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 September 30, 1994
OR
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_________________ to_________________
Commission File Number 0-010699
HUBCO, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
New Jersey 22-2405746
(STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
3100 Bergenline Avenue
Union City, New Jersey 07087
------------------------------------- ----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
(201)-348-2300
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Not Applicable
--------------
FORMER NAME, FORMER ADDRESS, AND FORMAL FISCAL YEAR,
IF CHANGED SINCE LAST REPORT.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days Yes_X_ No___
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date:
6,501,536 shares, no par value, outstanding as of November 10, 1994
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets
September 30, 1994 and December 31, 1993....................... 1
Consolidated Statements of Income
Nine Months Ended September 30, 1994
and September 30, 1993......................................... 2
Consolidated Statements of Income
Three Months Ended September 30, 1994
and September 30, 1993......................................... 3
Consolidated Statements of Cash Flows
Nine Months ended September 30, 1994
and September 30, 1993......................................... 4
S.E.C. Guide 3 - Item III
Loan Portfolio............................................... 5
Asset Quality Schedule - Quarterly Recap....................... 6
S.E.C. Guide 3 - Item IV
Summary of loan loss experience................................ 7
Notes to Consolidated Financial Statements..................... 8-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................. 10-18
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................... 19-20
Signatures..................................................... 21-22
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<TABLE>
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HUBCO, Inc. and Subsidiaries Page 1
- - --------------------------------------------------------------------------------
PART I. FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)
September 30 December 31
1994 1993
------------ -----------
<S> <C> <C>
ASSETS
Cash and due from banks $ 56,434 $ 49,542
Investment Securities (Note - B)
Available for Sale, at market value
(amortized cost of $47,067 and $123,833
in 1994 and 1993, respectively) 48,254 130,555
Held to Maturity, at cost (market value of $564,150
and $301,692 for 1994 and 1993, respectively) 576,688 296,130
---------- ----------
624,942 426,685
Federal funds sold and securities
purchased under agreements to resell 10,845 9,800
Loans:
Real estate-mortgage 389,858 246,647
Commercial and financial 182,073 178,827
Consumer credit 94,429 109,169
Direct lease financing - 122
---------- ----------
666,360 534,765
Less:
Allowance for possible loan losses 14,310 10,811
Deferred loan fees 1,330 676
Unearned income 3,076 4,699
---------- ----------
NET LOANS 647,644 518,579
---------- ----------
Property and equipment, net 30,836 18,001
Other real estate 2,874 2,311
Accrued interest receivable 13,001 10,259
Intangible assets 10,591 -
Other assets 10,032 6,648
---------- ----------
TOTAL ASSETS $1,407,199 $1,041,825
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 211,938 $ 205,233
Interest bearing 1,024,171 730,455
---------- ----------
TOTAL DEPOSITS 1,236,109 935,688
---------- ----------
Federal funds purchased 25,000 --
Securities sold under agreements to repurchase 14,591 19,629
Treasury tax and loan note 680 1,000
Accrued taxes and other liabilities 6,763 6,554
---------- ----------
TOTAL LIABILITIES 1,283,143 962,871
---------- ----------
Subordinated debt (Note - C) 25,000 --
Stockholders' equity:
Preferred stock, no par value; authorized
3,300,000 shares, 814,775 issued 19,555 --
Common stock, no par value, issued
6,933,361 and outstanding 6,501,536 shares
(1994); issued 6,933,361 and outstanding
6,724,661 shares (1993) 18,492 18,492
Additional paid in Capital 49,048 49,048
Retained earnings 22,226 12,669
Treasury stock, at cost, 431,825 shares
in 1994 and 208,700 shares in 1993 (9,343) (4,571)
Unearned compensation-restricted stock awards (1,224) (946)
Unrealized holding gain on investment securities
available for sale, net of income taxes 302 4,262
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 99,056 78,954
---------- ----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $1,407,199 $1,041,825
========== ==========
</TABLE>
See notes to consolidated financial statements
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<TABLE>
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Page 2
HUBCO, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME NINE MONTHS ENDED
(In Thousands, except for per share amounts) SEPTEMBER 30
-------------------------------
1994 1993
---- ----
<S> <C> <C>
INTEREST INCOME
Loans 35,328 32,518
------- -------
Investment securities:
Taxable 22,824 16,354
Tax Exempt 1,023 803
------- -------
23,847 17,157
------- -------
Federal funds sold 366 656
------- -------
TOTAL INTEREST INCOME 59,541 50,331
------- -------
INTEREST EXPENSE
Savings deposits 9,887 8,838
Time deposits 6,803 6,551
Short term borrowings 1,665 245
------- -------
TOTAL INTEREST EXPENSE 18,355 15,634
------- -------
NET INTEREST INCOME 41,186 34,697
------- -------
Provision for possible loan losses 1,950 2,550
------- -------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 39,236 32,147
NON-INTEREST INCOME
Trust department income 460 364
Service charges on deposit accounts 5,611 4,355
Other 1,321 1,697
------- -------
7,392 6,416
------- -------
46,628 38,563
------- -------
OPERATING EXPENSES
Salaries 9,893 8,771
Employee benefits 4,616 3,480
Net occupancy expense 2,814 2,288
Equipment expense 1,588 1,424
Other operating expenses 8,072 6,655
------- -------
26,983 22,618
------- -------
INCOME BEFORE INCOME TAXES 19,645 15,945
INCOME TAXES 7,427 5,498
------- -------
NET INCOME $12,218 $10,447
======= =======
Earnings per share:
Primary (Based on weighted average shares
outstanding of 6,504,962 in 1994 and
6,921,537 in 1993) $ 1.83 $ 1.51
------- -------
Fully diluted (Based on weighted average
shares outstanding of 6,779,538 in 1994) $ 1.80 $ 1.51
------- -------
Earnings per share, adjusted for the 3 for 2
stock split to be effective January 14, 1995:
Primary (Based on weighted average shares
outstanding of 9,757,443 in 1994 and
10,382,305 in 1993) $ 1.22 $ 1.01
======= =======
Fully diluted (Based on weighted average
shares outstanding of 10,169,307 in 1994) $ 1.20 $ 1.01
======= =======
</TABLE>
See notes to consolidated financial statements
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Page 3
<TABLE>
<CAPTION>
HUBCO, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS ENDED
(In Thousands, except for per share amounts) SEPTEMBER 30
-------------------------------
1994 1993
---- ----
<S> <C> <C>
INTEREST INCOME
Loans $13,825 $11,326
------- -------
Investment securities:
Taxable 9,181 5,695
Tax-Exempt 328 326
------- -------
9,509 6,021
------- -------
Federal funds sold 75 272
------- -------
TOTAL INTEREST INCOME 23,409 17,619
------- -------
INTEREST EXPENSE
Savings deposits 3,812 3,219
Time deposits 3,178 2,060
Short term borrowings 608 91
------- -------
TOTAL INTEREST EXPENSE 7,598 5,370
------- -------
NET INTEREST INCOME 15,811 12,249
------- -------
PROVISION FOR POSSIBLE LOAN LOSSES 1,050 1,050
------- -------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 14,761 11,199
NON-INTEREST INCOME
Trust department income 152 151
Service charges on deposit accounts 2,260 1,665
Other 335 586
------- -------
2,747 2,402
------- -------
17,508 13,601
------- -------
OPERATING EXPENSES
Salaries 3,690 3,163
Employee benefits 1,560 1,106
Net occupancy expense 947 704
Equipment expense 705 562
Other operating expenses 3,268 2,549
------- -------
10,170 8,084
------- -------
INCOME BEFORE INCOME TAXES 7,338 5,517
INCOME TAXES 2,811 1,781
------- -------
NET INCOME $ 4,527 $ 3,736
======= =======
Earnings per share:
Primary (Based on weighted average shares
outstanding of 6,501,536 in 1994 and
6,933,193 in 1993 $ .65 $ .54
------- -------
Fully Diluted (Based on weighted average
shares outstanding of 7,316,311 in 1994) $ .62 $ .54
======= =======
Earnings per share, adjusted for the 3 for 2
stock split to be effective January 14, 1995:
Primary (Based on weighted average shares
outstanding of 9,752,304 in 1994 and
10,399,789 in 1993) $ .43 $ .36
======= =======
Fully diluted (Based on weighted average
shares outstanding of 10,974,466 in 1994) $ .41 $ .36
======= =======
</TABLE>
See notes to consolidated financial statements
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Page 4
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
HUBCO, INC. and Subsidiaries
(in thousands)
Nine Months Ended
September 30
------------------------
1994 1993
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $12,218 $ 10,447
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Provision for possible loan losses 1,950 2,550
Provision for depreciation and amortization 2,392 1,398
Amortization of investment security premiums 1,395 925
Accretion of investment security discount (430) (255)
Deferred income taxes 960 465
(Increase) decrease in interest receivable (178) 1,050
Increase (decrease) in interest payable 1,011 (397)
(Decrease) increase in accrued taxes and other
liabilities (3,394) 1,660
(Increase) in other assets (6,831) (1,011)
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 9,093 16,832
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of investment securities - 61
Proceeds from maturities of investment securities 79,483 47,676
Net cash acquired from acquisitions 117,407 43,134
Net cash paid for acquisitions (26,660) (227)
Net decrease in loans 36,982 11,600
Purchase of investment securities (195,054) (99,605)
Purchases of premises and equipment (8,758) (3,518)
(Increase) in other real estate 870 (204)
------- -------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (4,270) (1,083)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in demand deposits,
NOW accounts and savings accounts (30,924) 11,315
Net decrease in certificates
of deposit (11,499) (41,724)
Net increase in federal funds
purchased and securities sold under
agreements to repurchase 19,962 4,159
Proceeds from subordinated debt offering 25,000 -
New stock issue - 20
Cash dividends (2,667) (2,228)
Purchase of treasury stock (5,298) (6)
------- -------
NET CASH (USED IN) FINANCING ACTIVITIES (5,426) (28,464)
------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,937 (12,715)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD $59,342 $61,700
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $67,279 $48,985
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for
Interest 21,588 15,842
Income taxes 5,240 6,522
======= =======
</TABLE>
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Page 5
HUBCO, Inc. and Subsidiaries
S.E.C. GUIDE 3 - ITEM III
LOAN PORTFOLIO
<TABLE>
<CAPTION>
Types of Loans at Each Reported Period
(In Thousands)
9/30/94 12/31/93
------- --------
<S> <C> <C>
Commercial, Financial, and
Agricultural $139,065 $119,563
Real Estate - Construction 7,206 7,117
Real Estate - Mortgage 425,660 330,018
Consumer Loans 94,429 77,945
Other - 122
-------- --------
Total $666,360 $534,765
======== ========
</TABLE>
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Page 6
HUBCO, Inc. and Subsidiaries
<TABLE>
<CAPTION>
ASSET QUALITY SCHEDULE - QUARTERLY RECAP
(In Thousands)
9/30/94 6/30/94 3/31/94 12/31/93
------- ------- ------- --------
<S> <C> <C> <C> <C>
Non-Accruing Loans:
Commercial $4,842 $1,943 $ 1,559 $1,391
Real Estate 8,221 3,725 3,457 3,398
Installment 580 384 634 745
------- ------- ------- -------
Total Non-Accruing Loans 13,643 6,052 5,650 5,534
------- ------- ------- -------
Renegotiated Loans 540 713 1,816 2,177
------- ------- ------- -------
Total Non-Performing Loans $14,183 $6,765 $ 7,466 $7,711
Other Real Estate 2,874 1,873 813 2,311
------- ------- ------- -------
Total Non-Performing Assets *$17,057 $8,638 $8,279 $10,022
======= ======= ======= =======
Non-Accruing Loans to Total
Loans, Net 2.06% 1.16% 1.08% 1.05%
Non-Performing Loans to Total
Loans, Net 2.14 1.29 1.43 1.46
Non-Performing Assets to
Total Assets 1.21 .74 .77 .96
Non-Performing Assets to
Total Loans, Net Plus
Other Real Estate 2.57 1.64 1.58 1.88
Loans Past Due 90 Days or
More and Accruing:
Commercial $ 632 $ 622 $ 602 $1,139
Real Estate 1,800 209 656 225
Installment 88 229 72 79
------- ------- ------- -------
Total Past Due Loans $2,520 $1,060 $1,330 $1,443
======= ======= ======= =======
* Includes approximately $6,447 in non-performing assets resulting from the
Washington merger on July 1, 1994.
</TABLE>
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<TABLE>
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Page 7
HUBCO, Inc. and Subsidiaries
S.E.C. GUIDE 3 ITEM IV
SUMMARY OF LOAN LOSS EXPERIENCE
Summary of Activity in the Allowance
by Loan Category
Nine Months Ended Year Ended
9/30/94 12/31/93
----------- ----------
(In Thousands)
<S> <C> <C>
Amount of Loans Outstanding $666,360 $534,765
======== ========
Daily Average Amount of Loans $578,888 $529,340
======== ========
Balance of Allowance for
Possible Loan Losses at
Beginning of Period $ 10,811 $ 7,605
Loans Charged Off:
Commercial, Financial,
and Agricultural (1,939) (637)
Real Estate - Mortgage (158) (138)
Installment (221) (283)
Lease Financing (14) (122)
-------- --------
Total Loans Charged Off (2,332) (1,180)
-------- --------
Recoveries of Loans Previously
Charged Off:
Commercial, Financial,
and Agricultural 283 141
Real Estate - Mortgage - 59
Installment 43 104
Lease Financing 36 82
-------- --------
Total Recoveries 362 386
-------- --------
Net Loans Charged Off (1,970) (794)
Addition to Allowance
Charged to Operations 1,950 3,600
Additions Acquired Through Acquisitions 3,519 400
-------- --------
Balance of Allowance for Possible Loan Losses at End of Period $ 14,310 $ 10,811
======== ========
Ratio of Net Loans Charged-Off
During Period to Average
Loans Outstanding .45% .15%
</TABLE>
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Page 8
HUBCO, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1994
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form l0-Q and Rule l0-0l of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles to complete
financial statements. In the opinion of management, the information presented
includes all adjustments considered necessary to a fair presentation of the
interim period results.
NOTE B - INVESTMENT SECURITIES
The amortized cost and estimated market value of investment securities are
summarized as follows:
<TABLE>
<CAPTION>
September 30, 1994
----------------------------------------------------------------------------------
Gross Unrealized Estimated
Amortized ----------------------------- Market
Cost Gains (Losses) Value
--------- ----- ------ ---------
<S> <C> <C> <C> <C>
Available for Sale
U.S. Government $ 30,067 $ 64 ($6) $ 30,125
State and political
subdivisions 9,475 - (12) 9,463
Other securities 1,250 1 - 1,251
Equity securities 6,275 1,150 (10) 7,415
-------- ------ ----- --------
$ 47,067 $1,215 ($ 28) $ 48,254
======== ====== ===== ========
</TABLE>
<TABLE>
<CAPTION>
September 30, 1994
----------------------------------------------------------------------------------
Gross Unrealized Estimated
Amortized ----------------------------- Market
Cost Gains (Losses) Value
--------- ----- ------ ---------
<S> <C> <C> <C> <C>
Held to Maturity
U.S. Government $287,105 $ 345 ($2,210) $285,240
U.S. Government
agencies 262,458 173 (10,782) 251,849
State and political
subdivisions 22,244 187 (174) 22,257
Other securities 4,881 55 (132) 4,804
-------- ------ ------- --------
$576,688 $ 760 ($13,298) $564,150
======== ====== ======= ========
</TABLE>
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Page 9
<TABLE>
<CAPTION>
December 31, 1993
----------------------------------------------------------------------------------
Gross Unrealized Estimated
Amortized ----------------------------- Market
Cost Gains (Losses) Value
--------- ----- ------ ---------
<S> <C> <C> <C> <C>
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
======== ====== ======= ========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1993
----------------------------------------------------------------------------------
Gross Unrealized Estimated
Amortized ----------------------------- Market
Cost Gains (Losses) Value
--------- ----- ------ ---------
<S> <C> <C> <C> <C>
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
======== ====== ======= ========
</TABLE>
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 in
2004, bear interest at 7.75% per annum payable semi-annually. The Company
registered the debentures with the Securities and Exchange Commission in May
1994 in connection with an exchange offer and pursuant to the exchange offer,
all of the outstanding debentures were exchanged for the registered debentures
on July 20, 1994. On March 18, 1994, HUBCO entered into an interest rate
exchange agreement intended to hedge the interest rate risk related to the $25
million subordinated debt. The agreement is a contractual agreement between
HUBCO and its counter-party to exchange fixed and floating rate interest
obligations. HUBCO's counter-party to the agreement is the fixed rate payor, and
HUBCO is the floating rate payor. The floating rate is reset every three months,
and the term of the agreement is three years.
<PAGE>
Pg. 10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This financial review presents management's discussion and analysis of
financial condition and results of operations. It should be read in conjunction
with the Company's Consolidated Financial Statements and the accompanying notes.
Unless otherwise noted, all dollar amounts, other than per share information,
are presented in thousands.
On June 30, 1993 the Company, through Hudson United Bank, acquired deposits
and certain assets of Pilgrim State Bank ("Pilgrim") from the Ramapo Bank
("Ramapo") immediately following a merger of Pilgrim into Ramapo. The merger and
the acquisition occurred pursuant to a Purchase and Assumption Agreement
previously entered into between the parties. The income statement comparison
is influenced by the Pilgrim transaction.
On May 6, 1994 the Company, through Hudson United Bank, acquired deposits
and certain assets of Polifly Federal Savings and Loan Association ("Polifly")
from the Resolution Trust Corporation ("RTC"). The balance sheet and income
statement comparisons are influenced by the Polifly transaction.
On July 1, 1994, the Company acquired Washington Bancorp, Inc.
("Washington"). The merger occurred pursuant to an Agreement and Plan of Merger
previously entered into between the parties. The balance sheet and income
statement comparisons are influenced by the Washington 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
Any discussions related to earnings per share have not been adjusted to
reflect the 3 for 2 stock split payable January 14, 1995, to stockholders of
record January 3, 1995.
The Company earned net income of $12,218, or $1.83 per share, for the nine
month period ended September 30, 1994, compared to $10,447, or $1.51 per share,
for the same period in 1993. The increase in earnings of $1,771, or 17.0%, is
primarily attributable to a 18.7% increase in net interest income, from $34,697
for the nine months ended September 30, 1993 to $41,186 for the same period in
1994. Earnings for the period were also improved by an increase in non-interest
income of $976, or 15.2%, and by a decrease in the provision for possible loan
losses of $600, or 23.5%. Partially offsetting these gains was an increase in
operating expenses of $4,365, or 19.3%, and an increase in income taxes of
$1,929, or 35.1%.
The increase in net interest income of $6,489, ($6,624 fully tax
equivalent), or 18.7%, reflects the increase in average net interest earning
assets for the current nine-month period resulting from the Pilgrim, Polifly and
Washington transactions, as well as the related changes in yield/rate on the new
product mix. Average net interest earning assets (average earning assets minus
average interest bearing liabilities) increased by $48,650, or 25.7%, from
$189,263 for the nine-month period ending September 30, 1993 to $237,913 for the
current nine-month period. Partially offsetting the increased earnings was the
interest paid on the
<PAGE>
Pg. 11
subordinated debentures issued in January, 1994 (see "Financial Condition"). As
a result, the net interest margin (fully tax equivalent) declined 22 basis
points to 5.00% for the nine-month period ended September 30, 1994 from 5.22%
for the comparable period in 1993.
Total non-interest income for the nine-month period in 1994 increased by
$976, or 15.2%, as a result of increases in trust income and deposit account
service charges of $96, or 26.4%, and $1,256, or 28.8%, respectively. The
increased trust income is due to an increase in the number of estate accounts
and investment management accounts that were created through a restructured
business development program in the trust area. The increase in service charges
on deposit accounts results from a 19.8% increase in average deposits for the
nine-month period, from $875,373 in 1993 to $1,048,810 in 1994, resulting from
the Pilgrim, Polifly and Washington acquisitions. Offsetting these gains was a
decrease of $376, or 22.2%, in non-interest income which is primarily the result
of non-recurring income in 1993 resulting from regulatory acquisitions, a
decrease in other fees and commissions on deposit-related services and the
reclassification of ATM transaction fees.
The level of the provision for possible loan losses was decreased by $600,
or 23.5%, from $2,550 for the nine-month period ended September 30, 1993 to
$1,950 for the comparable period in 1994. During 1993, the provision had been
increased in order to build the allowance to a level deemed adequate to support
the increase in non-performing loans as a result of the Pilgrim transaction and
to reflect the continued weak New Jersey real estate economy.
Operating expenses for the nine-month period ended September 30, 1994 at
amount, $2,258, or 51.7% of the total increase, was in salaries and that amount,
$2,258, or 51.7% of the total increase, was in salaries and benefits, an
increase of 18.4% for that category. This increase is primarily attributable to
the additional personnel expense incurred as a result of the addition of the six
Pilgrim branches for the additional six-month period ($398); four Polifly
branches for a twenty-one-week period ($169); and eight Washington branches
($279); an increase in the 1994 performance bonus accrual based on increased
earnings ($313); the provision for severance packages increased for the move of
the deposit, mortgage servicing and the data processing operations ($218); and
salary increases approximately 3.0% with the associated salary-related increases
in payroll taxes.
Occupancy expense increased by $526, or 23.0%, for the current nine-month
period compared to the same period last year. Of that amount, $192 represents
costs attributable to the six additional Pilgrim branches, $76 to operate the
four Polifly branches; and $103 to operate the eight Washington branches. The
remaining increase is primarily due to unusual building repair and service costs
incurred as a result of an extremely severe winter season, and costs related to
the Company's new corporate headquarters, which was purchased in April, 1994.
Equipment expense increased $164, or 11.5%, due primarily to equipment needs at
the additional branches.
<PAGE>
Pg. 12
Operating expenses increased by $1,417, or 21.3%, primarily attributable to
acquisition-related items including the write-off of $652 of expenses associated
with the Company's terminated merger agreement with Statewide Savings Bank,
which resulted in an increase of $148 in acquisition costs over the comparable
period in 1993. Other factors contributing to the increase include $296 in
additional FDIC insurance premiums related to the acquired deposits, $721
intangible asset amortization related to the Polifly amortization expense
related and Washington acquisitions, and $81 in additional telephone expense
related to the new locations and the installation of voice mail and voice
response telephone systems.
Income taxes (state and federal) for the nine-month period ended September
30, 1994 increased by $1,929, or 35.1%, due to a 23.2% increase in net income
before taxes, coupled with a change in the effective tax rate for the period
from 34% in 1993 to 38% in 1994.
For the three-month period ended September 30, 1994, the Company earned net
income of $4,527, or $.65 per share, compared to $3,736, or $.54 per share, for
the same period in 1993 and compared to $3,904 or $.60 per share, for the second
quarter in 1994. Net interest income for the current three-month period
increased by $3,562, or 29.1%, compared to the corresponding period in 1993 and
by $2,815, or 21.7%, compared to the previous quarter ended June 30, 1994. In
each case, the increased earnings are due to increases in the average net
interest earning assets for the comparable three-month periods, an increase of
50 basis points in the prime rate in the middle of the current quarter, and the
final repricing of the acquired Polify deposits at the end of the second
quarter. Total non-interest income increased by $345, or 14.4%, to $2,747 for
the three-month period ended September 30, 1994 compared to the same period last
year and increased by $311, or 12.8%, from $2,436 for the three-month period
ended June 30, 1994. The increases over both periods were primarily attributable
to service charges on deposit accounts due to the expanded deposit volume
created by the acquired deposits.
In each income comparison, increased earnings were partially offset by
increases in operating expenses. For the three-month period ended September 30,
1994, operating expenses increased by $2,086, or 25.8%, over the comparable
period last year due primarily to an increase in salaries and benefits of $981,
or 23.0%, resulting primarily from the additional personnel from the
acquisitions. The 1994 additions of the four Polifly branches and the eight
Washington branches also served to increase occupancy and equipment expenses for
the current period by $243, or 34.5%, and $143, or 23.4%, respectively. Other
operating expenses increased in the current three-month period by $719, or 28.2%
over the comparable period last year, of which $566 represents the intangible
asset amortization. The remaining increase is mainly due to increased FDIC
premiums and other acquisition-related costs. Compared to the second quarter of
1994, the increase in operating expenses of $462, or 16.5% in the current three
month period is entirely attributable to the amortization of the Polifly and
Washington intangible assets.
The increases in net interest income as previously discussed are produced
by rate/volume changes and changes in product mix and are summarized for the
comparative three-month and nine-month periods, on a tax equivalent basis, in
the following table. The average net interest earning assets and the tax
equivalent interest margins are also provided. The tax equivalent interest
margin, which measures net interest income as a percent of average earning
assets, was 5.00% for the nine months ended September 30, 1994, compared to
5.22% for the comparable period in 1993. The tax equivalent interest margin was
4.92% for the three-month period ended September 30, 1994, compared to 5.15% for
the comparable period in 1993. In each case, the decline is primarily
attributable to a greater reduction in the yield on interest earning assets than
on interest bearing liabilities, and the impact of the expense of the
Subordinated Debt. Under both comparisons, net interest income still increased
due to the significant increases in average net interest earning assets.
<PAGE>
Pg. 13
<TABLE>
<CAPTION>
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS'
EQUITY: INTEREST RATES AND INTEREST DIFFERENTIALS
(In Thousands)
Nine Months Ended September 30, 1994
-------------------------------------------------------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest Earning Assets:
Domestic Loans & Direct
Lease Financing(1):
Taxable $ 569,300 $35,043 8.21% $512,787 $32,263 8.39%
Nontaxable 4,881 438 11.96 5,296 392 9.87
Taxable Investment Securities 497,151 22,824 6.12 330,333 16,354 6.60
Nontaxable Investment Securities 34,233 1,574 6.13 22,728 1,235 7.25
Federal Funds Sold and
Securities Purchased Under
Agreements to Resell 12,537 366 3.89 29,449 656 2.97
--------- ------ ------- ------
Total Interest Earning Assets 1,118,102 60,245 7.18 900,593 50,900 7.54
Noninterest Earning Assets:
Cash and Due From Banks 53,157 39,619
Premises and Equipment, Net 22,650 17,456
Accrued Interest Receivable 10,609 8,247
Other Assets 17,003 10,898
Less Allowance for
Possible Loan Losses ( 12,229) (8,574)
---------- --------
TOTAL $1,209,292 $968,239
========== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest Bearing Liabilities:
Demand Deposits $ 127,633 $ 2,166 2.26% $106,830 $ 2,202 2.75%
Savings Deposits 412,092 7,721 2.50 335,602 6,636 2.64
Time Deposits 294,350 6,803 3.08 254,876 6,551 3.43
Federal Funds Purchased and
Securities Sold Under
Agreements to Repurchase 21,252 385 2.42 13,049 223 2.28
Subordinated Notes 23,810 1,259 7.05 - - -
Other 1,052 21 2.66 973 22 3.01
------- ------ ------- ------
Total Interest Bearing
Liabilities 880,189 18,355 2.78 711,330 15,634 2.93
Noninterest Bearing Liabilities:
Demand Deposits 214,735 178,065
Other 7,585 6,584
--------- -------
1,102,509 895,979
Stockholders' Equity 82,973 72,260
---------- --------
TOTAL $1,209,292 $968,239
========== ========
Net Interest Earnings $41,890 $35,266
======= =======
Net Yield on Interest Earning Assets 5.00% 5.22%
===== =====
Tax-Equivalent Adjustments:
Loans $ 153 $ 137
Investment Securities 551 432
------- ------
TOTAL $ 704 $ 569
======= ======
<FN>
(1) For the purpose of these computations, nonaccruing 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 discount.
</FN>
</TABLE>
<PAGE>
Pg. 14
<TABLE>
<CAPTION>
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS'
EQUITY: INTEREST RATES AND INTEREST DIFFERENTIALS
(In Thousands of Dollars)
Three Months Ended September 30, 1994 Three Months Ended September 30, 1993
------------------------------------- -------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
------- -------- ----- ------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest Earning Assets:
Domestic Loans & Direct
Lease Financing(1):
Taxable $668,509 $13,735 8.22% $540,738 $11,240 8.31%
Nontaxable 4,679 138 11.80 5,004 132 10.55
Taxable Investment Securities 592,193 9,181 6.20 358,913 5,695 6.35
Nontaxable Investment Securities 33,101 505 6.10 28,865 502 6.96
Federal Funds Sold and
Securities Purchased Under
Agreements to Resell 5,543 75 5.41 35,804 272 3.04
Other -- - -- - - -
-------- ------- ------ -------
Total Interest Earning Assets 1,304,025 23,634 7.25 969,324 17,841 7.36
Noninterest Earning Assets:
Cash and Due From Banks 59,064 46,482
Premises and Equipment, Net 28,322 18,300
Accrued Interest Receivable 13,350 8,861
Other Assets 26,634 11,360
Less Allowance for Possible Loan Losses (14,937) (9,477)
-------- --------
TOTAL $1,416,458 $1,044,851
========== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest Bearing Liabilities:
Demand Deposits $108,213 $ 589 2.18% $126,917 $ 862 2.72%
Savings Deposits 535,216 3,223 2.41 365,487 2,357 2.58
Time Deposits 384,296 3,178 3.45 252,146 2,060 3.27
Federal Funds Purchased and
Securities Sold Under
Agreements to Repurchase 21,089 152 2.88 14,682 83 2.26
Subordinated Notes 25,000 449 7.18 -- -- --
Other 1200 7 2.33 1,005 8 3.18
--------- ------- -------- -------
Total Interest Bearing
Liabilities 1,075,014 7,598 2.83 760,237 5,370 2.83
Noninterest Bearing Liabilities:
Demand Deposits 235,434 202,673
Other 9,123 6,859
-------- -------
1,319,571 969,769
Stockholders' Equity 96,887 75,082
-------- --------
TOTAL $1,416,458 $1,044,851
========== ==========
Net Interest Earnings $16,036 $12,471
======= =======
Net Yield on Interest Earning Assets 4.92% 5.15%
===== =====
Tax-Equivalent Adjustments:
Loans $ 48 $ 46
Investment Securities 177 176
------- ------
TOTAL $ 225 $ 222
======= ======
<FN>
(1)For the purpose of these computations, nonaccruing 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 discount.
</FN>
</TABLE>
<PAGE>
Pg. 15
<TABLE>
<CAPTION>
CHANGES IN NET INTEREST EARNINGS DUE TO VOLUME/RATE
(In Thousands)
Nine Months Ended September 30, 1994 Three Months Ended September 30, 1994
Compared to Nine Months Compared to Three Months
Ended September 30, 1993 Ended September 30, 1993
Increase (Decrease) Due To Increase (Decrease) Due To
------------------------------------ ---------------------------------------
Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- ---
Interest Earned On:
Domestic Loans and Direct
Lease Financing:
<S> <C> <C> <C> <C> <C> <C>
Taxable $ 3,486 $(706) $ 2,780 $2,619 $(124) $ 2,495
Nontaxable (33) 79 46 (9) 15 6
Taxable Investment Securities 7,734 (1,264) 6,470 3,624 (138) 3,486
Nontaxable Investment Securities 552 (213) 339 69 (66) 3
Federal Funds Sold and
Securities Purchased under
Agreements to Resell (452) 162 (290) (323) 126 (197)
Total Interest Earning Assets $11,287 $(1,942) $ 9,345 $ 5,980 $(187) $5,793
======= ======= ======== ======= ===== ======
Interest Paid On:
Demand Deposits $ 391 $ (427) $ (36) $ (116) $(157) $ (273)
Savings Deposits 1,452 (367) 1,085 1,030 (164) 866
Time Deposits 958 (706) 252 1,012 106 1,118
Federal Funds Purchased and
Securities Sold Under Agreements
to Repurchase 147 15 162 42 27 69
Other 2 ( 3) (1) 2 (3) (1)
Subordinated Debt 1,259 - 1,259 449 -- 449
------- ------- -------- ------- ----- ------
Total Interest Bearing Liabilities $ 4,209 $(1,488) $ 2,721 $ 2,419 $(191) $2,228
======= ======= ======== ======= ===== ======
Net Interest Earnings $ 7,078 $ (454) $ 6,624 $ 3,561 $ 4 $3,565
======= ======= ======== ======= ===== ======
</TABLE>
<PAGE>
Pg. 16
FINANCIAL CONDITION
Total assets at September 30, 1994 increased by $368,273, or 35.4%, over
December 31, 1993 as a result of the issuance of $25,000 in subordinated debt
and the purchase of Polifly in May and Washington on July 1, 1994. The
Washington purchase also served to increase total assets over June 30, 1994 by
$240,868 or 20.7%. In connection with the Polifly acquisition the Company,
through its wholly-owned subsidiary Hudson United Bank, assumed deposits of
approximately $104.4 million, received $104.0 million in cash and cash
equivalents, and acquired $.5 million in loans and $1, in other liabilities.
The Company paid $6.2 million in settlement of the transaction. In connection
with the Washington acquisition the Company assumed deposits of approximately
$237.8 million, received $7.1 million in cash and cash equivalents, and
acquired $89.9 million in securities and $160.9 million in loans. The Company
paid approximately $41.1 million in cash and stock in settlement of the
transaction.
The Company's loan portfolio increased from $534,765 at December 31, 1993
to $666,360 at September 30, 1994, a increase of $131,595, or 24.6%, which is
entirely attributable to the acquired Washington loans. Excluding those, the
portfolio would have decreased by $29,349, or 5.5%. The decrease is the result
of net runoff in the loan portfolio due to a reduction in the indirect
automobile loan portfolio and the selling of certain mortgage loans in the
secondary market.
Total non-performing loans, which include non-accruing and renegotiated
loans, increased by $6,472, or 83.9%, from $7,711 at December 31, 1993 to
$14,183 at September 30, 1994. Renegotiated loans decreased by $1,637, or 75.2%,
due to three large commercial loans reclassified out of restructured status, and
the addition of three smaller restructured loans during the same period.
Non-accruing loans increased by $8,109, or 146.5%, primarily as a result of the
Washington acquisition. Other real estate increased by $563, or 24.4%, as a
result of the foreclosed properties acquired from Washington. At June 30, 1994
Washington Bancorp had approximately 18,000 of non performing assets.
Loans past due 90 days or more and still accruing increased by $1,077, or
74.6%, from $1,443 at December 31, 1993 to $2,520 at September 30, 1994.
Commercial past due loans decreased by $507, or 44.5%, as a result of loan
work-outs. Past due real estate loans increased by $1,575, or 700%, due to the
past due loans acquired from Washington.
<PAGE>
Pg. 17
Due to the non-performing assets acquired from Washington, overall asset
quality ratios at September 30, 1994 were adversely affected, with the ratios
for non-performing loans to total loans, net at 2.14% and non-performing assets
to total assets at 1.21%. These are up from the comparable ratios at December
31, 1993 of 1.46% and .96%, respectively.
The allowance for possible loan losses increased by $3,499, or 32.4%, from
$10,811 at December 31, 1993 to $14,310 at September 30, 1994. As net
charge-offs for the nine-month period were approximately equal to the additions
charged to operations, the increase is primarily attributable to the additional
allowance relating to Washington. At September 30, 1994, the reserve represents
100.9% of non-performing loans.
The investment portfolio increased by $198,257, or 46.5%, from $426,685 at
December 31, 1993 to $624,942 at September 30, 1994, as a result of the inflow
of funds generated by the assumption of the Polifly deposits and the $89.9
million in investments acquired from Washington. Investments purchased with the
Polifly funds were limited to U.S. Government Obligations including Agencies and
highly rated municipal securities, in keeping with the Company's investment
policy. The portfolio acquired from Washington is composed of U.S. Treasuries,
Agencies, and mortgage-backed securities. In analyzing the portfolio impact of
the Polifly acquisition, the Company reallocated its securities between the held
to maturity and available for sale categories. At September 30, 1994,
approximately 8% of the portfolio is "available for sale", compared to 31% of
the total portfolio at December 31, 1993. Historically, the company has not
traded its investment portfolio.
Property and equipment increased by $12,835, or 71.3%, from $18,001 at
December 31, 1993 to $30,836 at September 30, 1994. The increase is attributable
to the Company's $4,000 purchase of its new corporate headquarters, Polifly
buildings and equipment ($2,000), Washington buildings and equipment ($5,000),
and the purchase of imaging and related data processing equipment ($2,000).
Accrued interest receivable increased by $2,742, or 26.7%, as a result of
the increase in the investment and loan portfolio.
Other assets increased from $6,648 at December 31, 1993 to $20,623 at
September 30, 1994 -- an increase of $13,975, or 210.2%. The increase is
primarily attributable to the intangible assets established for the Polifly
transaction ($5,717), and also for the Washington transaction ($4,874), accounts
receivable related to the settlement with World Bank on the Polifly acquisition
($1,052), and an increase in the Company's deferred tax assets.
Total deposits at September 30, 1994 increased by $300,416, or 32.1%, from
$935,688 at December 31, 1993 to $1,236,104 at September 30, 1994. The increase
is attributable to the acquired Polifly and Washington deposits. Non-interest
bearing deposits totalled 17.1% of deposits on September 30, 1994.
<PAGE>
Pg. 18
Federal funds purchased increased by $25,000 at September 30, 1994 due to a
reverse repurchase agreement entered into by the Company in order to meet
short-term liquidity needs. All other liability categories were basically
unchanged, from December 31, 1993 levels, reflecting only modest changes based
on daily operating activity.
On January 14, 1994, HUBCO sold $25 million aggregate principal amount of
subordinated debt in a private placement. The subordinated debentures bear
interest at 7.75% per annum payable semi-annually. The debentures mature in
2004. In March, 1994, the Company entered into an interest rate exchange on a
notional amount of $25,000 for a three-year period which was intended to hedge
the interest risk associated with the debentures.
In April of 1994, HUBCO purchased for $4,000 a 64,350 square foot building
on 17 acres in Mahwah, New Jersey to house the executive offices of HUBCO and
its data processing subsidiary. The site can accommodate an approximate doubling
of building space. The Company anticipates that its executive offices will be
completely relocated within the first quarter of 1995.
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 September 30, 1994, HUBCO
had repurchased 431,825 shares (net of restricted stock issued) at a net cost of
$9.3 million. During the first quarter of 1994, $5.2 million of stock
repurchases were settled, causing a reduction in stockholders' equity from the
December 31, 1993 level. The Treasury shares were repurchased to fund the
conversion of the Convertible Preferred Stock issued in conjunction with the
Washington Bancorp acquisition.
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 September 30, 1994, and
the minimum regulatory requirements for such capital ratios, are as follows:
Ratios At 1994 Minimum
Sept. 30, 1994 Requirements*
-------------- -------------
Tier I Risk-Based Capital Ratio 13.27% 6.0%
Total Risk-Based Capital Ratio 18.28% 10.0%
Leverage Capital Ratio 6.33% 5.0%
*For qualification as a well-capitalized institution.
<PAGE>
Pg. 19
Item 6: Exhibits and Reports on Form 8-K
Reports on Form 8-K
(b) List of Exhibits
On July 11, 1994, HUBCO filed a Form 8-K to report its announcement on July
7, 1994 that it will not pursue revised applications to acquire Statewide
Savings Bank, SLA ("Statewide") in a merger conversion transaction. The
merger agreement between HUBCO and Statewide expired on June 30, 1994 and
will not be extended or amended.
On July 18, 1994, HUBCO filed a Form 8-K to report under Item 2 the
consummation on July 1, 1994 of the merger of Washington Bancorp into HUBCO
and Washington Savings Bank into Hudson United Bank. The merger was
pursuant to the Agreement and Plan of Merger dated as of November 8, 1993,
as amended as of May 10, 1994, between HUBCO, Washington Bancorp, the Bank
and Washington Savings Bank.
This Form 8-K was amended by Form 8-K/A on September 16, 1994. The Form
8-K/A as amended included the following Financial Statements.
- Consolidated Balance Sheets as of December 31, 1993 and 1992.
- Consolidated Statements of Operations for each of the three years in
the period ended December 31, 1993.
- Consolidated Statements of changes in Stockholders' Equity for each of
the three years for the period ended December 31, 1993.
- Consolidated Statements of Cash Flows for each of the three years for
the period ended December 31, 1993.
- Unaudited Financial Statements for the periods ended June 30, 1993
and 1994.
- HUBCO's pro-forma balance sheet as of June 30, 1994 and pro-forma
statements of income for the period ended December 31, 1993 and
June 30, 1994.
On October 20, 1994, HUBCO filed a form 8-K to report the following.
- On October 6, 1994 the signing of a Letter of Intent by its subsidiary,
Hudson United Bank to acquire Shoppers Charge Accounts Co.
("Shoppers") of Jersey City, New Jersey for approximately $18.5
million in cash. Shoppers is a third party private label retail credit
card company. Shoppers Credit Card Operating System can also be used by
Hudson United Bank to manage a traditional credit card portfolio.
- On October 7, 1994 HUBCO and Jefferson National Bank ("Jefferson")
signed a definitive agreement for HUBCO to acquire Jefferson. Under
the terms of the agreement, Jefferson Shareholders will receive 1.91
shares of HUBCO Common Stock for each share of Jefferson Common Stock
which they own, subject to certain collar provisions. Jefferson,
headquartered in Passaic, has assets of approximately $100 million and
four branches serving Clifton and Passaic.
- On October 13, 1994 HUBCO announced its regular quarterly cash dividend
of $.15 (fifteen cents) per common share, payable on December 1, 1994
to Stockholders of record November 15, 1994. Additionally, the board
approved a 3 for 2 stock split payable January 14, 1995, to
stockholders of record January 3, 1995. and the intention to maintain
the $.15 per quarter dividend on the new shares effectively raising
the dividend rate by 50%. HUBCO declared a cash dividend of $.36
(thirty-six cents) per share for Series A Preferred Stock, payable
November 15, 1994, to Stockholders of record October 31, 1994. The
Series A Preferred Stock was issued in conjunction with the merger of
Washington Bancorp. into HUBCO, which was completed on July 1, 1994.
<PAGE>
Pg. 20
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.
November 14, 1994 /S/ Kenneth T. Neilson
----------------- ------------------------------------
Date Kenneth T. Neilson
President & Chief Executive Officer
November 14, 1994 /S/ Christina L. Maier
----------------- ------------------------------------
Date Christina L. Maier
Assistant Treasurer
