ending two days prior to the date the
dividend is set. The dividend will range from $1.00 per share of Preferred Stock
if the Common Stock is trading at $24.00 or higher, up to $1.68 per share if the
Common Stock is trading below $19.00. If the Common Stock is trading between
$19.00 and $23.99, the dividend will be between $1.56 and $1.10 per share. Upon
consummation of the merger, two directors of Washington Savings will join the
Board of Directors of the Bank.
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. See "BUSINESS OF WASHINGTON."
Consummation of the transactions contemplated by the Washington Merger
Agreement is subject to a number of conditions, including, among others,
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 stockholders. HUBCO has made a determination
that a vote of HUBCO's stockholders will not be required.
HUBCO has the right to terminate the Washington Merger Agreement for a
number of reasons, including if there is a material adverse change in the
business, operations or financial condition of Washington. Under the material
adverse change clause, but without limiting the definition of a material adverse
change, HUBCO has the right to terminate the Washington Merger Agreement if
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 not brought to performing status or if substantial steps
are not taken to proceed with foreclosure on the loan. This non-performing loan
is secured by a 450,000 square foot building which is rented to the Internal
Revenue Service (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 a 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 complete in 1999. The effect, if any, of the conversion and
reduction in workforce on the building securing this loan is unknown at this
time. Although HUBCO anticipates that it will proceed with the acquisition of
Washington, it
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continues to examine this loan and the circumstances surrounding
the collateral and, accordingly, there can be no assurance that the acquisition
of Washington by HUBCO will be consummated. If the acquisition of Washington is
consummated, there can be no assurance that this non-performing loan or
Washington's other non-performing assets will not have a material adverse impact
upon HUBCO's financial performance. See "INVESTMENT CONSIDERATIONS--Significant
Impact of Acquisitions on HUBCO."
The Merger Conversion and the sale of Common Stock offered hereby are
expected to be completed prior to HUBCO's acquisition of Washington. Completion
of the acquisition of Washington is not a condition precedent to completion of
the Merger Conversion. The acquisition of Washington is subject to a number of
conditions which are unrelated to the Merger Conversion.
Statewide
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 31, 1993, Statewide had total assets of $500 million,
total deposits of $426 million, and total retained earnings of $32 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, which include Hudson, Union and
Bergen Counties. See "BUSINESS OF STATEWIDE."
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 Statewide has filed
applications for the charter conversion with the Office of Thrift Supervision
(the "OTS") and the Commissioner which applications were approved on December 23
and December 29, 1993, respectively. The conversion to a savings bank is subject
to the consummation of the Merger Conversion.
The Merger Conversion
The Merger Conversion is subject to various conditions set forth in the
Agreement. These conditions include approval of the Plan by Statewide's Voting
Members (as defined herein) at a Special Meeting to be held at the main office
of Statewide, 70 Sip Avenue, Jersey City, New Jersey, on __________, 1994 (the
"Special Meeting"); receipt of all regulatory approvals required to effect the
Merger Conversion; 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 an opinion of Clapp & Eisenberg, P.C., counsel to HUBCO, to the
effect that the Merger Conversion will constitute one or more tax-free
reorganizations under the Internal Revenue Code of 1986, as amended (the
"Code"); and the sale of an aggregate dollar amount of the Common Stock equal to
the Final Appraised Value of Statewide. There can be no assurance that the
conditions necessary to consummate the Merger Conversion will be satisfied. If
such conditions are not met or, in certain cases, waived, all subscription funds
received, together with accrued interest, will be refunded to subscribers, and
all authorizations for withdrawal from accounts at Statewide will be cancelled.
Consummation of the Merger Conversion, including the sale of the Common Stock
offered hereby, is not contingent on consummation of the Washington acquisition.
See "SUBSCRIPTION PROCEDURES--Termination of Offering" and "THE MERGER
CONVERSION--Conditions to Closing."
Pursuant to the rules of the National Association of Securities Dealers,
Inc. the RRP and a stock option plan adopted by the HUBCO Board of Directors in
connection with the Merger Conversion will be submitted for approval to HUBCO
stockholders. In the event HUBCO stockholders fail to approve the RRP and the
stock option plan, HUBCO Common Stock could possibly be delisted from NASDAQ.
As a result of the Merger Conversion, the existence of Statewide as a
separate legal entity will cease and its business, assets and liabilities will
become part of the Bank. See "THE MERGER CONVERSION--Overview." All
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of the branches and many of the employees, officers, and directors of Statewide
are expected to be employed or retained by the Bank following consummation of
the Merger Conversion. The Agreement requires that certain severance benefits
be provided for Statewide employees who may not be retained by the Bank. See
"THE MERGER CONVERSION--Employment, Other Agreements and Stock Awards."
The terms of the Plan and the Agreement are the result of negotiations and
discussions between management of HUBCO and management of Statewide and their
respective counsel.
General Information Regarding the Offerings
The Offerings are being made pursuant to the Plan and the Agreement. The
following summary does not purport to be complete, and is subject to, and
qualified in its entirety by the Plan and the Agreement.
This Prospectus, a Subscription Form, and additional information concerning
the Offerings have been mailed to Eligible Account Holders, Other Voting
Members, shareholders of HUBCO and certain Community Offering Residents (as
defined herein). Additional copies of the Prospectus are available upon request
from the Statewide Stock Information Center, 70 Sip Avenue, Jersey City, New
Jersey 07306, telephone number (201) _________. In addition, any questions or
requests for additional information regarding the Merger Conversion and the
Offerings may be directed to the Statewide Stock Information Center.
Number of Shares. HUBCO has estimated that it is offering 1,944,444 shares
hereby. This number is an estimate based on the midpoint of the Preliminary
Appraised Value of Statewide prepared by Kaplan Associates of $35 million and an
assumption that all shares being offered hereby will be sold in the Subscription
Offering and Stockholder Offering at $18 per share. Using such assumptions, the
number of shares offered will range from 2,236,111 shares at the maximum and
1,652,778 shares at the minimum of the ranges of the Preliminary Appraised Value
of Statewide prepared by Kaplan Associates. The actual number of shares to be
sold pursuant to this Prospectus may differ from the estimate of shares being
offered. If subscriptions in the Subscription and Stockholder Offerings are
received for an aggregate dollar amount of shares of Common Stock which is less
than the Final Appraised Value, the actual number of shares to be issued will be
determined by adding the sum of (i) the number of shares purchased at the
Subscription Purchase Price in the Subscription Offering and Stockholder
Offering and (ii) the number of shares purchased in the Community Offering or
Public Offering, which will be determined by subtracting the aggregate dollar
amount of shares purchased in the Subscription and Stockholder Offerings from
the Final Appraised Value and dividing the result by the Community Purchase
Price. If subscriptions in the Subscription and Stockholder Offerings are
received for an aggregate dollar amount of shares of Common Stock which is equal
to or greater than the Final Appraised Value, the actual number of shares to be
issued will be determined by dividing the Final Appraised Value by the
Subscription Purchase Price.
Independent Appraisal. Kaplan Associates has determined the Preliminary
Appraised Value of Statewide to be $35 million as of December 7, 1993. The
Preliminary Appraised Value will be updated by Kaplan Associates and the Final
Appraised Value determined after the Subscription Expiration Date. If the Final
Appraised Value is higher or lower than $35 million, the aggregate dollar amount
of shares offered in the Offerings will be correspondingly adjusted without a
resolicitation of subscribers, as long as the Final Appraised Value remains
within the Estimated Valuation Range of $29.75 million to $40.25 million. If
Kaplan Associates determines that the Final Appraised Value is an amount that is
not within this Estimated Valuation Range, approval of the Commissioner must be
obtained to complete the Offerings. Such approval will be conditioned on a
resolicitation of subscribers, who would have an opportunity to increase,
decrease or rescind their subscriptions. Subcriptions that are not amended or
affirmed would be considered automatically rescinded. The appraisal is not
intended and must not be construed as a recommendation of any kind as to the
advisability of purchasing Common Stock in the Offerings. See "SUBSCRIPTION
PROCEDURES--Number of Shares of Common Stock."
Statewide retained Kaplan Associates because it determined that Kaplan
Associates was independent of Statewide, had experience in the area of corporate
appraisal and, based upon its prior work in the field, would be acceptable to
the regulatory authorities. Statewide's board of directors, with the assistance
of its financial advisor, reviewed the methodology used in the preliminary
appraisal as well as the assumptions underlying the preliminary appraisal.
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Although Statewide's board of directors and the Committee reviewed the
summary valuation and the preliminary appraisal, they did not seek to influence
or change the appraisal. Federal regulations governing conversions require an
independent valuation of the converting institution, which is why Statewide
hired Kaplan Associates.
Purchase Limitations. No subscriber, together with any associates of, or
persons acting in concert with such subscriber, may purchase more than 5% of the
total number of shares of Common Stock sold in the Merger Conversion. However,
HUBCO and the Board of Directors of Statewide may, in their sole discretion and
without further notice to or solicitation of subscribers or other prospective
purchasers, decrease such maximum purchase limitation (except for purchases made
on behalf of the RRP) down to 1% of the total shares of Common Stock sold in the
Merger Conversion. The minimum purchase limitation is 25 shares of Common Stock
in the Subscription Offering and 100 shares of Common Stock in the Stockholder,
Community and Syndicated Community Offerings. See "SUBSCRIPTION
PROCEDURES--Minimum and Maximum Limitations on Purchases." In the event of an
oversubscription, shares will be allocated as described in "SUBSCRIPTION
PROCEDURES--Oversubscription."
Payment for Shares. A Subscription Form accompanies this Prospectus. In
order to subscribe for shares, a subscriber must complete the Subscription Form,
indicating the dollar amount of Common Stock subscribed for. The Subscription
Form must be executed and returned, together with payment in person to any
Statewide office, or by using the enclosed postage paid return envelope. Whether
hand delivered or mailed, Subscription Forms must be received prior to 5:00 p.m.
New Jersey Time on the Subscription Expiration Date which is expected to be
_____, 1994, unless extended by Statewide with the approval of HUBCO until
_______, 1994, without further approval of the Commissioner or additional notice
to subscribers.
Subscription Forms, once delivered, may not be amended, modified or
rescinded, unless permitted, in Statewide's discretion with HUBCO's approval, to
correct immaterial irregularities. Payment must be made by cash (only if made in
person), check or money order except as described below. Subscription funds
received will be placed in an escrow account at Statewide. Interest on the funds
deposited in this account will accrue at Statewide's passbook rate, which is
currently 2.50% per annum, from the date payment is received until the Closing
Date or the Termination Date. The amount of interest earned will be paid to each
subscriber promptly after the Closing Date or the Termination Date.
Subscribers may, instead of paying for shares in cash or by check or money
order, provide instructions on the Subscription Form authorizing payment to be
made through withdrawal by Statewide from Statewide accounts. Statewide will
waive any applicable penalties for early withdrawal from certificate of deposit
accounts. Funds for which withdrawal is authorized will remain in such accounts,
earning interest at the account rate, but will not be available to the
subscriber unless the Offerings are terminated.On the Closing Date, withdrawal
will be made by Statewide in order to pay for the shares of Common Stock
subscribed for. See "SUBSCRIPTION PROCEDURES--Payment for Shares."
Settlement for Shares. The number of shares to be issued to a subscriber
will be determined at the conclusion of the Merger Conversion and will depend on
the dollar amount subscribed for and the purchase price (computed based on the
Subscription Purchase Price with respect to the Subscription and Stockholder
Offerings and the Community Purchase Price with respect to the Community
Offering), subject to certain purchase limitations and/or allocation procedures
due to oversubscription of shares. Promptly after the Closing Date, refunds (or
release of funds designated for withdrawal from deposit accounts) will be made
(i) in lieu of the issuance of fractional shares, (ii) as a result of
subscription limitations, (iii) in the event and to the extent of
oversubscription or (iv) if the Subscription Offering is terminated. Interest
earned on all returned subscription funds also will be remitted to the
subscribers.
HUBCO will notify each subscriber of the applicable purchase price and will
cause the certificates representing Common Stock purchased by each subscriber to
be mailed promptly after the Closing Date. See "SUBSCRIPTION
PROCEDURES--Settlement for Shares; Delivery of Certificates."
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The Subscription Offering
Order of Priority. The shares of Common Stock being offered in the
Subscription Offering are being offered in the following order of priority: (i)
Eligible Account Holders, who are depositors of record on December 31, 1992 of
Statewide Savings Bank, S.L.A., whose deposits in Statewide Eligible Accounts
totalled at least $50 in the aggregate and (ii) Other Voting Members, consisting
of depositors and borrowers of Statewide Savings Bank, S.L.A. eligible to vote
on the Plan who are not Eligible Account Holders and the RRP (Eligible Account
Holders and Other Voting Members are sometimes collectively referred to herein
as the "Eligible Subscribers"). NO ELIGIBLE SUBSCRIBER IS REQUIRED TO SUBSCRIBE
FOR SHARES OF COMMON STOCK IN ANY OFFERING. See "DESCRIPTION OF THE
OFFERINGS--Subscription and Stockholder Offerings." See also "SUBSCRIPTION
PROCEDURES--Oversubscription."
The Purchase Price. The Subscription Purchase Price will be equal to the
lesser of (i) the Fixed Price or (ii) 95% of the Community Purchase Price. The
Fixed Price is subject to adjustment upon the occurrence of certain capital
changes of HUBCO as provided in the Agreement. See "DESCRIPTION OF THE
OFFERINGS--Subscription and Stockholder Offerings." Although the Subscription
Purchase Price will be less than the Community Purchase Price, and is expected
to be at a discount to the market price of the Common Stock, it is possible that
because of fluctuations in the market price of the Common Stock the Subscription
Purchase Price could be greater than the market price for the Common Stock on
the Closing Date and/or the date subscribers receive stock certificates for
their shares. Moreover, although it is expected that the Closing Date and the
date stock certificates for the shares are delivered will occur as soon as
practicable after the Subscription Expiration Date, there can be no assurance
that delays will not occur. Until stock certificates for shares are received,
purchasers may not be able to sell their shares. Thus, for these and other
reasons, there is no assurance that those who purchase shares of Common Stock in
the Subscription Offering will be able to sell such shares at a price equal to
or greater than the Subscription Purchase Price. See "MARKET PRICE AND DIVIDENDS
OF HUBCO" and "DESCRIPTION OF THE OFFERINGS--Subscription Offering."
The Stockholder Offering
Any shares of Common Stock offered but not subscribed for in the
Subscription Offering are being offered in the Stockholder Offering to
stockholders of HUBCO at the Subscription Purchase Price. Only stockholders of
record as of December 31, 1993, shall be eligible to subscribe for shares in the
Stockholder Offering. In accordance with the Plan, the right to subscribe for
shares in the Stockholder Offering is subject to the right of HUBCO to accept or
reject such subscriptions in whole or in part. See "DESCRIPTION OF THE
OFFERINGS--The Subscription and Stockholder Offerings."
If all shares of Common Stock are subscribed for in the Subscription
Offering, no shares will be available for sale in the Stockholder Offering and
all funds submitted by Stockholder Offering subscribers will be refunded, with
interest earned. In the event of an oversubscription of shares subscribed for in
the Stockholder Offering, the shares available will be allocated so that each
subscriber receives up to 500 shares and thereafter pro rata on the basis of the
amounts of the respective subscriptions. See "SUBSCRIPTION PROCEDURES--
Oversubscription."
The Community Offering
Any shares of Common Stock offered but not subscribed for in the
Subscription and Stockholder Offerings are being offered to the general public
at the Community Purchase Price in the Community Offering first, to natural
persons residing in Bergen, Hudson and Union Counties, New Jersey, the counties
in which Statewide maintains offices and then second to natural persons residing
in the State of New Jersey ("Community Offering Residents"). The Community
Purchase Price is defined as either (a) the Public Offering Price, or (b) if
there is no Public Offering, the Average Closing Price rounded to the nearest
cent, with any $.0050 rounded to the next highest $.0100. The Public Offering
Price will be determined by negotiation between HUBCO and Ryan, Beck & Co., Inc.
based on, among other factors, market conditions and the market price of the
Common Stock immediately prior to commencement of the Public Offering. See
"MARKET PRICE AND DIVIDENDS OF HUBCO." HUBCO may require a Community Offering
Resident to provide reasonably satisfactory evidence that such person qualifies
as a Community Offering Resident. All such determinations will be made by HUBCO
in its sole discretion and will be final and conclusive. In
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accordance with the Plan, the right to subscribe for shares in the Community
Offering is subject to the right of HUBCO to accept or reject such
subscriptions in whole or in part. See "DESCRIPTION OF THE OFFERINGS--The
Community Offering."
If all shares of Common Stock are subscribed for in the Subscription and
the Stockholder Offerings, no shares will be available for sale in the Community
Offering and all funds submitted in the Community Offering will be refunded,
with interest earned. In the event of an oversubscription of shares subscribed
for in the Community Offering, the shares available will be allocated so that
each subscriber receives up to 500 shares, and thereafter pro rata, on the basis
of the amounts of the respective subscriptions. See "SUBSCRIPTION
PROCEDURES--Oversubscription."
Plan of Distribution
HUBCO has retained Community Capital to consult with HUBCO and to provide
certain financial, advisory, administrative, marketing and sales services in
connection with the Merger Conversion and the distribution of shares of Common
Stock in the Subscription, Stockholder and Community Offerings. Depending upon
market conditions, shares may be offered in the Community Offering to certain
members of the general public on a best efforts basis by a selling group of
broker-dealers to be managed by Community Capital or may be offered in the
Public Offering. In accordance with the Plan, the right to order shares in the
Public Offering is subject to the right of Ryan, Beck & Co., Inc. to accept or
reject such orders in whole or in part. The Public Offering will be made by
means of a separate Prospectus. See "DESCRIPTION OF THE OFFERINGS--Plan of
Distribution."
Use of Proceeds
The net proceeds from the sale of Common Stock in connection with the
Merger Conversion are currently estimated to range from $27.9 million to $38.2
million. Such proceeds will be used by HUBCO to acquire all of the capital stock
of Statewide to be issued in the Merger Conversion. Accordingly, the net
proceeds initially will become part of the equity capital of Statewide, as a
converted institution, and upon consummation of the Merger Conversion, will be
added by the Bank to its funds available for general corporate purposes. Subject
to regulatory limitations, the Bank may dividend funds to HUBCO for future
acquisitions, if necessary. The net proceeds may be higher or lower than
estimated depending upon the Final Appraised Value and actual expenses. See "USE
OF PROCEEDS."
Certain Federal Income Tax Consequences
The following summary contains a description of the material federal income
tax consequences of the Merger Conversion and is based on the federal income tax
laws which are currently in effect. It does not purport to address all aspects
of the possible federal income tax consequences of the Merger Conversion and it
is not intended as tax advice to any person. All Eligible Subscribers in the
Subscription Offering may recognize taxable gain as a result of the receipt of
the Subscription Rights (as defined herein) and/or the exercise of the
Subscription Rights. ACCORDINGLY, ALL ELIGIBLE SUBSCRIBERS SHOULD CONSULT WITH
THEIR OWN TAX ADVISORS AS TO THE TAX CONSEQUENCES (INCLUDING STATE AND LOCAL TAX
CONSEQUENCES) TO THEM OF THE MERGER CONVERSION AND OF ANY PURCHASE OF COMMON
STOCK IN THE SUBSCRIPTION OFFERING AND ALSO SHOULD READ CAREFULLY THE ENTIRE
DISCUSSION UNDER THE HEADING "CERTAIN FEDERAL INCOME TAX CONSEQUENCES."
Tax Consequences to Statewide and HUBCO. Receipt of an opinion of counsel
from the law firm of Clapp & Eisenberg, P.C., counsel to HUBCO, to the effect
that the Merger Conversion will constitute one or more tax-free reorganizations
within the meaning of Section 368(a) of the Code is a condition precedent to the
obligations of HUBCO and Statewide to consummate the Merger Conversion. Assuming
the Merger Conversion constitutes one or more tax-free reorganizations, neither
Statewide nor HUBCO shall recognize taxable gain or loss on the transaction;
however, Statewide will be required to restore its bad debt reserve for tax
purposes. See "THE MERGER CONVERSION--Conditions to Closing" and "CERTAIN
FEDERAL INCOME TAX CONSEQUENCES--Reorganization Status."
Tax Consequences to Eligible Subscribers. Assuming that the Merger
Conversion constitutes one or more tax-free reorganizations under the Code, then
under the historical application of the federal income tax laws by the
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Internal Revenue Service ("IRS"), as evidenced in private letter rulings issued
over the past several years, Eligible Subscribers who are Eligible Account
Holders will be treated for federal income tax purposes as having exchanged
their deposit accounts and membership interests in Statewide for deposit
accounts in the converted institution, nontransferable rights to subscribe for
shares of Common Stock ("Subscription Rights") and interests in the liquidation
account to be established in the Merger Conversion. In addition, Eligible
Subscribers who are not Eligible Account Holders will be treated as having
exchanged their deposit accounts, if any, and membership interests in Statewide
for deposit accounts in the converted institution, if any, and Subscription
Rights. Under this analysis, an Eligible Subscriber will be treated as
recognizing taxable gain as a result of the Merger Conversion, but not in an
amount in excess of the fair market value of the Subscription Rights and
liquidation account interests that are deemed to have been received for federal
income tax purposes by the Eligible Subscriber.
Historically, taxpayers sometimes have taken the position that rights to
purchase stock at fair market value do not have any independent value. This
approach may not apply to the Subscription Rights to purchase shares of Common
Stock at the Subscription Purchase Price because those Subscription Rights are
expected to enable Eligible Subscribers to purchase the stock at less than fair
market value. There is no precedent that clearly resolves how the Subscription
Rights should be valued or how to determine the number of Subscription Rights
issued to each Eligible Subscriber. The determination of the fair market value
of the Subscription Rights will likely depend on a number of factors, including
the excess of the market price of the Common Stock over the Subscription
Purchase Price, the period during which the Subscription Rights are outstanding
and exercisable, the non-transferability of the Subscription Rights, and perhaps
other factors. Historically, interests in liquidation accounts established upon
the conversion of mutual savings and loan associations to a stock form of
ownership have been regarded as having only a nominal fair market value.
An Eligible Subscriber who is treated as having received Subscription
Rights in the Subscription Offering pursuant to the Merger Conversion should
have a basis in such Subscription Rights equal to the fair market value of such
Subscription Rights, which should be equal to the amount of gain, if any,
recognized on the receipt of such Subscription Rights. A purchaser of Common
Stock pursuant to the exercise of Subscription Rights should have a basis in
such Common Stock that is equal to the purchase price paid therefor increased by
his or her basis, if any, in the Subscription Rights exercised. The holding
period in the Common Stock purchased pursuant to the exercise of Subscription
Rights shall commence on the date such Subscription Rights are exercised, which
should be the Closing Date. For a further discussion of the federal income tax
consequences of the purchase of Common Stock pursuant to the Subscription
Offering, see "CERTAIN FEDERAL INCOME TAX CONSEQUENCES."
Tax Consequences to HUBCO Shareholders of Stockholder Offering. The receipt
by shareholders of HUBCO of rights to purchase Common Stock pursuant to the
Stockholder Offering should not give rise to taxable income, regardless of the
fact that Common Stock possibly may be purchased pursuant to such rights at a
price less than current fair market value. The stock rights received by
shareholders of HUBCO should have a tax basis equal to zero, unless the rights
are exercised, in which case the holder of the rights may elect to allocate a
portion of the basis of his HUBCO stock held prior to the receipt of his stock
rights to the stock rights in accordance with rules specified in the Code. If
the stock rights are exercised, no taxable income or loss will be recognized by
reason of such exercise, and if the rights are permitted to lapse unexercised,
no taxable loss will be recognized. See "CERTAIN FEDERAL TAX CONSEQUENCES--Tax
Consequences of Stockholder Offering to Shareholders of HUBCO".
Financial Accounting Treatment
The Merger Conversion will be treated as a purchase for financial reporting
purposes. Under the purchase method of accounting, the assets and liabilities of
Statewide are adjusted to their estimated fair market values at the date that
the Merger Conversion is consummated. The resulting premiums and discounts will
be accreted to and amortized against income, respectively, over the remaining
estimated lives of the assets and liabilities on a level yield basis. For a
discussion of the effects of the purchase accounting, see "PRO FORMA CONDENSED
COMBINED UNAUDITED FINANCIAL STATEMENTS."
Purchases by Officers, Directors and Benefit Plans
Officers and Directors of Statewide are expected to subscribe for
approximately 131,922 shares of Common Stock, or 6.78% of the shares sold in the
Merger Conversion, assuming the sale of 1,944,444 shares. The RRP is
15<PAGE>
<PAGE>
expected to subscribe for 5% of the shares sold in the Merger Conversion, and an
option plan has been adopted to grant officers and directors of Statewide
options to purchase up to 10% of the shares sold in the Merger Conversion. See
"DESCRIPTION OF THE OFFERINGS--Anticipated Subscriptions for Shares in the
Subscription Offering by Statewide Directors and Executive Officers." Following
the Merger Conversion, HUBCO's directors and management, along with Statewide's
directors and executive officers, are expected to beneficially own approximately
10.26% of HUBCO's outstanding shares. See "SHAREHOLDINGS OF PRINCIPAL
SHAREHOLDERS AND MANAGEMENT OF HUBCO" and "DESCRIPTION OF THE
OFFERINGS--Anticipated Subscriptions for Shares in the Subscription
Offering by Statewide Directors and Executive Officers."
Benefits to Statewide Directors and Executive Officers
In conjunction with the acquisition of Statewide, HUBCO has agreed to
provide certain benefits to Statewide's directors, officers and employees. The
Agreement provides that all directors of Statewide, other than full-time
officers of Statewide, will be invited to become members of the Board of
Directors of the Bank. Also, the Agreement provides that HUBCO will enter into a
three year employment agreement with Clifford J. Adams, the President and Chief
Operating Officer of Statewide, at a salary of not less than $135,890 per year
and a three year consulting agreement with William F. Davidson, the Chairman and
Chief Executive Officer of Statewide, at an annual retainer of $65,000 per year.
The Agreement also provides for certain severance benefits for officers and
employees in the event HUBCO undertakes any staff reductions.
Moreover, upon consummation of the Merger Conversion, the officers and
directors of Statewide will receive stock options to acquire an aggregate of 10%
of the shares of the Common Stock issued in the Merger Conversion, or an
anticipated 194,444 shares of Common Stock, at an exercise price equal to the
Subscription Purchase Price. It is anticipated by HUBCO and Statewide that the
nine directors of Statewide will each receive 10% of the option shares
available, or approximately 19,444 shares, and the remaining 10%, or 19,444
shares, will be awarded to other senior management of Statewide. In addition,
HUBCO has agreed to establish the RRP, the management recognition plan for
officers and directors of Statewide, under which officers and directors will be
entitled to receive awards of restricted stock. The RRP will purchase or acquire
a number of shares equal to 5% of the shares to be sold in the Merger
Conversion, or an anticipated 97,222 shares. HUBCO and Statewide anticipate that
each of the 9 directors of Statewide will receive 10% of these shares, or
approximately, 9,722 shares, and the remaining 10% of the shares in the RRP, or
approximately 9,722 shares, will be awarded to other senior management of
Statewide. See, "THE MERGER CONVERSION--Employment, Other Agreements and Stock
Awards" and "DESCRIPTION OF THE OFFERINGS--Anticipated Subscription for Shares
in the Subscription Offering by Statewide Directors and Executive Officers".
Investment Considerations
See "INVESTMENT CONSIDERATIONS" for a discussion of additional factors to
be considered prior to investing in the Common Stock.
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 each of HUBCO, Statewide and Washington beginning on Page F-1
of this Prospectus and the other information contained in this Prospectus.
16<PAGE>
<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 ................................ 23.00 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
Asset Quality Ratios:
Allowance for possible loan losses to total
loans, net(3) ................................. 2.04 1.48 1.44 1.41 .82
Allowance for possible loan losses to
non-performing loans(4) ....................... 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(3)(4) ..................................... 1.73 1.54 1.90 2.67 1.38
Non-performing assets to total loans, net
plus other real estate(3)(5) .................. 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(3)(5) ....... 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) Total loans are net of unearned income and deferred loan fees.
(4) Non-performing loans include non-accruing loans, loans past due 90 days or
more and accruing and renegotiated loans.
(5) Non-performing assets include non-performing loans plus other real estate.
</FN>
</TABLE>
17<PAGE>
<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>
18<PAGE>
<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 per share:
Income 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 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 (excluding loans past due 90 days
or more and accruing) ................................ 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
Non-performing assets (excluding loans past due
90 days or more and accruing) 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>
19<PAGE>
<PAGE>
SUMMARY SELECTED PRO FORMA DATA
The following presents certain unaudited information from 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
issuance of $25,000,000 of 7.75% subordinated debentures due 2004 (completed on
January 14, 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 had been
consummated on January 1, 1993. Also presented is certain unaudited pro forma
combined financial information from the Pro Forma Combined Condensed Statement
of Condition of HUBCO at December 31, 1993 after giving effect to the Merger
Conversion, the acquisition of Washington, the issuance of the subordinated
debentures and HUBCO's repurchase of shares of Common Stock if such transactions
had been consummated on December 31, 1993. The pro forma information is based on
the historical financial statements of HUBCO, Statewide and Washington after
giving effect to the Merger Conversion, acquisition of Washington and issuance
of subordinated debentures by HUBCO using the purchase method of accounting and
based upon the assumptions and adjustments which are set forth elsewhere in this
Prospectus. See "PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION". The pro
forma financial information assumes that the gross proceeds from the sale of
Common Stock in connection with the Offerings will total $35 million, that
1,944,444 shares of Common Stock will be sold at a Subscription Purchase Price
of $18.00 per share and that HUBCO will pay an aggregate of $40,397,000
including the issuance of a total of 829,995 shares of Series A Preferred Stock
in connection with its acquisition of Washington. In addition, the pro forma
financial information assumes net proceeds of $24,671,000 from the issuance of
the $25,000,000 of subordinated debentures.
Also presented are certain selected ratios derived from the pro forma
information which should be read and compared to HUBCO's historical information.
See "SELECTED FINANCIAL INFORMATION OF HUBCO."
The unaudited pro forma information should be read in conjunction with the
consolidated financial statements and related notes included in this Prospectus.
The pro forma information is not necessarily indicative of operating results
which would have been achieved had the mergers been consummated as of the
beginning of such periods presented and should not be construed as being
representative of future periods.
20<PAGE>
<PAGE>
PRO FORMA COMBINED UNAUDITED FINANCIAL INFORMATION
Year Ended
December 31, 1993
------------------------
(Dollars in Thousands,
Except Per Share Amounts)
RESULTS OF OPERATIONS:
Net interest income before provision for
loan losses ....................................... $ 75,042
Provision for possible loan losses ................. 4,740
Net interest income after provision
for possible loan losses .......................... 70,302
Income before income taxes ......................... 33,502
Net income before cumulative effect of change
in accounting principle ........................... 23,100
FINANCIAL CONDITION AT END OF PERIOD:
Total assets ....................................... 1,821,724
Total deposits ..................................... 1,612,023
Total stockholders' equity ......................... 126,203
PER SHARE DATA:
Net income per common share--primary(4) ............ 2.52
Net income per common share--fully diluted ......... 2.44
Book value per common share ........................ 12.60
SELECTED RATIOS:(1)
Performance ratios:
Return on assets .................................. 1.27%
Return on common stockholders' equity ............. 21.73
Capital adequacy ratios:
Total stockholders' equity to assets .............. 6.93
Tier 1 leverage ratio ............................. 6.97
Risk-based capital ratios:
Tier 1 capital .................................... 14.55
Total capital ..................................... 18.81
Asset quality ratios:
Allowance for possible loan losses to
total loans, net ................................. 1.64
Non-performing assets to total loans net plus
other real estate(2) ............................. 4.01
Non-performing assets to total assets ............. 2.01
Allowance for possible loan losses to
non-performing loans(3) .......................... 67.51
Asset quality ratios:(5)
Allowance for possible loan losses to total loans,
net .............................................. 1.64
Nonperforming assets to total loans net plus other
real estate(2) .................................. 2.80
Nonperforming assets to total assets .............. 1.39
Allowance for possible loan losses to nonperforming
loans(3) ........................................ 93.11
- --------------
(1) Ratios are based on period end.
(2) Non-performing assets consist of non-accruing loans, loans past due 90 days
and still accruing, renegotiated loans and real estate acquired in
settlement of loans, including in-substance foreclosures.
(3) Non-performing loans consist of non-accruing loans, loans past due 90 days
and still accruing and renegotiated loans.
(4) 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.
(5) Assuming HUBCO completes the intended sale of non-performing assets on which
a reserve for liquidation has been recorded, the asset quality ratios would
be as shown.
21<PAGE>
<PAGE>
INVESTMENT CONSIDERATIONS
The following factors, among others described throughout this Prospectus,
should be considered carefully by prospective investors in the Common Stock
offered hereby.
Significant Impact of Acquisitions on HUBCO
HUBCO's profitability and its financial condition may be significantly
impacted by the continuing implementation of its acquisition strategy and by the
consummation of the Statewide Merger Conversion and the acquisition of
Washington.
If the Merger Conversion and the acquisition of Washington are both
consummated HUBCO will add 21 branch offices (some of which it may close) and
approximately $780 million in assets, increasing HUBCO's branches by more than
50% and its assets by 75%. While HUBCO has successfully absorbed smaller
institutions in the recent past, no assurance can be given that HUBCO will be
able to efficiently integrate the operations of Statewide and Washington with
HUBCO's operations or to operate the resulting entity profitably.
Moreover, it is likely that an expansion of this magnitude will necessitate
substantially increased staffing in HUBCO's operations. While HUBCO's management
team has developed substantial experience and skill in integrating acquired
institutions and their personnel into HUBCO, given the significant impact on
operations which would result from the Merger Conversion and the Washington
acquisition, there can be no assurances that HUBCO's Management will be able to
manage the combination of HUBCO, Statewide and Washington to achieve the level
of personnel integration or the cost savings achieved in its previous
acquisitions. See "BUSINESS OF HUBCO--Recent Acquisitions".
In addition to the other challenges presented by the acquisitions of
Statewide and Washington, both institutions have a significant volume of
non-performing assets, including non-accrual loans and real estate acquired in
connection with collection actions on loans ("OREO properties"). At December 31,
1993, HUBCO had $11.5 million in non-performing assets, while Statewide had
$12.5 million and Washington had $20.0 million. While HUBCO's management has
successfully kept its non-performing assets to a minimum by adherence to strict
underwriting standards and by aggressive collection efforts and other actions
and intends to sell or liquidate many of the OREO properties and non-performing
loans it will acquire, there can be no assurance that HUBCO's management will
achieve its goals, or be able to deal with these problem assets effectively or
profitably. Moreover, the acquisitions, taken as if they were consummated at
December 31, 1993, will increase HUBCO's ratio of non-performing assets to total
loans and ORE from 2.20 to 4.01 and will decrease HUBCO's coverage ratio on its
allowance for possible loan losses to non-performing loans from 118.10% to
67.51%. While HUBCO expects to take aggressive action to sell and resolve the
acquired non-performing assets and has the right to terminate the Washington
Merger Agreement if certain steps are not taken with regard to Washington's
largest non-performing loan, an approximately $9.0 million loan, no assurance
can be given that the actions of HUBCO's management will substantially lessen
HUBCO's exposure to non-performing assets acquired in these transactions.
Acquisition Strategy. HUBCO seeks to enhance profitability and build market
share through both internal growth and acquisitions. HUBCO's acquisition
philosophy is to seek in-market or contiguous market opportunities which can be
accomplished with little dilution to earnings. Since October of 1990, HUBCO has
acquired assets and liabilities from six other financial institutions, through
both government-assisted and private transactions. However, both the Merger
Conversion and the acquisition of Washington represent traditional private
transactions which HUBCO believes present a different level of risk than the
government-assisted transactions previously undertaken by HUBCO. HUBCO intends
to continue to seek acquisition opportunities that arise in its market area.
In December 1993, the government appropriated money to allow the Resolution
Trust Corporation ("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
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 the Company's earnings or reduce the
capital ratios below the well capitalized classification, although the Company
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 additional financial
institutions are acquired, that these acquisitions can be managed successfully
to enhance the profitability of HUBCO. See "BUSINESS OF HUBCO--Recent
Acquisitions."
22<PAGE>
<PAGE>
When evaluating acquisitions, HUBCO conducts a due diligence review to
attempt to identify both risks and income potential and then attempts to
structure a transaction which allows it to manage the risk while earning a fair
return on the investment. The success of HUBCO's acquisition strategy depends on
management's skill in identifying, analyzing, bidding on and acquiring banking
entities or the assets and liabilities of such entities being sold by federal
regulators, integrating such entities, assets and liabilities into HUBCO, and
causing the resulting entity as a whole to operate profitably. Potential
investors should not rely upon the financial information regarding HUBCO,
Statewide and Washington contained in the Prospectus as necessarily being
indicative of future operating results of the combined entities.
Proposed Acquisition of Statewide. Upon consummation of the Merger
Conversion, HUBCO's total assets will increase by approximately $507 million,
resulting in a 48.7% increase in HUBCO's asset base from its level at December
31, 1993. An expansion of this magnitude will result in major changes in HUBCO's
financial situation. Unlike most of HUBCO's other recent acquisitions, the
Merger Conversion does not afford HUBCO the right to acquire only those loans of
the acquired institution which HUBCO desires to retain. See "BUSINESS OF
HUBCO--Recent Acquisitions--Acquisition of Statewide" and "USE OF PROCEEDS."
Pursuant to the rules of the National Association of Securities Dealers,
the RRP and a stock option plan adopted by the HUBCO Board of Directors in
connection with the Merger Conversion were submitted for approval to HUBCO
stockholders and both the RRP and the stock option plan were approved by HUBCO
stockholders. See "THE MERGER CONVERSION--Employment, Other Agreements
and Stock Awards."
Proposed Acquisition of Washington. The acquisition of Washington, if
consummated, together with consummation of the Merger Conversion, will add $780
million in assets to HUBCO, representing an increase of 75% over HUBCO's total
assets from their level at December 31, 1993. Like the Statewide acquisition,
but unlike most of HUBCO's other recent acquisitions, the Washington acquisition
does not afford HUBCO the right to acquire only those loans of the acquired
institution which HUBCO desires to retain. Washington has a significant volume
of non-performing assets. At December 31, 1993, Washington had $20.0 million of
non-performing assets. Moreover, since the execution of the Washington Merger
Agreement, the IRS, which rents the building which secures Washington's largest
non-performing asset, has announced that the site will be converted into a
customer service center with a loss of 2,500 permanent and seasonal jobs.
Although HUBCO anticipates that it will proceed with the acquisition of
Washington, HUBCO is continuing to examine this loan and the circumstances
surrounding the collateral and, accordingly, there can be no assurance that the
acquisition of Washington by HUBCO will be consummated. If the acquisition of
Washington is consummated there can be no assurance that this non-performing
loan or Washington's other non-performing assets will not have a material
adverse impact upon HUBCO's financial performance. See "BUSINESS OF
HUBCO--Recent Acquisitions--Proposed Acquisition of Washington."
Subscription Purchase Price
Subscribers in the Subscription Offering and the Stockholder Offering
should not assume that they will have a profit simply because they are allowed
to purchase HUBCO Common Stock at less than the market value. Because of
fluctuations in the market price of the Common Stock, there can be no assurance
that the Subscription Purchase Price will actually be less than, or even equal
to, the market price for the Common Stock on the Closing Date and/or on the date
on which subscribers receive certificates for their shares. Moreover, while
stock certificates for shares of the Common Stock will be mailed as soon as
practicable after the Closing Date, until such stock certificates are delivered
to subscribers, subscribers may not be able to sell the shares of the Common
Stock for which they have subscribed. Thus, for these and other reasons, there
is no assurance that those who purchase shares of Common Stock in the
Subscription and Stockholder Offerings will be able to sell such shares at a
price equal to or greater than the Subscription Purchase Price.
Moreover, because the market price of the Common Stock could decrease
between now and the date the Subscription Purchase Price is determined, Eligible
Subscribers and HUBCO stockholders might be able to purchase Common Stock in the
open market prior to that date at a price lower than the Subscription Purchase
Price. Any such open market purchase would permit the Eligible Subscriber and
HUBCO stockholders to obtain the shares immediately, which would not be the case
if the Eligible Subscriber and HUBCO stockholders purchased the shares through
the subscription process, with its attendant delays in receipt of the shares.
In addition, because the Subscription Purchase Price initially may be less
than the market price for the Common Stock, subscribers may be inclined
immediately to sell their shares in an attempt to realize any profit between the
Subscription Purchase Price and the then-market price for the Common Stock.
Depending upon their timing and
23<PAGE>
<PAGE>
volume, such sales could cause the market price for the Common Stock to
decline so as to be equal to or less than the Subscription Purchase Price.
All subscribers also should consider carefully the recent volatility of the
market for equity securities of banks and bank holding companies. The market
price for the Common Stock may be affected by adverse publicity surrounding the
banking industry and by an increase in interest rates. See "MARKET PRICE AND
DIVIDENDS OF HUBCO" and "MANAGEMENT DISCUSSION & ANALYSIS OF HUBCO--Loan
Portfolio--Interest Rate Sensitivity."
Potential Impact of Changes in Interest Rate Environment
Significant changes in the interest rate environment, especially a shift to
increasing interest rates from the falling rate environment experienced
recently, may have a negative impact upon the profitability of HUBCO and that
impact may be magnified by the acquisition of Statewide and if completed, the
acquisition of Washington. In part, HUBCO has managed to become more profitable
because it has increased its net interest margin in a falling rate environment.
While HUBCO's management has taken some precautions to limit the impact of
upward swings in interest rates, there can be no assurance that HUBCO could
continue to perform as well if interest rates were to rise. Statewide and
Washington both reported losses in the years 1989, 1990 and 1991 but both
reported profits in the periods since 1991 as interest rates were falling.
Moreover, both Washington and Statewide have a significant portion of their
assets deployed in fixed rate instruments in their investment and loan
portfolios and these instruments have helped their earnings as rates have
fallen. While HUBCO may take certain actions to limit its exposure to interest
rate increases after the consummation of the acquisitions, a rise in interest
rates could have a material adverse effect on HUBCO's financial performance,
especially after the consummation of both acquisitions. See "MANAGEMENT
DISCUSSION AND ANALYSIS OF HUBCO--Loan Portfolio--Interest Rate Sensitivity."
The Banking Industry
There are over 100 commercial banks throughout New Jersey, many of which
have offices in Northern New Jersey. In addition, large banks in New York City
compete for the business of New Jersey residents and businesses located in
HUBCO's primary areas of trade. A number of other depository institutions
compete for the business of individuals and commercial enterprises in New Jersey
including savings banks, savings and loan associations, brokerage houses,
financial subsidiaries of the retail industry and credit unions. Other financial
institutions, such as mutual funds, consumer finance companies, factoring
companies, and insurance companies, also compete with HUBCO for both loans and
deposits. Competition for depositors' funds, for creditworthy loan customers and
for trust business is intense.
Proposed Legislation
Statewide Savings Bank, S.L.A., as part of the Merger Conversion, will
become a New Jersey chartered, SAIF-insured savings bank that is subject to
regulation by the New Jersey Department of Banking (the "Department") and the
FDIC. Statewide's Plan was prepared in accordance with the regulations of the
Department and approved by the Commissioner. The FDIC has recently adopted
interim regulations governing mutual-to-stock conversions. On November 22, 1993,
a bill was introduced in the United States House of Representatives entitled the
"Mutual Bank Conversion Act." The proposed legislation states that no
state-chartered savings bank may convert from the mutual form to the stock form
on or after November 22, 1993, except in accordance with regulations adopted by
the FDIC. These regulations are required to be substantially similar to the
regulations of the OTS, the primary federal regulator of savings associations.
Statewide believes that its Plan is similar to the conversion regulations
prescribed by the OTS. Specifically, as required by OTS regulations, the amount
of Common Stock being offered is equal to Statewide's appraised value, and the
Common Stock is being offered first to the depositors of Statewide in accordance
with priority categories that are essentially the same as those required by the
OTS. However, as a matter of policy (not regulation), the OTS in connection with
recent conversion applications has generally permitted tax-qualified stock
benefit plans and non-tax-qualified stock benefit plans to purchase in the
aggregate up to 14% of the number of shares offered in a conversion. The RRP and
the stock option plan are expected to aggregate 15% of the shares offered in the
Conversion. Also, as a matter of policy the OTS does not allow the stock offered
by the acquiror in a merger conversion to be sold at more than a 5% discount to
market value as of the closing of the merger conversion. This Merger Conversion
may have a discount to market value of more than 5%. The proposed legislation
requires the regulations to be prescribed by the FDIC to take effect within 90
days of the enactment of the legislation. It is uncertain whether or when such
legislation may be passed, and, if passed, what the final contents of such
legislation will be. If the legislation is passed as proposed with a retroactive
November 22, 1993 effective date, it is uncertain what effect, if any, such
legislation will have on Statewide's Merger Conversion or the stock benefit
plans.
24<PAGE>
<PAGE>
MARKET PRICE AND DIVIDENDS OF HUBCO
The Common Stock is listed for quotation on the NASDAQ National Market
System under the symbol "HUBC." Prior to March 1, 1993, the Common Stock was
listed on the American Stock Exchange. The following table sets forth, for the
indicated periods, the high and low closing prices for the Common Stock as
reported by the NASDAQ National Market System or the American Stock Exchange, as
the case may be, and the cash dividends per share of Common Stock declared for
the indicated periods. The numbers have been restated to reflect a 10% stock
dividend paid by HUBCO on June 1, 1993.
Cash
Price Range Dividends
--------------------- Declared
High Low Per Share
------- ------- ---------
1991
First Quarter ........... $ 5 7/8 $ 4 $.08
Second Quarter .......... 6 1/2 5 7/8 .08
Third Quarter ........... 7 7/8 6 1/4 .08
Fourth Quarter .......... 9 1/4 6 3/4 .09
1992
First Quarter ........... 12 1/2 8 3/8 .09
Second Quarter .......... 12 5/8 10 5/8 .09
Third Quarter ........... 13 11 3/8 .09
Fourth Quarter .......... 16 7/8 12 .10(1)
1993
First Quarter ........... 24 5/8 16 .10
Second Quarter .......... 24 3/8 19 .11
Third Quarter ........... 25 1/4 20 1/4 .11
Fourth Quarter .......... 24 1/4 20 .12(1)
1994
First Quarter (through
March 22, 1994)......... 23 3/4 20 3/8 .12
- --------------
(1) Plus a special year-end cash dividend of $.03 per share.
On February 1, 1994, the last reported sale price of the Common Stock, as
reported on the NASDAQ National Market System, was $23 per share. On January 6,
1994, there were 1,599 holders of record of Common Stock and 6,585,980 shares
outstanding.
On November 10, 1993, HUBCO announced a stock repurchase program under
which HUBCO may repurchase up to 10% of its outstanding stock each year. As of
March 1, 1994, HUBCO had repurchased 455,081 shares of its Common Stock, or
6.56%, of its outstanding stock. 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. See "RECENT
DEVELOPMENTS--Recent Developments With Respect to HUBCO."
The holders of Common Stock are entitled to receive dividends when and if
declared by the Board of Directors out of funds legally available therefor.
HUBCO has paid regular cash dividends since its inception in 1982. Although
HUBCO currently intends to continue to pay cash dividends on the Common Stock,
there can be no assurance that HUBCO's dividend policy will remain unchanged
after completion of the Merger Conversion. The declaration and payment of
dividends thereafter will depend upon business conditions, operating results,
capital, reserve requirements and the Board of Directors' consideration of other
relevant factors. Moreover, HUBCO is subject to certain legal restrictions on
the amount of dividends it is permitted to pay. See "REGULATION AND SUPERVISION
OF HUBCO--Restriction on Dividend Payments."
25<PAGE>
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of Common Stock in connection with the
Merger Conversion are currently estimated to range from $27.9 million to $38.2
million. If the Preliminary Appraised Value is not adjusted, the net proceeds
are estimated to be approximately $33 million. Such proceeds will be used by
HUBCO to acquire all of the capital stock of Statewide in the Merger Conversion.
Accordingly, the net proceeds initially will become part of the equity capital
of Statewide, as a converted institution, and upon consummation of the Merger
Conversion, will be added by the Bank to its funds available for general
corporate purposes. See "PRO FORMA CONDENSED COMBINED UNAUDITED FINANCIAL
STATEMENTS." Subject to regulatory limitations, the Bank may dividend funds to
HUBCO for future acquisitions, if necessary. The net proceeds may be higher or
lower than estimated depending upon the Final Appraised Value and actual
expenses.
CAPITALIZATION OF HUBCO
The following table presents the historical consolidated capitalization,
including deposits of HUBCO as of December 31, 1993, and the pro forma
consolidated capitalization of HUBCO at that date, after giving effect to
completion of both the Merger Conversion and the acquisition of Washington as
well as the issuance of $25,000,000 in subordinated debt on January 14, 1994.
The table below gives effect to the sale in the Merger Conversion of 1,944,444
shares of Common Stock at a price of $18.00 per share and the issuance in
connection with the acquisition of Washington of 829,995 shares of preferred
stock with a stated value of $24 per share and the other assumptions set forth
under "PRO FORMA CONDENSED COMBINED UNAUDITED FINANCIAL STATEMENTS". The table
below also reflects the purchase by HUBCO of 455,081 shares of Common Stock
under its stock repurchase plan, of which 12,300 shares have been reissued as
awards under HUBCO's restricted stock plan and 442,781 shares retained as
treasury stock to be reissued in the Merger Conversion. See "MARKET PRICE AND
DIVIDENDS OF HUBCO". Any changes in the number of shares of Common Stock or
preferred stock to be issued and the actual purchase price for shares of Common
Stock from those assumed for purposes of this table may materially affect such
pro forma capitalization.
<TABLE>
<CAPTION>
Pro Forma
Historical Pro Forma Combined Combined HUBCO,
December 31, 1993 HUBCO and Statewide and
HUBCO Statewide Washington
--------------- --------------- ---------------
<S> <C> <C> <C>
Deposit Accounts (1) ...................... $935,687,813 $1,363,990,609 $1,612,022,156
============ ============== ==============
Borrowings:
Short-Term Debt .......................... $ 19,628,504 $ 28,128,504 $ 28,128,504
Long-Term Debt ........................... 0 25,000,000 25,400,000
------------ -------------- --------------
Total Borrowings ....................... $ 19,628,504 $ 53,128,504 $ 53,528,504
============ ============== ==============
Shareholders' Equity:
Preferred Stock no par value, 3,300,000
shares authorized, none issued (829,995
shares to be issued and outstanding
pro forma) .............................. $ 0 $ 0 $ 19,919,880
Common Stock, no par value, 13,200,000
shares authorized, 6,933,361 shares
issued and 6,490,580 outstanding (2)
(8,435,024 shares issued and outstanding
pro forma) .............................. 18,492,115 22,497,050 22,497,050
Capital in excess of par value ........... 49,047,408 67,800,487 67,800,487
Retained Earnings ........................ 12,668,947 12,668,947 12,668,947
Unrealized gain on investments available
for sale, net of tax .................... 4,262,053 4,262,053 4,262,053
Treasury Stock, at cost 208,700 shares (3) (4,570,713) 0 0
Restricted Stock Award ................... (946,280) (946,280) (946,280)
------------ -------------- --------------
Total Shareholders' Equity ............. $ 78,953,530 $ 106,282,257 $ 126,202,137
============ ============== ==============
- --------------
<FN>
(1) Withdrawals from savings accounts for the purchase of Common Stock have not
been reflected. Any withdrawals will reduce pro forma capitalization by the
amount of such withdrawals.
(2) No effect has been given to the issuance of additional shares of Common
Stock pursuant to HUBCO's 1993 Stock Option Program for Statewide Division
in an amount equal to 10% of the shares of Common Stock issued in the
Merger Conversion. Assumes that 5% of the shares issued in the Merger
Conversion will be purchased by the RRP.
(3) For the period from January 1, 1994 to March 1, 1994 HUBCO purchased an
additional 234,081 shares of Common Stock for approximately $5,298,000. The
aggregate number of shares of Common Stock of 442,781 with an aggregate cost
of $9,869,000 will be reissued in the Merger Conversion.
</FN>
</TABLE>
26<PAGE>
<PAGE>
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, Statewide
Savings Bank, S.L.A. (Statewide) and Washington at December 31, 1993 after
giving effect to 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 "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 subordinate 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 and based upon
the assumptions and adjustments contained in the accompanying "Notes to the Pro
Forma Combined Condensed Financial Statements." The pro forma statements assume
a Subscription Purchase price of $18.00 per share for the Merger Conversion and
the issuance of 1,944,444 shares of Common Stock. The pro forma statements
assume a purchase price of $16.10 in cash or .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 to the preferred stock and 49% converted 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 Financial Statements may differ from the amounts ultimately
determined.
The unaudited pro forma information has been prepared by Hubco's management
based upon the Consolidated Financial Statements and related notes thereto of
HUBCO, Statewide and Washington included elsewhere in 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 mergers been consummated as of the beginning of such periods
presented and should not be construed as being representative of future periods.
27<PAGE>
<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
Historical Adjustments Pro Forma Historical Adjustments Hubco and Historical Adjustments Pro Forma
Hubco Hubco Hubco Statewide Statewide Statewide Washington Washington Combined
---------- ----------- ---------- -------- ---------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and Due
From Banks ......... $ 49,542 $ (5,298)(1)(8) $ 44,244 $ 7,478 $ 0(a) $ 51,722 $ 4,283 $ 0 $ 56,005
Investment
Securities ......... 296,130 24,671(2) 320,801 251,743 5,652(b) 578,196 25,007 (18,960)(aa) 584,243
Investments
Available
for Sale ........... 130,555 0 130,555 4,789 0 135,344 67,257 0 202,601
Federal Funds
Sold ............... 9,800 0 9,800 16,075 0 25,875 1,900 0 27,775
Loans ................ 529,390 0 529,390 187,547 5,730(c) 722,667 173,013 1,016(bb) 896,696
Allowance for
Possible
Loan Losses ........ (10,811) 0 (10,811) (1,094) 0 (11,905) (2,828) 0 (14,733)
Premises and
Equipment .......... 18,001 0 18,001 3,942 (3,942)(d) 18,001 2,614 2,953(cc) 23,568
Other Real Estate .... 2,311 0 2,311 9,741 (4,393)(e) 7,659 7,078 0 14,737
Excess of Cost over
Fair Value of
Assets Acquired,
Net ................ 0 0 0 14,930 (14,930)(f) 0 0 5,049(dd) 5,049
Other Assets ......... 16,907 329(1) 17,236 5,124 (796)(g) 21,564 4,311 (92)(ee) 25,783
---------- -------- ---------- -------- -------- ---------- -------- ------- -----------
Total Assets ....... $1,041,825 $ 19,702 $1,061,527 $500,275 ($12,679) $1,549,123 $282,635 ($10,034) $1,821,724
========== ======== ========== ======== ======== ========== ======== ======= ===========
LIABILITIES
Deposits ............. $ 935,688 $ 0 $ 935,688 $427,003 $ 1,300(h) $1,363,991 $247,320 $ 712(ff) $1,612,023
Borrowed Money ....... 19,629 0 19,629 39,367 (30,867)(i) 28,129 400 0 28,529
Other Liabilities .... 7,554 0 7,554 1,665 16,501(j) 25,720 1,374 2,875(gg) 29,969
---------- -------- ---------- -------- -------- ---------- -------- ------- -----------
Total Liabilities .. 962,871 0 962,871 468,035 (13,066) 1,417,840 249,094 3,587 1,670,521
---------- -------- ---------- -------- -------- ---------- -------- ------- -----------
Subordinated
Debentures ......... 0 25,000(3) 25,000 0 0 25,000 0 0 25,000
---------- -------- ---------- -------- -------- ---------- -------- ------- -----------
STOCKHOLDERS' EQUITY
Preferred Stock ...... 0 0 0 0 0 0 0 19,920(hh) 19,920
Common Stock ......... 18,492 0 18,492 0 4,005(k) 22,497 231 (231)(ii) 22,497
Capital in Excess of
Par Value ........... 49,048 0 49,048 0 18,753(k) 67,801 22,500 (22,500)(ii) 67,801
Retained Earnings .... 12,669 0 12,669 32,240 (32,240)(l) 12,669 10,744 (10,744)(ii) 12,669
Unrealized Gain on
Investment Securities
available for sale,
net of Taxes ........ 4,262 0 4,262 0 0 4,262 186 (186)(ii) 4,262
Treasury Stock ....... (4,571) (5,298)(8) (9,869) 0 9,869(k) 0 0 0 0
Restricted Stock Award (946) 0 (946) 0 0 (946) (120) 120(ii) (946)
---------- -------- ---------- -------- -------- ---------- -------- ------- -----------
Total Stockholders'
Equity ............ 78,954 (5,298) 73,656 32,240 387 106,283 33,541 (13,621) 126,203
---------- -------- ---------- -------- -------- ---------- -------- ------- -----------
Total Liabilities
and Stockholders'
Equity ............ $1,041,825 $ 19,702 $1,061,527 $500,275 ($12,679) $1,549,123 $282,635 ($10,034) $1,821,724
========== ======== ========== ======== ======== ========== ======== ======= ==========
</TABLE>
See accompanying notes to pro forma combined condensed financial statements.
28<PAGE>
<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
Historical Adjustments Pro Forma Historical Adjustments Hubco and Historical Adjustments Pro Forma
Hubco Hubco Hubco Statewide Statewide Statewide Washington Washington Combined
---------- ----------- ---------- -------- ---------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income:
Interest and
Fees on loans ..... $ 43,546 $ 0 $ 43,546 $ 18,654 ($ 955)(m) $ 61,245 $ 14,782 ($ 669)(jj) $ 75,358
Interest and
Dividends on
Investments ........ 23,442 1,419(4) 24,623 16,207 1,504(n) 39,226 3,604 (79)(kk) 42,728
(238)(9) (2,050)(o) (23)(ll)
(1,058)(p)
Interest on Federal
Funds Sold ......... 771 0 771 222 0 993 172 0 1,165
---------- ------- ---------- -------- -------- -------- -------- ------- -----------
Total Interest
Income ........... 67,759 1,181 68,940 35,083 (2,559) 101,464 18,558 (771) 119,251
---------- ------- ---------- -------- -------- -------- -------- ------- -----------
Interest Expense:
Interest on
Deposits .......... 20,379 0 20,379 14,442 (1,300)(q) 33,521 8,795 (712)(mm) 41,604
Interest on
Borrowings ........ 362 0 362 3,170 (2,916)(r) 616 18 0 634
Interest on
Subordinated Debt . 0 1,938(5) 1,971 0 0 1,971 0 0 1,971
33(6)
---------- ------- ---------- -------- -------- ---------- -------- ------- -----------
Total Interest
Expense ........... 20,741 1,971 22,712 17,612 (4,216) 36,108 8,813 (712) 44,209
---------- ------- ---------- -------- -------- ---------- -------- ------- -----------
Net Interest Income
Before Provision for
Possible Loan Losses 47,018 (790) 46,228 17,471 1,657 65,356 9,745 (59) 75,042
Provision for Possible
Loan Losses ........ 3,600 0 3,600 720 0 4,320 420 0 4,740
---------- ------- ---------- -------- -------- ---------- -------- ------- -----------
Net Interest Income
After Provision for
Possible Loan Losses 43,418 (790) 42,628 16,751 1,657 61,036 9,325 (59) 70,302
---------- ------- ---------- -------- -------- ---------- -------- ------- -----------
Other Income ......... 8,606 0 8,606 1,785 0 10,391 949 0 11,340
---------- ------- ---------- -------- -------- -------- -------- ------- -----------
Other Expenses:
Salaries and Other
Employee Benefits .. 16,501 0 16,501 5,910 0 22,411 3,468 0 25,879
Occupancy and
Equipment Expense .. 5,016 0 5,016 1,829 (478)(s) 6,367 797 34(nn) 7,198
Other Expenses ...... 8,454 0 8,454 4,195 (942)(t) 10,055 4,503 505(oo) 15,063
(1,652)(u)
---------- ------- ---------- -------- -------- -------- -------- ------- -----------
Total Other Expenses. 29,971 0 29,971 11,934 (3,072) 38,833 8,768 539 48,140
---------- ------- ---------- -------- -------- -------- -------- ------- -----------
Income Before Taxes . 22,053 (790) 21,263 6,602 4,729 32,594 1,506 (598) 33,502
---------- ------- ---------- -------- -------- -------- -------- ------- -----------
Income Taxes ........ 7,851 (300)(7) 7,551 2,299 1,797(v) 11,647 (1,018) (227)(pp) 10,402
---------- ------- ---------- -------- -------- -------- -------- ------- -----------
Net Income before
Cumulative effect of
Change in Accounting
Principle ........... $ 14,202 ($ 490) $ 13,712 $ 4,303 $ 2,932 $ 20,947 $ 2,524 ($ 371) $ 23,100
========== ======= ========== ======== ======== ======== ======== ======= ==========
Earnings per
Share--Primary** .... $ 2.06 $ 2.05 $ 2.43 $ 2.52*
Earnings per
Share fully
Diluted** ........... $ 2.06(qq) $ 2.05 $ 2.43 $ 2.44
Book Value per
Common Share** ...... $ 11.74 $ 11.35 $ 12.60 $ 12.60
Dividends per Share--
Common .............. $ 0.47 $ 0.47 $ 0.47 $ 0.47
Weighted Average Number
of Common Shares
Outstanding** ....... 6,909 6,675 8,619 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 16 in accompanying notes to proforma combined condensed financial
statements.
</FN>
</TABLE>
See accompanying notes to pro forma combined condensed financial statements.
29<PAGE>
<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 7.75%,
$25,000,000 of 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)
Purchase of restricted stock for officers and directors ....................................... (1,750)
Recognition of certain other liabilities related to the acquisition ........................... (1,775)
Tax effect where appropriate, of purchase accounting adjustments .............................. (814)
=======
Excess of fair value over cost (negative goodwill) ............................................ $16,389
=======
Applied to reduction in value of premises and equipment ....................................... $ 6,477
Recorded as a liability in the pro-forma financial statements ................................. 9,912
=======
$16,389
=======
<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>
30<PAGE>
<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
Purchase of restricted stock for officers and directors ....................................... 1,750
Recognition of certain other liabilities related to the acquisition of Statewide .............. 1,775
Tax effect of purchase accounting adjustments ................................................. 814
Record remaining excess of fair value over cost (negative goodwill) ........................... 9,912
=======
$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>
31<PAGE>
<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 the Washington Bancorp 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 Bancorp 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 for
estimate reflecting the demonstrably different plans of the two entities that
will be reflected as part of the ultimate purchase accounting adjustments.
</TABLE>
32<PAGE>
<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)
======
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) Effect of Recognition and Retention Plan stock and options.
(qq) To the extent that insufficient shares are available in the
Subscription Offering to satisfy the purchase of shares by the RRP,
the RRP may, following the Subscription Offering, acquire authorized
but unissued shares of Common Stock or treasury shares from HUBCO.
Moreover, to fund the options, HUBCO also may use authorized but
unissued shares or treasury shares. Neither is expected to have a
significant dilutive effect on earnings.
16) 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 ............. $ 2.59* $ 2.45*
Earnings per share--Fully Diluted ....... 2.51 2.39
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.
</TABLE>
33<PAGE>
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION OF HUBCO
Set forth below are selected consolidated financial and other data of
HUBCO. This financial data (other than ratios) for the five years ended December
31, 1993 are derived from the Consolidated Financial Statements of HUBCO. The
data should be read in conjunction with the consolidated financial statements,
related notes, and other financial information included in this Prospectus.
<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 ................................ 23.0 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
Asset Quality Ratios:
Allowance for possible loan losses to total
loans, net(3) ................................. 2.04 1.48 1.44 1.41 .82
Allowance for possible loan losses to
non-performing loans(4) ....................... 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(3)(4) ..................................... 1.73 1.54 1.90 2.67 1.38
Non-performing assets to total loans, net
plus other real estate(3)(5) .................. 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(3)(5) ....... 1.88 1.51 2.84 3.53 .90
Net charge-offs to average loans, net .......... .15 .92 .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) Total loans are net of unearned income and deferred loan fees.
(4) Non-performing loans include non-accruing loans, loans past due 90 days or
more and accruing and renegotiated loans.
(5) Non-performing assets include non-performing loans plus other real estate.
</FN>
</TABLE>
34<PAGE>
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF HUBCO
Financial Review
This financial review presents management's discussion and analysis of
operating results and financial condition. It should be read in conjunction with
the Consolidated Financial Statements of HUBCO and Notes thereto beginning on
Page F-1 of this Prospectus and the other information about HUBCO contained in
this Prospectus. Unless otherwise noted, all dollar amounts, other than per
share information, are presented in thousands. Certain reclassifications have
been made to prior years' amounts to conform to the 1991 and 1992 presentations.
Per share information for periods prior to 1993 have been adjusted to reflect a
10% stock dividend paid June 1, 1993.
Results of Operations for Years Ended December 31, 1993, 1992 and 1991
Earnings Summary
HUBCO earned net income of $14,202, or $2.06 per share in 1993 compared to
$9,641, or $1.58 per share, in 1992 and $5,021, or $1.01 per share, in 1991. Key
factors contributing to HUBCO's strong earnings improvement in 1993 were
increases in net interest income and total other income of $6,005, or 14.6%, and
$949, or 12.4%, respectively. A significant decrease in total other expenses of
$4,378, or 12.7%, also contributed to 1993's earnings enhancement, along with a
decrease of $516, or 12.5%, in the provision for loan losses. Partially
offsetting the 1993 gains was an increase in the provision for income taxes of
$7,287, which was significantly larger than the 1992 provision.
For the year ended December 31, 1992, the reported earnings of $9,641
represented an increase of $4,620, or 92.0%, compared with 1991. The increase
was primarily attributable to increases of $14,541 and $2,186 in net interest
income and total other income and a decrease in the provision for income taxes
of $1,772. The 1992 gains were partially offset by increases in the provision
for possible loan losses and in total other expenses of $1,804 and $12,075,
respectively.
Net Interest Income
HUBCO's principal source of revenue is its net interest income, which is
the difference between the interest earned on assets and interest paid on the
funds acquired to support those assets. The principal interest earning assets
are loans made to businesses and individuals, followed by investment securities
and federal funds sold in the inter-bank market. Net interest income is affected
by the balances and mix of interest-earning assets and interest-bearing
liabilities and changes in their corresponding yield and costs, and by the
volume of interest earning assets funded by non-interest bearing deposits.
The tables presented on the following pages shows, for the three years
ended December 31, 1993, 1992 and 1991 the average distribution of assets,
liabilities and stockholders' equity and the interest earned or paid on related
items, as well as HUBCO's net yield on interest earning assets (i.e., net
interest income divided by average interest earning assets). Non-taxable income
from loans and investment securities is presented on a tax-equivalent basis
whereby tax-exempt income is adjusted upward by an amount equivalent to the
prevailing federal income taxes that would have been paid if the income had been
fully taxable. The assumed tax rate was 35% in 1993 and 34% in 1992 and 1991.
35<PAGE>
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS'
EQUITY: INTEREST RATES AND INTEREST DIFFERENTIALS
(In thousands)
1993 1992 1991
--------------------------------- ----------------------------- -----------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
--------- --------- ---- --------- --------- ---- --------- --------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest Earning Assets:
Domestic Loans & Direct
Lease Financing(1):
Taxable ................. $ 517,761 $ 43,240 8.35% $ 505,464 $ 45,004 8.90% $ 397,416 $ 39,550 9.95%
Nontaxable .............. 5,182 471 9.09 6,026 609 10.11 6,181 774 12.52
Taxable Investment
Securities ............. 345,845 22,350 6.46 278,119 19,991 7.19 113,744 9,286 8.16
Nontaxable Investment
Securities ............. 23,403 1,680 7.18 16,015 1,374 8.58 24,922 2,295 9.21
Federal Funds Sold and
Securities Purchased
Under Agreements to
Resell ................ 25,895 771 2.98 32,782 1,342 4.09 15,139 896 5.92
Time Deposits in Other
Banks, Domestic ........ -- -- -- -- -- -- 18 1 5.56
--------- --------- --------- --------- --------- ---------
Total Interest Earning
Assets ................... 918,086 68,512 7.46 838,406 68,320 8.15 557,420 52,802 9.47
Noninterest Earning Assets:
Cash and Due
from Banks .............. 42,699 48,812 31,089
Premises and
Equipment, Net .......... 17,603 14,277 11,968
Accrued Interest
Receivable .............. 8,291 8,346 5,607
Other Assets ............. 10,216 15,710 10,289
Less Allowance for
Possible Loan Losses .... (9,001) (7,435) (6,076)
--------- --------- ---------
TOTAL ................. $ 987,894 $ 918,116 $ 610,297
========= ========= =========
</TABLE>
36<PAGE>
<PAGE>
<TABLE>
<CAPTION>
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS'
EQUITY: INTEREST RATES AND INTEREST DIFFERENTIALS
(In thousands)
1993 1992 1991
------------------------------ ------------------------------ -----------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
-------- -------- -------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest Bearing Liabilities:
Demand Deposits ............. $112,836 $ 3,095 2.74% $ 97,494 $ 3,256 3.34% $ 63,348 $ 3,064 4.84%
Savings Deposits ............ 342,540 8,833 2.58 278,925 9,094 3.26 174,557 8,482 4.86
Time Deposits ............... 251,128 8,451 3.37 303,029 13,744 4.54 197,020 12,864 6.53
Federal Funds Purchased
and Securities Sold
Under Agreements to
Repurchase ................. 14,603 333 2.28 14,500 480 3.31 13,790 660 4.79
Other ....................... 938 29 3.09 1,269 59 4.65 2.860 217 7.59
-------- -------- -------- -------- -------- --------
Total Interest Bearing
Liabilities ................ 772,045 20,741 2.87 695,217 26,633 3.83 451,575 25,287 5.60
Noninterest Bearing
Liabilities:
Demand Deposits ............ 185,848 152,397 113,504
Other ...................... 6,550 15,035 5,851
-------- -------- --------
914,443 862,649 570,930
Stockholders' Equity ........ 73,451 55,467 39,367
-------- -------- --------
TOTAL .................... $987,894 $981,116 $610,297
======== ======== ========
Net Interest Earnings ....... $ 47,771 $ 41,687 $ 27,515
======== ======== ========
Net Yield on Interest
Earning Assets ............. 5.20% 4.97% 4.94%
==== ==== ====
Tax Equivalent Adjustments:
Loans ...................... $ 165 $ 207 $ 263
Investment Securities ...... 588 467 780
-------- -------- --------
TOTAL .................... $ 753 $ 674 $ 1,043
======== ======== ========
- --------------
<FN>
(1) For the purpose of these computations, non-accruing loans are included in
the daily average loan amount outstanding. Fees are included in loan
interest. Loans and total interest earning assets are net of unearned
income.
</FN>
</TABLE>
37<PAGE>
<PAGE>
In 1993, net interest income increased to $47,018 from $41,013 in 1992, an
increase of $6,005, or 14.6%. This increase was due to an increase of $52,852,
or 36.9%, in net average interest earning assets (average interest earning
assets less average interest paying liabilities) and a greater decline in
interest rates on interest bearing liabilities (96 basis points) than the
corresponding decline in yield on interest earning assets (69 basis points).
Interest income on a tax-equivalent basis increased by only $192, or .3%,
during 1993 despite an increase of $79,680 in average interest earning assets
volume. A key factor in the moderate increase was the decrease in yield on total
interest earning assets--from 8.15% in 1992 to 7.46% in 1993--which
significantly reduced any gain in interest earnings as a result of volume.
However, the increase in the average investment portfolio of $75,114, or 25.5%,
more than offset the decreased average yield on the portfolio and posted a net
increase to earnings of $2,665. During 1992, an average increase of $155,468, or
112.1%, in the investment portfolio also contributed to increased interest
income. The exceptionally large increase in 1992 had been a result of the funds
received by the Bank in the acquisitions of Irving Federal Savings and Loan
Association ("Irving") and Broadway Bank and Trust Co. ("Broadway"), net of
deposit runoff, which had been invested predominantly in government securities.
The yield on HUBCO's taxable investment portfolio decreased to 6.46% in 1993
from 7.19% in 1992 and 8.16% in 1991. The tax-equivalent yield on the
non-taxable investment securities portfolio declined to 7.18% in 1993 from 8.58%
in 1992 and 9.21% in 1991. The decreases in the investment portfolio yields from
1991 to 1993 were attributable to lower market interest rates on instruments
purchased to replace higher yielding securities which matured. The increase in
average loan volume of $11,453, or 2.24%, during 1993 was not significant enough
to offset the decreased average yield on the portfolio. During 1992, the
increase in the loan portfolio of $107,893, or 26.7%, had been more than
sufficient to offset the loss in interest earnings created by the decline in
yields. The average yield on HUBCO's taxable domestic loan portfolio decreased
to 8.35% in 1993 from 8.90% in 1992 and 9.95% in 1991. The tax-equivalent yield
on the non-taxable loan portfolio decreased to 9.09% in 1993 from 10.11% in 1992
and 12.52% in 1991. These decreases in yield were a result of general declines
in market interest rates. In 1993, the interest income impact of non-performing
loans lowered the yield on taxable loans by 12 basis points, compared to 9 basis
points in 1992 and 6 basis points in 1991.
Interest expense decreased by $5,892, or 22.1%, during 1993. Although the
volume of interest bearing liabilities increased by $26,828, or 3.9%, the
decrease of 96 basis points in the cost of funds was sufficient enough to
generate a reduction in interest expense. This was in direct contrast to the
situation in 1992, where a significant decline (177 basis points) in the cost of
funds was not enough to offset the additional expense generated by an increased
volume of $243,642, or 54.0%. Non-interest bearing deposits, which had decreased
to 18% of total average deposits during 1992 due to the acquisitions, rose to
21% of average deposits during 1993, falling once again within the pre-1992
levels of 19--21%.
The net interest margin, which measures net interest income as a percent of
average earning assets, was 5.20% for 1993. This is an improvement over the 1992
and 1991 levels of 4.97% and 4.94%, respectively.
The following table sets forth the changes in interest income and interest
expense as they relate to changes in volume and changes in rate for the years
1993, 1992 and 1991.
38<PAGE>
<PAGE>
<TABLE>
<CAPTION>
CHANGES IN NET INTEREST EARNINGS DUE TO VOLUME/RATE
(In thousands)
1993 Compared to 1992 1992 Compared to 1991
Increase/(Decrease) Due To Increase/(Decrease) Due To
------------------------------ ------------------------------
Volume Rate Net Volume Rate Net
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Interest Earned On:
Domestic Loans and Direct
Lease Financing:
Taxable ......................... $ 1,072 $ (2,836) $ (1,764) $ 9,941 $ (4,487) $ 5,454
-------- -------- -------- -------- -------- --------
Nontaxable ...................... (80) (58) (138) (19) (146) (165)
Taxable Investment Securities .... 4,530 (2,171) 2,359 11,930 (1,225) 10,705
Nontaxable Investment Securities . 557 (251) 306 (773) (148) (921)
Federal Funds Sold and Securities
Purchased under Agreements
to Resell ....................... (249) (322) (571) 790 (344) 446
Domestic Time Deposits ........... -- -- -- (1) -- (1)
Total Interest Earning Assets .... $ 5,830 $ (5,638) $ 192 $ 21,868 $ (6,350) $ 15,518
======== ======== ======== ======== ======== ========
Interest Paid On:
Demand Deposits ................. $ 471 $ (632) $ (161) $ 1,328 $ (1,136) $ 192
Savings Deposits ................ 1,845 (2,106) (261) 3,997 (3,385) 612
Time Deposits ................... (2,113) (3,180) (5,293) 5,568 (4,688) 880
Federal Funds Purchased and
Securities Sold Under
Agreements to Repurchase ....... 3 (150) (147) 33 (213) (180)
Other ........................... (13) (17) (30) (93) (65) (158)
-------- -------- -------- -------- -------- --------
Total Interest Bearing Liabilities $ 193 $ (6,085) $ (5,892) $ 10,833 $ (9,487) $ 1,346)
======== ======== ======== ======== ======== ========
Net Interest Earnings ............ $ 5,637 $ 447 $ 6,084 $ 11,035 $ 3,137 $ 14,172
======== ======== ======== ======== ======== ========
</TABLE>
During 1993, interest income rose only $192 due to a $5,830 increase from
volume being significantly offset by a $5,638 reduction due to lower rates.
Interest expense decreased by $5,892 in 1993 due to a $193 increase from volume
which was more than offset by a significant $6,085 savings from rate reductions.
During 1992, interest income also increased by a net $15,518 as a $21,868
increase from volume was only partially offset by a $6,350 reduction due to
lower rates. However, in 1992 an increase in interest expense of $10,833 due to
volume was only partially offset by a $9,487 savings from rate producing a net
increase of $1,346 in interest expense compared to 1991. The rate/volume
combinations resulted in increased net interest income of $6,084 and $14,172 for
1993 and 1992, respectively.
Provision for Possible Loan Losses
HUBCO maintains an allowance for possible loan losses at a level considered
by management to be adequate to cover the inherent risks of loss associated with
its loan portfolio. The allowance for possible loan losses is based on
estimates, and ultimate losses may vary from the current estimates. Management
formally reviews the loan portfolio and evaluates credit risk on a quarterly
basis throughout the year. Such review endeavors to take into consideration the
financial condition of the borrowers, fair market value of collateral, level of
delinquencies, historical loss experience by portfolio, industry trends and the
impact of local and national economic conditions. See "Asset Quality".
The provision for possible loan losses was $3,600 for 1993 compared to
$4,116 for 1992. This decrease of $516, or 12.5%, was a result of the perception
that the local economy is improving. During 1992, the provision for possible
loan losses was $4,116 compared to $2,312 for 1991. This $1,804, or 78.0%,
increase in the provision was made to account for loans acquired in the Irving
and Broadway transactions, and to replenish the allowance after several loans
were charged off.
39<PAGE>
<PAGE>
Other Income
Total other income increased $949, or 12.4%, in 1993. The increase in total
other income in 1992 from 1991, was $2,186, or 40.0%, for the year.
Investment securities gains (losses) for the three years ended December 31,
1993, 1992 and 1991 were $0, $(26) and $39, respectively, reflective of HUBCO's
intentions to hold its securities until maturity.
HUBCO derived $5,981 in service charges on deposit accounts during 1993, an
increase from 1992 of $1,149, or 23.8%. In 1992, income from service charges on
deposit accounts had increased by $1,107, or 29.7%, from 1991. In both
instances, the increased fees are a result of the increased volume in demand
deposit accounts. Average demand deposit accounts (interest bearing and
non-interest bearing) increased by $48,793, or 19.5%, in 1993 and by $73,039, or
41.3%, in 1992 as a result of internal growth and the acquisitions completed in
the respective years.
Slightly offsetting the gain in service charges was a decrease during 1993
in other income of $160, or 7.1%. The decrease is primarily attributable to the
swing between the two years on miscellaneous gains and losses, which includes
gains or losses booked on teller differences, fraudulent checks cashed,
inventory write-offs, equipment obsolescence and property sales, etc. During
1993, miscellaneous gains and losses generated a net loss of $394, which is
included in other expenses, compared to a net gain of $155 included in 1992's
other income. Annuity sale fees for 1993 also declined by $293, or 75.5%, due to
the restructuring of the annuity program. Annuity sales for 1992 had increased
by $320, or 285.7%, over 1991 under the previous program. A third item
contributing to the decrease in other income is the decline in income from
acquisition-related settlement items. This income is generated from the
settlement procedures utilized by the RTC and the FDIC on regulatory-assisted
transactions, and is based on the various timing schedules for settlement that
run throughout a period of approximately one year on these transactions. During
1992, the Irving and Broadway acquisitions created income on settlement items
totalling $315, which represented an increase of $200, or 173.9%, over the 1991
settlement income generated by the acquisition of Center Savings and Loan
Association ("Center"). As final settlement of the Irving and Broadway
transactions extended into 1993, additional settlement income was derived in the
amount of $288, a decrease of $27, or 8.6%, over 1992. The pending Statewide and
Washington acquisitions are private transactions and will not generate income of
this nature during 1994 if they are consummated. Offsetting these decreases in
other income items were increases during 1993 in credit card income and branch
service-related fee income of $110, or 74.8%, and $294, or 41.1%, respectively.
During 1992, credit card processing fees were basically unchanged from 1991,
while branch service-related fee income had decreased by $120, or 14.4%.
Non-Interest Expenses
Total other expenses decreased by $4,378, or 12.7%, to $29,971 during 1993
from $34,349 in 1992. The Pilgrim State Bank ("Pilgrim") acquisition impacted
many categories as the costs for six additional branch locations, with their
related staffing, occupancy and equipment needs, were absorbed. Salaries
increased by $1,435, or 13.7%, as a result of the increased number of employees
and annual salary increases of approximately 4.0%. Pension and other employee
benefits increased by $1,362, or 42.2%, primarily due to salary-related
increases in payroll taxes of $140, or 13.6%; insurance increases of $393, or
29.1%, due to a 1992 plan termination that resulted in a $265 credit in 1992 and
a $66 increase in 1993 due to the Pilgrim acquisition, and also an increase in
the contingent performance bonus accrual of $447, or 55.7%. Other expenses had
increased by $12,075, or 54.2%, in 1992 primarily as a result of the two
acquisitions in the first quarter of 1992 and the charitable contribution made
at year-end 1992.
Despite the mid-year addition of the six Pilgrim locations, occupancy
expense decreased during 1993 by $126, or 4.0%. This decrease was achieved
through the closing of a branch in North Bergen, the sale of an office building
in Old Bridge, the renegotiation of several of the acquired leases and
significant real estate tax refunds arising from several successful tax appeals.
Equipment expense increased during 1993 by $200, or 11.4%, due to the additional
equipment needs of the acquired Pilgrim branches. During 1992, the increase in
occupancy and equipment expense was $831, or 20.2%, which included in-house
computer system upgrades to accommodate the 1992 acquisitions.
The reduction of $443, or 78.8%, in the net cost to operate other real
estate during 1993 is the result of a year-end 1992 charitable donation of a
$4,000 property which also explains the decrease of $3,999, or 99.2%, in
charitable contribution expenses for 1993. The property, which was donated to
four local urban hospitals, was responsible for
40<PAGE>
<PAGE>
the 1992 increases in the net cost to operate other real estate and in
charitable contributions of $81 and $4,000, respectively. Deposit and
other insurance costs increased in general, and HUBCO absorbed additional
expense in 1993 of $276, or 13.9%, compared with a $670, or 50.9%,
increase in 1992. Both increases were primarily related to additional
FDIC insurance premiums due to the increased size of HUBCO. Outside
service fees were flat as HUBCO strove to streamline the operations of the
acquired institutions. Outside service fees during 1992 had increased by $112,
or 4.2%, due mostly to acquisition-related items. Amortization of intangible
assets was $0 during 1993, compared to $2,424 in 1992 and $292 in 1991. The
increase of $2,132 in 1992 represented the full write-off of the Broadway and
Irving core deposit intangibles, as well as the write-off of the remaining
balance of goodwill resulting from the 1983 acquisition of Pan American National
Bank, thereby eliminating the balance of intangible assets as of December 31,
1992. Other expenses decreased during 1993 by $651, or 16.7%, due primarily to
the following: a decrease of $213, or 19.5%, in operating supplies resulting
from the merger of HUB National Bank into the Bank on September 25, 1992,
creating efficiencies of scale; a reduction of $142, or 30.0%, in telephone
expense generated from the installation of a more efficient system; and a
decrease in acquisition costs of $257, or 54.8%, based on the difference in the
type and magnitude of the 1993 acquisition compared with the 1992 acquisitions.
During 1992, other expenses had increased by $1,835, or 88.5%, most of which was
acquisition-related.
Federal Income Taxes
The federal income tax provision of $6,976 in 1993 compares with $207 in
1992 and $1,725 in 1991. The 1993 increase of $6,769 over the 1992 tax provision
is due to two non-recurring events in 1992 which reduced the 1992 provision--a
$1,475 reversal of previously accrued tax liabilities that were no longer deemed
necessary, and a $2,400 tax benefit related to the $4,000 charitable
contribution in 1992. Excluding those two items in 1992, the 1993 provision
would have increased by approximately $4.0 million based on an increase in net
income before federal income taxes of $11,330, or 115.0%, and also based on an
increase in the statutory federal income tax rate of 1%. The effective federal
income tax rates for 1993, 1992 and 1991 were 32%, 2%, and 23%, respectively.
FINANCIAL CONDITION
Total assets at December 31, 1993 increased by $109,914, or 11.8%, over the
prior year-end as a direct result of the Pilgrim acquisition. The most
significant change is reflected in the increase of $104,163, or 32.3%, in the
investment portfolio. Total loans increased by $13,896, or 2.7%. Cash and due
from banks increased by $11,142, or 29.0%, due to the acquired correspondent
bank accounts and to the increase in the target balance and reserves required to
be maintained at the Federal Reserve Bank to support the increased deposit
levels. Premises and equipment increased by $2,904, or 19.2%. Of that amount,
$672 represents properties acquired in the Pilgrim transaction. The remaining
increase of $2,232 is primarily attributable to the closings early in 1993 on
real estate purchases from the RTC and the FDIC of former Irving and Broadway
branch locations which are now branches of the Bank. Accrued interest receivable
increased by $766 as a result of the increased volume in the loan and investment
portfolios. The deposit increase of $92,462 was attained through the acquisition
of Pilgrim. Federal funds purchased and securities sold under agreements to
repurchase increased by $5,496 due to normal business cycle balance fluctuations
and the movement of some Pilgrim transaction accounts into this account type.
At December 31, 1992, total assets had increased $258,752 over December 31,
1991. The increase was funded primarily by a $234,369 increase in deposits
resulting from the acquisitions of Irving and Broadway. The most significant
change in 1992 was the $46,658 increase in net loans, all of which were
acquisition-related.
41<PAGE>
<PAGE>
LOAN PORTFOLIO
HUBCO's loan portfolio at December 31, 1993 totalled $534,765, an increase
of $13,896, or 2.7%, over year-end 1992. Excluding the Pilgrim acquisition
effect, the portfolio decreased $32,774, or 6.3%, for a number of reasons. HUBCO
began selling fixed rate residential mortgage loans in the secondary market,
continued to de-emphasize the making of indirect loans, and received payoffs on
certain loans in its portfolio. This was compounded by weak loan demand as
consumer confidence in the economic recovery faltered in the face of a new
administration and a weak regional economy. Also, a general return to health on
the part of HUBCO's competitors with a renewed desire to lend, further impacted
the already small market of creditworthy borrowers.
HUBCO's loans are primarily to businesses and individuals located in
northern New Jersey. The below table presents a summary of HUBCO's loan
portfolio:
December 31,
--------------------------------
1993 1992 1991
-------- -------- --------
Loans secured by real estate:
Residential mortgage loans-fixed .......... $ 81,281 $ 85,887 $ 58,250
Residential mortgage loans-variable ....... 68,451 72,580 62,599
Residential home equity loans ............. 38,103 25,578 25,420
Construction loans ........................ 7,117 3,777 3,108
Commercial mortgage loans ................. 107,577 115,413 94,820
-------- -------- --------
302,529 303,235 244,197
-------- -------- --------
Commercial and industrial loans:
Secured by real estate .................... 34,789 24,366 12,939
Other ..................................... 139,899 130,139 153,612
-------- -------- --------
174,688 154,505 166,551
-------- -------- --------
Loans to individuals for household,
family and other personal expenditures .... 57,548 63,129 65,006
-------- -------- --------
$534,765 $520,869 $475,754
======== ======== ========
At December 31, 1993, residential mortgage loans, including home equity
loans, amounted to $187,835 or 35.1%, of HUBCO's total loan portfolio.
Residential loans are predominantly secured by one to four family properties in
the Bank's primary market area of northern New Jersey. Loans kept for the Bank's
portfolio are primarily underwritten to FNMA and FHLMC standards. Loan to value
ratios generally do not exceed 75%, and terms do not exceed 20 years for loans
maintained in HUBCO's portfolio. Residential mortgage loans increased by $3,790,
or 2.1%, as a result of loans obtained through the Pilgrim acquisition.
Discounting the acquired loans of $15,510, residential mortgage loans decreased
by $11,720, or 6.4%, due to payments, refinances, and the sale of newly
generated loans to the secondary market in an effort to build the mortgage
servicing portfolio. From 1991 to 1992, residential mortgage loans increased by
$37,776, or 25.8%, all of which was attributable to the Irving acquisition.
Construction loans are made only to what HUBCO views as a select group of
well established local developers. Construction loans are primarily made on
buildings which are generally under contract before being built. HUBCO inspects
properties prior to advances being made. Construction loans increased by $3,340,
or 88.4%, in 1993 from 1992 as a result of one new loan. There was a moderate
increase in construction loans during 1992.
42<PAGE>
<PAGE>
Commercial mortgage loans are generally made to local property owners and
are written under the following underwriting standards: generally, debt service
coverage must be at least 125%, and the loan to value ratio may not exceed 67%
of the lesser of the purchase price or appraised value. Most of HUBCO's
commercial mortgage loans are for a maximum term of 15 years requiring fixed
principal plus interest payments under which the borrower pays off an equal
amount of the principal balance of the loan each month. For example, a borrower
with a loan maturing in five years would pay off 1/60 of the principal balance
of the loan plus interest each month. The effect of such payment is to reduce
the principal balance of the loan more rapidly than a traditional amortization
schedule or balloon loan. Commercial mortgage loans decreased by $7,836, or
6.8%, from 1992 to 1993 despite $2,330 in commercial mortgage loans acquired
from Pilgrim. The decrease is primarily attributable to heavy principal payments
on 15-year commercial mortgages and a decline in activity for this type of loan.
Commercial mortgage loans increased from 1991 to 1992 by $20,593, or 21.7%.
Approximately $15,500 of the increase was obtained through HUBCO's acquisition
of Irving and the remainder through internal growth. The commercial mortgage
portfolio is comprised primarily of owner occupied properties.
Commercial loans generally are made to companies located within the Bank's
market area and generally consist of loans to operating companies such as
manufacturers, wholesalers and retailers. Commercial borrowers must provide
three years of financial statements along with financial statements of the
individual owners of the borrowing entity. These loans are generally
collateralized and personally guaranteed by such owners. Commercial loans are
made for various purposes including working capital, capital purchases, or
expansion. Working capital loans generally are made for a term of one year.
Loans for capital purchases and expansion are generally extended for three to
seven years. Commercial and industrial loans increased by $20,183, or 13.1%,
during 1993, as a result of the Pilgrim acquisition, a new business development
calling program, and an expanded customer base generated through the
establishment of local advisory boards. From 1991 to 1992, commercial and
industrial loans decreased by $12,046, or 7.2%. As existing loans repayed, the
volume of new loans was not sufficient to offset runoff.
Loans to individuals are installment loans made to individuals, primarily
for automobiles. These loans are underwritten to predetermined income and debt
ratios. On automobile loans, title to the auto is held as collateral. Loans to
individuals decreased $5,581, or 8.8%, as a result of a phaseout of our
in-direct loan program and a general reluctance by consumers to borrow during a
continuing weak local economy. In addition, many customers converted existing
personal loans into home equity loans, which are carried under loans secured by
real estate. Loans to individuals decreased from 1991 to 1992 by $1,877, or
2.9%, which was attributable to a general slowdown in consumer purchases of new
automobiles.
Other loans consist of non-installment loans to individuals for
non-personal purposes and finance leases. HUBCO discontinued its lease program
in 1989 but some leases originating before that time remain in the portfolio.
Other loans decreased by $4,899, or 19.3%, during 1993. Included in the decrease
is a decrease of $1,522, or 92.6%, in leases. The remaining decrease of $3,377
resulted from the payoffs received. Other loans, net of a $4,514 runoff in
leases, had increased during 1992 due to new volume, primarily loans secured by
marketable collateral.
Asset Quality
HUBCO's principal earning assets are its loans, which are primarily to
businesses and individuals located in New Jersey. Inherent in the lending
function is the risk of deterioration in borrowers' ability to repay loans under
existing loan agreements. Risk elements include nonaccrual, past due and
restructured loans, potential problem loans, loan concentrations and other real
estate.
Although HUBCO actively solicits creditworthy borrowers, prevailing market
conditions have required a strict monitoring process for credit risk. This
process requires scrutiny at all levels--the initial application, analysis of
ongoing ability to pay according to terms, determination of the appropriateness
of collateral, periodic loan review and the periodic review of the adequacy of
the allowance for possible loan losses.
43<PAGE>
<PAGE>
The following table summarizes HUBCO's non-performing assets:
December 31
---------------------------
1993 1992 1991
------- ------- -------
Nonaccruing Loans:
Commercial ............................. $ 1,391 $ 1,310 $ 1,928
Real Estate ............................ 3,398 2,124 1,537
Installment ............................ 745 814 695
------- ------- -------
TOTAL NONACCRUING LOANS ............... 5,534 4,248 4,160
Renegotiated Loans ...................... 2,177 2,257 3,527
------- ------- -------
TOTAL NON-PERFORMING LOANS ............ 7,711 6,505 7,687
Other Real Estate ....................... 2,311 1,252 5,683
------- ------- -------
TOTAL NON-PERFORMING ASSETS ........... $10,022 $ 7,757 $13,370
======= ======= =======
Ratios:
Nonaccruing Loans to Total
Loans Outstanding ..................... 1.03% 0.82% 0.87%
Non-Performing Assets to Total Assets .. .96% 0.83% 1.99%
Allowance for Possible Loan Losses to
Non-Accruing Loans .................... 195.36% 179.03% 161.01%
Allowance for Possible Loan Losses to
Non-performing Loans .................. 140.20% 116.91% 87.13%
HUBCO prior to 1992 included loans past due 90 days or more and accruing in
its definition of non-performing loans and non-performing assets. This is a more
conservative approach than is generally used by other commercial banks, which
exclude loans past due 90 days or more and accruing from non-performing loans
and non-performing assets. In order to present its asset quality discussion to
the reader in a format that is comparable to other financial institutions, HUBCO
has adopted the more prevalent reporting method and has excluded past due loans.
At December 31, 1993, loans past due 90 days or more and still accruing and
the applicable asset quality ratios were as follows:
Loans Past Due 90 Days or More and Accruing:
December 31
------------------------
1993 1992 1991
------ ------ ------
Commercial ................................ $1,139 $ 589 $ 636
Real Estate ............................... 225 647 301
Installment ............................... 79 173 244
------ ------ ------
TOTAL LOANS PAST DUE 90 DAYS OR MORE
AND ACCRUING ............................ $1,443 $1,409 $1,181
====== ====== ======
Ratios:
Loans Past Due 90 Days or More
and Accruing to Total Loans
Outstanding .............................. .27% .27% .25%
Loans Past Due 90 Days or More
and Accruing to Total Assets ............. .14% .15% .18%
The amount of interest income on non-performing loans which would have been
recorded had these loans continued to perform under their original terms amounts
to $813, $563 and $423 for the years ended December 31, 1993, 1992 and 1991,
respectively. The amount of interest income recorded on such loans was $193, $96
and $177 for the years ended December 31, 1993, 1992 and 1991, respectively.
HUBCO has no outstanding commitments to advance additional funds to borrowers
with non-performing loans.
Nonaccruing loans consist of commercial, real estate and installment loans
on which HUBCO has ceased accruing interest. The majority of non-accruing loans
are secured and each has an attorney working with the loan
44<PAGE>
<PAGE>
officer to attempt to resolve the problem. Nonaccruing commercial loans
increased by $81, or 6.2%, in 1993. As a result of the Pilgrim acquisition,
HUBCO obtained non-accruing commercial loans totalling $504. Not counting
the acquired loans, non-accruing commercial loans decreased in 1993 by $423,
or 32.3% as a result of collections and charge-offs. During 1992, non-accruing
commercial loans decreased by $618, or 32.1%, also as a result of collections
and charge-offs.
Nonaccruing real estate loans are principally loans in foreclosure secured
by real estate, primarily single family residential properties and some
commercial properties. From 1992 to 1993, nonaccruing real estate loans
increased $1,274, or 60.0%, and from 1991 to 1992, nonaccruing real estate loans
increased $587, or 38.2%. In both instances, the increase is due to the
continuation of a poor regional economy and the long foreclosure process in New
Jersey. Management does not anticipate incurring a material loss from the
resolution of these loans.
Nonaccruing installment loans are loans to individuals. Generally such
loans are secured by automobiles or real estate. At December 31, 1993,
nonaccruing installment loans were $745, or .68%, of the consumer portfolio.
This represents a decrease of $69, or 8.5%. From 1991 to 1992, non-accruing
installment loans increased by $119, or 17.1%.
Renegotiated loans are loans which are renegotiated to assist borrowers
after the borrower has suffered adverse effects in financial condition. Terms
are tailored to fit the ability of the borrower to repay in line with its
current financial status. This category consists primarily of commercial loans.
The decrease in renegotiated loans from 1992 to 1993 of $80, or 3.5%, is the
result of principal reductions made by the borrowers. The decrease in this
category from 1991 to 1992 of $1,270, or 36.0%, is due to the return to
performing status of loans previously considered to be non-performing.
Other real estate ("ORE") consists of property on which the Bank has
completed or substantially completed foreclosure proceedings. Before a property
is placed in ORE, a current appraisal is ordered to determine current market
value. Loans are written down to market value before being moved to ORE.
The increase of $1,059, or 84.6%, in ORE from 1992 to 1993 is due to the
foreclosures or in-substance foreclosures on four commercial properties and the
addition of a $500 commercial property acquired from Pilgrim.
The decrease in ORE from 1991 to 1992 of $4,431, or 78.0%, is due to the
disposal during 1992 of four properties that had been carried as other real
estate since 1991. HUBCO sold three properties in open market sales for a total
reduction of $454 to other real estate. The fourth property was donated by HUBCO
jointly to the foundations of the Franciscan Health System of New Jersey, Inc.,
Palisades General Hospital, St. Joseph's Hospital, and Barnert Hospital.
All costs associated with the holding and maintaining of ORE properties are
expensed as incurred.
Total non-performing loans increased from $6,505 at December 31, 1992 to
$7,711 at December 31, 1993, an increase of $1,206, or 18.5%, all of which is
attributable to the non-performing loans acquired from Pilgrim. As a percentage
of total loans, non-performing loans decreased from 1.25% in 1992 to 1.03% in
1993.
Total non-performing loans decreased from $7,687 in 1991 to $6,505 in 1992,
a decrease of $1,182, or 15.4%. Total non-performing loans as a percentage of
loans decreased from 1.62% in 1991 to 1.25% in 1992.
Efforts to control and improve the level of non-performing loans are
continuing. Efforts are made to identify slow paying loans and generally
collection efforts are instituted. After identification, steps are taken to
understand the problems of the borrower and to work with the borrower toward
resolving the problem, if practicable. Continuing collection efforts are a
priority for the Bank.
Loans past due 90 days or more and still accruing consist of commercial,
real estate and installment loans which are experiencing temporary difficulties.
Such loans are categorized as accruing if the Bank believes that the delinquency
is temporary and the loan is adequately collateralized and in the process of
collection. Loans which are not expected to be resolved on a timely basis are
put on nonaccrual status and collection efforts are begun. The increase in loans
past due 90 days or more from 1992 to 1993 of $34, or 2.4%, and from 1991 to
1992 of $228, or 19.3%, were primarily due to increases in overall loan volume,
coupled with continuing poor economic conditions.
Loan concentrations are considered to exist when there are amounts loaned
to separate borrowers engaged in similar activities which would cause them to be
similarly impacted by economic or other conditions. At December 31,
45<PAGE>
<PAGE>
1993, 1992 and 1991, there were no concentrations of loans exceeding 10%
of total loans which are not otherwise disclosed as a category in Note (5)
to HUBCO's Consolidated Financial Statements included elsewhere in this
Prospectus.
The following is a summary of the activity in the allowance for possible
loan losses, broken down by loan category:
Year Ended December 31
---------------------------------
1993 1992 1991
--------- --------- ---------
Amount of Loans Outstanding at End of Year $ 534,765 $ 520,869 $ 475,754
========= ========= =========
Daily Average Amount of Loans ............ $ 529,340 $ 520,305 $ 414,667
========= ========= =========
Balance of Allowance for Possible
Loan Losses at Beginning of Year ........ $ 7,605 $ 6,698 $ 5,232
Loans Charged Off:
Commercial, Financial and Agricultural .. (637) (4,622) (2,038)
Real Estate--Construction ............... (--) (--) (--)
Real Estate--Mortgage ................... (138) (227) (237)
Installment ............................. (283) (337) (336)
Lease Financing ......................... (122) (355) (364)
--------- --------- ---------
Total Loans Charged Off ................ (1,180) (5,541) (2,975)
--------- --------- ---------
Recoveries of Loans Previously
Charged Off:
Commercial, Financial and Agricultural .. 141 609 185
Real Estate--Construction ............... -- -- --
Real Estate--Mortgage ................... 59 8 --
Installment ............................. 104 57 120
Lease Financing ......................... 82 158 337
--------- --------- ---------
Total Recoveries ....................... 386 832 642
--------- --------- ---------
Net Loans Charged Off .................... (794) (4,709) (2,333)
Provision Charged to Expense ............. 3,600 4,116 2,312
Additions Acquired Through Acquisitions .. 400 1,500 1,487
--------- --------- ---------
Balance at End of Year ................... $ 10,811 $ 7,605 $ 6,698
========= ========= =========
Ratios
Net Loans Charged Off to Average Loans
Outstanding ............................ .15% .91% .58%
Allowance for Possible Loan Losses
to Average Loans Outstanding ........... 2.0% 1.5% 1.6%
The allowance for possible loan losses at year-end 1993 was $10,811, an
increase of $3,206 compared to year-end 1992. The allowance at year-end 1993
represents 2.02% of total loans outstanding, compared to 1.46% at year-end 1992.
Management formally reviews the loan portfolio and evaluates credit risk on at
least a quarterly basis throughout the year. Such review takes into
consideration the financial condition of the borrowers, fair market value of
collateral, level of delinquencies, historical loss experience by category,
industry trends and the impact of local and national economic conditions.
46<PAGE>
<PAGE>
Investment portfolio
HUBCO maintains an investment portfolio to fund increased loans or
decreased deposits. The portfolio is composed of select investments that HUBCO
believes are suitable for HUBCO and which it believes will perform reasonably
well under various interest rate scenarios. These investments are of high
quality and extremely liquid.
In May 1993, the Financial Accounting Standards Board issued 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 requires a different basis of
accounting. Held-to-maturity securities are accounted for at amortized cost with
fair value changes not recognized. Available-for-sale securities are accounted
for at fair value with fair value changes reported as a net of tax amount in a
separate component of stockholders' equity. Trading securities are accounted for
at fair value with fair value changes reported in the income statement. SFAS 115
is effective for fiscal years beginning after December 15, 1993. HUBCO has
adopted this standard as of December 31, 1993. As of December 31, 1993, the
effect of implementing SFAS 115 was an increase in the carrying value of the
investment portfolio of $6,722.
The following table summarizes the composition of the portfolio's
investments as of December 31, 1993 and 1992:
Gross Unrealized Estimated
Amortized --------------------- Market
Cost Gains (Losses) Value
--------- --------- --------- ---------
Available for Sale:
December 31, 1993
U.S. Government ................ $ 104,728 $ 5,580 $ -- $ 110,308
U.S. Government Agencies ....... 10,482 502 (1) 10,983
State and Political Subdivisions 1,600 237 -- 1,837
Other securities ............... 2,107 223 (5) 2,325
Equity securities .............. 4,916 381 (195) 5,102
--------- --------- --------- ---------
$ 123,833 $ 6,923 $ (201) $ 130,555
========= ========= ========= =========
Held to Maturity:
December 31, 1993
U.S. Government ................ $ 104,957 $ 2,648 $ (125) $ 107,480
U.S. Government Agencies ....... 164,850 3,104 (651) 167,303
State and Political Subdivisions 23,815 496 (4) 24,307
Other securities ............... 2,508 94 -- 2,602
--------- --------- --------- ---------
$ 296,130 $ 6,342 $ (780) $ 301,692
========= ========= ========= =========
At December 31, 1992
U.S. Government ................ $ 185,581 $ 6,859 $ -- $ 192,440
U.S. Government Agencies ....... 105,796 3,237 (19) 109,014
State and Political Subdivisions 16,068 368 (50) 16,386
Other securities ............... 14,424 300 (1) 14,723
Equity securities .............. 653 47 (4) 696
--------- --------- --------- ---------
$ 322,522 $ 10,811 $ (74) $ 333,259
========= ========= ========= =========
Investments increased by $104,163, or 32.3%, from $322,522 at December 31,
1992 to $426,685 at December 31, 1993. Of that amount, $6,722 represents the
SFAS 115 adjustment; $31,781 represents the securities acquired from Pilgrim and
the remainder of the increase is due to purchases that were primarily funded by
declines in loans and federal funds sold. In keeping with its investment policy,
most new purchases were in U.S. Governments and Agency Securities. Maturities of
corporate bonds during 1993 were reinvested in municipal bonds in an effort to
increase yields through tax-exempt holdings. In addition to the Bank's
investment portfolio, HUBCO increased its holdings of equity securities by
$4,263, from $653 at December 31, 1992 to $4,916 at December 31, 1993.
47<PAGE>
<PAGE>
Investments increased by $183,607, or 132.2%, from $138,915 at December 31,
1991 to $322,522 at December 31, 1992. The large increase was attributable to
the significant amount of cash received through the Irving and Broadway
transactions which, in the absence of loan demand, was invested in the
securities portfolio. Investments were predominantly in government securities
with maturities greater than one year and less than five years, consistent with
the Bank's internal policy on structuring its investment portfolio. Municipal
securities increased by $2,910, or 22.1%, as HUBCO sought to increase its yields
through tax-exempt holdings with limited risk. Holdings of other securities,
which consist primarily of AA rated corporate bonds, decreased by $21,504, or
59.9%, as funds from maturing bonds were reinvested elsewhere.
Generally, HUBCO's investment philosophy is to select investments with
maturities spread over five years. These investments are primarily U.S. Treasury
and agency obligations.
Deposits
HUBCO's branch system includes 37 branch offices located in Hudson, Bergen,
Passaic, Essex, Middlesex and Morris Counties, New Jersey. The system is divided
into three administrative groups. One group consists of the 14 offices in the
Bank's Northern Region, the second group consists of the 15 branches in the
southeastern portion of the Bank's market and the third group consists of the 8
branches in the Bank's Essex Region. Each branch operates as a retail sales and
service unit offering a complete line of deposit and loan products.
In the face of increased competition from mutual funds and credit unions,
depositors remained very selective during 1993 as to the placement of their
funds. The acquisitions were the key factor in the posted deposit growths for
1993 and 1992 of $92,462, or 11.0%, and $234,369, or 38.5%, respectively.
Excluding the acquired deposits, total deposits at December 31, 1993 decreased
by $30,414, or 3.6%.
The following table summarizes HUBCO's deposit base:
At December 31,
------------------------------------
1993 1992 1991
-------- -------- --------
Demand Deposits ...................... $205,233 $171,178 $128,328
N.O.W. Accounts ...................... 114,604 103,181 53,490
Money Market Deposit Accounts ........ 37,290 27,836 39,778
Other Savings Deposits ............... 342,822 272,154 176,950
Time Certificates of Deposit
of $100,000 or more ................ 23,651 23,695 27,559
Other Time Deposits .................. 212,088 245,182 182,752
-------- -------- --------
$935,688 $843,226 $608,857
======== ======== ========
Non-interest bearing demand deposits, for which all financial institutions
compete, increased to $205,233 at December 31, 1993, a growth of $34,055, or
19.9%. Of that amount, $21,361, or 12.5%, represented demand deposit accounts
acquired from Pilgrim. The remaining increase of $12,694, or 7.4%, was due to
internal growth. Demand deposits had increased by $42,850, or 33.4%, during 1992
as a result of the Irving and Broadway acquisitions.
NOW accounts increased in 1993 by $11,423, or 11.1%, due to the $16,513 in
NOW accounts obtained through the Pilgrim acquisition. During 1992, NOW accounts
increased by $49,691, or 92.9%, as a result of the acquisitions and also due to
shifts from money market deposit accounts.
Money market deposit accounts increased by $9,454, or 34.0%, due to the
$26,187 acquired from Pilgrim. Discounting the Pilgrim accounts, this deposit
type experienced a decrease of $16,733, or 60.1%, as the rate differential
between money market and other savings accounts was nominal, causing customers
to opt for the less restrictive regular savings accounts. During 1992, money
market deposit accounts decreased by $11,942, or 30.0%, due to shifts into the
more flexible NOW accounts.
Other savings deposits increased by $70,668, or 26.0%, of which $39,247, or
14.4%, represents deposits acquired from Pilgrim. The remaining increase of
$31,421, or 11.6%, is primarily due to movement out of money market accounts and
other time deposits. During 1992, savings deposits increased by $95,204, or
53.8%, due to the acquisitions.
Time certificates of deposit of $100,000 or more decreased during 1993
(excluding Pilgrim additions of $1,677) and 1992 by $1,722, or 7.3%, and $3,864,
or 14.0%, due to a general outflow of these types of funds experienced by the
banking industry.
48<PAGE>
<PAGE>
Other time deposits decreased by $33,094, or 13.5%, during 1993. Excluding
the addition of $17,891 in time deposits acquired from Pilgrim, the net runoff
was $50,985, or 20.8%. While some of the decline is attributable to movement
into demand deposit and savings accounts, other time deposits were also reduced
as high-yielding certificates matured and depositors sought alternative
investment products outside of the banking industry where a greater return could
be obtained.
Other assets and other liabilities
Other assets decreased from $16,004 at December 31, 1992 to $6,648 at
December 31, 1993, a decrease of $9,356, or 58.5%. The decrease is attributable
to the payment of and reversal of two large items that had been included in the
other assets total at year-end 1992. At year-end 1992, $3,235 in accounts
receivable from the RTC and the FDIC on the Center, Irving and Broadway
acquisitions remained open. The items were paid during the first quarter of
1993. Also, transit generated suspense items totalling $6,260 at December 31,
1992 were corrected within the first week of 1993. At December 31, 1993, the
other assets total of $6,648 was primarily composed of $352 in accounts
receivable, $1,460 in deferred tax assets, $2,575 in inventories and prepaid
expenses, $1,757 in transit suspense items, and $504 in miscellaneous assets.
Other liabilities increased by $1,315, or 21.1%, from $6,239 at December
31, 1992 to $7,554 at December 31, 1993, primarily due to temporary increases in
suspense items.
Interest rate sensitivity
Interest rate movements and deregulation of interest rates have made
managing HUBCO's interest rate sensitivity increasingly important. HUBCO's Asset
and Liability Committee is responsible for managing HUBCO's exposure to changes
in market interest rates. The Committee attempts to maintain stable net interest
margins by generally matching the volume of assets and liabilities maturing, or
subject to repricing, and by adjusting rates in relation to market conditions to
influence volumes and spreads.
The difference between the volume of assets and liabilities that reprice in
a given period is the interest sensitivity gap. A "positive" gap results when
more assets than liabilities mature or are repriced in a given time frame.
Conversely, a "negative" gap results when there are more liabilities than assets
maturing or being repriced during a given period of time. The smaller the gap,
the less the effect of market volatility on net interest income. Asset/liability
management is the utilization of this information to develop strategies to
allocate funds to certain types of assets and offer different liability products
to achieve a certain asset-liability balance and to produce the desired profit
margins.
In certain instances, where a trend in market interest rates is determined,
it may be advantageous to selectively mismatch asset and liability repricing to
take advantage of short term interest rate movements and the shape of the yield
curve. HUBCO's ratio of rate sensitive assets to rate sensitive liabilities was
approximately 60% on December 31, 1993, based on contractual maturities and
asset prepayment assumptions for the next 12 months. Because of the weak loan
demand, HUBCO has been purchasing fixed rate bonds with proceeds received from
the reduction of federal funds and the funds received in conjunction with the
acquisitions. The effect of this is a negative gap position which in a declining
interest rate environment will increase HUBCO's net interest spread as the cost
of HUBCO's deposits and other liabilities may be expected to fall faster than
the interest received on its earning assets. Conversely, if interest rates
increase, the negative gap means that interest received on earning assets may be
expected to increase more slowly than the interest paid on HUBCO's liabilities,
therefore decreasing the net interest spread. The negative gap is evaluated
together with the magnitude of change anticipated in different asset and
liability categories. Because most deposits are core (checking and savings), the
magnitude of interest rate change in these core accounts is estimated to be less
than 50% of any prime rate change and the effect of a rate change on the net
interest margin should be minimal.
HUBCO has managed its overall asset/liability sensitivity through
on-balance sheet pricing strategies. In the past, HUBCO has not used derivative
products to limit interest rate risk. In late 1993 and early 1994, HUBCO began
considering the use of such derivatives, and on March 18, 1994, Hubco entered
into an interest rate swap. See "RECENT DEVELOPMENTS -- Recent Developments
with respect to HUBCO." In addition to interest rate swaps, HUBCO may use,
but is not limited to, covered call option contracts and future contracts.
Interest rate swaps generally involve the exchange of fixed and floating
rate interest payments between two parties without the exchange of the
related notional amount. A covered call option contract requires the maker
to deliver, upon exercise, an underlying security at a fixed "strike"
price. Future contracts can also limit interest rate sensitivity by hedging
underlying assets and liabilities from adverse movement of interests rates.
HUBCO's management currently does not have intentions to use or otherwise deal
in derivative instruments other than the interest rate swap entered into in
March.
49<PAGE>
<PAGE>
The following table shows the GAP position of HUBCO at December 31, 1993:
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY ANALYSIS
December 31, 1993
Due Between
Due Within 91 Days Due After Noninterest
90 Days and One Year One Year Bearing Total
---------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Short-Term Investments .......... $ 9,800 $ -- $ -- $ -- $ 9,800
Investment Securities ........... 82,457 41,174 303,054 -- 426,685
Total Loans ..................... 225,394 121,983 182,013 -- 529,390
Noninterest Bearing Assets ...... -- -- -- 75,950 75,950
---------- ---------- ---------- ---------- ----------
Total Assets .................... $ 317,651 $ 163,157 $ 485,067 $ 75,950 $1,041,825
Percent of Total Assets ......... 30.49% 15.66% 46.56% 7.29% 100.00%
========== ========== ========== ========== ==========
SOURCE OF FUNDS
Interest-Bearing Deposits ....... $ 545,591 $ 155,676 $ 29,188 $ -- $ 730,455
Short-Term Borrowings ........... 19,629 -- -- -- 19,629
Long-Term Debt .................. -- -- -- -- --
Other Liabilities ............... -- -- -- 212,787 212,787
Stockholders' Equity ............ -- -- -- 78,954 78,954
---------- ---------- ---------- ---------- ----------
Total Liabilities and Equity .... $ 565,220 $ 155,676 $ 29,188 $ 291,741 $1,041,825
Percent of Liabilities and Equity 54.25% 14.95% 2.80% 28.00% 100.00%
========== ========== ========== ========== ==========
Interest Rate Sensitivity Gap ... $ (247,569) $ 7,481 $ 455,879 $ (215,791)
---------- ---------- ---------- ----------
Cumulative Interest Rate
Sensitivity Gap ................ $ (247,569) $ (240,088) $ 215,791
---------- ---------- ----------
Cumulative Interest Rate
Sensitivity Gap as a
Percent of Total Assets......... (23.8)% (23.0)% 20.7%
Cumulative Percentage of
Interest-Sensitive Assets
to Interest-Sensitive
Liabilities..................... 56.2% 66.7% 128.8%
</TABLE>
Liquidity
Liquidity is a measure of HUBCO's ability to generate sufficient cash flow
in order to meet all current and future financial obligations and commitments as
they arise. One source of cash flow for liquidity purposes is provided by
maturing loans and investments. However, the primary source of liquidity is the
ability to attract new deposits and to renew deposit obligations as they mature.
HUBCO utilizes its branch banking system to access retail customers who provide
a highly stable source of "core funds." These funds are comprised of demand
deposits, savings accounts and certificates of deposit.
From 1990 through 1993, HUBCO expanded its core deposit base via
acquisitions. During 1992 and 1993, an increased emphasis on customer service
was instituted as HUBCO competed for deposit funds.
HUBCO may also purchase federal funds or arrange other short term
borrowings for specific purposes as necessary, including to effect its interest
rate sensitivity management.
HUBCO actively manages its liquidity position under the direction of both
the Asset and Liability Committee and the Investment Committee. Periodic review
under prescribed policies and procedures is intended to ensure that HUBCO will
maintain adequate levels of available funds. At December 31, 1993, HUBCO's
primary and secondary liquidity ratios were well above stated policy.
Capital
The Federal Reserve Board recently issued regulations to redefine the
adequacy of bank capital based upon the sensitivity of assets and off-balance
sheet exposures to risk factors. Four categories of risk weights (0%, 20%, 50%
and 100%) were established to be applied to different types of balance sheet
assets and off-balance sheet exposures. The aggregate of the risk weighted items
(risk-based assets) is the denominator of the ratio, the numerator of which is a
newly defined risk-based capital. Under the regulations, risk-based capital has
been classified into two categories. Tier 1 capital includes common and
qualifying perpetual preferred stockholders' equity (including capital surplus
and retained earnings), less goodwill. Tier 2 capital includes mandatory
convertible debt, allowance for possible loan
50<PAGE>
<PAGE>
losses, subject to certain limitations, and certain subordinated and term debt
securities. Total qualifying capital consists of Tier 1 capital and Tier 2
capital; however, the amount of Tier 2 capital may not exceed the amount of
Tier 1 capital in the computation of total qualifying capital. At December 31,
1993, the minimum capital ratio required under the above formula was 4.0% for
Tier 1 capital and 8.0% for total qualifying capital. HUBCO at December 31,
1993 exceeded the 1993 requirements with Tier 1 capital of 13.60% and total
qualifying capital of 14.85%.
The Federal Reserve Board also issued new leverage capital adequacy
standards in August 1990. Under these standards, in addition to the risk-based
capital ratios, a bank holding company must also maintain a ratio of Tier 1
capital (using the risk-based capital definition) to total assets of at least
3%. Institutions which are not "top-rated" will be expected to maintain a ratio
100 to 200 basis points above this ratio. The Company's leverage ratio as of
December 31, 1993 was 7.22%.
The Bank is also subject to similar but separate capital adequacy
guidelines promulgated by the FDIC. As of December 31, 1993, the Bank's Tier 1
Capital Ratio was 12.69%, its total capital ratio was 13.94% and its leverage
ratio was 6.70%.
In May 1992, HUBCO completed a public offering and issued 1,725,000 new
shares of common stock at $12.25 per share, which resulted in a total Price to
Public of $21,131. After deducting the underwriting discount and other offering
expenses, the proceeds to the Company were $19,715.
On June 1, 1993, HUBCO paid a ten percent stock dividend to stockholders of
record May 11, 1993 which resulted in the issuance of 628,011 new shares of
common stock.
The following table summarizes the capital ratios as of December 31, 1993:
Ratios at December 31, 1993
---------------------------------------------
1993 Minimum Hudson HUBCO, Inc.
Capital Ratios Requirements* United Bank & Subsidiaries
- -------------- ------------ ----------- --------------
Tier 1 Capital ......... 6.0% 12.69% 13.60%
Total Capital .......... 10.0 13.94 14.85
Leverage ............... 5.0 6.70 7.22
- -------------
* For qualification as a well-capitalized institution.
On November 8, 1993, HUBCO's Board of Directors authorized a stock buyback
program under which management was authorized to repurchase up to 10% of HUBCO's
outstanding common stock each year. At that time, HUBCO had approximately 6.9
million shares outstanding. The acquired shares are to be held in treasury.
HUBCO is presently using the buyback program specifically to repurchase shares
for reissuance in connection with the Merger Conversion. As of March 1, 1994,
the Company had repurchased 445,081 shares for approximately $10.13 million, of
which 12,300 shares have been revised by HUBCO as awards under its restricted
stock plan.
51<PAGE>
<PAGE>
BUSINESS OF HUBCO
General
HUBCO is a bank holding company registered with the Board of Governors of
the Federal Reserve System (the "Federal Reserve Board") under the Bank Holding
Company Act of 1956, as amended (the "Bank Holding Company Act"). HUBCO was
organized under the laws of New Jersey in 1982 by the Bank for the purpose of
creating a bank holding company for the Bank. HUBCO also owns a second operating
subsidiary, HUB Financial Services, Inc. and indirectly owns, through the Bank,
an investment subsidiary and an inactive subsidiary. The corporate headquarters
of HUBCO and the main office of the Bank are located in Union City, New Jersey.
As of December 31, 1993, HUBCO had consolidated assets of $1,042 million,
consolidated deposits of $936 million and consolidated stockholders' equity of
$79 million. Based on assets, at December 31, 1993 HUBCO is the 12th largest
bank holding company headquartered in New Jersey.
HUBCO and its subsidiaries had 388 full-time employees and 68 part-time
employees as of December 31, 1992, compared to 302 full-time and 41 part-time
employees at the end of 1991. As a result of the Pilgrim acquisition, HUBCO
added approximately 40 new employees, bringing the number of employees at
December 31, 1993 to 400 full-time employees and 87 part-time employees.
Hudson United Bank
The Bank was incorporated in 1890 as a state-chartered commercial bank. The
Bank maintains its main office in Union City, New Jersey and operates out of 37
offices in six Northern New Jersey counties. Of these offices, all but one are
located in the Northern New Jersey counties of Bergen, Essex, Hudson, Morris and
Passaic. One other branch is located in Dunellen, Middlesex County, New Jersey.
HUBCO owns a two-story building one block from the Bank's main office which
HUBCO is leasing to the Bank as an operations center.
The Bank is a full service commercial bank and offers the services
generally performed by commercial banks of similar size and character, including
checking, savings, and time deposit accounts, certificates of deposit, trust
services, safe deposit boxes, secured and unsecured personal and commercial
loans and residential and commercial real estate loans. The principal focus of
the Bank is serving customers in its local market place.
The Bank's deposit accounts are competitive in the current environment and
include money market accounts and a variety of interest-bearing transaction
accounts.
In the lending area, the Bank primarily engages in consumer lending,
commercial lending and real estate lending activities.
The Bank offers a variety of trust services. At December 31, 1993, the
Trust Department had approximately $99.6 million of assets under management or
in its custodial control.
The Bank is administratively divided into three divisions. These include
the Southern Division, the Northern Division and the Essex Division. The
Southern Division of the Bank is unionized. The current collective bargaining
agreement extends through February 28, 1996.
Acquisitions Strategy
HUBCO's acquisition philosophy is to seek in-market or contiguous market
opportunities which can be accomplished with little dilution to earnings. Since
October 1990, HUBCO has acquired the assets and liabilities of six institutions,
adding to its assets and liabilities a total of $807.2 million in assets and
$805.7 million in liabilities and expanding its branch network from 15 branches
to 37 branches. Over 80% of these assets and liabilities were acquired through
government assisted transactions which allows the Bank to reprice deposits,
review loans and purchase only those loans which meet its underwriting criteria.
The balance of the assets and liabilities were acquired in traditional
negotiated private transactions which HUBCO believes present different level of
risk than the risk presented in government assisted transactions. In these
transactions, HUBCO conducts a due diligence review to identify both risks and
income potential and then structures a transaction which management believes
allows HUBCO to manage the risk while earning a fair return on its investment.
Both the Merger Conversion and the acquisition of Washington represent
traditional private transactions. See "--Acquisition of Statewide" and
"--Acquisition of Washington" below.
The success of HUBCO's acquisition strategy depends on management's skill
in identifying, analyzing, bidding on and acquiring the assets and liabilities
of banking entities in both government assisted and private transactions,
integrating such assets and liabilities into HUBCO, and causing the resulting
entity as a whole to operate profitably.
52<PAGE>
<PAGE>
The following table summarizes the acquisitions undertaken by HUBCO since
October of 1990:
<TABLE>
<CAPTION>
Deposits
Government Assumed Loans Purchased Branches
Institution Assisted Premium Paid (In millions) (In millions) Acquired
- ----------- ---------- ------------ ------------- ------------- --------
<S> <C> <C> <C> <C> <C>
Mountain Ridge State Bank ................. Yes $ 325,000 $47.0 $12.0 1
Meadowlands National Bank ................. No $ 415,000(1) $35.5 $22.1 3
Center Savings and Loan Association ....... Yes $ 10,000 $89.9 $78.6 1
Irving Federal Savings and Loan Association Yes $ 5,000 $161.1 $62.4 5
Broadway Bank and Trust Company ........... Yes $3,406,000 $345.7 $9.5 8
Pilgrim State Bank ........................ No $6,000,000(2) $122.9 $46.7 6
- --------------
(1) Represents the purchase price paid to the shareholders of Meadowlands
National Bank.
(2) Represents amount paid as purchase price to Ramapo, the owner of the assets
immediately prior to closing.
</TABLE>
Acquisition of Statewide
Upon consummation of the Merger Conversion, HUBCO's total assets will
increase by approximately $507 million, or 48.7% of total assets at December 31,
1993, and the number of Bank branches will increase from 37 to 50. This is
larger than any other acquisition undertaken to date by HUBCO, although not as
large as the Irving and Broadway acquisitions combined, which occurred only
three weeks apart. An expansion of this magnitude could result in major changes
in HUBCO's financial situation. Unlike most of HUBCO's other recent
acquisitions, the Merger Conversion does not afford HUBCO the right to acquire
only those loans of the acquired institution which HUBCO desires to retain. See
"PRO FORMA CONDENSED COMBINED UNAUDITED FINANCIAL STATEMENTS." While HUBCO's
management team has developed substantial experience and skill in integrating
acquired institutions into HUBCO, there can be no assurance given that HUBCO
will be able to achieve in connection with the Merger Conversion the level of
integration and cost savings achieved in its previous acquisitions. Nonetheless,
HUBCO believes that in a voluntary acquisition such as this, integration of the
two institutions is easier to achieve than in government assisted transactions.
Proposed Acquisition of Washington
Upon consummation of the acquisition of Washington, HUBCO's total assets
will increase by approximately $273 million and the number of Bank branches will
increase by 8. On a pro forma basis at December 31, 1993, assuming completion of
the Merger Conversion and the acquisition of Washington, HUBCO's total assets
will increase by approximately $780 million, representing an increase of 75%
over total assets at September 30, 1993, and the number of Bank branches will
increase to 58. Like the Statewide acquisition, but unlike most of HUBCO's other
recent acquisitions, the Washington acquisition does not afford HUBCO the right
to acquire only those loans of the acquired institution which HUBCO desires to
retain. See "PRO FORMA CONDENSED COMBINED UNAUDITED FINANCIAL STATEMENTS." HUBCO
has the right to terminate the Washington Merger Agreement for a number of
reasons, including if there is a material adverse change in the business,
operations or financial condition of Washington. Under the material adverse
change clause, but without limiting the definition of a material adverse change,
HUBCO has the right to terminate the Washington Merger Agreement if 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 not brought to performing status or if substantial steps are not taken
to proceed with foreclosure on the loan. This non-performing loan is secured by
a 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 a 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. Although HUBCO anticipates that it
will proceed with the acquisition of Washington, it continues to examine this
loan and the circumstances surrounding the collateral, and accordingly, there
can be no assurance that the acquisition of Washington by HUBCO will be
consummated. If the acquisition of Washington is consummated, there can be no
assurance that this non-performing loan or Washington's other non-performing
assets will not have a material adverse impact upon HUBCO's financial
performance. For a discussion of certain risk factors relating to the Merger
Conversion and the acquisition of Washington, see "INVESTMENT
CONSIDERATIONS--Significant Impact of Acquisitions on HUBCO."
53<PAGE>
<PAGE>
SELECTED FINANCIAL INFORMATION OF STATEWIDE
Set forth below are selected consolidated financial and other data of
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>
54<PAGE>
<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-33 of this Prospectus and the other information about
Statewide contained in this Prospectus.
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 six months ended September 30, 1993
from $9.0 million for the six months ended September 30, 1992. This relative
stability is due to 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 $281,000 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 believes that Statewide's
allowance for loan losses is adequate based upon 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
55<PAGE>
<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 believes that Statewide's allowance for loan losses is adequate
based upon 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
56<PAGE>
<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 and dividend 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
57<PAGE>
<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:
58<PAGE>
<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>
59<PAGE>
<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:
60<PAGE>
<PAGE>
<TABLE>
<CAPTION>
(In Thousands)
Nine Months Ended Nine Months Ended
December 31, 1993 December 31, 1992
----------------------------- -------------------------------
Average Average
Average Yield/ Average Yield/Cost
Balance Interest Average Cost Balance Interest
--------- -------- ------- --------- --------- ----------
<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 accountss ............ $ 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 ............ 1.00 .97
==== =======
- --------------
(1) Includes 4.8 million of mortgage-backed securities available for sale in 1993.
</TABLE>
61<PAGE>
<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 ....................... .98 .96 .97
========= ========= =========
- --------------
(1) Includes $7.5 million of mortgage-backed securities available for sale in
1993.
</TABLE>
62<PAGE>
<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)
---------------------------------
Volume Due to 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.
63<PAGE>
<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 FHLBNY and
retained earnings.
Statewide is required to maintain minimum levels of liquid assets as
defined by 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. The impact on Statewide of implementing
SFAS 115 will not be material to the 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.
64<PAGE>
<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 Federal Home Loan Bank of New
York (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:
65<PAGE>
<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>
66<PAGE>
<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>
67<PAGE>
<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>
68<PAGE>
<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 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: $14.0 million on a resort hotel, $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
69<PAGE>
<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
70<PAGE>
<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%
71<PAGE>
<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.
72<PAGE>
<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 Standards ("SFAS") No. 15., issued
by the Financial Accounting Standards Board (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
73<PAGE>
<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.
74<PAGE>
<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
------ ------ ------ ------ ------ ------ ------
Balance, end of period ................... $1,094 $1,571 $1,366 $1,841 $1,697 $2,048 $ 80
</TABLE>
75<PAGE>
<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>
76<PAGE>
<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.
77<PAGE>
<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>
78<PAGE>
<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>
79<PAGE>
<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>
80<PAGE>
<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."
SELECTED CONSOLIDATED FINANCIAL DATA OF WASHINGTON
Set forth below are selected consolidated financial and other data of
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 Prospectus.
81<PAGE>
<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 per share:
Income 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 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 (excluding loans past due 90 days
or more and accruing) ................................ 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
Non-performing assets (excluding loans past due
90 days or more and accruing) 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>
82<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
During 1993, Washington and 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. 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 allowance for losses on loans was specifically reserved against
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 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.
83<PAGE>
<PAGE>
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. 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.
84<PAGE>
<PAGE>
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>
85<PAGE>
<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
86<PAGE>
<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.
87<PAGE>
<PAGE>
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.
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.
88<PAGE>
<PAGE>
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.
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>
89<PAGE>
<PAGE>
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 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>
90<PAGE>
<PAGE>
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 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.
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%. 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
91<PAGE>
<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>
92<PAGE>
<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.
93<PAGE>
<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,
94<PAGE>
<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
95<PAGE>
<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.
96<PAGE>
<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>
97<PAGE>
<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>
98<PAGE>
<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.
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. 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
99<PAGE>
<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 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.
100<PAGE>
<PAGE>
REGULATION AND SUPERVISION OF HUBCO
Capital Adequacy Guidelines
Bank holding companies must comply with the Federal Reserve Board's
risk-based capital guidelines, which became effective on February 15, 1989 and
were fully phased-in on December 31, 1992. Under the guidelines, risk weighted
assets are calculated by assigning assets and certain off-balance sheet items to
broad risk categories. The total dollar value of each category is then weighted
by the level of risk associated with that category. As of December 31, 1992,
minimum risk-based capital to risk based assets ratio of 8.00% must be attained.
At least one half of an institution's total risk based capital must consist of
Tier 1 capital, and the balance may consist of Tier 2, or supplemental, capital.
Tier 1 capital consists primarily of common stockholder's equity along with
preferred or convertible preferred stock, minus goodwill. Tier 2 capital
consists of an institution's allowance for loan and lease losses, subject to
limitation, hybrid capital instruments and certain subordinated debt. The
allowance for loan and lease losses which is considered Tier 2 capital is
limited to l.25% of an institution's risk-based assets. As of December 31, 1993,
HUBCO's total risk-based capital ratio was 14.85% consisting of a Tier l ratio
of 13.60% and a Tier 2 ratio of 1.25%. Both ratios exceed the requirements under
these regulations.
In addition, the Federal Reserve Board has promulgated a leverage capital
standard, with which bank holding companies must comply. Bank holding companies
must maintain a minimum Tier l capital to total assets ratio of 3%. However,
institutions which are not among the most highly rated by federal regulators
must maintain a ratio 100-to-200 basis points above the 3% minimum. As of
December 31, 1993, HUBCO had a leverage capital ratio of 7.22%.
The FDIC also imposes risk based and leverage capital guidelines on the
Bank. These guidelines and the ratios to be met are substantially similar to
those imposed by the Federal Reserve Board. If a bank does not satisfy the
FDIC's capital requirements, it will be deemed to be operated in an unsafe and
unsound manner and will be subject to regulatory action. As of December 31,
1993, the Bank had a risk weighted capital ratio of 13.94% and a leverage
capital ratio of 6.70%. These ratios exceed the requirements under the FDIC
regulations.
The following table summarizes the minimum regulatory capital ratios and
the capital ratios of the Bank and HUBCO at December 31, 1993.
Capital Ratios
December 31, 1993
1993 ---------------------------
Minimum Hudson HUBCO, Inc.
Requirements* United Bank & Subsidiaries
------------- ----------- --------------
Tier 1 Capital ......... 6.00% 12.69% 13.60%
Total Qualifying Capital 10.00% 13.94% 14.85%
Leverage Ratio ......... 5.00% 6.70% 7.22%
- ---------------
* For qualification as a well-capitalized institution.
The Federal Deposit Insurance Corporation Improvement Act (the "FDICIA"),
enacted on December 19, 1991, required each federal banking agency to revise its
risk-based capital standards for insured institutions to ensure that those
standards take adequate account of interest-rate risk ("IRR"), concentration of
credit risk, and the risks of nontraditional activities, as well as to reflect
the actual performance and expected risk of loss on multi-family residential
loans. In September 1993, the FDIC, the Office of the Comptroller of the
Currency, and the Federal Reserve Board jointly proposed for comment procedures
for measuring IRR exposure and two alternative methods for determining what
amount of additional capital, if any, a bank may be required to maintain for
IRR. Under the proposal, exposure to IRR would be measured as the effect that a
specified change in market interest rates would have on the net economic value
of a bank. The change in an institution's net economic value is defined as the
change in the present value of its assets minus the change in the present value
of its liabilities plus the change in the present value of its off-balance-sheet
positions. The banking agencies propose to measure an institution's exposure
using either a supervisory model or the bank's own internal model. During each
examination or at the request of a bank, the banking agency, under its sole
discretion, will examine the bank's internal measure of interest rate risk to
determine if it is acceptable to the agency using several specified criteria.
Otherwise, the bank's measured exposure will be calculated under the supervisory
mode. The alternative methods for determining IRR consist of (i) the minimum
capital standard
101<PAGE>
<PAGE>
approach, pursuant to which certain institutions would be required to
hold capital to cover their excess exposure, which is defined as the
aggregate dollar decline in the net economic value of the institution, as
measured either by the supervisory or the internal bank model, that exceed the
proposed supervisory threshold of one percent of total assets and (ii) the risk
assessment approach, pursuant to which the level of measured IRR would be just
one of several factors that examiners would consider when determining a bank's
IRR and the need for additional capital, which would be based on the examiner's
judgment after taking into account guidance provided by the federal banking
agencies.
Restrictions on Dividend Payments
The payment of dividends by the Bank to HUBCO is regulated. Under the New
Jersey Banking Act of 1948, as amended, the Bank may pay dividends only out of
retained earnings, and out of surplus to the extent that surplus exceeds 50
percent of stated capital. Under the Financial Institutions Supervisory Act, the
FDIC has the authority to prohibit a state-chartered bank from engaging in
conduct which, in the FDIC's opinion, constitutes an unsafe or unsound banking
practice. Under certain circumstances, the FDIC could claim that the payment of
a dividend or other distribution by a bank to its sole shareholder constitutes
an unsafe or unsound practice.
Restrictions on Transactions Between HUBCO and the Bank
The Banking Affiliates Act of 1982, as amended, severely restricts loans
and extensions of credit by the Bank to HUBCO and HUBCO affiliates (except
affiliates which are banks). In general, such loans must be secured by
collateral having a market value ranging from 100% to 130% of the loan,
depending upon the type of collateral. Furthermore, the aggregate of all loans
from the Bank to HUBCO and its affiliates may not exceed 20% of that Bank's
capital stock and surplus and, singly to HUBCO or any affiliate, may not exceed
10% of the Bank's capital stock and surplus. Similarly, the Banking Affiliates
Act of 1982 also restricts the Bank in the purchase of securities issued by, the
acceptance from affiliates of loan collateral consisting of securities issued
by, the purchase of assets from, and the issuance of a guarantee or standby
letter-of-credit on behalf of, HUBCO or any of its affiliates.
Holding Company Supervision
Under the Bank Holding Company Act, HUBCO may not acquire directly or
indirectly more than 5% of the voting shares of, or substantially all of the
assets of, any bank without the prior approval of the Federal Reserve Board.
HUBCO cannot acquire any bank located outside New Jersey unless the law of such
other state specifically permits the acquisition.
In general, the Federal Reserve Board, under its regulations and the Bank
Holding Company Act, regulates the activities of bank holding companies and
nonbank subsidiaries of banks. The regulation of the activities of banks,
including bank subsidiaries of bank holding companies, generally has been left
to the authority of the supervisory government agency, which for the Bank is the
New Jersey Department of Banking.
Interstate Banking Authority and New Jersey Law
New Jersey law allows New Jersey banking organizations to acquire or be
acquired by banking organizations in other states on a "reciprocal" basis (i.e.,
provided the other state's laws permit New Jersey banking organizations to
acquire or be acquired by banking organizations in that state on substantially
the same terms and conditions applicable to banking acquisitions solely within
the state).
The New Jersey Department of Banking regulates the Bank's internal
organization as well as its deposit, lending and investment activities. The
Department must approve changes to the Bank's certificate of incorporation, the
establishment or relocations of branch offices and mergers involving the Bank.
In addition, the Department conducts periodic examinations of the Bank. Many of
the areas regulated by the Department are subject to similar regulation by the
FDIC.
Under New Jersey law, the Bank has the authority to invest the lesser of 3%
of the Bank's total assets or 50% of its capital, surplus, reserves, undivided
profits and capital notes in any type of asset. The scope of this authority is,
however, significantly restricted by federal statute and regulation. See below
"Recent Regulatory Enactments".
102<PAGE>
<PAGE>
FIRREA
FIRREA established new capital standards and enhanced regulatory oversight
of the thrift industry. Many thrifts were unable to comply with the new
regulations creating opportunities for mergers and acquisitions by commercial
banks as well as other thrift institutions. From time to time, HUBCO
investigates potential opportunities that arise as the result of this
legislation and the enforcement of regulations promulgated thereunder.
While FIRREA focuses primarily on the recovery and reform of the savings
and loan industry, there are provisions which affect commercial banks. Such
provisions include a new deposit insurance system, increased deposit insurance
premiums, restrictions on acceptance of brokered deposits and increased
consumer-related disclosure requirements.
Recent Regulatory Enactments
FDICIA was enacted in December 1991. FDICIA was primarily designed to
provide additional financing for the FDIC by increasing its borrowing ability.
The FDIC was given the authority to increase deposit insurance premiums to repay
any such borrowing. In addition, FDICIA identifies the following capital
standard categories for financial institutions: well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized and critically
undercapitalized. As a result of FDICIA, the various banking regulatory agencies
have set certain capital and other measures for determining the categories into
which financial institutions fall. FDICIA imposes progressively more restrictive
constraints on operations, management and capital distributions depending on the
category in which an institution is classified. Pursuant to FDICIA,
undercapitalized institutions must submit recapitalization plans, and a company
controlling a failing institution must guarantee such institution's compliance
with its plan.
FDICIA also required the various regulatory agencies to prescribe certain
non-capital standards for safety and soundness relating generally to operations
and management, asset quality and executive compensation, and permits regulatory
action against a financial institution that does not meet such standards. The
agencies have implemented some of those regulations and have proposed to
implement others.
The deposits of the Bank are insured up to applicable limits by the FDIC.
Accordingly, the Bank is subject to deposit insurance assessments to maintain
the BIF of the FDIC. As of January 1, 1993, the FDIC began a risk-based
insurance assessment system. This approach is designed to ensure that a banking
institution's insurance assessment is based on three factors: the probability
that the applicable insurance fund will incur a loss from the institution; the
likely amount of the loss; and the revenue needs of the insurance fund.
Management believes that the provisions of FDICIA and the risk-based
insurance assessment will not have a material effect upon the financial position
or operations of HUBCO.
Under FDICIA, state-chartered banks with deposits insured by the FDIC are
generally prohibited from acquiring or retaining any equity investment of a type
or in an amount that is not permissible for a national bank. The foregoing
limitation, however, does not prohibit FDIC-insured state banks from acquiring
or retaining an equity investment in a subsidiary in which the bank is a
majority owner. After December 19, 1992, state-chartered banks are prohibited
from engaging as principal in any type of activity that is not permissible for a
national bank and subsidiaries of state-chartered banks may not engage as
principal in any type of activity that is not permissible for a subsidiary of a
national bank unless in either case the FDIC determines that the activity would
pose no significant risk to the appropriate deposit insurance fund and the bank
is, and continues to be, in compliance with applicable capital standards.
The FDIC has adopted regulations to clarify the foregoing restrictions on
activities and investments of FDIC-insured state-chartered banks and their
subsidiaries. Under the rules, the term activity refers to the authorized
conduct of business by an insured state bank and includes acquiring or retaining
any investment (other than an equity investment in the case of a state bank). A
bank or subsidiary is considered acting as principal when acting other than as
an agent for a customer, as trustee, or conducting an activity in a brokerage,
custodial or advisory capacity. An activity permissible for a national bank
includes any activity expressly authorized for national banks by statute or
recognized as permissible in regulations, official circulars or bulletins or in
any order or written interpretation issued by the Office of the Comptroller of
the Currency. In its regulations the FDIC indicates that it will not permit
state banks to directly engage in commercial ventures or directly or indirectly
engage in a insurance underwriting activity other than to the extent such
activities are permissible for a national bank or a national bank subsidiary or
except for certain other
103<PAGE>
<PAGE>
limited forms of insurance underwriting. Under the regulation, the FDIC would
permit state banks that meet applicable minimum capital requirements to
engage as principal in certain activities that are not permissible to national
banks, including guaranteeing obligations of others, activities which the
Federal Reserve Board has found by regulation or order to be closely related
to banking and certain securities activities conducted through subsidiaries.
Source of Strength Doctrine
According to Federal Reserve Board policy, bank holding companies are
expected to act as a source of financial strength to each subsidiary bank and to
commit resources to support each such subsidiary. This support may be required
at times when a bank holding company may not be able to provide such support.
Furthermore, in the event of a loss suffered or anticipated by the FDIC--either
as a result of default of a bank subsidiary of HUBCO or related to FDIC
assistance provided to the subsidiary in danger of default--the other bank
subsidiaries of HUBCO may be assessed for the FDIC's loss, subject to certain
exceptions.
Acquisitions of Savings Associations
The Federal Reserve is authorized by the Bank Holding Company Act to
approve the application of a bank holding company to acquire any savings
association. In approving such an application, the Federal Reserve Board is
precluded from imposing any restrictions on transactions between the bank
holding company and the acquired savings association, except as required by
Sections 23A or 23B of the Federal Reserve Act or any other applicable law.
The Federal Deposit Insurance Act ("FDIA"), as amended by the 1991 Banking
Law, authorizes the merger or consolidation of any member of the BIF with any
member of the SAIF, the assumption of any liability by any BIF member to pay any
deposits of any SAIF member, or vice versa, or the transfer of any assets of any
BIF member to any SAIF member in consideration for the assumption of liabilities
of such BIF member or vice versa, provided that certain conditions are met and,
in the case of any acquiring, assuming or resulting depository institution which
is a BIF member, such institution continues to make payment of SAIF assessments
on the portion of liabilities attributable to any acquired, assumed or merged
SAIF-insured institution. It is expected that Statewide will be merged into the
Bank immediately upon its acquisition by HUBCO. HUBCO anticipates that this
transaction will be consummated under the provisions of the FDIA described above
(the so-called "Oakar Amendment").
MANAGEMENT OF HUBCO
HUBCO's certificate of incorporation and by-laws authorize a minimum of 5
and a maximum of 25 directors but leave the exact number to be fixed by
resolution of the Board of Directors. The Board of Directors has fixed the
number of directors at 9. Pursuant to the Certificate of Incorporation, the
directors of HUBCO are divided into three classes and each class is elected to
serve for staggered three-year terms.
Certain information about each of the directors of HUBCO is set forth
below. Years of service on the Board of Directors includes prior service on the
Board of Directors of the Bank.
104<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Name, Age and Position Principal Occupation Director Term
with HUBCO During Past Five Years Since Expiring
- ---------------------- ---------------------- -------- --------
<S> <C> <C> <C>
Robert J. Burke, 60 President and Chief Operating Officer, Union 1979 1994
Dry Dock and Repair Co., Hoboken, NJ (ship
repair facility).
Henry G. Hugelheim, 86 Retired. 1972 1996
Harry J. Leber, 76 Retired. 1965 1996
Kenneth T. Neilson, 45, President and CEO of the Corporation and the 1989 1994
President and CEO Bank (1989-Present); First Senior Vice
President of the Bank (1983-1989).
Charles F.X. Poggi, 62 President and Chief Operating Officer, The 1973 1994
Poggi Press (general printing business).
James E. Schierloh, 64, Chairman of the Board of the Corporation and 1972 1996
Chairman the Bank since September 1990; formerly
self-employed Certified Public Accountant.
Sister Grace Frances Chairperson, Franciscan Health System of N.J. 1979 1995
Strauber, 66 (1991-present); Director, St. Louis Senior
Center, Brooklyn, N.Y. (1989-1991); Executive
Search Consultant, Gilbert Tweed Associates,
Inc., New York, N.Y. (1987-1988); Management
Consultant, Health System, Inc., Brooklyn,
N.Y., Franciscan Sisters of the Poor
(1986-present).
Edwin Wachtel, 62 President, Europe Craft, Inc. (manufacturers of 1986 1996
"Members Only" apparel) (1961-1987 and 1991
to present); Chairman, GW Investors Corp.
(private investment company) (1987-1991)
</TABLE>
No director of HUBCO is also a director of any other company registered
pursuant to Section 12 of the Securities Exchange Act of 1934 or subject to the
requirements of Section 15(d) of such Act or any company registered as an
investment company under the Investment Company Act of 1940.
The following table sets forth certain information as to each executive
officer of HUBCO who is not a director, as of December 31, 1993.
<TABLE>
<CAPTION>
Name, Age and Position with Officer of Principal Occupation
HUBCO HUBCO Since During Past Five Years
- ----------------------------- ----------- ----------------------
<S> <C> <C>
D. Lynn Van Borkulo-Nuzzo, 44 1988 1st Senior. Vice President, the Bank;
Corporate Secretary, HUBCO; at Bank since 1967.
Christina L. Maier, 39 1987 Assistant Treasurer of HUBCO and Senior Vice
President and Controller of the Bank.
</TABLE>
105<PAGE>
<PAGE>
SHAREHOLDINGS OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT OF HUBCO
The following table furnishes information known by HUBCO as to the
beneficial owners of more than five percent of the Common Stock, as of December
31, 1993.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership Percent of Class
------------------- -------------------- ----------------
<S> <C> <C>
FMR Corp.; Fidelity Management & 595,800(1) 8.59
Research Company; and
Edward C. Johnson 3d
82 Devonshire Street
Boston, MA 02109
Valenzuela Capital Management Inc. 399,000 5.77
1270 Avenue of the Americas
12th Floor
New York, NY 10026
</TABLE>
- ----------------
(1) Fidelity Management & Research Company ("Fidelity") is beneficial owner of
these shares as a result of acting as investment adviser to several
investment companies. Fidelity is the wholly-owned subsidiary of FMR Corp.
Mr. Johnson is the Chairman and owner of 34% of the outstanding voting
stock of FMR Corp. Fidelity has sole power to direct the disposition of
these shares, but has no voting power with respect to these shares. HUBCO
obtained all information with respect to Fidelity's, FMR Corp.'s and Mr.
Johnson's beneficial ownership from a Schedule 13G filing made by them on
February 14, 1993.
The following table sets forth information concerning the beneficial
ownership of the Common Stock, as of December 31, 1993, by each director, by
each executive officer of HUBCO for whom individual information is required to
be set forth in HUBCO's proxy statements under rules of the Commission and by
directors and all executive officers as a group.
Number of Shares
Beneficially Percent
Name of Beneficial Owner Owned(1) of Class
------------------------ ---------------- --------
Robert J. Burke ........................ 31,176(2) .45
Henry G. Hugelheim ..................... 109,754(3) 1.58
Harry J. Leber ......................... 21,947(4) .32
Kenneth T. Neilson ..................... 52,730(5) .76
Charles F. X. Poggi .................... 147,305 2.12
James E. Schierloh ..................... 50,708(6) .73
Sister Grace Frances Strauber .......... 617 .01
Edwin Wachtel .......................... 47,306(7) .68
Directors and Executive Officers of
HUBCO as a group (10 persons) ......... 480,522(8) 6.93
- -------------------
(1) Beneficially owned shares include shares over which the named person
exercises either sole or shared voting power or sole or shared investment
power. It also includes shares owned (i) by a spouse, minor children or by
relatives sharing the same home, (ii) by entities owned or controlled by
the named person, and (iii) by other persons if the named person has the
right to acquire such shares within 60 days by the exercise of any right or
option. Unless otherwise noted, all shares are owned of record and
beneficially by the named person, either directly or through the dividend
reinvestment plan.
(2) Of this total, 7,807 shares are held by Mr. Burke's wife and 718 are held
in an IRA. Mr. Burke disclaims beneficial ownership of the shares held by
his wife.
(footnotes continued on next page)
106<PAGE>
<PAGE>
(3) Of this total, 4,911 shares are held in a revocable trust over which Mr.
Hugelheim retains control during his life.
(4) Of this total, 2,803 shares are held in a retirement plan, of which Mr.
Leber is a trustee and beneficiary.
(5) Of this total, 12,209 shares are held in Mr. Neilson's 401(k) plan, which
he directs, 10,880 shares are held for Mr. Neilson under HUBCO's restricted
stock plan, 2,310 shares are held in an IRA and 1,639 shares are held by
Mr. Neilson's wife. Mr. Neilson disclaims beneficial ownership of the
shares owned by his wife.
(6) Of this total, 3,291 shares are held by Mr. Schierloh's wife individually,
4,027 shares are held in trust for Mr. Schierloh's mother under a trust for
which Mr. Schierloh is a trustee and a beneficiary, and 5,000 shares are
held for Mr. Schierloh under HUBCO's restricted stock plan.
(7) Of this total, 655 shares are held in a general partnership of which Mr.
Wachtel is a partner.
(8) Of this total, 18,328 shares are held in HUBCO's 401(k) plans for specified
individuals and 41,074 shares are held for executive officers under HUBCO's
restricted stock plan.
In addition to the shares reported in the Table, the Bank's Trust
Department holds 24,000 shares as trustee for the Bank's two pension plans.
These additional shares held by the Bank's Trust Department are not reported as
beneficially owned by HUBCO's directors or executive officers, although by
virtue of the officers' and directors' service on the Bank's Trust Committee, it
may be asserted that the directors and officers have beneficial ownership of
such shares. The directors and executive officers disclaim beneficial ownership
of such shares.
HUBCO's management would beneficially own approximately 10.26% of HUBCO's
shares following the Merger Conversion, assuming that all of Statewide's
directors and executive officers become part of HUBCO's management and that
HUBCO's management ownership remains the same. See "DESCRIPTION OF THE
OFFERINGS--Anticipated Subscription for Shares in the Subscription Offering by
Statewide Directors and Executive Officers".
THE MERGER CONVERSION
Overview
HUBCO and Statewide entered into an Agreement and Plan of Reorganization
dated as of May 21, 1993, as most recently amended and restated as of November
23, 1993 (the "Agreement"). The Plan of Conversion, initially adopted by
Statewide's Board of Directors on May 17, 1993, was most recently amended as of
November 23, 1993 (the "Plan"), and as amended was adopted by Statewide's Board
of Directors on November 23, 1993.
Pursuant to the Agreement and the Plan, Statewide will effect the Merger
Conversion immediately following its conversion from a state-chartered mutual
savings and loan association to a state-chartered mutual savings bank. In the
Merger Conversion Statewide will convert from the mutual to the stock form of
organization and then will further convert to a state-chartered commercial bank,
with HUBCO acquiring all of the outstanding shares of capital stock to be issued
by Statewide in exchange for cash in an amount equal to Statewide's Final
Appraised Value. See "SUBSCRIPTION PROCEDURES--Number of Shares". As part of the
Merger Conversion, HUBCO is offering rights to Eligible Subscribers of Statewide
to subscribe for shares of the Common Stock in the Subscription Offering. The
Plan requires that a dollar amount of Common Stock equal to the Final Appraised
Value must be sold in connection with the Merger Conversion in the Offerings.
Immediately following the conversion of Statewide and the acquisition by
HUBCO of the capital stock of Statewide to be issued in the Merger Conversion,
Statewide will be merged with and into the Bank, and Statewide will cease to
exist as a separate legal entity and its business, assets and liabilities will
become part of the Bank. All of the transactions constituting the Merger
Conversion will become effective simultaneously. Most of the employees, officers
and directors of Statewide are expected to be retained by the Bank following
consummation of the Merger Conversion. See "--Employment, Other Agreements, and
Stock Awards."
Regulatory Approvals
Statewide's conversion to a mutual savings bank is subject to the approval
of the OTS and the Commissioner. 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 Statewide has filed applications for the
charter conversion with the
107<PAGE>
<PAGE>
OTS and the Commissioner which applications were approved on December 23 and
December 29, 1993, respectively. The conversion to a savings bank is subject
to the consummation of the Merger Conversion. The conversion of Statewide
from mutual to stock form, the acquisition of Statewide by HUBCO and the
merger of Statewide with and into the Bank require the receipt of regulatory
approvals from the Federal Reserve Board, the FDIC and the Commissioner.
The conversion from mutual to stock form was approved by The Commissioner
on ______, 1994 and by the FDIC on ____, 1994. Approval of the Federal
Reserve Board is pending. APPROVAL OF THE PLAN AND THE MERGER CONVERSION
DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT BY THE REGULATORY AGENCIES
OF THE PLAN OR THE MERGER CONVERSION OR A DETERMINATION THAT THE MERGER
CONVERSION IS IN THE BEST INTEREST OF STATEWIDE'S ACCOUNT HOLDERS.
Proposed Legislation
Statewide Savings Bank, S.L.A., as part of the Merger Conversion, will
become a New Jersey chartered, SAIF-insured savings bank that is subject to
regulation by the Department and the FDIC. Statewide's Plan was prepared in
accordance with the regulations of the Department and approved by the
Commissioner. The FDIC presently does not have regulations governing
mutual-to-stock conversions. On November 22, 1993, a bill was introduced in the
United States House of Representatives entitled the "Mutual Bank Conversion
Act." The proposed legislation states that no state-chartered savings bank may
convert from the mutual form to the stock form on or after November 22, 1993,
except in accordance with regulations adopted by the FDIC. These regulations are
required to be substantially similar to the regulations of the OTS, the primary
federal regulator of savings associations. Statewide believes that its Plan is
similar to the conversion regulations prescribed by the OTS. Specifically, as
required by OTS regulations, the amount of Common Stock being offered is equal
to Statewide's appraised value, and the Common Stock is being offered first to
the depositors of Statewide in accordance with priority categories that are
essentially the same as those required by the OTS. However, as a matter of
policy (not regulation), the OTS in connection with recent conversion
applications has generally permitted tax-qualified stock benefit plans and
non-tax-qualified stock benefit plans to purchase in the aggregate up to 14% of
the number of shares offered in a conversion. The RRP and the stock option plan
are expected to aggregate 15% of the shares offered in the Conversion. Also, as
a matter of policy the OTS does not allow the stock offered by an acquiror in a
merger conversion to be sold at more than a 5% discount to market value as of
the closing of the merger conversion. This Merger Conversion may have a discount
to market value of more than 5%. The proposed legislation requires the
regulations to be prescribed by the FDIC to take effect within 90 days of the
enactment of the legislation. It is uncertain whether or when such legislation
may be passed, and, if passed, what the final contents of such legislation will
be. If the legislation is passed as proposed with a retroactive November 22,
1993 effective date, it is uncertain what effect, if any, such legislation will
have on Statewide's Merger Conversion or the stock benefit plans.
Employment, Other Agreements and Stock Awards
In conjunction with the acquisition of Statewide, HUBCO has agreed to
provide certain benefits to Statewide's directors, officers and employees.
The Agreement provides that all directors of Statewide as of the date of
the Agreement, other than full-time officers of Statewide, will be invited to
become members of the Board of Directors of the Bank. As such, the directors of
Statewide will become eligible for all benefits currently available to directors
of the Bank, including a retirement plan pursuant to which the directors may
elect to receive either a cash payment or stock options. In addition, any
directors of Statewide who are required to retire pursuant to the Bank's
retirement policy will be offered the opportunity to serve on an advisory board
for the Statewide Division of the Bank at the time of such director's retirement
or within the succeeding 12 months. The Bank presently maintains three advisory
boards for its divisions and will create an advisory board for the new Statewide
division upon consummation of the Merger Conversion. In addition, any director
of Statewide who retires within 30 days of the effective time will be entitled
to receive benefits under Statewide's existing Director Emeritus Program, which
provides for an $8,000 annual payment, payable quarterly, for the life of the
director. HUBCO will assume the obligation to pay all benefits due any director
under the Director Emeritus Program.
As part of the Merger Conversion, HUBCO will enter into employment and
consulting agreements with Clifford J. Adams and William F. Davidson,
respectively. The employment agreement with Mr. Adams provides that he will be
employed as the chief financial officer of HUBCO and the Bank for a three year
period. He will receive a salary of not
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less than $135,890 per year and is entitled to a discounted lump sum
payment of such amount if he is terminated without cause or resigns for good
reason during the three-year term. HUBCO will enter into a consulting
agreement with Mr. Davidson that provides that he will serve as a consultant
to assist in the integration of Statewide into the Bank and in maintaining
for the Bank Statewide's customer relationships. Mr. Davidson will be paid a
$65,000 annual retainer for such services.
The Agreement calls for the Bank to make offers of employment commencing as
of the consummation of the Merger Conversion to all employees of Statewide.
However, the Agreement also provides that if reductions in staff are necessary,
the Bank is to notify employees of their continued employment status within
thirty 30 days after the effective date of the Merger Conversion. Any employee
who is notified that his employment is to be terminated will receive his salary
for a period of from six to 12 months from closing, depending upon the
employee's years of service. In addition, employment benefits such as health and
life insurance will be continued at the Bank's expense for the balance of the
severance period. Employees who continue to be employed by HUBCO or the Bank
will be entitled to participate in the Bank's benefit programs, such as its
pension and 401(k) plans.
Upon the consummation of the Merger Conversion, the officers and directors
of Statewide will receive stock options to acquire an aggregate of approximately
194,444 shares of the Common Stock, or 10% of the shares of the Common Stock
issued in the Merger Conversion, at an exercise price equal to the Subscription
Purchase Price. The options will be granted pursuant to an option plan adopted
by HUBCO. The stock options will have a term of ten years and will immediately
vest but must be exercised within 12 months after termination of employment or
service as a director or advisory director. HUBCO and Statewide anticipate that
of the estimated 194,444 shares in the option plan, 19,444, or 10%, will be
granted to each of the 9 directors of Statewide, and that the remaining 19,444,
or 10%, will be awarded to other senior management of Statewide.
In addition, HUBCO will establish the RRP, the management recognition plan
for officers and directors of Statewide under which such officers and directors
shall be entitled to receive awards of restricted stock. Approximately 97,222
shares of the Common Stock, or 5% of the shares of the Common Stock to be issued
in the Merger Conversion, are expected to be purchased by the RRP and will be
issued under the plan. To the extent that insufficient shares are available in
the Subscription Offering to satisfy the purchase of shares by the RRP, the RRP
may, following the Subscription Offering, acquire authorized but unissued shares
of Common Stock or treasury shares from HUBCO. The restricted stock will vest
ratably over a two-year period for directors and officers. The participant's
interest in the stock will not be transferable until a plan participant's
interest in the stock has vested and may be forfeited under certain
circumstances. HUBCO and Statewide anticipate that of the estimated 97,222
shares of Common Stock in the RRP, 9,722, or 10%, will be granted to each of the
9 directors of Statewide, and that the remaining 9,722 shares, or 10%, will be
awarded to other senior management of Statewide.
Conditions to Closing
The Agreement provides that consummation of the Merger Conversion is
subject to the satisfaction (or waiver in some cases) of a number of conditions,
including, but not limited to: (i) approval of the Plan by Statewide's voting
members at the Special Meeting; (ii) receipt of all regulatory approvals; (iii)
receipt of an opinion of HUBCO's counsel that the Merger Conversion constitutes
one or more tax-free reorganizations; (iv) the absence of a material adverse
change in the business or financial condition of Statewide since December 31,
1992; and (v) the sale of all shares of Common Stock required to be sold under
the Plan. If such conditions are not met (or waived in certain cases), all
subscription funds received, together with accrued interest, will be refunded to
subscribers, and all authorizations for withdrawal from accounts at Statewide
will be cancelled.
Closing Date
It is expected that the Closing Date will occur as soon as practicable
after the expiration of the Subscription Offering, assuming the satisfaction
(or, in certain cases, waiver) of certain other conditions contained in the
Agreement and the Plan and the expiration of all relevant notice and waiting
periods required in connection with the necessary regulatory approvals. The
Board of Directors of Statewide or HUBCO may terminate the Agreement if
consummation of the Merger Conversion does not occur by June 30, 1994. If the
date of consummation of the Merger Conversion is more than 45 days after the
expiration of the Subscription Offering, those who subscribed will be
resolicited and will have the opportunity to increase, decrease or rescind their
subscriptions. Subscriptions that are not amended or affirmed would be
considered automatically rescinded. See "SUBSCRIPTION PROCEDURES--Subscription
Rights; Eligible Subscribers in Subscription Offering."
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Termination
The Agreement may be terminated by mutual consent of the parties, whether
before or after approval of the Plan by the voting members of Statewide, and
unilaterally by either party upon a material breach of a representation,
warranty or covenant of the other party. The Agreement may be terminated by
either of the parties if any application for regulatory approval for the
conversion and acquisition of Statewide is denied or is approved with certain
adverse conditions or if the Closing Date does not occur on or prior to June 30,
1994. The Agreement may be terminated by HUBCO if there has been a material
adverse change in the business or financial condition of Statewide from March
31, 1993, or if there was a material breach in any representation, warranty or
agreement of Statewide under the Agreement. The Agreement may be terminated by
Statewide if there has been a material adverse change in the business or
financial condition of HUBCO since December 31, 1992 or if there was a material
breach in any representation, warranty or agreement of HUBCO under the
Agreement.
Fees and Expenses
In connection with the Merger Conversion, Statewide and HUBCO are each
responsible for their own fees and expenses.
DESCRIPTION OF THE OFFERINGS
General Information Regarding the Offerings
The Offerings are being made pursuant to the Plan and the Agreement. The
following description contains a summary of the material terms of the Offerings.
This summary does not purport to be complete, and is subject to, and qualified
in its entirety by the Plan and the Agreement.
This Prospectus, a Subscription Form, and additional information concerning
the Offerings have been mailed to each Eligible Subscriber, as well as to
shareholders of HUBCO and certain Community Offering Residents. Additional
copies of these documents are available upon request from the Statewide Stock
Information Center, 70 Sip Avenue, Jersey City, New Jersey 07306, telephone
number (201) ____________. In addition, any questions or requests for additional
information regarding the Merger Conversion and the Offerings may be directed to
the Statewide Stock Information Center.
Subscription and Stockholder Offerings
The shares of Common Stock being offered in the Subscription Offering are
being offered, in order of priority, to Eligible Account Holders and Other
Voting Members (each as defined earlier). NO ELIGIBLE SUBSCRIBER IS REQUIRED TO
SUBSCRIBE FOR SHARES OF COMMON STOCK IN ANY OFFERING. Any shares of Common Stock
offered but not subscribed for in the Subscription Offering is being offered in
the Stockholder Offering to stockholders of HUBCO. Only stockholders of record
as of ______________, 199__ (the "Record Date"), are eligible to subscribe for
shares in the Stockholder Offering. In accordance with the Plan, the right to
subscribe for shares in the Stockholder Offering is subject to the right of
HUBCO to accept or reject such subscriptions in whole or in part.
Shares will be offered in the Subscription and the Stockholder Offerings at
the Subscription Purchase Price and is expected to be at a discount from the
market price of the Common Stock. The Subscription Purchase Price will be equal
to the lesser of (i) the Fixed Price or (ii) 95% of the Community Purchase
Price. The Fixed Price is subject to appropriate adjustment for stock splits,
stock dividends, stock combinations, reclassifications and other similar
transactions effected by HUBCO with respect to its Common Stock prior to the
Closing, as provided in the Agreement. Although the Subscription Purchase Price
will be less than the Community Purchase Price, and is expected to be at a
discount to the market price of the Common Stock, it is possible that because of
fluctuations in the market price of the Common Stock the Subscription Purchase
Price could be greater than the market price for the Common Stock on the Closing
Date and/or the date subscribers receive stock certificates for their shares.
Moreover, although it is expected that the Closing Date and the date stock
certificates for the shares are delivered will occur as soon as practicable
after the Subscription Expiration Date, there can be no assurance that delays
will not occur. Until stock certificates for shares are received, purchasers may
not be able to sell their shares. Thus, for these and other reasons, there is no
assurance that those who purchase shares of Common Stock in the Subscription and
the Stockholder Offerings will be able to sell such shares at a price equal to
or greater than the Subscription Purchase Price. See "INVESTMENT
CONSIDERATIONS--Subscription Purchase Price" and
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"SUBSCRIPTION PROCEDURES--Settlement for Shares; Delivery of Certificates" and
"MARKET PRICE AND DIVIDENDS OF HUBCO."
If all shares of Common Stock are subscribed for in the Subscription
Offering, no shares will be available for sale in the Stockholder Offering and
all funds submitted by Stockholder Offering subscribers will be refunded, with
interest earned, if any (and any funds designated for withdrawal from deposit
accounts will be released). In the event of an oversubscription of shares
subscribed for in the Stockholder Offering, the shares available will be
allocated in the manner described below. See "SUBSCRIPTION
PROCEDURES--Oversubscription."
The Community Offering
Any shares of Common Stock offered but not subscribed for in the
Subscription and Stockholder Offerings will then be offered to the general
public at the Community Purchase Price in the Community Offering with a
preference, first to natural persons residing in the counties in which Statewide
maintains offices and second to natural persons residing in the State of New
Jersey ("Community Offering Residents"). HUBCO may require a Community Offering
Resident to provide reasonably satisfactory evidence that such person qualifies
as a Community Offering Resident. All such determinations will be made by HUBCO
in its sole discretion and will be final and conclusive. In accordance with the
Plan, the right to subscribe for shares in the Community Offering is subject to
the right of HUBCO to accept or reject such subscriptions in whole or in part.
If all shares of Common Stock are subscribed for in the Subscription and
Stockholder Offerings, no shares will be available for sale in the Community
Offering and all funds submitted in the Community Offering will be refunded,
with interest earned, if any and any funds designated from deposit accounts will
be released. In the event of an oversubscription of shares subscribed for in the
Community Offering, the shares available will be allocated in the manner
described below.
Plan of Distribution
The Offerings will be managed by Community Capital pursuant to the terms of
an Agency Agreement (the "Agency Agreement"). This discussion is qualified in
its entirety by, and reference is hereby made to, the Agency Agreement among
HUBCO, Statewide and Community Capital. Pursuant to the Agency Agreement, HUBCO
has retained Community Capital to consult with HUBCO and to provide certain
financial, advisory, administrative, marketing and sales services in connection
with the Merger Conversion and the distribution of shares of Common Stock in the
Offerings.
For its advisory and administrative services Community Capital will receive
an advisory and management fee equal to either:
1. if the Subscription Purchase Price represents a discount to
the Community Purchase Price of 14% or more, (i) $75,000 so long as
the dollar amount of Common Stock sold in the Offerings equals or
exceeds 75% of the appraised value of Statewide; or (ii) $37,500 so
long as the dollar amount of Common Stock sold in the Offerings equals
60%-74% of the appraised value of Statewide; or (iii) no management
fee so long as the dollar amount of Shares sold in the Offerings is
less than 60% of the appraised value of Statewide; or
2. if the Subscription Purchase Price represents a discount to
the Community Purchase Price of less than 14%, $50,000.
For its marketing services Community Capital will receive a marketing fee
equal to either:
1. if the Subscription Purchase Price represents a discount to
the Community Purchase Price of 14% or more, two percent (2.0%) of the
dollar amount of Common Stock is sold in the Offerings; or
2. if the Subscription Purchase Price represents a discount to
the Community Purchase Price of less than 14%, such fee shall be
determined as follows: for each full 1% of discount below 14%, the
marketing fee of 2% shall be increased by .00625% until a discount of
6% or less shall have been reached at which point the fee shall be
capped at 2.5%. Notwithstanding the foregoing, the marketing fee with
respect to shares sold at the Community Purchase Price (i.e., without
a discount) will be 2.5% of the dollar amount of such shares sold,
except for shares sold in a Syndicated Community Offering for which
the fee is described below.
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Notwithstanding the above, Community Capital will not receive any compensation
with respect to shares of Common Stock sold to any director, officer or employee
benefit plans of HUBCO or Statewide. In the event (i) the Plan is terminated by
the HUBCO or Statewide, (ii) the Offerings are not consummated by September 30,
1994, or (iii) Community Capital terminates the Agency Agreement in accordance
with its provisions, Community Capital shall be entitled to receive an advisory
and administrative services fee of $62,500 plus reimbursement for its reasonable
out-of-pocket expenses. Community Capital has received an advance of $25,000
with respect to its fees. HUBCO also has agreed to reimburse Community Capital
for its reasonable out-of-pocket expenses, including legal fees and expenses.
The maximum amount Community Capital will receive for reimbursement of legal
fees and expenses will be $50,000. In addition, HUBCO will indemnify Community
Capital against certain potential claims and liabilities, including certain
liabilities under the Securities Act of 1933.
Depending on market conditions, shares not subscribed for in the
Subscription and Stockholder Offerings may be offered to certain members of the
general public in the Syndicated Community Offering on a best efforts basis by a
selling group of broker-dealers which may include Ryan, Beck & Co., Inc.
("Selected Dealers") to be managed by Community Capital or may be offered in the
Public Offering. If shares of Common Stock are sold in the Syndicated Community
Offering, Community Capital will receive a fee of 1.5% of the aggregate dollar
amount of shares sold by the Selected Dealers, which fee, along with any fees
payable to the Selected Dealers, will not exceed 7% of the aggregate dollar
amount of shares sold by the Selected Dealers. If shares of Common Stock are
sold in a Public Offering, the terms and conditions of such sale would be
contained in a separately negotiated underwriting agreement, but the total
underwriting discount is not expected to exceed 7% of the dollar amount of
shares sold in the Public Offering.
If shares of Common Stock are offered in a Syndicated Community Offering,
Selected Dealers may only solicit indications of interest from their customers
to place orders with HUBCO as of a certain date ("Order Date") for the purchase
of shares of Common Stock. When and if Community Capital and HUBCO believe that
enough indications of interest and orders have been received, Community Capital
will request, as of the Order Date, Selected Dealers to submit orders to
purchase shares for which they have previously received indications of interest
from their customers. Selected Dealers will send confirmation of the orders to
such customers on the "Settlement Date" which date will be five business days
from the Order Date. Customers who authorize Selected Dealers to debit their
brokerage accounts are required to have the funds for payment in their account
on but not before the Settlement Date. On the Settlement Date, Selected Dealers
will remit funds to Statewide for deposit in an escrow account at Statewide.
Each customer's funds so forwarded to Statewide, along with all other accounts
held in the same title and subject to other FDIC regulations, will be insured by
the FDIC up to the applicable $100,000 limit.
Sales of Common Stock in the Offerings will be made by registered
representatives affiliated with Community Capital. In addition, officers and
employees of HUBCO and Statewide may participate in the offerings in ministerial
capacities, providing clerical assistance in effecting a sales transaction or
answering questions of a mechanical nature relating to proper execution of the
Subscription Form. Other questions by prospective purchasers relating to the
Offerings will be directed to registered representatives. Such persons will not
solicit offers to purchase Common Stock or provide advice regarding the purchase
of Common Stock.
Anticipated Subscriptions for Shares in the Subscription Offering by
Statewide Directors and Executive Officers
The following table sets forth for each director and executive officer of
Statewide the number of shares of Common Stock such director or officer intends
to subscribe for in the Subscription Offering.
<TABLE>
<CAPTION>
Anticipated Number
Name Position of Shares
---- -------- ------------------
<S> <C> <C>
William F. Davidson Chairman, Chief Executive Officer and Director 5,000
Clifford J. Adams President, Chief Operating Officer and Director 3,500
Frank D. Garibaldi Director 8,400
Henry A. Klie Director 5,000
Maria F. Ramirez Director 2,800
John J. Reilly Director 1,000
Victor M. Richel Director 4,000
Walter G. Scott, Jr. Director 5,000
Stephen R. Tilton Director 97,222
-------
TOTAL 131,922
=======
</TABLE>
(6.78% of the shares offered in the Merger Conversion)
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Subscribers may be limited to less than 5% of the number of shares sold but
not less than 1%. See "Minimum and Maximum Limitations on Purchases." This
limitation may reduce the number of shares purchased by the directors and
executive officers of Statewide. The nine directors and officers are also
expected to be awarded 87,498 shares, or 9,722 each under the RRP and options
for 174,996 shares under the option plan. See "THE MERGER
CONVERSION--Employment, Other Agreements and Stock Awards."
SUBSCRIPTION PROCEDURES
The following discussion of subscription procedures applicable to the
Offerings does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, the provisions of the Agreement and the Plan,
which are filed as exhibits to the Registration Statement of which this
Prospectus is a part. See "AVAILABLE INFORMATION".
To ensure that each purchaser receives a Prospectus at least 48 hours
before the Subscription Expiration Date, Prospectuses may not be mailed any
later than five days prior to such date or be hand delivered any later than two
days prior to such date. Subscription Forms may not be distributed without a
Prospectus.
Subscription Rights; Eligible Subscribers in Subscription Offering
Exercise of Rights. This Prospectus, a Subscription Form and additional
information concerning the Merger Conversion have been mailed to each Eligible
Subscriber in the Subscription Offering. Only Eligible Subscribers may
participate in the Subscription Offering. Subscription rights are
nontransferable and have been issued without charge to Eligible Subscribers. No
person may enter into any agreement or understanding to transfer the legal or
beneficial ownership of subscription rights or the shares of Common Stock to be
issued upon their exercise. Such rights may be exercised only by the person to
whom they are granted and only for his account. Each person exercising such
subscription rights will be required to certify that he is purchasing shares
solely for his own account and that he has no agreement or understanding
regarding the sale or transfer of such shares. Statewide and HUBCO will pursue
any legal and equitable remedies in the event they become aware of the transfer
of subscription rights, and will not honor orders known by them to involve the
transfer of such rights.
Statewide's Voting Members consist of all holders of any withdrawable or
deposit account of Statewide, excluding any non-interest bearing demand deposit,
negotiable order of withdrawal (NOW) deposit account or other non-interest
bearing transaction account (including IRA and Keogh account beneficiaries) of
record and all borrowers from Statewide as of the Voting Record Date, which is
_________ 1994. No person is required to purchase any shares of Common Stock in
the Subscription Offering.
Each of Statewide's Eligible Subscribers who wishes to exercise
subscription rights in the Subscription Offering should complete and sign the
Subscription Form indicating the dollar amount of Common Stock subscribed for.
See "--Minimum and Maximum Limitations on Purchases". The Subscription Form,
together with full payment for shares subscribed for, may be delivered to any
Statewide office or be mailed in the enclosed postage-paid return envelope.
Those persons who are beneficial owners of IRA, Keogh or similar accounts
are not themselves Eligible Subscribers by virtue of having such accounts, but
the account itself may be an Eligible Subscriber, if it is at Statewide. Payment
for the Common Stock may be made with funds from an IRA or Keogh plan only if
the beneficial owner authorizes and directs Statewide to transfer the IRA or
Keogh plan to a self-directed IRA or Keogh plan at an independent trustee that
permits the account to hold stock. The independent trustee then must be directed
by the beneficiary to use funds from such account in an amount equal to the
dollar amount of Common Stock subscribed for. Those persons who are interested
in utilizing IRA, Keogh or similar accounts at Statewide to subscribe for shares
of Common Stock in the Subscription Offering should contact the Stock
Information Center, _______, for instructions and assistance.
Whether hand delivered or mailed, Subscription Forms and payment must be
received by 5:00 p.m. New Jersey Time on ______, 1994 (or _____, 1994, if
extended by Statewide with the approval of HUBCO and without further approval of
the Commissioner or additional notice to subscribers). Failure of such receipt
by the expiration time for any reason, will be deemed a waiver and release by
the Eligible Subscriber of any rights the Eligible Subscriber may have in the
Subscription Offering. An executed Subscription Form, once delivered, cannot be
amended, modified or rescinded by the subscriber. Statewide, with the approval
of HUBCO may,
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but is not required to, waive any immaterial irregularity in any
Subscription Form or require the submission of a corrected Subscription Form or
the remittance of full payment for subscribed shares by such date as Statewide
may specify. HUBCO's interpretation of the terms and conditions of subscription
forms is final and HUBCO has the right to accept or reject, in whole or in part,
the exercise of any subscription rights.
Subscription payments will not be released until the Merger Conversion is
completed or terminated; provided, however, if the Closing Date is not within 45
days after the close of the Offerings (i.e. ______, 1994), unless such period
has been extended with the consent of the Commissioner, if necessary, all
subscribers will have their funds returned promptly, with interest, and all
withdrawal authorizations will be canceled. If an extension of time has been
granted, all subscribers will be notified of such extension, of their rights to
modify or rescind their subscriptions and have their subscription funds returned
promptly with interest, and of the time period within which the subscriber must
notify HUBCO of his intention to modify or rescind his subscription. The
subscription of any subscriber that does not respond to the resolicitation will
be automatically rescinded.
Additional copies of Prospectuses are available upon request and questions
or requests regarding subscription procedures or related matters may be directed
to the Stock Information Center, __________.
Stockholder Offering
This Prospectus and a Subscription Form have been mailed to each
shareholder of record of HUBCO as of the Record Date. If any shares of the
Common Stock are not subscribed for in the Subscription Offering, they will be
offered in the Stockholder Offering. Only shareholders of record of HUBCO on the
Record Date may participate in the Stockholder Offering and the right to
subscribe for shares in the Stockholder Offering is nontransferable.
Each eligible HUBCO stockholder who wishes to purchase the Common Stock
should complete and sign the Subscription Form, indicating the dollar amount of
Common Stock subscribed for. See "--Minimum and Maximum Limitations on
Purchases." The Subscription Form, together with full payment for shares
subscribed for, may be delivered to any Statewide office or be mailed in the
enclosed postage-paid return envelope.
Whether hand delivered or mailed, Subscription Forms and payment must be
received by 5:00 p.m. New Jersey Time on _______________, 1994 (or _____, 1994,
if extended by Statewide with the approval of HUBCO and without further approval
of the Commissioner or additional notice to subscribers). An executed
Subscription Form, once delivered, cannot be amended, modified or rescinded by
the subscriber; provided, however, if the Closing Date is not within 45 days
after the close of the Offerings (i.e. ______, 1994), unless such period has
been extended with the consent of the Commissioner, if necessary, all
subscribers will have their funds returned promptly, with interest, and all
withdrawal authorizations will be canceled. If an extension of time has been
granted, all subscribers will be notified of such extension, of their rights to
modify or rescind their subscriptions and have their subscription funds returned
promptly with interest, and of the time period within which the subscriber must
notify HUBCO of his intention to modify or rescind his subscription. The
subscription of any subscriber that does not respond to the resolicitation will
be automatically rescinded.
Statewide, with the approval of HUBCO may, but is not required to waive any
immaterial irregularity of a corrected Subscription Form or the remittance of
full payment for subscribed shares by such date as Statewide may specify.
HUBCO's interpretation of terms and conditions of the Stockholder Offering is
final and HUBCO has the right to accept or reject any subscription.
Community Offering
Any shares of the Common Stock not subscribed for in the Subscription
Offering or Stockholder Offering are being offered to the general public in the
Community Offering. Preference in the Community Offering will first be given to
natural persons residing in counties in which Statewide maintains offices and
second to natural persons residing in the State of New Jersey.
Each person in the Community Offering who wishes to purchase the Common
Stock should complete and sign the Subscription Form, indicating the dollar
amount of Common Stock subscribed for. See "--Minimum and Maximum Limitations on
Purchases." The Subscription Form, together with full payment for shares
subscribed for, may be delivered to any Statewide office or be mailed in the
enclosed postage-paid return envelope.
Whether hand delivered or mailed, Subscription Forms and payment must be
received by 5:00 p.m. New Jersey Time on ____________, 1994 (or ______, 1994, if
extended by Statewide with the approval of HUBCO and
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<PAGE>
without further approval of the Commissioner or additional notice to
subscribers. An executed Subscription Form, once delivered, cannot be
amended, modified or rescinded by the subscriber; provided, however, if
the Closing Date is not within 45 days after the close of the Offerings
(i.e. ______, 1994), unless such period has been extended with the consent
of the Commissioner, if necessary, all subscribers will have their funds
returned promptly, with interest, and all withdrawal authorizations will be
canceled. If an extension of time has been granted, all subscribers will be
notified of such extension, of their rights to modify or rescind their
subscriptions and have their subscription funds returned promptly with
interest, and of the time period within which the subscriber must notify
HUBCO of his intention to modify or rescind his subscription. The subscription
of any subscriber that does not respond to the resolicitation will be
automatically rescinded.
Statewide, with the approval of HUBCO may, but is not required to waive any
immaterial irregularity of a corrected Subscription Form or the remittance of
full payment for subscribed shares by such date as Statewide may specify.
HUBCO's interpretation of terms and conditions of the Community Offering is
final and HUBCO has the right to accept or reject any subscription.
Number of Shares of Common Stock
HUBCO has estimated that it is offering 1,944,444 shares hereby. This
number is an estimate based on the midpoint of the Preliminary Appraised Value
of Statewide prepared by Kaplan Associates of $35 million and an assumption that
all shares being offered hereby will be sold in the Subscription Offering and
Stockholder Offering at $18 per share. Using such assumptions, the number of
shares offered will range from 2,236,111 shares at the maximum and 1,652,778
shares at the minimum of the ranges of the Preliminary Appraised Value of
Statewide prepared by Kaplan Associates. The actual number of shares to be sold
pursuant to this Prospectus may differ from the estimate of shares being
offered. If subscriptions in the Subscription and Stockholder Offerings are
received for an aggregate dollar amount of shares of Common Stock which is less
than the Final Appraised Value, the actual number of shares to be issued will be
determined by adding the sum of (i) the number of shares purchased at the
Subscription Purchase Price in the Subscription Offering and Stockholder
Offering and (ii) the number of shares purchased in the Community Offering, or
Public Offering, which will be determined by subtracting the aggregate dollar
amount of shares purchased in the Subscription and Stockholder Offerings from
the Final Appraised Value and dividing the result by the Community Purchase
Price. If subscriptions in the Subscription and Stockholder Offerings are
received for an aggregate dollar amount of shares of Common Stock which is equal
to or greater than the Final Appraised Value, the actual number of shares to be
issued will be determined by dividing the Final Appraised Value by the
Subscription Purchase Price. As provided in the Plan of Conversion, Kaplan
Associates will determine the Final Appraised Value promptly following
expiration of the Subscription Offering. If the Final Appraised Value is higher
or lower than $35 million, the aggregate dollar amount of shares offered in the
Subscription Offering will be correspondingly adjusted without a resolicitation
of subscribers, as long as the Final Appraised Value determined by Kaplan
Associates remains within the Estimated Valuation Range of $29.75 million to
$40.25 million. If Kaplan Associates determines that the Final Appraised Value
is not within the Estimated Valuation Range, Commissioner approval must be
obtained in order to complete the Subscription Offering and to allow such amount
to be used as a basis for determining the actual number of shares of Common
Stock offered in the Subscription Offering. Such approval will be conditioned
upon a resolicitation of subscribers. In the event resolicitation is required,
subscribers will be given the opportunity to increase, decrease or rescind their
subscriptions and will be provided updated information upon which to base such
decision. The subscription of any subscriber that does not respond to the
resolicitation will be automatically rescinded. A copy of the updated approval
will be filed with the Securities and Exchange Commission by means of a
post-effective amendment to the Registration Statement of which this Prospectus
is a part. See "AVAILABLE INFORMATION."
In determining the Preliminary Appraised Value, Kaplan Associates conducted
an analysis of Statewide that included a review of, among other factors,
Statewide's audited financial statements prepared for the years ended March 31,
1992 and 1993 and unaudited financial statements for the six months ended
September 30, 1992 and 1993. It also reviewed the economy in Statewide's primary
market area and compared the respective financial condition and operating
performance of Statewide with that of selected comparable publicly traded
savings institutions. In addition, conditions in the securities market in
general and in the market for thrift stocks in particular were reviewed.
Similarly, when Kaplan Associates determines the Final Appraised Value following
the expiration of the Subscription Offering, it intends to consider, among other
things, any new developments or changes in Statewide's financial performance and
condition and management policies and conditions in the public markets for
thrift institution stock. Kaplan
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Associates has relied on and assumed the accuracy and completeness of
financial and statistical information provided by Statewide and did not
independently verify the financial statements and other information
provided by them, nor did it independently value the assets or liabilities
of Statewide. Copies of the Kaplan Associates appraisal and the detailed
memorandum of the appraiser setting forth the method and assumptions for
such appraisal of Statewide are on file and available for inspection at the
Statewide Stock Information Center. Kaplan Associates will receive an aggregate
fee of $______ for its services as well as reimbursement for certain expenses up
to an aggregate amount not to exceed $_______. Statewide has agreed to indemnify
Kaplan Associates against certain liabilities arising out of or based upon its
performance of services except where Kaplan Associates is determined to have
been negligent or to have failed to exercise due diligence in the preparation of
its appraisal.
Statewide retained Kaplan Associates because it determined that Kaplan
Associates was independent of Statewide, had experience in the area of corporate
appraisal and, based upon its prior work in the field, would be acceptable to
the regulatory authorities. Statewide's board of directors, with the assistance
of its financial advisor, reviewed the methodology used in the preliminary
appraisal as well as the assumptions underlying the preliminary appraisal.
Although Statewide's board of directors and the Committee reviewed the
summary valuation and the preliminary appraisal, they did not seek to influence
or change the appraisal. Federal regulations governing conversions require an
independent valuation of the converting institution, which is why Statewide
hired Kaplan Associates.
THE APPRAISED VALUE OF STATEWIDE IS NOT INTENDED, AND MUST NOT BE
CONSTRUED, AS A RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING
SHARES OF COMMON STOCK. THE APPRAISED VALUE CONSIDERS STATEWIDE AS A GOING
CONCERN AND AS PART OF HUBCO AND SHOULD NOT BE CONSIDERED AS AN INDICATION OF
THE CURRENT LIQUIDATION VALUE OF STATEWIDE OR OF ITS VALUE FOLLOWING
CONSUMMATION OF THE MERGER CONVERSION. IN ADDITION, THE APPRAISED VALUE IS NOT
INTENDED, AND MUST NOT BE CONSTRUED, TO EXPRESS AN OPINION AS TO THE VALUE OF
COMMON STOCK OFFERED HEREBY.
THE SHARES OF COMMON STOCK CANNOT AND WILL NOT BE INSURED BY THE FDIC OR BY
ANY OTHER GOVERNMENTAL AGENCY.
Payment for Shares
Generally, payment for the dollar amount of shares of Common Stock
subscribed for may be made by cash (if delivered in person), by check or money
order and such payment must accompany the Subscription Form.
All subscribers must subscribe for a dollar amount. A subscriber will
receive the largest whole number of shares which that dollar amount will
purchase, based upon the applicable purchase price and subject to maximum
limitations and allocation procedures due to oversubscription of shares.
Subscribers whose purchases are limited will receive a refund. See below
"Settlement for Shares; Delivery of Certificates; Refunds".
If a subscriber has a Statewide deposit account, payment for the shares may
be made by authorizing Statewide on the Subscription Form to make a withdrawal
from such account in a designated amount. In the case of a withdrawal
authorization, the designated funds may not be withdrawn by the subscriber and
will remain in the account until withdrawn by Statewide as of the Closing Date.
Funds for which withdrawal is authorized will continue to accrue interest in
accordance with the contractual terms of the account until funds are withdrawn
at the Closing Date. Notwithstanding any provision regarding penalties for each
withdrawal from a certificate of deposit account, Statewide will permit a
subscriber to pay for any shares of Common Stock subscribed for by withdrawal
from a certificate of deposit account without the assessment of a penalty. If,
after the authorized withdrawal, the remaining balance in the certificate
account does not meet the applicable minimum balance requirement, the
certificate will be cancelled at the time of the withdrawal, and the remaining
balance will earn interest thereafter at the passbook rate.
Subscription funds received for the purchase of Common Stock will be
deposited in an escrow account at Statewide. Interest on the funds deposited
will accrue at the passbook rate of Statewide, presently 2.50% per annum, from
the date payment is received until the Closing Date or the Termination Date. The
amount of interest earned will be paid to each subscriber promptly after the
Closing Date or, if applicable, after the Termination Date.
Subscribers may not borrow funds from Statewide or the Bank or HUBCO for
the purpose of purchasing Common Stock in the Offerings.
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Minimum and Maximum Limitations on Purchases
The Plan places limitations on the number of shares which may be purchased
in the Offerings by one purchaser or a group of purchasers acting in concert.
The minimum subscription in the Subscription Offering is for 25 shares. The
minimum subscription in the other Offerings is for 100 shares. The maximum
number of shares of the Common Stock which may be purchased in the Merger
Conversion by any subscriber, and associates of such subscriber, or by a group
of persons acting in concert, may not exceed 5% of the total Common Stock issued
in the Merger Conversion. However, HUBCO and the Board of Directors of Statewide
may, in their sole discretion and without further notice to or solicitation of
subscribers or other prospective purchasers, decrease such maximum purchase
limitation (except for purchases made on behalf of the RRP) down to 1% of the
total shares of Common Stock issued in the Merger Conversion. For these
purposes, an "associate" is (i) any company (other than HUBCO or a
majority-owned subsidiary thereof) of which such person is an officer or partner
or is, directly or indirectly, the beneficial owner of 10% or more of any class
of equity securities; (ii) any trust or other estate in which such person has a
substantial beneficial interest or as to which such person serves as trustee or
in a similar fiduciary capacity, except for a tax-qualified employee stock
benefit plan; and (iii) any relative or spouse of such person, or any relative
of such spouse, who has the same home as such person or who is a director or
officer of Statewide or any of its subsidiaries. See "--Settlement for Shares;
Delivery of Certificates" and "--Number of Shares of Common Stock."
Settlement for Shares; Delivery of Certificates; Refunds
The number of shares issued to a subscriber will be determined at the
conclusion of the Merger Conversion, and will depend on the dollar amount
subscribed for, the applicable purchase price, the effect of certain purchase
limitations and/or allocation procedures due to oversubscription of shares.
Promptly after the Closing Date, refunds (or release of funds designated for
withdrawal from deposit accounts) will be made (i) in lieu of fractional shares,
(ii) as a result of purchase limitations, (iii) in the event and to the extent
of oversubscription, or (iv) if the Offering is terminated. Interest earned on
subscription funds will be paid to the subscribers. See "--Oversubscriptions",
"--Minimum and Maximum Limitations on Purchases" and "Payment For Shares."
Statewide and Hubco have the right to reject any order submitted by a
person whose representations they believe to be false or who it otherwise
believes, either alone or acting in concert with others is violating, evading,
circumventing, or intends to violate, evade or circumvent the terms and
conditions of the plan.
Certificates representing shares issued will be mailed to the address
indicated on the Subscription Form promptly following the Closing Date along
with notification of the Subscription Purchase Price and the Community Offering
Price. Any certificates returned as undeliverable will be held by HUBCO until
claimed by the persons legally entitled thereto or otherwise disposed of in
accordance with applicable law.
Although it is anticipated that the Closing Date and delivery of the stock
certificates will occur as soon as practicable after the expiration of the
Offerings, there can be no assurance that delays will not occur. Subscribers may
not be able to sell the shares purchased until certificates are delivered. See
"INVESTMENT CONSIDERATIONS."
Oversubscription
If subscriptions are received for a dollar amount of Common Stock greater
than the Final Appraised Value, the shares to be issued will be allocated first
to the Subscription Offering, then to the Stockholder Offering, and then to the
Community Offering.
Within the Subscription Offering, shares will be allocated among Eligible
Account Holders and then among Other Voting Members as follows:
(a) If there are insufficient shares to fill the subscriptions of
Eligible Account Holders, shares first will be allocated among subscribing
Eligible Account Holders so as to permit each such Eligible Account Holder
to purchase the lesser of 100 shares or the number of shares ordered. Any
shares remaining after that allocation shall be allocated among subscribing
Eligible Account Holders whose subscriptions remain unsatisfied in the
proportion that the amount of qualifying deposits of each Eligible Account
Holder bears to the total amount of qualifying deposits of all Eligible
Account Holders whose subscriptions remain unsatisfied. If the amount so
allocated exceeds the amount subscribed for by any one or more Eligible
Account Holders, the excess shall be reallocated (one or more times as
necessary) among Eligible Account Holders whose subscriptions are still not
fully satisfied on the same principle until all available shares have been
allocated.
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(b) If there are sufficient shares to fill the subscriptions of
Eligible Account Holders but not those of Other Voting Members shares
remaining shall be allocated to each subscribing Other Voting Member in the
proportion that his or her respective subscription bears to the total
subscriptions of all such subscribing Other Voting Members.
If there are shares available after filling all subscriptions in the
Subscription Offering, but the amount of shares remaining is insufficient to
fill the orders received in the Stockholder Offering, then within the
Stockholder Offering, to the extent possible, shares will be allocated first, to
each HUBCO stockholder whose order is accepted (each, a "HUBCO Buyer") in an
amount equal to the lesser of: (a) 500 shares; or (b) the number of shares
subscribed for by such HUBCO Buyer. If there are unallocated shares remaining
thereafter, shares will be allocated to each HUBCO Buyer whose subscription
remains unsatisfied in the proportion that the unfilled subscription of such
HUBCO Buyer bears to the total unfilled subscriptions of all HUBCO Buyers.
If there are shares available after filling all accepted subscriptions in
the Stockholder Offering, but the amount of shares remaining is insufficient to
fill the subscriptions of subscribers in the Community Offering, then, to the
extent possible, shares will be allocated first, to each such subscriber whose
order is accepted ("Community Buyer") in an amount equal to the lesser of: (a)
500 shares; or (b) the number of shares subscribed for by such Community Buyer.
If there are unallocated shares remaining thereafter, available shares will be
allocated in the manner described above for the Stockholder Offering, except
that the subscriptions of natural persons residing in Bergen, Hudson and Union
Counties, New Jersey will be filled before any shares are allocated to other
Community Residents or to other subscribers in the Community Offering.
Termination of Offering
The Offerings may be terminated at any time prior to the Closing Date if
all of the conditions contained in the Agreement and the Plan of Conversion have
not been met (or, in certain cases, waived). In the event of termination,
subscribers will receive refunds for amounts remitted for their subscriptions
plus interest. Funds designated for withdrawal from deposit accounts will be
released.
Subscription rights will not be given to persons who reside outside the
United States or in jurisdictions where only a small number of persons otherwise
eligible to subscribe for Common Stock reside, or where compliance with the
securities laws of such jurisdictions would require HUBCO to register as a
broker/dealer or otherwise qualify its securities for sale or where such
registration or qualification would not be practicable for reasons of cost or
otherwise. Under such circumstances, no payments will be made in lieu of the
granting of subscription rights.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary discussion of certain anticipated federal income
tax consequences of the Merger Conversion and the purchase by Eligible
Subscribers of Common Stock pursuant to the Subscription Offering. This summary
is based on current law and it should be understood that the tax consequences of
the Merger Conversion are subject to change in the event of changes in the law,
including amendments to applicable statutes or regulations and changes in
judicial or administrative rulings, some of which could be given retroactive
effect. This summary does not address any foreign, state, or local tax
consequences, nor does it address all aspects of federal income taxation that
may apply to the Merger Conversion. Furthermore, the tax consequences to each
particular Eligible Subscriber will depend on his or her particular
circumstances or taxpayer status (e.g., nonresident alien, tax-exempt entity,
etc.), which may not be addressed in this summary. Eligible Subscribers are
urged, therefore, to consult their own tax advisors as to the specific tax
consequences to them of the Merger Conversion and any purchase of Common Stock
pursuant to the Offerings including, without limitation, tax return reporting
requirements, the application and effect of federal, foreign, state, local, and
other tax laws, and the implications of any proposed changes in the tax laws.
Although the matter is not free from doubt, Eligible Subscribers may be
required to recognize taxable income by reason of their receipt of Subscription
Rights because the Subscription Price may be less than the fair market value of
the Common Stock. An Eligible Subscriber who has recognized taxable income by
reason of his or her receipt of Subscription Rights may be able to claim a loss
upon the expiration of any unexercised Subscription Rights, which loss might be
available to reduce or offset the amount of taxable income required to be
recognized by such Eligible Subscribers by reason of the receipt of such
Subscription Rights. Alternatively, an Eligible Subscriber may be able to claim
that taxable income should be recognized by reason of the receipt of
Subscription Rights only to the extent of the fair market value, if any, of any
Subscription Rights actually exercised by an Eligible Subscriber.
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Eligible Subscribers are not required to exercise their Subscription Rights
or to purchase shares in the Subscription Offering.
HUBCO and Statewide will receive an opinion (the "Tax Opinion") of Clapp &
Eisenberg, P.C., tax counsel to HUBCO, in which various opinions are rendered
with respect to certain federal income tax consequences to Eligible Account
Holders of the Merger Conversion and the purchase of the Common Stock pursuant
to the Subscription Offering and the Community Offering, respectively. Such
opinion does not address the tax consequences of the transaction to Members who
are not Eligible Account Holders. Where appropriate or useful, this discussion
will refer to the Tax Opinion and particular conclusions expressed therein.
However, a legal opinion such as the Tax Opinion represents only the opining
lawyer's best legal judgment as to the matters expressed therein and has no
binding effect on the IRS or any court or administrative tribunal. There can be
no assurance that the IRS could not successfully contest in the courts a legal
conclusion expressed in the Tax Opinion or that legislative, administrative, or
judicial decisions or interpretations may not be forthcoming that would
significantly change the opinions set forth in the Tax Opinion. The IRS will not
currently issue private letter rulings concerning a transaction's qualification
as certain types of reorganizations or certain federal income tax consequences
resulting from any such qualification. No private letter ruling has been, nor is
it anticipated that such a ruling will be, requested from the IRS with respect
to the Merger Conversion.
Reorganization Status
The Tax Opinion will conclude, among other things, that the Merger
Conversion will constitute one or more reorganizations within the meaning of
Section 368(a) of the Code. Receipt of the Tax Opinion concluding that the
Merger Conversion will constitute one or more reorganizations under the Code is
a condition precedent to HUBCO's and Statewide's obligations to consummate the
Merger Conversion. In view of the fact that the Merger Conversion should
constitute one or more reorganizations for federal income tax purposes, neither
HUBCO, the Bank nor Statewide should recognize taxable gain or loss in
connection with the transaction. Notwithstanding the foregoing, Statewide will
be required to restore (i.e., take into income) the amount of its allowance for
possible loan losses maintained pursuant to Section 593(a) of the Code upon the
consummation of the Merger Conversion.
Certain Income Tax Consequences of the Merger Conversion to Eligible Subscribers
Under general rules that have developed in recent years, gain or loss, if
any, realized by Eligible Subscribers as a result of the Merger Conversion, must
be recognized and reported for federal income tax purposes. However, the amount
of such gain required to be recognized by an Eligible Subscriber will not exceed
the sum of (i) the fair market value of the Subscription Rights received by the
Eligible Subscribers pursuant to the Subscription Offering and (ii) the fair
market value, if any, of the interest to be received by the Eligible Subscribers
in the Liquidation Account to be established by Statewide in connection with the
Merger Conversion (the "Liquidation Account").
The application of these rules to the Merger Conversion is complicated by
the fact that the Eligible Subscribers will receive Subscription Rights to
purchase the Common Stock at the Subscription Price, which will be less than the
Public Offering Price. Historically, taxpayers have sometimes taken the position
that rights to purchase stock offered at fair market value in conversions of
mutual thrifts do not have independent value. This approach may not apply to the
Subscription Rights to purchase the Common Stock at the Subscription Price
because those Subscription Rights are expected to enable Eligible Subscribers to
purchase shares at less than the fair market value. It is unclear as to how the
Subscription Rights should be valued or how to determine the number of
Subscription Rights issued to each Eligible Subscribers for this purpose. The
determination of whether the Subscription Rights received have a determinable
fair market value could be affected by a number of factors including, without
limitation, the non-transferability of the Subscription Rights, the excess, if
any, of the market price of the Common Stock over the Subscription Price,
and the period of time during which the Subscription Rights will be outstanding
and exercisable, as well as other possible factors. In recent years the IRS
has indicated in several private letter rulings that any gain realized as a
result of the receipt of a Subscription Right with a fair market value must
be recognized by the Eligible Subscribers, regardless of whether or not such
Subscription Right is exercised. However, in a recent private letter ruling, the
IRS concluded that a subscription rights recipient realized gain from receipt
of a subscription right only if the subscription right were exercised. Private
letter rulings, while potentially instructive, may not be relied upon in the
present situation as any expression of the policy of the IRS or as any
expression of the present state of the law in this area, and it is uncertain as
to whether the IRS would reach a similar conclusion with regard to the
Subscription Rights received by Eligible Subscribers in this transaction.
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If an Eligible Subscriber is required to recognize gain upon receipt of
Subscription Rights and does not exercise some or all of the Subscription Rights
received, the Eligible Subscribers may be entitled to claim, for the year in
which the Subscription Rights expire, a loss in an amount equal to the Eligible
Subscribers' tax basis in such Subscription Rights. See "--Basis in Subscription
Rights and Interest in Liquidation Account." Such loss should be a capital loss,
provided the Common Stock that would have been acquired upon the exercise of
such Subscription Rights would have constituted a capital asset in the hands of
the Eligible Subscribers. Although the loss should be equal in amount to the
gain recognized upon receipt of such Subscription Rights, the character of the
loss as a capital loss may not necessarily be the same as the character of the
gain required to be recognized upon receipt of such Subscription Rights, and
under certain circumstances the year in which an Eligible Subscriber is entitled
to deduct the loss may be later than the year in which the gain from receipt of
such Subscription Rights is recognized. For most Eligible Subscribers, any gain
recognized with regard to the Subscription Rights received should be treated as
capital gain.
In several recent private letter rulings, the IRS has concluded that an
interest in a liquidation account has only nominal, if any, fair market value.
Private letter rulings, while potentially instructive, however, may not be
relied upon as legal authority by any taxpayer other than the taxpayers to whom
the rulings were addressed. Rather, such rulings should be viewed only as an
expression of the current policy of the IRS.
Eligible Subscribers are urged to consult with their own tax advisors as to
the specific tax consequences to them of the Merger Conversion and the purchase
of any the Common Stock pursuant to either the Subscription Offering or the
Community Offering including, among other matters, the determination of the
number of Subscription Rights which will be treated as received by an Eligible
Subscriber and when such Subscription Rights will be treated as received, the
determination of the fair market value of Subscription Rights and interest in
the Liquidation Account received, the amount of gain or loss, if any, realized
by Eligible Subscribers upon receipt of Subscription Rights and interests in the
Liquidation Account, the Eligible Subscribers' possible entitlement to claim a
deductible loss upon expiration of any unexercised Subscription Rights, and the
amount thereof, and the character of any gain or loss recognized by an Eligible
Subscriber as a result of the Merger Conversion.
Basis in Subscription Rights and Interest in Liquidation Account
An Eligible Subscriber who receives, as part of the Merger Conversion,
Subscription Rights in the Subscription Offering should have a tax basis in such
Subscription Rights equal to zero, increased by the amount of gain, if any,
recognized by such Eligible Subscribers with regard to such Subscription Rights.
An Eligible Subscriber's tax basis in the interest in the Liquidation Account
received by such Eligible Subscribers should be equal to the fair market value
of the interest in the Liquidation Account received. If the interest in the
Liquidation Account is determined to have no fair market value, the Eligible
Subscribers' tax basis therein will be zero.
Exercise of Subscription Rights Received in Subscription Offering
An Eligible Subscriber who receives Subscription Rights in the Subscription
Offering (i) will not recognize any additional taxable income as the result of
the purchase of the Common Stock pursuant to the exercise of such Subscription
Rights in excess of the fair market value of the Subscription Rights exercised,
and (ii) shall have a tax basis in the Common Stock so purchased equal to the
purchase price paid therefor, increased by the tax basis, if any, of the
Subscription Rights exercised, and shall have a holding period for such the
Common Stock commencing on the date the Subscription Rights are exercised. No
person is required to exercise Subscription Rights.
Beneficiaries of Retirement Deposits
Those who are beneficiaries of Retirement Deposits are not themselves
Eligible Subscribers by virtue of having such accounts, but the account itself
may be an Eligible Subscriber. Thus, the tax consequences of the receipt and
exercise of Subscription Rights should be applicable to the Retirement Deposits
themselves, and not the beneficial owners hereof. So long as such accounts are
tax-exempt, under Sections 408 or 501(a) of the Code, there should be no federal
income tax consequences to the accounts resulting from receipt of the
Subscription Rights. Provided that the beneficial owner of a Retirement Deposit
authorizes and directs Statewide to transfer the Retirement Deposit to a
self-directed Retirement Deposit at an independent trustee, then payment for the
Common Stock with funds from a Retirement Deposit should have no federal income
tax consequences to the Retirement Deposit or to the beneficial owner of such
account. To the extent that the balance in a Retirement Deposit is increased as
a result of the exercise of Subscription Rights, additional income generally
would be recognized upon the future withdrawal of such account balance.
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Tax Consequences of Stockholder Offering to Shareholders of HUBCO
Pursuant to the Stockholder Offering, shareholders of HUBCO shall have the
right, subject to the prior rights of the Eligible Subscribers granted pursuant
to the Subscription Offering, to subscribe for the Common Stock at the
Subscription Purchase Price which will be the lesser of (i) the Fixed Price or
(ii) 95% of the Community Purchase Price. As a general rule, a distribution by a
corporation to its shareholders of rights to acquire stock in the corporation is
not taxable to the shareholders, even if the stock rights are exercisable at a
purchase price less than the current fair market value of the stock. This
general rule should apply to the receipt of Subscription Rights by the
shareholders of HUBCO in connection with the Stockholder Offering. Where the
fair market value of stock rights at the time of their distribution is less than
15% of the fair market value of the stock with respect to which the rights are
distributed (which shall be the case with respect to the Stockholder Offering),
if the rights have been distributed in a nontaxable transaction, the rights will
have an adjusted basis in the hands of a recipient shareholder equal to zero,
unless the shareholder elects to allocate a portion of the basis in his stock
held at the time of the distribution of rights in accordance with rules
specified in the Code. Such an allocation is permitted only if the stock rights
are exercised. If the rights are allowed to lapse unexercised no basis
allocation is permitted. If the stock rights are exercised, there will be no
taxable gain or loss recognized by reason of the exercise, and the stock
acquired thereby will have a basis equal to the sum of the amount paid for the
stock, plus the amount of the basis, if any, of the shareholder in the stock
rights which have been exercised. The holding period of the stock acquired on
exercise of the stock rights will begin on the date the stock rights are
exercised.
Interest Payments and Backup Withholding
Any amounts received from a subscriber for the purchase of shares in the
Offerings (other than by designation of such amounts for withdrawal from a
deposit account) will be deposited in an escrow account at Statewide. Statewide
will pay interest to the Subscriber on such funds at the passbook rate from the
date payment is received until the Closing Date or the Termination Date.
Interest described in this paragraph should constitute ordinary interest income
to the subscriber.
For federal income tax purposes, Statewide is required, under certain
circumstances, to withhold 31 percent of payments (reportable payments) of
interest to a subscriber who is not exempt from backup withholding. Backup
withholding applies if, among other things, (i) the subscriber fails to furnish
Statewide with his or her social security number or other taxpayer
identification number ("TIN"), (ii) the IRS notifies Statewide that the TIN
furnished by the subscriber is incorrect, (iii) the IRS notifies Statewide that
the subscriber has failed to report interest properly, or (iv) under certain
circumstances, the subscriber fails to provide Statewide with a certified
statement, signed under penalty of perjury, that the TIN provided to Statewide
is correct and that such subscriber is not subject to withholding. Backup
withholding will not apply to a reportable payment of interest if the subscriber
is an exempt recipient (such as a corporation or a financial institution). Any
amounts withheld under the backup withholding rules would be allowed as a refund
or credit against a subscriber's federal income tax provided that required
information is furnished to the IRS.
DESCRIPTION OF CAPITAL STOCK OF HUBCO
General
The authorized capital stock of HUBCO consists of 13,200,000 shares of
Common Stock and 3,300,000 shares of preferred stock. As of January 6, 1994, (i)
6,585,980 shares of Common Stock were issued and outstanding, (ii) 166,450
shares of Common Stock were reserved for issuance under HUBCO's restricted stock
plan, and (iii) 110,000 were reserved for a director stock plan.
No shares of preferred stock have been issued. Under the terms of HUBCO's
Certificate of Incorporation, the Board of Directors has authority at any time
(i) to divide any or all of the preferred stock into series and determine the
designation, number of shares, relative rights, preferences and limitations of
any such series and (ii) to increase the number of shares of any such series
previously determined by it and to decrease such previously determined number of
shares to a number not less than that of the shares of such series then
outstanding.
Under the Washington Merger Agreement, HUBCO has agreed that it will amend
its certificate of incorporation to create a Series A Preferred Stock with a
stated value of $24.00, convertible into one share of HUBCO Common Stock. The
Series A Preferred Stock will have an adjustable annual cumulative dividend,
depending upon the closing price of HUBCO Common Stock during a 20 day period
ending two business days prior to the closing and each anniversary thereof. The
dividend will range from $1.00 a share, if the Common Stock is trading at
$24.00, to $1.68 a
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share if the Common Stock is trading below $19.00 a share. Dividends will be
paid quarterly and must be paid or set aside for payment before any dividends
can be paid on the Common Stock. The Series A Preferred Stock will rank senior
to any other class or series of preferred stock. The Series A Preferred Stock
is entitled to a preference upon any liquidation of $24.00 per share, plus
the amount of any accrued and unpaid dividends. The Series A Preferred Stock
may be called for redemption at any time if the Common Stock trades at $24.00
or more for 20 consecutive business days. The Series A Preferred Stock may
be converted into Common Stock at any time prior to the effective date of
the redemption and the conversion rate is subject to adjustment under
certain circumstances. Except as otherwise required under New Jersey law,
and as set forth below, the Series A Preferred Stock has no voting rights.
If HUBCO fails to pay a quarterly dividend upon the Preferred Stock for two
consecutive quarters, the holders of the Preferred Stock would have the
right to elect two directors to HUBCO's Board until the dividend arrearage is
cured. Under New Jersey law and the certificate of incorporation, holders of
Series A Preferred Stock would be entitled to vote as a separate class on any
merger, acquisition or sale of assets which requires the approval of HUBCO's
shareholders and on any amendment to the certificate of incorporation which
affects the provisions creating the Series A Preferred Stock, except an
amendment approved by the Board of Directors solely to affect a stock split or
reduction. The foregoing summary is qualified in its entirety by reference to
Exhibit 2.1 to the Washington Merger Agreement which contains the proposed
amendment to the certificate of incorporation of HUBCO to create the Series A
Preferred Stock. Under the Washington Merger Agreement, HUBCO anticipates that
it will issue 861,642 shares of this new Series A Preferred Stock if the
acquisition of Washington is consummated.
Dividend Rights
The holders of Common Stock are entitled to receive dividends, when, as and
if declared by the Board of Directors of HUBCO out of funds legally available
therefor, subject to the preferential dividend rights of any preferred stock
that may be outstanding. The only statutory limitation is that such dividends
may not be paid when HUBCO is insolvent and may be paid only out of statutory
surplus. Because funds for the payment of dividends by HUBCO must come primarily
from the earnings of HUBCO's bank subsidiary, as a practical matter, any
restrictions on the ability of the Bank to pay dividends act as restrictions on
the amount of funds available for the payment of dividends by HUBCO.
As a New Jersey chartered commercial bank, the Bank is subject to the
restrictions on the payment of dividends contained in the New Jersey Banking Act
of 1948 (the "Banking Act"). Under the Banking Act, the Bank may pay dividends
only out of retained earnings, and out of surplus to the extent that surplus
exceeds 50 percent of stated capital. Under the Financial Institutions
Supervisory Act, the FDIC has the authority to prohibit a state-chartered bank
from engaging in conduct which, in the FDIC's opinion, constitutes an unsafe or
unsound banking practice. Under certain circumstances, the FDIC could claim that
the payment of a dividend or other distribution by the Bank to HUBCO constitutes
an unsafe or unsound practice.
HUBCO is also subject to certain Federal Reserve Board policies which may,
in certain circumstances, limit its ability to pay dividends. The Federal
Reserve Board policies require, among other things, that a bank holding company
maintain a minimum capital base. The Federal Reserve Board would most likely
seek to prohibit any dividend payment which would reduce a holding company's
capital below these minimum amounts.
At September 30, 1993, the Bank had $57 million available for the payment
of dividends to HUBCO. At September 30, 1993, HUBCO had $28 million available
for stockholder dividends, the payment of which would not reduce any of its
capital ratios below the minimum.
Voting Rights
At meetings of shareholders, holders of Common Stock are entitled to one
vote per share. The quorum for shareholders' meetings is a majority of the
outstanding shares entitled to vote represented in person or by proxy.
Except as indicated below, all actions and authorizations to be taken or
given by shareholders require the approval of a majority of the votes cast by
holders of Common Stock at a meeting at which a quorum is present.
The Board of Directors is divided into three classes of directors, each
class being as nearly equal in number of directors as possible. Approximately
one-third of the entire Board of Directors is elected each year and the
directors serve for terms of up to three years, and, in all cases, until their
respective successors are duly elected and qualified.
The exact number of directors and the number constituting each class is
fixed from time to time by resolution adopted by a majority of the entire Board
of Directors. Shareholders may remove any director from office for cause.
122<PAGE>
<PAGE>
The affirmative vote of at least three quarters of the shares of HUBCO entitled
to vote thereon is required to amend or repeal the provisions of HUBCO's
Certificate of Incorporation relating to the classification of the Board of
Directors and the removal of directors.
HUBCO's Certificate of Incorporation contains a "minimum price" provision.
In the event a "related person" (defined in the Certificate of Incorporation to
include persons who, together with their affiliates, own 10% or more of HUBCO's
common stock) proposes to enter into a Business Combination (as defined in the
Certificate of Incorporation) with HUBCO, the proposed transaction will require
the affirmative vote of at least three quarters of the outstanding shares
entitled to vote on the transaction, unless the proposed transaction is (i)
first approved by a majority of HUBCO's Board of Directors, and (ii) the
shareholders of HUBCO are offered consideration in an amount equal to or in
excess of an amount determined in accordance with a formula contained in the
Certificate of Incorporation. If both these tests are met, the proposed
transaction need only be approved by a majority of the outstanding shares
entitled to vote.
Liquidation Rights
In the event of liquidation, holders of Common Stock are entitled to
receive ratably any assets distributed to shareholders, except that if shares of
preferred stock of HUBCO are outstanding at the time of liquidation, such shares
of preferred stock may have prior rights upon liquidation.
Assessment and Redemption
All outstanding shares of Common Stock are fully paid and nonassessable.
The Common Stock is not redeemable at the option of the issuer or the holders
thereof.
Preemptive and Conversion Rights
Holders of Common Stock do not have conversion rights or preemptive rights
with respect to any securities of HUBCO.
Other Matters
HUBCO can (except in connection with certain business combinations) issue
new shares of authorized but unissued Common Stock or Preferred Stock without
shareholder approval.
EXPERTS
The consolidated financial statements of HUBCO and subsidiaries as of and
for the years ended December 31, 1993, 1992 and, 1991 included in this
Prospectus and elsewhere in the Registration Statement have been audited by
Arthur Andersen & Co., independent public accountants, as indicated in their
reports with respect hereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
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.
Statewide has relied upon an opinion prepared by Kaplan Associates, Inc. as
to the appraised value of Statewide.
The consolidated financial statements of Washington as of and for the years
ended December 31, 1993, 1992 and 1991 included in this Prospectus and elsewhere
in this Registration Statement 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.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for HUBCO by Clapp & Eisenberg, P.C., Newark, New Jersey.
123
<PAGE>
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM PAGE
- ---- ----
HUBCO, INC.:
Reports of Independent Public Accountants. . . . . . . . . . . F-1
Consolidated Balance Sheets at December 31, 1993 and 1992. . . F-2
Consolidated Statements of Income for the Years Ended
December 31, 1993, 1992, and 1991 . . . . . . . . . . . . . . F-3
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1993, 1992 and 1991. . . . . F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1993, 1992 and 1991. . . . . . . . . . . . . . . F-5
Notes to Consolidated Financial Statements . . . . . . . . . . F-6 to 21
STATEWIDE SAVINGS BANK, S.L.A.:
Report of Independent Public Accountants . . . . . . . . . . . F-22
Consolidated Statements of Financial Condition at December 31,
1993 (Unaudited) and at March 31, 1993 and 1992 (Audited) . . F-23
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-24 and 25
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-26 and F-27
Notes to Consolidated Financial Statements . . . . . . . . . . F-28 to 45
WASHINGTON BANCORP. INC.:
Report of Independent Public Accountants . . . . . . . . . . . F-46
Consolidated Balance Sheets at December 31, 1993 and 1992. . . F-47
Consolidated Statements of Operations for the Years Ended
December 31, 1993, 1992 and 1991. . . . . . . . . . . . . . . F-48
Consolidated Statements of Changes in Stockholders' Equity for
the Years Ended December 31, 1993, 1992 and 1991 . . . . . . F-49
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1993, 1992 and 1991. . . . . . . . . . . . . . . F-50 and 51
Notes to Consolidated Financial Statements . . . . . . . . . . F-52 to 68
124
<PAGE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of HUBCO, Inc.:
We have audited the accompanying consolidated balance sheets of HUBCO,
Inc. (a New Jersey corporation) and subsidiaries as of December 31, 1993 and
1992, and the related consolidated statements of income, 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 financial position of HUBCO, Inc. and
subsidiaries as of December 31, 1993 and 1992, and the 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 1992
the Company changed its method of accounting for income taxes and in 1993 its
method of accounting for investments in debt and equity securities.
/s/ Arthur Andersen & Co.
ARTHUR ANDERSEN & CO.
Roseland, New Jersey
February 1, 1994
F-1
<PAGE>
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
December 31,
-----------------
1993 1992
---- ------
ASSETS
ASSETS:
Cash and due from banks (Note 3). . . . . . . $ 49,542 $ 38,400
Federal funds sold. . . . . . . . . . . . . . 9,800 23,300
---------- --------
Total Cash and Cash Equivalents . . . . . 59,342 61,700
---------- --------
Investment securities (Notes 1 and 4):
Available for sale, at market value
(amortized cost of $123,833 for 1993). . . . 130,555 --
Held to maturity, at cost (market value of
$301,692 and $333,259 for
1993 and 1992, respectively) . . . . . . . 296,130 322,522
---------- --------
Total Investment Securities . . . . . . . 426,685 322,522
---------- --------
Loans (Notes 1, 5, 7 and 8):
Real estate--mortgage. . . . . . . . . . . . 246,647 261,563
Commercial and financial . . . . . . . . . . 178,827 152,244
Consumer credit. . . . . . . . . . . . . . . 109,169 105,418
Direct lease financing . . . . . . . . . . . 122 1,644
---------- --------
534,765 520,869
---------- --------
Less:
Allowance for possible loan losses (Notes 1
and 6). . . . . . . . . . . . . . . . . . . 10,811 7,605
Deferred loan fees . . . . . . . . . . . . . 676 718
Unearned income. . . . . . . . . . . . . . . 4,699 6,703
---------- --------
Net Loans . . . . . . . . . . . . . . . . 518,579 505,843
---------- --------
Premises and equipment, net (Notes 1 and 9). 18,001 15,097
Accrued interest receivable. . . . . . . . . 10,259 9,493
Other real estate (Note 1) . . . . . . . . . 2,311 1,252
Other assets (Notes 2, 10 and 11). . . . . . 6,648 16,004
---------- --------
Total Assets. . . . . . . . . . . . . . . $1,041,825 $931,911
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits
Noninterest bearing. . . . . . . . . . . . . $ 205,233 $171,178
Interest bearing . . . . . . . . . . . . . . 730,455 672,048
---------- --------
Total Deposits. . . . . . . . . . . . . . 935,688 843,226
---------- --------
Federal funds purchased and securities sold
under agreements to repurchase . . . . . . . 19,629 14,133
Accrued taxes and other liabilities . . . . . 7,554 6,239
---------- --------
Total Liabilities . . . . . . . . . . . . 962,871 863,598
---------- --------
COMMITMENTS AND CONTINGENCIES (Notes 14 and 15)
STOCKHOLDERS' EQUITY (Notes 12 and 13):
Preferred stock, no par value; authorized
3,300,000 shares, none issued. . . . . . . . -- --
Common stock, no par value; authorized
13,200,000 shares; issued 6,933,361
and outstanding 6,724,661 and issued 6,286,342
and outstanding 6,285,572 shares in 1993 and
1992, respectively. . . . . . . . . . . . . 18,492 16,766
Additional paid-in capital. . . . . . . . . . 49,048 34,077
Retained earnings . . . . . . . . . . . . . . 12,669 18,042
Treasury stock, at cost, 208,770 and 770 shares
in 1993 and 1992, respectively . . . . . . . (4,571) (6)
Restricted stock award. . . . . . . . . . . . (946) (566)
Unrealized gain on investment securities
available for sale, net of income taxes
of $2,460. . . . . . . . . . . . . . . . . . 4,262 --
---------- --------
Total Stockholders' Equity. . . . . . . . 78,954 68,313
---------- --------
Total Liabilities And Stockholders'
Equity . . . . . . . . . . . . . . . . . $1,041,825 $931,911
========== ========
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
F-2
<PAGE>
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
For The Years
Ended December 31,
-------------------------------
1993 1992 1991
------- ------- -------
INTEREST INCOME:
Interest and fees on loans:
Taxable. . . . . . . . . . . . . . . . $43,240 $45,004 $39,550
Tax-exempt . . . . . . . . . . . . . . 306 402 511
------- ------- -------
43,546 45,406 40,061
------- ------- -------
Interest and dividends on investment
securities:
Taxable. . . . . . . . . . . . . . . . 22,350 19,991 9,286
Tax-exempt . . . . . . . . . . . . . . 1,092 907 1,515
------- ------- -------
23,442 20,898 10,801
------- ------- -------
Interest on federal funds sold. . . . . 771 1,342 897
Total Interest Income . . . . . . . 67,759 67,646 51,759
------- ------- -------
INTEREST EXPENSE:
Savings deposits. . . . . . . . . . . . 11,928 12,350 11,546
Time deposits and certificates of
deposits . . . . . . . . . . . . . . . 8,451 13,744 12,864
Interest on short-term and other
borrowings . . . . . . . . . . . . . . 362 539 877
------- ------- -------
Total Interest Expense. . . . . . . 20,741 26,633 25,287
------- ------- -------
Net Interest Income . . . . . . . . 47,018 41,013 26,472
PROVISION FOR POSSIBLE LOAN LOSSES . . . . 3,600 4,116 2,312
------- ------- -------
Net Interest Income after Provision
for Possible Loan Losses . . . . . . 43,418 36,897 24,160
------- ------- -------
OTHER INCOME:
Trust department income . . . . . . . . . 525 591 667
Service charges on deposit accounts . . . 5,981 4,832 3,725
Investment securities gains (losses). . . -- (26) 39
Other . . . . . . . . . . . . . . . . . . 2,100 2,260 1,040
------- ------- -------
8,606 7,657 5,471
------- ------- -------
52,024 44,554 29,631
------- ------- -------
OTHER EXPENSES:
Salaries. . . . . . . . . . . . . . . . . 11,910 10,475 8,429
Pension and other employee benefits
(Note 11). . . . . . . . . . . . . . . . 4,591 3,229 2,861
Occupancy expense . . . . . . . . . . . . 3,056 3,182 2,334
Equipment expense . . . . . . . . . . . . 1,960 1,760 1,777
Net cost to operate other real estate . . 119 562 481
Deposit and other insurance . . . . . . . 2,262 1,986 1,316
Outside services. . . . . . . . . . . . . 2,782 2,790 2,678
Amortization of intangible assets . . . . -- 2,424 292
Charitable contributions (Note 1) . . . . 33 4,032 32
Other . . . . . . . . . . . . . . . . . . 3,258 3,909 2,074
------- ------- -------
29,971 34,349 22,274
------- ------- -------
Income Before Provision for Income
Taxes. . . . . . . . . . . . . . . . 22,053 10,205 7,357
PROVISION FOR INCOME TAXES (Note 10):
Federal . . . . . . . . . . . . . . . . . 6,976 207 1,725
State . . . . . . . . . . . . . . . . . . 875 357 611
------- ------- -------
7,851 564 2,336
------- ------- -------
Net Income. . . . . . . . . . . . . . $14,202 $ 9,641 $ 5,021
======= ======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING
(Note 1). . . . . . . . . . . . . . . . . 6,909 6,091 4,955
===== ===== =====
NET INCOME PER SHARE (Note 1). . . . . . . $2.06 $1.58 $1.01
===== ===== =====
The accompanying notes to consolidated financial statements are an
integral part of these statements.
F-3
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
HUBCO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1993, 1992 and 1991
(in thousands, except share data)
Unrealized
Gain on
Investment
Common Stock Additional Restricted Securities
------------------- Paid-in Retained Treasury Stock Available
Shares Amount Capital Earnings Stock Awards for Sale
--------- ------- --------- -------- ------------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1990 . . . . . . 4,112,098 $10,968 $15,727 $11,430 ($ 249) ($309) $ --
Net income--1991 . . . . . . . . . . . . -- -- -- 5,021 -- -- --
Cash dividends--$.33 per share . . . . . -- -- -- (1,679) -- -- --
Purchase of 1,000 shares of treasury
stock . . . . . . . . . . . . . . . . . -- -- -- -- (5) -- --
Issuance of restricted stock . . . . . . 7,980 21 54 3 254 (332) --
Amortization of restricted stock . . . . -- -- -- -- -- 195 --
10% stock dividend . . . . . . . . . . . 411,414 1,097 2,863 (3,960) -- -- --
--------- ------- ------- ------- ------- ------ ------
Balance at December 31, 1991. . . . . . . 4,531,492 12,086 18,644 10,815 -- (466) --
Net income--1992 . . . . . . . . . . . . -- -- -- 9,641 -- -- --
Cash dividends--$.40 per share . . . . . -- -- -- (2,414) -- -- --
Issuance of common stock net of
related expenses. . . . . . . . . . . . 1,725,000 4,600 15,115 -- -- -- --
Return of 770 shares of restricted stock
to treasury stock . . . . . . . . . . . -- -- -- -- (6) 6 --
Issuance of restricted stock . . . . . . 29,850 80 318 -- -- (398) --
Amortization of restricted stock . . . . -- -- -- -- -- 272 --
--------- ------- ------- ------- ------- ------ ------
Balance at December 31, 1992. . . . . . . 6,286,342 16,766 34,077 18,042 (6) (566) --
Net income--1993 . . . . . . . . . . . . -- -- -- 14,202 -- -- --
Cash dividends--$.47 per share . . . . . -- -- -- (3,267) -- -- --
10% stock dividend . . . . . . . . . . . 628,011 1,675 14,653 (16,328) -- -- --
Return of 1,122 shares of restricted
stock to treasury stock . . . . . . . . -- -- -- 1 (11) 10 --
Issuance of restricted stock . . . . . . 19,008 51 318 19 280 (668) --
Amortization of restricted stock . . . . -- -- -- -- -- 278 --
Purchase of 221,000 shares of
treasury stock. . . . . . . . . . . . . -- -- -- -- (4,834) -- --
Unrealized gain on investment
securities available for sale, net
of income taxes of $2,460 . . . . . . . -- -- -- -- -- -- 4,262
--------- ------- ------- ------- ------- ------ ------
Balance at December 31, 1993. . . . . . . 6,933,361 $18,492 $49,048 $12,669 $(4,571) ($946) $4,262
========= ======= ======= ======= ======= ====== ======
The accompanying notes to consolidated financial statements are an integral part of these statements.
F-4
</TABLE>
<PAGE>
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For The Years
Ended December 31,
--------------------------
1993 1992 1991
----- ----- ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . $ 14,202 $ 9,641 $5,021
Adjustments to reconcile net income to net
cash provided by
operating activities--
Provision for possible loan losses. . 3,600 4,116 2,312
Provision for depreciation and
amortization. . . . . . . . . . . . 1,899 4,479 1,814
Amortization of investment security
premiums. . . . . . . . . . . . . . 1,300 1,074 284
Accretion of investment security
discount. . . . . . . . . . . . . . (320) (295) (161)
Investment securities (gains) losses. -- 26 (39)
Noncash charitable contribution . . . -- 4,000 --
Deferred income taxes. . . . . . . . . (398) (4,035) (100)
Decrease (increase) in interest
receivable . . . . . . . . . . . . . (57) (2,587) 364
(Decrease) increase in interest
payable . . . . . . . . . . . . . . (466) (3,646) (1,387)
(Decrease) increase in accrued taxes
and other liabilities . . . . . . . 1,544 (4,201) (3,110)
(Increase) decrease in other assets. . 6,998 (4,981) (3,474)
-------- -------- -------
Net cash provided by operating
activities . . . . . . . . . . . . 28,302 3,591 1,524
-------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investment
securities . . . . . . . . . . . . . . 61 8,570 13,214
Proceeds from maturities of investment
securities . . . . . . . . . . . . . . 71,980 64,983 31,159
Net cash acquired through acquisitions. 43,134 425,698 16,505
Net cash paid for acquisitions. . . . . (227) (3,411) (425)
Net decrease in loans . . . . . . . . . 30,334 11,583 5,628
Purchase of investment securities . . . (138,681) (232,340) (30,212)
Purchases of premises and equipment . . (3,853) (3,366) (1,677)
(Increase) decrease in other real
estate. . . . . . . . . . . . . . . . . (389) 431 32
-------- -------- -------
Net cash provided by investing
activities . . . . . . . . . . . . . 2,359 272,148 34,224
-------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand
deposits, NOW accounts and
savings accounts . . . . . . . . . . . . 22,108 (6,933) 22,734
Net decrease in certificates of
deposit. . . . . . . . . . . . . . . . . (52,522) (265,477) (52,602)
Net increase (decrease) in Federal
funds purchased and securities
sold under agreements to repurchase. . . 5,496 2,093 (17,734)
Net decrease in short-term borrowings . . -- (763) (68)
Net proceeds from issuance of common
stock. . . . . . . . . . . . . . . . . . -- 19,715 --
Cash dividends. . . . . . . . . . . . . . (3,267) (2,414) (1,679)
Acquisition of treasury stock . . . . . . (4,834) (6) (5)
-------- -------- -------
Net cash used in financing
activities . . . . . . . . . . . . . (33,019) (253,785) (49,354)
-------- -------- -------
Increase (decrease) in cash and cash
equivalents. . . . . . . . . . . . . (2,358) 21,954 (13,606)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR. . . . . . . . . . . . . . . . . . . 61,700 39,746 53,352
-------- -------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR . $ 59,342 $ 61,700 $39,746
======== ======== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for
Interest . . . . . . . . . . . . . . . . $21,017 $30,279 $25,929
Income taxes . . . . . . . . . . . . . . 8,477 3,823 1,785
======== ======== =======
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-5<PAGE>
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
DECEMBER 31, 1993
(IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
HUBCO, Inc. (the Company) provides a full range of banking services to
individual and corporate customers through its subsidiary and branch locations
in New Jersey. The Company is subject to the regulations of certain Federal
and state agencies and undergoes periodic examinations by those regulatory
authorities.
Basis of presentation and consolidation:
The consolidated financial statements include the accounts of HUBCO, Inc.
and its subsidiaries, all of which are wholly owned. As more fully described
in Note 2 to the financial statements, the Company acquired Meadowlands
National Bank during 1991 by purchasing all of its outstanding stock. During
1991, the Company purchased certain assets and assumed certain liabilities of
Center Savings and Loan Association, through the Resolution Trust Corporation,
as receiver. During 1992, the Company purchased certain assets and assumed
certain liabilities of Irving Federal Savings and Loan Association through the
Resolution Trust Corporation as receiver. During 1992, the Company also
purchased certain assets and assumed certain liabilities of Broadway Bank and
Trust Company through the FDIC as receiver. During 1993, the Company purchased
certain assets and assumed certain liabilities of Pilgrim State Bank (Pilgrim)
from the Ramapo Financial Corporation (Ramapo). (See Note 2).
All significant intercompany accounts and transactions are eliminated in
consolidation.
The financial statements have been prepared in accordance with generally
accepted accounting principles. In preparing the consolidated financial
statements, management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities as of the date of the
balance sheet and revenues and expenses for the period. Actual results could
differ significantly from those estimates.
Material estimates that are particularly susceptible to significant
change in the near term relate to the determination of the allowance for
possible loan losses and the valuation of real estate acquired in connection
with foreclosures or in satisfaction of loans. In connection with the
determination of the allowance for possible loan losses and the valuation of
other real estate, management obtains independent appraisals for significant
properties.
In addition to real estate loans, a substantial portion of the Company's
loans are collateralized by real estate in depressed markets throughout New
Jersey. Accordingly, the ultimate collectibility of a substantial portion of
the Company's loan portfolio is particularly susceptible to changes in market
conditions in New Jersey.
Management believes that the allowance for possible loan losses is
adequate. While management uses available information to recognize potential
losses on loans, future additions to the allowance may be necessary based on
changes in economic conditions, particularly in New Jersey. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the Company's allowance for possible loan losses. Such
agencies may require the Company to recognize additions to the allowance based
on their judgments of information available to them at the time of their
examination.
Disclosures About Fair Value of Financial Instruments:
In December 1991, the FASB issued SFAS No. 107, "Disclosures About Fair
Value of Financial Instruments." The Company has adopted the provisions of
SFAS No. 107 for its year ended December 31, 1992.
Investment securities:
The Company adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," (SFAS 115)
effective December 31, 1993. As permitted by the statement, the Company did
not retroactively restate prior years financial statements. This Statement
requires the Company to classify its investment securities as: (1) held for
investment purposes (held to maturity), (2) available for sale and (3) held
for trading purposes.
F-6
<PAGE>
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
DECEMBER 31, 1993
(IN THOUSANDS)
Securities for which the Company has the ability and intent to hold until
maturity are classified as held to maturity. These securities are carried at
cost adjusted for amortization of premiums and accretion of discounts on a
straight-line basis which is not materially different from the interest
method.
Securities which are held for indefinite periods of time which management
intends to use as part of its asset/liability strategy, or that may be sold in
response to changes in interest rates, changes in prepayment risk, increases
in capital requirements or other similar factors, are classified as available
for sale and are carried at fair value. Differences between an investment's
amortized cost and fair value is charged/credited directly to stockholders'
equity, net of income taxes. The cost of securities sold is determined on a
specific identification basis. Gains and losses on sales of investment
securities are recognized in the income statement upon sale.
The Company has no securities held for trading purposes at December 31,
1993.
Loans:
Loans are recorded at their principal amounts, net of unearned income, if
any. Interest income on loans not made on a discounted basis is credited to
income based on principal amounts outstanding at applicable interest rates.
Interest income on consumer credit loans is recorded primarily using the
actuarial method.
Recognition of interest on the accrual method is discontinued when
interest or principal payments are 90 days or more in arrears for commercial
and financial loans, 120 days or more in arrears for consumer credit and 180
days or more in arrears for real estate mortgage loans or when collateral is
insufficient to cover principal and interest, or when other factors indicate
that collection of such amounts is doubtful. A nonaccrual loan is not returned
to an accrual status until interest is received on a current basis and other
factors indicating doubtful collection cease.
The net amount of all loan origination fees, direct loan origination
costs and loan commitment fees are deferred and recognized over the estimated
life of the related loans as an adjustment of yield.
For certain homogeneous categories of loans, such as some residential
mortgages, fair value is estimated using the quoted market prices for
securities backed by similar loans, adjusted for differences in loan
characteristics. The fair value of other types of loans is estimated by
discounting the future cash flows using the current rates at which similar
loans would be made to borrowers with similar credit ratings and for the same
remaining maturities.
Lease financing:
Subsidiaries of the Company once provided car and equipment financing to
their customers. Direct financing leases are carried at the aggregate of lease
payments receivable plus estimated residual values, net of unearned income.
Unearned income on direct financing leases is amortized over the lease terms
resulting in an approximate level rate of return.
Allowance for possible loan losses:
The allowance is maintained at a level believed adequate by management to
absorb potential losses in the loan portfolio. Management's determination of
the adequacy of the allowance is based on an evaluation of the portfolio, past
loan loss experience, current economic conditions, volume, growth and
composition of the loan portfolio and other relevant factors. The allowance is
increased by provisions for loan losses charged against income and reduced by
net charge-offs.
Premises and equipment:
Land, buildings and furniture, fixtures and equipment are carried at
cost. Depreciation on substantially all buildings and furniture, fixtures and
equipment is provided using the straight-line method based on estimated useful
lives. Maintenance and repairs are expensed as incurred and additions and
improvements are capitalized.
F-7
<PAGE>
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
DECEMBER 31, 1993
(IN THOUSANDS)
Other real estate:
Other real estate includes loan collateral that has been formally
repossessed and collateral on loans that has been substantively repossessed,
that is when the primary risks and rewards of collateral ownership have passed
from the debtor to the lender (in-substance foreclosed). Loans which are
in-substance foreclosed are reduced to the fair value of the collateral (if
less than the loan receivable) by charge-offs against the allowance for
possible loan losses and are reclassified as other real estate in the
accompanying consolidated balance sheets. Subsequent reductions in the fair
value of the collateral are charged to current operations.
In December 1992, the Company contributed certain real estate previously
acquired through foreclosure to a charity. The carrying amount of the other
real estate contributed was $4,000.
Intangibles:
Core deposit intangible assets relating to premiums paid on the
assumption of deposits are generally amortized, on a straight-line basis, over
the estimated average remaining lives of such deposits (primarily 1 to 6
years).
Amortization expense of intangible assets, primarily core deposit
intangibles, was $2,424 and $292 for 1992 and 1991, respectively. At December
31, 1992, all intangible assets had been fully amortized.
Pension plan:
Costs for the Company's two pension plans are actuarially determined by
the frozen initial liability cost method and the accrued benefit (unit credit)
cost method.
Deposits:
The fair value of demand deposit savings accounts and certain money
market deposits is the amount reported in the financial statements. The fair
value of fixed-maturity certificates of deposit is estimated using the rates
currently offered for deposits of similar remaining maturities. The fair value
of these certificates of deposit was $204,400 and $238,610 at December 31,
1993 and 1992, respectively.
Federal funds purchased and securities sold under agreements to
repurchase:
Federal funds purchased and securities sold under agreements to
repurchase at December 31, 1993 and 1992, generally have an original term to
maturity of less than 30 days and therefore, their carrying value is a
reasonable estimate of fair value.
Federal income taxes:
The Financial Accounting Standards Board has issued Statement No. 109,
"Accounting for Income Taxes," effective the first quarter of 1993, which
changes the method of accounting for income taxes from the deferred method to
the asset/liability method. The Company elected to adopt the provisions of the
Statement in the fourth quarter of 1992. The effect of adopting SFAS 109 on
prior periods was not significant and therefore prior interim or annual
periods have not been restated. Certain income and expense items are recorded
differently for financial reporting purposes than for Federal income tax
purposes. Provisions for deferred taxes are made in recognition of these
temporary differences.
The Company and its subsidiaries file a consolidated Federal income tax
return. Each subsidiary provides for income taxes on a separate return basis
and remits to (receives from) the Company amounts determined to be their tax
liability (benefit).
Per share amounts:
Net income and cash dividends per share amounts are based on the weighted
average number of common shares outstanding during the year, adjusted
retroactively for the 10 percent stock dividend paid in 1993.
F-8
<PAGE>
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
DECEMBER 31, 1993
(IN THOUSANDS)
Cash equivalents:
Cash equivalents include amounts due from banks and Federal funds sold.
For these short-term investments, their carrying amount is a reasonable
estimate of fair value.
Reclassifications: Certain reclassifications have been made to the 1992
and 1991 amounts in order to conform with the 1993 presentation.
(2) ACQUISITIONS:
Completed:
On April 22, 1991, the Company completed the acquisition of all of the
common stock of Meadowlands National Bank (MNB) for cash consideration of
$415. The transaction was accounted for as a purchase.
In addition, on September 20, 1991, the Bank acquired certain assets and
assumed certain liabilities of Center Savings & Loan Association (Center) from
the Resolution Trust Corporation (RTC) as receiver. The transaction was
accounted for as a purchase.
The following is a summary of these acquisitions:
MNB Center
------- --------
Cash paid at acquisition. . . . . $ 415 $ 10
Balances at acquisition date:
Cash and cash equivalents. . . . 4,930 11,575
Loans. . . . . . . . . . . . . . 22,102 78,555
Total assets . . . . . . . . . . 36,856 90,937
Deposits . . . . . . . . . . . . 35,509 89,863
Total liabilities. . . . . . . . 35,841 90,927
As of December 31, 1992, there were two claims to be processed totaling
$1,417 which represented the final settlement claims related to the Center
acquisition. Both claims were paid in the first quarter of 1993.
On February 21, 1992, the Bank acquired certain assets and assumed
certain liabilities of Irving Federal Savings and Loan Association (Irving)
from the Resolution Trust Corporation (RTC) as receiver. The transaction was
accounted for as a purchase.
In addition, on March 13, 1992, the Bank assumed the insured deposits of
Broadway Bank and Trust Company (Broadway) under a Deposit Insurance Transfer
and Asset Purchase Agreement with the Federal Deposit Insurance Corporation
(FDIC). The Bank also obtained a nonexclusive option to purchase certain of
Broadway's loans from the FDIC. Under the option the Bank purchased
approximately $9.5 million of commercial and mortgage loans. The transaction
was accounted for as a purchase.
The following is a summary of these acquisitions:
Irving Broadway
--------- ----------
Cash paid at acquisition. . . . . $ 5 $ 3,406
Balances at acquisition date:
Cash and cash equivalents. . . . 99,361 322,926
Loans. . . . . . . . . . . . . . 62,357 --
Total assets . . . . . . . . . . 161,997 345,518
Deposits . . . . . . . . . . . . 161,055 345,724
Total liabilities. . . . . . . . 162,002 348,924
As of December 31, 1992, the Bank has a receivable of $236 from the RTC
related to the Irving acquisition that was included in other assets. Final
settlement of this transaction occurred in February, 1993.
F-9
<PAGE>
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
DECEMBER 31, 1993
(IN THOUSANDS)
As of December 31, 1992, the bank had a receivable of $2,957 from the
FDIC related to the Broadway acquisition that was included in other assets.
The receivable was settled in the first quarter 1993.
On June 30, 1993, the Bank purchased the branches, deposits and certain
assets of Pilgrim from Ramapo, for a purchase price of $6 million. In
connection with the Pilgrim transaction, the Bank assumed deposits of
approximately $122.9 million and other liabilities of approximately $0.4
million. The Bank received approximately $123.1 million in assets, including
$46.7 million in loans and participation interests in loans. Nonperforming
assets totaling approximately $1.7 million were included in the assets
acquired by the Bank.
The following is a summary of the Pilgrim transaction:
Cash paid at acquisition. . . . . . . . $ 227
Balances at acquisition date:
Cash and cash equivalents. . . . . . . 42,907
Loans. . . . . . . . . . . . . . . . . 46,670
Total assets . . . . . . . . . . . . . 123,113
Deposits . . . . . . . . . . . . . . . 122,876
Total liabilities. . . . . . . . . . . 123,340
Pending:
In May 1993, the Company and its banking subsidiary agreed to acquire
Statewide Savings Bank, SLA (Statewide), a mutual savings and loan
association, in a merger-conversion transaction. Under the agreement, the
Company will sell shares of its common stock to Statewide eligible depositors
and other voting members at a discounted price (lesser of $18 per share or
market price at closing date) in an amount equal to the appraised value of
Statewide as determined by an independent appraiser which, on a preliminary
basis, is approximately $35 million. The Company's stockholders will be
offered any remaining shares at the same price offered to Statewide's
depositors.
Shares not sold to Statewide eligible depositors, other voting members
and Company stockholders are expected to be sold at a market price to the
public. As part of the transaction, Statewide will convert from a state
savings and loan to a state mutual savings bank charter, from mutual to stock
form and will then be merged into the Company's banking subsidiary.
As of its most recent fiscal year ended March 31, 1993, Statewide
reported total assets, tangible net worth and net income of $518 million,
$13.3 million and $5.6 million, respectively. The transaction is subject to
Statewide depositor and various regulatory approvals.
In November 1993, the Company and its subsidiary bank agreed to acquire
Washington Bancorp, Inc. and its subsidiary, Washington Savings Bank (together
Washington) for a combination of cash and convertible preferred stock for an
aggregate consideration of approximately $40.5 million. In the transaction,
51% of Washington's shares will be converted into preferred stock at .6708 per
share and 49% will be converted to cash at $16.10 per share with Washington
stockholders having the right to elect either cash or preferred stock. As part
of the merger, Washington Savings Bank will be merged into the Company's
banking subsidiary.
As of its most recent year ended December 31, 1993, Washington reported
total assets, stockholders' equity and net income of $283 million, $33.5
million and $2.8 million, respectively. The transaction is subject, among
other things, to Washington and HUBCO stockholder and various regulatory
approvals.
Both of the pending acquisitions will be accounted for using the purchase
method and are expected to be finalized prior to June 30, 1994.
F-10
<PAGE>
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
DECEMBER 31, 1993
(IN THOUSANDS)
(3) CASH AND DUE FROM BANKS:
Banks are required to maintain an average reserve balance with the
Federal Reserve Bank. The average 1993 amount of this reserve for the
Company's subsidiary was approximately $13,449.
(4) INVESTMENT SECURITIES:
The amortized cost and estimated market value of investment securities as
of December 31 are summarized as follows:
1993
-------------------------------------
Gross Unrealized Estimated
Amortized ---------------- Market
Cost Gains (Losses) Value
---------- ----- ------- ---------
Held to Maturity
U. S. Government . . . . . . . . . $104,957 $ 2,648 ($125) $107,480
U. S. Government agencies. . . . . 164,850 3,104 (651) 167,303
States and political subdivisions. 23,815 496 (4) 24,307
Other securities . . . . . . . . . 2,508 94 -- 2,602
-------- ------- ----- --------
$296,130 $ 6,342 ($780) $301,692
======== ======= ===== ========
1993
-------------------------------------
Gross Unrealized Estimated
Amortized ---------------- Market
Cost Gains (Losses) Value
--------- ------- ------ ------
Available for Sale
U. S. Government . . . . . . . . . $104,728 $ 5,580 $ -- $110,308
U. S. Government agencies. . . . . 10,482 502 (1) 10,983
States and political subdivisions. 1,600 237 -- 1,837
Other securities . . . . . . . . . 2,107 223 (5) 2,325
Equity securities. . . . . . . . . 4,916 381 (195) 5,102
-------- ------- ----- --------
$123,833 $ 6,923 ($201) $130,555
======== ======= ===== ========
1993
-------------------------------------
Gross Unrealized Estimated
Amortized ---------------- Market
Cost Gains (Losses) Value
--------- ------- ------ ------
Held to Maturity
U. S. Government . . . . . . . . . $185,581 $ 6,859 $ -- $192,440
U. S. Government agencies. . . . . 105,796 3,237 (19) 109,014
States and political subdivisions. 16,068 368 (50) 16,386
Other securities . . . . . . . . . 14,424 300 (1) 14,723
Equity securities. . . . . . . . . 653 47 (4) 696
-------- ------- ----- --------
$322,522 $10,811 ($ 74) $333,259
======== ======= ===== ========
At December 31, 1993, the Company adopted the provisions of SFAS 115. As
a result, investment securities with a market value of $130,555 were
designated as available for sale. Accordingly, the net unrealized gain of such
securities totaling $4,262 has been recorded as a separate component of
stockholders' equity at December 31, 1993.
F-11
<PAGE>
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
DECEMBER 31, 1993
(IN THOUSANDS)
The amortized cost and estimated market value of debt securities at
December 31, 1993 and 1992, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
1993
-----------------------
Estimated
Amortized Market
Cost Value
----------- --------
Available for Sale
Due in one year or less. . . . . . . $ 10,057 $ 10,289
Due after one year through five
years . . . . . . . . . . . . . . . 95,319 100,757
Due after five years through ten
years . . . . . . . . . . . . . . . 9,243 9,691
Due after ten years. . . . . . . . . 1,887 2,213
-------- --------
116,506 122,950
Mortgage-backed securities . . . . . 2,411 2,503
Equity securities. . . . . . . . . . 4,916 5,102
-------- --------
$123,833 $130,555
======== ========
1993
---------------------
Estimated
Amortized Market
Cost Value
--------- ---------
Held to Maturity
Due in one year or less. . . . . . . $ 64,563 $ 65,016
Due after one year through five
years . . . . . . . . . . . . . . . 169,007 174,031
Due after five years through ten
years . . . . . . . . . . . . . . . 2,279 2,348
Due after ten years. . . . . . . . . 8,882 9,136
-------- --------
244,731 250,531
Mortgage-backed securities . . . . . 51,399 51,161
-------- --------
$296,130 $301,692
======== ========
1992
----------------------
Estimated
Amortized Market
Cost Value
--------- ---------
Held to Maturity
Due in one year or less. . . . . . . $ 39,695 $ 40,410
Due after one year through five
years . . . . . . . . . . . . . . . 233,371 241,860
Due after five years through ten
years . . . . . . . . . . . . . . . 21,344 22,130
Due after ten years. . . . . . . . . 4,200 4,313
-------- --------
298,610 308,713
Mortgage-backed securities . . . . . 23,259 23,850
Equity securities. . . . . . . . . . 653 696
-------- --------
$322,522 $333,259
======== ========
F-12
<PAGE>
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
DECEMBER 31, 1993
(IN THOUSANDS)
Sales of investment securities are summarized as follows:
1993 1992 1991
----- ------ ------
Proceeds from sales . . . . . . $61 $8,570 $13,214
Gross gains from sales. . . . . 4 31 153
Gross losses from sales . . . . (4) (57) (114)
Investment securities with a book value of $60,005 and $25,968 at
December 31, 1993 and 1992, respectively, are pledged to secure public funds,
securities sold under agreements to repurchase and for other purposes as
required or permitted by law.
(5) LOANS:
The Company's loans are primarily to businesses and individuals located
in New Jersey. A summary of loans is as follows:
1993 1992
-------- --------
Loans secured by real estate:
Residential. . . . . . . . . . . . . $187,835 $184,045
Construction . . . . . . . . . . . . 7,117 3,777
Commercial . . . . . . . . . . . . . 142,366 139,779
Commercial and industrial loans . . . 119,380 104,721
Loans to individuals for household,
family and other personal
expenditures . . . . . . . . . . . . 57,548 63,129
Other loans . . . . . . . . . . . . . 20,519 25,418
-------- --------
Total loans. . . . . . . . . . . . $534,765 $520,869
======== ========
Net loans had a fair value of approximately $538,954 and $517,639 at
December 31, 1993 and 1992, respectively.
(6) ALLOWANCE FOR POSSIBLE LOAN LOSSES:
The allowance for possible loan losses is based on estimates, and
ultimate losses may vary from the current estimates. These estimates are
reviewed periodically and, as adjustments become necessary, they are reflected
in operations in the periods in which they become known.
A summary of the activity in the allowance for possible loan losses is as
follows:
1993 1992 1991
------ ------ -------
Balance at January 1. . . . . . . . $ 7,605 $6,698 $5,232
Additions (deductions):
Provision charged to expense . . . 3,600 4,116 2,312
Allowance acquired through mergers
or acquisitions . . . . . . . . . 400 1,500 1,487
Recoveries on loans previously
charged off . . . . . . . . . . . 386 832 642
Loans charged off. . . . . . . . . (1,180) (5,541) (2,975)
------- ------ -------
Balance at December 31. . . . . . . $10,811 $7,605 $6,698
======= ====== ======
F-13
<PAGE>
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
DECEMBER 31, 1993
(IN THOUSANDS)
(7) NONPERFORMING LOANS:
The following table presents information related to loans which are on
nonaccrual, contractually past due ninety days or more as to interest or
principal payments and loans which have been restructured to provide a
reduction or deferral of interest or principal for reasons related to the
debtors' financial difficulties.
December 31
---------------
1993 1992
------ -----
Nonaccrual loans. . . . . . . . . . . . . . . $5,534 $4,248
Renegotiated loans. . . . . . . . . . . . . . 2,177 2,257
------ ------
Total nonperforming loans . . . . . . . . . $7,711 $6,505
====== ======
90 days or more past due. . . . . . . . . . . $1,443 $1,409
Gross interest income which would have
been recorded under original terms . . . . . $ 813 $ 563
Gross interest income recorded during
the year . . . . . . . . . . . . . . . . . . 193 96
Commitments for additional funds. . . . . . . None None
====== ======
(8) LOANS TO RELATED PARTIES:
In the ordinary course of business, the Company and its subsidiaries have
extended credit to various directors, officers and their associates. The
aggregate extension of this credit is summarized below:
December 31
-----------------
1993 1992
------- -------
Balance at January 1. . . . . . . . . . . . . $4,951 $3,390
New loans issued. . . . . . . . . . . . . . . 371 1,646
Repayment of loans. . . . . . . . . . . . . . (2,553) (85)
------ ------
Balance at December 31. . . . . . . . . . . . $2,769 $4,951
====== ======
At December 31, 1993, $2,360 of related party loans were fully secured by
real estate or marketable securities. Excluded from the above are loans to
former directors in the amounts of $2,063 and $4,507 as of December 31, 1993
and 1992, respectively. In addition, there were letters of credits to former
directors in the amount of $5,136 as of December 31, 1992. There were none
outstanding as of December 31, 1993.
(9) PREMISE AND EQUIPMENT:
The following is a summary of premises and equipment:
December 31
--------------
1993 1992
------- -------
Land. . . . . . . . . . . . . . . . . . . . . $ 4,264 $ 4,475
Premises. . . . . . . . . . . . . . . . . . . 15,020 12,493
Furniture, fixtures and equipment . . . . . . 6,745 4,719
------- -------
26,029 21,687
Less Accumulated for depreciation . . . . . . 8,028 6,590
------- -------
$18,001 $15,097
======= =======
F-14
<PAGE>
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
DECEMBER 31, 1993
(IN THOUSANDS)
Depreciation and amortization expense for premises and equipment for
1993, 1992 and 1991 amounted to $1,621, $1,505 and $1,327, respectively.
(10) INCOME TAXES:
The components of the provision for income taxes are as follows:
For the Years Ended December 31
-------------------------------
1993 1992 1991
------ ------ ------
Federal:
Current. . . . . . . . . . . . . . $7,374 $4,242 $1,825
Deferred . . . . . . . . . . . . . (398) (4,035) (100)
State . . . . . . . . . . . . . . . 875 357 611
------ ------ ------
Total provision for income
taxes . . . . . . . . . . . . . $7,851 $ 564 $2,336
====== ====== ======
A reconciliation of the provision for income taxes, as reported, with the
Federal income tax at the statutory rate of 35 percent for 1993 and 34 percent
for 1992 and 1991, is as follows:
For the Years Ended December 31
---------------------------------
1993 1992 1991
---- ----- ----
Tax at statutory rate . . . . . . . . $7,719 $3,470 $2,501
Increase (decrease) in taxes
resulting from:
Tax-exempt income. . . . . . . . . . (494) (394) (689)
State taxes on income, net of
Federal income tax effect . . . . . (306) (121) (208)
Reversal of reserves no longer
deemed necessary. . . . . . . . . . -- (1,475) --
Noncash charitable
contribution basis for tax in
excess of book. . . . . . . . . . . -- (680) --
Other, net . . . . . . . . . . . . . 57 (593) 121
------ ------ ------
Provision for Federal income
taxes. . . . . . . . . . . . . . . . $6,976 $ 207 $1,725
====== ====== ======
Deferred Federal income taxes result primarily from income relating to
leasing activities, income currently taxable on nonperforming loans not
recorded for financial statement purposes, excess provisions for possible loan
losses which are not currently deductible and a charitable contribution of
other real estate.
At December 31, 1993, the Company has a net deferred tax asset of
approximately $1,460 included in other assets. Considered in the determination
of this amount is a deferred tax asset of $1,500 representing the tax effect
of the charitable contribution of other real estate at its fair value, net of
the permanent difference reflected above.
In order to fully realize the deferred tax asset, the Company will need
to generate future taxable income during periods in which existing deductible
temporary differences reverse, unless they reverse during periods which can be
carried back to tax paying periods. Based upon the Company's historical and
current pretax earnings, management believes it is more likely than not that
the Company will generate future net taxable income in sufficient amounts to
realize its net deferred tax asset at December 31, 1993, however, there can be
no assurance that the Company will generate any earnings or any specific level
of continuing earnings. The Company did not record any valuation allowances
against its deferred tax assets at December 31, 1993 and 1992.
(11) PENSION PLANS AND POSTRETIREMENT BENEFITS:
The Company has two noncontributory pension plans which cover eligible
employees (a base plan and a nonbargaining plan). The plans provide for
payments to qualified employees based on salary and years of service. The
F-15
<PAGE>
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
DECEMBER 31, 1993
(IN THOUSANDS)
Company's funding policy for these plans is to make the maximum annual
contributions allowed by the applicable regulations.
Net pension cost (income) includes the following:
1993 1992 1991
---- ----- -----
Service cost--benefits earned during
the year . . . . . . . . . . . . . . . $169 $107 $ 97
Interest cost on projected benefit
obligation . . . . . . . . . . . . . . 492 456 404
Actual return on plan assets. . . . . . (607) (581) (523)
Net amortization and deferral . . . . . (8) (45) (79)
---- ---- ----
Net periodic pension cost (income). . 46 (63) (101)
Supplemental pension cost . . . . . . . -- 4 11
---- ----- -----
$ 46 ($ 59) ($ 90)
==== ===== =====
Assumptions used in the accounting for the plans in 1993, 1992 and 1991
as of December 31 were:
1993 1992 1991
---- ----- -----
Weighted average discount rates . . . 7.00% 8.00% 8.00%
Rate of increase in compensation
levels . . . . . . . . . . . . . . . 4.00% 4.00% 4.00%
Expected long-term rate of return on
assets . . . . . . . . . . . . . . . 8.00% 8.00% 8.00%
The following table sets forth the funded status and amounts recognized
in the consolidated balance sheets at December 31 for the Company's plans:
December 31
--------------
1993 1992
---- -----
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $6,706 and $5,701 for 1993 and 1992,
respectively . . . . . . . . . . . . . . . . . . . . $6,841 $5,755
------ ------
Projected benefit obligation for service rendered to
date. . . . . . . . . . . . . . . . . . . . . . . . (7,263) (6,046)
Plan assets at fair value. . . . . . . . . . . . . . 8,178 7,631
------ ------
Projected benefit obligation less than plan assets . 915 1,585
Unrecognized portion as of December 31, of net asset
existing at date of adoption of FASB Statement
No. 87. . . . . . . . . . . . . . . . . . . . . . . (186) (220)
Prior service cost not yet recognized in net
periodic pension cost . . . . . . . . . . . . . . . 885 965
Unrecognized net asset at December 31. . . . . . . . (890) (2,100)
------ ------
Net pension asset recognized in the consolidated
balance sheet at December 31. . . . . . . . . . . . $ 724 $ 230
====== ======
The Company has a 401(k) savings plan covering substantially all
employees. Under the Plan, the Company matches (up to a maximum of three
percent) either 25 or 50 percent of the employee's contribution. The Company's
contributions under the Plan were approximately $130, $67 and $100 in 1993,
1992 and 1991, respectively.
In December 1990, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions" (SFAS 106). SFAS 106
establishes standards of financial accounting and reporting for an employer
that offers postretirement benefits other than pensions to its employees. This
standard requires employers to accrue the cost of postretirement benefits
other than pensions over the careers of active employees.
The Company and its subsidiaries previously provided medical insurance
coverage and group life insurance for its retirees who met certain employment
criteria. These benefits, which were funded through operations, amounted to
F-16
<PAGE>
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
DECEMBER 31, 1993
(IN THOUSANDS)
$176 in 1991. In 1992, the Company eliminated such benefits for current and
future retirees and increased the pension benefits. Current retirees receive
an additional annual pension benefit of $.8 and $1, respectively, for the base
and nonbargaining plans. Future retirees of the base plan employed as of March
1, 1990 will be entitled to an $.8 annual increase. Based on current policies
and the restructuring of retiree benefits, there was no significant impact
related to the implementation of SFAS 106.
(12) COMMON STOCK:
On April 20, 1993, the Board of Directors approved a 10 percent stock
dividend payable on June 1, 1993 to holders of record at May 11, 1993.
During 1989, the Company adopted a restricted stock plan in which 100,000
shares of the Company's common stock may be granted to officers and key
employees. During 1992, the Company amended the Plan to increase the maximum
number of shares of common stock which may be awarded to 330,000 shares, after
giving retroactive effect to the 10 percent stock dividend in April 1993.
During 1993 and 1992, 36,520 and 32,835 shares of common stock were awarded
which vest between two to five years from the date of grant. The value of
shares issued that have not been earned ($946) and ($566) has been recorded as
a reduction of stockholders' equity for 1993 and 1992, respectively.
Amortization of restricted stock awards charged to expense amounted to $278,
$272 and $195 in 1993, 1992 and 1991, respectively.
During 1993, the Company adopted a stock option plan in which 110,000
shares of the Company's common stock may be granted to nonemployee directors.
The options are granted at an exercise price equal to the fair market value at
the date of grant and will vest and become exercisable three years after the
date of grant. The plan will terminate in 2003. During 1993, 2,750 options
were granted. Non-employee directors who do not elect to participate in the
plan are eligible for benefits under an alternative arrangement. Under this
arrangement, each nonemployee director with at least three years of service
upon retirement will receive a benefit (not to exceed ten years) equal to 10%
of the director's retainer in effect at the date of retirement. During 1993,
the Company incurred an expense of $2 related to this arrangement.
On November 8, 1993, the Company's Board of Directors authorized
management to repurchase up to 10 percent of its outstanding common stock per
year beginning immediately. Purchases may be made from time to time in the
open market or in privately negotiated transactions depending upon market
conditions and subject to regulatory considerations. Timing, price, quantity
and manner of purchases will be at the discretion of the Company's officers.
The program may be discontinued or suspended at any time, and there is no
assurance that the Company will purchase the full amount authorized. The
acquired shares are to be held in treasury to be used for pension plan
investments, stock option and other employee benefit plans, general corporate
purposes and/or in connection with the issuance of common stock in pending or
future acquisitions. As of February 1, 1994, the Company had purchased 442,781
shares at an aggregate cost of $9.869 million.
(13) RESTRICTIONS ON SUBSIDIARY DIVIDENDS, LOANS OR ADVANCES:
Certain restrictions exist regarding the ability of the Bank to transfer
funds to the Company in the form of cash dividends, loans or advances. 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 percent of the capital stock amount. As
of December 31, 1993, the entire undistributed earnings of the Bank, $28,246,
was included in consolidated retained earnings and was available for
distribution to the Company.
Under Federal Reserve regulations, the Bank is also limited as to the
amount it may loan to its affiliates, including the Company. All such loans
are required to be collateralized by specific obligations.
F-17
<PAGE>
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
DECEMBER 31, 1993
(IN THOUSANDS)
(14) LEASES:
Total rental expense for all leases amounted to approximately $924, $858
and $387 in 1993, 1992, and 1991, respectively. At December 31, 1993, the
minimum total rental commitments under all noncancellable leases on bank
premises with initial or remaining terms of more than one year were as
follows:
1994 . . . . . . . . $ 791
1995 . . . . . . . . 815
1996 . . . . . . . . 788
1997 . . . . . . . . 570
1998 . . . . . . . . 455
Thereafter . . . . . 1,933
It is expected that in the normal course of business, leases that will
expire will be renewed or replaced by leases of other properties.
(15) COMMITMENTS AND CONTINGENT LIABILITIES:
The Company and its subsidiaries, from time to time, may be defendants in
legal proceedings. In the opinion of management, based upon consultation with
legal counsel, the ultimate resolution of these legal proceedings will not
have a material effect on the consolidated financial statements. In the normal
course of business, the Company and its subsidiaries have various commitments
and contingent liabilities such as commitments to extend credit, letters of
credit and liability for assets held in trust which are not reflected in the
accompanying financial statements.
Loan commitments are made to accommodate the financial needs of the
Company's and its subsidiaries' customers. Standby letters of credit commit
the Company and its subsidiaries to make payments on behalf of customers when
certain specified future events occur. They primarily are issued to support
inventory purchases and performance bonds.
Both arrangements have credit risk essentially the same as that involved
in extending loans to customers and are subject to the Company's normal credit
policies. Collateral (e.g., securities, receivables, inventory, equipment) is
obtained based on management's credit assessment of the customer.
The Company's maximum exposure to credit loss for loan commitments
(unfunded and unused lines of credit) and standby letters of credit
outstanding at December 31, 1993 was $77,297 and $13,760, respectively. Loan
commitments and standby letters of credit were $38,461 and $12,478,
respectively, at December 31, 1992. Commitments under commercial letters of
credit used to facilitate customers trade transactions were $442 and $189 at
December 31, 1993 and 1992, respectively.
The Company's loan portfolio is diversified with no industry comprising
greater than 10 percent of the total outstanding. Real estate loans are
primarily made in the local lending area. The Company requires collateral on
all real estate exposures and generally requires loan to value ratios of no
greater than 67 percent for commercial mortgages and 75 percent for
residential mortgages.
F-18
<PAGE>
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
DECEMBER 31, 1993
(IN THOUSANDS)
(16) HUBCO, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION:
December 31,
----------------
1993 1992
----- ------
BALANCE SHEETS
Assets:
Cash . . . . . . . . . . . . . . . . . . . . $ 1,085 $ 3
Marketable equity securities . . . . . . . . 5,102 543
Investment in:
Bank subsidiary . . . . . . . . . . . . . . 73,058 55,958
Nonbank subsidiary--HUB Financial
Services, Inc. . . . . . . . . . . . . . . 427 10,415
Accounts receivable. . . . . . . . . . . . . 477 337
Premises and equipment, net. . . . . . . . . 1,284 1,366
Other assets . . . . . . . . . . . . . . . . 65 --
------- -------
Total Assets . . . . . . . . . . . . . . . $81,498 $68,622
======= =======
Liabilities and Stockholders' Equity:
Payable for the purchase of treasury stock . $ 2,225 $ --
Accrued taxes and other liabilities. . . . . 319 288
Amount due to Hudson United Bank . . . . . . -- 21
------- -------
Total liabilities . . . . . . . . . . . . . 2,544 309
Stockholder's equity. . . . . . . . . . . . 78,954 68,313
------- -------
Total liabilities and stockholders' equity. $81,498 $68,622
======= =======
STATEMENTS OF INCOME
Year Ended December 31
------------------------
1993 1992 1991
----- ----- -----
Income:
Cash dividends from bank subsidiary . . $11,381 $2,863 $1,912
Cash dividends from nonbank subsidiary. -- 600 --
Interest. . . . . . . . . . . . . . . . 124 307 16
Rental income . . . . . . . . . . . . . 238 238 238
------- ------ ------
11,743 4,008 2,166
Expenses:
General and administrative. . . . . . . 581 759 341
Interest. . . . . . . . . . . . . . . . -- 35 57
------- ------ ------
581 794 398
------- ------ ------
Income before income tax expense (credit)
and equity in undistributed
net income of subsidiaries. . . . . . . . 11,162 3,214 1,768
Income tax benefit . . . . . . . . . . . . (73) (360) (49)
------- ------ ------
11,235 3,574 1,817
Equity in undistributed net income of:
Bank subsidiary . . . . . . . . . . . . . 2,955 6,337 3,039
Nonbank subsidiary. . . . . . . . . . . . 12 (270) 165
------- ------ ------
Net Income. . . . . . . . . . . . . . $14,202 $9,641 $5,021
======= ====== ======
F-19
<PAGE>
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
DECEMBER 31, 1993
(IN THOUSANDS)
Year Ended December 31,
--------------------------
1993 1992 1991
---- ----- -----
STATEMENTS OF CASH FLOWS
OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . $14,202 $ 9,641 $5,021
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for depreciation . . . . . . . 81 83 83
Amortization of restricted stock . . . . 278 641 478
Increase in investment in subsidiaries. . . (2,966) (26,667) (4,219)
Increase in accounts receivable . . . . . . (140) (146) (116)
Decrease (increase) in other assets . . . . (65) 7 (7)
Increase in payable for the purchase of
treasury stock . . . . . . . . . . . . . . 2,225 -- --
Increase in accrued taxes and other
liabilities. . . . . . . . . . . . . . . . (38) 288 (26)
------ ------ ------
Net cash provided by (used in)
operating activities . . . . . . . . . 13,577 (16,153) 1,214
------ ------ ------
INVESTING ACTIVITIES:
Purchase of marketable equity securities. . (4,373) (543) --
Capital expenditures. . . . . . . . . . . . -- (3) --
------ ------ ------
NET CASH USED IN INVESTING ACTIVITIES. . . . (4,373) (546) --
------ ------ ------
FINANCING ACTIVITIES:
Decrease in amount due to Hudson United
Bank . . . . . . . . . . . . . . . . . . . (21) (19) (18)
Decrease in note payable. . . . . . . . . . -- (763) (68)
Issuance of common stock. . . . . . . . . . -- 19,715 --
Dividends paid. . . . . . . . . . . . . . . (3,267) (2,414) (1,679)
Acquisition of treasury stock . . . . . . . (4,834) (6) (5)
------ ------ ------
Net cash provided by (used in) financing
activities . . . . . . . . . . . . . . (8,122) 16,513 (1,770)
------ ------ ------
Increase (decrease) in cash. . . . . . . . . 1,082 (186) (556)
Cash at beginning of year. . . . . . . . . . 3 189 745
------- ------- ------
Cash at end of year. . . . . . . . . . . . . $ 1,085 $ 3 $ 189
======= ======= ======
F-20<PAGE>
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
DECEMBER 31, 1993
(IN THOUSANDS)
(17) SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
The following quarterly financial information for the two years ended
December 31, 1993 is unaudited. However, in the opinion of management, all
adjustments, which include only normal recurring adjustments necessary to
present fairly the results of operations for the periods are reflected.
Results of operations for the periods are not necessarily indicative of the
results of the entire year or any other interim period.
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------
March 31 June 30 September 30 December 31
-------- --------- ------------ -----------
<S> <C> <C> <C> <C>
1993:
Interest income . . . . . . . . . . . . . . $16,389 $16,323 $17,619 $17,428
Interest expense. . . . . . . . . . . . . . 5,297 4,967 5,370 5,107
Net interest income . . . . . . . . . . . . 11,092 11,356 12,249 12,321
Provision for possible loan
losses . . . . . . . . . . . . . . . . . . 750 750 1,050 1,050
Gain (loss) on sale of securities . . . . . 4 (2) -- (2)
Other income. . . . . . . . . . . . . . . . 1,817 2,195 2,402 2,192
Other expenses. . . . . . . . . . . . . . . 7,084 7,451 8,084 7,352
Income before income taxes. . . . . . . . . 5,079 5,348 5,517 6,109
Income tax expense. . . . . . . . . . . . . 1,872 1,844 1,781 2,354
Net income. . . . . . . . . . . . . . . . . 3,207 3,504 3,736 3,755
Net income per share. . . . . . . . . . . . .46 .51 .54 .55
1992:
Interest income . . . . . . . . . . . . . . $14,560 $18,482 $17,784 $16,820
Interest expense. . . . . . . . . . . . . . 7,143 7,416 6,419 5,655
Net interest income . . . . . . . . . . . . 7,417 11,066 11,365 11,165
Provision for possible loan losses. . . . . 615 671 615 2,215
Loss on sale of securities. . . . . . . . . -- (15) (11) --
Other income. . . . . . . . . . . . . . . . 1,534 1,805 1,985 2,359
Other expenses. . . . . . . . . . . . . . . 6,166 9,150 8,973 10,060
Income before income taxes. . . . . . . . . 2,170 3,035 3,751 1,249
Income tax expense (benefit). . . . . . . . 724 611 930 (1,701)
Net income. . . . . . . . . . . . . . . . . 1,446 2,424 2,821 2,950
Net income per share. . . . . . . . . . . . .29 .43 .41 .43
</TABLE>
(18) SUBSEQUENT EVENT:
In January, 1994, the Company sold $25 million aggregate principal amount
of subordinated debentures in a private placement. The debentures, which
mature in 2004, bear interest at 7.75% per annum payable semiannually. The
Company is obligated to register the debentures with the Securities and
Exchange Commission by July, 1994, for an exchange offer or in a resale
transaction. The Company intends to use the net proceeds from the sale of the
debentures for general corporate purposes, including investments in and
advances to the Company's subsidiaries, and for financing possible future
acquisitions of deposits and banking assets.
F-21
<PAGE>
<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
Certified Public Accountants
Parsippany, New Jersey
June 11, 1993
February 15, 1994 as to Note 22
F-22
<PAGE>
<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-23
<PAGE>
<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 1,759,326 2,044,135 1,837,56
----------- ----------- ----------- ----------- -----------
9,045,063 8,911,339 12,172,738 12,963,640 13,610,963
----------- ----------- ----------- ----------- -----------
(Continued)
F-24
</TABLE>
<PAGE>
<PAGE>
<TABLE>
STATEWIDE SAVINGS BANK, S.L.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS--(CONCLUDED)
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)
<S> <C> <C> <C> <C> <C>
INCOME (LOSS) BEFORE INCOME
TAXES, EXTRAORDINARY CREDIT
AND CHANGE IN ACCOUNTING
PRINCIPLES. . . . . . . . . . . . . . . . . . $ 4,960,564 $ 6,095,698 $ 7,577,214 $ 2,462,047 $(1,295,055)
INCOME TAXES . . . . . . . . . . . . . . . . . 1,700,716 2,051,901 2,490,428 1,461,386 34,854
----------- ----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE EXTRA-
ORDINARY CREDIT AND CHANGE
IN ACCOUNTING PRINCIPLE . . . . . . . . . . . 3,259,848 4,043,797 5,086,786 1,000,661 (1,329,909)
EXTRAORDINARY CREDIT--
Utilization of net operating loss
carryforward . . . . . . . . . . . . . . . . -- -- -- 1,233,283 --
CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE . . . . . . . . . . . 668,841 -- -- -- --
----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS). . . . . . . . . . . . . . . 3,928,689 4,043,797 5,086,786 2,233,944 (1,329,909)
RETAINED EARNINGS,
BEGINNING OF PERIOD . . . . . . . . . . . . . 28,311,590 23,224,804 23,224,804 20,990,860 22,320,769
----------- ----------- ----------- ----------- -----------
RETAINED EARNINGS,
END OF PERIOD . . . . . . . . . . . . . . . . $32,240,279 $27,268,601 $28,311,590 $23,224,804 $20,990,860
=========== =========== =========== =========== ===========
See notes to consolidated financial statements.
F-25
<PAGE>
<PAGE>
</TABLE>
<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-26
</TABLE>
<PAGE>
<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-27
</TABLE>
<PAGE>
<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-28
<PAGE>
<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-29
<PAGE>
<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-30
<PAGE>
<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-31
<PAGE>
<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-32
<PAGE>
<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-33
<PAGE>
<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-34
<PAGE>
<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-35
<PAGE>
<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-36
<PAGE>
<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-37
<PAGE>
<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-38
<PAGE>
<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-39
<PAGE>
<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-40
<PAGE>
<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-41
<PAGE>
<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-42
<PAGE>
<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-43
<PAGE>
<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-44<PAGE>
<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.
F-45
<PAGE>
<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-46
<PAGE>
<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-47
<PAGE>
<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-48
<PAGE>
<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-49
</TABLE>
<PAGE>
<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 & 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-50
<PAGE>
<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-51
</TABLE>
<PAGE>
<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-52
<PAGE>
<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 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.
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 net realizable value. When a
property is transferred to ISF, the excess of the loan balance over market or
the estimated net realizable value 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-53
<PAGE>
<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. 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-54
<PAGE>
<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-55
<PAGE>
<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
Government National
Mortgage Association ("GNMA")
pass-through certificates . . . . 6.82% $ 5,986 --% $ -- $ -- $ -- $ --
Federal Home Loan Mortgage
Association ("FHLMC") pass-
through certificates . . . . . . . 7.82 2,558 -- -- -- -- --
Federal National Mortgage
Association ("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-56
<PAGE>
<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-57
<PAGE>
<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. 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-58
<PAGE>
<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-59
<PAGE>
<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-60
<PAGE>
<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-61
<PAGE>
<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-62
<PAGE>
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements--(CONTINUED)
Directors 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 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-63
<PAGE>
<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-64
<PAGE>
<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 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 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-65
<PAGE>
<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 -- --
F-66
<PAGE>
<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 Washington Savings of 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 their 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>
<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-67
<PAGE>
<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-68
<PAGE>
============================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT
CONTAINED IN THIS SUBSCRIPTION, STOCKHOLDER AND COMMUNITY
OFFERING PROSPECTUS IN CONNECTION WITH THE OFFERING MADE
HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESEN-
TATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
HUBCO, INC. OR ANY OTHER PERSON, FIRM OR ENTITY. THIS SUB-
SCRIPTION, STOCKHOLDER AND COMMUNITY OFFERING PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION OF
AN OFFER TO BUY, ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICI-
TATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
SUBSCRIPTION, STOCKHOLDER AND COMMUNITY OFFERING PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL IN ANY CIRCUMSTANCES
CREATE AN IMPLICATION THAT INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
--------------------------
TABLE OF CONTENTS
PAGE
----
Available Information. . . . . . . . . . . . . . . . 6
Incorporation of Certain Documents
By Reference. . . . . . . . . . . . . . . . . . . . 6
Recent Developments. . . . . . . . . . . . . . . . . 7
Summary. . . . . . . . . . . . . . . . . . . . . . . 8
Summary of Selected Pro Forma Data . . . . . . . . . 20
Investment Considerations. . . . . . . . . . . . . . 22
Market Price and Dividends of HUBCO. . . . . . . . . 25
Use of Proceeds. . . . . . . . . . . . . . . . . . . 26
Capitalization of HUBCO. . . . . . . . . . . . . . . 26
Pro Forma Condensed Combined Unaudited
Financial Statements. . . . . . . . . . . . . . . . 27
Selected Consolidated Financial Information
of HUBCO. . . . . . . . . . . . . . . . . . . . . . 34
Management Discussion and Analysis of
Financial Condition and Results of
Operations of HUBCO . . . . . . . . . . . . . . . . 35
Business of HUBCO. . . . . . . . . . . . . . . . . . 52
Management Discussion and Analysis of
Financial Condition and Results of
Operations of Statewide . . . . . . . . . . . . . . 55
Business of Statewide. . . . . . . . . . . . . . . . 64
Selected Consolidated Fiancial Data of
Washington. . . . . . . . . . . . . . . . . . . . . 81
Management Discussion and Analysis of
Financial Condition and Results of
Operations of Washington. . . . . . . . . . . . . . 83
Business of Washington . . . . . . . . . . . . . . . 99
Regulation and Supervision of HUBCO. . . . . . . . . 101
FIRREA . . . . . . . . . . . . . . . . . . . . . . . 103
Management of HUBCO. . . . . . . . . . . . . . . . . 104
Shareholdings of Principal Shareholders and
Management of HUBCO . . . . . . . . . . . . . . . . 106
The Merger Conversion. . . . . . . . . . . . . . . . 107
Description of the Offerings . . . . . . . . . . . . 110
Subscription Procedures. . . . . . . . . . . . . . . 113
Certain Federal Income Tax Consequence . . . . . . . 118
Description of Capital Stock of HUBCO. . . . . . . . 121
Experts. . . . . . . . . . . . . . . . . . . . . . . 123
Legal Matters. . . . . . . . . . . . . . . . . . . . 124
Index to Consolidated Financial Statements
of HUBCO. . . . . . . . . . . . . . . . . . . . . . 125
============================================================
============================================================
1,944,444 SHARES
[LOGO]
HUBCO, INC.
COMMON STOCK
------------
SUBSCRIPTION, STOCKHOLDER AND
COMMUNITY OFFERING PROSPECTUS
------------
COMMUNITY CAPITAL GROUP
A DIVISION OF
RYAN, BECK & CO.
, 1994
============================================================
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The expenses in connection with the issuance and distribution of the
securities offered hereby (other than underwriting discounts and commissions)
are:
SEC Filing Fee for Registration Statement. . . . . $ 13,880.00
National Association of Securities Dealers
Filing Fee for Registration Statement . . . . . . 4,525.00
NASDAQ System Listing Fee. . . . . . . . . . . . . 17,500.00
Legal Fees and Expenses. . . . . . . . . . . . . . 170,000.00
Printing and Engraving Expenses. . . . . . . . . . 180,000.00
Accounting Fees and Expenses . . . . . . . . . . . 100,000.00
Blue Sky Fees and Expenses . . . . . . . . . . . . 3,000.00
Application Fees . . . . . . . . . . . . . . . . . 57,000.00
Miscellaneous. . . . . . . . . . . . . . . . . . . 25,000.00
-----------
TOTAL. . . . . . . . . . . . . . . . . . . . . . $570,905.00
===========
Item 15. 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 indemni-
fication 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>
<PAGE>
Item 16. Exhibits.
Exhibits are listed by number corresponding to the Exhibit Table of Item
601 of Regulation S-K.
Exhibits
- --------
1(a)* Form of Agency Agreement between Hubco, Inc. and Community
Capital Group, a division of Ryan, Beck & Co., Inc.
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.
2(b) Amendment No. 1 to Amended and Restated Agreement and Plan of
Reorganization, dated as of February 25, 1994, between Statewide
Savings Bank, S.L.A., HUBCO, Inc. and Hudson United Bank.
4(a)** Form of HUBCO, Inc. Common Stock Certificate.
4(b)* Certificate of Incorporation of Hubco, Inc., as amended.
4(c)*** By-Laws of Hubco, Inc., as amended.
5(a)* Opinion of Clapp & Eisenberg, P.C., as to the legality of the
securities being registered.
8* Opinion of Clapp & Eisenberg, P.C., as to certain tax
consequences of the Merger.
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(a)
hereto).
23(e) Consent of Kaplan Associates.
24* Powers of Attorney of directors of HUBCO, Inc. in favor of
Kenneth T. Neilson.
99(a)* Subscription Order Form.
99(b)* Appraisal Agreement between Statewide Savings Bank, S.L.A. and
Kaplan Associates, Inc.
99(c)* Preliminary Appraisal by Kaplan Associates, dated December 7,
1993.
- ------------
* Previously filed.
** Incorporated by reference from Registrant's Registration Statement (No.
33-47009) on Form S-2.
*** Incorporated by reference from Registrant's Annual Report on Form 10-K
for the Fiscal Year Ended December 31, 1991.
**** To be filed by amendment.
Item 17. Undertakings.
The undersigned registrant hereby undertakes:
(a) To deliver or cause to be delivered with the prospectus, to each
person to whom the prospectus is sent or given, the latest annual report to
security holders that is incorporated by reference in the prospectus and
furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule
14c-3 under the Securities Exchange Act of 1934; and, where interim
financial information required to be presented by Article 3 of Regulation
S-X is not set forth in the prospectus, to deliver or cause to be delivered
to each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
II-2
<PAGE>
<PAGE>
(b) 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 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.
(c) 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.
(d) 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-3
<PAGE>
<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-3 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 25 day of March, 1994.
HUBCO, INC.
By /s/ KENNETH T. NEILSON
--------------------------------------
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 March 25, 1994
- -------------------------------------
(JAMES E. SCHIERLOH)
/s/ KENNETH T. NEILSON President and Director March 25, 1994
- ------------------------------------- (Chief Executive Officer)
(KENNETH T. NEILSON)
* Director March 25, 1994
- -------------------------------------
(ROBERT J. BURKE)
* Director March 25, 1994
- -------------------------------------
(HENRY G. HUGELHEIM)
Director
- -------------------------------------
(HARRY J. LEBER)
* Director March 25, 1994
- -------------------------------------
(CHARLES F. X. POGGI)
* Director March 25, 1994
- -------------------------------------
(SISTER GRACE FRANCES STRAUBER)
Director
- -------------------------------------
(EDWIN WACHTEL)
* Assistant Treasurer (Principal March 25, 1994
- ------------------------------------- Financial Officer and Principal
(CHRISTINA L. MAIER) Accounting Officer)
</TABLE>
* By /s/ KENNETH T. NEILSON
--------------------------------
KENNETH T. NEILSON
AS ATTORNEY-IN-FACT
II-4
<PAGE>
<PAGE>
EXHIBIT INDEX
SEQUENTIALLY
NUMBERED
EXHIBITS DESCRIPTION PAGE
- -------- ----------- ------------
1(a)* Form of Agency Agreement between Hubco, Inc. and Community
Capital Group, a division of Ryan, Beck & Co., Inc.
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.
2(b) Amendment No. 1 to Amended and Restated Agreement and Plan of
Recorganization, dated as of February 25, 1994, between Statewide
Savings Bank S.L.A., HUBCO, Inc. and Hudson United Bank.
4(a)** Form of HUBCO, Inc. Common Stock Certificate.
4(b)* Certificate of Incorporation of Hubco, Inc., as amended.
4(c)*** By-Laws of Hubco, Inc., as amended.
5(a)* Opinion of Clapp & Eisenberg, P.C., as to the legality of the
securities being registered.
8* Opinion of Clapp & Eisenberg, P.C., as to certain tax
consequences of the Merger.
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(a)
hereto).
23(e) Consent of Kaplan Associates.
24* Powers of Attorney of directors of HUBCO, Inc. in favor of
Kenneth T. Neilson.
99(a)* Subscription Order Form.
99(b)* Appraisal Agreement between Statewide Savings Bank, S.L.A. and
Kaplan Associates, Inc.
99(c)* Preliminary Appraisal by Kaplan Associates, dated December 7,
1993.
- ------------
* Previously filed.
** Incorporated by reference from Registrant's Registration Statement (No.
33-47009) on Form S-2.
*** Incorporated by reference from Registrant's Annual Report on Form 10-K
for the Fiscal Year Ended December 31, 1991.
**** To be filed by amendment.
EXHIBIT 2(b)
AMENDMENT NO. 1 TO AMENDED AND RESTATED AGREEMENT
AND PLAN OF REORGANIZATION
This Amendment No. 1 to Amended and Restated Agreement and Plan of
Reorganization is entered into as of February 25, 1994, between Statewide
Savings Bank, S.L.A., a State-chartered mutual savings and loan association
with its principal office in Jersey City, New Jersey (the "Association"),
HUBCO, Inc., a New Jersey corporation and bank holding company with its
principal office in Union City, New Jersey ("HUBCO") and Hudson United Bank,
the wholly-owned commercial banking subsidiary of HUBCO (the "Bank").
W I T N E S S E T H :
WHEREAS, the parties have entered into an Amended and Restated Agreement
and Plan of Reorganization, dated as of November 23, 1993 (the "Agreement")
pursuant to which HUBCO has agreed to acquire the Association in a merger
conversion transaction, upon the terms and conditions set forth in the
Agreement; and
WHEREAS, pursuant to Section 8.3 of the Agreement, the parties desire to
amend the terms of the Agreement to extend the period of time within which (i)
certain conditions to each party's obligation to perform under the Agreement
may be fulfilled and (ii) the Closing Date may occur, as set forth herein.
NOW, THEREFORE, in consideration of their mutual covenants and agreements
herein contained, the parties hereby agree as follows:
1. Amendment to Article V Section 5.10. The first sentence of
Section 5.10 is hereby amended to read as follows:
In the event that HUBCO or the Association determines that a
material condition to its obligation to consummate the transactions
contemplated hereby cannot be fulfilled by June 30, 1994 and that it will
not waive that condition, it will promptly notify the other party.
2. Amendment to Article VIII, Section 8.1. Clause (b) of Section 8.1
is hereby amended to read as follows:
(b) by HUBCO or the Association in writing if the Closing Date shall
not have occurred on or prior to June 30, 1994
3. Counterparts. This Amendment No. 1 to Amended and Restated
Agreement and Plan of Reorganization may be executed in separate
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, HUBCO, the Bank and the Association have caused this
Agreement to be executed by their duly authorized officers as of the day and
year first above written.
ATTEST: HUBCO, INC.
By: /s/ D. LYNN VAN BORKULO-NUZZO By: /s/ KENNETH T. NEILSON
-------------------------------- --------------------------------
, SECRETARY KENNETH T. NEILSON,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ATTEST: HUDSON UNITED BANK
By: /s/ D. LYNN VAN BORKULO-NUZZO By: /s/ KENNETH T. NEILSON
-------------------------------- --------------------------------
, SECRETARY KENNETH T. NEILSON,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ATTEST: STATEWIDE SAVINGS BANK, S.L.A.
By: /s/ JENNIE M. DEGUILIO By: /S/ WILLIAM S. DAVIDSON
-------------------------------- --------------------------------
, SECRETARY WILLIAM F. DAVIDSON,
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
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 a part of
this registration statement.
/s/ Arthur Andersen & Co.
ARTHUR ANDERSEN & CO.
Roseland, New Jersey
March 23, 1994
EXHIBIT 23(b)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of HUBCO, Inc. on
Form S-3 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
DELOITTE & TOUCHE
Parsippany, New Jersey
March 24, 1994
LETTERHEAD
Exhibit 23(c)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-3
(File No. 33-72330) 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.
/s/ Coopers & Lybrand
COOPERS & LYBRAND
Parsippany, New Jersey
March 24, 1994
Exhibit 23(e)
CONSENT OF INDEPENDENT APPRAISER
We hereby consent to the use of our firm's name in the Amendment No. 3 to
the Form S-3 Registration Statement and Amendments thereto of HUBCO, Inc.,
relating to the conversion of Statewide Savings Bank (the "Bank") into the
stock form and the immediate acquisition of all of the Bank's outstanding
shares by HUBCO, Inc. We also consent to references to our valuation appraisal
opinion and report of the Bank filed with the Form S-3 and amendments thereto,
as filed with the Securities and Exchange Commission. We further consent to
the filing of the aforementioned opinions and reports as Exhibits to the Form
S-3 and Amendments thereto.
Respectfully,
/s/ Kaplan Associates, Inc.
KAPLAN ASSOCIATES, INC.
March 24, 1994
