<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 22, 1994
REGISTRATION NO. 33-72330
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
HUBCO, INC.
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-2405746
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3100 BERGENLINE AVENUE
UNION CITY, NEW JERSEY 07087
(201) 348-2300
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
KENNETH T. NEILSON, PRESIDENT
3100 BERGENLINE AVENUE
UNION CITY, NEW JERSEY 07087
(201) 348-2300
(Name, address, including zip code, and telephone number including area code,
of agent for service)
---------------
With Copies to:
RONALD H. JANIS, ESQ. MICHAEL M. HORN, ESQ. SOL GENAUER, ESQ.
CLAPP & EISENBERG, P.C. MCCARTER & ENGLISH BLANK, ROME, COMISKY & MCCAULEY
One Newark Center Four Gateway Center Four Penn Center Plaza
Newark, NJ 07102 Newark, NJ 07101-0652 Philadelphia, PA 19103
(201) 642-3900 (201) 622-4444 (215) 569-5533
---------------
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. / /
---------------
CALCULATION OF REGISTRATION FEE
==============================================================================
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
==============================================================================
(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.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
==============================================================================
<PAGE>
<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 (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
===================================================================================================
</TABLE>
(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.
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 January , 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 March 31,
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.
---------------
FOR INFORMATION CONCERNING CERTAIN FACTORS THAT SHOULD BE CAREFULLY CONSIDERED
BY PROSPECTIVE INVESTORS, SEE "INVESTMENT CONSIDERATIONS."
---------------
4
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<PAGE>
LOCATION OF BANK BRANCHES OF HUBCO, INC.,
STATEWIDE SAVINGS BANK AND WASHINGTON BANCORP, INC.
(BULLET) Hudson United Bank
(STAR) HUBCO Executive and Home Office
(BOX) Statewide Savings Bank
(DIAMOND) Washington Savings Bank
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
December31, 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, 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
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<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 February 1, 1994, HUBCO
had repurchased 455,081 shares at a cost of $10,131,898 million, 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 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.
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. The Company may acquire a facility in the
near future for its relocated headquarters office. While it is possible that
the new headquarters could result in some additional expense, the Company does
not anticipate that it will be material.
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.
On January 14, 1994, HUBCO issued a press release announcing its earnings
for fourth quarter of 1993 and the fiscal year ended December 31, 1993. HUBCO
reported earnings for the fourth quarter of 1993 of $3.76 million, or $.55 per
share, compared to $2.95 million, or $.43 per share, for the fourth quarter of
1992. HUBCO reported earnings for the year ended December 31, 1993 of $14.2
million, or $2.06 per share, compared to $9.64 million, or $1.58 per share,
in 1992.
HUBCO's return on average equity increased to 19.34% at December 31, 1993
from 17.38% in 1992, and return on average assets increased to 1.44%, as
compared with 1.05% in 1992. HUBCO's annualized return on average equity for
the fourth quarter of 1993 was 19.51%, as compared with 17.7% for the fourth
quarter of 1992. Annualized return on average assets increased to 1.44% for
the 1993 fourth quarter from 1.27% for the same period of 1992.
For the fourth quarter ended December 31, 1993, net interest income
increased to $12.32 million from $11.16 million for the fourth quarter of
1992. Net interest income increased to $47.02 million for the year ended
December 31, 1993 from $41.01 million for the year ended December 31, 1992.
HUBCO's net interest margin for 1993 increased to 5.20% from 4.97% in 1992.
7
<PAGE>
<PAGE>
Total non-interest expense for the fourth quarter of 1993 decreased to
$7.35 million from $9.91 million for the fourth quarter of 1992. Total non-
interest expense for 1993 decreased from $34.35 million at December 31, 1992
to $29.97 million at December 31, 1993 due to several one-time charges in 1992,
including the charitable donation of an ORE property, and a substantial
amortization of core deposit intangibles arising from 1992 acquisitions.
HUBCO's efficiency ratio, which measures overhead expense as a percentage of
recurring tax equivalent income, was 50% for the fourth quarter of 1993 and
53.2% for the year 1993.
For the year ended December 31, 1993, total assets increased by 11.8% to
$1.042 billion, total loans grew by 2.5% to $519 million and deposits expanded
by 11.0% to $936 million. The growth in comparative totals is principally the
result of the acquisition of certain assets and deposits from Pilgrim State
Bank in 1993.
Total non-performing assets at December 31, 1993 increased to $10.02
million, an increase of $2.27 million over the level of non-performing assets
at December 31, 1992, due in part to the acquisition of assets from Pilgrim
State Bank in the second quarter of 1993. Non-performing assets at year-end
constituted .96% of total assets. At December 31, 1993, non-accrual loans
totalled $5.53 million, constituting 1.07% of net loans, and non-performing
loans increased to $7.71 million, constituting 1.5% of net loans, and
representing an increase of $1.21 million over the level of non-performing
loans in 1992. The provision for loan losses during 1993 was $3.6 million, a
decrease of $516,000 from 1992. The reserve for possible loans losses ($10.81
million) represented 2.02% of loans and covered 195% of non-accrual loans,
140% of non-performing loans and 108% of non-performing assets at year-end.
HUBCO's stockholders' equity at year-end was $78.84 million, compared
with $68.31 million in 1992. As of December 31, 1993, HUBCO maintained a Tier
1 capital ratio of 13.48%, a total capital ratio of 14.73% and a leverage
ratio of 7.18%. These ratios all exceeded the regulatory requirements for
qualification as a well-capitalized institution of 6%, 10% and 5%,
respectively.
RECENT DEVELOPMENTS WITH RESPECT TO WASHINGTON
On January 28, 1994, Washington issued a press release announcing its
earnings for fourth quarter of 1993 and the year ended December 31, 1993.
Washington reported earnings for the fourth quarter of 1993 of $993,000
or $.43 per share compared to earnings of $306,000, or $.13 per share, and
income before extraordinary item of $323,000, or $.14 per share, for the
fourth quarter of 1992. There was no extraordinary item in the fourth quater
of 1993. Washington reported earnings for the year ended December 31,
1993 of $2.82 million, or $1.23 per share, compared to $2.10 million, or $.92
per share, for 1992. Income before extraordinary item and cumulative effect of
a change in accounting principle was $2.52 million, or $1.10 per share, for
the year ended December 31, 1993, compared with $1.56 million, or $.68 per
share, for the year ended December 31, 1992. Included in 1993 net income is
$300,000, or $.13 per share, due to the cumulative effect of a change in
accounting for income taxes as mandated by SFAS 109. 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.
Washington's reported $670,000 increase in income before extraordinary
item for the fourth quarter of 1993 was primarily due to tax matters.
Washington reported an income tax benefit of $703,000 for the quarter ended
December 31, 1993 as compared to $11,000 for the comparable quarter of 1992.
The $703,000 income tax benefit was primarily due to decreasing the deferred
tax valuation allowance by $809,000 (to a zero balance), offset by regular tax
expenses of $106,000. Income before taxes and extraordinary items decreased to
$290,000 for the fourth quarter of 1993 as compared to $312,000 for the fourth
quarter of 1992. The $22,000 decrease in income before taxes resulted from a
decline in net gains on the sale of securities of approximately $433,000 and
an increase in other non-interest expenses of approximately $212,000, due
principally to merger costs, offset in part by a decrease in the provision for
loan losses $280,000, a gain on the sale of a bank building of $187,000 in
1993, an increase in net interest income of approximately $100,000 and a
decrease in REO expense (net) of $23,000. The 1992 extraordinary item
represents an adjustment to the utilization of a net operating loss
carryforward in the amount of $17,000.
Washington's reported $967,000 increase in income before extraordinary
item and cumulative effect of a change in accounting principle for the year
ended December 31, 1993 as compared with 1992 was primarily due to tax
matters. Washington reported an income tax benefit of $1.02 million for 1993
as compared to income tax expense of
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$628,000 for 1992. The $1.02 million income tax benefit was principally
due to the above-mentioned decrease in the deferred tax valuation allowance
by $809,000 and receipt of an income tax refund of approximately $747,000
during the first quarter of 1993, offset by regular tax expense of $538,000.
The income tax refund was the result of an overassessment of previously paid
federal income taxes. Income before taxes, extraordinary items and cumulative
effect of a change in accounting principle decreased to $1.51 million for the
year ended December 31, 1993 as compared to $2.19 million for the year ended
December 31, 1992. The $679,000 decrease was primarily due to a decrease in
net gains on the sale of securities of $1.62 million, and an increase in REO
expense (net) of $286,000, which were partly offset by a decrease in the
provision for losses on loans of $680,000, a decrease in other non-interest
expenses of $212,000, interest of $136,000 on the income tax refund discussed
above, and a gain on the sale of a bank building of $187,000.
At December 31, 1993, non-performing assets were $20.0 million as
compared to $24.4 million at September 30, 1993, and $21.8 million at December
31, 1992. During the fourth quarter of 1993, Washington provided $70 thousand
for losses on loans, compared to a provision of $350 thousand for the
comparable period in 1992. During the year ended December 31, 1993, WAshington
provided $420 thousand for losses on loans, compared to a provision of $1.1
million for 1992. At December 31, 1993, Washington's allowance for losses on
loans and REO of $4.7 million approximated 21% of gross non-performing assets.
At December 31, 1993, Washington has consolidated total assets, loans,
deposits and stockholders' equity of approximately $282.6 million, $169.1
million, $246.0 million, and $33.5 million, respectively. In addition,
Washington's leverage, Tier I and combined Tier I and Tier II risk-based
capital ratios were 11.70%, 23.55% and 24.81%, respectively.
In January 1994, the Federal Reserve Bank of New York rescinded the
Memorandum of Understanding which Washington had previously signed.
See "MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF WASHINGTON."
RECENT DEVELOPMENTS WITH RESPECT TO STATEWIDE
Statewide does not release its earnings to the public in the ordinary
course of its business.
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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 a 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 September 30, 1993, HUBCO had consolidated assets of $1.039
billion, consolidated deposits of $936 million and consolidated stockholders'
equity of $77 million. Based on assets, at September 30, 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 11% to $1.039 billion at September 30, 1993.
If consummated, the Merger Conversion will increase HUBCO's total assets
by approximately $496 million, or 47.7% of total assets at September 30, 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 September 30, 1993, HUBCO had stockholders' equity
of $76.7 million, or 7.4% 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 September 30, 1993, HUBCO exceeded all
regulatory capital requirements, as its Tier 1 Risk Based Capital, Total Risk
Based Capital and leverage capital ratios were 13.47%, 14.72% and 7.37%,
respectively.
Performance Ratios: Return on average assets was 1.05% for the year ended
December 31, 1992, up from 0.82% in 1991 and 0.40% in 1990. For the nine
months ended September 30, 1993, the annualized return on average assets was
1.44%. Return on average stockholders' equity was 17.38% for 1992. This
compares to
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12.75% in 1991 and 5.89% in 1990. For the nine months ended September 30,
1993, annualized return on average stockholders' equity was 19.28%.
Net interest margin: The net interest margin increased to 4.97% in 1992
from 4.94% in 1991 and 4.72% in 1990, primarily as a result of lower funding
costs and an increase in net interest earnings assets. For the nine months
ended September 30, 1993, the net interest margin was 5.22%.
Expenses: HUBCO's efficiency ratio, which measures operating expenses as
a percentage of recurring revenue, improved to 54.3% for the nine months ended
September 30, 1993 compared to 68.6% for the nine months ended September 30,
1992. Personnel expense as a percent of average total assets decreased
significantly to 1.49% in 1992, from 1.85% in 1991 and 1.89% in 1990. This
decrease was achieved despite the absorption of two acquisitions, which
increased the branch system from 19 to 31 offices.
Allowance for Possible Loan Losses: The allowance for possible loan
losses represented 116.91% of nonperforming loans (excluding loans 90 days or
more past due and still accruing) at the end of 1992 compared with 87.13% and
57.93% of nonperforming loans at December 31, 1991 and December 31, 1990
respectively. At September 30, 1993, the allowance for possible loan losses
represented 129.04% of nonperforming loans.
PROPOSED ACQUISITION OF WASHINGTON BANCORP, INC.
On November 8, 1993, HUBCO, the Bank, Washington Bancorp, Inc.
("Washington"), a Delaware corporation and bank holding company, 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 $284.6 million in assets, including $24.4 million in
non-performing assets, at September 30, 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 35% of Washington's non-performing
assets as of September 30, 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
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"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 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 is
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 September 30, 1993, Statewide had total assets of
$510 million, total deposits of $432 million, and total retained earnings of
$32 million, of which $15.2 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
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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 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 the 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
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acceptable to the regulatory authorities. In August 1993, both Statewide's
board of directors and, at the board's direction, the compliance committee
of the board of directors (the "Committee"), reviewed a summary valuation
of Statewide prepared by Kaplan Associates. The summary valuation showed a
valuation range of $29.75 million to $40.25 million, with a midpoint of $35
million. The Committee, with assistance of its financial advisor, reviewed
the methodology used in the summary valuation as well as the assumptions
underlying the summary valuation. Since the preliminary appraisal contained
the same valuation range and methodology as the summary valuation, the
Committee requested Statewide's Chief Executive Officer, Chief Operating
Officer and the Chairman of the Committee to review the full preliminary
appraisal on behalf of the Committee.
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.
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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."
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
15
<PAGE>
<PAGE>
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 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
16
<PAGE>
<PAGE>
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
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."
17
<PAGE>
<PAGE>
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
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 September 30, 1993 for HUBCO and Washington and for the six
months ended September 30, 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
HUBCO, Statewide and Washington, 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 periods ended September 30, 1993
for HUBCO, Statewide and Washington 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.
18
<PAGE>
<PAGE>
<TABLE>
SELECTED CONSOLIDATED FINANCIAL DATA OF HUBCO
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31
--------------------- ------------------------------------------------------
1993 1992 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS SUMMARY:
Interest income . . . . . $ 50,331 $ 50,713 $ 67,646 $ 51,759 $ 49,809 $ 51,113 $ 44,652
Interest expense. . . . . 15,634 20,779 26,633 25,287 26,818 27,820 22,435
---------- -------- -------- -------- -------- -------- --------
Net interest income . . . 34,697 29,934 41,013 26,472 22,991 23,293 22,217
Provision for possible
loan losses. . . . . . . 2,550 1,901 4,116 2,312 4,150 1,860 450
---------- -------- -------- -------- -------- -------- --------
Net interest income after
provision for
possible loan losses . . 32,147 28,033 36,897 24,160 18,841 21,433 21,767
Other income. . . . . . . 6,416 5,411 7,657 5,471 4,532 4,196 3,396
Other expenses. . . . . . 22,618 24,637 34,349 22,274 20,013 19,863 17,824
---------- -------- -------- -------- -------- -------- --------
Income before income
taxes. . . . . . . . . . 15,945 8,807 10,205 7,357 3,360 5,766 7,339
Income tax provision. . . 5,498 2,116 564 2,336 1,145 2,457 2,086
---------- -------- -------- -------- -------- -------- --------
Net Income. . . . . . . . $ 10,447 $ 6,691 $ 9,641 $ 5,021 $ 2,215 $ 3,309 $ 5,253
========== ======== ======== ======= ======= ======= =======
PER SHARE DATA:
Weighted average common
shares outstanding . . . 6,922 5,847 6,091 4,955 4,941 4,969 4,967
Net income per common
share(6) . . . . . . . . $1.51 $1.14 $1.58 $1.01 $0.45 $0.67 $1.06
Cash dividends per common
share(6) . . . . . . . . $0.32 $0.27 $0.40 $0.33 $0.33 $0.33 $0.32
BALANCE SHEET SUMMARY:
Investment securities . . $ 405,503 $333,966 $322,522 $138,915 $150,536 $ 89,177 $ 54,036
Loans, net. . . . . . . . 548,022 521,807 513,448 465,883 371,700 369,232 378,992
Total assets. . . . . . . 1,038,926 937,091 931,911 673,159 595,128 548,132 506,607
Deposits. . . . . . . . . 935,693 843,685 843,226 608,857 512,823 484,192 445,286
Stockholders' equity. . . 76,737 66,175 68,313 41,099 37,567 37,400 35,811
PERFORMANCE RATIOS:
Return on average assets. 1.44%(2) 0.98%(2) 1.05% 0.82% 0.40% 0.62% 1.07%
Return on average equity. 19.28(2) 17.26(2) 17.38 12.75 5.89 8.91 15.34
Dividend payout . . . . . 21.33 22.93 25.04 33.44 73.63 49.65 30.12
Average equity to average
assets . . . . . . . . . 7.46 5.66 6.04 6.45 6.85 7.00 6.96
Net interest margin(3). . 5.22 4.90 4.97 4.94 4.72 4.92 5.06
ASSET QUALITY RATIOS:
Allowance for possible
loan losses to
total loans, net(1). . . 1.80 1.42 1.48 1.44 1.41 .82 .58
Allowance for possible
loan losses to
non-performing loans(4). 107.07 86.81 96.10 75.53 52.71 58.93 36.35
Allowance for possible
loan losses to
non-performing assets
(excluding loans past due
90 days or more and
accruing). . . . . . . . 99.08 66.00 98.04 50.10 39.39 90.40 60.24
Non-performing loans to
total loans,
net(1)(4). . . . . . . . 1.68 1.63 1.54 1.90 2.67 1.38 1.59
Non-performing assets to
total loans, net plus
other real estate(1)(5). 2.09 2.41 1.78 3.09 3.77 1.38 1.59
Non-performing assets
(excluding loans past due
90 days or more and
accruing) to total loans,
net plus other real
estate(1)(5) . . . . . . 1.80 2.13 1.51 2.84 3.53 .90 .96
Net charge-offs to average
loans, net . . . . . . . .14 .53 .91 .58 .54 .28 .15
- ---------------
(1) Total loans are net of unearned income and deferred loan fees.
(2) Annualized.
(3) Computed on a tax equivalent basis.
(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.
(6) Income per share and dividends paid have been restated to reflect a 10%
stock dividend paid June 1, 1993.
</TABLE>
19
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<PAGE>
<TABLE>
SELECTED CONSOLIDATED FINANCIAL DATA OF STATEWIDE
<CAPTION>
SIX MONTHS ENDED
AT SEPTEMBER 30, 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. . . . . . . . $17,754 $20,930 $ 39,822 $ 44,400 $ 48,150 $ 52,202 $ 56,452
Interest expense . . . . . . . . . . . . . . 8,845 11,919 21,829 30,605 37,387 42,252 42,928
------- ------- -------- -------- -------- -------- --------
Net interest and dividend income before
provision for loan losses . . . . . . . . . 8,909 9,011 17,993 13,795 10,763 9,950 13,524
Provision for loan losses. . . . . . . . . . 360 26 193 1,933 186 3,762 194
------- ------- -------- -------- -------- -------- --------
Net interest and dividend income after
provision for loan losses . . . . . . . . . 8,549 8,985 17,800 11,862 10,577 6,188 13,330
Other income . . . . . . . . . . . . . . . . 850 1,178 2,010 3,564 1,739 4,122 (2,720)
Operating expenses . . . . . . . . . . . . . 6,060 6,072 12,233 12,964 13,611 13,386 11,586
------- ------- -------- -------- -------- -------- --------
Income (loss) before income taxes
and extraordinary credit. . . . . . . . . . 3,339 4,091 7,577 2,462 (1,295) (3,076) (976)
Income taxes . . . . . . . . . . . . . . . . 1,001 1,351 2,490 1,461 35 77 64
Income before extraordinary credit and
change in accounting principle. . . . . . . 2,338 2,740 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). . . . . . . . . . . . . . $ 3,007 $ 2,740 $ 5,087 $ 2,234 $ 1,330) $(3,153) $ 1,040)
======= ======= ======= ======= ======== ======== ========
<CAPTION>
AT SEPTEMBER 30, AT MARCH 31,
---------------- ----------------------------------------------------
1993 1992 1993 1992 1991 1990 1989
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
FINANCIAL CONDITION:
Total assets . . . . . . . . . . . . . . . . $510,259 $530,421 $517,885 $531,785 $529,225 $564,786 $599,125
Deposits . . . . . . . . . . . . . . . . . . 432,064 451,388 440,034 460,926 454,783 484,939 488,317
Investment securities. . . . . . . . . . . . 17,180 28,986 18,224 23,945 23,580 38,694 37,764
Mortgage-backed securities available for
sale . . . . . . . . . . . . . . . . . . . . 6,242 0 7,517 0 0 0 0
Mortgage-backed securities . . . . . . . . . 214,731 196,201 208,248 180,304 142,693 133,331 141,526
Loans receivable, net. . . . . . . . . . . . 211,452 248,408 230,929 264,914 308,905 343,320 373,547
Federal Home Loan Bank advances. . . . . . . 42,992 48,241 45,092 43,392 49,192 46,492 52,792
Retained earnings, substantially restricted. 31,319 25,965 28,312 23,225 20,991 22,321 25,474
SELECTED FINANCIAL RATIOS:
Return on average total assets. . . . . . . 1.18% 1.03% 0.96% 0.42% (0.24)% (0.54)% (0.16)%
Return on average retained earnings . . . . 20.14 21.96 19.43 10.16 (6.14) (12.19) (3.90)
Average retained earnings to average
total assets. . . . . . . . . . . . . . . . 5.83 4.68 4.95 4.15 3.98 4.42 4.21
Allowance for loan losses to total loans
at end of period. . . . . . . . . . . . . . 0.49 0.56 0.59 0.69 0.54 0.57 0.02
Nonperforming loans to total loans at
end of period . . . . . . . . . . . . . . . .96 1.42 1.23 1.22 4.17 2.24 0.71
Allowance for loan losses to
nonperforming loans . . . . . . . . . . . . 51.45 65.86 47.23 56.42 13.00 25.49 2.85
Nonperforming assets to total loans and
real estate owned . . . . . . . . . . . . . 5.74 6.61 5.77 6.51 7.10 4.58 0.82
OTHER DATA:
Number of:
Outstanding real estate loans originated. . 2,083 2,447 2,280 2,578 2,851 3,058 3,199
Deposit accounts. . . . . . . . . . . . . . 48,714 53,825 50,807 6,671 56,531 60,996 64,560
Full service offices open . . . . . . . . . 13 13 13 13 13 13 15
</TABLE>
20
<PAGE>
<PAGE>
<TABLE>
SELECTED CONSOLIDATED FINANCIAL DATA OF WASHINGTON
<CAPTION>
Nine Months Ended
September 30, Year ended December 31,
------------------- --------------------------------------------------------
1993 1992 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating data:
Interest income. . . . . . . $ 14,104 $ 16,849 $ 21,879 $ 27,594 $ 31,301 $ 33,142 $ 32,550
Interest expense . . . . . . 6,825 9,527 12,191 19,119 22,543 23,730 20,537
-------- -------- -------- -------- -------- -------- --------
Net interest income. . . . . 7,279 7,322 9,688 8,475 8,758 9,412 12,013
Provision for losses on
loans . . . . . . . . . . . 350 750 1,100 1,500 2,350 6,927 10,765
-------- -------- -------- -------- -------- -------- --------
Net interest income after
provision for losses on
loans . . . . . . . . . . . 6,929 6,572 8,588 6,975 6,408 2,485 1,248
Other income . . . . . . . . 637 1,765 2,290 2,569 859 585 749
Other expenses . . . . . . . 6,350 6,464 8,693 9,306 10,674 7,959 6,374
-------- -------- -------- -------- -------- -------- --------
Income/(loss) before income
taxes, extraordinary items
and change in accounting
principle . . . . . . . . . 1,216 1,873 2,185 238 (3,407) (4,889) (4,377)
Income tax exp/(benefit) . . (315) 639 628 552 (1,538) (989) (478)
-------- -------- -------- -------- -------- -------- --------
Income/(loss) before
extraordinary items and
change in accounting
principle . . . . . . . . . 1,531 1,234 1,557 (314) (1,869) (3,900) (3,899)
Extraordinary items. . . . . -- 556 539 (1,034) -- -- --
Change in accounting
principle . . . . . . . . . 300 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income/(loss). . . . . . $ 1,831 $ 1,790 $ 2,096 $ (1,348) $ (1,869) $ (3,900) $ (3,899)
======== ======== ======== ======== ======== ======== ========
PER SHARE DATA:
Weighted average common
shares outstanding. . . . . 2,270 2,267 2,276 2,264 2,264 2,262 2,246
Income per share:
Income before extraordinary
item and cumulative effect
of change in accounting
principle . . . . . . . . . 0.68 0.55 0.68 (0.14) (0.83) (1.72) (1.74)
Extraordinary item . . . . . -- 0.24 0.24 (.46) -- -- --
Cumulative effect of change
in accounting principle . . 0.13 -- -- -- -- -- --
Net income per share . . . . 0.81 0.79 0.92 (0.60) (0.83) (1.72) (1.74)
Dividends per share. . . . . -- -- -- -- 0.07 0.28 0.15
BALANCE SHEET SUMMARY:
Investment and mortgage-
backed securities . . . . . $ 79,420 $ 52,282 $ 67,575 $ 56,455 $ 79,904 $ 57,677 $ 16,793
Loans, net . . . . . . . . . 183,890 194,265 191,501 195,508 230,557 244,714 311,758
Total assets . . . . . . . . 284,597 287,676 285,771 293,727 337,626 351,281 367,539
Deposits . . . . . . . . . . 248,331 253,190 252,623 259,021 275,327 273,383 283,778
Stockholders' equity . . . . 32,345 30,148 30,469 28,216 29,215 30,830 34,996
PERFORMANCE RATIOS:
Return on average assets . . 0.64% 0.62% 0.72% -0.42% -0.54% -1.08% -1.12%
Return on average equity . . 6.01% 6.25% 7.21% -4.72% -6.16% -11.16% -10.05%
Dividend payout. . . . . . . -.--% -.--% -.--% -.--% -8.43% -16.54% -8.85%
Average equity to average
assets. . . . . . . . . . . 10.67% 9.88% 10.03% 8.91% 8.78% 9.70% 11.12%
Net interest margin. . . . . 3.57% 3.56% 3.55% 2.80% 2.65% 2.69% 3.59%
ASSET QUALITY RATIOS:
Allowance for losses on
loans to total loans,
net . . . . . . . . . . . . 1.55% 1.34% 1.45% 1.53% 1.12% 1.93% 1.21%
Allowance for losses on
loans to non-performing
loans . . . . . . . . . . . 17.21% 22.83% 31.52% 17.97% 14.86% 27.01% 22.07%
Allowance for losses on
loans and REO to
non-performing assets
(excluding loans past
due 90 days or more and
accruing) . . . . . . . . . 17.53% 15.89% 19.39% 14.14% 12.00% 18.77% 22.07%
Non-performing loans to total
loans, net. . . . . . . . . 9.02% 5.89% 4.60% 8.51% 7.52% 7.14% 5.50%
Non-performing assets to
total loans, net plus other
real estate, net. . . . . . 12.72% 11.69% 10.66% 14.03% 11.83% 9.96% 5.50%
Non-performing assets
(excluding loans past due 90
days or more and accruing)
to total loans, net plus
other real estate, net. . . 12.72% 11.69% 10.66% 14.03% 11.83% 9.96% 5.50%
Net charge-offs to average
loans, net. . . . . . . . . 0.14% 0.56% 0.66% 0.47% 1.89% 2.07% 2.62%
</TABLE>
21
<PAGE>
<PAGE>
SUMMARY SELECTED PRO FORMA DATA
The following presents certain unaudited information from the Pro Forma
Combined Condensed Statement of Income for the nine months ended September 30,
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, 1992. Also presented is certain
unaudited pro forma combined financial information from the Pro Forma Combined
Condensed Statement of Condition of HUBCO at September 30, 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
as if such transactions had been consummated on September 30 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 $40,394,000 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.
22
<PAGE>
<PAGE>
PRO FORMA COMBINED UNAUDITED FINANCIAL INFORMATION
NINE MONTHS ENDED
SEPTEMBER 30, 1993
------------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
RESULTS OF OPERATIONS:
Net interest income before provision
for loan losses . . . . . . . . . . . . $ 53,846
Provision for possible loan losses . . . 3,440
Net interest income after provision for
possible loan losses. . . . . . . . . . 50,406
Income before income taxes . . . . . . . 22,754
Net income before cumulative effect of
change in accounting
principle . . . . . . . . . . . . . . . 15,671
FINANCIAL CONDITION AT END OF PERIOD:
Total assets . . . . . . . . . . . . . . 1,830,848
Total deposits . . . . . . . . . . . . . 1,621,718
Total stockholders' equity . . . . . . . 119,834
PER SHARE DATA:
Net income per common share--primary(4). 1.74
Net income per common share--fully
diluted . . . . . . . . . . . . . . . . 1.69
Book value per common share. . . . . . . 11.85
SELECTED RATIOS:(1)
Performance ratios:
Return on assets. . . . . . . . . . . . 1.14%
Return on common stockholders' equity . 20.91
Capital adequacy ratios:
Total stockholders' equity to assets. . 6.55
Tier 1 leverage ratio . . . . . . . . . 6.40
Risk-based capital ratios:
Tier 1 capital. . . . . . . . . . . . . 13.47
Total capital . . . . . . . . . . . . . 17.53
Asset quality ratios:
Allowance for possible loan losses to
total loans, net . . . . . . . . . . . 1.43
Non-performing assets to total loans
net plus other real estate(2). . . . . 4.54
Non-performing assets to total assets . 2.42
Allowance for possible loan losses to
non-performing loans(3). . . . . . . . 49.45
- --------------------
(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 consideration of Series A preferred dividends of $1,045
(representing an annual dividend of $1.68 per share), the maximum
dividend applicable under the proposed Washington Merger Agreement.
23
<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 $800 million in assets, increasing HUBCO's branches by more than
50% and its assets by more than 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 September
30, 1993, HUBCO had $9.9 million in non-performing assets, while Statewide had
$10.7 million and Washington had $24.4 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 September 30, 1993, will increase HUBCO's ratio of
non-performing assets to total loans and ORE from 2.09 to 4.25 and will
decrease HUBCO's coverage ratio on its allowance for possible loan losses to
non-performing loans from 107.07% to 49.45%. 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. 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."
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.
24
<PAGE>
<PAGE>
Proposed Acquisition of Statewide. Upon consummation of the Merger
Conversion, HUBCO's total assets will increase by approximately $496 million,
resulting in a 47.7% increase in HUBCO's asset base from its level at
September 30, 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 will be submitted for approval to HUBCO
stockholders after consummation of the Merger Conversion. In the event HUBCO
stockholders fail to approve the RRP and the stock option plan, HUBCO Common
Stock could possibly be delisted from NASDAQ. 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
$774 million in assets to HUBCO, representing an increase of 74% over HUBCO's
total assets from their level at September 30, 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 September 30, 1993,
Washington had $24.4 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 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
25
<PAGE>
<PAGE>
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 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 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.
26
<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)
- --------------------
(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
February 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."
27
<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 September 30, 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>
HISTORICAL PRO FORMA COMBINED PRO FORMA HUBCO,
SEPTEMBER 30, 1993 HUBCO AND STATEWIDE AND
HUBCO STATEWIDE WASHINGTON
------------------ ------------------ ---------------
<S> <C> <C> <C>
Deposit Accounts (1). . . $935,693,292 $1,370,744,801 $1,621,718,801
============ ============== ==============
Borrowings:
Short-Term Debt. . . . . $ 18,291,902 $ 28,841,902 $ 29,241,902
Long-Term Debt . . . . . 1,000,000 26,000,000 26,000,000
------------ -------------- --------------
Total Borrowings . . . $ 19,291,902 $ 54,841,902 $ 55,241,902
============ ============== ==============
Shareholders' Equity:
Preferred Stock no par
value, 3,300,000 shares
authorized, none issued
(829,995 shares to be
issued and outstanding pro
forma). . . . . . . . . $ -- $ -- $ 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). 18,492,114 22,496,209 22,496,209
Capital in excess of par
value . . . . . . . . . 49,047,408 68,220,305 68,220,305
Retained Earnings. . . . 9,954,226 9,954,226 9,954,226
Treasury Stock, at cost
442,781 shares (3). . . 0 0 0
Restricted Stock Award . (756,909) (756,909) (756,909)
------------ -------------- --------------
Total Shareholders'
Equity. . . . . . . . $ 76,736,839 $ 99,913,831 $ 119,833,711
============ ============== ==============
- ---------------
(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) Common Stock purchased by HUBCO through February 1, 1994 at a cost of
$9,869,000 and assumed to be reissued as part of the acquisition of
Statewide.
</TABLE>
28
<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 September 30, 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 September 30, 1993. See "RECENT DEVELOPMENTS." Also
presented is the Pro Forma Combined Condensed Statements of Income for the
year ended December 31, 1992 and the nine months ended September 30, 1993
after giving effect to the Merger Conversion, the acquisition of Washington,
the subordinated debt issuance and HUBCO's repurchase of shares of Common
Stock as if such transactions had been consummated on January 1, 1992. 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 median purchase price of $18.00 per share for the Merger
Conversion and the issuance of 1,944,444 shares of the 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
September 30, 1993. See "RECENT DEVELOPMENTS." 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 September 30, 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.
29
<PAGE>
<PAGE>
<TABLE>
PRO FORMA COMBINED CONDENSED STATEMENT OF CONDITION
(UNAUDITED)
DOLLARS IN THOUSANDS
AS OF SEPTEMBER 30, 1993
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL
HUBCO HUBCO HUBCO STATEWIDE
---------- ----------- -------- ----------
<S> <C> <C> <C> <C>
ASSETS
Cash and Due From
Banks . . . . . . . . . . . . $ 38,985 $(9,869) (1)(8) $ 29,116 $ 8,592
Investment Securities . . . . 405,503 24,671 (2) 430,174 236,404
Investments Available for
Sale . . . . . . . . . . . . -- -- -- 6,242
Federal Funds Sold. . . . . . 10,000 -- 10,000 10,645
Loans . . . . . . . . . . . . 548,022 -- 548,022 212,497
Allowance for Possible
Loan Losses. . . . . . . . . (9,838) -- (9,838) (1,045)
Premises and Equipment. . . . 18,080 -- 18,080 4,037
Other Real Estate . . . . . . 2,305 -- 2,305 10,649
Excess of Cost over Fair
Value of Assets Acquired,
Net. . . . . . . . . . . . . -- -- -- 15,165
Other Assets. . . . . . . . . 25,869 329 (1) 26,198 7,073
---------- ------- ---------- --------
TOTAL ASSETS. . . . . . . . $1,038,926 $15,131 $1,054,057 $510,259
========== ======= ========== ========
LIABILITIES
Deposits. . . . . . . . . . . $ 935,693 $ -- $ 935,693 $433,851
Borrowed Money. . . . . . . . 19,292 -- 19,292 42,992
Other Liabilities . . . . . . 7,204 -- 7,204 2,097
---------- ------- ---------- --------
TOTAL LIABILITIES . . . . . 962,189 -- 962,189 478,940
---------- ------- ---------- --------
Subordinated Debentures . . . -- 25,000 (3) 25,000 --
STOCKHOLDERS' EQUITY
Preferred Stock . . . . . . . -- -- -- --
Common Stock. . . . . . . . . 18,492 -- 18,492 --
Capital in Excess of
Par Value. . . . . . . . . . 49,048 -- 49,048 --
Retained Earnings . . . . . . 9,954 -- 9,954 31,319
Treasury Stock. . . . . . . . -- (9,869) (8) (9,869) --
Restricted Stock Award. . . . (757) -- (757) --
--------- ------- --------- --------
TOTAL STOCKHOLDERS'
EQUITY . . . . . . . . . . 76,737 (9,869) 66,868 31,319
--------- ------- --------- --------
TOTAL LIABILITIES
AND STOCKHOLDERS'
EQUITY . . . . . . . . . . $1,038,926 $15,131 $1,054,057 $510,259
========== ======= ========== ========
<CAPTION>
PRO FORMA
PRO FORMA COMBINED PRO FORMA
ADJUSTMENTS HUBCO AND HISTORICAL ADJUSTMENTS PRO FORMA
STATEWIDE STATEWIDE WASHINGTON WASHINGTON COMBINED
---------- ----------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and Due From
Banks . . . . . . . . . . . . $ 0 (a) $ 37,708 $ 5,151 ($ 1,335) (aa) $ 41,524
Investment Securities . . . . 5,254 (b) 671,832 30,054 (16,711) (bb) 685,175
Investments Available for
Sale . . . . . . . . . . . . -- 6,242 49,365 -- 55,607
Federal Funds Sold. . . . . . -- 20,645 2,200 -- 22,845
Loans . . . . . . . . . . . . 6,700 (c) 767,219 186,746 5,702 (cc) 959,667
Allowance for Possible
Loan Losses. . . . . . . . . -- (10,883) (2,855) -- (13,738)
Premises and Equipment. . . . (4,037) (d) 18,080 2,708 2,897 (dd) 23,685
Other Real Estate . . . . . . (4,214) (e) 8,740 7,799 -- 16,539
Excess of Cost over Fair
Value of Assets Acquired,
Net. . . . . . . . . . . . . (15,165) (f) -- -- 2,844 (ee) 2,844
Other Assets. . . . . . . . . -- 33,271 3,429 -- 36,700
-------- ---------- -------- -------- ----------
TOTAL ASSETS. . . . . . . . ($11,462) $1,552,854 $284,597 ($ 6,603) $1,830,848
======== ========== ======== ======== ==========
LIABILITIES
Deposits. . . . . . . . . . . $ 1,200 (g) $1,370,744 $250,417 $ 557 (ff) $1,621,718
Borrowed Money. . . . . . . . (32,442) (h) 29,842 400 -- 30,242
Other Liabilities . . . . . . 18,053 (i) 27,354 1,435 5,265 (gg) 34,054
-------- ---------- -------- ------- ---------
TOTAL LIABILITIES . . . . . (13,189) 1,427,940 252,252 5,822 1,686,014
-------- ---------- -------- ------- ---------
Subordinated Debentures . . . -- 25,000 -- -- 25,000
STOCKHOLDERS' EQUITY
Preferred Stock . . . . . . . -- -- -- 19,920 (hh) 19,920
Common Stock. . . . . . . . . 4,005 (j) 22,497 231 (231) (ii) 22,497
Capital in Excess of
Par Value. . . . . . . . . . 19,172 (j) 68,220 22,499 (22,499) (ii) 68,220
Retained Earnings . . . . . . (31,319) (k) 9,954 9,750 (9,750) (ii) 9,954
Treasury Stock. . . . . . . . 9,869 (j) -- -- -- --
Restricted Stock Award. . . . -- (757) (135) 135 (ii) (757)
------- --------- -------- ------- ----------
TOTAL STOCKHOLDERS'
EQUITY . . . . . . . . . . 1,727 99,914 32,345 (12,425) 119,834
------- --------- -------- ------- ----------
TOTAL LIABILITIES
AND STOCKHOLDERS'
EQUITY . . . . . . . . . . ($11,462) $1,552,854 $284,597 ($ 6,603) $1,830,848
======== ========== ======== ======== ==========
See accompanying notes to pro forma combined condensed financial statements.
</TABLE>
30
<PAGE>
<PAGE>
<TABLE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1993
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL
HUBCO HUBCO HUBCO STATEWIDE
---------- ----------- -------- ----------
<S> <C> <C> <C> <C>
Interest Income:
Interest and Fees on loans . $32,518 $ -- $32,518 $14,465
Interest and Dividends on
Investments . . . . . . . . 17,157 1,064 (4) 17,888 12,148
(333) (9)
Interest on Federal
Funds Sold. . . . . . . . . 656 -- 656 196
------- ------ ------- -------
Total Interest Income . . . 50,331 731 51,062 26,809
------- ------ ------- -------
Interest Expense:
Interest on Deposits . . . . 15,389 -- 15,389 11,120
Interest on Borrowings . . . 245 -- 245 2,480
Interest on Subordinated
Debt. . . . . . . . . . . . -- 1,454 (5) 1,479 --
25 (6)
------- ------ ------- -------
Total Interest Expense . . . 15,634 1,479 17,113 13,600
------- ------ ------- -------
Net Interest Income
Before Provision for
Possible Loan Losses. . . . 34,697 (748) 33,949 13,209
Provision for Possible
Loan Losses . . . . . . . . 2,550 -- 2,550 540
------- ------ ------- -------
Net Interest Income
After Provision for
Possible Loan Losses. . . . 32,147 (748) 31,399 12,669
------- ------ ------- -------
Other Income. . . . . . . . . 6,416 -- 6,416 1,058
------- ------ ------- -------
Other Expenses:
Salaries and Other
Employee Benefits . . . . . 12,251 -- 12,251 4,351
Occupancy and
Equipment Expense . . . . . 3,712 -- 3,712 1,387
Other Expenses . . . . . . . 6,655 -- 6,655 3,188
------- ------ ------- -------
Total Other Expenses . . . . 22,618 -- 22,618 8,926
------- ------ ------- -------
Income Before Taxes. . . . . 15,945 (748) 15,197 4,801
------- ------ ------- -------
Income Taxes . . . . . . . . 5,498 (284) (7) 5,214 1,599
------- ------ ------- -------
Net Income before Cumulative
effect of Change in
Accounting Principle . . . . $10,447 ($ 464) $ 9,983 $ 3,202
======= ====== ======= =======
Earnings per Share--Primary** $ 1.51 $ 1.54
Earnings per Share fully
Diluted**. . . . . . . . . . $ 1.51 (rr) $ 1.54
Book Value per Common Share** $11.07 $10.30
Dividends per Share--
Common . . . . . . . . . . . $ 0.32 $ 0.32
Weighted Average Number
of Common Shares
Outstanding**. . . . . . . . 6,922 6,479
<CAPTION>
PRO FORMA
PRO FORMA COMBINED PRO FORMA
ADJUSTMENTS HUBCO AND HISTORICAL ADJUSTMENTS PRO FORMA
STATEWIDE STATEWIDE WASHINGTON WASHINGTON COMBINED
----------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Interest Income:
Interest and Fees on loans . ($ 837) (l) $46,146 $11,320 ($ 598) (jj) $56,868
Interest and Dividends on
Investments . . . . . . . . 1,016 (m) 28,227 2,639 (202) (kk) 29,961
(1,715) (n) (691) (ll)
(1,110) (o) (12) (mm)
Interest on Federal
Funds Sold. . . . . . . . . -- 852 145 -- 997
------ ------- ------- ------ -------
Total Interest Income . . . (2,646) 75,225 14,104 (1,503) 87,826
------ ------- ------- ------ -------
Interest Expense:
Interest on Deposits . . . . (900) (p) 25,609 6,812 (418) (nn) 32,003
Interest on Borrowings . . . (2,240) (q) 485 13 -- 498
Interest on Subordinated
Debt. . . . . . . . . . . . -- 1,479 -- -- 1,479
------ ------- ------- ------ -------
Total Interest Expense . . . (3,140) 27,573 6,825 (418) 33,980
------ ------- ------- ------ -------
Net Interest Income
Before Provision for
Possible Loan Losses. . . . 494 47,652 7,279 (1,085) 53,846
Provision for Possible
Loan Losses . . . . . . . . -- 3,090 350 -- 3,440
------ ------- ------- ------ -------
Net Interest Income
After Provision for
Possible Loan Losses. . . . 494 44,562 6,929 (1,085) 50,406
------ ------- ------- ------ -------
Other Income. . . . . . . . . -- 7,474 637 -- 8,111
------ ------- ------- ------ -------
Other Expenses:
Salaries and Other
Employee Benefits . . . . . -- 16,602 2,605 -- 19,207
Occupancy and
Equipment Expense . . . . . (360) (r) 4,739 633 25 (oo) 5,397
Other Expenses . . . . . . . (707) (s) 7,834 3,112 213 (pp) 11,159
(1,302) (t)
------ ------- ------- ------ -------
Total Other Expenses . . . . (2,369) 29,175 6,350 238 35,763
------ ------- ------- ------ -------
Income Before Taxes. . . . . 2,863 22,861 1,216 (1,323) 22,754
------ ------- ------- ------ -------
Income Taxes . . . . . . . . 1,088 (U) 7,901 (315) (503) (qq) 7,082
------ ------- ------- ------ -------
Net Income before Cumulative
effect of Change in
Accounting Principle . . . . $1,775 $14,961 $ 1,531 ($ 820) $15,671
====== ======= ======= ====== =======
Earnings per Share--Primary** $ 1.78 $ 1.74*
Earnings per Share fully
Diluted**. . . . . . . . . . $ 1.78 $ 1.69
Book Value per Common Share** $11.85 $11.85
Dividends per Share--
Common . . . . . . . . . . . $ 0.32 $ 0.32
Weighted Average Number
of Common Shares
Outstanding**. . . . . . . . 8,423 8,423
- ---------------
* After consideration of Series A preferred dividends of $1,045 (representing an annual dividend of $1.68 per share), the
maximum dividend applicable under the proposed Washington Merger Agreement.
** See Note 16 in accompanying notes to proforma combined condensed financial statements.
See accompanying notes to pro forma combined condensed financial statements.
</TABLE>
31
<PAGE>
<PAGE>
<TABLE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS
FOR THE YEAR ENDED DECEMBER 31, 1992
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA HISTORICAL
HUBCO HUBCO HUBCO STATEWIDE
---------- ----------- -------- ----------
<S> <C> <C> <C> <C>
Interest Income:
Interest and Fees on
loans . . . . . . . . . . . $45,406 -- $45,406 $24,367
Interest and Dividends on
Investments . . . . . . . . 20,898 $1,419 (4) 21,873 17,116
(444) (9)
Interest on Federal
Funds Sold. . . . . . . . . 1,342 -- 1,342 247
------- ------ ------- -------
Total Interest Income . . . 67,646 975 68,621 41,730
------- ------ ------- -------
Interest Expense:
Interest on Deposits . . . . 26,094 26,094 20,159
Interest on Borrowings . . . 539 539 3,502
Interest on Subordinated
debt. . . . . . . . . . . . -- 1,938 (5) 1,971 --
33 (6)
------- ------ ------- -------
Total Interest Expense. . . 26,633 1,971 28,604 23,661
------- ------ ------- -------
Net Interest Income
Before Provision for
Possible Loan Losses . . . 41,013 (996) 40,017 18,069
Provision for Possible
Loan Losses . . . . . . . . 4,116 -- 4,116 1,383
------- ------ ------- -------
Net Interest Income
After Provision for
Possible Loan Losses . . . 36,897 (996) 35,901 16,686
------- ------ ------- -------
Other Income . . . . . . . . 7,657 -- 7,657 1,980
------- ------ ------- -------
Other Expenses:
Salaries and Other
Employee Benefits . . . . . 13,704 -- 13,704 5,182
Occupancy and Equipment
Expense . . . . . . . . . . 4,942 -- 4,942 1,487
Other Expenses . . . . . . . 15,703 -- 15,703 5,435
------- ------ ------- -------
Total Other Expenses. . . . 34,349 -- 34,349 12,104
------- ------ ------- -------
Income Before Taxes . . . . 10,205 (996) 9,209 6,562
Income Taxes . . . . . . . . 564 (378) (7) 186 1,639
------- ------ ------- -------
Net Income before Extra-
ordinary Item. . . . . . . $ 9,641 $( 618) $ 9,023 $4,923
======= ====== ======= ======
Earnings per Share--primary** $ 1.58 $ 1.60
Earnings per Share fully
Diluted**. . . . . . . . . . $ 1.58 $ 1.60
Book Value per Common
Share**. . . . . . . . . . . $ 9.88 $ 9.03
Dividends per Share--
Common . . . . . . . . . . . $ 0.40 $ 0.40
Weighted Average Number of
Common Shares Outstanding**. 6,091 5,648
<CAPTION>
PRO FORMA
PRO FORMA COMBINED PRO FORMA
ADJUSTMENTS HUBCO AND HISTORICAL ADJUSTMENTS PRO FORMA
STATEWIDE STATEWIDE WASHINGTON WASHINGTON COMBINED
----------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Interest Income:
Interest and Fees on
loans . . . . . . . . . . . $(1,117) (l) $68,656 $18,041 $( 798) (jj) $85,899
Interest and Dividends on
Investments . . . . . . . . 1,355 (m) 36,577 3,457 (269) (kk) 38,828
(2,287) (n) (921) (ll)
(1,480) (o) (16) (mm)
Interest on Federal
Funds Sold. . . . . . . . . -- 1,589 381 -- 1,970
------- ------- ------- ------ -------
Total Interest Income . . . (3,529) 106,822 21,879 (2,004) 126,697
------- ------- ------- ------ -------
Interest Expense:
Interest on Deposits . . . . (1,200) (p) 45,053 12,189 (557) (nn) 56,685
Interest on Borrowings . . . (3,024) (q) 1,017 1 -- 1,018
Interest on Subordinated
debt. . . . . . . . . . . . -- 1,971 -- -- 1,971
------- ------- ------- ------ -------
Total Interest Expense. . . (4,224) 48,041 12,190 (557) 59,674
------- ------- ------- ------ -------
Net Interest Income
Before Provision for
Possible Loan Losses . . . 695 58,781 9,689 (1,447) 67,023
Provision for Possible
Loan Losses . . . . . . . . -- 5,499 1,100 -- 6,599
------- ------- ------- ------ -------
Net Interest Income
After Provision for
Possible Loan Losses . . . 695 53,282 8,589 (1,447) 60,424
------- ------- ------- ------ -------
Other Income . . . . . . . . -- 9,637 2,290 -- 11,927
------- ------- ------- ------ -------
Other Expenses:
Salaries and Other
Employee Benefits . . . . . -- 18,886 3,507 -- 22,393
Occupancy and Equipment
Expense . . . . . . . . . . (499) (r) 5,930 1,011 33 (oo) 6,974
Other Expenses . . . . . . . (942) (s) 18,461 4,176 284 (pp) 22,921
(1,735) (t)
------- ------- ------- ------ -------
Total Other Expenses. . . . (3,176) 43,277 8,694 317 52,288
------- ------- ------- ------ -------
Income Before Taxes . . . . 3,871 19,642 2,185 (1,764) 20,063
Income Taxes . . . . . . . . 1,471 (u) 3,296 628 (670) (qq) 3,254
------- ------- ------- ------ -------
Net Income before Extra-
ordinary Item. . . . . . . $ 2,400 $16,346 $ 1,557 $(1,094) $16,809
======= ======= ======= ======= =======
Earnings per Share--primary** $ 2.15 $ 2.03*
Earnings per Share fully
Diluted**. . . . . . . . . . $ 2.15 $ 2.00
Book Value per Common
Share**. . . . . . . . . . . $ 10.87 $ 10.87
Dividends per Share--
Common . . . . . . . . . . . $ 0.40 $ 0.40
Weighted Average Number of
Common Shares Outstanding**. 7,592 7,592
- ---------------
* After consideration of Series A preferred dividends of $1,394 ($1.68 per share), the maximum dividend applicable under the
proposed Washington Merger Agreement.
** See Note 16 in accompanying notes to pro forma combined condensed financial statements.
See accompanying notes to pro forma combined condensed financial statements.
</TABLE>
32
<PAGE>
<PAGE>
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
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 442,781 shares of
treasury stock through February 1, 1994 . . . . ($9,869)
=======
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:
Reissurance 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 $1,954 . . . . . . . . . . . . . . . . . . . . . . $25,076
------
$33,046 (j)
=======
ESTIMATE OF FAIR VALUE OF STATEWIDE
Retained earnings at September 30, 1993 as reported. . $31,319 (k)
Excess of fair value over book value of:
Mortgage-backed and other investment
securities. . . . . . . . . . . . . . . . . $7,400
Loans receivable . . . . . . . . . . . . . . 6,700(c)
Land and buildings . . . . . . . . . . . . . 2,500
------
16,600
Book value in excess of fair value of Time
deposits . . . . . . . . . . . . . . . . . $1,200(g)
Prepayment penalty on Advances from Federal
Home Loan Bank . . . . . . . . . . . . . . . 2,750
------
(3,950)
Other adjustments:
Elimination of historical Statewide excess of cost
over fair value of assets previously acquired by
Statewide. . . . . . . . . . . . . . . . . . . . . . . (15,165)(f)
Reduction in value of other real estate intended to
be liquidated by HUBCO shortly after acquisition . . . *(4,214)(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. . . . . . . . . . . . . . . . . . . . . . (1,866)
=======
Excess of fair value over cost (negative goodwill). . . $16,949
=======
Applied to reduction in value of premises and
equipment. . . . . . . . . . . . . . . . . . . . . . . $6,537
Recorded as a liability in the pro-forma financial
statements . . . . . . . . . . . . . . . . . . . . . . 10,412
=======
$16,949
=======
- ---------------
* Statewides current intent is to hold its ORE properties until such
properties have their improvements completed. HUBCO's intent is to
liquidate such properties shortly after acquisition. 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.
33
<PAGE>
<PAGE>
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
4) CASH AND DUE FROM BANKS PRO-FORMA ADJUSTMENTS
Record the receipt of the net proceeds from the sale of
Hubco common stock . . . . . . . . . . . . . . . . . . $33,046
Transfer proceeds to investment portfolio . . . . . . . (33,046)
Transfer proceeds from investment portfolio . . . . . . 35,192
Repayment of advances to the Federal Home Loan Bank of
New York . . . . . . . . . . . . . . . . . . . . . . . (35,192)
=======
$0 (a)
=======
5) INVESTMENT SECURITIES PRO-FORMA ADJUSTMENTS
Record the excess of the fair market value over the
book value of the investment securities portfolio. . . $7,400
Record the receipt of the net proceeds from the sale of
HUBCO common stock . . . . . . . . . . . . . . . . . . 33,046
Repayment of advances to the Federal Home Loan Bank
of New York, including prepayment penalty. . . . . . . (35,192)
=======
$ 5,254 (b)
=======
6) PREMISES AND EQUIPMENT PRO-FORMA ADJUSTMENTS
Record the excess of the fair market value over the
book value for land and buildings. . . . . . . . . . . $2,500
Allocation of negative goodwill applied to premises
and equipment. . . . . . . . . . . . . . . . . . . . . (6,537)
=======
($4,037)(d)
=======
7) BORROWED MONEY PRO-FORMA ADJUSTMENTS
Prepayment penalty on advances from Federal
Home Loan Bank . . . . . . . . . . . . . . . . . . . . $2,750
Repayment of advances to the Federal Home Loan Bank of
New York . . . . . . . . . . . . . . . . . . . . . . . (35,192)
=======
($32,442)(h)
=======
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 . . . . . 1,866
Record remaining excess of fair value over cost
(negative goodwill). . . . . . . . . . . . . . . . . . 10,412
=======
$18,053 (i)
=======
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:
(l) 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.
(m) To reflect interest income as a result of the investment of the proceeds
of issuance of Common Stock at 4.10%.
(n) To reflect a loss of interest income due to use of funds to repay
outstanding FHLB advances at 6.50%.
(o) 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.
(p) To record the amortization of the premium on deposits.
(q) To reflect a reduction in interest expense from the repayment of FHLB
advances.
(r) 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.
(s) To reflect the reduction in expense from the write off of the
historical excess of cost over fair value of Statewide.
34
<PAGE>
<PAGE>
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(t) 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.
(u) 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. . . . . . . . . . 1,335
-------
Aggregate Cost . . . . . . . . . . . . . . . . . . . . . . . 40,394
Add Acquisition Costs. . . . . . . . . . . . . . . . . . . . 355
-------
$40,749
ESTIMATE OF FAIR VALUE OF WASHINGTON
Stockholders' equity at September 30, 1993, as
reported . . . . . . . . . . . . . . . . . . . . . . $32,345 (ii)
Additional capital from exercising stock
options prior to acquisition . . . . . . . . . . . . 1,840
-------
Adjusted stockholders' equity . . . . . . . . . . . . 34,185
Fair value adjustments:
Excess of fair value over book value of:
Mortgage-backed and other Investments
securities . . . . . . . . . . . . . . . $ 943
Loans receivable. . . . . . . . . . . . . 5,702 (cc)
Land and buildings. . . . . . . . . . . . 2,897 (dd)
-------
Book value in excess of fair value of
time deposits. . . . . . . . . . . . . . . . . . . . 9,542
(557)(ff)
Other adjustments:
Recognition of liability for payment of income taxes
on recapture of allowance for possible loan
losses . . . . . . . . . . . . . . . . . . . . . . . (1,231)
Recognition of certain other liabilities related to the
acquisition, primarily severance and estimated
liabilities for existing contingencies . . . . . . . (1,211)
Tax effect where appropriate, of purchase accounting
adjustments. . . . . . . . . . . . . . . . . . . . . (2,823)
------
Estimated fair value, as adjusted. . . . . . . . . . . . . . 37,905
-------
Excess of cost over fair value . . . . . . . . . . . . . . . $ 2,844 (ee)
=======
11) CASH AND DUE FROM BANK PRO-FORMA ADJUSTMENT
Record use of cash to purchase Washington Stock. . . . . . . ($1,335)(aa)
=======
12) INVESTMENT SECURITIES PRO-FORMA ADJUSTMENT
Record the excess of the fair market value
over the book value of the investment portfolio . . . . . . $ 943
Record the receipt of the proceeds from the exercise
of Washington Bancorp stock options prior to
acquisition . . . . . . . . . . . . . . . . . . . . . . . . 1,840
Cash payment of acquisition costs. . . . . . . . . . . . . . (355)
Cash payment to shareholders' of Washington Bancorp
of 49% of the purchase price. . . . . . . . . . . . . . . . (19,139)
=======
($16,711)(bb)
=======
35
<PAGE>
<PAGE>
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
13) OTHER LIABILITIES PRO-FORMA ADJUSTMENTS
Record liability for income taxes on recapture of
allowance for possible loan losses of Washington.. . . 1,231
Recognition of certain other liabilities related to the
acquisition of Washington Bancorp. . . . . . . . . . . 1,211
Tax effect of purchase accounting adjustments . . . . . 2,823
------
$5,265 (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 3.5 years.
(ll) To reflect a loss of interest income for the use of funds to
purchase Washington Bancorp stock at 4.50%.
(mm) To reflect a loss of interest income for the use of funds for
acquisition expenses at 4.50%.
(nn) To record the amortization of the premium on deposits.
(oo) To reflect an increase in depreciation expense reflecting the net
increased carrying value of premises and equipment.
(pp) To reflect the increase in expense from the amortization of cost
over fair value of the Washington acquisition based on a 10
year life.
(qq) To reflect the anticipated tax benefit on the proforma adjustments.
15) EFFECT OF RECOGNITION AND RETENTION PLAN STOCK AND OPTIONS.
(rr) 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 NINE MONTHS ENDED SEPTEMBER 30, 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. . . . . . . . $ 1.80* $ 1.68*
Earnings per share--Fully Diluted. . . . . 1.75 1.64
Book value per Common share. . . . . . . . 11.62 12.05
Weighted average number of
Common shares outstanding . . . . . . . . 8,132 8,715
- --------------------
* After consideration of Series A preferred dividends of $1,045 (representing
an annual dividend of $1.68 per share), the maximum dividend applicable
under the proposed Washington Merger Agreement.
36
<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, 1992 are derived from the Consolidated Financial Statements of
HUBCO. The financial data for the nine month periods ended September 30 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 HUBCO considers necessary for a fair
presentation of the financial position and the results of operations for these
periods. Operating results for the nine months ended September 30, 1993 are
not necessarily indicative of the results that may be expected for the entire
year ended December 31, 1993. 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
September 30, Years Ended December 31,
-------------------- --------------------------------------------------------------
1993 1992 1992 1991 1990 1989 1988
------- -------- --------- --------- --------- --------- ---------
(In thousands except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS SUMMARY:
Interest income . . . . . . . . . . . . $ 50,331 $ 50,713 $ 67,646 $ 51,759 $ 49,809 $ 51,113 $ 44,652
Interest expense. . . . . . . . . . . . 15,634 20,779 26,633 25,287 26,818 27,820 22,435
-------- -------- -------- -------- -------- -------- --------
Net interest income . . . . . . . . . . 34,697 29,934 41,013 26,472 22,991 23,293 22,217
Provision for possible loan losses. . . 2,550 1,901 4,116 2,312 4,150 1,860 450
-------- -------- -------- -------- -------- -------- --------
Net interest income after provision for
possible loan losses . . . . . . . . . 32,147 28,033 36,897 24,160 18,841 21,433 21,767
Other income. . . . . . . . . . . . . . 6,416 5,411 7,657 5,471 4,532 4,196 3,396
Other expenses. . . . . . . . . . . . . 22,618 24,637 34,349 22,274 20,013 19,863 17,824
-------- -------- -------- -------- -------- -------- --------
Income before income taxes. . . . . . . 15,945 8,807 10,205 7,357 3,360 5,766 7,339
Income tax provision. . . . . . . . . . 5,498 2,116 564 2,336 1,145 2,457 2,086
-------- -------- -------- -------- -------- -------- --------
Net Income. . . . . . . . . . . . . . . $ 10,447 $ 6,691 $ 9,641 $ 5,021 $ 2,215 $ 3,309 $ 5,253
======== ======== ======== ======== ======== ======== ========
PER SHARE DATA:
Weighted average common shares
outstanding. . . . . . . . . . . . . . 6,922 5,847 6,091 4,955 4,941 4,969 4,967
Net income per common share (6) . . . . $ 1.51 $ 1.14 $ 1.58 $ 1.01 $ 0.45 $ 0.67 $ 1.06
Cash dividends per common share (6) . . $ 0.32 $ 0.27 $ 0.40 $ 0.33 $ 0.33 $ 0.33 $ 0.32
BALANCE SHEET SUMMARY:
Investment securities . . . . . . . . . $405,503 $333,966 $322,522 $138,915 $150,536 $ 89,177 $ 54,036
Loans, net. . . . . . . . . . . . . . . 548,022 521,807 513,448 465,883 371,700 369,232 378,992
Total assets. . . . . . . . . . . . . . 1,038,926 937,091 931,911 673,159 595,128 548,132 506,607
Deposits. . . . . . . . . . . . . . . . 935,693 843,685 843,226 608,857 512,823 484,192 445,286
Stockholders' equity. . . . . . . . . . 76,737 66,175 68,313 41,099 37,567 37,400 35,811
RATIOS:
Return on average assets. . . . . . . . 1.44%(2) 0.98%(2) 1.05% 0.82% 0.40% 0.62% 1.07%
Return on average equity. . . . . . . . 19.28(2) 17.26(2) 17.38 12.75 5.89 8.91 15.34
Dividend payout . . . . . . . . . . . . 21.33 22.93 25.04 33.44 73.63 49.65 30.12
Average equity to average assets. . . . 7.46 5.66 6.04 6.45 6.85 7.00 6.96
Net interest margin (3) . . . . . . . . 5.22 4.90 4.97 4.94 4.72 4.92 5.06
ASSET QUALITY RATIOS:
Allowance for possible loan losses to total
loans, net (1) . . . . . . . . . . . . 1.80 1.42 1.48 1.44 1.41 .82 .58
Allowance for possible loan losses to
non-performing loans (4) . . . . . . . 107.07 86.81 96.10 75.53 52.71 58.93 36.35
Allowance for possible loan losses to non-
performing assets (excluding loans past
due 90 days or more and accruing). . . 99.08 66.00 98.04 50.10 39.39 90.40 60.24
Non-performing loans to total loans,
net (1)(4) . . . . . . . . . . . . . . 1.68 1.63 1.54 1.90 2.67 1.38 1.59
Non-performing assets to total loans, net
plus other real estate (1)(5). . . . . 2.09 2.41 1.78 3.09 3.77 1.38 1.59
Non-performing assets (excluding loans past
due 90 days or more and accruing) to total
loans, net plus other real
estate (1)(5). . . . . . . . . . . . . 1.80 2.13 1.51 2.84 3.53 .90 .96
Net charge-offs to average loans, net . .14 .53 .92 .58 .54 .28 .15
- ------------
(1) Total loans are net of unearned income and deferred loan fees.
(2) Annualized.
(3) Computed on a tax equivalent basis.
(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.
(6) Income per share and dividends paid have been restated to reflect a 10% stock dividend paid June 1, 1993.
</TABLE>
37
<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.
Nine Months Ended September 30, 1993 Compared to Nine Months Ended September
30, 1992
Results Of Operations
For the nine month period ended September 30, 1993, HUBCO earned net
income of $10,447, or $1.51 per share, compared to $6,691, or $1.14 per share,
for the same period in 1992. The increase in earnings of $3,756, or 56.1%, is
the result of a combination of items. Earnings for the nine month period were
improved by increases in net interest income and other income of $4,763, or
15.9%, and $1,005, or 18.6%, respectively; and by a decrease in other expenses
of $2,019, or 8.2%. Partially offsetting these items was an increase in the
provision for loan losses of $649, or 34.1%, and an increase in income taxes
of $3,382, or 159.8%.
The increase in net interest income from $29,934 for the nine month
period ended September 30, 1992 to $34,697 for the current nine 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 more significant decline in rates on interest paying liabilities
compared to the drop in yield on interest earning assets. Average net interest
earning assets increased by $56,728, or 42.8%, from $132,535 at September 30,
1992 to $189,263 at September 30, 1993 which, when coupled with the related
changes in yield/rate, produced the net increase to interest-related earnings.
Total other income for the nine month period in 1993 increased by $1,005,
or 18.6%, over the comparable period in 1992. An increase of $823, or 23.3%,
in service charges on deposit accounts was the largest increase (82% of the
total) and is attributable to an increase of $47,144, or 5.7%, in average
deposits from $828,229 for the nine months ended September 30, 1992 to
$875,373 for the comparable period in 1993, along with a greater incurrence of
service charges on the additional accounts. The remaining increase in other
income for the nine month period is mostly due to an increase of $97, or
90.7%, in credit card fee income resulting from an expansion of HUBCO's
program; and an increase of $124, or 12.5%, in safe deposit box rentals and
other fees related to branch operations.
The provision for possible loan losses was increased by $649, or 34.1%,
during the current nine month period compared to the comparable period in
1992. The provision was increased early in 1993 in order to maintain the
allowance at an adequate level given the soft New Jersey economy. During the
third quarter of 1993, the provision was further increased due to the
non-performing loans obtained as part of the Pilgrim State Bank ("Pilgrim")
acquisition.
Non-interest expense for the nine month period decreased by $2,019, or
8.2%, from $24,637 at September 30, 1992 to $22,618 at September 30, 1993 due
primarily to a significant decrease in miscellaneous expenses which was
partially offset by increases in other categories, including salaries and
benefits. Salaries and benefits increased by $1,982, or 19.3%, for the current
nine month period compared to the same period in 1992. The increase is
attributable to annual salary increases of approximately 4.0% and the
accompanying increase in payroll taxes, an increased performance bonus accrual
based upon HUBCO's increased earnings, and the staff additions resulting from
the acquisition of Irving, Broadway and Pilgrim staff additions for various
time periods during 1993 for which there was no related 1992 expense. Despite
the addition of six branches acquired from Pilgrim in June 1993, year-to-date
occupancy expense at September 30, 1993 decreased by $204, or 8.2%, over the
comparable period in 1992 due to 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 several successful real estate tax appeals. Equipment
expense for the comparable nine month periods increased during 1993 by $82, or
6.1%, due to the additional equipment needs of the acquired Pilgrim branches,
for which the expense was immediately absorbed. Miscellaneous expenses for the
nine month period ended September 30, 1993 decreased by $3,879, or 36.8%, over
the comparable period in 1992. The most significant items
38
<PAGE>
<PAGE>
include a decrease of $1,800, or 73.0%, in core deposit amortization and other
acquisition costs due to such costs being fully amortized; and a reduction of
$1,897, or 95.2%, in other real estate expenses due to the write down of and
the cost to carry of a large property in the third quarter of 1992, and the
subsequent disposition of the property at year-end 1992. Other decreases
include $101, or 12.9%, in operating supplies related to the merger on
September 25, 1992 of the former HUB National Bank into Hudson United Bank;
and $99, or 28.0%, in telephone expense due to the installation of a more
efficient system.
The provision for income taxes for the current nine month period
increased by $3,382, or 159.8%, over the comparable period in 1992 due to an
81% increase in net income before taxes for 1993, an increase of 1% in the
federal statutory rate for 1993, and the reversal in 1992 of previously
accrued tax reserves that were no longer deemed necessary (which resulted in a
reduction in federal taxes for 1992).
The increases in net interest income as previously discussed are produced
by rate/volume changes and product mix and are summarized for the comparative
nine-month periods ended September 30, 1993 and September 30, 1992 in the
following distribution and rate/volume tables. 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.
39
<PAGE>
<PAGE>
<TABLE>
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS'
EQUITY: INTEREST RATES AND INTEREST DIFFERENTIALS
(IN THOUSANDS OF DOLLARS)
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1993 SEPTEMBER 30, 1992
--------------------------------- ---------------------------------
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 . . . . . . . . . . . . . . . . . . . . $512,787 $32,263 8.39% $504,165 $34,017 9.00%
Nontaxable. . . . . . . . . . . . . . . . . . . 5,296 392 9.87 6,055 476 10.48
Taxable Investment Securities. . . . . . . . . . 330,333 16,354 6.60 267,138 14,507 7.24
Nontaxable Investment Securities . . . . . . . . 22,728 1,235 7.25 15,088 1,053 9.31
Federal Funds Sold and Securities
Purchased Under Agreements to Resell. . . . . . 29,449 656 2.97 36,178 1,005 3.70
Other. . . . . . . . . . . . . . . . . . . . . . -- -- -- -- 175 --
-------- ------- -------- -------
Total Interest Earning Assets . . . . . . . . 900,593 50,900 7.54 828,624 51,233 8.24
Noninterest Earning Assets:
Cash and Due From Banks. . . . . . . . . . . . . 39,619 52,674
Premises and Equipment, Net. . . . . . . . . . . 17,456 13,995
Accrued Interest Receivable. . . . . . . . . . . 8,247 8,356
Other Assets . . . . . . . . . . . . . . . . . . 10,898 16,943
Less Allowance for Possible Loan Losses . . . . . (8,574) (7,368)
-------- --------
TOTAL . . . . . . . . . . . . . . . . . . . . $968,239 $913,224
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest Bearing Liabilities:
Demand Deposits. . . . . . . . . . . . . . . . . $106,830 $ 2,202 2.75% $ 93,961 $ 2,460 3.49%
Savings Deposits . . . . . . . . . . . . . . . . 335,602 6,636 2.64 272,925 6,885 3.36
Time Deposits. . . . . . . . . . . . . . . . . . 254,876 6,551 3.43 313,438 11,002 4.68
Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase . . . . . . 13,049 223 2.28 14,392 370 3.43
Other. . . . . . . . . . . . . . . . . . . . . . 973 22 3.01 1,373 62 6.02
-------- ------- -------- -------
Total Interest Bearing Liabilities. . . . . . 711,330 15,634 2.93 696,089 20,779 3.98
Noninterest Bearing Liabilities:
Demand Deposits. . . . . . . . . . . . . . . . . 178,065 147,905
Other. . . . . . . . . . . . . . . . . . . . . . 6,584 17,531
-------- --------
895,979 861,525
Stockholders' Equity. . . . . . . . . . . . . . . 72,260 51,699
-------- --------
TOTAL. . . . . . . . . . . . . . . . . . . . $968,239 $913,224
======== ========
Net Interest Earnings . . . . . . . . . . . . . . $35,266 $30,454
======= =======
Net Yield on Interest Earning Assets. . . . . . . 5.22% 4.90%
==== ====
Tax-Equivalent Adjustments:
Loans. . . . . . . . . . . . . . . . . . . . . . $ 137 $ 162
Investment Securities. . . . . . . . . . . . . . 432 358
------- -------
TOTAL . . . . . . . . . . . . . . . . . . . . $ 569 $ 520
======= =======
</TABLE>
- ------------
(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.
40
<PAGE>
<PAGE>
CHANGES IN NET INTEREST EARNINGS DUE TO VOLUME/RATE
(IN THOUSANDS OF DOLLARS)
NINE MONTHS ENDED SEPTEMBER 30, 1993
COMPARED TO NINE MONTHS
ENDED SEPTEMBER 30, 1992
Increase (Decrease) Due To
----------------------------
Volume Rate Net
------ ------- -------
Interest Earned On:
Domestic Loans and Direct Lease Financing:
Taxable. . . . . . . . . . . . . . . . . . . . $ 576 $(2,330) $(1,754)
Nontaxable . . . . . . . . . . . . . . . . . . (57) (27) (84)
Taxable Investment Securities . . . . . . . . . 3,211 (1,364) 1,847
Nontaxable Investment Securities. . . . . . . . 451 (269) 182
Federal Funds Sold and Securities Purchased
under Agreements to Resell . . . . . . . . . . (170) (179) (349)
Other . . . . . . . . . . . . . . . . . . . . . (175) -- (175)
------ ------- -------
Total Interest Earning Assets . . . . . . . . . $3,836 $(4,169) $ (333)
====== ======= =======
Interest Paid On:
Demand Deposits. . . . . . . . . . . . . . . . $ 308 $ (566) $ (258)
Savings Deposits . . . . . . . . . . . . . . . 1,396 (1,645) (249)
Time Deposits. . . . . . . . . . . . . . . . . (1,832) (2,619) (4,451)
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase. . . . . . . . (32) (115) (147)
Other. . . . . . . . . . . . . . . . . . . . . (15) (25) (40)
------ ------- -------
Total Interest Bearing Liabilities. . . . . . . $ (175) $(4,970) $(5,145)
====== ======= =======
Net Interest Earnings . . . . . . . . . . . . . $4,011 $ 801 $ 4,812
====== ======= =======
41
<PAGE>
<PAGE>
Financial Condition
Certain tables containing information about the loan portfolio at
September 30, 1993 are contained in supplements to year-end tables contained
in the Management Discussion and Analysis section below entitled "Results of
Operations for Years Ended December 31, 1992, 1991 and 1990--Loan Portfolio."
These tables should be referred to in conjunction with this nine-month
discussion.
Total assets at September 30, 1993 increased by $107,015, or 11.5%, over
December 31, 1992 as a result of the acquisition of the deposits and certain
assets of Pilgrim State Bank on June 30, 1993. In connection with the Pilgrim
transaction, Hudson United Bank, a wholly-owned subsidiary of HUBCO, assumed
deposits of approximately $122.9 million, received $42.9 million in cash and
cash equivalents, and $31.8 million in investment grade securities, and
acquired approximately $46.7 million in loans and participation interests in
loans, as well as $1.8 million in other assets and $.4 million in other
liabilities.
HUBCO's gross loan portfolio increased from $520,869 at December 31, 1992
to $553,949 at September 30, 1993, an increase of $33,080, or 6.4%. The
increase is the result of the loans acquired from Pilgrim. Excluding the
acquired loans, there would have been a decrease of $13,590, or 2.6%, as a
result of a general decline in loan demand which has been present throughout
the year. The addition of the acquired loans has not changed the basic
composition of loan types within the portfolio.
Total non-performing loans, which include non-accruing and renegotiated
loans, increased from $6,505 at December 31, 1992 to $7,624 at September 30,
1993, an increase of $1,119, or 17.2%. Of that amount, $1,055, or 94% of the
total increase, represents non-accruing commercial and mortgage loans acquired
in the Pilgrim transaction. Renegotiated loans were basically unchanged,
showing a decrease of $80 from December 31, 1992 due to payments. Other real
estate increased by $1,053, or 84.1%, from $1,252 at December 31, 1992 to
$2,305 at September 30, 1993. Approximately 47%, or $500, of the increase
arises from the acquisition of a commercial property in ORE status in the
Pilgrim transaction. The remainder of the ORE increase is made up of three
commercial properties. Loans past due 90 days or more and accruing increased
by $155, or 11%, all of which were loans acquired in the Pilgrim transaction.
The reserve for possible loan losses increased by $2,233, or 29.4%, of
which $400 represents reserves acquired from Pilgrim. The reserve represents
129.0% of non-performing loans at September 30, 1993 compared to 116.9% of
non-performing loans at December 31, 1992. As a percentage of non-performing
assets at September 30, 1993 and December 31, 1992, the reserve represents
99.1% and 98.0%, respectively.
The investment portfolio increased by $82,981, or 25.7%, from $322,522 at
December 31, 1992 to $405,503 at September 30, 1993. Of the total, $31,781
reflects securities acquired in the Pilgrim transaction. The remaining
increase of $51,200, or 15.9%, represents purchases made due to the lack of
loan demand and sufficient levels of overnight federal funds sold.
Approximately 92% of the increase is in U.S. Government Securities having
maturities of less than five years.
Property and equipment increased from $15,097 at December 31, 1992 to
$18,080 at September 30, 1993, an increase of $2,983, or 19.8%. Of that
amount, $672 represents properties acquired in the Pilgrim transaction. The
remaining increase of $2,311, or 15.3%, is primarily attributable to the
closing early in 1993 of real estate purchases from the RTC and the FDIC of
former Irving and Broadway branch locations, which are now branches of Hudson
United Bank.
Accrued interest receivable decreased by $341, or 3.6%, due to the
receipt of scheduled interest payments on the investment portfolio.
Other assets at September 30, 1993 were $16,717, an increase of $713, or
4.5%, over December 31, 1992. Other assets at December 31, 1992 had included
$4,610 in accounts receivable from the RTC and the FDIC for items related to
the acquisitions of Center Savings & Loan Association, Irving and Broadway.
Those receivables were paid in full prior to June 30, 1993, when other assets
totalled $10,843. At September 30, 1993, other assets increased once again and
included $5,278 in receivables from the federal government for social security
direct deposits which, under federal law, had to be credited to customer
accounts on October 1, 1993. The receivables were paid in full on October 4,
1993.
Deposits rose to $935,693 at September 30, 1993, an increase of $92,467,
or 11.0%, over balances of $843,226 at December 31, 1992. Net of the $122,876
in deposits assumed in the Pilgrim transaction, HUBCO experienced a
42
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<PAGE>
decline in deposits of $30,409, or 3.6%. The decrease is primarily in
certificates of deposit--including some of those assumed in the Pilgrim
transaction--and is attributable to the availability of higher-yielding
alternative investments such as mutual funds and annuities. HUBCO's
non-interest bearing accounts have increased from December 31, 1992, showing
an internally generated growth of $4,811, or 2.8%, exclusive of the $21,360
added through the Pilgrim transaction. The ratio of non-interest bearing
deposits to total deposits was 21.1% at September 30, 1993, compared to 20.3%
at December 31, 1992.
Federal funds purchased and securities sold under agreements to
repurchase grew to $18,292 at September 30, 1993 from $14,133 at December 31,
1992, an increase of $4,159, or 29.4%. This growth is the result of normal
balance fluctuations.
Accrued taxes and other liabilities increased by $1,965, or 31.5%, to
$8,204 at September 30, 1993 from $6,239 at December 31, 1992, which is
primarily attributable to an increase in accrued federal income taxes payable
on the books of HUBCO's investment holding company subsidiary.
Although HUBCO may periodically commit to certain expenditures in the
ordinary course of business, HUBCO had no material commitments for capital
expenditures as of September 30, 1993.
Results of Operations for Years Ended December 31, 1992, 1991 and 1990
Earnings Summary. HUBCO earned net income of $9,641, or $1.58 per share,
in 1992 compared to $5,021, or $1.01 per share, in 1991 and $2,215, or $.45
per share, in 1990. Significant factors contributing to HUBCO's earnings
improvement in 1992 were increases in net interest income and total other
income of $14,541, or 54.9%, and $2,186, or 40.0%, respectively. In 1992, net
earnings were also enhanced by a significant decrease in the provision for
income taxes of $1,772, or 75.9%. Partially offsetting the 1992 gains were
increases in the provision for possible loan losses of $1,804, or 78.0%, and
in other expenses of $12,075, or 54.2%, a large portion of which were one-time
charges.
For the year ended December 31, 1991, the reported earnings of $5,021
represented an increase of $2,806, or 126.7%, compared with 1990. The increase
was primarily attributable to increases of $3,481 and $939 in net interest
income and total other income, and to a decrease in the provision for possible
loan losses of $1,838. The 1991 gains were partially offset by increases in
other expenses and in the provision for income taxes of $2,261 and $1,191,
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 noninterest
bearing deposits.
The table presented below shows, for the three years ended December 31,
1992, 1991 and 1990 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). Nontaxable 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 34% in 1992, 1991 and 1990.
43
<PAGE>
<PAGE>
<TABLE>
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS'
EQUITY: INTEREST RATES AND INTEREST DIFFERENTIALS
(In thousands)
<CAPTION>
1992 1991 1990
-------------------------- -------------------------- ------------------------------
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 . . . . . . . . $505,464 $45,004 8.90% $397,416 $39,550 9.95% $353,123 $37,352 10.58%
Nontaxable. . . . . . . 6,026 609 10.11 6,181 774 12.52 6,809 906 13.31
Taxable Investment
Securities . . . . . . 278,119 19,991 7.19 113,744 9,286 8.16 88,269 7,335 8.31
Nontaxable Investment
Securities . . . . . . 16,015 1,374 8.58 24,922 2,295 9.21 16,298 1,639 10.06
Federal Funds Sold and
Securities Purchased
Under Agreements to
Resell. . . . . . . . 32,782 1,342 4.09 15,139 896 5.92 41,089 3,442 8.38
Time Deposits in Other
Banks, Domestic. . . . -- 18 1 5.56 -- --
-------- ------- ---- ------- ------ ----- -------- -------
Total Interest Earning
Assets . . . . . . . . . 838,406 68,320 8.15 557,420 52,802 9.47 505,588 50,674 10.02
Noninterest Earning Assets:
Cash and Due
from Banks. . . . . . . 48,812 31,089 30,066
Premises and
Equipment, Net. . . . . 14,277 11,968 9,963
Accrued Interest
Receivable. . . . . . . 8,346 5,607 3,802
Other Assets . . . . . . 15,710 10,289 3,619
Less Allowance for
Possible Loan Losses. . (7,435) (6,076) (3,334)
-------- -------- --------
TOTAL . . . . . . . . $918,116 $610,297 $549,704
======== ======== ========
44
<PAGE>
<PAGE>
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS'
EQUITY: INTEREST RATES AND INTEREST DIFFERENTIALS
(In thousands)
<CAPTION>
1992 1991 1990
-------------------------- -------------------------- ------------------------------
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. . . . . $ 97,494 $ 3,256 3.34% $ 63,348 $ 3,064 4.84% $ 62,119 $ 3,482 5.60%
Savings Deposits . . . . 278,925 9,094 3.26 174,557 8,482 4.86 156,780 8,431 5.38
Time Deposits. . . . . . 303,029 13,744 4.54 197,020 12,864 6.53 176,596 13,833 7.83
Federal Funds Purchased
and Securities Sold
Under Agreements to
Repurchase. . . . . . . 14,500 480 3.31 13,790 660 4.79 12,950 869 6.71
Other. . . . . . . . . . 1,269 59 4.65 2,860 217 7.59 2,474 203 8.20
-------- ------- -------- ------ -------- -------
Total Interest Bearing
Liabilities. . . . . . . 695,217 26,633 3.83 451,575 25,287 5.60 410,919 26,818 6.53
Noninterest Bearing
Liabilities
Demand Deposits. . . . . 152,397 113,504 93,247
Other. . . . . . . . . . 15,035 5,851 7,904
-------- -------- --------
862,649 570,930 512,070
Stockholders' Equity. . . 55,467 39,367 37,634
-------- -------- --------
TOTAL. . . . . . . . . . $918,116 $610,297 $549,704
======== ======== ========
Net Interest Earnings . . $41,687 $27,515 $23,856
======= ======= =======
Net Yield on Interest
Earning Assets . . . . . 4.97% 4.94% 4.72%
==== ===== =====
Tax Equivalent
Adjustments:
Loans . . . . . . . . . . $ 207 $ 263 $ 308
Investment Securities . . 467 780 557
------- ------- -------
TOTAL. . . . . . . . . . $ 674 $ 1,043 $ 865
======= ======= =======
- ---------------
(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 income.
</TABLE>
45
<PAGE>
<PAGE>
In 1992, net interest income increased to $41,687 from $27,515 in 1991, an
increase of 51.5%. This increase was due to an increase of $37,344, or 35.3%,
in net average earning assets (average interest earning assets less average
interest bearing liabilities) and a greater decline in interest rates on
interest bearing liabilities (177 basis points) than the corresponding
decline in yield on interest earning assets (132 basis points).
Interest income on a tax-equivalent basis increased by $15,518, or 29.4%,
during 1992. A key factor in this increase was the increase in average loan
volume of $107,893, or 26.7%, which more than offset the decreased average yield
on the portfolio. The average yield on HUBCO's taxable loan portfolio decreased
to 8.90% in 1992 from 9.95% in 1991 and 10.58% in 1990. The yield on the
nontaxable loan portfolio decreased to 10.11% in 1992 from 12.52% in 1991 and
13.31% in 1990. These decreases in yield were a result of general declines in
market interest rates. In 1992, the interest income impact of nonperforming
loans lowered the yield on taxable loans by 9 basis points, compared to 6 basis
points in 1991 and 24 basis points in 1990. During 1992, an average increase of
$155,468, or 112.1%, in the investment portfolio also contributed to increased
interest income. The large increase in volume is a result of the funds received
by the Bank in the Irving and Broadway acquisitions, net of deposit runoff,
which have been invested predominantly in government securities. The yield on
HUBCO's taxable investment portfolio decreased to 7.19% in 1992 from 8.16% in
1991 and 8.31% in 1990.The yield on the nontaxable investment securities
portfolio declined to 8.58% in 1992, from 9.21% in 1991 and 10.06% in 1990. The
investment portfolio yield decreases from 1990 to 1992 were attributable to
lower market interest rates on instruments purchased to replace higher
yielding securities which matured.
Interest expense increased by $1,346, or 5.3%, during 1992. Although the
cost of funds decreased by 177 basis points, the increased volume in interest
bearing liabilities of $243,0642, or 54.0%, was large enough to generate an
additional expense. Noninterest bearing deposits, which had consistently been at
levels of 19-21% of total deposits, decreased to 18% of total average deposits
during 1992 due to the acquisitions.
The net interest margin, which measures net interest income as a percent of
average earning assets, was 4.97% for 1992. This is an improvement over the 1991
and 1990 levels of 4.94% and 4.72%, respectively.
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<PAGE>
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
1992, 1991 and 1990.
<TABLE>
CHANGES IN NET INTEREST EARNINGS DUE TO VOLUME/RATE
(In Thousands of Dollars)
<CAPTION>
1992 Compared to 1991 1991 Compared to 1990
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. . . . . . . . . . . . . . . . $ 9,941 $(4,487) $ 5,454 $4,508 $(2,310) $2,198
------- ------- ------- ------- ------- -------
Nontaxable . . . . . . . . . . . . . . (19) (146) (165) (80) (52) (132)
Taxable Investment Securities . . . . . 11,930 (1,225) 10,705 2,085 (134) 1,951
Nontaxable Investment Securities. . . . (773) (148) (921) 805 (149) 656
Federal Funds Sold and Securities
Purchased under Agreements
to Resell. . . . . . . . . . . . . . . 790 (344) 446 (1,738) (808) (2,546)
Domestic Time Deposits. . . . . . . . . (1) -- (1) 1 -- 1
Total Interest Earning Assets . . . . . $21,868 $(6,350) $15,518 $5,581 $(3,453) $ 2,128
======= ======= ======= ======= ======= =======
Interest Paid On:
Demand Deposits. . . . . . . . . . . . $ 1,328 $(1,136) $ 192 $ 56 $ (474) $ (418)
Savings Deposits . . . . . . . . . . . 3,997 (3,385) 612 907 (856) 51
Time Deposits. . . . . . . . . . . . . 5,568 (4,688) 880 1,487 (2,456) (969)
Federal Funds Purchased and
Securities Sold Under
Agreements to Repurchase. . . . . . . 33 (213) (180) 53 (262) (209)
Other. . . . . . . . . . . . . . . . . (93) (65) (158) 30 (16) 14
------- ------- ------- ------- ------- -------
Total Interest Bearing Liabilities. . . $10,833 $(9,487) $ 1,346 $2,533 $(4,064) $(1,531)
======= ======= ======= ======= ======= =======
Net Interest Earnings . . . . . . . . . $11,035 $ 3,137 $14,172 $3,048 $ 611 $ 3,659
======= ======= ======= ======= ======= =======
</TABLE>
During 1992, interest income on a tax equivalent basis rose $15,518 due to
a $21,868 increase from volume being partially offset by a $6,350 reduction
due to lower rates. Interest expense increased $1,346 in 1992 due to a $10,833
increase from volume which was only partially offset by a $9,487 savings from
rate reductions. During 1991, interest income also increased by a net $2,128
as a $5,581 increase from volume was partially offset by a $3,453 reduction to
lower rates. However, in 1991 an increase in interest expense of $2,533 due to
volume was more than offset by a $4,064 reduction due to rate, producing a net
savings of $1,531 in interest expense compared to 1990. The rate/volume
combinations resulted in increased net interest earnings of $14,172 and $3,659
for 1992 and 1991, 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 throughout the year and reviews the
adequacy of the allowance for possible loan losses on a quarterly basis. Such
review takes into consideration the financial condition of the borrowers, fair
market value of collateral, level of delinquencies and non-accrual trends,
classified asset reports, historical loss experience by portfolio, industry
trends and the impact of local and national economic conditions. If there are
any significant changes to HUBCO's estimate of the adequacy of the allowance,
they are reflected in operations during the period in which they become known.
See "--Loan Portfolio--Asset Quality."
The provision for possible loan losses was $4,116 for 1992 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
47
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<PAGE>
replenish the allowance after charging off several loans. The 1991 provision
represented a 44.3% decrease from the 1990 provision of $4,150. The 1991
decrease had been possible due to loan collection efforts which resulted in a
substantial reduction of nonaccrual loans from 1990.
Other Income. Total noninterest income increased $2,186, or 40.0%, in
1992. Excluding the impact of investment securities transactions, the increase
was $2,251, or 41.4%, for the year. The increase in total noninterest income
in 1991, excluding securities transactions, was $798, or 17.2%.
Investment securities' gains (losses) for the three years ended December
31, 1992, 1991 and 1990 were $(26), $39 and $(102), respectively. As shown in
Note 4 to the Consolidated Financial Statements, HUBCO received $8,570 as
proceeds from sales of investment securities during 1992. Of that amount,
$7,567 represents the sale of securities obtained through the acquisition of
Broadway, which were sold to conform with HUBCO's investment policy. The
remaining $1,003 represents the proceeds from a floating rate note that was
called for redemption. Proceeds from sale of investment securities for 1991
and 1990 were $13,214 and $6,506, respectively.
HUBCO derived $4,832 in service charges on deposit accounts during 1992,
an increase from 1991 of $1,107, or 29.7%. The increased fees are a result of
the increased volume in demand deposit accounts. In 1991, income from service
charges on deposit accounts had increased by $431, or 13.1%. In addition,
other income in 1992 increased by $1,220, or 117.3%, over 1991. The increase
is basically attributable to increases in annuity sales fees and miscellaneous
gains and losses of $320, or 285.7%, and $512, or 235.9%, respectively. The
annuity program was restructured effective December 31, 1992. Income from
acquisition-related settlement items also increased during 1992 by $200, or
173.9%, compared to an increase of $115, or 100%, over 1990. Credit card
processing fees were basically unchanged from 1991, while trust service income
decreased by $76, or 11.4%. During 1991, trust service income and credit card
processing fees had increased by 10.1% and 186%, respectively.
Other Expenses. Total noninterest expense increased by $12,075, or 54.2%,
to $34,349 during 1992 from $22,274 in 1991. Of this increase, $2,414
represents an increase of 21.4% in salaries and benefits. Despite the net
addition of twelve branch offices and their related staffing needs, personnel
expense as a percent of average total assets decreased to 1.49% in 1992, down
from 1.85% in 1991 and 1.89% in 1990. Salaries and benefits had increased by
$910, or 8.8%, in 1991. Under the terms of HUBCO's new three-year contract
with its bargaining unit which will become effective on March 1, 1993, the
average increase in net cost for bargaining unit personnel for 1993-1995 is
estimated to average 3% per year for each of the three years. Bargaining unit
personnel consist of the clerical employees of the 15 branches in the southern
portion of the Bank's market, who are represented by the Office and
Professional Employees International Union (the "OPEIU").
Despite the increase in the branch network from 19 to 31 branches during
1992, the increase in occupancy and equipment expense was held to $831, or
20.2%. The increase included in-house computer system upgrades and expansion
to accommodate added volume as a result of the two acquisitions. The rate of
increase from 1990 to 1991 was $237, or 6.1%, which was also acquisition
related. The increase in the carrying costs associated with other real estate
was held to $81, or 16.8%, in 1992 compared to $153, or 46.6%, in 1991.
Insurance costs increased in general, and HUBCO incurred additional expense in
1992 of $670, or 50.9%, compared with a $516 increase in 1991, both primarily
related to FDIC insurance premiums due to HUBCO's increased size. Outside
service fees were held to an increase of $112, or 4.2%, during 1992 despite
additional correspondent bank charges and legal fees related to the
acquisitions. In 1991, outside service fees had increased by $342, or 14.6%,
for the same items. Operating supplies, which were flat in 1991, increased by
$412, or 60.7%, in 1992 as a result of the needs related to the 1992
acquisitions, the final impact of HUBCO's acquisition of Center Savings and
Loan Association ("Center") in September 1991 and the merger of HUB National
Bank into Hudson United Bank on September 25, 1992. Other acquisition costs of
a nonrecurring nature totalled approximately $500 and are included in other
expenses of $3,909.
The $4,000 increase in 1992 in charitable contributions relates to the
donation of certain real estate acquired through foreclosure to four local
hospitals. Based on a weak real estate market and the focus on nonperforming
assets by the investment community, HUBCO decided to make the donation. Other
benefits arising from the transaction include the cementing of relationships
with the local area hospitals, the generation of goodwill within the
community, and a substantial reduction in ORE carrying costs. The increase of
$2,132 in the amortization of intangibles represents the full write-off of the
Broadway and Irving core deposit intangibles, because of significant deposit
run-off as well as the write-off of the remaining balance of goodwill
resulting from the 1983 acquisition of Pan American National Bank due to
management's determination that such goodwill ($363,000) had little continuing
value. The Broadway
48
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<PAGE>
core deposit intangible was written off in keeping with HUBCO's conservative
practice of amortizing core deposits within a short time frame considering
run-off of the applicable deposit base.
Federal Income Taxes. The federal income tax provision of $207 in 1992
compares with $1,725 in 1991 and $684 in 1990. The 1992 tax provision based on
operating earnings was reduced by two nonrecurring events: a $1,475 reversal
of previously accrued tax liabilities that are no longer deemed necessary, and
a $2,400 tax benefit related to the $4,000 charitable contribution discussed
above. The property has an appraised value of at least $2,000 in excess of its
carrying value. The resulting effective federal income tax rate for 1992 was
2.0%, compared to 23% in 1991 and 20% in 1990. (See Note 10 to the
Consolidated Financial Statements of HUBCO).
Loan Portfolio. HUBCO's loan portfolio at December 31, 1992 totalled
$520,869, an increase of $45,115, or 9.5%, over year-end 1991. This increase
was due to acquisitions undertaken by HUBCO during 1992.
Loan demand during 1992 began to show some improvement. Gross loans
increased in 1992 by $45,115 over year-end 1991 reflecting the acquired loan
portfolios. Discounting the Irving acquisition effect, HUBCO's loan portfolio
decreased $11,583 with approximately 74% of the decrease occurring in the
first quarter.
The increase in HUBCO's loan portfolio of $33 million from December 31,
1992 to September 30, 1993, reflects the continuing slow growth and weak loan
demand in the New Jersey economy boosted by the acquisition of $46.7 million
of loans in the Pilgrim transaction. See above "Nine Months Ended September
30, 1993 Compared to Nine Months Ended September 30, 1992--Financial
Condition."
HUBCO's loans are primarily to businesses and individuals located in
Northern New Jersey. The following table presents a summary of HUBCO's loan
portfolio:
September 30, December 31,
------------- ------------------------
1993 1992 1991 1990
---- ---- ---- ----
(In Thousands)
Loans secured by real estate:
Residential(1) . . . . . . . . . . $199,739 $187,851 $170,168 $ 96,152
Construction . . . . . . . . . . . 3,166 3,777 3,108 7,422
Commercial . . . . . . . . . . . . 138,359 111,144 86,896 61,406
Commercial and industrial loans . . 129,698 129,550 132,090 118,734
Loans to individuals for household,
family and other personal
expenditures . . . . . . . . . . . 59,740 63,129 65,006 58,429
Other loans . . . . . . . . . . . . 23,247 25,418 18,486 42,595
-------- -------- -------- --------
Total loans. . . . . . . . . . . . $553,949 $520,869 $475,754 $384,738
======== ======== ======== ========
- --------------------
(1) Includes home equity loans and second mortgage loans.
At December 31, 1992, residential loans amounted to $187,851, or 36.1%, 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. Residential loans increased by $17,683, or 10.4%, from 1991 to
1992. All of the increase is attributable to the Irving acquisition. From 1990
to 1991, residential loans increased by $74,016, or 77.0%, approximately
$55,000 of which was attributable to the acquisition of Meadowlands National
Bank ("Meadowlands") and Center and the balance was attributable to increased
loan demand generated by a reduction in mortgage interest rates. Loans kept
for the Bank's portfolio are primarily underwritten to the Federal National
Mortgage Association ("FNMA") and Federal Home Loan Mortgage Corporation
("FHLMC") standards. Loan to value ratios are conservative and generally do
not exceed 75%, and terms do not exceed 20 years for loans maintained in
HUBCO's portfolio.
Construction loans are made only to a select group of well established
local developers. Construction loans are primarily made only on single family
structures which are generally under contract before being built. Advances
under these loans are closely monitored and made after inspection by officers
of the Bank and the Bank's engineers. Construction loans increased moderately
in 1992 from 1991. Construction loans decreased by $4,314, or 58.1%, in 1991
from 1990. The decrease resulted from a general slowdown in the construction
industry, coupled with repayments of loans in the portfolio.
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<PAGE>
Commercial mortgage loans are made to local property owners and are
written using strict 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 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 increased by $24,248, or
27.9%, from 1991 to 1992. Approximately $15,500 of the increase was obtained
through the Irving acquisition with the remainder due to internal growth.
Commercial mortgage loans increased from 1990 to 1991 by $25,490, or 41.5%.
Approximately $15,000 of the increase was obtained through HUBCO's
acquisitions of Meadowlands and Center and the remainder through a business
development program designed to generate refinance business. The commercial
mortgage portfolio is comprised primarily of owner-occupied properties.
Commercial loans 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 on the
owners of the borrowing entity. These loans are generally collateralized and
personally guaranteed by such owners. Individuals providing personal
guarantees generally must submit detailed personal financial statements
listing assets and liabilities, as well as personal tax returns. The financial
information concerning personal guarantees is generally confirmed through
obtaining credit information from service companies like TRW, property
searches, bank statements, broker statements and similar means. 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 limited to terms of
three to seven years. Commercial and industrial loans decreased by $2,540, or
1.9%, during 1992. As existing loans repaid, the volume of new loans was not
sufficient to offset runoff. Commercial and industrial loans had increased
from 1990 to 1991 by $13,356, or 11.2%, primarily as a result of the
Meadowlands acquisition.
Loans to individuals are installment loans, primarily secured by
automobiles. These loans are underwritten to a predetermined debt/income
ratio. On an automobile loan, title to the auto is held as collateral. Loans
to individuals decreased $1,877, or 2.9%, as a result of a general slowdown in
consumer purchases of new automobiles. Loans to individuals increased from
1990 to 1991 by $6,577, or 11.3%, which was attributable to normal growth.
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 financed before that time remain in the portfolio.
Other loans increased by $6,932, or 37.5%, during 1992. Included in the
increase is a decrease of $4,514, or 73.3%, in leases. The resulting net
increase of $11,446 in all other loans is new volume, primarily loans that are
secured by marketable collateral. Other loans decreased by $24,109, or 56.6%,
from 1990 to 1991. This decrease can be traced to an $8,100 runoff from the
lease portfolio and to HUBCO's change in policy which capped unsecured loans
at $100 for individuals and $1,000 for corporate clients, thereby
reclassifying certain loans into the secured categories above.
Asset Quality. HUBCO's principal earning assets are loans primarily to
businesses and individuals located in New Jersey. Inherent in the lending
function is the risk of deterioration in borrowers' ability to repay their
loans under their 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 credit-worthy borrowers, prevailing
market conditions have called for strict adherence to HUBCO's monitoring
process for credit risk. This process requires scrutiny at all levels--the
initial application, analysis of on-going ability to pay according to terms,
and determination of the adequacy of collateral coverage and of the allowance
for possible loan losses.
50
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The following table summarizes HUBCO's nonperforming assets:
September 30, At December 31,
------------ -------------------------
1993 1992 1991 1990
(In thousands)
Nonaccruing Loans:
Commercial . . . . . . . . . . . . . . $1,382 $1,310 $ 1,928 $ 6,582
Real Estate. . . . . . . . . . . . . . 3,212 2,124 1,537 692
Installment. . . . . . . . . . . . . . 853 814 695 950
------ ------ ------- -------
TOTAL NONACCRUING LOANS . . . . . . . 5,447 4,248 4,160 8,224
------ ------ ------- -------
Renegotiated Loans. . . . . . . . . . . 2,177 2,257 3,527 808
------ ------ ------- -------
TOTAL NONPERFORMING LOANS . . . . . . 7,624 6,505 7,687 9,032
Other Real Estate . . . . . . . . . . . 2,305 1,252 5,683 4,250
------ ------ ------- -------
TOTAL NONPERFORMING ASSETS. . . . . . $9,929 $7,757 $13,370 $13,282
====== ====== ======= =======
Ratios:
Nonaccruing Loans to Total Loans
Outstanding . . . . . . . . . . . . . 0.98% 0.82% 0.87% 2.13%
Non-Performing Assets to Total Assets. 0.96 0.83 1.99 2.23
Allowance for Possible Loan Losses to
Non-Accruing Loans. . . . . . . . . . 180.61 179.03 161.01 63.62
Allowance for Possible Loan Losses to
Nonperforming Loans . . . . . . . . . 129.04 116.91 87.13 57.93
HUBCO has historically included loans past due 90 days or more and
accruing in its definition of nonperforming loans and nonperforming assets.
This is a more conservative approach than is generally used by other
commercial banks, which tend to exclude loans past due 90 days or more and
accruing from nonperforming loans and nonperforming 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 in calculating the
data presented above.
At September 30, 1993 and at December 31, 1992, 1991 and 1990 loans past
due 90 days or more and accruing and their applicable asset quality ratios
were as follows:
September 30, At December 31,
------------ -------------------------
1993 1992 1991 1990
(In thousands)
Commercial. . . . . . . . . . . . . . . $ 862 $ 589 $ 636 $ 247
Real Estate . . . . . . . . . . . . . . 692 647 301 341
Installment . . . . . . . . . . . . . . 10 173 244 306
------ ------ ------- -------
TOTAL LOANS PAST DUE 90 DAYS
OR MORE . . . . . . . . . . . . . . . $1,564 $1,409 $1,181 $ 894
====== ====== ====== =======
Ratios:
Loans Past Due 90 Days or More to Total
Loans Outstanding . . . . . . . . . . 0.28% 0.27% 0.25% 0.23%
Loans Past Due 90 Days or More to
Total Assets. . . . . . . . . . . . . 0.15 0.15 0.18 0.15
The amount of interest income on nonperforming loans which would have
been recorded had these loans continued to perform under their original terms
amounts to $563, $423 and $1,173 for the years ended December 31, 1992, 1991
and 1990, respectively. The amount of interest income recorded on such loans
was $96, $177 and $323 for the years ended December 31, 1992, 1991 and 1990,
respectively. HUBCO has no outstanding commitments to advance additional funds
to borrowers under any nonperforming loans.
Nonaccruing loans consist of commercial, real estate and installment
loans on which HUBCO has ceased accruing interest. Nonaccruing commercial
loans are primarily to operating companies experiencing difficulties. The
51
<PAGE>
<PAGE>
vast majority of these loans are secured and each has an attorney working with
the loan officer to resolve the problem. Nonaccruing commercial loans
decreased by $618, or 32.1%, in 1992 primarily as a result of charge-offs.
Nonaccruing commercial loans decreased from 1990 to 1991 by $4,654, or 70.7%.
This was primarily the result of charge-offs of $2,038 and repayments of
approximately $2,000.
Nonaccruing real estate loans are principally loans in foreclosure
secured by real estate, primarily single family residential properties and
some small commercial properties. From 1991 to 1992, nonaccruing real estate
loans increased $587, or 38.2%. and from 1990 to 1991, nonaccruing real estate
loans increased $845, or 122.1%. In both instances, the increase was due to
the continuation of a poor economy in general and its adverse effect on the
real estate market, particularly in New Jersey. Management does not anticipate
incurring a material loss from the resolution of its nonaccruing real estate
loans.
Nonaccruing installment loans are loans to individuals. Generally such
loans are secured by automobiles or real estate. At December 31, 1992,
nonaccruing installment loans were $814, or 0.77%, of the consumer portfolio.
This represents an increase of $119, or 17.1%. From 1990 to 1991, nonaccruing
installment loans decreased by $255, or 26.8%.
Renegotiated loans are loans which are renegotiated to assist the
borrower after the borrower has suffered adverse effects in its 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 1991 to 1992 of
$1,270, or 36.0%, is due to the return to performing status of loans
previously considered nonperforming. The increase in this category started
during 1990 and represented the beginning of economic difficulties for
commercial borrowers due to the slow New Jersey economy. This trend was
continued from 1990 to 1991, with the category showing an increase of $2,719,
or 336.5%.
Other real estate ("ORE") consists of property with respect to 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 or below before being
transferred to ORE.
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. The remaining balance in ORE is made up of six properties that are
predominantly commercial in nature. All costs associated with the holding and
maintaining of the properties are expensed as incurred.
The increase in ORE from 1990 to 1991 of $1,433, or 33.7%, was due to
foreclosure activity on delinquent accounts.
Total nonperforming loans decreased from $7,687 in 1991 to $6,505 in
1992, a decrease of $1,182, or 15.4%. Total nonperforming loans as a
percentage of loans decreased from 1.62% in 1991 to 1.25% in 1992.
Total nonperforming loans decreased from $9,032 in 1990 to $7,687 in
1991, a decrease of $1,345, or 14.9%. During 1991, nonperforming loans
totalling $3,500 were acquired as part of the Meadowlands acquisition. These
loans largely offset a decrease in the Bank's nonperforming loans. The largest
decline in nonperforming loans in 1991 was in the area of commercial
nonaccrual loans which showed a decrease of $4,654, or 70.7%.
The increase experienced in the real estate non-accruals for both 1991
and 1992 was directly attributable to the difficult economic environment
experienced in New Jersey and the nation as a whole.
Efforts to control and improve the level of nonperforming loans are
continuing. Slow paying loans are identified promptly and collection efforts
are instituted. Steps are taken to understand the problems with these loans
and resolve them, when practicable. Increased and 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, the loan is adequately collateralized and is in
the process of collection. Loans which are not expected to be resolved on a
timely basis are put on nonaccrual status and referred for collection. The
increase in loans past due 90 days or more from 1991 to 1992 of $228, or
19.3%, and from 1990 to 1991 of $287, or 32.1%, was primarily due to increases
in overall loan volume, coupled with continuing slow economic conditions.
52
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<PAGE>
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, 1992,
1991 and 1990, 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
Financial Statements included elsewhere in this Prospectus.
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 following is a summary of the activity
in the allowance for possible loan losses, broken down by loan category:
<TABLE>
<CAPTION>
Nine Months
Ended
September 30, Year Ended December 31
------------ -----------------------------------------
1993 1992 1991 1990
---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C>
Amount of Loans Outstanding at End of Period. . $553,949 $520,869 $475,754 $384,738
======== ======== ======== ========
Daily Average Amount of Loans . . . . . . . . . $524,717 $520,305 $414,667 $375,123
======== ======== ======== ========
Balance of Allowance for Possible Loan Losses
at Beginning of Period . . . . . . . . . . . . $ 7,605 $ 6,698 $ 5,232 $ 3,012
Loans Charged Off:
Commercial, Financial and Agricultural . . . . (608) (4,622) (2,038) (338)
Real Estate--Construction. . . . . . . . . . . -- -- -- --
Real Estate--Mortgage. . . . . . . . . . . . . (76) (227) (237) (70)
Installment. . . . . . . . . . . . . . . . . . (228) (337) (336) (820)
Lease Financing. . . . . . . . . . . . . . . . (92) (355) (364) (1,100)
-------- -------- -------- --------
Total Loans Charged Off . . . . . . . . . . . . (1,004) (5,541) (2,975) (2,328)
-------- -------- -------- --------
Recoveries of Loans Previously Charged Off:
Commercial, Financial and Agricultural . . . . 112 609 185 40
Real Estate--Construction. . . . . . . . . . . -- -- -- --
Real Estate--Mortgage. . . . . . . . . . . . . 9 8 -- --
Installment. . . . . . . . . . . . . . . . . . 96 57 120 93
Lease Financing. . . . . . . . . . . . . . . . 70 158 337 265
-------- -------- -------- --------
Total Recoveries. . . . . . . . . . . . . . . . 287 832 642 398
-------- -------- -------- --------
Net Loans Charged Off . . . . . . . . . . . . . (717) (4,709) (2,333) (1,930)
Provision Charged to Expense. . . . . . . . . . 2,550 4,116 2,312 4,150
Additions Acquired Through Acquisitions . . . . 400 1,500 1,487 --
-------- -------- -------- --------
Balance at End of Period. . . . . . . . . . . . $ 9,838 $ 7,605 $ 6,698 $ 5,232
======== ======== ======== ========
Ratios:
Net Loans Charged Off to Average Loans
Outstanding . . . . . . . . . . . . . . . . . 0.14% 0.91% 0.56% 0.51%
Allowance for Possible Loan Losses to
Average Loans Outstanding . . . . . . . . . . 1.9 1.5 1.6 1.4
</TABLE>
The allowance for possible loan losses at year-end 1992 was $7,605, an
increase of $907 compared to year-end 1991. The allowance at year-end 1992
represents 1.46% of total loans outstanding, compared to 1.41% at year-end
1991. The level of the allowance is considered sufficient based on
management's evaluation of the loan portfolio's credit risk. Management
formally reviews the loan portfolio and evaluates credit risk on a quarterly
basis. 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. If there are any significant changes to HUBCO's
estimate of the adequacy of the allowance, they are reflected in operations
during the period in which they become known.
Investment Portfolio. HUBCO maintains an investment portfolio to fund
increased loans or decreased deposits. The portfolio is composed of select
investments that management considers suitable for HUBCO and conform to the
Federal Financial Institutional Examination Council rules. HUBCO selects
investments that it believes are of high quality and extremely liquid.
53
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<PAGE>
The following table summarizes the composition of the portfolio's
investments as of December 31, 1992 and 1991:
Gross Unrealized Estimated
Amortized ------------------ Market
Cost Gains (Losses) Value
--------- ----- -------- ---------
(In thousands)
At September 30, 1993:
U.S. Government. . . . . . . . . . $216,437 $10,287 $ -- $226,724
U.S. Government Agencies . . . . . 151,117 4,819 (76) 155,860
State and Political Subdivisions . 28,166 831 (10) 28,987
Other securities . . . . . . . . . 6,312 385 (97) 6,600
Common Stock . . . . . . . . . . . 3,471 452 -- 3,923
Preferred Stock. . . . . . . . . . -- -- -- --
-------- ------- ----- --------
$405,503 $16,774 $(183) $422,094
======== ======= ===== ========
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
Common Stock . . . . . . . . . . . 592 -- -- 592
Preferred Stock. . . . . . . . . . 61 47 (4) 104
-------- ------- ----- --------
$322,522 $10,811 $(74) $333,259
======== ======= ===== ========
At December 31, 1991:
U.S. Government. . . . . . . . . . $ 41,080 $ 2,032 $ -- $ 43,112
U.S. Government Agencies . . . . . 48,533 1,658 (2) 50,189
State and Political Subdivisions . 13,158 133 (1) 13,290
Other securities . . . . . . . . . 35,928 960 (9) 36,879
Common Stock . . . . . . . . . . . 155 -- -- 155
Preferred Stock. . . . . . . . . . 61 -- (46) 15
-------- ------- ----- --------
$138,915 $ 4,783 $(58) $143,640
======== ======= ===== ========
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 is 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 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.
Investments declined by $11,621 at year end 1991 compared with 1990. This
decline was due to increased loan demand and by HUBCO's intention to maintain
federal funds at levels prescribed by the Bank's liquidity and investment
policy. Holdings of U.S. Government and agency obligations increased 41% to
$89,613 at year end 1991 compared to 1990. Holdings of State and Political
Subdivision obligations declined 63% to $13,158 at year-end 1991 from the
comparable period of 1990. This decline was due to greater competition in
purchasing these instruments from investment funds specializing in New Jersey
tax exempt securities.
HUBCO's investment philosophy is to select high quality investments with
maturities spread over five years. These investments are primarily U.S.
Treasury and agency obligations. HUBCO continues to have the ability and
intent to hold its securities to maturity and accordingly, none of the
portfolio is classified as held for sale or trading at December 31, 1992.
During 1992 maturing investments were primarily reinvested in U.S.
Treasury and agency obligations.
54
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<PAGE>
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
15 offices in the Bank's Southern Division, the second group consists of the
14 branches in the Bank's Northern Division and the third group consists of
the 8 branches in the Bank's Essex Division. Each branch operates as a retail
sales and service unit offering a complete line of deposit and loan products.
In the face of a continuing recession, depositors remained very selective
during 1992 as to the placement of their funds, and competition for funds was
strong throughout the banking industry. The acquisitions were the key factor
in the posted deposit growth of $234,369, or 38.5%, over the previous
year-end. As anticipated by Bank management, a substantial amount of the
repriced former Irving and Broadway deposits were withdrawn. In spite of the
expected runoff, HUBCO was able to retain a significant portion of the
acquired deposits and by year end 1992, had begun to successfully solicit back
some of the former customers.
The following table summarizes HUBCO's deposit base:
<TABLE>
<CAPTION>
At December 31,
September 30, -----------------------------------------
30, 1993 1992 1991 1990
---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C>
Demand Deposits . . . . . . . . . . . . . . . . $197,349 $171,178 $128,328 $103,011
N.O.W. Accounts . . . . . . . . . . . . . . . . 100,556 103,181 53,490 71,056
Money Market Deposit Accounts . . . . . . . . . 44,212 27,836 39,778 33,743
Other Savings Deposits. . . . . . . . . . . . . 343,703 272,154 176,950 121,398
Time Certificates of Deposit of $100,000
or more. . . . . . . . . . . . . . . . . . . . 230,451 23,695 27,559 37,579
Other Time Deposits . . . . . . . . . . . . . . 19,422 245,182 182,752 146,036
-------- -------- -------- --------
$935,693 $843,226 $608,857 $512,823
======== ======== ======== ========
</TABLE>
Noninterest bearing demand deposits, for which all financial institutions
compete, increased to $171,178 at December 31, 1992, a growth of $42,850, or
33.4%. The increase of $25,316, or 24.6%, from 1990 to 1991 was attributable
to the Meadowlands and Center acquisitions.
N.O.W. accounts increased in 1992 by $49,691, or 92.9%, as a result of
the acquisitions and also due to shifts from money market deposit accounts,
which decreased by $11,942, or 30.0%. As the interest rate differential on the
two deposit types became nominal, the greater flexibility of the N.O.W.
Accounts made them the more attractive investment vehicle. Money market
deposit accounts had increased in 1991 by $6,035, or 17.9%, due to a more
attractive rate at that time.
The decrease in N.O.W. accounts of $17,566, or 24.7%, from 1990 to 1991
was primarily attributable to the transfer of certain municipal deposits from
a N.O.W.-type account to certificates of deposit. HUBCO no longer offers the
N.O.W.-type account to municipalities.
Year to year increases in other savings deposits and in the other time
deposits were primarily attributable to HUBCO's acquisitions in 1992 and 1991.
Savings deposits increased by $95,204, or 53.8%, and by $55,552, or 45.8%, in
1992 and 1991 respectively. Other time deposits increased by $62,430, or
34.2%, and by $36,717, or 25.1%, in 1992 and 1991, respectively. Time
certificates of deposit of $100,000 or more decreased during 1992 by $3,864,
or 14.0%, due to an outflow of this type of funds experienced by the banking
industry. During 1991, time certificates of deposit of $100,000 or more had
been repriced in an intentional effort to reduce these deposits, creating a
decrease of $10,020, or 26.7%.
Other Assets and Other Liabilities. Other assets increased from $9,958 at
December 31, 1991 to $16,004 at December 31, 1992, an increase of $6,046, or
60.7%. Included in other assets are $4,610 in accounts receivable from the RTC
and the FDIC on the Center, Irving and Broadway acquisitions. The largest item
at December 31, 1992 was $2,957 due from the FDIC, which item was paid in the
final settlement with the FDIC on the Broadway transaction which took place on
February 1, 1993. All claims owed outside of settlement from the FDIC and the
RTC were paid in full as of September 30, 1993. (See Note 2 to the
Consolidated Financial Statements of HUBCO beginning on Page F-1 of this
Prospectus).
Also included in other assets are approximately $6,260 in transit
generated suspense items related to merchant credit card clearings, and return
and automated clearing house items. These items typically clear within one
week. The other large item, $3,574 in deferred tax assets, is more fully
explained in Note 10 to the Consolidated Financial Statements of HUBCO
beginning on Page F-1 of this Prospectus.
55
<PAGE>
<PAGE>
Other liabilities decreased $4,161 to $6,239 at December 31, 1992 from
$10,400 at December 31, 1991. The reduction is basically attributable to the
payment by HUBCO of payables outstanding at the previous year-end.
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 a stable
net interest margin 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 interest earning assets and interest
bearing 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 0.86 at September 30, 1993, based on
contractual maturities and asset prepayment assumptions for the next 12
months. In anticipation of declining interest rates, HUBCO initiated a
strategy in late 1990, which was further refined in 1991 and 1992, to maintain
a negative gap position. This strategy was implemented by purchasing fixed
rate bonds and loans with proceeds received from the reduction of federal
funds and the funds received in conjunction with the acquisitions. The effect
of a negative gap position in a declining interest rate environment is to
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 accounts and certain certificates
of deposit), the magnitude of change in these core accounts is estimated to be
less than 50% on any prime rate change and management believes the effect of a
rate change on the net interest margin would be minimal.
HUBCO has managed its overall asset/liability sensitivity through
on-balance sheet pricing strategies. In addition, HUBCO could use, although it
currently does not, off-balance sheet strategies to limit interest rate risk.
These off-balance sheet items might include, but are not limited to, interest
rate swaps, 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. Management is
authorized to engage in these types of investment activities, but, to date,
has elected not to do so.
56
<PAGE>
<PAGE>
The following table shows the gap position of HUBCO at September 30, 1993:
<TABLE>
INTEREST RATE SENSITIVITY ANALYSIS
September 30, 1993
(In Thousands)
<CAPTION>
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. . . . $ 10,000 $ 0 $ 0 $ 0 $ 10,000
Investment Securities . . . . 16,472 55,917 333,114 0 405,503
Total Loans . . . . . . . . . 234,290 120,067 193,665 0 548,022
Noninterest Bearing Assets. . 0 0 0 75,401 75,401
-------- -------- -------- -------- ----------
Total Assets. . . . . . . . . $260,762 $175,984 $526,779 $ 75,401 $1,038,926
Percent of Total Assets . . . 25.10% 16.94% 50.70% 7.26% 100.00%
LIABILITIES AND EQUITY
Interest-Bearing Deposits . . $340,454 $150,868 $247,022 $ 0 $ 738,344
Short-Term Borrowings . . . . 19,292 0 0 0 19,292
Long-Term Debt. . . . . . . . 0 0 0 0 0
Other Liabilities . . . . . . 0 0 0 204,553 204,553
Stockholders' Equity. . . . . 0 0 0 76,737 76,737
-------- -------- -------- --------- ----------
Total Liabilities and Equity. $359,746 $150,868 $247,022 $ 281,290 $1,038,926
Percent of Liabilities and
Equity . . . . . . . . . . . 34.63% 14.52% 23.78% 27.08% 100.00%
Cumulative Rate Sensitive
Assets to Rate Sensitive
Liabilities. . . . . . . . . 72.49% 85.53% 127.17%
Cumulative GAP to Total
Assets . . . . . . . . . . . (9.53%) (7.11%) 19.82%
Interest Rate Sensitivity Gap $(98,984) $ 25,116 $279,757 $(205,889)
Cumulative Interest Rate
Sensitivity Gap. . . . . . . $(98,984) $(73,868) $205,889
</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 certain
certificates of deposit.
During 1991 and 1992, HUBCO expanded its core deposit base via the
acquisitions. During 1992, an increased emphasis on customer service was also
employed 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, 1992,
HUBCO's primary and secondary liquidity ratios, 12.33% and 12.53%,
respectively, were well above stated policy.
At September 30, 1993, HUBCO's management was not aware of any known
uncertainties that will have or that are reasonably likely to have a material
effect on HUBCO's liquidity, capital resources or operations; nor is HUBCO
aware of any current recommendations by the regulatory authorities which, if
they were to be implemented, would have such an effect. But see "RECENT
DEVELOPMENTS."
HUBCO had no material commitments for capital expenditures as of December
31, 1992.
57
<PAGE>
<PAGE>
CAPITAL
The Federal Reserve Board has issued new 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
additional paid-in capital and retained earnings), less goodwill. Tier 2
capital includes mandatory convertible debt, allowance for possible loan
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,
1992, 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,
1992 exceeded the 1992 requirements with a Tier 1 capital ratio of 12.85% and
a total risk-based capital ratio of 14.10%. At September 30, 1993, HUBCO
exceeded the 1993 requirements, as set forth in the table below, with a Tier 1
capital ratio of 13.47% and a total risk-based capital ratio of 14.72%.
The Federal Reserve Board also issued new leverage capital adequacy
standards in August of 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. HUBCO's leverage
ratio as of September 30, 1993 was 7.37%.
The Bank is also subject to similar but separate capital adequacy
guidelines promulgated by the FDIC. As of December 31, 1992, the Bank's Tier 1
capital ratio was 10.77%, its total risk-based capital ratio was 12.02% and
its leverage ratio was 6.08%. As of September 30, 1993, the Bank's Tier 1
capital ratio was 12.58%, its total risk-based capital ratio was 13.83% and
its leverage ratio was 6.85%.
The following table summarizes the capital ratios as of December 31,
1992:
AT DECEMBER 31, 1992
----------------------------------------------
MINIMUM HUDSON HUBCO, INC.
CAPITAL RATIOS REQUIREMENTS UNITED BANK & SUBSIDIARIES
- -------------- ------------ ----------- ---------------
Tier I Capital. . . . . 4.0% 10.77% 12.85%
Total Capital . . . . . 8.0 12.02 14.10
Leverage Ratio. . . . . 4.0 6.08 7.33
AT SEPTEMBER 30, 1993
---------------------------------------------
MINIMUM HUDSON HUBCO, INC.
CAPITAL RATIOS REQUIREMENTS* UNITED BANK & SUBSIDIARIES
- -------------- ------------- ------------ --------------
Tier I Capital. . . . . 6.0% 12.58% 13.47%
Total Capital . . . . . 10.0 13.83 14.72
Leverage Ratio. . . . . 5.0 6.85 7.37
- ---------------
* 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. 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 January 6, 1994, the Company had repurchased 359,681 shares for
approximately $7.979 million.
58
<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 September 30, 1993, HUBCO had consolidated assets of $1,039
million, consolidated deposits of $936 million and consolidated stockholders'
equity of $77 million. Based on assets, at September 30, 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
September 30, 1993 to 405 full-time employees and 83 part-time employees.
HUDSON UNITED BANK
Hudson United 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 September 30, 1993, the
Trust Department had approximately $94.8 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.
59
<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 $496 million, or 47.7% of total assets at September
30, 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 Federal Savings and Loan Association ("Irving") and
Broadway Bank and Trust Company ("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 $278 million and the number of Bank branches
will increase by 8. On a pro forma basis at September 30, 1993, assuming
completion of the Merger Conversion and the acquisition of Washington, HUBCO's
total assets will increase by $774 million representing an increase of 74%
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 35% of
Washington's non-performing assets as of September 30, 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."
60
<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 six month periods ended September 30,
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 six months ended September 30, 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>
SIX MONTHS ENDED
SEPTEMBER 30, 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 . . . . . . . . . $ 17,754 $ 20,930 $ 39,822 $ 44,400 $ 48,150 $ 52,202 $ 56,452
Interest expense. . . . . 8,845 11,919 21,829 30,605 37,387 42,252 42,928
-------- -------- -------- -------- -------- -------- --------
Net interest and
dividend income before
provision for loan
losses . . . . . . . . . 8,909 9,011 17,993 13,795 10,763 9,950 13,524
Provision for loan
losses . . . . . . . . . 360 26 193 1,933 186 3,762 194
-------- -------- -------- -------- -------- -------- --------
Net interest and dividend
income after provision
for loan losses. . . . . 8,549 8,985 17,800 11,862 10,577 6,188 13,330
Other income. . . . . . . 850 1,178 2,010 3,564 1,739 4,122 (2,720)
Operating expenses. . . . 6,060 6,072 12,233 12,964 13,611 13,386 11,586
-------- -------- -------- -------- -------- -------- --------
Income before income
taxes, extraordinary
credit and change in
accounting principle . . 3,339 4,091 7,577 2,462 (1,295) (3,076) (976)
Income taxes. . . . . . . 1,001 1,351 2,490 1,461 35 77 64
-------- -------- -------- -------- -------- -------- --------
Income before
extraordinary credit and
change in accounting
principle. . . . . . . . 2,338 2,740 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. . . . . . . . $ 3,007 $ 2,740 $ 5,087 $ 2,234 $ (1,330) $ (3,153) $ (1,040)
======== ======== ======== ======== ========= ========== ==========
CONSOLIDATED STATEMENT OF
FINANCIAL CONDITION:
Total assets. . . . . . . $510,259 $530,421 $517,885 $531,785 $529,225 $564,786 $599,125
Deposits. . . . . . . . . 432,064 451,388 440,034 460,926 454,783 484,939 488,317
Investment securities . . 17,180 28,986 18,224 23,945 23,580 38,694 37,764
Mortgage-backed securities
available or sale. . . . 6,242 48,241 7,517 0 0 0 0
Mortgage-backed
securities . . . . . . . 214,731 196,201 208,248 180,304 142,693 133,331 141,526
Loans receivable, net . . 211,452 248,408 230,929 264,914 308,905 343,320 373,547
Federal Home Loan Bank
advances . . . . . . . . 42,992 48,241 45,092 43,392 49,192 46,492 52,792
Retained earnings, sub-
stantially restricted. . 31,319 25,965 28,312 23,225 20,991 22,321 25,474
SELECTED FINANCIAL RATIOS:
Return on average total
assets . . . . . . . . . 1.18% 1.03% 0.96% 0.42% (0.24)% (0.54)% (0.16)%
Return on average retained
earnings . . . . . . . . 20.14 21.96 19.43 10.16 (6.14) (12.19) (3.90)
Average retained earnings
to average total assets. 5.83 4.68 4.95 4.15 3.98 4.42 4.21
Allowance for loan losses
to total loans at end of
period . . . . . . . . . 0.49 0.56 0.59 0.69 0.54 0.57 0.02
Nonperforming loans to
total loans at end of
period . . . . . . . . . .96 1.42 1.23 1.22 4.17 2.24 0.71
Allowance for loan losses
to nonperforming loans . 51.45 65.86 47.23 56.42 13.00 25.49 2.85
Nonperforming assets to
total loans and real
estate owned . . . . . . 5.74 6.61 5.77 6.51 7.10 4.58 0.82
OTHER DATA:
Number of:
Outstanding real estate
loans originated. . . . 2,083 2,447 2,280 2,578 2,851 3,058 3,199
Deposit accounts . . . . 48,714 53,825 50,807 56,671 56,531 60,996 64,560
Full service offices
open. . . . . . . . . . 13 13 13 13 13 13 15
</TABLE>
61
<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 six months ended September 30, 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 $5.6 million increase in retained earnings. Total assets
continued to decrease during the period March 31, 1993 to September 30, 1993.
At September 30, 1993, Statewide had total assets of $510.3 million, a
decrease of $7.6 million, or 1.5%, from March 31, 1993. Deposits decreased by
$8.0 million, or 1.8% over the six months ended September 30, 1993.
Loans receivable decreased from March 31, 1993 to September 30, 1993 by
$19.5 million, or 8.4%, to $211.5 million at September 30, 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 $221 million at September 30, 1993, an increase
of $5.2 million or 2.4% from March 31, 1993. This represents management's
decision to purchase mortgage-backed securities during periods of low loan
demand.
Comparison of Operating Results for the Six Months Ended September 30, 1993
and September 30, 1992.
General. Net income for the six months ended September 30, 1993
increased by $0.3 million, or 11.1%, to $3.0 million from $2.7 million for
the six months ended September 30, 1992. The primary reason for the increase
was an increase in cumulative effect of change in accounting principle of $0.7
million due to the Adoption of SFAS 109 and a decrease in income taxes of
$0.4 million. These increases to net income were partially offset by a
decrease in net interest and dividend income before provision for loan losses
of $0.1 million, an increase in provision for loan losses of $0.3 million and
a decrease in other income of $0.3 million.
Interest and Dividend Income. Interest and dividend income decreased by
$3.2 million, or 15.2%, to $17.8 million for the six months ended September
30, 1993 from $20.9 million for the six months ended September 30, 1992. The
decrease was due to the average yield on interest-earning assets decreasing
from 8.64% for the six months ended September 30, 1992 to 7.58% for the six
months ended September 30, 1993. This decrease of 106 basis points, or 12.3%,
is primarily due to the significant loan and mortgage-backed securities
prepayments being invested at lower interest rates.
Interest Expense. Interest expense decreased by $3.1 million, or 26.1%,
from $11.9 million for the six months ended September 30, 1992 to $8.8 million
for the six months ended September 30, 1993. Weighted average deposit rates
decreased 113 basis points, or 25.2% to 3.36% for the six months ended
September 30, 1993 from 4.49% for the six months ended September 30, 1992.
Net Interest and Dividend Income Before Provision for Loan Losses. Net
interest and dividend income before provision for loan losses decreased $0.1
million, or 1.1%, to $8.9 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
$334,000 to $360,000 for the six months ended September 30, 1993 from $26,000
for the six months ended September 30, 1992. The allowance for loan losses to
total loans at September 30, 1993 was .5% compared with .6% at September 30,
1992. The allowance for loan losses to nonperforming loans at September 30,
1993 was 51.5% compared to 65.9% at September 30, 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.
62
<PAGE>
<PAGE>
Other Income. Other income decreased $328,000, or 27.8%, to $850,000 for
the six months ended September 30, 1993. The decrease is due primarily to a
decrease in net gains on sale of mortgage-backed securities from $530,000 for
the six months ended September 30, 1992 to none for the six months ended
September 30, 1993. This decrease was partially offset by an increase in
service charge income of $249,000.
Operating Expenses. Operating expenses decreased by $12,000 to $6.060
million for the six months ended September 30, 1993.
Income Taxes. Federal and state income taxes decreased by $0.3 million,
or 25.9%, to $1.0 million for the six months ended September 30, 1993 compared
with $1.3 million for the six months ended September 30, 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.
63
<PAGE>
<PAGE>
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 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.
64
<PAGE>
<PAGE>
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
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 September 30, 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 10% 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, as
compared to the OTS's decay rates of 17%, 37% and 79%. The other decay
rates used are from the OTS and are as follows: 17% for passbook accounts
and 37% for N.O.W. accounts.
The table set forth below represents Statewide's interest rate sensitivity
gap at September 30, 1993:
65
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 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. . . . . . . . . . . . . . . . . . . . . $ 46,238 $ 52,136 $ 71,846 $ 20,134 $190,356
Other loans . . . . . . . . . . . . . . . . . . . . . . 3,402 2,808 13,989 3,288 23,487
Money market investments. . . . . . . . . . . . . . . . 10,645 0 0 0 10,645
Mortgage-backed securities (1). . . . . . . . . . . . . 12,803 35,962 121,147 48,683 218,615
FHLBNY stock. . . . . . . . . . . . . . . . . . . . . . 4,493 0 0 0 4,493
Investment securities . . . . . . . . . . . . . . . . . 32 2,007 13,141 2,000 17,180
-------- -------- -------- -------- --------
Total interest-earning assets . . . . . . . . . . . . 77,613 92,935 220,123 74,305 464,776
-------- -------- -------- -------- --------
Less:
Net unamortized premiums and
deferred fees. . . . . . . . . . . . . . . . . . . . . (2) 214 530 269 1,011
-------- -------- -------- -------- --------
Net interest-earning assets . . . . . . . . . . . . . 77,611 93,149 220,653 74,374 465,787
-------- -------- -------- -------- --------
Interest-bearing liabilities
Passbook accounts . . . . . . . . . . . . . . . . . . . 4,772 13,709 63,791 30,019 112,291
N.O.W. accounts . . . . . . . . . . . . . . . . . . . . 3,064 8,800 40,950 19,270 72,084
Money market accounts . . . . . . . . . . . . . . . . . 2,210 6,348 29,540 13,901 51,999
Certificate accounts. . . . . . . . . . . . . . . . . . 67,536 84,643 35,671 0 187,850
Borrowed funds. . . . . . . . . . . . . . . . . . . . . 12,125 4,725 21,292 4,850 42,992
-------- -------- -------- -------- --------
Total interest-bearing liabilities. . . . . . . . . . 89,707 118,225 191,244 68,040 467,216
-------- -------- -------- -------- --------
Interest sensitivity gap . . . . . . . . . . . . . . . . (12,096) (25,076) 29,409 6,334 (1,429)
======== ======== ======== ======== ========
Cumulative interest sensitivity gap. . . . . . . . . . . $(12,096) $(37,172) $ (7,763) $ (1,429) $ (1,429)
======== ======== ======== ======== ========
Cumulative interest sensitivity gap as a
percentage of total assets. . . . . . . . . . . . . . . (2.37%) (7.28%) (1.52%) (.28%) (.28%)
Cumulative net interest-earning assets as a
percentage of cumulative total interest-
bearing liabilities . . . . . . . . . . . . . . . . . . 86.52% 82.12% 98.06% 99.69% 99.69%
</TABLE>
- -----------
(1) Includes $6.2 million of mortgage-backed securities available for sale.
66
<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 September 30, 1993 and March 31, 1993:
SEPTEMBER 30, MARCH 31,
------------- -----------------
1993 1992 1993 1992 1991
---- ---- ---- ---- ----
+200bps . . . . . . . . -21% -33% -34% -64% -137%
- -200 bps. . . . . . . . 13% 9% 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:
67
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
(IN THOUSANDS)
SIX MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, 1993 SEPTEMBER 30, 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 . . . . $198,278 $ 8,452 8.53% $234,643 $10,964 9.35%
Other loans. . . . . . 22,629 1,214 10.73 20,453 1,179 11.53
Mortgage-backed
securities(1) . . . . 216,970 7,201 6.64 193,387 7,531 7.79
Money market
investments . . . . . 8,664 154 3.55 4,633 125 5.40
Investment securities. 17,529 553 6.31 26,974 929 6.89
FHLB stock . . . . . . 4,493 180 8.01 4,493 202 8.99
-------- ------- ----- -------- ------- -----
Total interest-earning
assets. . . . . . . . 468,563 17,754 7.58% 484,583 20,930 8.64%
Noninterest-earning
assets. . . . . . . . . 43,108 48,988
-------- --------
Total assets . . . . . . $511,671 $533,571
======== ========
LIABILITIES AND RETAINED
EARNINGS:
Interest-bearing
liabilities:
Passbook accountss . . $109,878 $ 1,546 2.81% $103,570 $ 1,935 3.74%
Certificate accounts . 192,922 3,786 3.92 221,265 5,724 5.17
N.O.W. accounts. . . . 71,514 1,147 3.21 69,503 1,458 4.20
Money market accounts. 53,663 759 2.83 55,924 1,049 3.75
Borrowed funds . . . . 42,871 1,607 7.50 46,032 1,753 7.62
-------- ------- ----- -------- ------- -----
Total interest-bearing
liabilities . . . . . 470,848 8,845 3.76% 496,294 11,919 4.80%
Noninterest bearing
liabilities 10,966 12,323
-------- --------
Total Liabilities. . . 481,814 508,617
Retained earnings . . 29,857 24,954
-------- --------
Total liabilities and
retained
earnings. . . . . . . $511,671 $533,571
======== ========
Net interest income/net
interest rate spread. . 8,909 3.82% 9,011 3.84%
====== ====== ====== =====
Net interest earning
assets/net interest
margin. . . . . . . . . (2,285) 1.74% (11,711) 1.69%
=======
Ratio of average interest-
earning assets to average
interest-bearing
liabilities . . . . . . 1.00 .98
==== ===
</TABLE>
- -----------
(1) Includes 6.2 million of mortgage-backed securities available for sale in
1993.
68
<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. . . . . 10,821 8,899 7,421
-------- -------- --------
Total Liabilities . . . . . . . . . . . . 502,747 507,572 522,039
Retained earnings. . . . . . . . . . . . 26,182 21,989 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>
69
<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
======== ======= ======= ======= ====== =======
</TABLE>
- --------------------
(1) Includes the increase or decrease in net interest income attributable to
mortgage-backed securities availablefor sale.
Six Months Ended
September 30, 1993
Compared to
Six Months Ended
September 30, 1992
Increase (Decrease)
------------------------------
Volume Due to Rate Net
------ ----------- ------
(in thousands)
Interest-earning assets:
Mortgage loans . . . . . . . . . . . $(1,604) $(908) $(2,512)
Other loans. . . . . . . . . . . . . 101 (66) 35
Mortgage-backed securities(1). . . . 1,567 (1,897) (330)
Money market investments . . . . . . 48 (19) 29
Investment securities. . . . . . . . (303) (73) (376)
FHLB stock . . . . . . . . . . . . . 0 (22) (22)
------- ------ -------
Total . . . . . . . . . . . . . . (191) (2,985) (3,176)
------- ------ -------
Interest-bearing liabilities:
Deposits . . . . . . . . . . . . . . (481) (2,447) (2,928)
Borrowed funds . . . . . . . . . . . (118) (28) (146)
------- ------ -------
Total . . . . . . . . . . . . . . (599) (2,475) (3,074)
------- ------ -------
Net change in net interest income . . $408 $(510) $(102)
======= ====== =======
- --------------------
(1) Includes the increase or decrease in net interest income attributable to
mortgage-backed securities available for sale in 1993.
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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 14.07% and 11.39% at
September 30, 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
September 30, 1993, total advances outstanding amounted to $43.0 million.
Short term advances, due within one year amounted to $16.9 million and long
term advances due after one year amounted to $26.1 million.
Statewide has a pre-approved overnight line of credit at the FHLBNY which
amounted to $26.7 million at September 30, 1993. At September 30, 1993, $10.6
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 September 30, 1993, the amount of such loans and securities available for
pledging purposes was $357.1 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.
71
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<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 September 30, 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 September 30, 1993, the significance of goodwill on Statewide's
Capital Ratios is as follows:
(i) Tangible Capital Ratio of 3.2% does not include any goodwill and
is unaffected.
(ii) Core Capital Ratio of 4.0% includes $3,710,000 of qualifying
supervisory goodwill which, if eliminated, would result in a Ratio
of 3.2%.
(iii) Risk based Capital Ratio of 11.9% includes $3,710,000 of qualifying
supervisory goodwill which, if eliminated, would result in a Ratio
of 9.8%.
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 September
30, 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:
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<PAGE>
AT SEPTEMBER 30,
----------------------------------
1993 1992
---- ----
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
(IN THOUSANDS) (IN THOUSANDS)
Mortgage loans:
One to four family residential. . $168,749 78.91% $208,964 83.15%
Multi family residential. . . . . 4,705 2.20 4,904 1.95
Non residential . . . . . . . . . 16,188 7.57 16,720 6.65
Acquisition, development and
construction . . . . . . . . . . 0 .00 249 .10
Land. . . . . . . . . . . . . . . 730 0.34 0 .00
-------- ------ -------- ------
Total mortgage loans. . . . . . 190,372 89.02 230,837 91.86
Other loans:
Second mortgage loans . . . . . . 10,742 5.02 7,398 2.94
Home equity lines of credit . . . 1,710 .80 2,015 .80
FHA insured improvement loans . . 10,088 4.72 10,219 4.07
Unsecured consumer loans. . . . . 105 .05 103 .04
Guaranteed student loans. . . . . 106 .05 188 .07
Loans on deposit accounts . . . . 426 .20 538 .21
Automobile loans. . . . . . . . . 311 .15 6 .00
-------- ------ -------- ------
Total other loans . . . . . . . 23,488 10.98 20,467 8.14
-------- ------ -------- ------
Total loans. . . . . . . . . . 213,860 100.00 251,304 100.00
====== ======
Less:
Unearned discounts and deferred
loan fees, net . . . . . . . . . (1,363) (1,494)
Allowance for loan losses . . . . (1,045) (1,402)
-------- --------
Loans, net. . . . . . . . . . . . $211,452 $248,408
======== ========
Mortgage-backed securities
GNMA . . . . . . . . . . . . . . $ 56,737 25.95% $ 53,540 27.29%
FHLMC. . . . . . . . . . . . . . 79,983 36.59 84,298 42.97
FNMA . . . . . . . . . . . . . . 75,651 34.60 58,363 29.75
-------- ------ -------- ------
Total mortgage-backed securities. 212,371 97.14 196,201 100.00
======
Mortgage-backed securities
available for sale . . . . . . . 6,242 2.86 0 .00
-------- ------ -------- ------
Total mortgage-backed securities
and mortgage-backed securities
available for sale . . . . . . . 218,613 100.00 196,201 100.00
====== ======
Unamortized premiums, net . . . . 2,360 2,411
-------- --------
Net mortgage-backed securities. . $220,973 $198,612
======== ========
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<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 .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>
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<PAGE>
Loan and Mortgage-Backed Securities Maturity Schedule. The following
table sets forth certain information at September 30, 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 . . . $ 60,086 $ 374 $14,534 $ 85 $ 2,617 $ 77,696 $ 14,801 $ 92,497
After one year:
One to three years . 10,850 12 211 645 1,066 12,784 5,139 17,923
Three to five years. 11,528 141 1,282 0 5,507 18,458 23,887 42,345
Five to 10 years . . 24,308 358 75 0 8,262 33,003 119,813 152,816
10 to 20 years . . . 34,361 1,844 86 0 6,036 42,327 16,315 58,642
Over 20 years . . . 27,616 1,976 0 0 0 29,592 38,658 68,250
Total due after one
year . . . . . . . 108,663 4,331 1,654 645 20,871 136,164 203,812 339,976
-------- ------ ------- ---- ------- -------- -------- --------
Total amounts due. . 168,749 4,705 16,188 730 23,488 213,860 218,613 432,473
Less (Plus):
Unearned discounts,
(premiums) and deferred
loan fees, net . . . 1,378 0 0 0 (15) 1,363 (2,360) 997
Allowance for loan
losses. . . . . . . 906 21 81 7 30 1,045 0 1,045
-------- ------ ------- ---- ------- -------- -------- --------
Loans, net. . . . . . $166,465 $4,684 $16,107 $723 $23,473 $211,452 $220,973 $432,425
======== ====== ======= ==== ======= ======== ======== ========
</TABLE>
- -----------------
(1) As of September 30, 1993, Statewide had no acquisition and development
loans in its portfolio.
(2) Includes $6.2 million of mortgage-backed securities available for sale.
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
======== ====== ======= ====== ======= ======== ======== ========
</TABLE>
- ---------------
(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.
75
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<PAGE>
The following table sets forth the dollar amount of all loans and
mortgage-backed securities at September 30, 1993, and due one year after
September 30, 1993, which have predetermined interest rates and floating or
adjustable interest rates:
Predetermined Floating or
Rates Adjustable Rates
------------- ----------------
(In Thousands)
Real Estate Mortgage. . . . . . . . . $ 87,598 $27,695
Mortgage-backed Securities. . . . . . 203,812 0
Other Loans . . . . . . . . . . . . . 19,161 1,710
-------- -------
Total. . . . . . . . . . . . . . . . $310,571 $29,405
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 September 30, 1993, 78.9% of Statewide's total loans consisted of one
to four family residential loans, of which 51.9% 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 September 30, 1993 until
maturity.
Statewide has originated, or purchased participating interests in, a
limited number of multi-family mortgage loans. As of September 30, 1993 $4.7
million, or 2.2% 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 September 30, 1993 Statewide's
nonresidential real estate loan portfolio totalled $16.2 million or 7.6% of
Statewide's total loan portfolio. At September 30, 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 as of March 31, 1993 had an
outstanding balance of $14.0 million, or 6.6% of Statewide's total loan
portfolio, plus accrued interest of $0.9 million. This is a participating
interest in a larger loan Statewide purchased in 1983 from another savings
association which became insolvent and for which the RTC was appointed
receiver. The entire loan has a balance of approximately $129.5 million,
including accrued interest, and is secured by a first and second mortgage on a
resort hotel and golf club located in Boca Raton, Florida. This loan was
settled in October, 1993. Statewide recovered the principal balance of this
loan. Certain interest concessions were made upon settlement. However, no
additional charges to operations were required.
The next 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,
76
<PAGE>
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 September 30, 1993, other loans totalled $23.4 million
or 11.0% of Statewide's total loan portfolio. Statewide offers other loans in
the form of insured and uninsured home equity lines of credit, home
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 September 30, 1993, second mortgage loans amounted to
$10.7 million, or 5.0% 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 September 30, 1993, mortgage-backed securities, including
mortgage-backed securities available for sale, totalled $221.0 million or
43.3% 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 September 30, 1993, such
mortgage-backed securities totalled $158.4 million or 71.7% 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 September 30, 1993,
Statewide had $6.2 million in mortgage-backed securities available for sale
which are accounted for at the lower of cost or market value. At September 30,
1993, the market value of these securities was $6.5 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
77
<PAGE>
<PAGE>
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 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 September 30, 1993, Statewide had special mention loans of $1.8
million. Of Statewide's special mention loans, $1.1 million consisted of
twelve one-to-four family first mortgage loans where the borrower is making
payments through a bankruptcy plan or a special negotiated repayment plan. At
September 30, 1993, eight of these loans were current or paid ahead and four
were 60 days delinquent. In addition, at September 30, 1993, Statewide
classified as special mention, a loan to facilitate the sale of real estate
owned amounting to $645,000. This represents Statewide's 20% interest in a
larger participation loan to a builder to facilitate the sale of a former
acquisition, development and construction loan which was acquired from the
original borrower. This loan is current and is being paid in accordance with
the terms of the agreement.
At September 30, 1993, Statewide had substandard assets of $13 million,
which consisted of $10.2 million in real estate owned, $2.6 million in first
and second mortgage loans and $0.2 in consumer loans.
At September 30, 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 September 30, 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. . . . . . . . . 26 $1,104 51 $1,714
Multi-family Residential/Non
Residential. . . . . . . . . . . . 0 0 0 0
Acquisition, Development and
Construction . . . . . . . . . . . 0 0 0 0
Other loans . . . . . . . . . . . . 30 141 42 317
-- ------ -- ------
Total delinquent loans . . . . . . 56 $1,245 93 $2,031
== ====== == ======
Delinquent loans to total loans . . .58% .95%
78<PAGE>
<PAGE>
(DOLLARS IN THOUSANDS)
At September 30, 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. . . . . . . . . 34 $1,550 61 $3,042
Multi-family Residential/Non
Residential. . . . . . . . . . . . 0 0 0 0
Acquisition, Development and
Construction . . . . . . . . . . . 0 0 0 0
Other loans . . . . . . . . . . . . 38 211 70 504
-- ------ --- ------
Total delinquent loans . . . . . . 72 $1,761 131 $3,546
Delinquent loans to total loans . . .70% 1.41%
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%
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.
79
<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 September 30, 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 SEPTEMBER 30, 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. . . . . $ 545 $ 892 $ 740 $ 752 $ 5,438 $ 908
Nonaccrual delinquent
mortgage loans . . . . . 1,169 2,150 1,625 1,909 7,056 6,645
Other loans delinquent 90
days or more . . . . . . 317 504 509 603 556 482
------- ------- ------- ------- ------- -------
Total nonperforming
loans. . . . . . . . . 2,031 3,546 2,874 3,264 13,050 8,035
Total investment in real
estate and real estate
owned (including in-
substance foreclosures). 10,649 13,712 11,563 15,428 9,924 8,673
------- ------- ------- ------- ------ ------
Total nonperforming
assets . . . . . . . . $12,680 $17,258 $14,437 $18,692 $22,974 $16,708
======= ======= ======= ======= ======= =======
Nonperforming loans to
total loans. . . . . . . 0.96% 1.43% 1.23% 1.22% 4.17% 2.24%
Nonperforming assets to
total loans and real
estate owned . . . . . . 5.74% 6.61% 5.77% 6.51% 7.10% 4.58%
Nonperforming loans to
total assets . . . . . . 0.40 .67 0.55 0.61 2.47 1.42
Nonperforming assets to
total assets . . . . . . 2.49 3.25 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 $868,000 in loans
classified as substandard at September 30, 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 September 30, 1993, four parcels of real estate with a value of $6.6
million represented 61.2% of Statewide's total real estate owned. The balance
consists of 43 separate properties with an average balance of $96,800.
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 September 30,
1993, Statewide's total investment in this loan was $3.1 million net of
related loss allowances. At September 30, 1993, the property consisted of 68
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
80
<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 September 30, 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 110 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 September 30,
1993 Statewide's investment totalled $655,000 and consisted of 10 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 September 30, 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. Loanlosses (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.
81
<PAGE>
<PAGE>
The following table presents an analysis of Statewide's allowance for
loan losses at the dates indicated:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
SIX MONTHS ENDED
SEPTEMBER 30, 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 26 194 1,933 186 3,711 194
Loans charged off:
One to Four Family
Residential. . . . . . . 656 77 446 160 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 . . 0 255 0 1,565 435 1,538 0
Other Loans . . . . . . . 39 22 45 64 35 90 58
---- ----- ----- ------ ----- ------ ----
Total loans charged off. . 695 475 688 1,789 537 1,815 161
Recovery on loans:
One to Four Family
Residential. . . . . . . 1 10 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 . . . . . . . 0 0 0 0 0 0 0
---- ----- ----- ------ ----- ------ ----
Total recovery on loans. . 14 10 19 0 0 72 1
---- ----- ----- ------ ----- ------ ----
Net loans charged off. . . 681 465 669 1,789 537 1,743 160
---- ----- ----- ------ ----- ------ ----
Balance, end of period . . $1,045 $1,402 $1,366 $1,841 $1,697 $2,048 $ 80
Ratio of net charge offs
during the period to
average loans outstanding
during the period . . . . .31% .17% .27% .63% .17% .47% .04%
ALLOCATION OF THE ALLOWANCE
FOR LOAN LOSSES
One to Four Family
Residential. . . . . . . $ 74 $ 254 $ 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 . . 7 731 12 732 1,043 1,599 0
Other Loans . . . . . . . 30 54 72 80 39 34 64
Unallocated . . . . . . . 934 363 1,016 750 469 400 2
---- ----- ----- ------ ----- ------ ----
Balance, end of period . . $1,045 $1,402 $1,366 $1,841 $1,697 $2,048 $ 80
</TABLE>
82
<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 September 30, 1993, Statewide's
liquidity ratio (liquid assets as a percentage of net withdrawable savings and
current borrowings) was 14.07% 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 SEPTEMBER 30, 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. . . . . . $2,008 $13,153 $1,987 $ 0 $17,148 $18,129
Other . . . . . .. . . . . . . 32 0 0 0 32 90
------ ------- ------ --- ------- -------
Total investment securities. . $2,040 $13,153 $1,987 $ 0 $17,180 $18,219
====== ======= ====== === ======= =======
Weighted average yield . . . . 4.44% 6.35% 7.29% .00% 6.24%
</TABLE>
<TABLE>
<CAPTION>
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
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
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:
SEPTEMBER 30,
---------------------------------------------
1993 1992
---------------------- ---------------------
BOOK VALUE % OF TOTAL BOOK VALUE % OF TOTAL
---------- --------- ---------- ---------
Federal Funds Sold. . . . . $10,645 32.94% $ 3,040 8.32%
Investment Securities:
U.S. Govt & Agency
securities. . . . . . . . 17,148 53.06 28,954 79.28
Other. . . . . . . . . . . 32 0.10 32 0.10
------- ----- ------- -----
Sub-total . . . . . . . . 27,825 86.10 32,026 87.70
FHLBNY stock . . . . . . . 4,493 13.90 4,493 12.30
------- ----- ------- ------
Total Federal Funds Sold,
Investment Securities and
FHLBNY stock . . . . . . . $32,318 100.00% $36,519 100.00%
======= ====== ======= ======
83
<PAGE>
<PAGE>
<TABLE>
(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>
Federal Funds Sold. . $ 6,100 21.17% $ 6,000 17.42% $ 4,735 14.43%
Investment Securities:
U.S. Govt & Agency
securities. . . . . 18,193 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.
84
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED SEPTEMBER 30,
-----------------------------------------------------------------------------------------
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 . . . . $ 7,508,596 1.72% 0.00% $ 7,311,500 1.60% 0.00%
N.O.W. Accounts . 71,514,406 16.43 3.21 69,503,325 15.19 4.20
Money Market
Accounts . . . . 53,663,163 12.32 2.85 55,924,267 12.22 3.80
Passbook
Accounts . . . . 109,878,147 25.23 2.85 103,569,669 22.63 3.76
------------ ------ ----- ------------ ------ ----
Total Core
Deposits . . . . $242,564,312 55.70% 2.87% $236,308,761 51.64% 3.78%
Certificate Accounts
31 Day . . . . . 63,300 .01% 1.03% 213,712 .05% 3.81%
91 Day . . . . . 7,499,668 1.72 3.08 8,425,905 1.84 4.00
6 Mo . . . . . . 67,858,542 15.59 3.25 78,257,574 17.10 4.38
7-9 Mo . . . . . 9,549,716 2.19 3.29 12,696,214 2.77 4.47
12 Mo . . . . . 51,999,631 11.95 3.82 64,646,385 14.13 5.44
18 Mo . . . . . 2,144,710 .49 4.06 2,476,489 .54 6.03
24 Mo . . . . . 13,374,256 3.07 5.07 8,214,368 1.80 6.43
30 Mo . . . . . 6,988,611 1.60 5.44 9,115,918 1.99 7.51
48 Mo . . . . . 2,699,091 .62 6.85 784,602 .17 7.77
72 Mo . . . . . 610,992 .14 7.15 115,338 .03 8.20
96 Mo . . . . . 578,986 .13 8.34 468,829 .10 8.35
36-90 Mo . . . . 3,139,676 .72 5.68 3,244,431 .71 7.61
Fixed Rate IRA . 20,932,493 4.81 5.57 16,362,655 3.58 6.78
Variable Rate
IRA . . . . . . 4,616,147 1.06 3.54 15,635,027 3.42 5.89
Passbook Rate
IRA . . . . . . 866,386 .20 2.85 607,933 .13 3.76
----------- ----- ----- ----------- ----- ------
Total
Certificates . . 192,922,205 44.30% 3.99% 221,265,380 48.36% 5.26%
----------- ----- ----- ----------- ----- ----
Total Deposits . $435,486,517 100.00% 3.36% $457,574,141 100.00% 4.49%
============ ====== ===== ============ ====== ====
</TABLE>
85
<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
36-90 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>
86
<PAGE>
<PAGE>
The following table shows rate information for Statewide's certificates
of deposits at the dates indicated and maturity information at September 30,
1993.
<TABLE>
<CAPTION>
Period to Maturity from September 30, 1993
At September 30, --------------------------------------------------------------------
--------------------------- Within One to Two to Over
1993 1992 One Year Two Years Three Years Three Years Total
---- ---- -------- --------- ----------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Certificates of Deposits
3.99% or less. . . . . . $140,752,627 $ 57,748,084 $138,376,199 $ 2,376,428 0 0 $140,752,627
4.00% to 4.99% . . . . . 23,091,007 88,525,910 3,412,563 15,447,884 4,199,099 31,461 23,091,007
5.00% to 5.99% . . . . . 14,601,575 28,517,411 5,220,015 1,826,428 5,298,018 2,257,114 14,601,575
6.00% to 6.99% . . . . . 4,365,125 21,346,692 2,840,538 986,416 538,171 0 4,365,125
7.00% to 7.99% . . . . . 5,894,555 15,380,519 942,985 3,812,334 1,139,236 0 5,894,555
8.00% to 8.99% . . . . . 0 1,218,128 0 0 0 0 0
------------ ------------ ------------ ----------- ----------- ---------- ------------
Total . . . . . . . . . $188,704,889 $212,736,744 $150,792,300 $24,449,490 $11,174,524 $2,288,575 $188,704,889
============ ============ ============ =========== =========== ========== ============
</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 March 31, 1993
At March 31, -----------------------------------------------------------------
------------------------------------- Within One to Two to Over
1993 1992 1991 One Year Two Years Three Years Three Years Total
---------- ----------- ----------- ----------- ----------- ----------- ---------- -----------
<S> <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 . . . . . . . . . . . . . . . $20,096
Three Through Six Months . . . . . . . . . . . . . 4,330
Six Through Twelve Months. . . . . . . . . . . . . 1,416
Over Twelve Months . . . . . . . . . . . . . . . . 1,446
-------
Total. . . . . . . . . . . . . . . . . . . . . $27,288
=======
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 Six Months Ended
September 30, For the Year Ended March 31,
------------------------- -------------------------------------------
1993 1992 1993 1992 1991
----------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
MAXIMUM BALANCE:
FHLBNY Advances. . . . . . . . . . . . . . . . $48,966,666 $48,766,666 $55,216,666 $52,149,999 $65,329,981
AVERAGE BALANCE:
FHLBNY Advances. . . . . . . . . . . . . . . . 42,870,572 46,032,359 48,729,166 45,154,166 46,912,499
Weighted average interest
rate of FHLBNY Advances . . . . . . . . . . . 7.51% 7.17% 6.16% 7.50% 8.84%
</TABLE>
87
<PAGE>
<PAGE>
The following table sets forth certain information as to FHLBNY advances
at the dates indicated:
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT MARCH 31,
------------------------- -----------------------------------------
1993 1992 1993 1992 1991
----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
FHLBNY Advances . . . . . . . . . . . . . . . $42,991,666 $48,241,665 $45,091,666 $43,391,666 $49,191,666
Weighted average interest
rate of FHLBNY Advances. . . . . . . . . . . 7.37% 6.85% 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 September 30, 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 September 30, 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 six months ended
September 30, 1993 and September 30, 1992, commission earnings were $173,315
and $169,022, 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
September 30,1993, 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, 1992 are derived from the Consolidated Financial Statements of
Washington. The financial data for the nine month periods ended September 30,
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 Washington considers necessary for a fair
presentation of the financial position and the results of operations for these
periods. Operating results for the nine months ended September 30, 1993 are
not necessarily indicative of the results that may be expected for the entire
year ended December 31, 1993. The data should be read in conjunction with the
consolidated financial statements, related notes, and other financial
information included in this Prospectus.
88
<PAGE>
<PAGE>
<TABLE>
SELECTED CONSOLIDATED FINANCIAL DATA OF WASHINGTON
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
------------------ ------------------------------------------------------
1993 1992 1992 1991 1990 1989 1988
------- ------- ------- ------- ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating data:
Interest income . . . . . . . . . . . . . . . $ 14,104 $ 16,849 $ 21,879 $ 27,594 $ 31,301 $ 33,142 $ 32,550
Interest expense. . . . . . . . . . . . . . . 6,825 9,527 12,191 19,119 22,543 23,730 20,537
Net interest income . . . . . . . . . . . . . 7,279 7,322 9,688 8,475 8,758 9,412 12,013
Provision for losses on loans . . . . . . . . 350 750 1,100 1,500 2,350 6,927 10,765
Net interest income after
provision for losses on loans. . . . . . . . 6,929 6,572 8,588 6,975 6,408 2,485 1,248
Other income. . . . . . . . . . . . . . . . . 637 1,765 2,290 2,569 859 585 749
Other expenses. . . . . . . . . . . . . . . . 6,350 6,464 8,693 9,306 10,674 7,959 6,374
-------- -------- -------- -------- -------- -------- --------
Income/(loss) before income
taxes, extra-ordinary items
and change in accounting
principle. . . . . . . . . . . . . . . . . . 1,216 1,873 2,185 238 (3,407) (4,889) (4,377)
Income tax exp/(benefit). . . . . . . . . . . (315) 639 628 552 (1,538) (989) (478)
-------- -------- -------- -------- -------- -------- --------
Income/(loss) before extraordinary
items and change in accounting
principle. . . . . . . . . . . . . . . . . . 1,531 1,234 1,557 (314) (1,869) (3,900) (3,899)
Extraordinary items . . . . . . . . . . . . . -- 556 539 (1,034) -- -- --
Change in accounting principle. . . . . . . . 300 -- -- -- -- -- --
-------- -------- -------- -------- -------- ------- -------
Net income/(loss) . . . . . . . . . . . . . . $ 1,831 $ 1,790 $ 2,096 $ (1,348) $ (1,869) $(3,900) $(3,899)
======== ======== ======== ======== ======== ======= =======
Per Share Data:
Weighted average common shares
outstanding. . . . . . . . . . . . . . . . . 2,270 2,267 2,276 2,264 2,264 2,262 2,246
Income per share:
Income before extraordinary item
and cumulative effect of change
in accounting principle. . . . . . . . . . . 0.68 0.55 0.68 (0.14) (0.83) (1.72) (1.74)
Extraordinary item. . . . . . . . . . . . . . -- 0.24 0.24 (.46) -- -- --
Cumulative effect of change in
accounting principle . . . . . . . . . . . . 0.13 -- -- -- -- -- --
Net income per share. . . . . . . . . . . . . 0.81 0.79 0.92 (0.60) (0.83) (1.72) (1.74)
Dividends per share . . . . . . . . . . . . . -- -- -- -- 0.07 0.28 0.15
Balance Sheet Summary:
Investment and mortgage-
backed securities. . . . . . . . . . . . . . $ 79,420 $ 52,282 $ 67,575 $ 56,455 $ 79,904 $ 57,677 $ 16,793
Loans, net. . . . . . . . . . . . . . . . . . 183,890 194,265 191,501 195,508 230,557 244,714 311,758
Total assets. . . . . . . . . . . . . . . . . 284,597 287,676 285,771 293,727 337,626 351,281 367,539
Deposits. . . . . . . . . . . . . . . . . . . 248,331 253,190 252,623 259,021 275,327 273,383 283,778
Stockholders' equity. . . . . . . . . . . . . 32,345 30,148 30,469 28,216 29,215 30,830 34,996
Performance Ratios:
Return on average assets. . . . . . . . . . . 0.64% 0.62% 0.72% (0.42%) (0.54%) (1.08%) (1.12%)
Return on average equity. . . . . . . . . . . 6.01% 6.25% 7.21% (4.72%) (6.16%) (11.16%) (10.05%)
Dividend payout . . . . . . . . . . . . . . . -- % -- % -- % -- % (8.43%) (16.54%) (8.85%)
Average equity to average assets. . . . . . . 10.67% 9.88% 10.03% 8.91% 8.78% 9.70% 11.12%
Net interest margin . . . . . . . . . . . . . 3.57% 3.56% 3.55% 2.80% 2.65% 2.69% 3.59%
Asset Quality Ratios:
Allowance for losses on loans
to total loans, net. . . . . . . . . . . . . 1.55% 1.34% 1.45% 1.53% 1.12% 1.93% 1.21%
Allowance for losses on loans to
non-performing loans . . . . . . . . . . . . 17.21% 22.83% 31.52% 17.97% 14.86% 27.01% 22.07%
Allowance for losses on loans and
REO to non-performing assets
(excluding loans past due 90
days or more and accruing) . . . . . . . . . 17.53% 15.89% 19.39% 14.14% 12.00% 18.77% 22.07%
Non-performing loans to total
loans, net . . . . . . . . . . . . . . . . . 9.02% 5.89% 4.60% 8.51% 7.52% 7.14% 5.50%
Non-performing assets to total loans,
net plus other real estate, net. . . . . . . 12.72% 11.69% 10.66% 14.03% 11.83% 9.96% 5.50%
Non-performing assets (excluding
loans past due 90 days or more
and accruing) to total loans, net
plus otherreal estate, net . . . . . . . . . 12.72% 11.69% 10.66% 14.03% 11.83% 9.96% 5.50%
Net charge-offs to average
loans, net . . . . . . . . . . . . . . . . . 0.14% 0.56% 0.66% 0.47% 1.89% 2.07% 2.62%
</TABLE>
89
<PAGE>
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF WASHINGTON
Certain tables containing information about Washington's loan and
investment securities portfolio at September 30, 1993, are contained in the
Notes to the Consolidated Financial Statements of Washington beginning on page
F-52 of this Prospectus. These tables should be referred to in conjunction
with the nine-month discussion set forth below.
Overview--Nine Months Ended September 30, 1993. During the third quarter
of 1993, the FDIC completed its examination of Washington Savings as of August
2, 1993. As a result of that examination, the FDIC relieved 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. In January
1994, the Federal Reserve Bank of New York (the "FRB") rescinded the Memorandum
of Understanding with Washington (the "Washington-MOU") which had been
signed on August 13, 1991 in connection with the FRB's examination of
Washington as of December 31, 1990.
During the first quarter of 1993, a Chapter 11 bankruptcy petition was
filed by an obligor of Washington Savings, and subsequently dismissed, with
respect to an approximately $9.0 million loan (the "Bankruptcy Loan"). The
Bankruptcy Loan is secured by a first mortgage and an assignment-of-rents.
Washington Savings has classified the Bankruptcy Loan as a nonaccrual loan.
Washington's management believes that, based on an August 2, 1993 appraisal
of $12.2 million, Washington Savings has adequate collateral with respect
to the Bankruptcy Loan and anticipates collection of the outstanding principal
balance thereof. At December 31, 1993, Washington Savings had no accrued
interest receivable on its financial statements for this loan and had allocated
approximately $264,000 of the allowance for losses on loans as a specific
reserve against the Bankruptcy 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.
The effect, if any, of the conversion and reduction in work force on the
building securing this loan is unknown at this time.
Nonperforming assets amounted to $24.4 million ($16.6 million in
nonperforming loans and $7.8 million of REO) at September 30, 1993. Excluding
the aforementioned Bankruptcy Loan, (i) the allowance for losses on loans was
37% of nonperforming loans and 1.6% of total loans at September 30, 1993, and
(ii) the allowance for losses on loans, when coupled with the allowance for
losses on REO, represented 26% of nonperforming assets as of September 30,
1993. If the Washington Savings Bankruptcy Loan is included, (i) the allowance
for losses on loans was 17% of non-performing loans and 1.6% of total loans at
September 30, 1993 and (ii) the allowances for losses on loans and REO
represented 18% of non-performing assets at September 30, 1993. See the tables
on nonperforming assets contained in Note 4 of the Notes to the Consolidated
Financial Statements of Washington.
Subsequent to September 30, 1993, an $8.4 million loan yielding 9.8% was
prepaid. The loan had been Washington Savings' second largest loan and had
been one of two loans, the other being the Bankruptcy Loan mentioned above,
with a concentration greater than 10% of stockholders' equity.
Results of Operations for the Nine Months Ended September 30, 1993 and 1992
Net income. Washington's net income for the nine months ended September
30, 1993 was $1,831,000 or $.81 per share, as compared with net income of
$1,790,000, or $.79 per share, for the nine months ended September 30, 1992.
Washington's income before extraordinary item and cumulative effect of a
change in accounting principle for the nine months ended September 30, 1993
was $1,531,000 or $.68 per share, as compared with $1,234,000, or $.55 per
share, for the nine months ended September 30, 1992. The 1993 results reflect
an income tax refund of approximately $747,000 and $136,000 of interest
thereon, a decrease of $400,000 in the provision for losses on loans, a
$300,000 cumulative effect of a change in accounting principle, a decrease of
$204,000 in occupancy expenses, a decrease in other expenses of $192,000, and
a decrease of $104,000 in salaries and employee benefits. These items were
partially offset by a decrease of $1,182,000 in net gains on sale of
securities, a decrease of $556,000 in an extraordinary item due to utilization
of net operating loss carryforwards, and an increase in REO expense,net of
$308,000.
Net interest income. Washington Savings 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,
90
<PAGE>
<PAGE>
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) is
a significant element in Washington Savings' earnings.
Total interest income decreased $2,745,000, or 16%, due primarily to
lower yields earned on most interest-earning asset categories as well as a
change in the mix of interest-earning assets and a reduction in the volume of
interest-earning assets. Lower yields were a result of the foregone interest
on the Bankruptcy Loan as well as the continued declining interest rate
environment. The mix of interest-earning assets negatively impacted interest
income as Washington Savings invested excess funds from mortgage loan and
investment securities sales, which had earned a weighted average rate of 8.39%
for the nine months ended September 30, 1992, in mortgage-backed securities
earning a weighted average rate of 5.62%. The average balance of
interest-earning assets decreased to $272.1 million from $274.2 million,
primarily as a result of funding deposit outflows.
Total interest expense decreased $2,702,000, or 28%, due primarily to
lower rates paid on all categories of interest-bearing liabilities, a decrease
in the volume of total interest-bearing liabilities, and a change in the mix
of interest-bearing liabilities. Average rates for interest-bearing
liabilities declined to 3.77% for the nine months ended September 30, 1993
from 5.09% for the nine months ended September 30, 1992. The average rates for
savings accounts and certificates of deposit declined to 3.04% and 4.44%,
respectively, for the nine months ended September 30, 1993, from 4.10% and
5.83%, respectively, for the nine months ended September 30, 1992. The average
balance of total interest-bearing liabilities declined to $242.2 million from
$249.9 million as a result of net deposit outflows. The change in the mix of
interest-bearing liabilities decreased interest expense as the average balance
of savings accounts increased to 42% of total interest-bearing liabilities at
September 30, 1993 from 39% for the corresponding period in the prior year,
while the average balance of certificates of deposit decreased to 52% at
September 30, 1993 from 56% for the corresponding period in the prior year.
Generally, interest rates paid on savings accounts are lower than interest
rates paid on certificates of deposit.
The Rate/Volume Analysis below reflects the extent to which changes in
interest rates and changes in the volume of interest-earnings assets and
interest-bearing liabilities have affected Washington Savings' interest income
and interest expense during the periods presented. Changes attributable to
both volume and rate have been allocated proportionately.
Nine months ended September 30,
1993 compared to 1992
--------------------------------
Increase (Decrease)
Due to
--------------------
Volume Rate Net
----- ---- ---
(Dollars in thousands)
Interest Income:
Loans--mortgage (1). . . . . . . . . . $(667) $(1,783) $(2,450)
Loans--commercial and consumer(1). . . (110) 20 (90)
Investment securities. . . . . . . . . (269) (554) (823)
Mortgage-backed securities . . . . . . 837 (124) 713
Federal funds sold . . . . . . . . . . (56) (42) (98)
Deposits due from banks. . . . . . . . 11 (8) 3
----- ------- -------
Total interest income. . . . . . . . (254) (2,491) (2,745)
----- ------- -------
Interest Expense:
Regular savings. . . . . . . . . . . . 206 (821) (615)
Market rate certificates . . . . . . . (660) (1,355) (2,015)
Checking and money market accounts . . 11 (95) (84)
Advances from FHLB and ESOP debt . . . 12 -- 12
----- ------- -------
Total interest expense . . . . . . . (431) (2,271) (2,702)
----- ------- -------
Changes in net interest income. . . . . $ 177 $ (220) $ (43)
===== ======= =======
- ------------
(1) Includes nonperforming loans and excludes REO (in-substance and by deed).
Also, loan fees are included in interest income.
Washington's Yield/Cost Analysis sets forth, for the nine months ended
September 30, 1993 and 1992, (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
91
<PAGE>
<PAGE>
paid on interest-bearing liabilities, (iv) Washington's interest rate spread
(i.e., the difference between the average yield on interest-earning assets and
the average cost of interest-bearing liabilities), (v) Washington's 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>
Nine months ended Nine months ended
September 30, 1993 September 30, 1992
--------------------------------- ---------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Cost Balance Expense Cost
-------- ------- ------ -------- ------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Loans (1):
Mortgage. . . . . . . . . . . . . . . . . . $188,658 $11,042 7.80% $198,476 $13,492 9.06%
Commercial and consumer . . . . . . . . . . 4,525 278 8.24% 6,456 368 7.61%
Total Loans . . . . . . . . . . . . . . . . 193,183 11,320 7.81% 204,932 13,860 9.02%
Investment securities . . . . . . . . . . . . 51,926 1,827 4.69% 57,797 2,650 6.11%
Mortgage-backed securities. . . . . . . . . . 18,419 776 5.62% 1,290 63 6.52%
Federal funds sold. . . . . . . . . . . . . . 6,684 145 2.91% 8,704 243 3.73%
Deposits due from banks . . . . . . . . . . . 1,930 36 2.49% 1,448 33 3.04%
-------- ------- -------- -------
Total interest-earning assets . . . . . . . 272,142 14,104 6.91% 274,171 16,849 8.19%
------- ------- ----
Noninterest-earnings assets . . . . . . . . . 13,338 15,918
-------- --------
Total assets. . . . . . . . . . . . . . . . $285,480 $290,089
======== ========
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Regular savings. . . . . . . . . . . . . . . $101,709 $ 2,304 3.04% $ 95,015 $ 2,919 4.10%
Market-rate certificates . . . . . . . . . . 128,391 4,253 4.44% 143,507 6,268 5.83%
Checking and money market accounts . . . . . 11,800 255 2.90% 11,424 339 3.96%
Advances from FHLB and ESOP debt . . . . . . 350 13 4.98% 26 1 5.14%
-------- ------- --------
Total interest-bearing liabilities . . . . . 242,250 6,825 3.77% 249,972 9,527 5.09%
------- -------
Noninterest-bearing liabilities (2) . . . . . 12,757 11,469
Stockholders' equity. . . . . . . . . . . . . 30,473 28,648
-------- --------
Total liabilities & stockholders' equity . . $285,480 $290,089
======== ========
Net interest income/interest rate spread. . $ 7,279 3.14% $ 7,322 3.10%
======= ==== ======= ====
Net Interest-earnings assets/net yield
on interest-earnings assets. . . . . . . . $ 29,892 3.57% $ 24,199 3.56%
======== ==== ======== ====
Ratio of interest-earning assets to
interest bearing liabilities . . . . . . . 1.12x 1.10x
==== ====
- --------------------
(1) Includes non-performing loans and excludes REO (in-substance and by deed). Also, loan fees are included in interest
income.
(2) Includes regular checking and escrow accounts
</TABLE>
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Provision for losses on loans. The provision for losses on loans was
$350,000 for the nine months ended September 30, 1993 compared to $750,000 for
the corresponding period last year. The decrease in the provision for losses
on loans reflects a 32% decrease in nonperforming loans to $7.7 million
(excluding the approximately $9.0 million Bankruptcy Loan, the principal of
which was perceived by management of Washington at September 30, 1993 to be
adequately collateralized) at September 30, 1993 from $11.4 million at
September 30, 1992. In addition, there was a 3% reduction in loan balances to
$182.6 million from $189.1 million at September 30, 1992. See the table on
allowance for losses on loans and REO contained in Note 4 of the Notes to
Consolidated Financial Statements of Washington.
Other income. Total other income decreased $1,128,000, or 64%, due
primarily to a decrease of $1,182,000 in gains on sale of securities and a
decrease of $56,000 in gains on sale of loans. This was partially offset by
the receipt of interest of $136,000 on the aforementioned income tax refund.
The lower amount of gains was a result of lower sales volume.
Other expenses. Total non-interest expenses decreased $113,000, or 2%,
for the nine months ended September 30, 1993 as compared with the
corresponding period last year. The decrease in non-interest expenses was
primarily due to a decrease in occupancy and equipment expenses of $204,000,
or 24%, primarily due to recognizing costs for a branch closing in the first
quarter of 1992; a decrease in other expenses of $192,000, or 10%, due to
decreases in most categories; and a decrease in salaries and employee benefits
of $104,000 or 4% due to reductions in the number of employees and some
employee benefits. Such items were partially offset by an increase of
$308,000, or 50%, in REO expense (net) as described in the table below, and an
increase of $80,000, or 18%, in FDIC expense due to an increase in the FDIC
assessment rate for Washington Savings. The components of REO expense (net)
are as follows:
Nine months ended September 30,
-------------------------------
1993 1992
-------- --------
REO expense, net:
Carrying costs . . . . . . . . . . . . . $508,000 $475,000
Provision for losses . . . . . . . . . . 669,000 457,000
Gain on sale, net. . . . . . . . . . . . (254,000) (317,000)
-------- --------
Total REO expense, net. . . . . . . . . . $923,000 $615,000
======== ========
The increase in the provision for losses on REO was primarily due to
market value write downs on two REO properties of $177,000. Carrying costs
increased due to sales of three large REO properties that were producing
rental income in 1992.
Income taxes, extraordinary item and change in accounting principle:
Washington recorded an income tax benefit of $315,000 comprised of an income
tax refund of $747,000 offset by a current provision of $432,000, for the nine
months ended September 30, 1993. For the comparable period in 1992, Washington
reported income tax expense of $639,000, which was offset by an extraordinary
credit of $556,000 due to the utilization of net operating loss carryforwards.
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 Washington's assets and liabilities at enacted tax rates expected to be in
effect when such amounts are realized or settled.
Overview--1992
The financial results of Washington and its wholly-owned subsidiary,
Washington Savings, reflected the realities of the banking environment in
1992. In that year, interest rates continued their downward spiral, regulatory
mandates influenced business decisions, and the lengthy foreclosure process
hindered Washington Savings' ability to resolve delinquent loans.
Nevertheless, Washington was profitable for the first time in five years,
reporting net income of $2.1 million for 1992. Results from core business
operations were $500 thousand (net of tax and extraordinary item), while gains
from
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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 continued
downward spiral of interest rates and the reduction in the cost of funds
resulting from Washington Savings' paying off its 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. For a more
comprehensive explanation of net interest income and operations, refer to
"Results of Operations--1992 Compared to 1991."
In addition to regulatory capital requirements, Washington Savings
operates under a State of New Jersey statute which limits the combined amount
of mortgage loans and REO to not more than 80% of deposits("loan-to-deposits
ratio"). In order to comply with this statute, Washington Savings sold $15.5
million of one-to-four family performing mortgage loans at a net gain of $0.2
million during 1992. Since mortgage-backed securities are not classified as
loans for purposes of this statute, they are excluded from the statute's
loan-to-deposits ratio calculation. Thus, the statute was also one of the
factors in Washington Savings' decision to purchase $7.8 million of
mortgage-backed securities during 1992.
The lengthy foreclosure process continued to hinder Washington Savings'
ability to reduce the level of nonperforming assets. Even though nonperforming
assets decreased $7.4 million, or 25.3%, to $21.8 million at December 31, 1992
from $29.2 million at December 31, 1991, nonperforming assets remained a
relatively high 7.6% of total assets. Of the 37 parcels in real estate owned
that Washington Savings did not have title to as of December 31, 1991,
Washington Savings still did not have title to 19 of such properties as of
December 31, 1992. These figures reflect the length of the foreclosure process
which frequently takes up to 24 months or longer to resolve. The effect of
this on Washington Savings was lost interest income; carrying costs which,
during the last two years, have averaged an annual rate of 9.5% of the
property's carrying value; and a drain on management and employee resources.
Consequently, nonperforming assets continued to significantly reduce net
income of Washington Savings during 1992.
Efforts were directed toward building net income from operations by
continuing to expand loan and deposit products which fit Washington Savings
long-term strategic goals and customer needs. During 1992, Washington Savings'
began to offer 30 year fixed rate loans, started a second mortgage program to
low-income households, began to offer business checking accounts, became a
federal tax depository and a member of the New York Automated Clearing House.
Regulatory mandates required that Washington Savings' fee schedules be
adjusted to allow compliance with the State of New Jersey's Consumer Checking
Account Law.
Net Income
Washington's net income for the year ended December 31, 1992 was $2.1
million, or $.92 per share, as compared with a net loss of $1.3 million, or
$.60 per share, for the year ended December 31, 1991. Washington's income
before extraordinary item for the year ended December 31, 1992 was $1.6
million, or $.68 per share, as compared with a loss before extraordinary item
of $0.3 million, or $.14 per share, for the year ended December 31, 1991. The
extraordinary credit in 1992 resulted from the utilization of a net operating
loss carryforward of $0.5 million, or $.24 per share, to partially offset tax
expense; while the extraordinary charge in 1991 resulted from a $1.0 million,
or $.46 per share, cost for early extinguishment of fixed-rate Federal Home
Loan Bank ("FHLB") advances. The improvement in income before extraordinary
items of $1.9 million was primarily the result of an improvement of $1.2
million in net interest income; a $0.8 million decrease in REO expense, net,
including a decrease in the provision for losses on REO of $0.3 million; an
increase in net security gains of $0.8 million; and a decrease in the
provision for losses on loans of $0.4 million; offset by a decrease in the
gain on sales of loans of $1.1 million , an increase in other expenses
(excluding REO expenses) of $0.2 million and an increase in tax expense of
$0.1 million. For a more detailed discussion of each area, see "Results of
Operations-1992 Compared to 1991."
Securities Portfolio
Two main objectives of Washington Savings' securities portfolio is to
maintain a high standard of quality and liquidity. Quality is dictated by
Washington Savings' 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.
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The liquidity objective is to maintain sufficient liquidity for deposit
withdrawals, loan demand and operating expenses.
During 1992, Washington Savings began to identify securities which might
be sold prior to maturity--either for asset/liability management or liquidity
purposes. Such securities are classified as "held for sale" and are recorded
in Washington's financial statements at the lower of aggregate cost or fair
market value. Securities which Washington Savings has the intent and ability
to hold to call, if any, or maturity are classified as "held to maturity" and
are recorded at amortized cost. Below are the combined balances of securities
held for sale and held to maturity at specified year-end dates:
December 31,
--------------------------------
1992 1991 1990
------- ------- -------
(Dollars in thousands)
Short-term securities:
Federal funds sold . . . . . . . . . . $ 3,000 $18,300 $ 600
------- ------- -------
Investment securities:
U.S. Treasury. . . . . . . . . . . . . 19,090 52,785 12,964
U.S. Government agencies . . . . . . . 5,611 -- 15,502
Corporate bonds and notes. . . . . . . 24,841 -- 26,078
Other securities . . . . . . . . . . . 9,188 -- --
------- ------- -------
Total investment securities . . . . . 58,730 52,785 54,544
Mortgage-backed securities. . . . . . . 7,213 1,517 23,103
------- ------- -------
Total securities portfolio. . . . . . $68,943 $72,602 $78,247
======= ======= =======
At December 31, 1992, approximately 75% of Washington's U.S. Government
agencies and corporate bonds and notes had call dates at various times during
1993 and 1994. 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 at December 31, 1992.
There were no securities to any one issuer which exceeded 10% of stockholders'
equity at either December 31, 1991 or 1990. Reference is made to footnote 3 of
the Notes to Consolidated Financial Statements of Washington concerning market
values, gross unrealized gains and losses, and weighted average yields of
Washington's investment and mortgage-backed securities.
Short-term Securities
Washington Savings' short-term securities are comprised solely of
overnight Federal funds sold. Federal funds sold averaged $12 million in 1992
and $7 million in 1991. At year end 1992, Federal funds sold were $3 million
versus $18.3 million at year end 1991. The average amount of Federal funds
sold during 1992 was higher than 1991 because, as described below, Washington
Savings had excess funds from the sale of U.S. Treasury securities. Such
excess funds primarily remained in overnight Federal funds sold until
selective callable securities were available. The large Federal funds sold
position at year end 1991 was due to sales of performing loans during the last
week of 1991.
Investment Securities
Investment securities (including securities held for sale) were $58.7
million at December 31, 1992 as compared to $52.8 million at December 31,
1991, and averaged $53.0 million in 1992 versus $46.9 million in 1991. At the
end of 1991 and through the first six months of 1992, Washington Savings'
investment securities portfolio consisted entirely of intermediate term U.S.
Treasury securities. During the third quarter, in response to continued
economic and political uncertainties, Washington Savings' investment strategy
was to shorten the weighted average life of the investment portfolio to reduce
interest rate risk within the portfolio. As a result, Washington Savings
earmarked all of its lower yielding U.S. Treasuries as securities held for
sale. In the third and fourth quarters of 1992, Washington Savings sold $59.4
million of U.S. Treasuries at gains of $1.6 million. With the available funds,
Washington Savings selectively diversified into U.S. Government agencies and
corporate bonds with either call dates in 1993 (maturity dates through 1999)
or maturity dates in 1993 or 1994. Management expects most, if not all, of the
callable bonds to be called.
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<PAGE>
The transformation of the investment portfolio is illustrated by the
weighted average life of the investment portfolio, which was reduced from 4.3
years at December 31, 1991 to 14 months at December 31, 1992. In addition, the
portfolio was "laddered"; in each month of 1993 there were and are securities
maturing which will provide liquidity without the need to sell securities.
This contrasts with the clustering of the portfolio at December 31, 1991, when
the earliest security matured in 1996.
Mortgage-Backed Securities
To increase the average yield on the securities portfolio as well as to
assist compliance with the State of New Jersey's loan-to-deposits ratio,
Washington Savings purchased $7.8 million of mortgage-backed securities during
1992 ($7.2 million book value as of December 31, 1992). These securities have
an estimated average life of approximately 4 years and a yield during this
period of 7.0%. Should the actual average life be less than 4 years, the yield
will be less, and should the actual average life be more than 4 years, the
yield will be more. At December 31, 1991, the mortgage-backed securities
portfolio consisted of one $1.5 million participation certificate, which was
sold in January 1992. Such sale completed the liquidation of the portfolio,
which was effected as a result of the balance sheet restructuring in 1991.
Loan and REO Portfolio
Total loans, including loans held for sale, averaged $201.8 million
during 1992, down $34.5 million compared to 1991. At year-end, total loans,
including loans held for sale, were $195.4 million as compared to $199.8
million at December 31, 1991. The primary reason for the decrease in average
loans was the sale of $40.3 million of one-to-four family performing loans
during 1991 (of which $35.1 million occurred in the fourth quarter). As of
December 31, 1992, Washington Savings had identified approximately $9 million
of mortgage loans, consisting of $4 million of one-to-four family performing
mortgage loans and $5 million of multi-family performing mortgage loans, which
may be sold prior to their scheduled maturity.
Washington Savings' 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
five years ended December 31, 1992:
<TABLE>
<CAPTION>
December 31 ,
-----------------------------------------------------------------------------------------------
1992 1991 1990 1989 1988
--------------- ---------------- ----------------- ----------------- ------------------
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. . . . . . . $125,858 67.51% $135,133 67.64% $162,612 69.22% $166,823 66.37% $186,815 58.74%
Multifamily/
Commercial . . . . . . 52,743 28.29 55,940 28.00 58,993 25.11 58,561 23.30 69,781 21.94
Construction. . . . . . 2,533 1.36 1,449 0.73 2,192 0.93 3,530 1.41 10,748 3.38
-------- ----- -------- ------ -------- ------ -------- ------ -------- ------
TOTAL REAL
ESTATE LOANS . . . . . 181,134 97.16 192,522 96.37 223,797 95.26 228,914 91.08 267,344 84.06
Commercial/ Financial . 3,552 1.91 4,081 2.04 5,275 2.25 11,539 4.59 36,083 11.35
Consumer And
Other Loans. . . . . . 1,731 0.93 3,176 1.59 5,859 2.49 10,894 4.33 14,592 4.59
-------- ------- -------- ------ -------- ------ -------- ------ -------- ------
TOTAL LOANS . . . . . . 186,417 100.00% 199,779 100.00% 234,931 100.00% 251,347 100.00% 318,019 100.00%
-------- ====== -------- ====== -------- ====== -------- ====== -------- ======
Less: Allowance For
Losses On Loans,
Deferred Loan Fees And
Unearned Income. . . . 3,916 4,271 4,374 6,633 6,261
-------- -------- -------- -------- --------
NET LOANS . . . . . . . $182,501 $195,508 $230,557 $244,714 $311,758
</TABLE>
One-to-Four Family Mortgage Loans. Washington Savings' 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 Savings
offers fixed rate loans and adjustable rate mortgage ("ARM") loans, the
interest rates on which adjust generally based on 1 and 3 year Treasury
indices. During 1992, Washington Savings began to offer 30 year fixed rate
loans which were pre-approved for purchase by the secondary market. At
December 31, 1992 and 1991, respectively, Washington Savings had $125.9
million and $135.1
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million of one-to-four family loans, comprising 67.5% and 67.6% of total loans
(excluding loans held for sale). Of the one-to-four family loans, 88.1% and
78.5% were ARM loans at December 31, 1992 and 1991, respectively. ARM loans
generally have annual interest rate adjustment limitations of 1% and 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.
During 1992, Washington Savings originated approximately $25.8 million of
one-to-four family loans, purchased $7.7 million, sold or identified for sale
$19.5 million, transferred to REO $3.3 million, incurred charge offs of $0.5
million and received principal payments of $19.4 million.
Multi-family/Commercial Real Estate Loans. Washington Savings' 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. The five largest commercial real property loans comprised
approximately $23.2 million, or 44.0%, of the multi-family/commercial real
estate portfolio. All five loans were performing as of December 31, 1992. With
respect to the largest loan in the amount of approximately $9.0 million,
Washington Savings has an assignment-of-rents. Subsequent to December 31,
1992, a Chapter 11 bankruptcy petition was filed by the obligor of the
approximately $9.0 million loan. See above "Overview--Nine Months Ended
September 30, 1993. As of December 31, 1992, Washington Savings had $52.7
million of multi-family/commercial mortgage loans outstanding, as compared to
$55.9 million as of December 31, 1991.
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 Savings 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, 1992
and 1991, the multi-family/commercial mortgage loan portfolio included $17.9
million and $27.9 million of "balloon" loans, comprising 34.0% and 49.9% of
multi-family/commercial loans, and comprising 9.6% and 14.0% of total loans
(excluding loans held for sale), respectively.
During 1992, Washington Savings originated $5.4 million of
multi-family/commercial real estate loans, identified for sale $5.0 million,
transferred to REO $1.8 million, charged off $0.4 million and received
principal payments of $1.4 million.
Construction Loans. Washington Savings has granted construction loans
primarily for the purpose of rehabilitating multi-family/commercial dwellings.
Such loans are generally one year, floating-rate loans. During 1992,
Washington Savings issued $1.2 million of construction loans and refinanced
$0.2 million into first mortgages. At December 31, 1992, the construction loan
portfolio totalled $2.5 million, or 1.4% of total loans(excluding loans held
for sale), as compared to $1.5 million, or 0.7%, at December 31, 1991. The
amount of undisbursed construction funds was $0.2 million as of December 31,
1992 and $1.3 million as of the prior year-end.
Commercial/Financial Loans. Washington Savings has granted loans for
commercial purposes to businesses and to individuals for various purposes,
such as real estate investment. These loans were made primarily as demand
loans with interest billed on a quarterly basis; however, through
restructuring, most performing loans are now amortizing with scheduled
payments. Washington Savings has discontinued making commercial and financial
loans except to honor existing revolving lines of credit to performing
borrowers. $2.8 million, or 77.8%, of the commercial/financial loan balance as
of December 31, 1992 is comprised of two borrowers which have loan-to-value
ratios below 50%. At December 31, 1992, the commercial/financial loan
portfolio totalled $3.6 million, or 1.9% of total loans(excluding loans held
for sale), as compared to $4.1 million, or 2.0%, at December 31, 1991.
During 1992, Washington Savings honored $0.7 million of drawdowns against
existing lines of credit to performing financial loan borrowers, transferred
to REO $0.3 million, charged-off $0.3 million and received principal payments
of $0.6 million.
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Consumer and Other Loans. Washington Savings 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 $1.1 million, or 64.5%, of total consumer and other
loans as of December 31, 1992, as compared to $2.0 million, or 62.5%, of total
consumer and other loans as of December 31, 1991. Such second mortgage loans
generally are limited to the difference between 75% of 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 Savings
will either demand repayment or renegotiate the loan. At December 31, 1992,
the consumer and other loan portfolio totalled $1.7 million, or 0.9% of total
loans(excluding loans held for sale), as compared to $3.2 million, or 1.6%, at
December 31, 1991.
During 1992, Washington Savings granted $0.4 million of consumer and
other loans, charged-off $0.3 million and received principal payments of $1.6
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 Washington's 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 five years ended December 31,
1988, 1989, 1990, 1991 and 1992:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------
1992 1991 1990 1989 1988
------- ------- ------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans. . . . . . . . . . . . . . . . . . . . . . . $ 8,599 $16,022 $17,351 $17,474 $17,136
Troubled-debt restructurings. . . . . . . . . . . . . . . . . 207 612 -- -- --
Loans past due over 90 days and still accruing. . . . . . . . -- -- -- -- --
------- ------- ------- ------- -------
Nonperforming loans . . . . . . . . . . . . . . . . . . . . . 8,806 16,634 17,351 17,474 17,136
REO, net. . . . . . . . . . . . . . . . . . . . . . . . . . . 12,998 12,563 11,294 7,674 --
------- ------- ------- ------- -------
Nonperforming assets. . . . . . . . . . . . . . . . . . . . . $21,804 $29,197 $28,645 $25,148 $17,136
======= ======= ======= ======= =======
Nonperforming assets to total assets. . . . . . . . . . . . . 7.6% 9.9% 8.5% 7.2% 4.7%
==== ==== ==== ==== ====
</TABLE>
During 1992, nonperforming loans decreased 47%. This improvement is
primarily attributable to bringing current $6.1 million, transferring to REO
$3.7 million, receiving repayments of $2.3 million and charging off $0.8
million, offset by additional nonperforming loans of $5.1 million. In
addition, Washington Savings has continued to experience the same trend that
began in 1991 whereby the mix of nonperforming loans collateralized by
one-to-four family mortgage loans increased to 62.8% in 1992 from 62.7% in
1991 and the percent collateralized by other loans decreased to 37.2% in 1992
from 37.3% in 1991. The aggregate amount of nonperforming loans reflects the
continued weakness in Washington Savings' primary lending area.
The troubled-debt restructured loan, which was restructured during 1991
in the amount of $616 thousand and was $612 thousand at December 31, 1991, was
partially charged-off in the amount of $285 thousand during 1992 even though
the borrower was current with its restructured terms. Such charge-off decision
was based on data available to Washington Savings. The amount may be recovered
in the future if the borrower remains current, although no assurances can be
given that such a recovery will occur. Washington Savings did not recognize
any income on this loan during 1992.
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Interest on nonperforming loans which would have been recorded based upon
original contract terms would have approximated $609 thousand, $975 thousand,
$824 thousand, $222 thousand and $682 thousand for the years 1992, 1991, 1990,
1989 and 1988, respectively. Interest income on those loans, which was
recorded only when received, amounted to $416 thousand, $548 thousand, $536
thousand, $140 thousand and $503 thousand for the years 1992, 1991, 1990, 1989
and 1988, 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
Savings 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 Washington's
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
Washington Savings' interests this action sometimes must be taken.
Below is the activity in REO for the last three years:
1992 1991 1990
----------------- ----------------- -----------------
Number of Number of Number of
Properties Amount Properties Amount Properties Amount
---------- ------ ---------- ------ ---------- ------
(Dollars in millions)
Beginning of year . . 64 $12.6 58 $11.3 49 $ 7.7
Additions . . . . . . 33 5.3 45 9.6 33 11.6
Sales . . . . . . . . 28 (4.0) 39 (7.1) 24 (6.3)
Provision
for losses . . . . . -- (0.9) -- (1.2) -- (1.7)
-- ----- -- ----- -- -----
End of year . . . . . 69 $13.0 64 $12.6 58 $11.3
== ===== == ===== == =====
In many 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. Thirty-one of the properties that were
in REO as of December 31, 1991 were still in REO as of December 31, 1992 and
had a carrying value of $8.6 million as of December 31, 1992. As of December
31, 1992 and 1991, there were two properties which comprised $4.8 million and
$4.7 million, respectively, of the total REO. The increase in such two
properties during 1992 is due to capital improvements to one of the
properties.
99
<PAGE>
<PAGE>
Allowance for Losses on Loans and Allowance for Losses on REO
The table below presents, at December 31, 1988, 1989, 1990, 1991 and
1992, 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,
----------------------------------------------------------------
1992 1991 1990 1989 1988
-------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Allowance, beginning of year. . . . . . . . . . . . . $ 2,989 $ 2,579 $ 4,720 $ 3,782 $ 850
-------- -------- -------- -------- --------
Loans charged-off:
Real estate. . . . . . . . . . . . . . . . . . . . . 932 719 1,525 2,503 320
Commercial . . . . . . . . . . . . . . . . . . . . . 325 194 1,434 2,123 5,436
Consumer . . . . . . . . . . . . . . . . . . . . . . 313 418 1,880 1,420 2,085
-------- -------- -------- -------- --------
Total loans charged-off. . . . . . . . . . . . . . . 1,570 1,331 4,839 6,046 7,841
-------- -------- -------- -------- --------
Recoveries on loans:
Real estate. . . . . . . . . . . . . . . . . . . . . 97 32 105 1 --
Commercial . . . . . . . . . . . . . . . . . . . . . 67 165 77 6 --
Consumer . . . . . . . . . . . . . . . . . . . . . . 93 44 166 51 8
-------- -------- -------- -------- --------
Total recoveries . . . . . . . . . . . . . . . . . . 257 241 348 58 8
-------- -------- -------- -------- --------
Net loans charged-off. . . . . . . . . . . . . . . . 1,313 1,090 4,491 5,988 7,833
-------- -------- -------- -------- --------
Provision for losses on loans. . . . . . . . . . . . 1,100 1,500 2,350 6,926 10,765
-------- -------- -------- -------- --------
Allowance, end of year . . . . . . . . . . . . . . . $ 2,776 $ 2,989 $ 2,579 $ 4,720 $ 3,782
-------- -------- -------- -------- --------
Total loans outstanding. . . . . . . . . . . . . . . $186,417 $199,779 $234,931 $251,347 $318,019
======== ======== ======== ======== ========
Average loans outstanding during the year . . . . . . $201,829 $236,267 $240,008 $294,046 $303,269
======== ======== ======== ======== ========
Net loans charged-off as a percent of
average loans outstanding. . . . . . . . . . . . . . 0.65% 0.46% 1.87% 2.04% 2.58%
==== ==== ==== ==== ====
Allowance for losses on loans as a percent of:
Total loans outstanding. . . . . . . . . . . . . . . 1.49% 1.50% 1.10% 1.88% 1.19%
==== ==== ==== ==== ====
Total nonperforming loans outstanding. . . . . . . . 31.52% 17.97% 14.86% 27.01% 22.07%
===== ===== ===== ===== =====
</TABLE>
The lower level of net charge-offs and provision for losses on loans
during 1991 and 1992 reflects a reduction in the migration of new
nonperforming loans in recent periods.
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 Washington Savings' entire allowance for losses on loans for the
years indicated. 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 under "Loan and REO
Portfolio" for information regarding loans outstanding in each loan category.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------
1992 1991 1990 1989 1988
-------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Real estate:
1-4 family . . . . . . . . . . . . . . . . . . . . . $1,313 $ 953 $1,081 $ 905 $ 500
Multifamily/commercial . . . . . . . . . . . . . . . 1,286 1,324 665 1,334 300
Construction . . . . . . . . . . . . . . . . . . . . 11 4 5 35 100
------ ------ ------ ------ ------
Total allowance for losses on real estate
loans . . . . . . . . . . . . . . . . . . . . . . . 2,610 2,281 1,751 2,274 900
Commercial/financial . . . . . . . . . . . . . . . . 110 458 447 1,219 1,882
Consumer and other loans . . . . . . . . . . . . . . 56 250 381 1,227 1,000
------ ------ ------ ------ ------
Total allowance for losses on loans. . . . . . . . . $2,776 $2,989 $2,579 $4,720 $3,782
====== ====== ====== ====== ======
100
</TABLE>
<PAGE>
<PAGE>
The following table presents, for the years ended December 31, 1992,
1991, 1990 and 1989, 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:
December 31,
-------------------------------------
1992 1991 1990 1989
------- ------- ------- ------
(Dollars in thousands)
Allowance, beginning of year. . . . $ 1,328 $ 976 $ -- $ --
Provision for losses on REO . . . . 852 1,170 1,673 --
Losses charged-off on REO sold. . . (378) (818) (697) --
------- ------- ------- ------
Allowance, end of year. . . . . . . $ 1,802 $ 1,328 $ 976 $ --
======= ======= ======= ======
Total REO outstanding . . . . . . . $14,800 $13,891 $12,270 $7,674
======= ======= ======= ======
Average REO outstanding
during the year. . . . . . . . . . $14,182 $10,147 $ 9,596 $1,910
======= ======= ======= ======
Provision for losses on REO as a
percent of average
REO outstanding. . . . . . . . . . 6.01% 11.53% 17.43% N/A
==== ===== ===== ===
Allowance for losses on REO as a
percent of total
REO outstanding. . . . . . . . . . 12.18% 9.56% 7.95% N/A
===== ==== ==== ===
Washington Savings monitors its asset quality and adequacy of its
allowance for losses 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 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 location.
During 1991, management's ongoing assessment of Washington Savings' loans
and REO resulted in a provision for losses of approximately $2.7 million, of
which $1.5 million was a provision for losses on loans and $1.2 million was a
reduction in the carrying value of REO ($300 thousand of which was recorded on
one property). Net charge-offs were $1.1 million, or 0.46% of average loans
outstanding. At December 31, 1991, the allowance for losses on loans of $3.0
million represented 1.50% of total loans and the allowance for losses on REO
of $1.3 million represented 9.56% of total REO. In addition, the allowance for
loan losses on loans as a percentage of nonperforming loans was 17.97% as of
December 31, 1991.
During 1992, the provision for losses approximated $2.0 million, of which
$1.1 million was a provision for losses on loans and $0.9 million was a
reduction in the carrying value of REO. Net loan charge-offs, including the
charge-off of $285 thousand on the performing troubled-debt restructured loan,
were $1.3 million, or 0.65% of average loans outstanding. The provision for
losses on REO as a percent of average REO outstanding decreased to 6.01% for
1992 from 11.53% for 1991 due to less market value fluctuations in the
properties held. At December 31, 1992, the allowance for losses on loans of
$2.8 million represented 1.49% of total loans and the allowance for losses on
REO of $1.8 million represented 12.18% of total REO. In addition, the
allowance for losses on loans as a percentage of nonperforming loans was
31.52% as of December 31, 1992.
101
<PAGE>
<PAGE>
Deposits and FHLB Advances
Washington Savings offers a broad line of deposit accounts, including,
but not limited to, savings accounts, certificates of deposit, 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. It is Washington Savings' policy to
avoid brokered certificates of deposit.
During 1992, Washington Savings continued to reduce rates on its deposit
base. The weighted average cost of funds for CDs at December 31, 1992 was
5.01%, as compared to 6.66% at December 31, 1991. As a result of the lower
yields on CDs, Washington Savings witnessed net withdrawals of CDs of $20.7
million and a net increase in regular savings balances of $14.0 million during
1992. The average balance of CDs decreased from $164.8 million in 1991 to
$142.1 million in 1992, while the average balance of regular savings increased
from $80.3 million in 1991 to $95.3 million in 1992. The migration into
regular savings accounts improved net interest income since regular savings
accounts typically earn approximately 10 and 30 basis points less than an
interest rate on a six month and one year CD, respectively. The six month and
one year CDs are Washington Savings' most popular CD products. In addition,
the average regular savings rate decreased 175 basis points from 1991 to 1992.
Management believes that the average balance of regular savings accounts
increased because customers want a "safe haven" in which to place their funds
while waiting for interest rates to rise.
During 1991, Washington Savings had average advances from the FHLB of
approximately $23.6 million. However, all advances were repaid as of December
31, 1991, with Washington Savings incurring an extraordinary charge of $1.0
million due to early extinguishment costs. This transaction eliminated the
highest cost of funds to Washington Savings and improved 1992 results.
Results of Operations--1992 Compared to 1991
Washington Savings' Yield/Cost Analysis sets forth, for the three years
ended December 31, 1992, (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) Washington's interest rate spread (i.e., the difference
between the average yield on interest-earning assets and the average cost of
interest-bearing liabilities), (v) Washington's 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.
102
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------------------------------
1992 1991 1990
---------------------------- ------------------------------ -----------------------------
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. . . . . . . . . . . . $195,565 $17,548 8.97% $227,139 $21,790 9.59% $222,786 $22,228 9.98%
Commercial and consumer . . . . 6,264 493 7.87 9,128 826 9.05 17,222 1,471 8.54
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total loans. . . . . . . . . . 201,829 18,041 8.94 236,267 22,616 9.57 240,008 23,699 9.87
Investment securities. . . . . . 53,048 3,057 5.76 46,882 3,535 7.54 56,203 4,752 8.46
Mortgage-backed securities . . . 2,606 193 7.41 10,438 849 8.13 23,928 2,016 8.43
Federal funds sold . . . . . . . 12,412 381 3.07 6,813 372 5.46 6,926 608 8.78
Deposits due from banks. . . . . 1,683 51 3.03 485 23 4.74 229 23 10.04
Federal Home Loan Bank
stock, at cost. . . . . . . . . 1,702 156 9.17 2,170 199 9.17 2,786 204 7.32
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest-earnings
assets. . . . . . . . . . . . . 273,280 21,879 8.01 303,055 27,594 9.11 330,080 31,302 9.48
-------- ------- ---- -------- ------- ---- -------- ------- ----
Noninterest-earnings assets. . . 16,481 17,159 15,408
-------- -------- --------
Total assets . . . . . . . . . . $289,761 $320,214 $345,488
======== ======== ========
Liabilities and Stockholders
Equity:
Interest-bearing liabilities:
Regular savings . . . . . . . . $ 95,305 3,764 3.95 $ 80,326 4,356 5.42 $ 78,767 4,323 5.49
Market-rate certificates. . . . 142,107 8,004 5.63 164,756 12,148 7.37 178,348 14,689 8.24
Checking and money market
accounts. . . . . . . . . . . . 11,517 422 3.66 11,704 645 5.51 12,897 746 5.78
Advances from FHLB and
ESOP debt . . . . . . . . . . . 26 1 3.85 23,558 1,970 8.36 32,099 2,786 8.68
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest-bearing
liabilities . . . . . . . . . . 248,955 12,191 4.90 280,344 19,119 6.82 302,111 22,544 7.46
------ ---- ------ ---- ------ ----
Noninterest-bearing liabilities:
Other deposits (2). . . . . . . 11,085 8,469 12,049
Other liabilities . . . . . . . 647 2,859 994
-------- -------- --------
Total noninterest-
bearing liabilities . . . . . 11,732 11,328 13,043
Stockholders equity. . . . . . . 29,074 28,542 30,334
-------- -------- --------
Total liabilities and
stockholders equity . . . . . $289,761 $320,214 $345,488
======== ======== ========
Net interest income/interest
rate spread . . . . . . . . . . $ 9,688 3.11% $ 8,475 2.29% $ 8,758 2.02%
======= ==== ======= ==== ======= ====
Net interest-earnings assets/
net yield on interest-
earnings assets . . . . . . . . $ 24,325 3.55% $ 22,711 2.80% $ 27,969 2.65%
======== ==== ======== ==== ======== ====
Ratio of interest-earning
assets to interest-bearing
liabilities . . . . . . . . . . 1.10x 1.08x 1.09x
==== ==== ====
- ------------
(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.
</TABLE>
103
<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
Savings' 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 Savings' interest income
and interest expense during the periods indicated. Changes attributable to
both volume and rate have been allocated proportionately.
<TABLE>
Rate/Volume Analysis
<CAPTION>
1992 compared to 1991 1991 compared to 1990
--------------------------------- ----------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
-------------------- ---------------------
Volume Rate Net Volume Rate Net
----- ---- --- ----- ---- ---
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Mortgage loans (1) . . . . . . . . . . . . . $(3,029) $(1,213) $(4,242) $ 434 $ (872) $ (438)
Commercial and consumer loans (1). . . . . . (259) (74) (333) (691) 46 (645)
Investment securities. . . . . . . . . . . . 465 (942) (477) (790) (427) (1,217)
Mortgage-backed securities . . . . . . . . . (637) (19) (656) (1,137) (30) (1,167)
Federal funds sold . . . . . . . . . . . . . 306 (297) 9 (10) (226) (236)
Federal Home Loan Bank stock . . . . . . . . (43) -- (43) (45) 40 (5)
Deposits due from banks. . . . . . . . . . . 57 (29) 28 26 (26) --
------- ------- ------- ------- ------- -------
Total interest income . . . . . . . . . . . (3,140) (2,574) (5,714) (2,213) (1,495) (3,708)
------- ------- ------- ------- ------- -------
Interest Expense:
Regular savings. . . . . . . . . . . . . . . 812 (1,404) (592) 86 (53) 33
Market rate certificates . . . . . . . . . . (1,670) (2,474) (4,144) (1,119) (1,421) (2,540)
Checking and money market accounts . . . . . (10) (213) (223) (69) (32) (101)
Advances from FHLB and ESOP debt . . . . . . (1,968) (1) (1,969) (741) (75) (816)
------- ------- ------- ------- ------- -------
Total interest expense. . . . . . . . . . . (2,836) (4,092) (6,928) (1,843) (1,581) (3,424)
------- ------- ------- ------- ------- -------
Changes in net interest income. . . . . . . . $ (304) $ 1,518 $ 1,214 $ (370) $ 86 $ (284)
======= ======= ======= ======= ======= =======
</TABLE>
- -----------
(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.
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,
Washington Savings 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, mortgages 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 1-4 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 Savings has virtually
discontinued originating commercial and consumer loans since 1988. Average
yields on Washington's mortgage loan and investment portfolios declined 62 and
178 basis points, respectively, during 1992. Such declines reflect 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%.
104
<PAGE>
<PAGE>
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 regular savings accounts
cost Washington Savings 10 and 30 basis points less on average than a
six-month and one year CD, respectively.
Provision for Losses on Loans. Washington Savings recorded a provision
for losses on loans of $1.1 million 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 reflects 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 1991.
Although the 1992 provision represents an improvement over the provision
for the four proceeding years, the absolute dollar amount of the provision,
especially when coupled with Washington Savings net REO expenses, continued to
act as a limitation on Washington's profitability. Furthermore, there can be
no assurance that the decreasing provision trend will continue into the
future.
Other Income. Total other (i.e. non-interest) income decreased $0.3
million, 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 $0.8 million. 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 $0.6
million, or 6.5%, for 1992 versus 1991. Contributing to the improvement in
other expenses were a decrease of $0.8 million, or 39.5%, in REO expense (net)
as described in the table below; and a $0.4 million, or 10.4%, 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 $0.4 million, or 19.9%, due
primarily to legal matters, consulting fees, and miscellaneous other operating
expenses, and occupancy expense(net) of $0.1 million, or 16.2%, due primarily
to recognizing costs for a branch closing which took place during the third
quarter of 1992. The components of REO expense, net are as follows:
Year ended December 31,
-----------------------
1992 1991
--- ----
(Dollars in thousands)
REO expense, net:
Carrying costs, net of rental income . . . . $ 721 $ 942
Provision for losses . . . . . . . . . . . . 852 1,170
Gain on sale, net. . . . . . . . . . . . . . (401) (177)
------ ------
Total REO expense, net . . . . . . . . . . . $1,172 $1,936
====== ======
The lower provision for losses on REO as well as lower net carrying costs
are due to a greater percentage of one-to-four family loans comprising REO,
which generally have less market value deterioration and less necessary major
repairs. Excluding net carrying costs of $100,000 in 1992 and net rental
income of $67,000 in 1991 on the two large REO properties in the REO
portfolio, annual carrying costs(net) calculated as a percent of average REO
outstanding amounted to 6.5% and 12.4%, respectively. Such decrease is due to
more experience in operating REO properties as well as more one-to-four family
loans requiring less repairs and maintenance.
Income Tax Expense. During 1992, Washington recorded income tax expense
of $0.6 million, which reflects an effective tax rate of 28.7%. The effective
tax rate differs 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 $0.5
million of the 1991 net operating loss carryforward. Total income tax expense
105
<PAGE>
<PAGE>
during 1991 was $0.5 million, primarily due to writing-off Washington Savings'
net deferred tax asset as a result of Washington's tax loss carryforward
position.
Results of Operations--1991 Compared to 1990
General. 1991 was the final year in a multi-year plan to downsize
Washington Savings' asset base and restructure its asset composition.
Washington Savings restructured its investment portfolio by purchasing
intermediate-term U.S. Treasuries with funds obtained from either selling or
allowing to mature most of its prior year mortgage-backed and investment
securities portfolios. Washington Savings also sold $40.3 million of loans and
used this excess liquidity, along with security sale proceeds, to repay all of
its fixed-rate Federal Home Loan Bank ("FHLB") advances. As a result, total
assets decreased $43.9 million, or 13.0%, from December 31, 1990 to December
31, 1991; total loans decreased $35.1 million, or 15.0%; and total liabilities
decreased $42.9 million, or 13.9%, from December 31, 1990 to December 31,
1991, primarily as a result of prepaying $28.5 million of advances from the
Federal Home Loan Bank. Operations for the year ended December 31, 1991,
resulted in a net loss of $1.3 million, as compared with a net loss of $1.9
million for 1990. Washington's loss before extraordinary item was $0.3 million
for 1991. There was no extraordinary item in 1990.
Net interest income. Net interest income decreased $284 thousand, or
3.2%, to $8.5 million in 1991. Total interest income decreased $3.7 million,
or 11.8%, and total interest expense decreased $3.4 million, or 15.1%. Despite
a decrease in net interest income, Washington Savings net yield on
interest-earning assets increased from 2.65% in 1990 to 2.80% in 1991. This is
attributable to the effect of nonaccrual loans migrating to REO and excluding
such amounts from the average balance of loans outstanding once they are
transferred to REO, as well as cost of interest-bearing liabilities repricing
downward faster than the rate earned on interest-earning assets.
The decrease in interest income during 1991 resulted primarily from
decreases in the average balance of investment and mortgage-backed securities
and commercial and consumer loans, as well as lower yields earned on mortgage
loans and most other asset categories. The average balance of mortgage-backed
securities fell from $23.9 million in 1990 to $10.4 million in 1991. The
average balance of investment securities decreased from $59.0 million in 1990
to $49.1 million in 1991. These reductions resulted from Washington Savings
restructuring of its investment and mortgage-backed securities portfolios. The
$8.1 million decrease in the average balance of commercial and consumer loans
from $17.2 million in 1990 to $9.1 million in 1991 reflects the fact that
Washington Savings has virtually discontinued originating commercial and
consumer loans since 1988.
Average yields on Washington's mortgage portfolio declined 39 basis
points in 1991, reflecting both declining market interest rates and an
increased amount of nonaccrual mortgage loans.
Total interest expense decreased in 1991 due to a decrease in the average
balance of most interest-bearing liabilities as well as a reduction in
Washington Savings average cost of funds. Average interest-bearing liabilities
decreased $21.8 million, from $302.1 million in 1990 to $280.3 million in
1991, primarily as a result of certificate of deposit outflows, maturity of a
$3.5 million brokered certificate of deposit and repayment of FHLB advances.
Washington Savings mix of deposits also changed. Average regular savings
account balances increased $1.6 million, or 2%, and average CDs decreased
$13.6 million, or 7.6%.
In terms of yields, rates declined most in the market-rate certificates
category, as the average cost decreased from 8.24% in 1990 to 7.37% in 1991.
Provision for Losses on Loans. Washington Savings recorded a provision
for losses on loans of $1.5 million in 1991 as compared to $2.35 million in
1990. Loan write-offs, net of recoveries, totalled $1.1 million in 1991 , or
0.46% of average loans outstanding, as compared to $4.5 million in 1990, or
1.87% of average loans outstanding. The lower amount of charge-offs and
provision for losses on loans in 1991 reflects management's assessment of
somewhat lower risk in the portfolio due in part to a larger percentage of
nonperforming loans consisting of owner-occupied one-to-four family mortgage
loans (62.7 % at December 31, 1991 as compared to 32.9 % at December 31,
1990).
Although the 1991 provision represents a significant improvement over the
provision for the three proceeding years, the absolute dollar amount of the
provision, especially when coupled with Washington Savings' net REO expenses,
represents a significant factor in the overall net loss for the year.
Other Income. Total other income increased $1.7 million, or 199%, during
1991 due to $1.3 million of gains on sales of one-to-four family performing
mortgage loans and $857 thousand of net gains on security sales. During 1990,
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Washington Savings did not have net security gains or gains from the sale of
loans; however, a building used for back office operations was sold at a gain
of $328 thousand during 1990. Miscellaneous other income decreased $115
thousand, or 29%, primarily as a result of one-time receipts in 1990.
Other Expenses. Total other expenses decreased $1.4 million, or 13%, for
the year 1991 versus 1990, primarily because 1990 results include a $1.3
million cost for litigation settlement. In other areas, REO expenses, net of
related rental income and gains and losses on sales of REO, decreased $0.4
million, from $2.3 million in 1990 to $1.9 million in 1991. Included in net
REO expenses are write-downs to market value of $1.2 million in 1991 as
compared to $1.7 million in 1990; net gains on the sale of REO of $177
thousand in both 1991 and 1990; and carrying costs of REO, which during 1991
totalled $942 thousand as compared to $789 thousand in 1990. Other operating
expenses decreased $147 thousand, or 7%, as a result of lower legal costs, EDP
servicing costs and costs for other matters. Net occupancy and equipment
expenses decreased $107 thousand, or 11%, due to settlements of real estate
tax appeals and curtailment of certain maintenance contracts, offset in part
by increased depreciation expense for computer hardware purchased during 1990.
Offsetting such improvements were increases for salaries and employee
benefits and the assessment for FDIC deposit insurance. Salaries and employee
benefits increased $317 thousand, or 9%, due primarily to an increase in the
cost of employee health benefits. The FDIC assessment increased $237 thousand,
or 70%, from 1990, due to an increase in deposit insurance assessment rates.
Income Tax Expense/(Benefit). During 1991, Washington recorded income tax
expense of $552 thousand, due to writing-off Washington Savings' net deferred
tax asset as a result of Washington's tax loss carryforward position. During
1990, Washington reported an income tax benefit of $1.5 million as a result of
a net operating loss carryback.
Asset and Liability Management
The principal objectives of Washington's asset and liability management
are to manage exposure to changes in the interest rate environment, maintain
adequate liquidity and sustain a strong capital base. Washington's asset and
liability management is directed by Washington Savings' 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 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 Washington Savings' 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. Washington Savings' static cumulative one-year GAP position was a
negative $17.9 million, or 6.3%, at September 30, 1993. The Interest
Sensitivity Static GAP Analysis below presents Washington Savings' interest
rate sensitivity position at September 30, 1993.
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<TABLE>
INTEREST SENSITIVITY GAP ANALYSIS
<CAPTION>
Less than 3 to 6 months 1 to 3 to 5 to Over
3 months 6 months to 1 year 3 years 5 years 10 years 10 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 . . . . . . . . . . $ 17,582 $ 10,312 $ 40,591 $ 17,424 $ 8,980 $ 3,575 $ 2,425 $100,889
Fixed . . . . . . . . . . . . . . . 697 -- 222 403 1,068 2,697 16,337 21,424
Other Real Estate
Adjustable rate . . . . . . . . . . 6,427 4,620 8,874 1,949 8,154 2,740 1,228 33,992
Fixed . . . . . . . . . . . . . . . 4,444 586 280 738 9,993 999 10,071 27,111
All other loans (2)(3). . . . . . . . 4,102 1 3 25 174 26 -- 4,331
Investment securities
U.S Treasury . . . . . . . . . . . . 1,943 -- -- 29,350 16,852 -- -- 48,145
U.S. Government agencies (4) . . . . 1,003 -- -- -- -- -- -- 1,003
Corporate bonds and notes (4). . . . 2,323 2,740 1,139 392 -- -- -- 6,594
Foreign bonds. . . . . . . . . . . . -- -- 1,561 -- -- -- -- 1,561
Mortgage-backed securities . . . . . -- -- -- -- 189 2,941 17,275 20,405
Federal funds sold. . . . . . . . . . 2,200 -- -- -- -- -- -- 2,200
Due from banks. . . . . . . . . . . . 2,549 -- -- -- -- -- -- 2,549
-------- -------- -------- -------- -------- ------- ------- --------
Total interest-earning assets. . . . 43,270 18,259 52,670 50,281 45,410 12,978 47,336 270,204
-------- -------- -------- -------- -------- ------- ------- --------
Interest-Bearing Liabilities:
Regular savings (5). . . . . . . . . 28,124 2,343 4,686 22,647 17,181 20,304 7,809 103,094
Market rate certificates . . . . . . 31,154 36,641 27,608 23,049 6,251 -- -- 124,703
Checking and money market
accounts (6). . . . . . . . . . . . 567 510 510 2,779 1,361 -- 5,615 11,342
-------- -------- -------- -------- -------- ------- ------- --------
Total interest-bearing liabilities . 59,845 39,494 32,804 48,475 24,793 20,304 13,424 239,139
-------- -------- -------- -------- -------- ------- ------- --------
Interest rate sensitivity gap
per period (7) . . . . . . . . . . . $(16,575) $(21,235) $ 19,866 $ 1,806 $ 20,617 $ (7,326) $ 33,912 $ 31,065
======== ======== ======== ======== ======== ======= ======= ========
Cumulative interest rate
sensitivity gap (7). . . . . . . . . ($16,575) ($37,810) ($17,944) ($16,138) $ 4,479 ($ 2,847) $ 31,065
Cumulative interest rate
sensitivity gap as a percent of
total assets . . . . . . . . . . . . -5.8% -13.3% -6.3% -5.7% 1.6% -1.0% 10.9%
Cumulative percentage of
interest-sensitive assets to
interest-sensitive liabilities . . . 72.3% 61.9% 86.4% 91.1% 102.2% 98.7% 113.0%
- ------------
(1) Excludes stock in the FHLB of New York ($1,711).
(2) Includes non-performing loans and excludes REO (in-substance and by deed). If nonperforming loans were excluded, the 1 year
or less cumulative GAP would have been ($23,433) or (8.3%) of total assets and the cumulative percentage of
interest-sensitive assets to interest-sensitive liabilities would have been 82.3%.
(3) Represents commercial/financial, consumer and other loans.
(4) Call dates, if any, are used to indicate repricing date if it is more likely than not that the investment will be called.
Includes investments held for sale.
(5) $25 million of the total balance of regular savings are assumed to reprice within 3 months, the remaining balance of regular
savings deposits are assumed to reprice at the rate of 4% within 3 months, 3% 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.
(6) Checking and money market deposits are assumed to reprice at the rate of 5% within 3 months, 4.5% within 3 to 6 months, 4.5%
within 6 months to 1 year, 24.5% within 1 to 3 years, 12% within 3 to 5 years, and 49.5% over 10 years.
(7) If all regular savings were to reprice within 1 year or less the cumulative GAP would have been ($85,885) or (30.2)% of total
assets and the cumulative percentage of interest-sensitive assets to interest-sensitive liabilities would have been 57.1%.
</TABLE>
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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. Washington Savings 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
September 30, 1993 and December 31, 1992 and 1991, as calculated according to
FDIC guidelines, was 33.8%, 28.8% and 29.4%, respectively, while the amount of
assets used in the liquidity ratio calculation was $85.0 million, $73.4
million and $77.9 million, respectively.
In addition to the liquidity ratio, liquidity can also be described in
terms of cash and cash equivalents. Cash and cash equivalents are cash on
hand, amounts due from banks and Federal funds sold (generally due within
one-week periods). Washington's consolidated cash and cash equivalents
decreased $6.6 million during the year ended December 31, 1992, primarily due
to funding deposit outflows of $7.1 million. Cash flows from operating
activities generated $2.3 million of funds, while cash flows of $1.8 million
were used to fund investing activities.
As of September 30, 1993 and December 31, 1992 and 1991, Washington held
$1.0 million of cash and cash equivalents at the holding company level. In
light of the restrictions imposed by the then existing Washington-MOU which
effectively precluded the current use of such funds for dividends, and in light
of the limited activities of the holding company, management did 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. The FRB rescinded the Washington-MOU in January 1994.
Washington Savings also has a line of credit in the amount of $14.5
million which can be used to meet liquidity purposes. Such line of credit must
be renewed annually.
Capital Resources
Under banking policies issued by the FRB and the FDIC, Washington and
Washington Savings must maintain an adequate level of regulatory capital
sufficient to meet minimum leverage, core and total risk-based capital ratios.
The minimum leverage capital ratio is calculated by dividing core capital by
average total assets of the most recent quarter-end. Under guidelines
established by the FRB, bank holding companies that do not have the highest
regulatory rating will be expected to have a leverage capital ratio of 3% plus
an additional cushion of at least 100 to 200 basis points. 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. The core
risk-based capital ratio must be at least 4% and the total risk-based capital
ratio must be at least 8%. For purposes of leverage and risk-based capital
guidelines, Washington's and Washington Savings' core capital (also known as
Tier I capital) consists of common equity and their 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 $1.9 million as of September 30, 1993,
approximately $2.3 million as of December 31, 1992 and approximately $1.9
million as of December 31, 1991.
As of December 31, 1992 and 1991, Washington's and Washington Savings'
capital ratios were as follows:
December 31,
-----------------------------------------------
1992 1991
---------------------- -----------------------
Washington Washington
Capital Ratios Required Washington Savings Washington Savings
-------------- -------- ---------- ---------- ---------- ----------
Leverage. . . . . . 7.00% 10.62% 10.33% 9.26% 9.03%
Core risk-based . . 4.00 16.32 15.87 17.74 17.28
Total risk-based. . 8.00 17.58 17.12 18.99 18.53
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As of September 30, 1993, Washington's and Washington's Savings' capital
ratios were as follows:
September 30, 1993
----------------------------------
Washington
Capital Ratios Required* Washington Savings
-------------- --------- ---------- ----------
Leverage. . . . . . . . . . . . . . 5.00% 11.27% 10.97%
Core risk based . . . . . . . . . . 6.00 20.97 20.39
Total risk-based. . . . . . . . . . 10.00 22.23 21.64
- ------------
* For qualification as a well-capitalized institution.
As noted in the above tables, Washington's and Washington Savings'
capital ratios substantially exceed the minimum capital requirements.
Proposed and Final Accounting Pronouncements
For information regarding a recently effective accounting pronouncement
for financial instruments, refer to "Financial instruments" in footnotes 1 and
12 of the Notes to Washington's Consolidated Financial Statements.
In addition, the Financial Accounting Standards Board ("FASB") has issued
FASB No. 115 which requires Washington to adjust, depending on the investment
classification, either stockholders' equity or the results of operations for
the difference between the carrying value and fair market value of
investments. The pronouncements could materially affect Washington's equity in
future periods based solely on market value fluctuations, both positive or
negative.
For information regarding a recently effective accounting pronouncement
for post-retirement benefits other than pensions as well as post-employment
benefits, refer to "Pension plan and post-retirement benefits" and
"Post-employment benefits", respectively, in footnote 1 of the Notes to
Consolidated Financial Statements.
BUSINESS OF WASHINGTON
General
Washington, a Delaware business corporation, is a bank holding company
whose principal subsidiary is Washington Savings, an FDIC New Jersey-chartered
capital stock savings bank, headquartered in Hoboken, New Jersey. The sole
activity of Washington at this time is its ownership of all of the outstanding
capital stock of Washington Savings. At September 30, 1993, Washington had
unconsolidated total assets and stockholders' equity of $32.5 million and
$32.5 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 Jersey. At September 30, 1993, Washington Savings had total
assets of $284.7 million, deposits of $249.3 million, and stockholder's equity
of $31.4 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
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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 providing personal service.
Litigation
In December 1988, a class action lawsuit was filed against Washington
alleging violations of federal securities laws during the period from March
18, 1988 through November 17, 1988. On April 8, 1991, Washington paid $1
million in settlement of the lawsuit.
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.
Washington understands that the complaint will be refiled on or before that
date.
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. Washington sought
to dispose of this lawsuit by means of a summary judgment motion but that
motion was denied. The plaintiffs recently moved to file an amended complaint
adding claims against 9 individual defendants including current and former
officers and directors of Washington and Washington Savings.
Washington's management believes that these lawsuits will not have a
material adverse impact on the financial condition of Washington or Washington
Savings but, given the fluctuations in results of operations during recent
years, management cannot predict the impact on Washington's or Washington
Savings' results of operations.
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, 1992, Washington Savings had 112 employees, of whom 98
were full-time and 14 were part-time. The employees are not represented by a
collective bargaining unit.
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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 September 30, 1993, HUBCO's total risk-based capital ratio was
14.72% consisting of a Tier l ratio of 13.47% 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 September 30, 1993, HUBCO had a leverage capital ratio of 7.37%.
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 September 30,
1993, the Bank had a risk weighted capital ratio of 13.83% and a leverage
capital ratio of 6.85%. 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 September 30, 1993.
Capital Ratios
September 30, 1993
1993 ----------------------------
Minimum Hudson HUBCO, Inc.
Requirements* United Bank & Subsidiaries
----------- ----------- --------------
Tier 1 Capital. . . . . . . . . 6.00% 12.58% 13.47%
Total Qualifying Capital. . . . 10.00% 13.83% 14.72%
Leverage Ratio. . . . . . . . . 5.00% 6.85% 7.37%
- ------------
* 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
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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".
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
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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
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.
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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.
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<TABLE>
<CAPTION>
Name, Age and Position Principal Occupation Director Term
with HUBCO During Past Five Years Since Expiring
---------------------- ---------------------- -------- --------
<C> <S> <C> <C>
Robert J. Burke, 60 President and Chief Operating Officer, Union 1979 1994
Dry Dock and Repair Co., Hoboken, NJ (ship
repair facility).
John T. Clark, 66 Retired, formerly President of the Corporation 1977 1995
and the Bank.
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 "Members Only" apparel) (1961-1987 and 1986 1996
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 November 30, 1993.
Name, Age and Position with Officer of Principal Occupation
HUBCO HUBCO Since During Past Five Years
- ---------------------------- ----------- -----------------------
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.
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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
November 30, 1993.
Name and Address of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership Class
------------------------------ -------------------- ----------
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
- ------------
(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 November 30, 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
Name of Beneficial Owner Beneficially Owned(1) Percent of Class
------------------------ -------------------- ----------------
Robert J. Burke. . . . . . . . . . . . 30,442(2) .44
John T. Clark. . . . . . . . . . . . . 7,396(3) .11
Henry G. Hugelheim . . . . . . . . . . 109,754(4) 1.58
Harry J. Leber . . . . . . . . . . . . 21,941(5) .32
Kenneth T. Neilson . . . . . . . . . . 50,930(6) .73
Charles F. X. Poggi. . . . . . . . . . 147,305 2.13
James E. Schierloh . . . . . . . . . . 50,976(7) .74
Sister Grace Frances Strauber. . . . . 615 .01
Edwin Wachtel. . . . . . . . . . . . . 57,956(8) .84
Directors and Executive Officers of
HUBCO as a group (11 persons) . . . . 499,254(9) 7.26
- ------------
(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, 7,732 shares are held by Mr. Burke's wife. Mr. Burke
disclaims beneficial ownership of the shares held by his wife.
(footnotes continued on next page)
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(3) Of this total, 550 shares are held in Mr. Clark's IRA, and 1,932 shares
are held by Mr. Clark's wife. Mr. Clark disclaims beneficial ownership of
the shares held by his wife.
(4) Of this total, 4,911 shares are held in a revocable trust over which Mr.
Hugelheim retains control during his life.
(5) Of this total, 2,803 shares are held in a retirement plan, of which Mr.
Leber is a trustee and beneficiary.
(6) Of this total, 12,132 shares are held in Mr. Neilson's 401(k) plan, which
he directs, 9,380 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.
(7) Of this total, 1,518 shares are held by Mr. Schierloh's wife
individually, 3,527 shares are held in trust for Mr. Schierloh's mother
under a trust for which Mr. Schierloh is a trustee and a beneficiary, and
7,800 shares are held for Mr. Schierloh under HUBCO's restricted stock
plan.
(8) Of this total, 655 shares are held in a general partnership of which Mr.
Wachtel is a partner.
(9) 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 May21, 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
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meeting of members held October 5, 1993 and Statewide has filed applications
for the charter conversion with 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 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 January , 1994 and by the FDIC on January
, 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
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employed as the chief financial officer of HUBCO and the Bank for a three year
period. He will receive a salary of not 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 March 31, 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
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not amended or affirmed would be considered automatically rescinded. See
"SUBSCRIPTION PROCEDURES--Subscription Rights; Eligible Subscribers in
Subscription Offering."
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 March
31, 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,
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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 "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 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.
Anticipated Number
Name Position of Shares
---- -------- -----------------
William F. Davidson Chairman, Chief Executive Officer 5,000
and Director
Clifford J. Adams President, Chief Operating Officer 3,500
and Director
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
=======
(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 specified.
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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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 specified.
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 the 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. In August 1993, both Statewide's
board of directors and, at the board's direction, the compliance committee
of the board of directors (the "Committee"), reviewed a summary valuation
of Statewide prepared by Kaplan Associates. The summary valuation showed a
valuation range of $29.75 million to $40.25 million, with a midpoint of $35
million. The Committee, with assistance of its financial advisor, reviewed
the methodology used in the summary valuation as well as the assumptions
underlying the summary valuation. Since the preliminary appraisal contained
the same valuation range and methodology as the summary valuation, the
Committee requested Statewide's Chief Executive Officer, Chief Operating
Officer and the Chairman of the Committee to review the full preliminary
appraisal on behalf of the Committee.
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.
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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.
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
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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.
(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.
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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.
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
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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.
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
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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.
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
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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 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.
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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.
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, 1992 and December 31, 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
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said report.
The consolidated financial statements of HUBCO and subsidiaries for the
year ended December 31, 1990 appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young, independent auditors, as set
forth in their report thereon appearing elsewhere herein and in the
Registration Statement, and are included in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
In March 1991, the audit committee of the Board of Directors of HUBCO
recommended that Arthur Andersen & Co. be engaged as HUBCO's independent
public accountants to audit the financial statements of HUBCO for the year
ended December 1991. HUBCO did not have any disagreement with Ernst & Young on
any matter of accounting principles or practice, financial statement
disclosure, or auditing scope or procedure. Ernst & Young's reports for the
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two fiscal years ended December 31, 1990 did not contain an adverse opinion or
a disclaimer of opinion and were not qualified as to uncertainty, audit scope,
or accounting principles, and in the subsequent interim period, there were no
disagreements with Ernst & Young. The audit committee's recommendation was
approved by the Board of Directors on March 26, 1991.
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 an 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 and for the years
ended December 31, 1992, 1991 and 1990 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.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
ITEM PAGE
- ---- ----
HUBCO, INC.:
Reports of Independent Public Accountants. . . . . . . . . . . F-1 and 2
Consolidated Balance Sheets at December 31, 1992 and 1991
(Audited), and at September 30, 1993 (Unaudited) . . . . . . F-3
Consolidated Statements of Income for the Years Ended
December 31, 1992, 1991 and 1990 (Audited), and for the Nine
Months Ended September 30, 1993 and 1992 (Unaudited) . . . . F-4
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1992, 1991 and 1990
(Audited), and for the Nine Months Ended September 30, 1993
and 1992 (Unaudited). . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1992, 1991 and 1990 (Audited) and for the Nine
Months Ended September 30, 1993 and 1992 (Unaudited). . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . F-7 to 23
STATEWIDE SAVINGS BANK, S.L.A.:
Report of Independent Public Accountants . . . . . . . . . . . F-24
Consolidated Statements of Financial Condition at September 30,
1993 (Unaudited) and at March 31, 1993 and 1992 (Audited) . . F-25
Consolidated Statements of Operations and Retained Earnings
for the Six Months Ended September 30, 1993 and 1992
(Unaudited) and for the Three Years Ended March 31, 1993,
1992 and 1991 (Audited) . . . . . . . . . . . . . . . . . . . F-26 and 27
Consolidated Statements of Cash Flows for the Six Months Ended
September 30, 1993 and 1992 (Unaudited) and for the Three
Years Ended March 31, 1993, 1992 and 1991 (Audited) . . . . . F-28 and F-29
Notes to Consolidated Financial Statements . . . . . . . . . . F-30 to 47
WASHINGTON BANCORP. INC.:
Report of Independent Public Accountants . . . . . . . . . . . F-48
Consolidated Balance Sheets at December 31, 1992 and 1991
(Audited), and at September 30, 1993 (Unaudited) . . . . . . F-49
Consolidated Statements of Operations for the Years Ended
December 31, 1992, 1991 and 1990 (Audited), and for the Nine
Months Ended September 30, 1993 and 1992 (Unaudited). . . . . F-50
Consolidated Statements of Changes in Stockholders' Equity for
the Years Ended December 31, 1992, 1991 and 1990 (Audited),
and for the Nine Months Ended September 30, 1993 and 1992
(Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . F-51
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1992, 1991 and 1990 (Audited) and for the Nine
Months Ended September 30, 1993 and 1992 (Unaudited). . . . . F-52 and 53
Notes to Consolidated Financial Statements . . . . . . . . . . F-54 to 71
136
<PAGE>
[ ANDERSEN LOGO]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To HUBCO, Inc.:
We have audited the accompanying consolidated balance sheets of HUBCO,
Inc. (a New Jersey corporation) and subsidiaries as of December 31, 1992 and
1991, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for the years then ended. 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, 1992 and 1991, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
As discussed in Notes 1 and 10 to the consolidated financial statements,
in 1992 the Company changed its method of accounting for income taxes.
ARTHUR ANDERSEN & CO.
Roseland, New Jersey
January 12, 1993
F-1<PAGE>
[ERNST & YOUNG LETTERHEAD]
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
HUBCO, Inc.
We have audited the accompanying consolidated statements of income,
changes in stockholders' equity and cash flows of HUBCO, Inc. and
subsidiaries for the year ended December 31, 1990. 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 audit.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated results of operations and
cash flows of HUBCO, Inc. and subsidiaries for the year ended December 31,
1990, in conformity with generally accepted accounting principles.
ERNST & YOUNG
Metro Park, New Jersey
January 14, 1991
F-2<PAGE>
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
SEPTEMBER 30, -----------------
1993 1992 1991
------------ ---- ----
ASSETS (UNAUDITED)
ASSETS:
Cash and due from banks (Note 3) . . . $ 38,985 $ 38,400 $ 33,746
Federal funds sold . . . . . . . . . . 10,000 23,300 6,000
---------- -------- --------
Total cash and cash equivalents . . 48,985 61,700 39,746
---------- -------- --------
Investment securities (market value
$422,094, $333,259 and $143,640 at
September 30, 1993, December 31, 1992
and 1991, respectively) (Notes 1
and 4). . . . . . . . . . . . . . . . 405,503 322,522 138,915
Loans (Notes 1, 5 and 7)--Real
estate--mortgage. . . . . . . . . . . 252,567 261,563 205,766
Commercial and financial. . . . . . . 187,933 152,244 158,674
Consumer credit . . . . . . . . . . . 113,175 105,418 105,156
Direct lease financing. . . . . . . . 274 1,644 6,158
--------- -------- --------
553,949 520,869 475,754
--------- -------- --------
Less--
Allowance for possible loan losses
(Notes 1 and 6) . . . . . . . . . . . 9,838 7,605 6,698
Deferred loan fees. . . . . . . . . . 714 718 802
Unearned income . . . . . . . . . . . 5,213 6,703 9,069
--------- -------- --------
Net loans . . . . . . . . . . . . . 538,184 505,843 459,185
--------- -------- --------
Premises and equipment, net
(Notes 1 and 9) . . . . . . . . . . . 18,080 15,097 13,236
Accrued interest receivable . . . . . 9,152 9,493 6,436
Other real estate (Note 1). . . . . . 2,305 1,252 5,683
Other assets (Notes 2 and 10) . . . . 16,717 16,004 9,958
---------- -------- --------
Total assets. . . . . . . . . . . . $1,038,926 $931,911 $673,159
========== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits--
Noninterest bearing . . . . . . . . . $ 197,349 $171,178 $128,328
Interest bearing. . . . . . . . . . . 738,344 672,048 480,529
---------- -------- --------
Total deposits. . . . . . . . . . . 935,693 843,226 608,857
---------- -------- --------
Federal funds purchased and securities
sold under agreements to repurchase . 18,292 14,133 12,040
Accrued taxes and other liabilities. . 8,204 6,239 10,400
Note payable (Note 12) . . . . . . . . -- -- 763
---------- -------- --------
Total liabilities . . . . . . . . . 962,189 863,598 632,060
---------- -------- --------
COMMITMENTS AND CONTINGENCIES (Note 16)
STOCKHOLDERS' EQUITY (Notes 13 and 14):
Preferred stock, no par value; authorized
3,300,000 shares, none issued . . . . -- -- --
Common stock, no par value; authorized
13,200,000 shares; issued and outstanding
6,933,361 shares at September 30, 1993
and 6,286,342 issued and 6,285,572
outstanding shares at December 31, 1992
and 4,531,492 shares issued and
outstanding at December 31, 1991. . . 18,492 16,766 12,086
Additional paid-in capital . . . . . . 49,048 34,077 18,644
Retained earnings. . . . . . . . . . . 9,954 18,042 10,815
Treasury stock, at cost, 770 at
December 31, 1992 . . . . . . . . . . -- (6) --
Restricted stock awards . . . . . . . (757) (566) (446)
---------- -------- --------
Total stockholders' equity. . . . . 76,737 68,313 41,099
---------- -------- --------
Total liabilities and stockholders'
equity . . . . . . . . . . . . . . $1,038,926 $931,911 $673,159
========== ======== ========
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
F-3
<PAGE>
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------ ---------------------------
1993 1992 1992 1991 1990
---- ---- ---- ---- ----
(UNAUDITED)
INTEREST INCOME:
Interest and fees on loans--
Taxable. . . . . . . . $32,263 $34,017 $45,004 $39,550 $37,352
Tax-exempt . . . . . . 255 314 402 511 598
------- ------- ------- ------- -------
32,518 34,331 45,406 40,061 37,950
------- ------- ------- ------- -------
Interest and dividends on
investment securities--
Taxable. . . . . . . . 16,354 14,507 19,991 9,286 7,335
Tax-exempt . . . . . . 803 695 907 1,515 1,082
------- ------- ------- ------- -------
17,157 15,202 20,898 10,801 8,417
------- ------- ------- ------- -------
Interest on Federal funds
sold. . . . . . . . . . 656 1,005 1,342 897 3,442
Other. . . . . . . . . . -- 175 -- -- --
------- ------- ------- ------- -------
Total interest
income . . . . . . . 50,331 50,713 67,646 51,759 49,809
------- ------- ------- ------- -------
INTEREST EXPENSE:
Savings deposits . . . . 8,838 9,345 12,350 11,546 11,913
Time deposits and
certificates of
deposits. . . . . . . . 6,551 11,002 13,744 12,864 13,833
Interest on short-term
borrowings. . . . . . . 245 399 506 825 1,006
Interest on other
borrowings. . . . . . . -- 33 33 52 66
------- ------- ------- ------- -------
Total interest
expense. . . . . . . 15,634 20,779 26,633 25,287 26,818
------- ------- ------- ------- -------
Net interest income . 34,697 29,934 41,013 26,472 22,991
------- ------- ------- ------- -------
PROVISION FOR POSSIBLE LOAN
LOSSES . . . . . . . . . 2,550 1,901 4,116 2,312 4,150
------- ------- ------- ------- -------
Net interest income
after provision for
possible loan
losses . . . . . . . 32,147 28,033 36,897 24,160 18,841
OTHER INCOME:
Trust department income. 364 457 591 667 606
Service charges on
deposit accounts. . . . 4,355 3,532 4,832 3,725 3,294
Investment securities
gains (losses). . . . . 2 (26) (26) 39 (102)
Other. . . . . . . . . . 1,695 1,448 2,260 1,040 734
------- ------- ------- ------- -------
6,416 5,411 7,657 5,471 4,532
------- ------- ------- ------- -------
38,563 33,444 44,554 29,631 23,373
------- ------- ------- ------- -------
OTHER EXPENSES:
Salaries . . . . . . . . 8,771 7,693 10,475 8,429 8,381
Pension and other
employee benefits
(Note 11) . . . . . . . 3,480 2,576 3,229 2,861 1,999
Occupancy expense. . . . 2,288 2,492 3,182 2,334 2,328
Equipment expense. . . . 1,424 1,342 1,760 1,777 1,546
Net cost to operate
other real estate . . . 95 1,992 562 481 328
Deposit and other
insurance . . . . . . . 1,683 1,400 1,986 1,316 800
Other services . . . . . 1,985 1,989 2,790 2,678 2,336
Amortization of
intangible assets . . . -- 2,061 2,424 292 107
Charitable contributions
(Note 1). . . . . . . . 22 30 4,032 32 32
Other. . . . . . . . . . 2,870 3,062 3,909 2,074 2,156
------- ------- ------- ------- -------
22,618 24,637 34,349 22,274 20,013
------- ------- ------- ------- -------
Income before provision
for income taxes . . . 15,945 8,807 10,205 7,357 3,360
PROVISION FOR INCOME TAXES
(Note 10):
Federal. . . . . . . . . 4,779 1,866 207 1,725 684
State. . . . . . . . . . 719 250 357 611 461
------- ------- ------- ------- -------
5,498 2,116 564 2,336 1,145
------- ------- ------- ------- -------
Net income. . . . . . $10,447 $ 6,691 $ 9,641 $ 5,021 $ 2,215
======= ======= ======= ======= =======
WEIGHTED AVERAGE SHARES
OUTSTANDING. . . . . . . 6,922 5,847 6,091 4,955 4,941
===== ===== ===== ===== =====
NET INCOME PER SHARE . . $1.51 $1.14 $1.58 $1.01 $.45
===== ===== ===== ===== ====
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-4
<PAGE>
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK ADDITIONAL RESTRICTED
------------------ PAID-IN RETAINED TREASURY STOCK
SHARES AMOUNT CAPITAL EARNINGS STOCK AWARDS
------ ------ ------- -------- ------- ---------
BALANCE AT
DECEMBER 31, 1989. 4,112,098 $10,968 $15,727 $10,882 ($102) ($ 75)
Net income--1990 . -- -- -- 2,215 -- --
Cash dividends--$.32
per share . . . . -- -- -- (1,631) -- --
Purchase of 68,320
shares of treasury
stock . . . . . . -- -- -- -- (526) --
Issuance of
restricted stock. -- -- -- (36) 379 (343)
Amortization of
restricted stock. -- -- -- -- -- 109
--------- ------- ------- ------- ----- -----
BALANCE AT
DECEMBER 31, 1990. 4,112,098 10,968 15,727 11,430 (249) (309)
Net income--1991 . -- -- -- 5,021 -- --
Cash dividends--$.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--
Note 13 . . . . . 411,414 1,097 2,863 (3,960) -- --
--------- ------- ------- ------- ----- -----
BALANCE AT
DECEMBER 31, 1991. 4,531,492 12,086 18,644 10,815 -- (446)
Net income--1992 . -- -- -- 9,641 -- --
Cash dividends--$.40
per share . . . . -- -- -- (2,414) -- --
Issuance of common
stock, net of
related expenses. 1,725,000 4,600 15,115 -- -- --
Return of 770 shares
of restricted stock
to treasury stock -- -- -- -- (6) 6
Issuance of
restricted stock. 29,850 80 318 -- -- (398)
Amortization of
restricted stock. -- -- -- -- -- 272
--------- ------- ------- ------- ------ ------
BALANCE AT
DECEMBER 31, 1992. 6,286,342 16,766 34,077 18,042 (6) (566)
Net income
(unaudited) . . . -- -- -- 10,447 -- --
Cash dividends--$.32
per share
(unaudited) . . . -- -- -- (2,228) -- --
Issuance of
restricted stock
(unaudited) . . . 19,008 51 318 20 17 ( 406)
Return of 1,122
shares of restricted
stock to treasury
stock (unaudited) -- -- -- 1 (11) 10
Amortization of
restricted stock
(unaudited) . . . -- -- -- -- -- 205
10% stock dividend
(unaudited) . . . 628,011 1,675 14,653 (16,328) -- --
-------- ------- ------- ------- ------ ------
BALANCE AT
SEPTEMBER 30, 1993
(unaudited). . . . 6,933,361 $18,492 $49,048 $ 9,954 $ -- ($757)
========= ======= ======= ======= ====== ======
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-5
<PAGE>
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------ ----------------------
1993 1992 1992 1991 1990
---- ---- ---- ---- ----
(UNAUDITED)
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income . . . . . . . . $ 10,447 $ 6,691 $ 9,641 $ 5,021 $ 2,215
Adjustments to reconcile net
income to net cash provided
by operating activities--
Provision for possible loan
losses. . . . . . . . . 2,550 1,901 4,116 2,312 4,150
Provision for depreciation
and amortization. . . . 1,207 3,402 4,479 1,814 1,576
Amortization of investment
security premiums . . . 925 757 1,074 284 242
Accretion of investment
security discount . . . (255) (208) (295) (161) (170)
Investment securities
(gains) losses. . . . . 2 26 26 (39) 102
Noncash charitable
contribution. . . . . . -- -- 4,000 -- --
Deferred income taxes . . 465 (923) (4,035) (100) (1,880)
Decrease (increase) in
interest receivable. . . 1,050 (2,645) (2,587) 364 (1,125)
(Decrease) increase in
interest payable . . . . (397) (3,350) (3,646) (1,387) 66
(Decrease) increase in
accrued taxes and other
liabilities. . . . . . . 1,660 1,144 (4,201) (3,110) 6,052
Increase in other assets. (1,009) (2,917) (4,981) (3,474) (763)
-------- ------- ------- ------ ------
Net cash provided by
operating activities . 16,645 3,878 3,591 1,524 10,465
-------- ------- ------- ------ ------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from sales of
investment securities . . 61 8,570 8,570 13,214 6,506
Proceeds from maturities of
investment securities . . 47,676 18,261 64,983 31,159 24,449
Net cash acquired through
acquisitions. . . . . . . 43,134 425,698 425,698 16,505 --
Net cash paid for
acquisitions. . . . . . . (227) (3,411) (3,411) (425) --
Net decrease (increase) in
loans . . . . . . . . . . 11,600 5,236 11,583 5,628 (4,398)
Purchase of investment
securities. . . . . . . . (99,605)(196,832) (232,340) (30,212) (92,488)
Purchases of premises and
equipment . . . . . . . . (3,518) (2,962) (3,366) (1,677) (1,122)
Decrease (increase) in other
real estate . . . . . . . (204) 1,551 431 32 (4,250)
-------- ------- ------- ------ ------
Net cash provided by
(used in) investing
activities . . . . . . (1,083) 256,111 272,148 34,224 (71,303)
-------- ------- ------- ------ ------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net increase (decrease) in
demand deposits, NOW accounts
and savings accounts. . . 11,315 (29,161) (6,933) 22,734 10,792
Net increase (decrease) in
certificates of deposit . (41,724)(242,789) (265,477) (52,602) 17,839
Net increase (decrease) in
Federal funds purchased and
securities sold under
agreements to repurchase. 4,161 3,772 2,093 (17,734) 14,032
Net decrease in short-term
borrowings. . . . . . . . -- (763) (763) (68) (72)
Amortization of restricted
stock . . . . . . . . . . 205 78 -- -- --
Net proceeds from issuance of
common stock. . . . . . . -- 19,845 19,715 -- --
Cash dividends . . . . . . (2,228) (1,534) (2,414) (1,679) (1,631)
Acquisition of treasury
stock . . . . . . . . . . (6) (4) (6) (5) (526)
-------- ------- ------- ----- ------
Net cash (used in) provided
by financing
activities . . . . . . (28,277)(250,556) (253,785) (49,354) 40,434
-------- ------- ------- ------ ------
Increase (decrease) in cash
and cash equivalents . (12,715) 9,433 21,954 (13,606) (20,404)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD. . . . 61,700 39,746 39,746 53,352 73,756
-------- ------- ------- ------ ------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD. . . . . . . $ 48,985 $ 49,179 $ 61,700 $39,746 $53,352
======== ======== ======== ======= =======
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the period
for--
Interest. . . . . . . . . $ 15,842 $ 20,285 $ 30,279 $25,929 $26,752
Income taxes. . . . . . . 6,522 2,302 3,823 1,785 2,501
======== ======== ======== ======= =======
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-6
<PAGE>
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(DATA RELATIVE TO SEPTEMBER 30, 1993 AND 1992
AND FOR THE NINE MONTHS THEN ENDED IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
HUBCO, Inc. (the Company) provides a full range of banking services to
individual and corporate customers through its subsidiaries 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, HUB National Bank (HUB National) was
formed during 1991 with the merger of Mountain Ridge Bank (acquired in October
1990 through the purchase of certain net assets of Mountain Ridge State Bank
from the FDIC) and Meadowlands National Bank, a bank that was acquired by the
Company during 1991 by purchasing all of its outstanding stock. On September
25, 1992, HUB National Bank was merged into Hudson United Bank (the Bank).
During 1991, the Company purchased certain assets and assumed certain
liabilities of Center Savings and Loan Association, F.A. 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 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." SFAS No. 107 extends the existing fair value
disclosure practices for some instruments by requiring all entities to
disclose the fair value of financial instruments, both assets and liabilities
recognized and not recognized in the balance
F-7
<PAGE>
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
(DATA RELATIVE TO SEPTEMBER 30, 1993 AND 1992
AND FOR THE NINE MONTHS THEN ENDED IS UNAUDITED)
sheet, for which it is practicable to estimate fair value. SFAS No. 107 is
effective for financial statements issued for fiscal years ending after
December 15, 1992. The Company has adopted the provisions of SFAS No. 107 for
its year ended December 31, 1992.
Investment securities--
Investment securities are generally purchased with the intention of being
held to maturity. These securities are stated at cost, adjusted for
amortization of premiums and accretion of discounts. The cost of investments
sold is determined using the specific identification method.
Investment 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,
increase capital requirements or other similar factors, are classified as
available for sale and are carried at the lower of cost or market. Since the
Company's overall investment portfolio is short-term in nature with staggered
maturity dates, in the opinion of management the investment portfolio contains
no securities meeting the foregoing definition at September 30, 1993 and
December 31, 1992 and 1991.
During 1993, the Financial Accounting Standards Board issued SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities." This
Statement is effective for fiscal years beginning after December 15, 1993 and
is not expected to have a material impact on the Company's financial position
or results of operations in the year of adoption.
For investment securities held in the Company's investment portfolio,
fair value is determined by reference to quoted market prices, if available.
If quoted market prices are not available, fair value is estimated using
quoted market prices for similar securities.
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.
During 1993, the Financial Accounting Standards Board issued SFAS No.
114, "Accounting by Creditors for Impairment of a Loan." This Statement is
effective for fiscal years beginning after December 15, 1994. Implementation
of the new standard is not expected to have a material effect on the Company's
financial position or results of operations in the year of adoption.
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
F-8
<PAGE>
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
(DATA RELATIVE TO SEPTEMBER 30, 1993 AND 1992
AND FOR THE NINE MONTHS THEN ENDED IS UNAUDITED)
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.
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, $292 and $107 for 1992, 1991 and 1990, respectively.
At December 31, 1992, all intangible assets have 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 $238,610 at December 31, 1992.
Federal funds purchased and securities sold under agreements to
repurchase--
Federal funds purchased and securities sold under agreements to
repurchase at December 31, 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.
F-9
<PAGE>
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
(DATA RELATIVE TO SEPTEMBER 30, 1993 AND 1992
AND FOR THE NINE MONTHS THEN ENDED IS UNAUDITED)
Federal income taxes--
The Financial Accounting Standards Board has issued a "Statement
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 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 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 per share amounts are based on the weighted average number of
common shares outstanding during the year. Per share amounts in 1993, 1992,
1991 and 1990 have been adjusted retroactively for the stock dividend paid in
1993. Per share amounts in 1990 have been adjusted retroactively for the stock
dividend paid in 1991.
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.
(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
Final settlement of the Center acquisition took place in September 1992.
As of December 31, 1992, there were two claims to be processed outside of
settlement. One claim for approximately $42 relates to an escrow deficiency on
loans owned by the RTC, but serviced by the Bank. The other claim is for
approximately $1,375 and relates to 22 defective loans which were put back to
the RTC under the terms of the contract. Both claims were paid during 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.
F-10
<PAGE>
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
(DATA RELATIVE TO SEPTEMBER 30, 1993 AND 1992
AND FOR THE NINE MONTHS THEN ENDED IS UNAUDITED)
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 final settlement of the Irving acquisition
from the RTC was pending. As of December 31, 1992, the Bank has a receivable
of $236 from the RTC that is included in other assets. Final settlement of
this transaction took place in 1993.
As of December 31, 1992, the final settlement of the Broadway acquisition
from the FDIC was pending. As of December 31, 1992, the bank has a receivable
of $2,957 from the FDIC that is included in other assets. The receivable
includes the following items: $425 for temporary personnel during the
transition period, $536 for releases on uninsured deposit holds, $1,344 for
loan servicing remittance errors, $291 for overpayment on purchased loans,
$303 for book-to-market adjustments on investments purchased, $49 for
reimbursement of rent expense and $9 for miscellaneous accounting entries.
During 1993, the Company received payment from the FDIC of the above
receivable.
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 is currently
estimated to be approximately $35 million.
F-11
<PAGE>
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
(DATA RELATIVE TO SEPTEMBER 30, 1993 AND 1992
AND FOR THE NINE MONTHS THEN ENDED IS UNAUDITED)
Shares not sold to Statewide eligible depositors and other voting members are
expected to be sold at a market price to Company stockholders and 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, 1992, Washington reported
total assets, stockholders' equity and net income of $286 million, $30.5
million and $2.1 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.
(3) CASH AND DUE FROM BANKS:
Banks are required to maintain an average reserve balance with the
Federal Reserve Bank. The average amount of the reserve during 1993 for the
Company's subsidiary was approximately $12,341. The average 1992 amount of
this reserve for the Company's subsidiary was approximately $7,733.
(4) INVESTMENT SECURITIES:
The amortized cost and estimated market value of investment securities
are summarized as follows:
GROSS UNREALIZED ESTIMATED
AMORTIZED --------------- MARKET
COST GAINS (LOSSES) VALUE
--------- ----- ------- --------
September 30, 1993 (unaudited):
U. S. Government . . . . . . . . $216,437 $10,287 $ -- $226,724
U. S. Government agencies. . . . 151,117 4,819 (76) 155,860
States and political
subdivisions. . . . . . . . . . 28,166 831 (10) 28,987
Other securities . . . . . . . . 6,312 385 (97) 6,600
Equity securities. . . . . . . . 3,471 452 -- 3,923
-------- ------- ----- --------
$405,503 $16,774 ($183) $422,094
======== ======= ===== ========
December 31, 1992:
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
======== ======= ===== ========
F-12
<PAGE>
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
(DATA RELATIVE TO SEPTEMBER 30, 1993 AND 1992
AND FOR THE NINE MONTHS THEN ENDED IS UNAUDITED)
GROSS UNREALIZED ESTIMATED
AMORTIZED --------------- MARKET
COST GAINS (LOSSES) VALUE
--------- ----- ------- --------
December 31, 1991:
U. S. Government . . . . . . . . $ 41,080 $ 2,032 $ -- $ 43,112
U. S. Government agencies. . . . 48,533 1,658 (2) 50,189
States and political
subdivisions. . . . . . . . . . 13,158 133 (1) 13,290
Other securities . . . . . . . . 35,928 960 (9) 36,879
Equity securities. . . . . . . . 216 -- (46) 170
-------- ------- ----- --------
$138,915 $ 4,783 ($ 58) $143,640
======== ======= ===== ========
The amortized cost and estimated market value of investment securities at
September 30, 1993 (unaudited) and December 31, 1992 and 1991, 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.
ESTIMATED
AMORTIZED MARKET
COST VALUE
--------- --------
September 30, 1993 (unaudited):
Due in one year or less. . . . . . . $ 69,390 $ 69,973
Due after one year through five
years . . . . . . . . . . . . . . . 276,800 289,325
Due after five years through ten
years . . . . . . . . . . . . . . . 22,695 24,372
Due after ten years. . . . . . . . . 6,023 6,723
-------- --------
374,908 390,393
Mortgage-backed securities . . . . . 27,124 27,778
Equity securities. . . . . . . . . . 3,471 3,923
-------- --------
$405,503 $422,094
======== ========
December 31, 1992:
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
======== ========
December 31, 1991:
Due in one year or less. . . . . . . $ 43,681 $ 44,276
Due after one year through five
years . . . . . . . . . . . . . . . 60,489 63,601
Due after five years through ten
years . . . . . . . . . . . . . . . 3,031 3,073
Due after ten years. . . . . . . . . 3,007 3,094
-------- --------
110,208 114,044
Mortgage-backed securities . . . . . 28,491 29,426
Equity securities. . . . . . . . . . 216 170
-------- --------
$138,915 $143,640
======== ========
F-13
<PAGE>
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
(DATA RELATIVE TO SEPTEMBER 30, 1993 AND 1992
AND FOR THE NINE MONTHS THEN ENDED IS UNAUDITED)
Sales of investment securities are summarized as follows:
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------- -----------------------------
1993 1992 1992 1991 1990
---- ---- ---- ---- ----
(UNAUDITED)
Proceeds from sales. . . $61 $8,570 $8,570 $13,214 $6,506
Gross gains from sales . 2 31 31 153 61
Gross losses from sales. -- (57) (57) (114) (163)
Investment securities with a book value of $33,727, $25,968 and $17,050
at September 30, 1993, December 31, 1992 and 1991 are pledged to secure
public funds, repurchase agreements 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:
NINE MONTHS
ENDED
SEPTEMBER 30,
1993 1992 1991
----------- --------- ---------
(UNAUDITED)
Loans secured by real estate:
Residential. . . . . . . . . . . . . . . $199,739 $187,851 $170,168
Construction . . . . . . . . . . . . . . 3,166 3,777 3,108
Commercial . . . . . . . . . . . . . . . 138,359 111,144 86,896
Commercial and industrial loans . . . . . 129,698 129,550 132,090
Loans to individuals for household,
family and other personal expenditures . 59,740 63,129 65,006
Other loans . . . . . . . . . . . . . . . 23,247 25,418 18,486
-------- -------- --------
Total loans . . . . . . . . . . . . . $553,949 $520,869 $475,754
======== ======== ========
Loans, net of the allowance for possible loan losses had a fair value of
approximately $517,639 at December 31, 1992.
(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.
F-14
<PAGE>
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
(DATA RELATIVE TO SEPTEMBER 30, 1993 AND 1992
AND FOR THE NINE MONTHS THEN ENDED IS UNAUDITED)
A summary of the activity in the allowance for possible loan losses is
as follows:
NINE MONTHS ENDED
SEPTEMBER 30, DECEMBER 31,
---------------- ---------------------------
1993 1992 1992 1991 1990
----- ----- ----- ----- ------
(UNAUDITED)
Balance at beginning of
period . . . . . . . . $7,605 $6,698 $6,698 $5,232 $3,012
Additions (deductions):
Provision charged to
expense . . . . . . . 2,550 1,901 4,116 2,312 4,150
Allowance acquired
through mergers or
acquisitions. . . . . 400 1,500 1,500 1,487 --
Recoveries on loans
previously charged
off . . . . . . . . . 287 732 832 642 398
Loans charged off. . . (1,004) (3,429) (5,541) (2,975) (2,328)
------ ------ ------ ------ ------
Balance at end of
period . . . . . . . . $9,838 $7,402 $7,605 $6,698 $5,232
====== ====== ====== ====== ======
(7) NONPERFORMING LOANS:
The following table presents information related to loans which are on a
nonaccrual basis, 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.
SEPTEMBER 30, DECEMBER 31,
------------- -------------
1993 1992 1991
------------- ---- ----
(UNAUDITED)
Nonaccrual loans . . . . . . . . . . . . . $5,447 $4,248 $4,160
Renegotiated loans. . . . . . . . . . . . . 2,177 2,257 3,527
------ ------ ------
Total nonperforming loans . . . . . . . $7,624 $6,505 $7,687
====== ====== ======
Loans past due 90 days or more . . . . . . $1,564 $1,409 $1,181
Gross interest income which would have been
recorded under original terms. . . . . . . 590 563 23
Gross interest income recorded during the
year . . . . . . . . . . . . . . . . . . . 131 96 177
Commitments for additional funds. . . . . . None 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:
SEPTEMBER 30, DECEMBER 31,
------------- ----------------
1993 1992 1991
------------- ------ ------
(UNAUDITED)
Balance at beginning of period. . . . . . . $6,964 $5,403 $3,429
New loans issued. . . . . . . . . . . . . . 769 1,646 4,596
Repayment of loans. . . . . . . . . . . . . (3,085) (85) (2,622)
------ ------ ------
Balance at end of period . . . . . . . . . $4,648 $6,964 $5,403
====== ====== ======
At September 30, 1993 and December 31, 1992, $3,788 and $5,604,
respectively, of related party loans were fully secured by real estate or
marketable securities. Excluded from the above are loans and letters of
credit to a former director in the amounts of $2,444 and $5,136 at December
31, 1992.
F-15
<PAGE>
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(in thousands)
(Data relative to September 30, 1993 and 1992
and for the nine months then ended is unaudited)
(9) PREMISES AND EQUIPMENT:
The following is a summary of premises and equipment:
SEPTEMBER 30, DECEMBER 31,
------------- ----------------
1993 1992 1991
------------- -------- -------
(UNAUDITED)
Land . . . . . . . . . . . . . . . . . . . $ 4,264 $ 4,475 $ 3,879
Premises. . . . . . . . . . . . . . . . . . 14,922 12,493 10,610
Furniture, fixtures and equipment . . . . . 6,552 4,719 3,880
------- ------- -------
25,738 21,687 18,369
Less--Accumulated for depreciation. . . . . 7,658 6,590 5,133
------- ------- -------
$18,080 $15,097 $13,236
======= ======= =======
Depreciation and amortization expense for premises and equipment was
$1,207 and $1,113 for the nine months ended September 30, 1993 and 1992 and
$1,505, $1,327 and $1,360, in the years ended December 31, 1992, 1991 and
1990.
(10) INCOME TAXES:
The components of the provision for income taxes are as follows:
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
----------------- ---------------------
1993 1992 1992 1991 1990
---- ---- ---- ---- ----
(UNAUDITED)
Federal--
Current. . . . . . . . . . . $4,279 $2,466 $4,242 $1,825 $2,564
Deferred . . . . . . . . . . 500 (600) (4,035) (100) (1,880)
State . . . . . . . . . . . . 719 250 357 611 461
------ ------ ------ ------ ------
Total provision for
income taxes . . . . . . $5,498 $2,116 $ 564 $2,336 $1,145
====== ====== ====== ====== ======
F-16
<PAGE>
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
(DATA RELATIVE TO SEPTEMBER 30, 1993 AND 1992
AND FOR THE NINE MONTHS THEN ENDED IS UNAUDITED)
A reconciliation of the provision for income taxes, as reported, with
the Federal income tax at the statutory rate of 35 percent in 1993 and 34
percent in 1992, 1991 and 1990, is as follows:
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------- -----------------------
1993 1992 1992 1991 1990
------- ------ ------ ------ -----
(UNAUDITED)
Tax at statutory rate . . . . . $5,581 $2,994 $3,470 $2,501 $1,142
Increase (decrease) in taxes
resulting from Tax-exempt
income . . . . . . . . . . . . (314) (304) (394) (689) (508)
State taxes on income, net of
Federal income tax effect. . (252) (85) (121) (208) (157)
Reversal of reserves no
longer deemed necessary. . . -- (542) (1,475) -- --
Charitable contribution basis
for tax in excess of book. . -- -- (680) -- --
Other, net. . . . . . . . . . (236) (179) (593) 121 207
------ ------ ------ ------ -----
Provision for Federal
income taxes . . . . . . . $4,779 $1,866 $ 207 $1,725 $ 684
====== ====== ====== ====== =====
Deferred Federal income taxes result primarily from income relating to
leasing activities, income on nonperforming loans not recorded for financial
statement purposes, which is currently taxable, excess provisions for possible
loan losses which are not currently deductible and a charitable contribution
of other real estate.
At September 30, 1993 and December 31, 1992, the Company had deferred tax
assets of approximately $3,109 and $3,600, respectively, included in other
assets. Included in these amounts is a deferred tax asset of approximately
$1,700 and $1,700 at September 30, 1993 and December 31, 1992, respectively,
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. 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 September 30, 1993 and December 31,
1992, 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 such deferred tax assets at September
30, 1993 and December 31, 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
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:
1992 1991 1990
---- ---- ----
Service cost--benefits earned during
the year . . . . . . . . . . . . . $107 $ 97 $130
Interest cost on projected benefit
obligation . . . . . . . . . . . . 456 404 388
Actual return on plan assets. . . . (581) (523) (489)
Net amortization and deferral . . . (45) (79) (85)
---- ---- ----
Net periodic pension cost (income). (63) (101) (56)
Supplemental pension cost . . . . . 4 11 20
---- ---- ----
($ 59) ($ 90) ($ 36)
==== ==== ====
F-17
<PAGE>
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
(DATA RELATIVE TO SEPTEMBER 30, 1993 AND 1992
AND FOR THE NINE MONTHS THEN ENDED IS UNAUDITED)
Assumptions used in the accounting for the plans in 1992, 1991 and
1990 as of December 31 were:
1992 1991 1990
---- ---- ----
Weighted average discount rates . . 8.00% 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,
----------------
1992 1991
---- ----
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including
vested benefits of $5,701 and $5,080 for
1992 and 1991, respectively . . . . . . . . . $5,755 $5,105
------ ------
Projected benefit obligation for service
rendered to date. . . . . . . . . . . . . . . (6,046) (5,354)
Plan assets at fair value. . . . . . . . . . . 7,631 7,305
------ ------
Projected benefit obligation less than plan
assets. . . . . . . . . . . . . . . . . . . . 1,585 1,951
Unrecognized portion as of December 31, of net
asset existing at date of adoption of FASB
Statement No. 87. . . . . . . . . . . . . . . (220) (253)
Prior service cost not yet recognized in net
periodic pension cost . . . . . . . . . . . . 965 380
Unrecognized net (asset) obligation at
December 31 . . . . . . . . . . . . . . . . . (2,100) (1,816)
------ ------
Net pension asset recognized in the
consolidated balance sheet at December 31. . $ 230 $ 262
====== ======
The Company has a 401(k) savings plan covering substantially all of the
nonbargaining employees. Under the Plan, the Company matches (up to a maximum
of three percent) 50 percent of the employee's contribution. In 1991, HUB
National established a 401(k) savings plan covering substantially all of its
employees. Upon the merger of HUB National into the Bank, the HUB National
401(k) Plan was discontinued and funds were distributed to the participants
and were rolled into the Company's 401(k) savings plan. The Company's
contributions for the nine months ended September 30, 1993 and 1992 were $90
and $42. The Company's contributions under these Plans were approximately $67,
$100 and $69 for the years ended December 31, 1992, 1991 and 1990.
In December 1990, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions" (FASB 106). FASB 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
$176 and $137 in 1991 and 1990, respectively. 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
$800 and $1,000, respectively, for the base and nonbargaining plans. Future
retirees of the base plan employed as of March 1, 1990 will be entitled to an
$800 annual increase. Based on current policies and the restructuring of
retiree benefits, there was no significant impact related to the
implementation of FASB 106.
F-18
<PAGE>
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
(DATA RELATIVE TO SEPTEMBER 30, 1993 AND 1992
AND FOR THE NINE MONTHS THEN ENDED IS UNAUDITED)
(12) NOTE PAYABLE:
The note was payable to the Economic Development Agency and bore interest
at 75 percent of the prime rate, with a minimum rate of 7 percent and a
maximum rate of 13 percent. The Company prepaid the loan in full in June 1992.
(13) 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.
On October 29, 1991, the Board of Directors approved a 10 percent stock
dividend payable on November 15, 1991 to holders of record at November 6,
1991.
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 the nine months ended September 30, 1993 and the years ended December
31, 1992 and 1991, 20,900, 29,850 and 36,750 shares of common stock were
awarded which vest between two to five years from the date of grant. At
September 30, 1993 and December 31, 1992, the value of shares issued that have
not been earned ($757 and $566) has been recorded as a reduction of
stockholders' equity. Amortization of restricted stock awards charged to
expense amounted to $205 and $203 for the nine months ended September 30, 1993
and 1992 and $272, $195 and $109 in the years ended December 31, 1992, 1991
and 1990.
During 1993, the Company adopted a stock option plan in which 110,000
shares of the Company's common stock may be granted to non-employee 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 non-employee director with a 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.
(14) 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 September 30, 1993 and December 31, 1992, the entire undistributed earnings
of the Bank, $30,346 and $25,292, respectively, 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.
(15) LEASES:
Total rental expense for all leases amounted to approximately $655 and
$690 for the nine months ended September 30, 1993 and 1992 and $858, $387 and
$321 in the years ended December 31, 1992, 1991 and 1990. At
F-19
<PAGE>
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
(DATA RELATIVE TO SEPTEMBER 30, 1993 AND 1992
AND FOR THE NINE MONTHS THEN ENDED IS UNAUDITED)
December 31, 1992, 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:
1993 . . . . . . . . . . . . . . . $ 548
1994 . . . . . . . . . . . . . . . 536
1995 . . . . . . . . . . . . . . . 538
1996 . . . . . . . . . . . . . . . 551
1997 . . . . . . . . . . . . . . . 492
Thereafter . . . . . . . . . . . . 2,011
It is expected that in the normal course of business, leases that will
expire will be renewed or replaced by leases of other properties.
(16) 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 September 30, 1993 and December 31, 1992 was $74,670 and
$12,557, and $38,461 and $12,478, respectively. Loan commitments and standby
letters of credit were $45,957 and $11,487 at December 31, 1991. Commitments
under commercial letters of credit used to facilitate customers trade
transactions were $537, $189 and $616 at September 30, 1993, December 31, 1992
and 1991.
F-20
<PAGE>
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
(DATA RELATIVE TO SEPTEMBER 30, 1993 AND 1992
AND FOR THE NINE MONTHS THEN ENDED IS UNAUDITED)
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.
(17) HUBCO, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION:
DECEMBER 31,
SEPTEMBER 30, ----------------
BALANCE SHEETS 1993 1992 1991
------------- ----- -------
(UNAUDITED)
ASSETS:
Cash . . . . . . . . . . . . . . $ 168 $ 3 $ 189
Investment securities. . . . . . 3,471 543 --
Investment in:
Bank subsidiaries . . . . . . . 71,060 55,958 39,020
Nonbank subsidiary--HUB Financial
Services, Inc.. . . . . . . . . 432 10,415 686
Accounts receivable. . . . . . . 558 337 191
Premises and equipment, net. . . 1,304 1,366 1,446
Other assets . . . . . . . . . . -- -- 370
------- ------- -------
Total assets. . . . . . . . . $76,993 $68,622 $41,902
======= ======= =======
Liabilities and Stockholders' Equity:
Accounts payable and other
liabilities . . . . . . . . . . $ 255 $ 288 $ --
Amount due to Hudson United Bank 1 21 40
Note payable . . . . . . . . . . -- -- 763
------- ------- ------
Total liabilities . . . . . . 256 309 803
Stockholders' Equity. . . . . . . 76,737 68,313 41,099
------- ------- -------
Total liabilities and
stockholders' equity . . . . $76,993 $68,622 $41,902
======= ======= =======
NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- -----------------------
STATEMENTS OF INCOME 1993 1992 1992 1991 1990
------ -------- ---- ---- ------
(UNAUDITED)
Income:
Cash dividends from bank
subsidiary. . . . . . . . . $ 5,461 $ 1,939 $ 2,863 $1,912 $4,550
Cash dividends from nonbank
subsidiary. . . . . . . . . -- 600 600 -- 1,000
Interest and dividends . . . 59 274 307 16 103
Rental income. . . . . . . . 179 179 238 238 238
------- ------- ------- ------ ------
5,699 2,992 4,008 2,166 5,891
------- ------- ------ ------ ------
Expenses:
General and administrative . 440 340 759 341 199
Interest . . . . . . . . . . -- 35 35 57 73
------- ------- ------- ------ ------
440 375 794 398 272
------- ------- ------- ------ ------
F-21
<PAGE>
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
(DATA RELATIVE TO SEPTEMBER 30, 1993 AND 1992
AND FOR THE NINE MONTHS THEN ENDED IS UNAUDITED)
NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- -----------------------
STATEMENTS OF INCOME 1993 1992 1992 1991 1990
------ -------- ---- ---- ------
(UNAUDITED)
Income before income tax
expense (credit)and equity
in undistributed net income
of subsidiaries. . . . . . . $ 5,259 $ 2,617 $ 3,214 $1,768 $5,619
Income tax expense (credit) . (72) (30) (360) (49) 34
------- ------- ------- ------ ------
5,331 2,647 3,574 1,817 5,585
Equity in undistributed net
income of:
Bank subsidiaries. . . . . . 5,099 4,623 6,337 3,039 (2,543)
Nonbank subsidiary . . . . . 17 (579) (270) 165 (827)
------- ------- ------- ------ ------
Net income . . . . . . . . . $10,447 $ 6,691 $ 9,641 $5,021 $2,215
======= ======= ======= ====== ======
STATEMENTS OF CASH FLOWS
Operating activities:
Net income . . . . . . . . . $10,447 $ 6,691 $ 9,641 $5,021 $2,215
Adjustments to reconcile net
income to net cash provided
by operating activities--
Provision for
depreciation. . . . . . . 62 62 83 83 62
Amortization expense . . . 205 227 641 478 216
Increase in investment in
subsidiaries. . . . . . . (5,119) (12,644) (26,667) (4,219) (130)
Increase in accounts
receivable. . . . . . . . (221) (171) (146) (116) (49)
Decrease (increase) in
other assets. . . . . . . -- 7 7 (7) (325)
Increase (decrease) in
accounts payable and
other liabilities . . . . (33) 618 288 (26) 25
------- ------- ------ ------ ------
Net cash provided by
(used in)
operating activities . . 5,341 (5,210) (16,153) 1,214 2,014
------- ------- ------ ------ ------
Investing activities:
Redemption of certificate
of deposit. . . . . . . . . -- -- -- -- 900
Purchase of investment
securities. . . . . . . . . (2,928) (351) (543) -- --
Capital expenditures . . . . -- (2) (3) -- (5)
------ ------ ------ ------ ------
Net cash provided by (used
in) investing activities . (2,928) (353) (546) -- 895
------- ------ ------ ------ ------
Financing activities:
Decrease in amount due to
Hudson United Bank. . . . . (20) (15) (19) (18) (19)
Decrease in note payable . . -- (763) (763) (68) (68)
Issuance of common stock . . -- 19,715 19,715 -- --
Dividends paid . . . . . . . (2,228) (1,533) (2,414) (1,679) (1,631)
Acquisition of treasury
stock . . . . . . . . . . . -- -- (6) (5) (526)
------- ------ ------ ------ ------
Net cash provided by (used
in) financing activities . (2,248) 17,404 16,513 (1,770) (2,244)
------- ------- ------ ------ ------
Increase (decrease) in
cash . . . . . . . . . . . 165 11,841 (186) (556) 665
Cash at beginning of period . 3 189 189 745 80
------- ------- ------- ------ ------
Cash at end of period . . . . $ 168 $12,030 $ 3 $ 189 $ 745
======= ======= ======= ====== ======
F-22
<PAGE>
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(IN THOUSANDS)
(DATA RELATIVE TO SEPTEMBER 30, 1993 AND 1992
AND FOR THE NINE MONTHS THEN ENDED IS UNAUDITED)
(18) SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
The following quarterly financial information for the three quarters
ended September 30, 1993 and two years ended December 31, 1992 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.
THREE MONTHS ENDED
-----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
1993:
Interest income . . . . $16,389 $16,323 $17,619
Interest expense. . . . 5,297 4,967 5,370
Net interest income . . 11,092 11,356 12,249
Provision for possible
loan losses. . . . . . 750 750 1,050
Gain(loss)on sale of
securities . . . . . . 4 (2) --
Other income. . . . . . 1,817 2,195 2,402
Other expenses. . . . . 7,084 7,451 8,084
Income before income
taxes. . . . . . . . . 5,079 5,348 5,517
Income tax expense
(benefit). . . . . . . 1,872 1,844 1,781
Net income. . . . . . . 3,207 3,504 3,736
Net income per share. . .46 .51 .54
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
1991:
Interest income . . . . $12,338 $12,435 $12,610 $14,376
Interest expense. . . . 6,363 6,172 6,011 6,741
Net interest income . . 5,975 6,263 6,599 7,635
Provision for possible
loan losses. . . . . . 510 510 510 782
Gain (loss) on sale of
securities . . . . . . 32 57 (57) 7
Other income. . . . . . 1,198 1,359 1,316 1,559
Other expenses. . . . . 5,193 5,355 5,472 6,254
Income before income
taxes. . . . . . . . . 1,502 1,814 1,876 2,165
Income tax expense. . . 389 589 604 754
Net income. . . . . . . 1,113 1,225 1,272 1,411
Net income per share. . .23 .25 .26 .28
F-23
<PAGE>
<PAGE>
[DELOITTE & TOUCHE LETTERHEAD]
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.
/s/ DELOITTE & TOUCHE
- --------------------
DELOITTE & TOUCHE
June 11, 1993
February 15, 1994 as to Note 22
F-24
<PAGE>
<PAGE>
STATEWIDE SAVINGS BANK, S.L.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, 1993 AND 1992 AND (UNAUDITED) SEPTEMBER 30, 1993
MARCH 31,
ASSETS SEPTEMBER 30, ------------------------
1993 1993 1992
------------ ----------- -----------
(UNAUDITED) (RESTATED) (RESTATED)
Cash and amounts due from
depository institutions . . . . . . $ 8,591,568 $ 5,211,833 $ 6,393,445
Federal funds sold . . . . . . . . . 10,645,000 6,100,000 6,000,000
----------- ----------- -----------
Total cash and cash
equivalents . . . . . . . . . . . 19,236,568 11,311,833 12,393,445
Investment securities (estimated
market value of $18,218,875,
$19,169,750 and $24,384,344
at September 30, 1993 and
March 31, 1993 and 1992,
respectively) . . . . . . . . . . . 17,179,916 18,224,440 23,945,102
Mortgage-backed securities,
net of amortization
(estimated market value of
$220,853,970, $215,480,381
and $181,784,075 at
September 30, 1993 and
March 31, 1993 and 1992,
respectively) . . . . . . . . . . . 214,730,995 208,248,187 180,303,895
Mortgage-backed securities
available for sale
(estimated market value of
$6,536,569 and $7,870,900
at September 30 and March
31, 1993, respectively) . . . . . . 6,241,833 7,516,517 --
Loans receivable, less allowance
for loan losses of $1,044,617,
$1,366,001 and $1,841,404 at
September 30, 1993 and
March 31, 1993 and 1992,
respectively. . . . . . . . . . . . 211,452,029 230,928,846 264,914,246
Accrued interest receivable,
net . . . . . . . . . . . . . . . . 4,098,786 4,557,502 6,175,588
Real estate owned, net . . . . . . . 10,649,063 11,538,974 15,204,455
Federal Home Loan Bank of
New York stock, at cost . . . . . . 4,492,600 4,492,600 4,492,600
Premises and equipment,
net . . . . . . . . . . . . . . . . 4,037,120 3,940,211 4,287,925
Excess of cost over fair
value of assets acquired. . . . . . 15,165,358 15,636,517 16,578,835
Other assets . . . . . . . . . . . . 2,974,669 1,465,067 3,264,876
Investment in real estate
venture, net. . . . . . . . . . . . -- 23,806 224,144
------------ ----------- -----------
$510,258,937 $517,884,500 $531,785,111
============ =========== ===========
LIABILITIES AND RETAINED EARNINGS
LIABILITIES:
Deposits . . . . . . . . . . . . . . $432,064,108 $440,033,959 $460,925,889
Borrowed funds . . . . . . . . . . . 42,991,666 45,091,666 43,391,666
Advance payments by borrowers
for taxes and insurance . . . . . . 1,787,401 1,844,246 2,546,772
Accounts payable and other
liabilities . . . . . . . . . . . . 2,096,819 2,603,039 1,695,980
------------ ----------- -----------
Total liabilities. . . . . . . . . 478,939,904 489,572,910 508,560,307
COMMITMENTS AND CONTINGENCIES
RETAINED EARNINGS -- Substantially
restricted . . . . . . . . . . . . 31,318,943 28,311,590 23,224,804
------------ ----------- -----------
$510,258,937 $517,884,500 $531,785,111
============ =========== ===========
See notes to consolidated financial statements.
F-25
<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) SIX MONTHS ENDED
SEPTEMBER 30, 1993 AND 1992
<CAPTION>
FOR THE SIX MONTHS
ENDED SEPTEMBER 30, 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 . . . . . . .. . . $ 9,706,842 $ 12,191,813 $ 22,435,670 $ 28,389,922 $ 33,076,126
Interest on mortgage-backed
securities. . . . . . . . . . . . . .. . . . 7,160,005 7,482,357 14,961,347 13,393,415 12,011,959
Interest and dividends on
investment securities . . . . . . . . . . . 706,656 1,053,990 1,981,349 2,239,760 2,623,014
Dividends on Federal Home
Loan Bank Stock . . . . . . . . . . .. . . . 180,073 201,983 444,118 376,255 438,478
----------- ----------- ----------- ----------- -----------
17,753,576 20,930,143 39,822,484 44,399,352 48,149,577
----------- ----------- ----------- ----------- -----------
INTEREST EXPENSE:
Deposits . . . . . . . . . . . . . . .. . . . 7,238,154 10,165,820 18,299,668 26,742,663 32,885,843
Borrowed funds . . . . . . . . . . . .. . . . 1,606,570 1,753,275 3,529,200 3,862,905 4,501,451
----------- ----------- ----------- ----------- -----------
8,844,724 11,919,095 21,828,868 30,605,568 37,387,294
----------- ----------- ----------- ----------- -----------
NET INTEREST AND DIVIDEND
INCOME BEFORE PROVISION
FOR LOAN LOSSES . . . . . . . . . . . . . . . 8,908,852 9,011,048 17,993,616 13,793,784 10,762,283
PROVISION FOR LOAN LOSSES. . . . . . . . . . . 359,841 26,320 193,654 1,932,503 185,800
----------- ----------- ----------- ----------- -----------
NET INTEREST AND DIVIDEND
INCOME AFTER PROVISION
FOR LOAN LOSSES . . . . . . . . . . . . . . . 8,549,011 8,984,728 17,799,962 11,861,281 10,576,483
----------- ----------- ----------- ----------- -----------
OTHER INCOME:
Service charges . . . . . . . . . . . . . . . 694,417 445,665 814,096 737,477 715,388
Net gain on sales of mortgage-
backed and investment securities . . . . . . -- 529,777 529,775 1,763,509 20,090
Gain on pension plan termination. . . . . . . -- -- -- 867,000 --
Other income. . . . . . . . . . . . . . . . . 155,832 202,469 666,119 196,420 1,003,947
----------- ----------- ----------- ----------- -----------
850,249 1,177,911 2,009,990 3,564,406 1,739,425
----------- ----------- ----------- ----------- -----------
OPERATING EXPENSES:
Salaries and employee benefits. . . . . . . . 2,914,888 2,673,717 5,460,939 5,097,646 4,972,769
Net occupancy expense of premises . . . . . . 880,378 892,762 1,767,632 1,977,097 2,054,684
Advertising and promotion . . . . . . . . . . 130,000 130,000 262,279 252,500 180,218
Federal insurance premiums. . . . . . . . . . 550,892 491,524 954,084 969,497 916,141
Amortization of intangibles . . . . . . . . . 471,158 471,158 942,318 942,318 942,318
Foreclosed real estate expense, net . . . . . 195,506 431,749 886,160 1,345,872 1,747,266
Loss on investment in real estate -
venture. . . . . . . . . . . . . . . . . . . -- 140,000 140,000 334,575 960,000
Other . . . . . . . . . . . . . . . . . . . . 917,232 840,947 1,819,326 2,044,135 1,837,56
----------- ----------- ----------- ----------- -----------
6,060,054 6,071,947 12,232,738 12,963,640 13,610,963
----------- ----------- ----------- ----------- -----------
(Continued)
F-26
</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) SIX MONTHS ENDED
SEPTEMBER 30, 1993 AND 1992
<CAPTION>
FOR THE SIX MONTHS
ENDED SEPTEMBER 30, 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. . . . . . . . . . . . . . . . . . $ 3,339,206 $ 4,090,782 $ 7,577,214 $ 2,462,047 $(1,295,055)
INCOME TAXES . . . . . . . . . . . . . . . . . 1,000,694 1,350,668 2,490,428 1,461,386 34,854
----------- ----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE EXTRA-
ORDINARY CREDIT AND CHANGE
IN ACCOUNTING PRINCIPLE . . . . . . . . . . . 2,338,512 2,740,114 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). . . . . . . . . . . . . . . 3,007,353 2,740,114 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 . . . . . . . . . . . . . . . . $31,318,943 $25,964,918 $28,311,590 $23,224,804 $20,990,860
=========== =========== =========== =========== ===========
See notes to consolidated financial statements.
F-27
<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 THE (UNAUDITED) SIX MONTHS ENDED
SEPTEMBER 30, 1993 AND 1992
<CAPTION>
FOR THE SIX MONTHS FOR THE YEARS ENDED
ENDED SEPTEMBER 30, 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). . . . . . . . . . . . . . . $ 3,007,353 $ 2,740,114 $ 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 26,320 193,654 1,932,503 185,800
Provision for losses on foreclosed
real estate. . . . . . . . . . . . . . . . . -- 198,680 465,790 601,509 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 . . . . . . . . (520,337) 14,402 (1,362,249) (371,484) (993,467)
Depreciation and amortization . . . . . . . . 709,614 724,225 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. . . . . . . . . . . . . . . . . . . . (123,836) (82,382) (80,016) 11,398 (21,589)
Equity in loss of joint venture . . . . . . . 23,806 63,315 60,337 125,444 80,410
Changes in assets and liabilities:
Decrease in accrued interest
receivable . . . . . . . . . . . . . . . . . 458,716 223,880 1,618,086 323,896 (18,731)
Increase (decrease) in accrued
interest payable . . . . . . . . . . . . . . 366 (20,002) (29,750) (109,388) (48,460)
Decrease (increase) in other assets . . . . . (1,509,602) 1,799,871 1,799,809 (1,649,008) (953,896)
(Decrease) increase in accounts
payable and other liabilities. . . . . . . . (499,728) 671,992 921,910 626,115 (79,527)
---------- ---------- ---------- ---------- ---------
Net cash provided by operating
activities . . . . . . . . . . . . . . . . . 1,906,193 5,970,640 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 . . . . . . . . . . . . . . . . 18,404,523 15,636,658 34,063,625 33,827,049 31,841,285
Proceeds from mortgage-backed
securities principal repayments. . . . . . . 41,637,512 15,026,198 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 . . . . . . . . . . . . . . . . . (46,025,070) (43,224,063) (89,186,951) (90,684,869) (22,844,896)
Purchase of investment securities . . . . . . (2,002,500) (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 3,000,000 12,700,000 21,190,000 13,650,000
Proceeds from sale of and payments on
real estate owned. . . . . . . . . . . . . . 1,503,846 2,200,344 3,648,558 2,561,321 191,857
F-28
</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 THE (UNAUDITED) SIX MONTHS ENDED
SEPTEMBER 30, 1993 AND 1992
<CAPTION>
FOR THE SIX MONTHS FOR THE YEARS ENDED
ENDED SEPTEMBER 30, MARCH 31,
-------------------------- ------------------------------------------
1993 1992 1993 1992 1991
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Improvements to real estate owned. . . . . . . (30,851) (175,077) (241,400) (381,559) (730,420)
Purchases of premises and equipment. . . . . . (335,364) (100,222) (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. . . . . . . . . . . . 16,152,096 (5,037,189) 9,075,220 (484,478) 29,598,236
----------- ----------- ----------- ---------- ----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net (decrease) increase in deposit
accounts . . . . . . . . . . . . . . . . . . $ (7,976,709) $ (9,560,555) $(20,877,031) $ 6,208,853 $(30,153,198)
Repayment of Federal Home Loan
Bank advances. . . . . . . . . . . . . . . . (3,150,000) (12,650,000) (7,800,000) (20,800,000) (6,300,000)
Advances from the Federal Home
Loan Bank. . . . . . . . . . . . . . . . . . 1,050,000 17,500,000 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. . . . . . . . . . . . . . . . (56,845) (45,947) (702,526) 988,004 (107,703)
----------- ----------- ----------- ---------- ----------
Net cash (used in) provided by
financing activities. . . . . . . . . . . . 10,133,554 (4,756,502) (19,879,557) 1,396,857 (33,603,901)
----------- ----------- ----------- ---------- ----------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS. . . . . . . . . . . . . 7,924,735 (3,823,051) (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 . . . . . . . . . . . . . . . . $19,236,568 $ 8,570,394 $11,311,833 $12,393,445 $ 7,564,596
=========== =========== =========== =========== ==========
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the year for:
Interest. . . . . . . . . . . . . . . . . . $ 8,844,356 $11,939,097 $21,858,618 $30,714,956 $37,387,294
=========== =========== =========== =========== ==========
Income taxes. . . . . . . . . . . . . . . . . $ 2,095,183 $ 1,260,884 $ 1,626,162 $ 91,500 $ 191,879
=========== =========== =========== =========== ==========
SUPPLEMENTAL NON-CASH
INVESTING ACTIVITIES:
Transfer from loans receivable to
real estate owned, net . . . . . . . . . . . $ 459,248 $ 527,881 $ 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 availablefor sale . . . . . . . . $ -- $ -- $ 7,516,517 $ -- $ --
=========== =========== =========== =========== ===========
See notes to consolidated financial statements.
F-29
</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 SIX MONTHS
ENDED SEPTEMBER 30, 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-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 SIX MONTHS
ENDED SEPTEMBER 30, 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-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 SIX MONTHS
ENDED SEPTEMBER 30, 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-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 SIX MONTHS
ENDED SEPTEMBER 30, 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-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 SIX MONTHS
ENDED SEPTEMBER 30, 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-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 SIX MONTHS
ENDED SEPTEMBER 30, 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-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 SIX MONTHS
ENDED SEPTEMBER 30, 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-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 SIX MONTHS
ENDED SEPTEMBER 30, 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-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 SIX MONTHS
ENDED SEPTEMBER 30, 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-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 SIX MONTHS
ENDED SEPTEMBER 30, 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-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 SIX MONTHS
ENDED SEPTEMBER 30, 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-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 SIX MONTHS
ENDED SEPTEMBER 30, 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-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 SIX MONTHS
ENDED SEPTEMBER 30, 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-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 SIX MONTHS
ENDED SEPTEMBER 30, 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-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 SIX MONTHS
ENDED SEPTEMBER 30, 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-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 SIX MONTHS
ENDED SEPTEMBER 30, 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 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. 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 $ 1,695,890
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-45
<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 SIX MONTHS
ENDED SEPTEMBER 30, 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 SIX MONTH
ENDED SEPTEMBER 30,
-----------------------
1993 1992
---- ----
Balance, beginning of period . . . $1,366,001 $1,841,404
Provision for loan losses 359,841 26,320
Charge-offs. . . . . . . . . . . . (694,820) (475,407)
Recoveries . . . . . . . . . . . . 13,595 9,858
---------- ----------
Balance, end of period . . . . . . $1,044,617 $1,402,175
========== ==========
C. Nonperforming Loans--Loans three or more months in arrears or in the
process of foreclosure were: Conventional first mortgage loans--$1,214,694
and $2,523,772; FHA insured and VA guaranteed--$499,436 and $518,228;
consumer loans--$316,870 and $504,338; and construction loans $248,253 at
September 30, 1993 and 1992, respectively.
The amount of non-accruing loans at September 30, 1993 and 1992 was
$1,375,742 and $2,535,471 respectively, which represents .70% and 1.01%,
respectively, of total loans outstanding. The total interest income that
would have been recorded for the six months ended September 30, 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 $82,108 and $126,709, 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-46<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 SIX MONTHS
ENDED SEPTEMBER 30, 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
allowance and capital.
F-47
<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, 1992 and 1991, 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, 1992. 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
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, 1992 and 1991, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1992 in conformity with
generally accepted accounting principles.
As discussed in Note 11 to the consolidated financial statements, the
Company is presently a defendant in two lawsuits. One suit 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.
COOPERS & LYBRAND
Parsippany, New Jersey
January 28, 1993
F-48
<PAGE>
<PAGE>
<TABLE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- --------------------------
1993 1992 1991
------------- ------------- ------------
(UNAUDITED)
ASSETS
<S> <C> <C> <C>
Cash and due from banks. . . . . . . . . . . . . . . . $ 5,150,674 $ 4,336,433 $ 4,670,190
Federal funds sold . . . . . . . . . . . . . . . . . . 2,200,000 3,000,000 18,300,000
Investment securities:
Held-for-sale (market value
$41,056,000 and $1,954,000). . . . . . . . . . . . . 40,441,214 1,936,700 --
Held-to-maturity (market value $17,218,000;
$57,430,000 and $53,784,000). . . . . . . . . . . . 16,862,201 56,793,662 52,785,373
Mortgage-backed securities:
Held-for-sale (market value $8,927,000) . . . . . . . 8,924,240 -- --
Held-to-maturity (market value $11,455,000;
$7,197,000 and $1,533,000) . . . . . . . . . . . . . 11,480,652 7,213,343 1,516,910
Loans:
Held-for-sale (market value
$5,322,000 and $9,032,000) . . . . . . . . . . . . . 5,152,589 9,000,000 --
In portfolio (net of allowance for losses of
$2,855,000; $2,776,000 and $2,989,000) . . . . . . . 178,737,499 182,500,728 195,508,126
Other real estate owned ("REO")
(net of allowance for losses of $1,723,000;
$1,802,000 and $1,328,000). . . . . . . . . . . . . . 7,799,263 12,998,022 12,562,855
Accrued interest receivable. . . . . . . . . . . . . . 2,415,992 2,606,893 2,907,186
Premises and equipment, net. . . . . . . . . . . . . . 2,707,938 2,840,090 2,899,553
Federal Home Loan Bank stock, at cost. . . . . . . . . 1,711,300 1,632,000 2,152,300
Income tax refund. . . . . . . . . . . . . . . . . . . -- 320,000 --
Deferred income tax asset. . . . . . . . . . . . . . . 550,000 250,000 --
Other assets . . . . . . . . . . . . . . . . . . . . . 463,468 342,758 424,325
------------ ------------ ------------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . $284,597,030 $285,770,629 $293,726,818
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Interest-bearing deposits . . . . . . . . . . . . . . $239,138,978 $244,249,625 $250,993,331
Noninterest-bearing deposits. . . . . . . . . . . . . 9,191,982 8,373,055 8,027,681
------------ ------------ ------------
Total deposits . . . . . . . . . . . . . . . . . . . 248,330,960 252,622,680 259,021,012
------------ ------------ ------------
Advances from Federal Home Loan Bank ("FHLB") . . . . 400,000 -- --
Mortgage escrow deposits. . . . . . . . . . . . . . . 2,085,776 1,393,709 2,133,090
Accrued interest payable. . . . . . . . . . . . . . . 222,814 336,657 666,501
Other liabilities . . . . . . . . . . . . . . . . . . 1,212,464 948,538 3,689,751
------------ ------------ ------------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . 252,252,014 255,301,584 265,510,354
------------ ------------ ------------
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, 2,307,187 shares issued and
outstanding. . . . . . . . . . . . . . . . . . . . . 230,718 230,718 230,718
Paid-in capital . . . . . . . . . . . . . . . . . . . 22,498,778 22,498,778 22,498,778
Retained earnings. . . . . . . . . . . . . . . . . . . 9,750,520 7,919,549 5,823,568
------------ ------------ ------------
32,480,016 30,649,045 28,553,064
Deferred compensation:
Employee Stock Ownership Plan ("ESOP"). . . . . . . . -- -- (96,600)
Management Recognition and Retention Plan ("MRP") . . (135,000) (180,000) (240,000)
------------ ------------ ------------
TOTAL STOCKHOLDERS' EQUITY. . . . . . . . . . . . . 32,345,016 30,469,045 28,216,464
------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY. . . . . $284,597,030 $285,770,629 $293,726,818
============ ============ ============
See notes to consolidated financial statements
F-49
</TABLE>
<PAGE>
<PAGE>
<TABLE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
-------------------------- -----------------------------------------
1993 1992 1992 1991 1990
----------- ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest income:
Loans, including fees . . . . . . . $11,320,137 $13,859,957 $18,041,437 $22,616,388 $23,698,962
U.S. Treasury obligations . . . . . 1,062,337 2,545,549 2,833,951 1,995,094 1,326,486
Mortgage-backed securities. . . . . 776,169 63,148 193,365 849,600 2,015,611
Federal funds sold. . . . . . . . . 144,607 243,149 380,910 372,369 607,564
Dividends . . . . . . . . . . . . . 105,650 103,806 155,715 199,088 203,872
Due from banks. . . . . . . . . . . 35,536 33,420 50,378 22,719 --
Other investment securities . . . . 659,963 -- 223,335 1,538,383 3,449,115
----------- ----------- ----------- ----------- -----------
Total interest income . . . . . . . 14,104,399 16,849,029 21,879,091 27,593,641 31,301,610
----------- ----------- ----------- ----------- -----------
INTEREST EXPENSE:
Deposits. . . . . . . . . . . . . . 6,812,063 9,525,288 12,189,233 17,148,425 19,756,891
Borrowed funds. . . . . . . . . . . 12,889 1,350 1,350 1,970,423 2,786,279
----------- ----------- ----------- ----------- -----------
Total interest expense. . . . . . . 6,824,952 9,526,638 12,190,583 19,118,848 22,543,170
----------- ----------- ----------- ----------- -----------
Net interest income. . . . . . . . 7,279,447 7,322,391 9,688,508 8,474,793 8,758,440
Provision for losses on loans. . . 350,000 750,000 1,100,000 1,500,000 2,350,000
----------- ---------- ---------- ---------- ----------
Net interest income after
provision for losses on loans . . 6,929,447 6,572,391 8,588,508 6,974,793 6,408,440
----------- ---------- ---------- ---------- ----------
OTHER INCOME:
Service charges on deposit
accounts. . . . . . . . . . . . . 131,664 138,743 181,743 149,163 128,316
Gain on sale of loans, net. . . . . 141,205 196,845 196,845 1,275,976 --
Security gains, net . . . . . . . . 29,662 1,211,774 1,638,132 856,843 --
Gain on sale of bank building . . . -- -- -- -- 327,746
Other . . . . . . . . . . . . . . . 334,698 217,515 273,536 287,286 402,531
----------- ----------- ----------- ----------- -----------
Total other income. . . . . . . . . 637,229 1,764,877 2,290,256 2,569,268 858,593
----------- ----------- ----------- ----------- -----------
OTHER EXPENSES:
Salaries and employee benefits. . . 2,605,238 2,709,481 3,507,038 3,914,769 3,597,392
REO expense, net. . . . . . . . . . 922,965 615,437 1,171,544 1,935,927 2,284,660
Occupancy and equipment expenses,
net . . . . . . . . . . . . . . . 633,250 837,151 1,010,739 869,705 976,560
Federal Deposit Insurance
Corporation ("FDIC") assessment. . 528,110 448,372 597,054 577,945 340,885
Litigation settlement . . . . . . . -- -- -- -- 1,264,318
Security losses, net. . . . . . . . -- -- -- -- 56,141
----------- ----------- ----------- ----------- -----------
Other . . . . . . . . . . . . . . . 1,661,142 1,853,757 2,407,408 2,007,526 2,154,465
----------- ----------- ----------- ----------- -----------
Total other expenses. . . . . . . . 6,350,705 6,464,198 8,693,783 9,305,872 10,674,421
Income/(loss) before income taxes,
extraordinary items and cumulative
effect of change in accounting
principle . . . . . . . . . . . . 1,215,971 1,873,070 2,184,981 238,189 (3,407,388)
Income tax expense/(benefit) . . . (315,000) 639,000 628,000 552,000 (1,538,000)
----------- ----------- ----------- ----------- -----------
Income/(loss) before extraordinary
items and cumulative effect of
change in accounting principle. . 1,530,971 1,234,070 1,556,981 (313,811) (1,869,388)
Extraordinary items:
Utilization of net operating loss
("NOL") carryforward . . . . . . -- 556,000 539,000 -- --
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). . . . . . . . . $ 1,830,971 $ 1,790,070 $ 2,095,981 $ (1,348,130) $ (1,869,388)
=========== =========== =========== ============ ============
Income/(loss) per share:
Income/(loss) before extraordinary
items and cumulative effect of
change in accounting principle. . $ 0.68 $ 0.55 $ 0.68 $ (0.14) $ (0.83)
Extraordinary items. . . . . . . . -- 0.24 0.24 (0.46) --
Cumulative effect of change in
accounting principle. . . . . . . 0.13 -- -- -- --
----------- ----------- ----------- ----------- -----------
NET INCOME/(LOSS). . . . . . . . . $ 0.81 $ 0.79 $ 0.92 $ (0.60) $ (0.83)
=========== =========== =========== ============ ============
Weighted average number of shares
outstanding . . . . . . . . . . . . 2,270,312 2,266,775 2,276,035 2,263,547 2,264,119
=========== =========== =========== ============ ============
See notes to consolidated financial statements
F-50
</TABLE>
<PAGE>
<PAGE>
<TABLE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<CAPTION>
DEFERRED COMPENSATION
PREFERRED COMMON PAID-IN RETAINED -------------------------
STOCK STOCK CAPITAL EARNINGS ESOP MRP TOTAL
--------- -------- ----------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1990. . . . $ -- $230,718 $22,498,778 $ 9,202,592 $(676,200) $(426,000) $30,829,888
Recognition of deferred
compensation expense . . . . . -- -- -- -- 289,800 126,000 415,800
Cash dividends paid of $0.07
per share. . . . . . . . . . . -- -- -- (161,506) -- -- (161,506)
Net loss. . . . . . . . . . . . -- -- -- (1,869,388) -- -- (1,869,388)
------- -------- ----------- ----------- --------- --------- -----------
BALANCE, December 31, 1990. . . -- 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
(Unaudited). . . . . . . . . . -- -- -- -- -- 45,000 45,000
Net income (Unaudited). . . . . -- -- -- 1,830,971 -- -- 1,830,971
------- -------- ----------- ----------- --------- --------- -----------
BALANCE, September 30, 1993
(Unaudited). . . . . . . . . . $ -- $230,718 $22,498,778 $ 9,750,520 $ -- $(135,000) $32,345,016
======= ======== =========== =========== ========= ========= ===========
See notes to consolidated financial statements
F-51
</TABLE>
<PAGE>
<PAGE>
<TABLE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------- ---------------------------------------
1993 1992 1992 1991 1990
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C> <C>
Interest received. . . . . . . . . . . . . . . . $15,533,572 $17,431,666 $22,383,276 $27,978,824 $30,158,172
Loan fees received . . . . . . . . . . . . . . . 216,988 306,909 449,833 406,092 168,285
Service charges on deposits received . . . . . . 131,664 138,743 181,743 149,163 128,316
Miscellaneous other income received. . . . . . . 198,297 217,515 273,536 287,286 402,531
Income tax refund received . . . . . . . . . . . 868,577 -- -- 1,105,511 2,829,000
Income taxes paid. . . . . . . . . . . . . . . . (320,858) -- (609,000) -- --
Interest paid. . . . . . . . . . . . . . . . . . (6,938,795) (9,871,103) (12,520,427) (19,699,816) (23,606,758)
Cash paid to employees and for other expenses. . (5,329,849) (5,682,815) (7,863,590) (5,278,204) (8,338,796)
----------- ----------- ----------- ----------- -----------
Net cash provided by operating activities. . . . 4,359,596 2,540,915 2,295,371 4,948,856 1,740,750
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturity of term federal
funds sold. . . . . . . . . . . . . . . . . . . -- 9,000,000 9,000,000 -- --
Purchase of term federal funds sold. . . . . . . -- -- -- (9,000,000) --
Proceeds from maturities of interest-bearing
deposits. . . . . . . . . . . . . . . . . . . . -- -- -- -- 4,000,000
Proceeds from sales of investment securities . . 8,998,633 54,475,594 54,466,694 68,049,943 10,955,091
Proceeds from maturities of investment
securities. . . . . . . . . . . . . . . . . . . 32,685,721 -- 10,445,843 52,378,000 61,592,594
Purchase of investment securities. . . . . . . . (2,452,068) (24,644,536) (68,592,457) (117,910,408) (92,296,914)
Principal collected on mortgage-backed
securities. . . . . . . . . . . . . . . . . . . 3,908,202 33,018 532,190 1,042,580 2,396,702
Proceeds from sales of mortgage-backed
securities. . . . . . . . . . . . . . . . . . . 2,036,602 1,533,314 1,533,314 27,191,360 --
Purchase of mortgage-backed securities . . . . . (14,618,435) (7,785,292) (7,785,292) -- --
Proceeds from sales of securities held
for sale. . . . . . . . . . . . . . . . . . . . 955,323 -- 19,834,531 -- --
Proceeds from maturities of securities held
for sale. . . . . . . . . . . . . . . . . . . . 2,308,118 -- -- -- --
Purchase of securities held for sale . . . . . . (47,151,187) (19,417,114) (21,353,814) -- --
Proceeds from sales of mortgage loans. . . . . . 5,141,205 15,717,358 15,717,358 34,600,519 --
Purchase of loans. . . . . . . . . . . . . . . . -- (10,086,000) (10,086,000) -- --
Net decrease/(increase) in loans . . . . . . . . 3,467,940 (8,583,910) (7,095,165) (11,481,243) (1,388,607)
Recoveries on loans charged-off. . . . . . . . . 196,841 206,209 257,045 240,898 347,546
Proceeds from sale of bank building. . . . . . . -- -- -- -- 380,005
Capital expenditures . . . . . . . . . . . . . . (61,810) (252,866) (312,723) (261,474) (614,172)
Proceeds from sales of REO net of financed sales
and closing costs . . . . . . . . . . . . . . . 3,518,513 718,096 1,126,761 2,658,486 2,630,494
Proceeds from redemption of FHLB stock . . . . . -- 520,300 520,300 104,600 575,000
Purchase of FHLB stock . . . . . . . . . . . . . (79,300) -- -- -- --
----------- ----------- ----------- ----------- -----------
Net cash (used in)/provided by investing
activities. . . . . . . . . . . . . . . . . . . (1,145,702) 11,431,171 (1,791,415) 47,613,261 (11,422,261)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase/(decrease) in savings and
transaction accounts. . . . . . . . . . . . . . 4,973,513 12,100,363 14,330,173 5,693,096 (1,812,045)
Net (decrease)/increase in certificates
of deposit. . . . . . . . . . . . . . . . . . . (9,265,233) (17,931,159) (20,728,505) (21,998,795) 3,426,498
Net (decrease)/increase in mortgage escrow
deposits. . . . . . . . . . . . . . . . . . . . 692,067 412,810 (739,381) 149,309 (293,559)
Repayment of advances from FHLB. . . . . . . . . -- -- -- (45,134,319) (12,000,000)
Advances from FHLB . . . . . . . . . . . . . . . 400,000 -- -- 15,600,000 --
Dividends paid . . . . . . . . . . . . . . . . . -- -- -- -- (161,506)
----------- ----------- ----------- ----------- -----------
Net cash used in financing activities. . . . . . (3,199,653) (5,417,986) (7,137,713) (45,690,709) (10,840,612)
----------- ----------- ----------- ----------- -----------
NET INCREASE/(DECREASE) IN CASH AND CASH
EQUIVALENTS. . . . . . . . . . . . . . . . . . . 14,241 8,554,100 (6,633,757) 6,871,408 (20,522,123)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR . . . 7,336,433 13,970,190 13,970,190 7,098,782 27,620,905
----------- ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD . . . . . $ 7,350,674 $22,524,290 $ 7,336,433 $13,970,190 $ 7,098,782
=========== =========== =========== =========== ===========
See notes to consolidated financial statements
F-52
</TABLE>
<PAGE>
<PAGE>
<TABLE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------- ------------------------------------------
1993 1992 1992 1991 1990
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Reconciliation of Net Income/(Loss) to Net Cash
Provided by Operating Activities:
Net income/(loss) . . . . . . . . . . . . . . $ 1,830,971 $ 1,790,070 $ 2,095,981 $ (1,348,130) $ (1,869,388)
Adjustments to reconcile net income/(loss) to
net cash provided by operating activities:
Depreciation . . . . . . . . . . . . . . . 193,962 306,419 372,186 319,678 240,593
Provision for losses on loans and REO. . . 1,018,942 1,206,901 1,951,900 2,670,206 4,022,853
Recognition of deferred compensation
expense . . . . . . . . . . . . . . . . . 45,000 141,600 156,600 349,800 415,800
Deferred loan fees . . . . . . . . . . . . (138,891) (82,342) (163,765) (248,842) (223,448)
Deferred taxes . . . . . . . . . . . . . . (300,000) -- (250,000) 552,000 (251,000)
Gain on sales of investment and
mortgage-backed securities. . . . . . . . (29,662) (1,245,588) (1,671,946) (1,078,931) (18,021)
Loss on sales of investment and
mortgage-backed securities. . . . . . . . -- 33,814 33,814 222,088 74,162
Gain on sale of bank building. . . . . . . -- -- -- -- (327,746)
Gain on sales of REO . . . . . . . . . . . (378,799) (349,930) (454,734) (329,927) (315,364)
Loss on sales of REO . . . . . . . . . . . 124,853 32,879 53,887 153,157 138,215
Gain on sale of mortgage loans . . . . . . (141,205) (206,314) (206,314) (1,275,976) --
Loss on sale of mortgage loans . . . . . . -- 9,469 9,469 -- --
Premium amortization, net of discount
earned. . . . . . . . . . . . . . . . . . 1,594,151 575,774 817,490 243,249 (372,896)
Extraordinary loss on early extinguishment
of FHLB advances. . . . . . . . . . . . . -- -- -- 1,034,319 --
Changes in operating assets and liabilities:
(Increase)/decrease in income tax refund
receivable. . . . . . . . . . . . . . . . 320,000 -- (320,000) 243,000 1,542,000
(Increase)/decrease in accrued interest
receivable. . . . . . . . . . . . . . . . 190,901 396,114 300,293 796,868 (378,809)
(Increase)/decrease in other assets. . . . (120,710) (63,623) 83,567 890,585 232,118
Increase/(decrease) in accrued interest
payable . . . . . . . . . . . . . . . . . (113,843) (344,465) (329,844) (580,968) (1,063,588)
Increase/(decrease) in other liabilities . 263,926 340,137 (183,213) 2,336,680 (104,731)
----------- ----------- ----------- ----------- -----------
Net cash provided by operating activities . . $ 4,359,596 $ 2,540,915 $ 2,295,371 $ 4,948,856 $ 1,740,750
=========== =========== =========== =========== ===========
Supplemental Schedule of Noncash Investing
and Financing Activities:
Transfer of loans to REO . . . . . . . . . $ 3,256,236 $ 3,927,197 $ 5,330,339 $ 9,571,387 $11,721,335
=========== =========== =========== =========== ===========
Portion of REO sales financed by
the Bank. . . . . . . . . . . . . . . . . $ 4,549,475 $ 2,872,255 $ 3,486,900 $ 4,700,200 $ 3,975,000
=========== =========== =========== =========== ===========
Transfer of loans to mortgage loans held
for sale, net . . . . . . . . . . . . . . $ -- $24,520,513 $24,520,513 $ -- $ --
=========== =========== =========== =========== ===========
Exchange of loans for mortgage-backed
securities . . . . . . . . . . . . . . . . $ -- $ -- $ -- $ 6,732,250 $ 5,026,863
=========== =========== =========== =========== ===========
See notes to consolidated financial statements
F-53
</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 Bancorp, Inc. and
Subsidiary 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
Bancorp, Inc, (the "Company") and its wholly-owned subsidiary, Washington
Savings Bank (the "Bank"). All significant intercompany balances and
transactions have been eliminated. The interim consolidated financial
statements included herein have been prepared by the Company, without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission, and should be read in conjunction with the audited consolidated
financial statements of the Company for the year ended December 31, 1992.
Certain information and note disclosure normally included in consolidated
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations, although
the Company believes that the disclosures being made are adequate to make the
information presented not misleading. In the opinion of management, these
consolidated financial statements reflect all adjustments (all of which are of
a normal recurring nature) which are necessary for a fair statement of results
for the interim periods. The results for the interim periods are not
necessarily indicative of results to be expected for theentire year.
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
Securities in which the Bank has both the intent and ability to hold
until call, if any, or maturity are 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 are
recognized when securities are sold by the specific identification method.
Securities held for sale are carried at the lower of aggregate cost or
market. No valuation allowance was required at September 30, 1993 (unaudited)
or December 31, 1992. Gains and losses are recognized when securities are sold
by the specific identification method.
The Bank, 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.
During the second quarter of 1993, the Financial Accounting Standards
Board (the "FASB") 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 will require a different basis of accounting. Held-to-maturity
securities will be accounted for at amortized cost with fair value changes not
recognized. Available-for-sale securities will be accounted for at fair value
with fair value changes reported as a net amount in a separate component of
stockholders' equity. Trading securities will be 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. Earlier
application is not required by the FASB; however, if implemented early,
entities are permitted to initially apply SFAS 115 as of the end of a fiscal
year for which annual financial statements have not previously been issued. As
of September 30, 1993, the effect on the Company of implementing SFAS 115
early would be to increase stockholders' equity by approximately $405,000
(unaudited). The Company has decided to implement SFAS 115 early. Such effect
will be reported as a cumulative effect of a change in accounting principle as
of the end of fiscal year 1993.
F-54
<PAGE>
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
LOANS
Loans in which the Bank has 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 the Bank'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 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 September 30, 1993 (unaudited) or
December 31, 1992. Gains and losses, including deferred loan origination fees,
are recognized when loans are sold by the specific identification method.
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 regards 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-55
<PAGE>
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
INCOME TAXES
The Company and the Bank file a consolidated federal income tax return.
State income tax returns are filed on a separate basis.
Prior to 1993, the Company 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, the Company 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 the Company's 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 the Company's assets and net
earnings by $300,000, or $.13 per share.
PENSION PLAN AND POSTRETIREMENT BENEFITS
The Bank has a noncontributory defined benefit pension plan 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 Bank's funding policy is generally to make the minimum annual
contributions required by applicable regulations. Pension cost/(credit) 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, the Bank 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 the Bank of each retiree's future health insurance premiums
in exchange for the Bank'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, the Company recognized postretirement health care
benefits in the year that the benefits were paid to certain of its retired
employees-the "pay-as-you-go" or cash basis. The costs of providing
postretirement health care benefits approximated $42,000, $38,000 and $39,000
for the years ended December 31, 1992, 1991 and 1990, 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. 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.
The costs of providing postemployment benefits approximated $18,000
(unaudited), $23,000 (unaudited), $31,000, $30,000 and $38,000 for the nine
months ended September 30, 1993 and 1992 and years ended December 31, 1992,
1991 and 1990, respectively.
F-56
<PAGE>
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
FINANCIAL INSTRUMENTS
In 1992 the Company adopted Statement of Financial Accounting Standards
No. 107: "Disclosures about Fair Value of Financial Instruments" ("SFAS 107").
SFAS 107 requires disclosure 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 date. Changes in market conditions subsequent to that date are
not reflected. SFAS 107 has no effect on financial position or results of
operations in the current year or any future period. Furthermore, the results
of implementing SFAS 107 are not representative of the Company's total value.
When quoted market prices are not available, SFAS 107 permits using 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 Bank's investment in FHLB is its carrying amount.
Loan receivables and commitments to extend credit
For certain homogeneous categories of loans, such as one-to-four family
mortgages, consumer loans, and loans held for sale, fair value is based on a
quoted market price from a dealer. The fair value of other types of loans and
commitments to extend credit is estimated by discounting the 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 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, 1991 and 1990
financial statements to conform to the 1993 presentation.
2. CASH AND DUE FROM BANKS
Reserves maintained to meet Federal Reserve Board regulations amounted to
$356,000 (unaudited), $280,000 and $263,000 during the bi-weekly maintenance
periods that included September 30, 1993 and December 31, 1992 and 1991,
respectively.
F-57
<PAGE>
<PAGE>
<TABLE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<CAPTION>
3. SECURITIES
SEPTEMBER 30, 1993
----------------------------------------------------------------------------------------
HELD TO MATURITY HELD FOR SALE
------------------------- -------------------------
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)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities
U.S.Treasury:
Maturing within 1 year . . . . . . --% $ -- $ -- $ -- $ -- 3.55% $ 1,943 $ 3 $ -- $ 1,946
Maturing between 1-5 years . . . . 5.45 13,615 354 (4) 13,965 -- -- -- -- --
Maturing between 5-10 years. . . . -- -- -- -- -- 4.91 32,587 584 -- 33,171
---- ------- ---- ----- ------- ---- ------- ---- ----- -------
5.45 $13,615 $354 $ (4) $13,965 4.83 34,530 587 -- 35,117
---- ------- ---- ----- ------- ---- ------- ---- ----- -------
U.S. Government agencies:
Maturing within 1 year . . . . . . 3.89 1,003 -- (3) 1,000 -- -- -- -- --
---- ------- ---- ----- ------- ---- ------- ---- ----- -------
Corporate Bonds and Notes:
Maturing within 1 year . . . . . . 4.02 1,852 -- (1) 1,851 4.10 4,350 9 (5) 4,354
Maturing between 1-5 years . . . . 4.28 392 10 -- 402 -- -- -- -- --
---- ------- ---- ----- ------- ---- ------- ---- ----- -------
4.07 2,244 10 (1) 2,253 4.10 4,350 9 (5) 4,354
---- ------- ---- ----- ------- ---- ------- ---- ----- -------
Other Securities:
Maturing within 1 year . . . . . . -- -- -- -- -- 4.50 1,561 19 -- 1,580
---- ------- ---- ----- ------- ---- ------- ---- ----- -------
5.18% $16,862 $364 $ (8) $17,218 4.74% $40,441 $615 $(5) $41,051
==== ======= ==== ===== ======= ==== ======= ==== ===== =======
Mortgage-backed securities
Government National
Mortgage Association
("GNMA") pass-through
certificates . . . . . . . . . . . 6.24% $ 8,616 $ 39 $(59) $ 8,596 6.82% $ 7,054 $ 36 $ (32) $ 7,058
Federal Home Loan Mortgage
Association ("FHLMC")
pass-through certificates. . . . . 5.18 2,865 9 (15) 2,859 5.38 1,870 8 (9) 1,869
---- ------- ---- ----- ------- ---- ------- ---- ----- -------
6.14% $ 11,481 $ 48 $(74) $11,455 6.52% $ 8,924 $ 44 $ (41) $ 8,927
==== ======= ==== ===== ======= ==== ======= ==== ===== =======
F-58
</TABLE>
<PAGE>
<PAGE>
<TABLE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<CAPTION>
DECEMBER 31, 1992
----------------------------------------------------------------------------------------
HELD TO MATURITY HELD FOR SALE
------------------------- -------------------------
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)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities
U.S.Treasury:
Maturing between 1-5 years . . . . 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 4.64 1,937 17 -- 1,954
Maturing between 1-5 years . . . . 4.53 3,151 46 (2) 3,195 -- -- -- -- --
---- ------- ---- ----- ------- ---- ------- ---- ----- -------
4.07 22,905 223 (39) 23,099 4.64 1,937 17 -- 1,954
---- ------- ---- ----- ------- ---- ------- ---- ----- -------
Other Securities:
Maturing within 1 year . . . . . . 3.65 9,188 2 (8) 9,182 -- -- -- -- --
---- ------- ---- ----- ------- ---- ------- ---- ----- -------
4.58% $56,794 $690 $ (54) $57,430 4.64% $1,937 $ 17 $ -- $1,954
==== ======= ==== ===== ======= ==== ======= ==== ===== =======
Mortgaged-backed securities
Government National
Mortgage Association("GNMA")
pass-through certificates . . . . 7.12% $ 7,213 $ 16 $ (32) $ 7,197 --% $ -- $ -- $ -- $ --
Federal Home Loan Mortgage
Association ("FHLMC")
pass-through certificates . . . . -- -- -- -- -- -- -- -- -- --
---- ------- ---- ----- ------- ---- ------- ---- ----- -------
7.12% $ 7,213 $16 $(32) $ 7,197 --% $ -- $ -- $ -- $ --
==== ======= ==== ===== ======= ==== ======= ==== ===== =======
<CAPTION>
DECEMBER 31, 1991
----------------------------------------------------------------------------------------
HELD TO MATURITY HELD FOR SALE
------------------------- -------------------------
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)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities
U.S.Treasury:
Maturing between 1-5 years . . . . 6.30% $ 43,118 $ 964 $ -- $ 44,082 --% $ -- $ -- $ -- $ --
Maturing between 5-10 years. . . . 6.48 9,668 34 -- 9,702 -- -- -- -- --
---- ------- ---- ----- ------- ---- ------- ---- ----- -------
6.33% $52,786 $ 988 $ -- $ 53,784 --% $ -- $ -- $ -- $ --
==== ======= ==== ===== ======= ==== ======= ==== ===== =======
Mortgaged-backed securities
Federal Home Loan Mortgage
Association ("FHLMC")
pass-through certificates. . . . . 7.50% $ 1,517 $ 16 $-- $ 1,533 --% $ -- $ -- $ -- $ --
==== ======= ==== ===== ======= ==== ======= ==== ===== =======
</TABLE>
The carrying value of securities pledged to collateralize public deposits
approximated $1,024,000 (unaudited), $1,454,000 and $2,082,000 at September
30, 1993 and December 31, 1992 and 1991, respectively.
F-59
<PAGE>
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. LOANS AND REO
The Bank's primary market area for lending encompasses Hudson and Bergen
Counties, New Jersey. The following table sets forth the composition of the
Bank's loan portfolio:
SEPTEMBER 30, DECEMBER 31,
------------- ---------------------------
1993 1992 1991
------------ ------------ ------------
(UNAUDITED)
Real estate:
1-4 family . . . . . . . . . . $117,160,287 $125,858,058 $135,133,491
Multi-family/commercial. . . . 58,145,731 52,742,859 55,940,022
Construction . . . . . . . . . 2,957,020 2,533,164 1,449,287
------------ ------------ ------------
Total real estate loans . . 178,263,038 181,134,081 192,522,800
Commercial/financial . . . . . 3,006,842 3,551,679 4,080,755
Consumer and other loans . . . 1,324,001 1,731,241 3,175,820
------------ ------------ ------------
Total loans . . . . . . . . 182,593,881 186,417,001 199,779,375
Less: Unearned interest . . . . 80,319 87,541 185,752
Deferred loan fees. . . . 921,063 1,052,732 1,096,497
Allowance for losses. . . 2,855,000 2,776,000 2,989,000
------------ ------------ ------------
Loans, net. . . . . . . . . . . $178,737,499 $182,500,728 $195,508,126
============ ============ ============
Subsequent to September 30, 1993, a borrower who had aggregate loans
totalling $8.4 million (unaudited) (a $7.0 million first mortgage classified
as multi-family/commercial and a $1.4 million line-of-credit classified as
commercial/financial) prepaid such loans. The aggregate weighted average yield
was 9.8% (unaudited).
Nonperforming loans
Nonperforming loans, which are a component of loans, include loans which
are accounted for on a nonaccrual basis and troubled debt restructurings.
SEPTEMBER 30, DECEMBER 31,
------------- ---------------------------
1993 1992 1991
------------ ------------ ------------
(UNAUDITED)
Nonaccrual loans:
Real estate loans:
1-4 family. . . . . . . . . . . $ 4,594,637 $5,527,941 $10,436,523
Multi-family/commercial . . . . 11,541,836 1,648,146 4,009,110
Construction. . . . . . . . . . 244,000 944,000 130,000
------------ ------------ ------------
Total real estate loans. . . 16,380,473 8,120,087 14,575,633
Commercial/financial . . . . . . -- 224,591 514,591
Consumer and other loans . . . . 34,426 254,571 931,370
------------ ------------ ------------
Total nonaccrual loans. . . . 16,414,899 8,599,249 16,021,594
Troubled debt restructurings:
Commercial/financial . . . . . . 174,288 207,088 611,788
------------ ------------ ------------
Total nonperforming loans . . $16,589,187 $8,806,337 $16,633,382
============ ============ ============
F-60
<PAGE>
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Interest on nonperforming loans which would have been recorded had such
loans been performing (based upon original contract terms) throughout the
period would have approximated $832,000 (unaudited), $609,000, $975,000 and
$824,000 for the nine months ended September 30, 1993 and years ended December
31, 1992, 1991 and 1990, respectively. Interest income on those loans, which
is recorded only when received, amounted to $172,000 (unaudited), $416,000,
$548,000 and $536,000 for the nine months ended September 30, 1993 and years
ended December 31, 1992, 1991 and 1990, respectively.
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
the Bank currently has a first mortgage and an assignment-of-rents (the
"Bankruptcy Loan"). On November 10, 1993, the Court dismissed the bankruptcy
petition. Nevertheless, the Bank 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, pursant to a Court Order, were released to
the City of Philadelphia (and not to the Bank) to pay a substantial portion of
property tax arrearages. Rental payments to the Bank were resumed in December
1993. On January 29, 1994, the Bank paid approximately $450,000 to the City of
Philadelpha to resolve all remaining property tax arrearages and to pay 1994
property taxes. The amount of such payment was capitalized into the Bankruptcy
Loan balance. The Bank has classified the Bankruptcy Loan as a nonaccrual loan
included in multi-family/commercial category. Management believes that the
Bank has adequate collateral with respect to the Bankruptcy Loan and
anticipates collection of the outstanding principal balance.
REO
SEPTEMBER 30, DECEMBER 31,
------------- ---------------------------
1993 1992 1991
------------ ------------ ------------
(UNAUDITED)
Acquired by foreclosure or deed in
lieu of foreclosure. . . . . . . $4,974,000 $ 7,460,541 $ 4,956,011
Loans foreclosed in-substance. . 4,548,263 7,339,481 8,934,844
Less:
Allowance for losses on REO. . . 1,723,000 1,802,000 1,328,000
------------ ------------ ------------
REO, net. . . . . . . . . . . $7,799,263 $12,998,022 $12,562,855
========== ========== ==========
Allowance for losses on loans and REO
LOANS REO TOTAL
----- --- -----
Balance, December 31, 1989 . . $ 4,720,000 $ -- $4,720,000
Provision for losses . . . . . 2,350,000 1,672,853 4,022,853
Recoveries . . . . . . . . . . 347,546 -- 347,546
Losses charged off . . . . . . (4,838,546) (696,853) (5,535,399)
----------- ---------- ----------
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
(Unaudited) . . . . . . . . . 350,000 668,942 1,018,942
Recoveries (Unaudited) . . . . 196,554 -- 196,554
Losses charged off
(Unaudited) . . . . . . . . . (467,554) (747,942) (1,215,496)
----------- ---------- ----------
Balance, September 30, 1993
(Unaudited) . . . . . . . . . $2,855,000 $1,723,000 $4,578,000
========== ========== ==========
F-61<PAGE>
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Related-Party Loans
An analysis of activity with respect to loans outstanding to directors,
officers, their entities and immediate family is as follows:
SEPTEMBER 30, DECEMBER 31,
------------- ---------------------------
1993 1992 1991
------------ ------------ ------------
(UNAUDITED)
Balance, beginning of year. . . . $866,000 $1,007,000 $1,364,00
New loans. . . . . . . . . . . . -- 356,000 150,000
Repayments/reductions. . . . . . (250,000) (497,000) (507,000)
-------- ---------- ----------
Balance, end of period. . . . . . $616,000 $ 866,000 $1,007,000
======== ========== ==========
As of September 30, 1993 and December 31, 1992 and 1991, $613,000
(unaudited), $842,000 and $982,000, respectively, of such loans represented
collateralized real estate loans and $3,000 (unaudited), $24,000 and $25,000,
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
SEPTEMBER 30, DECEMBER 31,
------------- ---------------------------
1993 1992 1991
------------ ------------ ------------
(UNAUDITED)
Land . . . . . . . . . . . . . . $ 532,496 $ 532,496 $ 532,496
Buildings. . . . . . . . . . . . 3,217,367 3,211,426 3,095,210
Leasehold improvements . . . . . 356,462 356,462 342,383
Equipment. . . . . . . . . . . . 2,479,811 2,423,942 2,306,773
---------- ---------- ----------
6,586,136 6,524,326 6,276,863
Less: Accumulated depreciation
and amortization. . . . . . . . 3,878,198 3,684,236 3,377,310
---------- ---------- ----------
$2,707,938 $2,840,090 $2,899,553
========== ========== ==========
F-62
<PAGE>
<PAGE>
<TABLE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
6. INTEREST-BEARING DEPOSITS
<CAPTION>
DECEMBER 31,
------------------------------------------------------
SEPTEMBER 30, 1993 1992 1991
---------------------- ---------------------- ----------------------
AVERAGE AVERAGE AVERAGE
EFFECTIVE EFFECTIVE EFFECTIVE
INTEREST RATE AMOUNT INTEREST RATE AMOUNT INTEREST RATE AMOUNT
------------- ------ ------------- ------ ------------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Regular savings accounts. . . . . 2.75% $103,094,223 3.25% $ 99,347,342 5.00% $ 85,320,367
Money market accounts . . . . . . 2.75 6,674,426 3.15 7,369,440 4.50 7,694,662
Checking accounts . . . . . . . . 2.25 4,667,669 2.90 4,185,800 4.25 3,902,754
---- ------------ ---- ------------ ---- ------------
Total savings and
transaction deposits. . . . . . 2.73 114,436,318 3.23 110,902,582 4.93 96,917,783
---- ------------ ---- ------------ ---- ------------
Market-rate certificates under
$100,000 maturing:
Three months or less . . . . . . 3.62 28,478,328 4.86 45,781,741 6.59 54,412,261
Three months to six months . . . 3.93 34,333,382 4.97 29,851,480 6.07 28,548,185
Six months to one year . . . . . 3.93 26,003,610 4.79 33,046,983 6.43 35,681,331
One to two years . . . . . . . . 4.43 11,526,010 6.22 11,860,462 7.99 17,938,416
Two to three years . . . . . . . 4.85 10,381,005 4.91 3,212,207 7.10 7,260,773
Three to five years. . . . . . . 5.30 5,038,985 6.11 1,225,039 6.90 654,524
Market-rate certificates
$100,000 and over maturing:
Three months or less . . . . . . 4.30 2,675,463 4.90 3,294,615 6.96 3,592,936
Three months to six months . . . 3.95 2,307,224 4.68 2,014,480 6.35 2,323,346
Six months to one year . . . . . 3.88 1,605,220 5.16 2,417,186 6.32 1,896,756
One to two years . . . . . . . . 4.24 736,241 6.89 428,375 8.11 1,554,009
Two to three years . . . . . . . 4.90 405,161 5.30 214,475 7.57 213,011
Three to five year . . . . . . . 5.19 1,212,031 -- -- -- --
---- ------------ ---- ------------ ---- ------------
Total certificates of deposit. . 4.06 124,702,660 5.01 133,347,043 6.66 154,075,548
---- ------------ ---- ------------ ---- ------------
Total interest-bearing deposits . 3.42% $239,138,978 4.20% $244,249,625 5.99% $250,993,331
==== ============ ==== ============ ==== ============
Average effective interest rate
on all deposits. . . . . . . . . 3.30% 4.04% 5.75%
==== ==== ====
</TABLE>
7. BORROWINGS
During 1993 and 1991, the maximum amount outstanding at any month-end to
the FHLB was $400,000 (unaudited) and $28,500,000, respectively. There were no
borrowings during 1992. The average amount outstanding during 1993, 1991 and
1990 approximated $355,000 (unaudited), $23,308,000 and $31,558,000,
respectively, with weighted average interest rates of 4.9% (unaudited), 8.4%
and 8.6%, respectively. During the fourth quarter of 1991, the Bank used
proceeds primarily from the sale of one-to-four family performing mortgage
loans and investment securities 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 of the
Company, there was no income tax effect for these transactions.
In 1987, the Bank established an ESOP, which borrowed $l,449,000 from an
unrelated third party lender to acquire 138,000 shares of the Company'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 the Bank. The amount payable at
December 31, 1991 of $96,600 is reflected on the consolidated balance sheet in
other liabilities. Interest was paid and accrued monthly at a variable rate
which approximated the then going prime rate. The related interest expense
incurred for the years ended December 31, 1992, 1991 and 1990 approximated
$1,000, $23,000 and $55,000, at an effective rate of 3.9%, 9.3% and 10.0%,
respectively.
The Bank also has a line of credit, which expires on September 1, 1994,
of approximately $14.5 million (unaudited) with the FHLB, none of which was in
use at September 30, 1993.
F-63
<PAGE>
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. PENSION PLAN
The components of net periodic pension cost/(credit) include the
following:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------ ------------------------------------
1993 1992 1992 1991 1990
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Service cost of benefits earned. . . . . . . . . . . $103,275 $ 91,804 $122,405 $102,672 $ 79,101
Interest cost on projected benefit obligation. . . . 168,825 156,895 209,194 205,182 190,838
Actual return on plan assets . . . . . . . . . . . . (199,800) (209,914) (279,886) (210,743) (224,720)
Net amortization:
Deferred investment liability . . . . . . . . . . . -- 25,075 33,433 -- --
Unrecognized net transition asset . . . . . . . . . (43,800) (43,767) (58,356) (58,356) (58,356)
Unrecognized prior service liability. . . . . . . . 1,125 1,092 1,456 1,456 1,456
-------- -------- -------- -------- --------
Net periodic pension cost/(credit) . . . . . . . . . $ 29,625 $ 21,185 $ 28,246 $ 40,211 $(11,681)
======== ======== ======== ======== ========
</TABLE>
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,
--------------------------
1992 1991
----------- -----------
Actuarial present value of accumulated benefit
obligation:
Vested benefits. . . . . . . . . . . . . . . . $(2,338,576) $(2,194,728)
Nonvested benefits . . . . . . . . . . . . . . (150,610) (114,309)
----------- ----------
Accumulated benefit obligation . . . . . . . . (2,489,186) (2,309,037)
Effect of assumed increase in future compensation
levels . . . . . . . . . . . . . . . . . . . . (341,898) (464,875)
----------- ----------
Projected benefit obligation. . . . . . . . . . (2,831,084) (2,773,912)
Plan assets at fair value . . . . . . . . . . . 3,333,266 3,184,090
----------- ----------
Plan assets in excess of projected benefit
obligation . . . . . . . . . . . . . . . . . . 502,182 410,178
Unrecognized net transition asset . . . . . . . (300,524) (358,880)
Unrecognized net (gain)/loss. . . . . . . . . . (142,334) 17,205
Unrecognized prior service liability. . . . . . (7,784) 11,283
----------- ----------
Net pension asset . . . . . . . . . . . . . . . $ 51,540 $ 79,786
=========== ===========
The expected long-term rate of return on plan assets used in determining
the net periodic pension cost/(credit) was 8.00% in 1993 (unaudited), 1992,
1991 and 1990. The projected benefit obligation is based on an assumed
discount rate of 8.00% in 1992 and 8.25% in 1991 and an assumed rate of
compensation increase of 6.00% in 1992 and 1991. 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 nine months ended September 30, 1993 and years ended December 31, 1992,
1991 and 1990 approximated $120,000 (unaudited), $193,000, $376,000 and
$447,000, 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 of the Bank. 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
F-64
<PAGE>
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
paid in cash or Common Stock. No options have been exercised as of September
30, 1993 (unaudited). At September 30, 1993, there were no options available
for grant under the plan (unaudited).
EMPLOYEE STOCK OPTION PLAN ("ESOP")
The ESOP, established for employees age 21 or older who have at least
one year of credited service, was funded by the Bank's 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.
MANAGEMENT RECOGNITION PLAN ("MRP")
The Bank established the MRP as a method of providing employees in key
positions with a proprietary interest in the Bank in a manner designed to
encourage such key employees to remain with the Bank. The Bank 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 the
Company.
OPTION PLAN FOR OUTSIDE DIRECTORS ("DIRECTORS' OPTION PLAN")
Each member of the Board of Directors who is not an officer or employee
of the Bank was granted a single non-qualified option to purchase 7,187.5
shares (aggregate 57,500 shares) of the Company 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. At September 30, 1993, there were no options available for
grant under the plan (unaudited).
DIRECTORS COMPENSATION PLAN FOR OUTSIDE DIRECTORS ("DCP") (UNAUDITED)
During the third quarter of 1993, the Bank approved in principal,
subject to certain conditions, the DCP, which covers any outside director who
has served in that capacity for at least five consecutive calendar years.
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 the Company, 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 the Bank in Retirement System Group Inc.
Benefits payable under the DCP shall be paid directly from the general assets
of the Company. The Company is not obligated to set aside, earmark or escrow
funds or other assets to satisfy its obligations under the DCP. At September
30, 1993, the accumulated postretirement benefit obligation reflected on the
consolidated balance sheet in other liabilities was $25,000 (unaudited).
In the event of a change in control of the Company, 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 the
Company is approximately $252,000(unaudited). Such cumulative liability is
not reflected in the consolidated financial statements as of September 30,
1993.
F-65
<PAGE>
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
BONUS PROGRAMS
Employees of the Bank are awarded cash bonuses based upon length of
service, responsibility level and performance.
10. INCOME TAX EXPENSE/(BENEFIT)
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------- -----------------------
1993 1992 1992 1991 1990
(UNAUDITED) (DOLLARS IN THOUSANDS)
Current:
Federal. . . . . . . . . . . . . . . $ 395 $ 588 $ 288 $ -- $(1,287)
State. . . . . . . . . . . . . . . . 37 51 51 -- --
----- ----- ----- ----- -------
432 639 339 -- (1,287)
Deferred. . . . . . . . . . . . . . . -- -- (250) -- (251)
Income tax refund . . . . . . . . . . (747) -- -- -- --
Charge in lieu of income taxes. . . . -- -- 539 -- --
Write-off of net deferred tax asset . -- -- -- 552 --
----- ----- ----- ----- -------
$(315) $ 639 $ 628 $ 552 $(1,538)
===== ===== ===== ===== =======
During 1993, the Company received an income tax refund of $747,000
(unaudited) as a result of an overassessment of previously paid federal income
taxes. During 1992, the Company utilized 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 a result of the write-off
of the net deferred tax asset as a result of the Company's tax loss
carryforward position.
A reconciliation between the reported income tax expense/(benefit) and
the amount computed by multiplying income/(loss) before income tax
expense/(benefit) and extraordinary item by the statutory Federal income tax
rate is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------------------------- ----------------------------------------------------
1993 1992 1992 1991 1990
-------------- -------------- -------------- -------------- ----------------
(UNAUDITED) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Statutory expense/(benefit) $ 413 34.0% $ 637 34.0% $ 743 34.0% $ 81 34.0% $(1,159) (34.0%)
(Deductible)/nondeductible loan
loss provision . . . . . . . . . -- -- (33) (1.7) (151) (6.9) 160 67.3 (227) (6.7)
State income tax, net of federal
benefit . . . . . . . . . . . . 24 2.0 34 1.8 35 1.6 -- -- -- --
Income tax refund . . . . . . . . (747) (61.4) -- -- -- -- -- -- -- --
Rate differential of carryback. . -- -- -- -- -- -- -- -- (118) (3.5)
Write-off of deferred tax asset,
net of benefit . . . . . . . . . -- -- -- -- -- -- 310 130.2 -- --
Other . . . . . . . . . . . . . . (5) (.5) 1 -- 1 -- 1 (.2) (34) (0.9)
----- ----- ----- ----- ----- ----- ----- ------ ------- -----
$(315) (25.9)% $ 639 34.1% $ 628 28.7% $ 552 231.7% $(1,538) (45.1)%
===== ===== ===== ===== ===== ===== ===== ====== ======= =====
F-66
</TABLE>
<PAGE>
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Temporary differences, which give rise to deferred tax assets and
liabilities under SFAS 109, as of September 30, 1993, are as follows:
DEFERRED TAX
-------------------
ASSETS LIABILITIES
------ -----------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Financial basis reserve for losses on loans and REO . . $1,647 $ --
Tax basis reserve for losses on loans and REO in excess
of base year tax reserve . . . . . . . . . . . . . . . -- 1,126
Deferred loan origination fees. . . . . . . . . . . . . 331 --
Interest on nonaccrual loans. . . . . . . . . . . . . . 209 --
Accretion of bond discount. . . . . . . . . . . . . . . -- 8
Deferred compensation . . . . . . . . . . . . . . . . . 78 --
Other . . . . . . . . . . . . . . . . . . . . . . . . . 228 --
------ ------
Subtotal. . . . . . . . . . . . . . . . . . . . . . . 2,493 1,134
Less valuation allowance. . . . . . . . . . . . . . . . 809 --
------ ------
Net deferred taxes/liabilities. . . . . . . . . . . . . $1,684 $1,134
====== ======
Net deferred tax asset. . . . . . . . . . . . . . . . . $ 550
======
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 $295,000 (unaudited) as of September 30, 1993. In addition,
management is reviewing the Company's valuation allowance which was
established at the beginning of 1993 when SFAS 109 was adopted. Based upon
projected operating results for 1993, and other events which have occured
in the forth quarter of 1993, management anticipates a decrease to the
allowance of approximately $800,000, which is subject to audit and would be
recorded in the fourth quarter of 1993.
Tax effects of the principal temporary differences are as follows:
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
------------- ------------------
1993 1992 1992 1991 1990
---- ---- ---- ---- ----
(UNAUDITED) (DOLLARS IN THOUSANDS)
Financial basis reserve for losses on
loans and REO. . . . . . . . . . . . . $ -- $ -- $ -- $ -- $ --
Tax basis reserve for losses on loans and REO
in excess of base year tax reserve . . (125) -- -- -- --
Deferred loan origination fees. . . . . (48) -- (248) -- 67
Interest on nonaccrual loans. . . . . . 133 -- 23 -- 27
Carrying costs of REO . . . . . . . . . -- -- -- -- (270)
Accretion of bond discount. . . . . . . 14 -- 14 -- 42
Deferred compensation . . . . . . . . . (32) -- (28) -- (76)
Other . . . . . . . . . . . . . . . . . 58 -- (11) -- (41)
---- ---- ----- ---- -----
$ -- $ -- $(250) $ -- $(251)
==== ==== ===== ==== =====
11. COMMITMENTS AND CONTINGENCIES
Total rent expense for all bank branches under operating leases was
approximately $47,000 (unaudited), $130,000, $105,000, and $132,000 for the
nine months ended September 30, 1993 and years ended December 31, 1992, 1991
and 1990, respectively. Unaudited future minimum lease payments required
under noncancellable operating leases for bank branches as of September 30,
1993 are as follows:
1994 . . . . . . . . . . . . . . . . $ 71,000
1995 . . . . . . . . . . . . . . . . 71,000
1996 . . . . . . . . . . . . . . . . 71,000
1997 . . . . . . . . . . . . . . . . 50,000
1998 . . . . . . . . . . . . . . . . 7,000
Thereafter . . . . . . . . . . . . . --
--------
$270,000
========
F-67
<PAGE>
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
The Company has entered into a severance agreement with a certain key
executive. In the event of a change in control of the Company, this executive
will receive a payment equal to three times his average annual compensation
over the five previous years of his employment with the Bank, if terminated
for other than cause or upon certain other events of termination of
employment.
In December 1988, a class action lawsuit was filed against the Company
alleging violations of federal securities laws during the class period from
March 18, 1988 through November 17, 1988. On April 8, 1991, the Company paid
$1 million in settlement of the lawsuit. Legal expenses related to the lawsuit
amounted to approximately $300,000.
In October 1991, a complaint was filed by a former officer in New Jersey
Superior Court against the Company, the Bank and certain directors and
officers seeking unspecified damages relating to the termination of such
officer's employment. The Company 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. The Company understands that
the complaint will be refiled on or before that date. In April 1992, a
complaint was filed in the New Jersey Superior Court against the Company and
the Bank 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 moved to file an amended complaint
adding claims against nine individual defendants including current and former
officers and directors of the Company and the Bank. Management believes that
the defendants have meritorious defenses in both of these matters and intends
to vigorously defend these matters. Management believes that these lawsuits
will not have a material adverse impact on the financial condition of the
Company or the Bank; however, given the fluctuations in results of operations
during recent years, management cannot predict the impact on the Company's or
the Bank's results of operations.
The Bank 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 the
Company or the Bank.
12. FINANCIAL INSTRUMENTS
Off-Balance-Sheet Risk
In the normal course of business, the Bank 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 September 30,
1993 and December 31, 1992 and 1991, the Bank's exposure to credit loss in the
event of nonperformance by the potential customers is represented by the
contractual amount of the financial instruments as follows:
EXPIRATION
CONTRACTUAL INTEREST DATES
AMOUNT RATES THROUGH
----------- ---------- --------------
At September 30, 1993: (Unaudited)
Loan commitments-variable. . . $2,287,000 6.0%-8.9% December 1993
Loan commitments-fixed . . . . 4,790,000 6.2-10.5 December 1993
Lines of credit-variable . . . 933,000 7.5-11.0 September 1994
Undisbursed construction
loans-fixed . . . . . . . . . 1,477,000 6.2-10.25 June 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
At December 31, 1991:
Loan commitments-variable. . . $2,815,000 8.5%-10.0% March 1992
Loan commitments-fixed . . . . 834,000 8.0-10.5 March 1992
Lines of credit-variable . . . 2,646,000 8.5-11.0 November 1993
Undisbursed construction
loans-fixed . . . . . . . . . 1,266,000 9.0-11.3 October 1992
F-68
<PAGE>
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 by the Bank upon originating the loan is based upon
management's credit evaluation of the potential borrower and the real estate
financed.
Concentrations of Credit Risk
The Bank'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 September 30, 1993 and December 31, 1992 and
1991, 2 commercial borrowers whose aggregate loan concentrations total $17.3
million (unaudited) in 1993, $17.4 million in 1992 and $17.7 million in 1991,
have balances greater than 10% of stockholders' equity as of such respective
dates. Refer to footnote 4 for a discussion of the Bankruptcy Loan and to a
borrower who prepaid its loan balance subsequent to September 30, 1993.
The Bank 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 September 30, 1993 (unaudited).
Fair Value of Financial Instruments
The estimated fair values of the Company's financial instruments, for
which it is practicable to estimate fair values, as of December 31, 1992 are
as follows:
CARRYING AMOUNT FAIR VALUE
--------------- ----------
(IN THOUSANDS)
Financial assets:
Cash and Federal funds sold . . . . $ 7,336 $ 7,336
Investments held for sale . . . . . 1,936 1,954
Loans held for sale . . . . . . . . 9,000 9,032
Investment securities . . . . . . . 56,794 57,430
Mortgage-backed securities. . . . . 7,213 7,197
Loans . . . . . . . . . . . . . . . 186,417
Less: allowance for losses . . . . (2,776)
unearned income. . . . . . . . (1,140)
-------
182,501 182,283
Investment in FHLB. . . . . . . . . 1,632 1,632
Financial liabilities:
Deposits. . . . . . . . . . . . . . 252,623 253,287
13. STOCKHOLDERS' EQUITY AND DIVIDEND RESTRICTIONS
In 1987, when the Bank converted from a savings bank in mutual form to a
savings bank in stock form, the Company established a liquidation account in
an amount equal to the Bank'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 the Bank as of
December 31, 1985 and who continue to maintain their accounts in the Bank. 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 $1.2 million
(unaudited) at September 30, 1993. (Refer to footnote 14 for additional
dividend restrictions.)
F-69
<PAGE>
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. REGULATORY MATTERS
On August 13, 1991, the Company signed a Memorandum of Understanding (the
"Company-MOU") with the Federal Reserve Bank of New York (the "FRB") in
connection with its examination of the Company as of December 31, 1990. The
Company-MOU required the Company, among other things, to periodically provide
the FRB with certain financial and operational information, restricted dividend
payments, and obligated the Company to provide the FRB with notice prior to
making large cash expenditures outside the ordinary course of business, or
making additions to senior executive management or the board of directors. The
Company-MOU also stated that the Company should not consider expansion of its
activities. In January 1994, the FRB recinded the Company-MOU.
During the third quarter of 1993, the Federal Deposit Insurance Corporation
(the "FDIC") completed its examination of the Bank as of August 2, 1993. As a
result of that examination, the FDIC relieved the Bank of its Memorandum of
Understanding which the Bank 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.
Under banking policies issued by the FDIC and the FRB, the Company and
the Bank 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 the Company and the Bank 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, the Company's and the Bank's core capital (also
known as Tier 1 capital) consists of common equity in accordance with
generally accepted accounting principles ("GAAP") and their 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 the Company
and the Bank was approximately $1.9 million (unaudited), $2.3 million and $2.0
million as of September 30, 1993 and December 31, 1992 and 1991. As of
September 30, 1993 and December 31, 1992 and 1991, the Company's and the
Bank's capital ratios were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
---------------- -------------------------------------
1993 1992 1991
---------------- ----------------- ----------------
CAPITAL RATIOS: REQUIRED COMPANY BANK COMPANY BANK COMPANY BANK
- --------------- -------- ------- ---- ------- ---- ------- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Leverage. . . . . . . . . . . . . . . . . 7.00% 11.27% 10.97% 10.62% 10.33% 9.26% 9.03%
Core risk-based . . . . . . . . . . . . . 4.00% 20.97 20.39 16.32 15.87 17.74 17.28
Total risk-based. . . . . . . . . . . . . 8.00% 22.23 21.64 17.58 17.12 18.99 18.53
</TABLE>
15. MERGER AGREEMENT
On November 8, 1993, the Company signed a definitive agreement (the
"agreement") providing for the merger of the Company with and into Hubco,
Inc. of Union City, New Jersey. Under the terms of the agreement,
shareholders of the Company will have the right to 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 the Company's common stock. In addition, the
Company 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. No accruals for
merger related expenses have been made in the accompanying financial
statements. Such expenses will be recognized in subsequent quarters after a
review of the nature and extent of possible charges is assessed.
F-70
<PAGE>
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(continued)
16. PARENT ONLY FINANCIAL INFORMATION
The following are the balance sheets as of September 30, 1993 and
December 31, 1992 and 1991, and the statements of operations and retained
earnings and the statements of cash flows for the nine months ended September
30, 1993 and 1992 and years ended December 31, 1992, 1991 and 1990 for
Washington Bancorp, Inc. (parent company only).
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
------------- --------------------------
BALANCE SHEETS 1993 1992 1991
------------- ------------- ------------
(UNAUDITED)
ASSETS
<S> <C> <C> <C>
Assets:
Due from banks . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,000,000 $ 1,000,000 $ 1,000,000
Investment in wholly-owned subsidiary, equity basis. . . . . . . 31,345,016 29,469,045 27,216,464
----------- ----------- -----------
$32,345,016 $30,469,045 $28,216,464
=========== =========== ===========
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, 2,307,187 shares issued and outstanding . . . . . . 230,718 230,718 230,718
Paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . 22,498,778 22,498,778 22,498,778
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . 9,750,520 7,919,549 5,823,568
----------- ----------- -----------
32,480,016 30,649,045 28,553,064
Deferred compensation:
ESOP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- (96,600)
MRP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (135,000) (180,000) (240,000)
----------- ----------- -----------
$32,345,016 $30,469,045 $28,216,464
=========== =========== ===========
</TABLE>
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------- ---------------------------------------
1993 1992 1992 1991 1990
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Equity in undistributed earnings/(loss)
of subsidiary . . . . . . . . . . . . . . . . . . $1,830,971 $1,790,070 $2,095,981 $(1,348,130) $(1,869,388)
Retained earnings,
beginning of year . . . . . . . . . . . . . . . . 7,919,549 5,823,568 5,823,568 7,171,698 9,202,592
Dividends paid to stockholders . . . . . . . . . . -- -- -- -- (161,506)
---------- ---------- ---------- ----------- -----------
Retained earnings, end of period $9,750,520 $7,613,638 $7,919,549 $ 5,823,568 $ 7,171,698
========== ========== ========== =========== ===========
STATEMENTS OF CASH FLOWS
Cash Flows from Financing Activities:
Dividends paid to stockholders . . . . . . . . . . $ -- $ -- $ -- $ -- $ (161,506)
Infusion of capital to subsidiary. . . . . . . . . -- -- -- -- (6,733,818)
---------- ---------- ---------- ----------- -----------
Net Change in Cash . . . . . . . . . . . . . . . . -- -- -- -- (6,895,324)
Cash, at beginning of year . . . . . . . . . . . . $1,000,000 $1,000,000 $1,000,000 $ 1,000,000 $ 7,895,324
---------- ---------- ---------- ----------- -----------
Cash, at end of period . . . . . . . . . . . . . . $1,000,000 $1,000,000 $1,000,000 $ 1,000,000 $ 1,000,000
========== ========== ========== =========== ===========
F-71
</TABLE>
<PAGE>
<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. . . . . . . . . . . . . . . . . . . . . . . 10
Summary of Selected Pro Forma Data . . . . . . . . . 22
Investment Considerations. . . . . . . . . . . . . . 24
Market Price and Dividends of HUBCO. . . . . . . . . 27
Use of Proceeds. . . . . . . . . . . . . . . . . . . 28
Capitalization of HUBCO. . . . . . . . . . . . . . . 28
Pro Forma Condensed Combined Unaudited
Financial Statements. . . . . . . . . . . . . . . . 29
Selected Consolidated Financial Information
of HUBCO. . . . . . . . . . . . . . . . . . . . . . 37
Management Discussion and Analysis of
Financial Condition and Results of
Operations of HUBCO . . . . . . . . . . . . . . . . 38
Business of HUBCO. . . . . . . . . . . . . . . . . . 59
Management Discussion and Analysis of
Financial Condition and Results of
Operations of Statewide . . . . . . . . . . . . . . 62
Business of Statewide. . . . . . . . . . . . . . . . 71
Selected Consolidated Fiancial Data of
Washington. . . . . . . . . . . . . . . . . . . . . 88
Management Discussion and Analysis of
Financial Condition and Results of
Operations of Washington. . . . . . . . . . . . . . 90
Business of Washington . . . . . . . . . . . . . . . 110
Regulation and Supervision of HUBCO. . . . . . . . . 112
FIRREA . . . . . . . . . . . . . . . . . . . . . . . 113
Management of HUBCO. . . . . . . . . . . . . . . . . 115
Shareholdings of Principal Shareholders and
Management of HUBCO . . . . . . . . . . . . . . . . 117
The Merger Conversion. . . . . . . . . . . . . . . . 118
Description of the Offerings . . . . . . . . . . . . 121
Subscription Procedures. . . . . . . . . . . . . . . 124
Certain Federal Income Tax Consequence . . . . . . . 129
Description of Capital Stock of HUBCO. . . . . . . . 132
Experts. . . . . . . . . . . . . . . . . . . . . . . 134
Legal Matters. . . . . . . . . . . . . . . . . . . . 135
Index to Consolidated Financial Statements
of HUBCO. . . . . . . . . . . . . . . . . . . . . . 136
============================================================
============================================================
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 , 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 Ernst & Young.
23(c) Consent of Deloitte & Touche.
23(d) Consent of Coopers & Lybrand.
23(e) Consent of Clapp & Eisenberg, P.C. (included in Exhibit 5(a)
hereto).
23(f) 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 22nd day of February, 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 February 22, 1994
- -------------------------------------
(JAMES E. SCHIERLOH)
/s/ KENNETH T. NEILSON President and Director February 22, 1994
- ------------------------------------- (Chief Executive Officer)
(KENNETH T. NEILSON)
* Director February 22, 1994
- -------------------------------------
(ROBERT J. BURKE)
* Director February 22, 1994
- -------------------------------------
(JOHN T. CLARK)
* Director February 22, 1994
- -------------------------------------
(HENRY G. HUGELHEIM)
Director
- -------------------------------------
(HARRY J. LEBER)
* Director February 22, 1994
- -------------------------------------
(CHARLES F. X. POGGI)
* Director February 22, 1994
- -------------------------------------
(SISTER GRACE FRANCES STRAUBER)
Director
- -------------------------------------
(EDWIN WACHTEL)
* Assistant Treasurer (Principal February 22, 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 , 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 Ernst & Young.
23(c) Consent of Deloitte & Touche.
23(d) Consent of Coopers & Lybrand.
23(e) Consent of Clapp & Eisenberg, P.C. (included in Exhibit 5(a)
hereto).
23(f) 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 23(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our firm included in or made part of this
registration statement.
/s/ Arthur Andersen & Co.
---------------------------
ARTHUR ANDERSEN & CO.
Roseland, New Jersey
February 21, 1994
EXHIBIT 23(b)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated January 14, 1991 in the Registration Statement (Form
S-3 No. 33-72330) and related Prospectus of HUBCO, Inc. for the registration
of 2,236,111 shares of its common stock.
/s/ Ernst & Young
----------------------
ERNST & YOUNG
MetroPark, New Jersey
February 18, 1994
EXHIBIT 23(d)
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
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, 1993, on our audits of the consolidated
financial statements of Washington Bancorp, Inc. and Subsidiary as of December
31, 1992 and 1991 and for each of the three years in the period ended December
31, 1992.
/s/ Coopers & Lybrand
-------------------------
COOPERS & LYBRAND
Parsippany, New Jersey
February 22, 1994
EXHIBIT 23(c)
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 February
22, 1994 relating to the consolidated financial statements of Statewide
Savings Bank, S.L.A., appearing in the Prospectus, which is part of this
Registration Statements, and the reference to us under the heading "Experts"
in such Prospectus.
/s/ Deloitte & Touche
- -------------------------
DELOITTE & TOUCHE
Parsippany, New Jersey
February 15, 1994
EXHIBIT 23(f)
February 22, 1994
CONSENT OF INDEPENDENT APPRAISER
We hereby consent to the use of our firm's name in the Pre-effective
Amendment No. 2 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.
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Kenneth T. Neilson, his attorney-in-fact, with
power of substitution, for him in any and all capacities, to sign any and all
amendments (whether pre- or post-effective), to this Registration Statement on
Form S-3 of HUBCO, Inc. (SEC File Number 33-72330) and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact, or his substitute or substitutes, may do or cause to be
done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JAMES E. SCHIERLOH Chairman of the Board of Director November 30, 1993
- -------------------------------------
(JAMES E. SCHIERLOH)
/s/ KENNETH T. NEILSON President and Director November 30, 1993
- ------------------------------------- (Chief Executive Officer)
(KENNETH T. NEILSON)
/s/ ROBERT J. BURKE Director November 30, 1993
- -------------------------------------
(ROBERT J. BURKE)
/s/ JOHN T. CLARK Director November 30, 1993
- -------------------------------------
(JOHN T. CLARK)
Director November , 1993
- -------------------------------------
(SHELDON S. GOLDSTEIN)
/s/ HENRY G. HUGELHEIM Director November 30, 1993
- -------------------------------------
(HENRY G. HUGELHEIM)
Director November , 1993
- -------------------------------------
(HARRY J. LEBER)
/s/ CHARLES F. X. POGGI Director November 30, 1993
- -------------------------------------
(CHARLES F. X. POGGI)
/s/ SISTER GRACE FRANCES STRAUBER Director November 30, 1993
- -------------------------------------
(SISTER GRACE FRANCES STRAUBER)
Director November , 1993
- -------------------------------------
(EDWIN WACHTEL)
/s/ CHRISTINA L. MAIER Assistant Treasurer (Principal November 30, 1993
- ------------------------------------- Financial Officer and Principal
(CHRISTINA L. MAIER) Accounting Officer)
</TABLE>
