SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-010699
HUBCO, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-2405746
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3100 Bergenline Avenue
Union City, New Jersey 07087
(Address of principal executive office) (Zip Code)
(201)-348-2300
(Registrant's telephone number, including area code)
Not Applicable
Former name, former address, and formal fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date:
6,490,470 shares, no par value, outstanding as of May 9, 1994.
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets
March 31, 1994 and December 31, 1993. . . . . . . . . 1
Consolidated Statements of Income
Three Months Ended March 31, 1994
and March 31, 1993. . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Cash Flows
Three Months ended March 31, 1994
and March 31, 1993. . . . . . . . . . . . . . . . . . . 3
S.E.C. Guide 3 - Item III
Loan Portfolio. . . . . . . . . . . . . . . . . . . . 4
Asset Quality Schedule - Quarterly Recaps . . . . . . . 5
S.E.C. Guide 3 - Item IV
Summary of loan loss experience . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements. . . . . . . 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . 9-13
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders . . 14
Item 5. Other Information . . . . . . . . . . . . . . . . . . . 15-17
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . 18
Signatures. . . . . . . . . . . . . . . . . . . . . . . 19
<PAGE> Page 1
HUBCO, Inc. and Subsidiaries
PART I. FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)
March 31 December 31
1994 1993
ASSETS
Cash and due from banks $ 43,577 $ 49,542
Investment Securities (Note - B)
Available for Sale, at market value
(amortized cost of $142,787 and $123,833
in 1994 and 1993, respectively) 145,638 130,555
Held to maturity, at cost (market value of $313,013
and $301,692 for 1994 and 1993, respectively) 314,331 296,130
--------- ----------
459,969 426,685
Federal funds sold and securities
purchased under agreements to resell 20,900 9,800
Loans:
Real estate-mortgage 242,844 246,647
Commercial and financial 182,033 178,827
Consumer credit 103,007 109,169
Direct lease financing 17 122
--------- ----------
527,901 534,765
Less:
Allowance for possible loan losses 10,687 10,811
Deferred loan fees 630 676
Unearned income 4,160 4,699
--------- ----------
NET LOANS 512,424 518,579
--------- ----------
Property and equipment, net 17,718 18,001
Other real estate 813 2,311
Accrued interest receivable 9,072 10,259
Other assets 14,158 6,648
---------- ----------
TOTAL ASSETS $1,078,631 $1,041,825
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 208,106 $ 205,233
Interest bearing 744,898 730,455
---------- ----------
TOTAL DEPOSITS 953,004 935,688
---------- ----------
Federal funds purchased and securities
sold under agreements to repurchase 19,653 19,629
Treasury tax and loan note 1,000 1,000
Accrued taxes and other liabilities 5,678 6,554
---------- ----------
TOTAL LIABILITIES 979,335 962,871
---------- ----------
Subordinated Debt (Note - C) 25,000 0
Stockholders' equity:
Common stock, no par value, issued
6,933,361 and outstanding 6,490,470 shares
(1994); issued 6,933,361 and outstanding
6,724,661 shares (1993) 18,492 18,492
Capital in excess of par 49,047 49,048
Retained earnings 15,677 12,669
Treasury stock, at cost, 442,891 shares
in 1994 and 208,700 shares in 1993 (9,869) (4,571)
Unearned Compensation-Restricted stock awards (867) (946)
Unrealized gain on investment securities
available for sale, net of income taxes of $1,035
and $2,460 in 1994 and 1993, respectively 1,816 4,262
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 74,296 78,954
---------- ----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $1,078,631 $1,041,825
========== ==========
See notes to consolidated financial statements
<PAGE> Page 2
HUBCO, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS ENDED
(In Thousands) MARCH 31
1994 1993
INTEREST INCOME
Interest & fees on loans:
Taxable $10,515 $10,548
Tax exempt 61 73
------- -------
10,576 10,621
------- -------
Interest & dividends on investment securities:
Taxable 6,520 5,296
Tax exempt 309 242
-------
6,829 5,538
------- -------
Interest on federal funds sold 89 230
Other 16 -
------- -------
TOTAL INTEREST INCOME 17,510 16,389
------- -------
INTEREST EXPENSE
Interest on deposits:
Savings deposits 2,854 2,847
Time deposits 1,739 2,370
Interest on borrowings 538 80
------- -------
TOTAL INTEREST EXPENSE 5,131 5,297
------- -------
NET INTEREST INCOME 12,379 11,092
------- -------
Provision for possible loan losses 450 750
------- -------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 11,929 10,342
OTHER INCOME
Trust department income 172 111
Service charges on deposit accounts 1,577 1,273
Investment securities gains - 4
Miscellaneous 460 433
------- -------
2,209 1,821
------- -------
14,138 12,163
------- -------
OTHER EXPENSES
Salaries 3,106 2,794
Pension and other employee benefits 1,559 1,322
Occupancy expense of property 914 601
Equipment expense 427 426
Miscellaneous 2,000 1,941
------- -------
8,006 7,084
------- -------
INCOME BEFORE INCOME TAXES 6,132 5,079
INCOME TAXES 2,346 1,872
------- -------
NET INCOME $ 3,786 $ 3,207
======= =======
Earnings per share:
(Based on weighted average shares
outstanding of 6,521,627 in 1994 $ .58 $ .46
and 6,913,405 in 1993) ======== ========
See notes to consolidated financial statements
<PAGE> Page 3
CONSOLIDATED STATEMENTS OF CASH FLOWS (NET)
HUBCO, INC. and Subsidiaries
(in thousands)
Three Months Ended
March 31
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,786 $ 3,207
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Provision for possible loan losses 450 750
Provision for depreciation and amortization 491 447
Amortization of investment security premiums 328 295
Accretion of investment security discount (59) (85)
Realized investment security (gains) losses - (4)
Deferred income taxes 320 320
Decrease in interest receivable 1,187 1,093
Increase (decrease) in interest payable 319 (77)
Increase in accrued taxes and other
liabilities 230 472
Increase (decrease) in other assets (7,830) 7,944
-------- --------
NET CASH PROVIDED
BY (USED IN) OPERATING ACTIVITIES (778) 14,362
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of investment securities - 61
Proceeds from maturities of investment securities 41,136 9,131
Net decrease in loans 5,705 9,073
Purchase of investment securities (78,560) (26,741)
Purchases of premises and equipment (129) (2,821)
(Increase) decrease in other real estate 1,498 (132)
-------- --------
NET CASH USED IN
INVESTING ACTIVITIES (30,350) (11,429)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand deposits,
NOW accounts and savings accounts 23,228 9,619
Net (decrease) in certificates
of deposit (5,912) (23,468)
Net increase (decrease) in federal funds
purchased and securities sold under
agreements to repurchase 24 (1,371)
Subordinated Debt 25,000 -
Cash dividends (779) (691)
Purchase of treasury stock (5,298) (1)
-------- --------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 36,263 (15,912)
-------- --------
INCREASE IN CASH
AND CASH EQUIVALENTS 5,135 (12,979)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD $59,342 $ 61,700
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $64,477 $ 48,721
======= ========
<PAGE> Page 4
HUBCO, Inc. and Subsidiaries
S.E.C. GUIDE 3 - ITEM III
LOAN PORTFOLIO
Types of Loans at Each Reported Period
(In Thousands of Dollars)
3/31/94 12/31/93
-------- --------
Commercial, Financial, and
Agricultural $119,659 $119,563
Real Estate - Construction 7,288 7,117
Real Estate - Mortgage 337,340 330,018
Consumer Loans 52,923 77,945
Other 10,691 122
-------- --------
Total $527,901 $534,765
======== ========
Page 5
HUBCO, Inc. and Subsidiaries
ASSET QUALITY SCHEDULE - QUARTERLY RECAP
(In Thousands)
3/31/94 12/31/93 9/30/93 6/30/93
Non-Accruing Loans:
Commercial $1,559 $ 1,391 $1,382 $ 1,468
Real Estate 3,457 3,398 3,212 2,107
Installment 634 745 853 780
------ ------- ------ -------
Total Non-Accruing Loans 5,650 5,534 5,447 4,355
------ ------- ------ -------
Renegotiated Loans 1,816 2,177 2,177 2,247
------ ------- ------ -------
Total Non-Performing Loans $7,466 $ 7,711 $7,624 $ 6,602
Other Real Estate 813 2,311 2,305 2,500
------ ------- ------ -------
Total Non-Performing Assets $8,279 $10,022 $9,929 $ 9,102
====== ======= ====== =======
Non-Accruing Loans to Total
Loans, Net 1.08% 1.05% .99% .79%
Non-Performing Loans to Total
Loans, Net 1.43 1.46 1.39 1.19
Non-Performing Assets to
Total Assets .77 .96 .96 .87
Non-Performing Assets to
Total Loans, Net Plus
Other Real Estate 1.58 1.88 1.80 1.64
Loans Past Due 90 Days or
More and Accruing:
Commercial $ 602 $1,139 $ 862 $ 868
Real Estate 656 225 692 1,634
Installment 72 79 10 205
------ ------ ------ -------
Total Past Due Loans $1,330 $1,443 $1,564 $ 2,707
====== ====== ====== =======
<PAGE> Page 6
HUBCO, Inc. and Subsidiaries
S.E.C. GUIDE 3 ITEM IV
SUMMARY OF LOAN LOSS EXPERIENCE
Summary of Activity in the Allowance,
Broken Down by Loan Category
Three Months Ended Year Ended
3/31/94 12/31/93
(In Thousands of Dollars)
Amount of Loans Outstanding $527,901 $534,765
======= =======
Daily Average Amount of Loans $529,689 $529,340
======= =======
Balance of Allowance for
Possible Loan Losses at
Beginning of Period $ 10,811 $ 7,605
Loans Charged Off:
Commercial, Financial,
and Agricultural (490) (637)
Real Estate - Mortgage (63) (138)
Installment (64) (283)
Lease Financing (14) (122)
--------- ----------
Total Loans Charged Off (631) (1,180)
--------- ----------
Recoveries of Loans Previously
Charged Off:
Commercial, Financial,
and Agricultural 33 141
Real Estate - Mortgage - 59
Installment 16 104
Lease Financing 8 82
-------- ---------
Total Recoveries 57 386
-------- ---------
Net Loans Charged Off (574) (794)
Addition to Allowance
Charged to Operations 450 3,600
Additions Acquired Through Acquisitions - 400
-------- --------
Balance at End of Period $ 10,687 $ 10,811
======== ========
Ratio of Net Loans Charged-Off
During Period to Average
Loans Outstanding .11% .15%
<PAGE> Page 7
HUBCO, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1994
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form l0-Q and Rule
l0-0l of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles to complete financial statements. In the opinion of management,
the information presented includes all adjustments considered necessary to a
fair presentation of the interim period results.
NOTE B - INVESTMENT SECURITIES
The amortized cost and estimated market value of investment securities are
summarized as follows:
March 31, 1994
--------------
Estimated
Amortized Gross Unrealized Market
Cost Gains (Losses) Value
--------- ----- -------- ---------
AVAILABLE FOR SALE
U.S. Government $105,659 $2,806 ($54) $108,411
U.S. Government
agencies 28,445 304 (1,061) 27,688
State and political
subdivisions 1,598 102 - 1,700
Other securities 2,075 167 - 2,242
Equity securities 5,010 697 (110) 5,597
-------- ------ -------- --------
$142,787 $4,076 ($1,225) $145,638
======== ====== ======== ========
March 31, 1994
--------------
Estimated
Amortized Gross Unrealized Market
Cost Gains (Losses) Value
--------- ----- -------- ---------
HELD TO MATURITY
U.S. Government $ 96,895 $1,372 ($777) $ 97,490
U.S. Government
agencies 177,785 1,680 (3,473) 175,992
State and political
subdivisions 38,141 143 (287) 37,997
Other securities - - - -
Equity Securities 1,510 37 (13) 1,534
-------- ------ -------- --------
$314,331 $3,232 ($4,550) $313,013
======== ====== ======== ========
<PAGE> Page 8
1993
----
Estimated
Amortized Gross Unrealized 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
----
Estimated
Amortized Gross Unrealized Market
----------------
Cost Gains (Losses) Value
--------- ----- -------- ---------
Held to Maturity
U.S. Government $104,957 $ 2,648 ($125) $107,480
U.S. Government
Agencies 164,850 $ 3,104 (651) 167,303
State and Political
Subdivisions 23,815 496 (4) 24,307
Other securities 2,508 94 - 2,602
-------- ------- ------ --------
$296,130 $ 6,342 $(780) $301,692
======== ======= ====== ========
NOTE C - SUBORDINATED DEBT
In January 1994, the Company sold $25 million aggregate principal amount of
subordinated debentures in a private placement. The debentures, which mature
2004, bear interest at 7.75% per annum payable semi-annually. The Company is
obligated to register the debentures with the Securities and Exchange
Commission by July, 1994. On March 18, 1994, HUBCO entered into an interest
rate exchange agreement intended to hedge the interest risk related to the
$25 million subordinated debt. The agreement is a contractual agreement
between HUBCO and its counter-party to exchange fixed and floating rate
interest obligations. HUBCO's counter-party to the agreement is the fixed
rate payor, and HUBCO is the floating rate payor. The floating rate is reset
every three months. The term of the agreement is three years.
<PAGE>
<PAGE> Page 9
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
------------------------------------------------
This financial review presents management's discussion and analysis of
financial condition and results of operations. It should be read in
conjunction with the Company's Consolidated Financial Statements and the
accompanying notes. Unless otherwise noted, all dollar amounts, other than
per share information, are presented in thousands.
The Company presently has two acquisitions pending. See Item 5 under Part II
of this Form 10-Q for a description of these pending acquisitions.
On June 30, 1993, the Company, through Hudson United Bank, acquired deposits
and certain assets of Pilgrim State Bank ("Pilgrim") from the Ramapo Bank
("Ramapo") immediately following a merger of Pilgrim into Ramapo. The merger
and the acquisition occurred pursuant to a Purchase and Assumption Agreement
previously entered into between the parties. The income statement comparison
is influenced by the Pilgrim transaction.
On June 1, 1993, the Company paid a ten percent stock dividend to
stockholders of record May 11, 1993, which resulted in the issuance of
628,011 new shares of common stock. Per share amounts have been restated to
reflect the ten percent stock dividend.
RESULTS OF OPERATIONS
- ---------------------
For the three month period ended March 31, 1994, the Company earned net
income of $3,786, or $.58 per share, compared to $3,207, or $.46 per share,
for the same period in 1993. The increase in earnings of $579, or 18.1%, is
the result of a combination of items. Earnings for the period were improved
by increases in net interest income and other income of $1,287, or 11.6%, and
$388, or 21.3%, respectively; and by a decrease in the provision for loan
losses of $300, or 40.0%. Partially offsetting these gains was an increase
in other expenses of $922, or 13.0%, and an increase in income taxes of $474,
or 25.3%. Investment securities gains included in other income were $0 and
$4 for 1994 and 1993, respectively. Our repurchase of $10,000 of HUBCO stock
reduced earning assets but increased earnings per share.
The increase in net interest income from $11,092 for the three month period
ended March 31, 1993 to $12,379 for the current three month period reflects
the increase for the comparative periods in average net interest earning
assets (average earning assets minus average paying liabilities), as well as
the related changes in yield/rate on the product mix. Average net interest
earning assets increased by $59,018, or 33.4%, from $176,582 at March 31,
1993 to $235,600 at March 31, 1994. The mix of assets and liabilities
acquired from the Pilgrim transaction contributed to the increase in average
net interest earning assets. Partially offsetting the increase was the
interest paid on the subordinated debentures issued in January, 1994 (see
"Financial Condition").
<PAGE> Page 10
Total other income for the three month period in 1994 increased by $388, or
21.3%, over the comparable period in 1994 due primarily to an increase of
$304, or 23.9%, in service charges on deposit accounts. The increased
service charges, which represents 78.4% of the total other income increase,
arise from an increase in average deposits of $101,984, or 12.1%, for the
three month period ended March 31, 1994 over the comparable period last year.
Also contributing to the other income increase is an increase of $61, or
55.0%, in trust department income, which is attributable primarily to an
increase in estate accounts during the current period along with an active
new business program.
The level of the provision for possible loan losses was decreased by $300, or
40.0%, from $750 for the three month period ended March 31, 1993 to $450 for
the first quarter of 1994. During 1993, the provision had been increased in
order to build the allowance to a level deemed adequate to support the
increase in non-performing loans as a result of the Pilgrim transaction and
to reflect the weakness of the local economy. The provision was reduced to
reflect the Company's charge-off level for last year and for the most recent
three year average.
Non-interest expenses for the three month period ended March 31, 1994
increased by $922, or 13.0%, over the comparable period last year. Of that
amount, $549, or 59.5% of the total increase, was in salaries and benefits,
an increase of 13.3% for the category. Of that amount, $192 represents the
additional personnel expense incurred as a result of the addition of the six
Pilgrim branches, $68 represents an increase in the 1994 performance bonus
accrual based on increased earnings, and the remainder is attributable to
salary increases of approximately 3.0%, salary-related increases in payroll
taxes, and the provision for severance packages related to the planned move
of the Bank's deposit and mortgage servicing operations into its data
processing subsidiary. Occupancy expense increased by $313, or 52.1%, during
the first quarter of 1994 compared to the same period in 1993. Of that
amount, $100, or 16.6%, represents the occupancy expense attributable to the
six additional Pilgrim branches. The additional increase is primarily
attributable to unusual building repair and service costs incurred as a
result of the extremely severe winter season experienced in the Northeast
region. Equipment expenses were stable for the comparable periods.
Miscellaneous expenses increased by only $59, or 3.0%, for the three-month
period ended March 31, 1994 compared to the same period last year. The
reversal of $55 in accrued expenses that were no longer deemed necessary is
included, as are cost containment measures implemented to reduce outside
service fees, particularly in the legal area($76). Offsetting these savings
were increases in operating supplies and insurance expense of $34, or 21.7%
and $49, or 8.8%, respectively, both of which were anticipated due to the
additional branches. The installation of voice mail and voice response
telephone systems served to increase telephone expense during the current
period by $72, or 167.4%. It is expected that these systems are generating
savings in other areas.
<PAGE> Page 11
The provision for income taxes for the three-month period ended March 31,
1994 increased by $474, or 25.3%, over the comparable period in 1993 due to
an increase of $1,053, or 20.7%, in net income before taxes and to the
additional state tax expense incurred.
The increases in net interest income as previously discussed are produced by
rate/volume changes and product mix and is summarized for the comparative
three-month periods on a tax equivalent basis in the following table. The
tax equivalent interest margins are also provided. The tax-equivalent
interest margin, which measures net interest income as a part of average
earning assets, was 5.05% for the three months ended March 31, 1994, compared
to 5.19% for the comparable period in 1993. The decline is primarily
attributable to a reduction in interest cost on average earning liabilities
(37 basis points) partially due to the new Subordinated Debt, compared to the
reduction in interest earned on average assets (52 basis points).
1ST QUARTER 1994 VS. 1ST QUARTER 1993
-------------------------------------
Volume Rate Mix Net
(In Thousands of Dollars)
Total Interest Income $2,464 $(1,127) $(187) $1,150
Total Interest Expense 537 (638) (65) (166)
Net Interest Earnings $1,927 $ (489) $(122) $1,316
1ST QUARTER
-----------
1994 1993
---- ----
Net Interest Margin (FTE) 5.05% 5.19%
FINANCIAL CONDITION
- -------------------
Total assets at March 31, 1994 increased by $36,806, or 3.5%, over December
31, 1993 basically as a result of an increase in total deposits of $17,316,
or 1.9%, and the issuance of $25,000 in subordinated debt. Partially
offsetting these increases were decreases in accrued taxes and other
liabilities of $876, or 13.4%, and in stockholders' equity of $4,658, or
5.9%, as a result of the stock buyback program.
The Company's gross loan portfolio decreased from $534,765 at December 31,
1993 to $527,901 at March 31, 1994, a decrease of $6,864, or 1.3%. The
decrease is the result of net runoff in the consumer loan portfolio due to
light loan demand and the selling in the secondary market of certain mortgage
loans. The commercial loan portfolio at March 31, 1994 showed an increase of
$3,206, or 1.8%, over December 31, 1993 and is expected to show continued
growth throughout the year.
<PAGE> Page 12
Total non-performing loans, which include non-accruing and renegotiated
loans, decreased by $245, or 3.2%, from $7,711 at December 31, 1993 to $7,466
at March 31, 1994. The decrease is in renegotiated loans and is due to one
large loan coming out of restructured status, and the addition of two smaller
loans being restructured during the period. Non-accruing loans were
unchanged as a result of the implementation of FASB 114 which transferred
$708 from OREO to this category offsetting the reduction made in non-accruing
loans. Total non-performing assets decreased from $10,022 at December 31,
1993 to $8,279 at March 31, 1994, a decrease of $1,743, or 17.4%.
Loans past due 90 days or more and still accruing decreased by $113, or 7.8%,
from $1,443 at December 31, 1993 to $1,330 at March 31, 1994 as a result of
collection efforts.
Overall, asset quality ratios at March 31, 1994 improved, with the ratios for
non-performing loans to total loans, net at 1.43% and non-performing assets
to total assets at .77%. These are down from the comparable ratios at
December 31, 1993 of 1.46% and .96%, respectively.
The allowance for possible loan losses was basically level going from $10,811
at December 31, 1993 to $10,687 at March 31, 1994. Net charge-offs were $574
during the period. At March 31, 1994 the reserve represents 143.1% of non-
performing loans compared to 140.2% of non-performing loans at December 31,
1993 despite the FASB 114 implementation.
The investment portfolio increased by $33,284, or 7.8%, as a result of the
inflow of funds generated by the increased deposits and the subordinated
debt. Investments were limited to U.S. Government Obligations including
Agencies and highly rated municipal securities in keeping with the Company's
investment policy. The investment portfolio increase was slightly offset by
a decrease of $3,871 in the mark-to-market accounting for the portion of the
portfolio categorized as "available for sale".
Accrued interest receivable decreased by $1,187, or 11.6%, to $9,072 at March
31, 1994 due to a decrease in accrued interest receivable on the investment
portfolio arising from timing of interest payments.
Other assets increased $7,510, or 113.0%, from $6,648 at December 31, 1993 to
$14,158 at March 31, 1994 due primarily to approximately $6,000 in
receivables from the federal government for social security direct deposits
which, under federal law, had to be credited to customer accounts and
available at the opening of business on April 3, 1994. The receivables were
paid and reversed on April 4, 1994.
The increase of $17,316, or 1.9%, in deposits was primarily in interest
bearing transaction accounts and resulted from new accounts and balance
increases during the period. Non interest bearing accounts increased by
$2,873, or 1.4%, representing 16.6% of the total increase.
Other liabilities were basically unchanged at March 31, 1994, showing a
slight decrease of $876, or 13.4%, due to reductions in accrued taxes.
<PAGE> Page 13
On January 14, 1994, HUBCO sold $25 million aggregate principal amount of
subordinated debt in a private placement. The subordinated debentures bear
interest at 7.75% per annum payable semi-annually. The debentures mature in
2004. In March, 1994, the Company entered into an interest rate exchange on
a notional amount of $25,000 for a three-year period in an effort to reduce
the cost of the subordinated debt.
In March of 1994, HUBCO contracted to purchase a 64,350 square foot building
on 17 acres in Mahwah, New Jersey to house the executive offices of HUBCO and
its data processing subsidiary. The transaction closed in April, 1994 at a
purchase price of $4,000. The net increase in HUBCO's total other expenses
directly attributable to this purchase is anticipated to be approximately one
percent.
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 31, 1994, HUBCO
had repurchased 455,081 shares at a cost of $10.1 million. During the first
quarter of 1994, $5.2 million of stock repurchases were settled, causing a
reduction in stockholders' equity from the December 31, 1993 level.
At the end of the reporting period, the Company is not aware of any current
recommendations by the regulatory authorities which would have a material
adverse effect on the Company's capital resources or operations.
The capital ratios for HUBCO, Inc. and Subsidiaries at March 31, 1994, and
the minimum regulatory requirements for such capital ratios, are as follows:
Ratios At 1993 Minimum
March 31, 1994 Requirements*
-------------- -------------
Tier I Risk-Based Capital Ratio 13.07% 6.0%
Total Risk-Based Capital Ratio 18.83% 10.0%
Leverage Capital Ratio 6.74% 5.0%
*For qualification as a well-capitalized institution.
<PAGE>
<PAGE> Page 14
Item 4: Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of HUBCO, Inc. was held on Tuesday, March
22, 1994 at 11:00 a.m.
The meeting was held for the purpose of considering and voting upon the
following matters:
PROPOSAL 1 - ELECTION OF DIRECTORS
The election of three persons named in the Proxy Statement to serve as
directors of the Corporation for the term specified in the Proxy Statement.
PROPOSAL 2 - Approval of the 1993 Stock Option Program for the Statewide
Division
The Plan provides for option to purchase up to 223,611 shares of the
Corporation's common stock to be issued to certain employees, advisory board
members and directors of the Corporation of any of it subsidiaries who were
previously associated with Statewide Savings Bank, S.L.A., as more fully set
forth in the Proxy Statement.
PROPOSAL 3 - Approval of Recognition and Retention Plan for the Statewide
Division of Hudson United Bank
The Plan provides for the issuance of up to 111,806 shares of the
Corporation's common stock for the benefit of certain employees, advisory
board members and directors of the Corporation or any of its subsidiaries who
were previously associated with Statewide Savings Bank, S.L.A., as more fully
set forth in the Proxy Statement.
The tabulation of votes follows:
PROPOSAL 1
Broker
Director For Withheld Abstain Non-Votes
Robert J. Burke 5,132,631 49,443 0 0
Charles F.X. Poggi 5,132,510 49,564 0 0
Kenneth T. Neilson 5,132,372 49,702 0 0
PROPOSAL 2 PROPOSAL 3
For 3,985,237 For 3,999,505
Withheld 363,354 Withheld 342,902
Abstain 82,369 Abstain 88,552
Broker Non-Votes 751,114 Broker Non-Votes 751,115
<PAGE> Page 15
Item 5: Other Information
1) In May 1993, the Company and Hudson United Bank (the "Bank") agreed
to acquire Statewide Savings Bank, S.L.A. ("Statewide"), a mutual
savings and loan association with approximately $500 million in assets,
in a merger-conversion transaction. Under the acquisition agreement,
the Company will sell shares of its common stock to Statewide's eligible
depositors and other voting members at a discounted price (the lesser of
$18.00 per share or 95% of the market price of HUBCO common stock for
the 10 trading days prior to the closing date of the transaction) in an
amount equal to the appraised value of Statewide as determined by an
independent appraiser. The Company's stockholders will be offered any
remaining shares at the same price as the shares are offered to
Statewide's depositors. Shares not sold to Statewide's eligible
depositors, other voting members and the Company stockholders are
expected to be sold to the public at the then market price. As part of
the transaction, Statewide will become a state-chartered mutual savings
bank that is subject to regulation by the New Jersey Department of
Banking (the "Department") and the Federal Deposit Insurance Corporation
(the "FDIC"), and then Statewide must convert from a mutual savings bank
to a stock savings bank and finally convert to a commercial bank to be
merged into the Bank. The transaction is subject to receipt of all
necessary regulatory approvals and the approval of Statewide's
depositors at a meeting to be held for such purpose.
The Company, the Bank and Statewide have filed various regulatory
applications with the Department, the FDIC and the Board of Governors of
the Federal Reserve System (the "FRB"). The Department has approved the
applications filed by the Bank and Statewide but no other regulatory
approvals have been received to date. In November 1993, a bill was
introduced in the United States House of Representatives entitled the
"Mutual Bank Conversion Act" which provides that no state-chartered
savings bank may convert from a mutual form to the stock form on or
after November 22, 1993, except in accordance with regulations adopted
by the FDIC. In late January 1994, the FDIC announced a new policy on
conversions and followed that policy with an interim rule requiring the
filing of notice applications with the FDIC for all conversions of state
savings bank from mutual to stock form. The FDIC is also expected to
adopt a regulation similar to that adopted by the Office of Thrift
Supervision (the "OTS") which limits compensation to directors and
officers in conversion transactions and makes permanent a moratorium
previously imposed by the OTS on merger conversions and, with respect to
pending applications, permits waivers for good cause shown. Statewide
submitted a notice application to the FDIC with respect to its
conversion, which the FDIC deemed complete on March 25, 1994. In light
of the regulatory and legislative activity, HUBCO and Statewide
thereafter amended the Statewide acquisition agreement to eliminate the
award of all stock-based compensation to the directors and executive
officers of Statewide. However, HUBCO has indicated that it believes it
is in the best interests of HUBCO and its shareholders that the
directors and executive officers of Statewide receive some incentive
compensation, including possibly stock-based compensation, and has
<PAGE> Page 16
proposed procedures to make such a recommendation after consummation of
the Statewide acquisition. The Company believes, based on these
changes, that Statewide's conversion application will be recommended for
approval by the staff of the FDIC, although there can be no assurance
that the staff will recommend approval. There can be no assurance that
the acquisition of Statewide will occur, or if it were to occur, when it
would take place.
The proposed acquisition of Statewide has taken the Company longer
than the Company anticipated due to a variety of factors. As a
consequence, the Company has incurred and continues to incur substantial
expenses for legal, accounting and printing costs in connection with the
acquisition of Statewide. If the acquisition is not consummated, these
expenses, which have been capitalized, would adversely impact the
Company's earnings and there probably would be a decline in earnings for
the quarter in which the acquisition agreement was terminated.
Throughout the last two years, the Company has reported increases in
quarter-to-quarter earnings.
2) In November 1993, the Company and the Bank entered into an
Agreement and Plan of Merger, dated as of November 8, 1993 (the "Merger
Agreement"), with Washington Bancorp, Inc., a Delaware corporation and
registered bank holding company ("Washington"), and Washington Savings
Bank ("Washington Savings"), pursuant to which Washington will merge
with and into the Company and Washington Savings will merge with and
into the Bank (the "Washington Merger"). In connection with the
Washington Merger, Washington's stockholders will be entitled to receive
either $16.10 in cash or 0.6708 of a share of a new series of the
Company's preferred stock ("HUBCO Preferred Stock") in exchange for each
share of Washington common stock which they own on the effective date of
the Washington Merger. Under the terms of the Merger Agreement, no more
than 49% of Washington's Common Stock may be exchanged for cash and no
more than 51% may be exchanged for HUBCO Preferred Stock. Each full
share of HUBCO Preferred Stock will have a stated value of, and be
redeemable for, $24.00 and will also be convertible into one share of
the Company's Common Stock.
On May 10, 1994, the Merger Agreement was amended to, among other
things, provide that the dividend rate on HUBCO Preferred Stock will be
fixed at closing of the Washington Merger (the "Closing").
Specifically, the holders of HUBCO Preferred Stock will be entitled to
receive an annual dividend to be fixed at the Closing on the basis of
the average market price of the Company's Common Stock during a twenty
consecutive business day period ending two days prior to the Closing.
The dividend will be $1.32 per share of HUBCO Preferred Stock if such
average market price is at $21.00 or higher, will be $1.44 per share if
such average market price is between $20.00 and $20.99, will be $1.56
per share if such average market price is between $19.00 and $19.99, and
will be $1.68 per share if such average market price is below $19.00.
<PAGE> Page 17
Under the Merger Agreement, as amended, outstanding shares of HUBCO
Preferred Stock may be redeemed at the Company's option by vote of its
Board of Directors at any time from and after one year from the date of
original issuance and after the date on which the market price for the
Company's Common Stock average is $24.00 or more for 20 consecutive days.
Consummation of the Washington Merger is subject to various
conditions, including receipt of the approval of Washington's
stockholders, receipt of opinions of counsel regarding certain matters
and receipt of the necessary regulatory approvals from the FRB, the
Department and the FDIC. The Company is awaiting regulatory approval
for the Washington Merger.
The May 10, 1994 amendment of the Merger Agreement is an exhibit to
this Form 10-Q.
3) In March 1994, Hudson United Bank announced that it had entered
into an agreement with New Jersey Citizens Action pursuant to which the
Bank will commit $24 million over the next three years for below market
rate mortgages, low interest rate home improvement loans, the purchase
of low income housing tax credits, permanent financing for non-profit
housing developers and small business loans to minority businesses.
Under the terms of the agreement, the Bank will commit $7 million for
below market rate mortgages to low and moderate income homebuyers in the
Bank's market area. The rates for these mortgages will be 1% and 1.5%
below market rate, there will be no points and the application fee for
these mortgages will be discounted. The Bank has also committed an
additional $4 million for both secured and unsecured home improvement
loans, $4 million for purchases of tax credits from low income housing
partnerships, $5 million for permanent financing for non-profit housing
developers, and $4 million for small business loans to minority
businesses.
4) On May 6, 1994, Hudson United Bank acquired the deposits of four
branches of Polifly Federal Savings & Loan Association from the
Resolution Trust Corporation (the "RTC"). In connection with the
acquisition, the Bank assumed deposits of approximately $105 million,
received approximately $98 million in cash and cash equivalents, and
acquired approximately $500,000 in passbook loans. The Bank paid the
RTC a premium of $6,180,000 in connection with the acquisition of the
deposits.
<PAGE>
<PAGE> Page 18
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
--------
List of Exhibits
----------------
(2) Amendment No. 1 to Agreement and Plan of Merger, dated May 10,
1994, among HUBCO, Inc., Hudson United Bank, Washington Bancorp,
Inc. and Washington Savings Bank. (Incorporated by reference from
the Company's Registration Statement on Form S-4 (File No. 33-
53197).
(b) Reports on Form 8-K
-------------------
On January 19, 1994, the Company filed a Form 8-K to report its
announcement that earnings increased 47% in 1993 to $14,202,000, or
$2.06 per share, from $9,641,000, or $1.58 per share, last year. The
per share earnings were adjusted to reflect an offering of 1,725,000
shares in May 1992 and a 10% stock dividend in June 1993. The Company
also reported that earnings for the fourth quarter ended December 31,
1993 increased 27% to a record $3,755,000, or $.55 per share, from
$2,950,000, or $.43 per share, in the fourth quarter of 1992. In
addition, the Form 8-K was filed to report that on January 14, 1994,
HUBCO sold $25,000,000 aggregate principal amount of subordinated
debentures in a private placement.
On March 3, 1994, the Company filed a Form 8-K to report that the
Company and Statewide received the approval of the State of New Jersey
Department of Banking for the stock conversion of Statewide and its
acquisition by the Company and that the parties have entered into an
agreement to extend the date at which either party may terminate the
acquisition to June 30, 1994, from March 31, 1994, in order to
accommodate a delay in the review of the transaction by the Federal
Deposit Insurance Corporation .
<PAGE>
Page 19
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HUBCO, Inc.
May 12, 1994 s/ Kenneth T. Neilson
----------------------
Date Kenneth T. Neilson
President & Chief Executive Officer
May 12, 1994 s/ Christina L. Maier
----------------------
Date Christina L. Maier
Assistant Treasurer
<PAGE>
<PAGE> Page 19
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HUBCO, Inc.
May 12, 1994 s/ Kenneth T. Neilson
Date ---------------------
Kenneth T. Neilson
President & Chief Executive Officer
May 12, 1994 s/ Christina L. Maier
Date ---------------------
Christina L. Maier
Assistant Treasurer
