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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT
(DATE OF EARLIEST EVENT REPORTED) - JULY 1, 1994
HUBCO, INC.
(Exact Name of Registrant as Specified in Its Charter)
NEW JERSEY
(State or Other Jurisdiction of Incorporation)
1-10699 22-2405746
(Commission File Number) (I.R.S. Employer
Identification No.)
3100 BERGENLINE AVENUE, UNION CITY, NEW JERSEY 07087
(Address of Principal Executive Offices)
(201) 348-2300
(Registrant's Telephone Number)
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<PAGE>
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
The following financial statements of Washington are filed with this
report at the conclusion of this Item 7:
Consolidated Balance Sheets as of December 31, 1993 and 1992
Consolidated Statements of Operations for Each of the Three Years
in the Period Ended December 31, 1993
Consolidated Statements of Changes in Stockholders' Equity for
Each of the Three Years in the Period Ended December 31, 1993
Consolidated Statements of Cash Flows for Each of the Three Years
in the Period Ended December 31, 1993
Notes to Consolidated Financial Statements
Accountants' Report
The following interim financial statements are filed with this
report at the conclusion of this Item 7.
Unaudited Financial Statements for the Periods Ended June 30,
1993 and 1994
2
<PAGE>
Unaudited Balance Sheets as of June 30, 1994
(b) Pro Forma Financial Information
The following pro forma financial information is filed with this report
at the conclusion of this Item 7:
HUBCO's pro forma balance sheet as of June 30, 1994 and pro
forma statements of income for the periods ended December 31,
1993 and June 30, 1994.
(c) Exhibits
2.1 Agreement and Plan of Merger, dated as of November 8, 1993, among
HUBCO, Washington, the Bank and the Savings Bank. (Incorporated by reference to
HUBCO's Current Report on Form 8-K dated November 8, 1993.)
2.2 Amendment Number 1 to Agreement and Plan of Merger, dated as of
May 10, 1994, among HUBCO, Washington, the Bank and the Savings Bank.
(Incorporated by reference to Appendix A-1 of Amendment No. 1 to HUBCO's
Registration Statement (File No. 33-53197) on Form S-4 filed with the
Commission on May 11, 1994.)
4.1 HUBCO's Certificate of Incorporation, as amended to date.
(Previously filed.)
4.2 HUBCO's By-laws, as amended. (Incorporated by reference from
HUBCO's Annual Report on Form 10-K for the fiscal year ended December 31,
1993.)
23 Consent of Coopers & Lybrand
99 Press Release dated July 1, 1994 (Previously filed.)
3
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31,
-------------------------------------
1993 1992 1991
---- ---- ----
Interest income:
Loans, including fees . . . . . . $14,781,686 $18,041,437 $22,616,388
U.S. Treasury obligations . . . . 1,766,978 2,833,951 1,995,094
Mortgage-backed securities. . . . 915,652 193,365 849,600
Federal funds sold. . . . . . . . 171,990 380,910 372,369
Dividends . . . . . . . . . . . . 150,639 155,715 199,088
Due from banks. . . . . . . . . . 48,311 50,378 22,719
Other investment securities . . . 722,669 223,335 1,538,383
----------- ----------- -----------
Total interest income . . . . . . 18,557,925 21,879,091 27,593,641
----------- ----------- -----------
Interest expense:
Deposits. . . . . . . . . . . . . 8,794,623 12,189,233 17,148,425
Borrowed funds. . . . . . . . . . 17,809 1,350 1,970,423
----------- ----------- -----------
Total interest expense. . . . . . 8,812,432 12,190,583 19,118,848
----------- ----------- -----------
Net interest income. . . . . . . 9,745,493 9,688,508 8,474,793
----------- ----------- -----------
Provision for losses on loans. . . 420,000 1,100,000 1,500,000
----------- ----------- -----------
Net interest income after provision
for losses on loans. . . . . . . 9,325,493 8,588,508 6,974,793
----------- ----------- -----------
Other income:
Service charges on deposit
accounts . . . . . . . . . . . . 186,459 181,743 149,163
Gain on sale of loans, net. . . . 157,030 196,845 1,275,976
Security gains, net . . . . . . . 22,450 1,638,132 856,843
Gain on sale of bank building . . 186,519 -- --
Other . . . . . . . . . . . . . . 396,675 273,536 287,286
----------- ----------- -----------
Total other income. . . . . . . . 949,133 2,290,256 2,569,268
----------- ----------- -----------
Other expenses:
Salaries and employee benefits. . 3,468,089 3,519,704 3,924,724
REO expense, net. . . . . . . . . 1,457,341 1,171,544 1,935,927
Occupancy and equipment expenses,
net . . . . . . . . . . . . . . 797,303 1,010,739 869,705
Federal Deposit Insurance
Corporation ("FDIC") assessment. 690,516 597,054 577,945
Other . . . . . . . . . . . . . . 2,354,923 2,394,742 1,997,571
----------- ----------- -----------
Total other expenses. . . . . . . 8,768,172 8,693,783 9,305,872
----------- ----------- -----------
Income before income taxes,
extraordinary items and
cumulative effect of change in
accounting principle. . . . . . 1,506,454 2,184,981 238,189
Income tax benefit/(expense) . . 1,018,000 (628,000) (552,000)
----------- ----------- -----------
Income/(loss) before extraordinary
items and cumulative effect of
change in accounting
principle . . . . . . . . . . . 2,524,454 1,556,981 (313,811)
Extraordinary items:
Utilization of net operating
loss ("NOL") carryforward. . . -- 539,000 --
Loss on early extinguishment of
FHLB advances (net of applicable
income tax effect of $-0-) . . -- -- (1,034,319)
Cumulative effect of change in
accounting principle. . . . . . 300,000 -- --
----------- ----------- -----------
NET INCOME/(LOSS). . . . . . . . $ 2,824,454 $ 2,095,981 $(1,348,130)
=========== =========== ===========
Income/(loss) per share:
Income/(loss) before extraordinary
items and cumulative effect of
change in accounting
principle . . . . . . . . . . . $ 1.10 $ 0.68 $ (0.14)
Extraordinary items. . . . . . . -- 0.24 (0.46)
Cumulative effect of change in
accounting principle. . . . . . .13 -- --
----------- ----------- -----------
NET INCOME/(LOSS). . . . . . . . $ 1.23 $ 0.92 $ (0.60)
=========== =========== ===========
Weighted average number of shares
outstanding . . . . . . . . . . . 2,296,876 2,276,035 2,263,547
=========== =========== ===========
See notes to consolidated financial statements
4
<PAGE>
WASHINGTON BANCORP, INC. & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31,
-------------------------
1993 1992
----- -----
Assets
Cash and due from banks . . . . . . . . $ 4,283,032 $ 4,336,433
Federal funds sold. . . . . . . . . . . 1,900,000 3,000,000
------------ ------------
Cash and cash equivalents. . . . . . . 6,183,032 7,336,433
Investment securities:
Available-for-sale . . . . . . . . . . 57,740,195 1,936,700
Held-to-maturity (market value
$14,128,000 and $57,430,000). . . . . 13,848,830 56,793,662
Mortgage-backed securities:
Available-for-sale . . . . . . . . . . 9,516,832 --
Held-to-maturity (market value
$9,365,000 and $7,197,000). . . . . . 9,447,366 7,213,343
Loans: Held-for-sale (market value
$4,909,000 and $9,032,000). . . . . . 4,852,000 9,000,000
In portfolio (net of allowance for
losses of $2,828,000 and
$2,776,000) . . . . . . . . . . . . . 165,332,900 182,500,728
Other real estate owned ("REO") (net
of allowance for losses of $1,880,000
and $1,802,000). . . . . . . . . . . . 7,078,038 12,998,022
Accrued interest receivable . . . . . . 2,563,176 2,606,893
Premises and equipment, net . . . . . . 2,614,031 2,840,090
Federal Home Loan Bank stock, at cost . 1,711,300 1,632,000
Income tax refund . . . . . . . . . . . -- 320,000
Deferred income tax asset . . . . . . . 1,369,000 250,000
Other assets. . . . . . . . . . . . . . 378,636 342,758
------------ ------------
TOTAL ASSETS. . . . . . . . . . . . . $282,635,336 $285,770,629
============ ============
Liabilities and Stockholders' Equity
Liabilities:
Interest-bearing deposits. . . . . . . $237,026,264 $244,249,625
Noninterest-bearing deposits . . . . . 9,016,464 8,373,055
------------ ------------
Total deposits. . . . . . . . . . . . 246,042,728 252,622,680
Advances from Federal Home Loan
Bank ("FHLB") . . . . . . . . . . . . 400,000 --
Mortgage escrow deposits . . . . . . . 1,276,819 1,393,709
Accrued interest payable . . . . . . . 189,154 336,657
Other liabilities. . . . . . . . . . . 1,185,136 948,538
------------ ------------
TOTAL LIABILITIES . . . . . . . . . . 249,093,837 255,301,584
------------ ------------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, par value $.10 per
share, 3,000,000 shares authorized,
no shares issued and outstanding. . . -- --
Common stock, par value $.10 per share,
6,000,000 shares authorized,
shares issued and outstanding--
2,307,687 in 1993
and 2,307,187 in 1992 . . . . . . . . 230,768 230,718
Paid-in capital. . . . . . . . . . . . 22,500,728 22,498,778
Retained earnings. . . . . . . . . . . 10,744,003 7,919,549
Unrealized gain on available-for-sale
securities, net of tax. . . . . . . . 186,000 --
------------ ------------
33,661,499 30,649,045
Deferred compensation--Management
Recognition and Retention Plan
("MRP"). . . . . . . . . . . . . . . . (120,000) (180,000)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY . . . . . 33,541,499 30,469,045
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY. . . . . . . . . . . . . . . $282,635,336 $285,770,629
============ ============
See notes to consolidated financial statements
5
<PAGE>
<TABLE>
<CAPTION>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Unrealized
gain on Deferred
available- compensation
Preferred Common Paid-in for-sale Retained -------------
stock stock capital securities earnings ESOP MRP Total
---------- ------- ------- ---------- -------- ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1991. . $ -- $230,718 $22,498,778 $ -- $ 7,171,698 $(386,400) $(300,000) $29,214,794
Recognition of deferred
compensation
expense. . . . . . . . . . -- -- -- -- -- 289,800 60,000 349,800
Net loss. . . . . . . . . . -- -- -- -- (1,348,130) -- -- (1,348,130)
----- -------- ----------- -------- ----------- --------- --------- -----------
BALANCE, December 31, 1991. -- 230,718 22,498,778 -- 5,823,568 (96,600) (240,000) 28,216,464
Recognition of deferred
compensation expense . . . -- -- -- -- -- 96,600 60,000 156,600
Net income. . . . . . . . . -- -- -- -- 2,095,981 -- -- 2,095,981
----- -------- ----------- -------- ----------- --------- --------- -----------
BALANCE, December 31, 1992. -- 230,718 22,498,778 -- 7,919,549 -- (180,000) 30,469,045
Recognition of deferred
compensation expense . . . -- -- -- -- -- -- 60,000 60,000
Excercise of stock options. -- 50 1,950 -- -- -- -- 2,000
Adoption of SFAS 115. . . . -- -- -- 186,000 -- -- -- 186,000
Net income. . . . . . . . . -- -- -- -- 2,824,454 -- -- 2,824,454
----- -------- ----------- -------- ----------- --------- --------- -----------
BALANCE, December 31, 1993. $ -- $230,768 $22,500,728 $186,000 $10,744,003 $ -- $(120,000) $33,541,499
===== ======== =========== ======== =========== ========= ========= ===========
See notes to consolidated financial statements
</TABLE>
6
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
--------------------------------------
1993 1992 1991
---- ---- ----
Cash Flows from Operating Activities:
Interest received . . . . . . . $ 20,368,341 $ 22,383,276 $ 27,978,824
Loan fees received . . . . . . 288,037 449,833 406,092
Service charges on deposits
received . . . . . . . . . . . 186,459 181,743 149,163
Miscellaneous other income
received . . . . . . . . . . . 260,392 273,536 287,286
Income tax refund received . . 1,196,969 -- 1,105,511
Income taxes paid . . . . . . . (545,107) (609,000) --
Loans originated for resale . . (852,000) -- --
Interest paid . . . . . . . . . (8,959,935) (12,520,427) (19,699,816)
Cash paid to employees and for
other expenses . . . . . . . . (7,630,874) (7,863,590) (5,278,204)
----------- ----------- ------------
Net cash provided by operating
activities . . . . . . . . . 4,312,282 2,295,371 4,948,856
----------- ----------- ------------
Cash Flows from Investing Activities:
Proceeds from maturity of term
federal funds sold. . . . . . . -- 9,000,000 --
Purchase of term federal funds
sold . . . . . . . . . . . . . -- -- (9,000,000)
Proceeds from sales of securities
available-for-sale . . . . . . 3,375,706 19,834,531 --
Proceeds from maturities of
securities available-for-
sale. . . . . . . . . . . . . . 500,000 -- --
Purchase of securities available-
for-sale . . . . . . . . . . . (60,197,058) (21,353,814) --
Principal collected on mortgage-
backed securities available-
for-sale. . . . . . . . . . . . 2,967,578 -- --
Purchase of mortgage-backed
securities available-
for-sale .. . . . . . . . . . . (10,847,957) -- --
Proceeds from sales of loans
held for sale . . . . . . . . . 7,021,863 15,717,358 34,600,519
Proceeds from sales of investment
securities . . . . . . . . . . 9,248,633 54,466,694 68,049,943
Proceeds from maturities of
investment securities . . . . . 35,371,615 10,445,843 52,378,000
Purchase of investment securities (2,452,068) (68,592,457)(117,910,408)
Principal collected on
mortgage-backed securities. . . 5,769,780 532,190 1,042,580
Proceeds from sales of
mortgage-backed securities. . . 2,028,385 1,533,314 27,191,360
Purchase of mortgage-backed
securities . . . . . . . . . . (10,534,937) (7,785,292) --
Purchase of loans . . . . . . . -- (10,086,000) --
Net decrease/(increase) in loans
and loans held for sale . . . . 14,240,619 (7,095,165) (11,481,243)
Recoveries on loans charged-off 261,348 257,045 240,898
Proceeds from sale of bank
building . . . . . . . . . . . 224,100 -- --
Capital expenditures . . . . . (64,614) (312,723) (261,474)
Proceeds from sales of REO, net of
financed sales and closing costs 3,995,466 1,126,761 2,658,486
Proceeds from redemption of FHLB
stock . . . . . . . . . . . . -- 520,300 104,600
Purchase of FHLB stock . . . . (79,300) -- --
----------- ----------- ------------
Net cash (used in)/provided by
investing activities . . . . 829,159 (1,791,415) 47,613,261
----------- ----------- ------------
Cash Flows from Financing Activities:
Net increase in savings and
transaction accounts. . . . . . 4,164,930 14,330,173 5,693,096
Net decrease in certificates of
deposit . . . . . . . . . . . (10,744,882) (20,728,505) (21,998,795)
Net increase/(decrease) in mortgage
escrow deposits . . . . . . . (116,890) (739,381) 149,309
Repayment of advances from FHLB -- -- (45,134,319)
Advances from FHLB . . . . . . 400,000 -- 15,600,000
Exercise of stock options . . . 2,000 -- --
----------- ----------- ------------
Net cash used in financing
activities . . . . . . . . . (6,294,842) (7,137,713) (45,690,709)
----------- ----------- ------------
Net Increase/(Decrease) in Cash and
Cash Equivalents . . . . . . . (1,153,401) (6,633,757) 6,871,408
Cash and Cash Equivalents,
beginning of year. . . . . . . . 7,336,433 13,970,190 7,098,782
----------- ----------- ------------
Cash and Cash Equivalents, end of
year . . . . . . . . . . . . . $ 6,183,032 $ 7,336,433 $ 13,970,190
=========== =========== ============
See notes to consolidated financial statements
7
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
Year ended December 31,
---------------------------------
1993 1992 1991
---- ---- ----
Reconciliation of Net Income/(Loss)
to Net Cash Provided by
Operating Activities:
Net income/(loss) . . . . . . . . $ 2,824,454 $ 2,095,981 $ (1,348,130)
Adjustments to reconcile net income/
(loss) to net cash
provided by operating activities:
Depreciation . . . . . . . . . 253,092 372,186 319,678
Provision for losses on loans and
REO . . . . . . . . . . . . . 1,443,965 1,951,900 2,670,206
Recognition of deferred
compensation expense . . . . . 60,000 156,600 349,800
Deferred loan fees . . . . . . (194,779) (163,765) (248,842)
Deferred taxes . . . . . . . . (699,000) (250,000) 552,000
Gain on sales of investment and
mortgage-backed securities . (67,623) (1,671,946) (1,078,931)
Loss on sales of investment and
mortgage-backed securities . 45,173 33,814 222,088
Gain on sale of bank building (186,519) -- --
Gain on sales of REO . . . . . (429,255) (454,734) (329,927)
Loss on sales of REO . . . . . 125,355 53,887 153,157
Gain on sale of loans . . . . (157,030) (206,314) (1,275,976)
Loss on sale of loans . . . . -- 9,469 --
Premium amortization, net of
discount earned. . . . . . . . 2,249,515 817,490 243,249
Extraordinary loss on early
extinguishment of FHLB
advances . . . . . . . . . . -- -- 1,034,319
Changes in operating assets and
liabilities:
(Increase) in loans originated
for resale. . . . . . . . . . (852,000) -- --
(Increase)/decrease in income
tax refund receivable . . . . 320,000 (320,000) 243,000
(Increase)/decrease in accrued
interest receivable . . . . 43,717 300,293 796,868
(Increase)/decrease in other
assets . . . . . . . . . . (35,878) 83,567 890,585
Increase/(decrease) in accrued
interest payable . . . . . . (147,503) (329,844) (580,968)
Increase/(decrease) in other
liabilities . . . . . . . . (283,402) (183,213) 2,336,680
----------- ----------- -----------
Net cash provided by operating
activities . . . . . . . . . . . $ 4,312,282 $ 2,295,371 $ 4,948,856
=========== =========== ===========
Supplemental Schedule of Noncash
Investing and Financing
Activities:
Transfer of loans to REO . . . $ 3,705,035 $ 5,330,339 $ 9,571,387
=========== =========== ===========
Portion of REO sales financed
by the Bank. . . . . . . . . . $ 5,427,475 $ 3,486,900 $ 4,700,200
=========== =========== ===========
Transfer of loans to loans held
for sale, net . . . . . . . . $ -- $24,520,513 $ --
=========== =========== ===========
Exchange of loans for
mortgage-backed securities . . $ 1,788,408 $ -- $ 6,732,250
=========== =========== ===========
Available-for-sale securities
market value change. . . . . . $ 186,000 $ -- $ --
=========== =========== ===========
See notes to consolidated financial statements
8
<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.
STATEMENTS OF CASH FLOWS
The statements of cash flows are presented using the direct method. For
purposes of reporting cash flows, cash and cash equivalents are cash on hand,
amounts due from banks and Federal funds sold (generally due within a one-week
period).
SECURITIES
During 1993, the Financial Accounting Standards Board (the "FASB") issued
and the Company adopted Statement of Financial Accounting Standards No. 115:
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
115"). SFAS 115 requires entities to classify their securities into either a
held-to-maturity, available-for-sale or trading category. Each of these
classifications require a different basis of accounting.
Securities in which there is both the positive intent and ability to hold
until call date, if any, or maturity are classified as held-to-maturity and
carried at cost, adjusted for amortization of premiums and accretion of
discounts. Premiums are amortized and discounts are accreted using the level
yield method over the period to call, if any, or maturity for investments, and
over the estimated remaining lives based on anticipated prepayments for
mortgage-backed securities. Gains and losses, if any, are recognized when
securities are sold by the specific identification method.
Securities which may be sold prior to maturity for either asset/liability
purposes or for other reasons are classified as available-for-sale and are
accounted for at fair value with fair value changes, net of tax, reported as a
net amount in a separate component of stockholders' equity.
The Company does not engage in trading securities; however, such
securities would be accounted for at fair value with fair value changes
reported in the income statement.
The effect of adopting SFAS 115 as of December 31, 1993 was to increase
securities by $286,000, reduce the net deferred tax asset by $100,000 and
increase stockholders' equity by $186,000. There was no effect on the results
of operations.
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.
LOANS
Loans in which there is both the intent and ability to hold until
maturity are carried at their principal amounts outstanding. Generally, when a
loan is past due as to payment of principal or interest for ninety days or
when, in the opinion of management, the accrual of interest should be ceased
before ninety days, it is the Company'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.
9
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Loan origination fees and certain direct loan origination costs are
offset, and the resulting net amount is deferred and amortized as an
adjustment of the loans' yields. Net loan fees are generally amortized over
the contractual lives of the related loans.
Loans held for sale are carried at the lower of aggregate cost or market.
No valuation allowance was required at December 31, 1993 or 1992. Gains and
losses, including deferred loan origination fees, are recognized when loans
are sold by the specific identification method.
In May 1993, the FASB issued Statement of Financial Accounting Standards
No. 114, "Accounting by Creditors for Impairment of a Loan" ("SFAS 114").
SFAS 114 establishes criteria for accounting for loans that have been
impaired. It requires that impaired loans be measured based on the present
value of expected future cash flows discounted at the loan's effective
interest rate or at the loan's observable market price or the fair value of
the collateral if the loan is collateral dependent. The Company 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. The Company
plans to adopt SFAS 114 in 1995 with no prior period restatement.
ALLOWANCE FOR LOSSES ON LOANS
The allowance for losses on loans is established through charges to
operations in the form of a provision for losses on loans. Loans which are
determined to be uncollectible are charged against the allowance account and
subsequent recoveries, if any, are credited to the account. The provision for
losses on loans is based upon percentage allocations with regard to the
performing loan portfolio, as well as specific allocations for classified
loans. Loans are classified in accordance with their estimated risk based on
various factors, including: (a) the financial status and credit history of the
borrower; (b) collateral value; (c) loan documentation; (d) prevailing and
anticipated economic conditions; and (e) such other factors that, in
management's judgement, warrant current recognition in providing an adequate
allowance.
OTHER REAL ESTATE OWNED ("REO"), NET
REO consists of real estate properties acquired through foreclosure or
deed in lieu of foreclosure and "in-substance" foreclosures ("ISF"). A loan is
classified as an in-substance foreclosure even though actual foreclosure has
not occurred based upon the following criteria: the borrower has little or no
equity in the collateral based upon its current estimated fair value; proceeds
for repayment are expected to come only from the operations or sale of the
collateral; and either the borrower has abandoned control of the collateral or
it is doubtful that the borrower will rebuild equity in the collateral or
repay the loan by other means in the foreseeable future.
REO is carried at the lower of cost (principal balance of the former loan
plus cost of obtaining title and possession) or fair value less estimated cost
to sell. When a property is transferred to ISF, the excess of the loan balance
over market or the the fair value less estimated cost to sell is charged to the
allowance for losses on loans.
The allowance for losses on REO is established through charges to
operations in the form of a provision for losses on REO that is reflected in
the expense caption--"REO expense, net." Factors considered in establishing
the allowance for losses on REO include appraisals of the fair market value of
a property and management's assessment of the overall real estate market for
that type of property and its location. In addition, carrying costs (e.g. real
estate taxes, repairs and maintenance, and insurance), net of rental income,
are charged to operations in the current period and are reflected in the
expense caption--"REO expense, net".
PREMISES AND EQUIPMENT, NET
Land is carried at cost. Buildings, building improvements, and furniture
and equipment are stated at cost less accumulated depreciation computed on the
straight-line basis over the estimated useful lives of each type of asset.
Leasehold improvements are stated at cost less accumulated amortization
computed on a straight-line basis over the term of the lease or useful life,
whichever is less. Expenditures for maintenance and repairs are charged to
expense; major replacements and betterments are capitalized. Gains and losses
on dispositions are reflected in current operations.
10
<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 assets and liabilities at enacted tax rates expected to be in effect when
such amounts are realized or settled. The effect of adopting SFAS 109, as of
January 1, 1993, was to increase assets and net earnings by $300,000, or $.13
per share.
PENSION PLAN AND POSTRETIREMENT BENEFITS
A noncontributory defined benefit pension plan is provided through
Retirement System Group Inc. that covers substantially all employees. Benefits
are based upon years of service and generally upon the employee's average
compensation during the three consecutive years prior to normal retirement.
The funding policy is generally to make the minimum annual contributions
required by applicable regulations. Pension cost is determined by Statement of
Financial Accounting Standards No. 87: "Employers' Accounting for Pensions."
The Entry Age Normal Cost Method was used to determine the actuarial present
value of accumulated and projected benefit obligations.
During 1992, the Company 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 Company of each retiree's future health insurance
premiums in exchange for the Company's liability for future coverage. The
aggregate lump sum amount for all such retirees approximated $77,000 and was
paid in two equal installments in January 1992 and 1993. Second, the
obligation for future retirees was moved to the tax-qualified pension plan.
Future retirees who meet certain age and service requirements will be awarded
a supplemental pension benefit equal to a percentage of estimated future
health insurance premiums.
During 1992 and prior periods, postretirement health care benefits were
recognized in the year that the benefits were paid to certain retired
employees--the "pay-as-you-go" or cash basis. The costs of providing
postretirement health care benefits approximated $42,000 and $38,000 for the
years ended December 31, 1992 and 1991, respectively.
POSTEMPLOYMENT BENEFITS
In December 1992, the FASB issued Statement of Financial Accounting
Standards No. 112: "Employers' Accounting for Postemployment Benefits" ("SFAS
112"). SFAS 112 requires accrual accounting for benefits provided to former or
inactive employees after employment but before retirement--including salary
continuation, disability benefits, severance pay and continuation of health
care benefits. Under SFAS 112, each benefit will be accrued either over the
employee's working career for benefits that vest or vary based on an
employee's years of service, or as an expense at the date of the event giving
rise to the benefits (e.g., at the date of disability). SFAS 112 is effective
for fiscal years beginning after December 15, 1993. Earlier application is not
required by the FASB. The Company plans to adopt SFAS 112 in 1994 with no
prior period restatement. Management believes that the effect of adopting SFAS
112 will not be significant on the financial position or results of operations
of the Company.
FINANCIAL INSTRUMENTS
Disclosures are made of the fair value of financial instruments, both
assets and liabilities recognized and not recognized in the consolidated
balance sheet, for which it is practicable to estimate fair value as of the
balance sheet
11
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
date. Changes in market conditions subsequent to that date are not reflected
and the fair value of financial instruments are not representative of the
Company's total value. For example, when quoted market prices are not
available, the Company calculates the present value of anticipated future cash
flows. In that regard, the estimated fair value will be affected by prepayment
and discount rate assumptions. Such method may not provide the actual amount
which would be realized in the ultimate sale of the financial instrument.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practical to
estimate that value:
Cash and short-term investments
The carrying amount is a reasonable estimate of fair value.
Securities
Fair values are based on quoted market prices as published by various
quotation services or, if quoted market prices are not available, on dealer
quotes. Fair value of the investment in FHLB is its carrying amount.
Loan receivables and commitments to extend credit
Loans are grouped into homogeneous categories, such as one-to-four family
mortgages, consumer loans, and loans held for sale. Fair value is based on
either a quoted market price from a dealer for similar maturities, interest
rate and type of collateral or the present value of anticipated future cash
flows using the current rates at which similar loans would be made to
borrowers with similar credit risks and for the same remaining maturities.
Deposit liabilities
Carrying amount is a reasonable estimate of fair value for savings,
demand deposit, and money market accounts. Fair value of certificates of
deposit is estimated by discounting the future cash flows using the rates
currently offered for deposits of similar remaining maturities.
PER SHARE DATA
Income/(loss) per share was computed by dividing net income/(loss) for
each year by the weighted average number of shares outstanding (which excludes
unvested shares of the MRP).
RECLASSIFICATIONS
Certain reclassifications have been made to the 1992 and 1991 financial
statements to conform to the 1993 presentation.
2. CASH AND DUE FROM BANKS
Reserves maintained to meet Federal Reserve Board regulations amounted to
$331,000 and $280,000 during the bi-weekly maintenance periods that included
December 31, 1993 and 1992, respectively.
12
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
3. SECURITIES
December 31, 1993 December 31, 1992
---------------------------------------------- -------------------------------------------
Gross Gross
Weighted Unrealized Weighted 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 HELD TO
MATURITY
U.S. Treasury:
Maturing between 1-5 years . . . 5.45% $13,546 $275 $ (1) $13,820 5.95% $19,090 $453 $ -- $19,543
---- ------- ---- ------ ------- ----- ------- ---- ------ -------
U.S. Government agencies:
Maturing within 1 year . . . . . -- -- -- -- -- 3.74 5,611 2 (7) 5,606
---- ------- ---- ------ ------- ----- ------- ---- ------ -------
Corporate Bonds and Notes:
Maturing within 1 year . . . . . -- -- -- -- -- 4.00 19,754 187 (37) 19,904
Maturing between 1-5 years . . . 4.28 303 5 -- 308 4.53 3,151 46 (2) 3,195
---- ------- ---- ------ ------- ----- ------- ---- ------ -------
4.28 303 5 -- 308 4.07 22,905 233 (39) 23,099
---- ------- ---- ------ ------- ----- ------- ---- ------ -------
Other Securities:
Maturing within 1 year . . . . . -- -- -- -- -- 3.65 9,188 2 (8) 9,182
---- ------- ---- ------ ------- ----- ------- ---- ------ -------
5.43% $13,849 $280 $ (1) $14,128 4.58% $56,794 $690 $(54) $57,430
==== ======= ==== ====== ======= ===== ======= ==== ===== =======
MORTGAGED-BACKED SECURITIES HELD
TO MATURITY
Government National
Mortgage Association ("GNMA")
pass-through certificates. . . . 6.24% $ 7,155 $ 14 $ (75) $ 7,094 7.12% $ 7,213 $ 16 $(32) $ 7,197
Federal National Mortgage
Association ("FNMA") pass-through
certificates . . . . . . . . . . 5.85 1,582 5 (21) 1,566 -- -- -- -- --
Federal Home Loan Mortgage
Association (FHLMC") pass-through
certificates . . . . . . . . . . 5.67 710 -- (5) 705 -- -- -- -- --
---- ------- ---- ------ ------- ----- ------- ---- ------ -------
6.13% $ 9,447 $ 19 $(101) $ 9,365 7.12% $ 7,213 $ 16 $(32) $ 7,197
==== ======= ==== ====== ======= ===== ======= ==== ===== =======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1993 December 31, 1992
-------------------- -------------------------------------------
Gross
Weighted Carrying/ Weighted Unrealized
Average Market Average Carrying ------------- Market
Yield Value Yield Value Gains Losses Value
------ -------- ------ ----- ----- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT SECURITIES AVAILABLE
FOR SALE
U.S. Treasury:
Maturing between 1-5 years . . . 4.69% $51,822 --% $ -- $ -- $ -- $ --
U.S. Government agencies:
Maturing within 1 year . . . . . 3.59 505 -- -- -- -- --
Corporate Bonds and Notes:
Maturing within 1 year . . . . . 4.12 3,836 4.64 1,937 17 -- 1,954
Other Securities:
Maturing within 1 year . . . . . 4.50 1,577 -- -- -- -- --
---- ------- ---- ------ ----- ----- ------
4.64% $57,740 4.64% $1,937 $ 17 $ -- $1,954
==== ======= ==== ===== ===== ===== ======
MORTGAGED-BACKED SECURITIES
AVAILABLE FOR SALE
GNMA pass-through certificates. . 6.82% $ 5,986 --% $ -- $ -- $ -- $ --
FHLMC pass-through certificates . 7.82 2,558 -- -- -- -- --
FNMA pass-through certificates. . 5.53 973 -- -- -- -- --
---- ------- ---- ------ ----- ----- ------
6.95% $ 9,517 --% $ -- $ -- $ -- $ --
==== ======= ==== ====== ===== ===== ======
</TABLE>
During 1993, the Company adopted SFAS 115 which increased the carrying
value of the available-for-sale securities by $286,000 for unrealized gains.
The carrying value of securities pledged to collateralize public deposits
approximated $828,000 and $1,454,000 at December 31, 1993 and 1992,
respectively.
13
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. LOANS AND REO
Loans
The primary market area for lending encompasses Hudson and Bergen
Counties, New Jersey. The following table sets forth the composition of the
loan portfolio:
December 31,
---------------------------
1993 1992
------------ ------------
Real estate:
1-4 family . . . . . . . . . . . . . . . . . $109,211,067 $125,858,058
Multi-family/commercial. . . . . . . . . . . 53,860,461 52,742,859
Construction . . . . . . . . . . . . . . . . 3,282,555 2,533,164
------------ ------------
Total real estate loans . . . . . . . . . . 166,354,083 181,134,081
Commercial/financial. . . . . . . . . . . . . 1,421,985 3,551,679
Consumer and other loans. . . . . . . . . . . 1,322,178 1,731,241
------------ ------------
Total loans . . . . . . . . . . . . . . . . 169,098,246 186,417,001
Less:
Unearned interest. . . . . . . . . . . . . . 79,393 87,541
Deferred loan fees . . . . . . . . . . . . . 857,953 1,052,732
Allowance for losses . . . . . . . . . . . . 2,828,000 2,776,000
------------ ------------
Loans, net. . . . . . . . . . . . . . . . . $165,332,900 $182,500,728
============ ============
Nonperforming loans
Nonperforming loans, which are a component of loans, include loans which
are accounted for on a nonaccrual basis and troubled debt restructurings.
December 31,
---------------------------
1993 1992
------------ ------------
Nonaccrual loans:
Real estate loans:
1-4 family. . . . . . . . . . . . . . . . . $ 2,783,813 $5,527,941
Multi-family/commercial . . . . . . . . . . 9,981,691 1,648,146
Construction. . . . . . . . . . . . . . . . -- 944,000
----------- ----------
Total real estate loans. . . . . . . . . . 12,765,504 8,120,087
Commercial/financial . . . . . . . . . . . . -- 224,591
Consumer and other loans . . . . . . . . . . 32,647 254,571
----------- ----------
Total nonaccrual loans . . . . . . . . . . 12,798,151 8,599,249
Troubled debt restructurings:
Commercial/financial. . . . . . . . . . . . 151,788 207,088
----------- ----------
Total nonperforming loans. . . . . . . . . $12,949,939 $8,806,337
=========== ==========
Interest on nonperforming loans which would have been recorded had such
loans been performing (based upon original contract terms) throughout the
period approximated $826,000, $609,000 and $975,000 for the years ended
December 31, 1993, 1992 and 1991, respectively. Interest income on those
loans, which is recorded only when received, amounted to $223,000, $416,000
and $548,000 for the years ended December 31, 1993, 1992 and 1991,
respectively.
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
14
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
"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 pursuant 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 were resumed to the Bank in December
1993. On January 29, 1994, the Bank paid approximately $450,000 to the City
of Philadelphia to resolve all remaining property tax arrearages and to pay
1994 property taxes. The amount of such payment was capitalized into the
Bankruptcy Loan balance. The Bank anticipates that the Bankruptcy Loan will
be renegotiated during 1994. The Bank has classified the Bankruptcy Loan as
a nonaccrual loan included in the 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
December 31,
-----------------------
1993 1992
--------- -----------
Acquired by foreclosure or deed in
lieu of foreclosure. . . . . . . . $3,920,667 $ 7,460,541
Loans foreclosed in-substance . . . 5,037,371 7,339,481
Less: Allowance for losses on REO . 1,880,000 1,802,000
---------- -----------
REO, net . . . . . . . . . . . . . $7,078,038 $12,998,022
========== ===========
Allowance for losses on loans and REO
Loans REO Total
---------- ---------- ----------
Balance, December 31, 1990. . . . . $2,579,000 $ 976,000 $3,555,000
Provision for losses. . . . . . . . 1,500,000 1,170,206 2,670,206
Recoveries. . . . . . . . . . . . . 240,898 -- 240,898
Losses charged off. . . . . . . . . (1,330,898) (818,206) (2,149,104)
---------- ---------- ----------
Balance, December 31, 1991. . . . . 2,989,000 1,328,000 4,317,000
Provision for losses. . . . . . . . 1,100,000 851,900 1,951,900
Recoveries. . . . . . . . . . . . . 257,045 -- 257,045
Losses charged off. . . . . . . . . (1,570,045) (377,900) (1,947,945)
---------- ---------- ----------
Balance, December 31, 1992. . . . . 2,776,000 1,802,000 4,578,000
Provision for losses. . . . . . . . 420,000 1,023,965 1,443,965
Recoveries. . . . . . . . . . . . . 261,319 -- 261,319
Losses charged off. . . . . . . . . (629,319) (945,965) (1,575,284)
---------- ---------- ----------
Balance, December 31, 1993. . . . . $2,828,000 $1,880,000 $4,708,000
========== ========== ==========
Related-Party Loans
An analysis of activity with respect to loans outstanding to directors,
officers, their entities and immediate family is as follows:
Year ended December 31,
----------------------
1993 1992
--------- ----------
Balance, beginning of year. . . . . . . . . . . $ 866,000 $1,007,000
New loans. . . . . . . . . . . . . . . . . . . -- 356,000
Repayments/reductions. . . . . . . . . . . . . (320,000) (497,000)
--------- ----------
Balance, end of year. . . . . . . . . . . . . . $ 546,000 $ 866,000
========= ==========
As of December 31, 1993 and 1992, $543,000 and $842,000, respectively, of
such loans represented collateralized real estate loans and $3,000 and
$24,000, respectively, represented uncollateralized loans. All such loans
were, in the opinion of management, made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with outside third parties.
15
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. PREMISES AND EQUIPMENT
December 31,
------------
1993 1992
---------- ----------
Land. . . . . . . . . . . . . . . . . . . . . . . . $ 513,570 $ 532,496
Buildings . . . . . . . . . . . . . . . . . . . . . 3,185,933 3,211,426
Leasehold improvements. . . . . . . . . . . . . . . 145,123 356,462
Equipment . . . . . . . . . . . . . . . . . . . . . 2,483,214 2,423,942
---------- ----------
6,327,840 6,524,326
Less: Accumulated depreciation and amortization . . 3,713,809 3,684,236
---------- ----------
$2,614,031 $2,840,090
========== ==========
During 1993, a building used to store bank-owned vehicles (i.e., a
garage) with a net book value of $37,000 was sold for $224,000.
6. INTEREST-BEARING DEPOSITS
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------
1993 1992
----------------------- ------------------------
Average Average
effective effective
interest rate Amount interest rate Amount
------------- ------ ------------- -------
<S> <C> <C> <C> <C>
Regular savings accounts. . . . . . . . . . . . . . . . . . . 2.50% $103,033,812 3.25% $ 99,347,342
Money market accounts . . . . . . . . . . . . . . . . . . . . 2.25 6,700,155 3.15 7,369,440
Checking accounts . . . . . . . . . . . . . . . . . . . . . . 2.00 4,690,136 2.90 4,185,800
---- ------------ ---- ------------
Total savings and transaction deposits . . . . . . . . . . . 2.47 114,424,103 3.23 110,902,582
---- ------------ ---- ------------
Market-rate certificates under $100,000 maturing:
Three months or less . . . . . . . . . . . . . . . . . . . . 3.84 37,909,328 4.86 45,781,741
Three months to six months . . . . . . . . . . . . . . . . . 3.69 22,848,926 4.97 29,851,480
Six months to one year . . . . . . . . . . . . . . . . . . . 3.65 26,694,662 4.79 33,046,983
One to two years . . . . . . . . . . . . . . . . . . . . . . 4.36 10,430,845 6.22 11,860,462
Two to three years . . . . . . . . . . . . . . . . . . . . . 4.91 10,514,059 4.91 3,212,207
Three to five years. . . . . . . . . . . . . . . . . . . . . 5.07 5,576,637 6.11 1,225,039
Market-rate certificates $100,000 and over maturing:
Three months or less . . . . . . . . . . . . . . . . . . . . 4.02 2,754,760 4.90 3,294,615
Three months to six months . . . . . . . . . . . . . . . . . 3.32 1,710,739 4.68 2,014,480
Six months to one year . . . . . . . . . . . . . . . . . . . 4.12 1,819,949 5.16 2,417,186
One to two years . . . . . . . . . . . . . . . . . . . . . . 4.51 527,622 6.89 428,375
Two to three years . . . . . . . . . . . . . . . . . . . . . 4.99 701,366 5.30 214,475
Three to five year . . . . . . . . . . . . . . . . . . . . . 5.05 1,113,268 -- --
---- ------------ ---- ------------
Total certificates of deposit . . . . . . . . . . . . . . . 3.98 122,602,161 5.01 133,347,043
---- ------------ ---- ------------
Total interest-bearing deposits. . . . . . . . . . . . . . 3.25% $237,026,264 4.20% $244,249,625
==== ============ ==== ============
Average effective interest rate on all deposits . . . . . . . 3.13% 4.04%
==== ====
</TABLE>
7. BORROWINGS
On February 1, 1993, the FHLB advanced the Company $400,000, maturing on
February 1, 1996. There were no advances during 1992. The average amount
outstanding during 1993 and 1991 was $367,000 and $23,308,000, respectively,
with a weighted average rate of 4.9% and 8.4%, respectively. The FHLB advance
is collateralized by
16
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
mortgage-backed securities and the mortgage loan portfolio. During the fourth
quarter of 1991, the proceeds primarily from the sale of one-to-four family
performing mortgage loans and investment securities were used to prepay
$15,900,000 of FHLB advances, incurring approximately $1,034,000 of early
extinguishment costs. The costs have been included in the consolidated
statements of operations as an extraordinary item. Due to the net operating
loss carryforward position, there was no income tax effect for these
transactions.
In 1987, the Bank established an Employee Stock Ownership Plan ("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. Interest was paid and accrued monthly at a variable rate which
approximated the prime rate. The related interest expense incurred for the
years ended December 31, 1992 and 1991 approximated $1,000 and $23,000, at an
effective rate of 3.9% and 9.3%, respectively.
The Bank also has a line of credit, which expires on September 1, 1994,
of approximately $14.3 million with the FHLB, none of which was in use at
December 31, 1993.
8. PENSION PLAN
The components of net periodic pension cost include the following:
Year ended December 31,
-------------------------------
1993 1992 1991
-------- -------- --------
Service cost of benefits earned . . . . . $131,925 $122,405 $102,672
Interest cost on projected benefit
obligation . . . . . . . . . . . . . . . 220,512 209,194 205,182
Actual return on plan assets. . . . . . . (408,089) (279,886) (210,743)
Net amortization:
Deferred investment liability. . . . . . 147,402 33,433 --
Unrecognized net transition asset. . . . (58,356) (58,356) (58,356)
Unrecognized prior service liability . . (254) 1,456 1,456
-------- -------- --------
Net periodic pension cost . . . . . . . . $ 33,140 $ 28,246 $ 40,211
======== ======== ========
17
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The funded status of the plan, which invests primarily in marketable
equity and debt securities, and the amounts recognized in the consolidated
balance sheets are as follows:
December 31,
--------------------------
1993 1992
----------- -----------
Actuarial present value of accumulated benefit
obligation:
Vested benefits. . . . . . . . . . . . . . . . $(2,838,600) $(2,338,576)
Nonvested benefits . . . . . . . . . . . . . . (182,800) (150,610)
----------- -----------
Accumulated benefit obligation . . . . . . . . (3,021,400) (2,489,186)
Effect of assumed increase in future
compensation levels. . . . . . . . . . . . . . (415,000) (341,898)
----------- -----------
Projected benefit obligation. . . . . . . . . . (3,436,400) (2,831,084)
Plan assets at fair value . . . . . . . . . . . 3,617,300 3,333,266
----------- -----------
Plan assets in excess of projected
benefit obligation . . . . . . . . . . . . . . 180,900 502,182
Unrecognized net transition asset . . . . . . . (242,200) (300,524)
Unrecognized net (gain)/loss. . . . . . . . . . 87,200 (142,334)
Unrecognized prior service liability. . . . . . (7,500) (7,784)
----------- -----------
Net pension asset . . . . . . . . . . . . . . . $ 18,400 $ 51,540
========== ==========
The expected long-term rate of return on plan assets used in determining
the net periodic pension cost was 8.00% in 1993, 1992 and 1991. The projected
benefit obligation is based on an assumed discount rate of 7.00% in 1993 and
8.00% in 1992, and an assumed rate of compensation increase of 5.5% and 6.00%
in 1993 and 1992, respectively. The original net transition asset of $650,660
is being amortized over approximately eleven years and is due to expire in
1998.
9. BENEFIT PLANS
The expense charged to operations for the following benefit plans during
the years ended December 31, 1993, 1992 and 1991 approximated $151,000,
$193,000 and $376,000, respectively.
Incentive Stock Option Plan ("Option Plan")
The Option Plan authorizes the granting of 172,500 nonqualified and
incentive stock options through 1997 to certain officers and other key
employees. Each option entitles the holder to purchase one share of Common
Stock at an exercise price equal to the fair market value as of the date of
grant. Options may be exercisable at such times (not after ten years from
grant) as the Stock Option Plan Committee determines. The exercise price may
be paid in cash or Common Stock. The following table summarizes stock option
transactions during the three years ended December 31, 1993:
Balance at January 1, 1991, exercisable between $5.25
and $18.75 . . . . . . . . . . . . . . . . . . . . . . . . 58,000
Granted in 1992 at $4.00. . . . . . . . . . . . . . . . . 26,500
Granted in 1993 at $7.25. . . . . . . . . . . . . . . . . 88,000
Exercised in 1993 at $4.00. . . . . . . . . . . . . . . . (500)
-------
Balance at December 31, 1993, exercisable between $4.00
and $18.75 . . . . . . . . . . . . . . . . . . . . . . . . 172,000
=======
Exercisable at December 31, 1993. . . . . . . . . . . . . . 74,700
=======
Available for future grant of stock options . . . . . . . . --
=======
18
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Employee Stock Ownership Plan ("ESOP")
The ESOP, established for employees age 21 or older who have at least one
year of credited service, was funded by discretionary cash contributions that
are invested in the Common Stock. Benefits may be paid either in shares of
Common Stock or in cash. Shares purchased with such proceeds are held in a
suspense account by the ESOP Trustee for allocation among members. Benefits
become 20% vested each year of credited service, with 100% vesting after 5
years of credited service. Forfeitures will be reallocated among remaining
participating employees. Benefits may be payable upon retirement, early
retirement, disability or separation from service.
The ESOP Trustee must vote all allocated shares held in the ESOP in
accordance with the instructions of the participating employees. Shares for
which employees do not give instructions, shares held by the ESOP trustee and
unallocated shares will be voted in the same proportion as the shares with
respect to which instructions have been given.
The ESOP is subject to the requirements of the Employee Retirement Income
Security Act of 1974, as amended (which applies to all employee stock
ownership plans), and the regulations of the Internal Revenue Service and the
Department of Labor thereunder. The Company has begun to terminate the ESOP.
The effect of terminating the ESOP will not be significant to the financial
position or results of operations of the Company.
Management Recognition Plan ("MRP")
The MRP was established as a method of providing employees in key
positions with a proprietary interest in a manner designed to encourage such
key employees to remain with the Company. The Company 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 Company was granted a single non-qualified option to purchase 7,187.5
shares (aggregate 57,500 shares) of the Common Stock at an exercise price
equal to the fair market value as of the date of grant. Each option granted
under the Directors' Option Plan expires upon the earlier of ten years
following the date of the option or thirty days following the date the
optionee ceases to be a director. The following table summarizes the
Directors' Option Plan transactions during the three years ended December 31,
1993:
Balance at January 1, 1991, exercisable between $10.50
and $13.00 . . . . . . . . . . . . . . . . . . . . . . . . 50,312.50
Granted in 1993 at $7.25. . . . . . . . . . . . . . . . . 10,782.00
Options returned for granting in 1993 . . . . . . . . . . (10,782.00)
----------
Balance at December 31, 1993, excersisable between $7.25
and $13.00 . . . . . . . . . . . . . . . . . . . . . . . . 50,312.50
==========
Exercisable at December 31, 1993. . . . . . . . . . . . . . 50,312.50
==========
Available for future grant of stock options . . . . . . . . --
==========
Deferred Compensation Plan for Outside Directors ("DCP")
During 1993, the DCP, a plan which covers any outside director who has
served in that capacity for at least five consecutive calendar years, was
approved in principle subject to certain conditions. Eligibility, benefits and
vesting will continue should an outside director subsequently become an
officer or employee. An outside director becomes fully vested upon either
fifteen years of service as director, sixty-five years of age, death, or
change in control of 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).
19
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Benefits are based on actuarial assumptions then in effect under the
Retirement Plan of the Bank. 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 December 31, 1993, the accumulated
postretirement benefit obligation reflected on the consolidated balance sheet
in other liabilities was $25,000.
In the event of a change in control of 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 a single cash payment equal
to four times the then current retainer. The cumulative liability under a
change in control of the Company is approximately $252,000. Such cumulative
liability in excess of the aforementioned $25,000 was not reflected in the
consolidated financial statements as of December 31, 1993.
Bonus programs
Employees of the Bank are awarded cash bonuses based upon length of
service, responsibility level and performance.
10. INCOME TAX EXPENSE/(BENEFIT)
Year ended December 31,
----------------------
1993 1992 1991
---- ---- ----
(Dollars in thousands)
Current:
Federal. . . . . . . . . . . . . . . . . . . $ 396 $ 288 $ --
State. . . . . . . . . . . . . . . . . . . . 32 51 --
------- ----- -----
428 339 --
Deferred. . . . . . . . . . . . . . . . . . . 110 (250) --
Elimination of valuation allowance. . . . . . (809) -- --
Income tax refund . . . . . . . . . . . . . . (747) -- --
Charge in lieu of income taxes. . . . . . . . -- 539 --
Write-off of net deferred tax asset . . . . . -- -- 552
------- ----- -----
$(1,018) $ 628 $ 552
======= ===== =====
Upon adoption of SFAS 109, deferred tax assets of $2.4 million, deferred
tax liabilities of $1.0 million and a valuation allowance of $809,000 were
established, resulting in a net deferred tax asset of $550,000 as of January
1, 1993. As of December 31, 1993, the $809,000 valuation allowance was reduced
to zero as a result of taxes paid in prior and current years and anticipated
future taxable income sufficient to realize these tax benefits. Based upon the
Company's historical and current pretax earnings, management believes it is
more likely than not that the Company will generate future net taxable income
in sufficient amounts to realize its net deferred tax asset at December 31,
1993, however, there can be no assurance that the Company will generate any
earnings or any specific level of continuing earnings. In addition during
1993, an income tax refund of $747,000 was received as a result of an
overassessment of previously paid federal income taxes.
During 1992, the Company utilized its remaining net operating loss
carryforwards of approximately $754,000 for federal income tax purposes and
approximately $1,700,000 for financial reporting purposes to record an
extraordinary credit in the amount of $539,000, which partially offset income
tax expense of $628,000. During 1991, the $552,000 of expense was primarily a
result of the write-off of the net deferred tax asset as a result of the
Company's tax loss carryforward position.
20
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A reconciliation between the reported income tax expense/(benefit) and
the amount computed by multiplying income before income taxes, extraordinary
items and cumulative effect of change in accounting principle by the statutory
Federal income tax rate is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------------
1993 1992 1991
--------------- --------------- --------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Statutory expense . . . . . . . . . . . . . . . . . . . . $ 512 34.0% $ 743 34.0% $ 81 34.0%
(Deductible)/ nondeductible provision
for losses on loans. . . . . . . . . . . . . . . . . . . -- -- (151) (6.9) 160 67.3
State income tax, net of federal benefit. . . . . . . . . 30 2.0 35 1.6 -- --
Reduction in valuation allowance. . . . . . . . . . . . . (809) (53.7) -- -- -- --
Income tax refunds. . . . . . . . . . . . . . . . . . . . (747) (49.6) -- -- -- --
Write-off of deferred tax asset, net of
benefit. . . . . . . . . . . . . . . . . . . . . . . . . -- -- -- -- 310 130.2
Other . . . . . . . . . . . . . . . . . . . . . . . . . . (4) (.3) 1 -- 1 (.2)
------- ------ ----- ---- ----- -----
$(1,018) (67.6)% $ 628 28.7% $ 552 231.7%
======= ====== ===== ==== ===== =====
</TABLE>
Temporary differences, which give rise to deferred tax assets and
liabilities under SFAS 109, as of December 31, 1993, are as follows:
Deferred Tax
---------------------
Assets Liabilities
------ -----------
(Dollars in thousands)
Financial basis reserve for losses on loans and REO . . $1,710 $ --
Tax basis reserve for losses on loans and REO
in excess of base year tax reserve . . . . . . . . . . -- 1,088
Deferred loan origination fees. . . . . . . . . . . . . 309 --
Interest on nonaccrual loans. . . . . . . . . . . . . . 262 --
Premises and equipment. . . . . . . . . . . . . . . . . 146 --
Deferred compensation . . . . . . . . . . . . . . . . . 83 --
Unrealized gain on available for sale securities. . . . -- 100
Other . . . . . . . . . . . . . . . . . . . . . . . . . 54 7
------ ------
Deferred taxes/liabilities. . . . . . . . . . . . . . . $2,564 $1,195
====== ======
Net deferred tax asset. . . . . . . . . . . . . . . . . $1,369
======
Under APB 11, the provision for losses on loans and REO was treated as a
permanent difference which did not require deferred taxes. Under SFAS 109,
differences between the book and tax basis reserve for losses on loans and REO
are treated as temporary differences requiring deferred taxes, except that no
deferred tax liability is required for the base year tax reserve of
approximately $270,000 as of December 31, 1993.
21
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The deferred income tax provision/(benefit) on income from operations is
due to the following items:
Year ended December 31,
------------------------
1993 1992 1991
---- ---- ----
(Dollars in thousands)
Financial basis reserve for losses on loans and
REO. . . . . . . . . . . . . . . . . . . . . . $ 63 $ -- $ --
Tax basis reserve for losses on loans and REO in
excess of base year tax reserve. . . . . . . . (87) -- --
Deferred loan origination fees. . . . . . . . . (70) (248) --
Interest on nonaccrual loans. . . . . . . . . . 186 23 --
Deferred compensation . . . . . . . . . . . . . (26) (28) --
Other . . . . . . . . . . . . . . . . . . . . . 44 3 --
---- ----- ----
$110 $(250) $ --
==== ===== ====
11. COMMITMENTS AND CONTINGENCIES
Total rent expense for all bank branches under operating leases was
approximately $73,000, $130,000 and $105,000 for the years ended December 31,
1993, 1992 and 1991, respectively. Future minimum lease payments required
under noncancellable operating leases for bank branches as of December 31,
1993 are as follows:
1994 . . . . . . . . . . . . . $ 71,000
1995 . . . . . . . . . . . . . 71,000
1996 . . . . . . . . . . . . . 71,000
1997 . . . . . . . . . . . . . 50,000
1998 . . . . . . . . . . . . . 7,000
Thereafter . . . . . . . . . . --
--------
$270,000
========
Certain of the above leases contain renewal options which provide for
increased rental payments as a result of increases in real estate taxes. It is
generally expected that in the normal course of business, leases that expire
will be renewed or replaced by other leases with similar terms.
The Company has entered into a severance agreement with a certain key
executive. In the event of a change in control of the Company (such as the
Merger referred to in Note 15), this executive will receive a payment equal to
three times his average annual compensation over the five previous years of
his employment with the Bank, if terminated for other than cause or upon
certain other events of termination of employment. In the event that severance
payments combined with other payments to be made to this executive by the
Company in connection with the Merger would constitute an excess parachute
payment under Section 280 G of the Internal Revenue Code of 1986, as amended,
then the executive will receive a combination of benefits and payments which
will equal the maximum aggregate amount which can be paid to the executive
without constituting such an excess parachute payment.
In October 1991, a complaint was filed by a former officer in New Jersey
Superior Court against 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. 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 amended their complaint to add 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
22
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
intends to vigorously defend these matters. Given the uncertainties involved in
judicial proceedings and the preliminary stage of discovery in these matters,
management cannot determine the precise amount of any potential loss that may
arise in these matters. Accordingly, no provision for loss, if any, that may
result upon resolution of these matters has been recorded in the Company's
consolidated financial statements.
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 Company is a party to financial
instruments with off-balance-sheet risk which are properly not recorded in the
consolidated financial statements. These financial instruments principally
represent commitments to extend credit to potential borrowers and involve, to
varying degrees, elements of credit and interest-rate risk. At December 31,
1993 and 1992, the exposure to credit loss in the event of nonperformance by
potential customers was represented by the contractual amount of the financial
instruments as follows:
Expiration
Contractual Interest Dates
Amount Rates Through
---------- ------- ----------
At December 31, 1993:
Loan commitments--variable . . . . . $1,575,000 6.3%- 9.5% March 1994
Loan commitments--fixed. . . . . . . 4,939,000 6.3 -10.5 March 1994
Lines of credit--variable. . . . . . 1,081,000 7.5 -11.0 September 1994
Undisbursed construction loans--
fixed . . . . . . . . . . . . . . . 853,000 8.0 -10.0 August 1995
At December 31, 1992:
Loan commitments--variable . . . . . $2,628,000 5.8%- 8.0% March 1993
Loan commitments--fixed. . . . . . . 2,519,000 7.8 -10.5 March 1993
Lines of credit--variable. . . . . . 808,000 8.0 -11.0 November 1993
Undisbursed construction loans--
fixed . . . . . . . . . . . . . . . 197,000 7.0 -10.0 October 1993
Since loan commitments and lines of credit may expire without being
exercised, the total commitment amount does not necessarily represent future
cash requirements. In addition, expiration dates may be extended. The amount of
collateral obtained upon originating the loan is based upon management's credit
evaluation of the potential borrower and the real estate financed.
Concentrations of Credit Risk
The Company's exposure to credit risk is dependent upon the economic
condition of its primary market areas for lending--Bergen and Hudson counties,
New Jersey. In addition, as of December 31, 1993, the Bankruptcy Loan is the
only loan to any one borrower whose aggregate loan concentration was greater
than 10% of stockholders' equity. Refer to Note 4 for a discussion of the
Bankruptcy Loan. Furthermore, another borrower whose aggregate loan balance was
greater than 10% of stockholders' equity as of December 31, 1992, prepaid such
loan during 1993.
The Company originates adjustable-rate loans to manage its interest
exposure on its deposits. The adjustable-rate loans have interest rate
adjustment limitations with annual and lifetime caps and are generally indexed
to the 1 and 3 year Treasury indices. Future market factors may affect the
correlation of the interest rate adjustment with the rates paid on deposits that
have been primarily utilized to fund such loans. No loans had reached their
interest rate adjustment limitation ceiling as of December 31, 1993.
23
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Fair Value of Financial Instruments
The estimated fair values of financial instruments, for which it is
practicable to estimate fair values, as of December 31, 1993 and 1992 are as
follows:
December 31,
---------------------------------------
1993 1992
------------------ -----------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- ------- -----
(in thousands)
Financial assets:
Cash and Federal funds sold. . . $ 6,183 $ 6,183 $ 7,336 $ 7,336
Investments available for sale . 57,740 57,740 1,936 1,954
Mortgage-backed securities
available for sale. . . . . . . 9,517 9,517 -- --
Loans held for sale. . . . . . . 4,852 4,909 9,000 9,032
Investment securities. . . . . . 13,849 14,128 56,794 57,430
Mortgage-backed securities . . . 9,447 9,365 7,213 7,197
Loans. . . . . . . . . . . . . . 169,098 186,417
Less: allowance for losses. . . (2,828) (2,776)
unearned income. . . . . . . (937) (1,140)
------- -------
165,333 169,292 182,501 182,283
Investment in FHLB . . . . . . . 1,711 1,711 1,632 1,632
Financial liabilities:
Deposits . . . . . . . . . . . . 246,043 246,305 252,623 253,287
Advances . . . . . . . . . . . . 400 401 -- --
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 $1.4 million at
December 31, 1993.
Certain restrictions exist regarding the ability of the Bank to transfer
funds to the Company in the form of cash dividends, loans or advances. FDIC
regulations limit the amount of dividends that may be paid by the Bank to the
Company without prior approval of the FDIC to net profits (as defined) for the
current year and the retained net profits (as defined) for the preceding two
years. In addition, State banking regulations allow for the payment of
dividends in any amount provided that capital stock will be unimpaired and
there remains an additional amount of paid-in capital of not less than 50% of
the capital stock amount. As of December 31, 1993, the undistributed earnings
of the Bank approximated $11.6 million, of which $3.6 million was available
for the payment of dividends to the Company.
14. REGULATORY MATTERS
During the third quarter, 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 rescinded 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.
24
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Subsequently, the Federal Reserve Bank of New York (the "FRB") completed
an off-site analysis of the Company. As a result of that analysis, the FRB
rescinded its Memorandum of Understanding, which the Company had originally
signed on August 13, 1991 in connection with the FRB's examination as of
December 31, 1990.
Under banking policies issued by the FDIC and the FRB, 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, core capital (also known as Tier 1 capital)
consists of common equity in accordance with generally accepted accounting
principles ("GAAP") excluding net unrealized gains or losses on
available-for-sale securities and deferred tax assets that are dependent on
the future taxable income greater than one year, and total capital consists of
core capital plus a portion of the allowance for losses on loans. The
qualifying portion of the allowance for losses on loans for the Company and
the Bank was approximately $1.8 million and $2.3 million as of December 31,
1993 and 1992, respectively. As of December 31, 1993 and 1992, capital ratios
were as follows:
December 31,
------------------------------------
1993 1992
---------------- ----------------
Capital ratios: Required* Company Bank Company Bank
- - --------------- -------- ------- ---- ------- ----
Leverage. . . . . . . . . . 5.00% 11.70% 11.38% 10.62% 10.33%
Core risk-based . . . . . . 6.00 23.55 22.90 16.32 15.87
Total risk-based. . . . . . 10.00 24.81 24.16 17.58 17.12
- - ------------
*For qualification as a well-capitalized institution.
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 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.
Since significant conditions to effect the merger have not occurred, most
merger costs are not included in the 1993 results of operations in the
accompanying financial statements.
25
<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 December 31, 1993 and 1992,
and the statements of operations and retained earnings and the statements of
cash flows for the years ended December 31, 1993, 1992 and 1991 for Washington
Bancorp, Inc. (parent company only).
BALANCE SHEETS
December 31,
--------------------------
1993 1992
----------- -----------
Assets:
Due from banks. . . . . . . . . . . . . . . . . $ 1,002,000 $ 1,000,000
Investment in wholly-owned subsidiary,
equity basis . . . . . . . . . . . . . . . . . 32,539,499 29,469,045
----------- -----------
$33,541,499 $30,469,045
=========== ===========
Stockholders' Equity:
Preferred stock, par value $.10 per share,
3,000,000 shares authorized, no shares issued
and outstanding. . . . . . . . . . . . . . . . $ -- $ --
Common stock, par value $.10 per share,
6,000,000 shares authorized, shares issued
and outstanding--2,307,687 in 1993
and 2,307,187 in 1992 . . . . . . . . . . . . 230,768 230,718
Paid-in capital . . . . . . . . . . . . . . . . 22,500,728 22,498,778
Retained earnings . . . . . . . . . . . . . . . 10,744,003 7,919,549
Unrealized gain on available-for-sale
securities, net of tax . . . . . . . . . . . . 186,000 --
----------- -----------
33,661,499 30,649,045
Deferred compensation--MRP. . . . . . . . . . . (120,000) (180,000)
----------- -----------
$33,541,499 $30,469,045
=========== ===========
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
Year ended December 31,
----------------------------------------
1993 1992 1991
----------- ----------- -----------
Equity in undistributed earnings/
(loss) of subsidiary . . . . . . $ 2,824,454 $ 2,095,981 $ (1,348,130)
Retained earnings, beginning of
year . . . . . . . . . . . . . . 7,919,549 5,823,568 7,171,698
----------- ----------- ------------
Retained earnings, end of year. . $10,744,003 $ 7,919,549 $ 5,823,568
=========== =========== ============
STATEMENTS OF CASH FLOWS
Year ended December 31,
----------------------------------------
1993 1992 1991
----------- ----------- -----------
Cash Flows from Financing Activities:
Exercise of stock options . . . . $ 2,000 $ -- $ --
Cash, at beginning of year. . . . 1,000,000 1,000,000 1,000,000
---------- ---------- ----------
Cash, at end of year. . . . . . . $1,002,000 $1,000,000 $1,000,000
========== ========== ==========
26
<PAGE>
WASHINGTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
17. Summary of Quarterly Results (Unaudited)
<TABLE>
<CAPTION>
The results of operations on a quarterly basis are presented in the
following tables:
1993 1992
------------------------------------- --------------------------------------
Fourth Third Second First Fourth Third Second First
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------ ------- ------- ------- ------- ------- ------- -------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income . . . . . . . . . . . . . . . $4,452 $4,634 $4,669 $4,802 $5,030 $5,442 $5,688 $5,719
Interest expense. . . . . . . . . . . . . . . 1,987 2,153 2,260 2,412 2,664 2,891 3,136 3,499
------ ------ ------ ------ ------ ------ ------ ------
Net interest income . . . . . . . . . . . . . 2,465 2,481 2,409 2,390 2,366 2,551 2,552 2,220
Provision for losses on loans . . . . . . . . 70 50 100 200 350 400 200 150
------ ------ ------ ------ ------ ------ ------ ------
Net interest income after provision
for losses on loans. . . . . . . . . . . . . 2,395 2,431 2,309 2,190 2,016 2,151 2,352 2,070
Net security transactions . . . . . . . . . . (7) (13) 12 30 426 1,197 10 5
Net gain on sale of loans . . . . . . . . . . 16 (3) 144 -- -- 132 65 --
Other non-interest income . . . . . . . . . . 304 110 116 240 99 134 111 111
REO expense, net. . . . . . . . . . . . . . . 533 372 116 436 556 251 145 219
Other non-interest expense. . . . . . . . . . 1,885 1,666 1,903 1,857 1,673 1,839 2,095 1,916
------ ------ ------ ------ ------ ------ ------ ------
Income before income taxes,
extraordinary item and cumulative
effect of change in accounting
principle. . . . . . . . . . . . . . . . . . 290 487 562 167 312 1,524 298 51
Income tax benefit/(expense)(1) . . . . . . . 703 (179) (201) 695 11 (559) (62) (18)
------ ------ ------ ------ ------ ------ ------ ------
Income before extraordinary item and
cumulative effect of change in
accounting principle . . . . . . . . . . . . 993 308 361 862 323 965 236 33
Extraordinary item. . . . . . . . . . . . . . -- -- -- -- (17) 481 57 18
Cumulative effect of change in
accounting principle(2) . . . . . . . . . . -- -- -- 300 -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Net income. . . . . . . . . . . . . . . . . . $ 993 $ 308 $ 361 $1,162 $ 306 $1,446 $ 293 $ 51
====== ====== ====== ====== ====== ====== ====== ======
Per share data:
Income before extraordinary
items and cumulative effect of change
in accounting principle. . . . . . . . . . . $0.43 $0.14 $0.16 $.38 $0.14 $0.43 $0.10 $0.01
Extraordinary items . . . . . . . . . . . . . -- -- -- -- (0.01) 0.21 0.03 0.01
Cumulative effect of change in
accounting principle . . . . . . . . . . . . -- -- -- 0.13 -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Net income. . . . . . . . . . . . . . . . . . $0.43 $0.14 $0.16 $0.51 $0.13 $0.64 $0.13 $0.02
====== ====== ====== ====== ====== ====== ====== ======
- - ----------
<FN>
(1) The first quarter of 1993 includes an income tax refund of $747,000 and the
fourth quarter of 1993 includes a deferred tax adjustment of $809,000 in
order to reduce the deferred tax asset valuation allowance (to a zero balance).
(2) The cumulative effect of change in accounting principle resulted from the
adoption of SFAS 109 -- "Accounting for Income Taxes".
</FN>
</TABLE>
27
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and
Stockholders of Washington Bancorp, Inc.
Hoboken, New Jersey
We have audited the accompanying consolidated balance sheets of
Washington Bancorp, Inc. and Subsidiary as of December 31, 1993 and 1992, and
the related consolidated statements of operations, changes in stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1993. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Washington Bancorp, Inc. and Subsidiary as of December 31, 1993 and 1992, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1993 in conformity with
generally accepted accounting principles.
As disussed in Note 1 to the consolidated financial statements, in 1993
the Company changed its method of accounting for income taxes and its method of
accounting for investments in debt and equity securities.
As discussed in Note 11 to the consolidated financial statements, the
Company is presently a defendant in two lawsuits. One lawsuit seeks unspecified
damages and alleges violations of state securities laws, certain banking laws,
and state common law. The other was filed by a former Bank officer and alleges
wrongful termination and seeks unspecified damages. Legal counsel has advised
the Company that the effect, if any, of the ultimate outcome of these actions
cannot presently be determined, and accordingly, no provision for loss, if any,
that may result upon resolution of these matters has been made in the
accompanying consolidated financial statements.
Coopers & Lybrand
Parsippany, New Jersey
January 28, 1994
28
<PAGE>
<TABLE>
<CAPTION>
WASHINGTON BANCORP, INC. & SUBSIDIARY
Consolidated Balance Sheets
June 30, June 30,
1994 1993
------------- ------------
(unaudited) (unaudited)
Assets
<S> <C> <C>
Cash and due from banks .......................................... $ 6,050 $ 3,369
Federal funds sold ............................................... 1,100 5,000
Investment securities:
Held-for-sale (market value $62,995 and $24,389) ................. 62,995 23,870
Held-to-maturity (market value $13,283 and $28,922) .............. 13,405 28,588
Mortgage - backed securities:
Held-for-sale (market value $6,744 and $7,545) .................. 6,744 7,545
Held-to-maturity (market value of $6,454 and $15,559) 6,784 15,598
Loans:
Held-for-sale (market value $4,000 and $4,712) .................. 4,000 4,654
In portfolio, (net of allowance for losses of $4,524
and $2,802) ................................................... 160,023 182,305
Other real estate owned ("OREO"), net ............................ 1,133 7,472
Accured interest receivable ...................................... 2,564 2,624
Premises and equipment, net ...................................... 2,472 2,754
Federal Home Loan Bank stock, at cost ............................ 1,505 1,711
Income tax refund receivable ..................................... - -
Deferred income tax asset ........................................ 2,668 550
Other assets ..................................................... 436 225
--------- ---------
TOTAL ASSETS ................................................ $ 271,879 $ 286,265
========= =========
Liabilities and Stockholder's Equity
Liabilities:
Interest-bearing deposits ...................................... $ 228,352 $ 241,775
Noninterest-bearing deposits ................................... 9,404 8,936
--------- ---------
Total deposits .............................................. 237,756 250,711
Advances from Federal Home Loan Bank ("FHLB") .................. 400 400
Mortgage escrow deposits ....................................... 1,196 1,397
Accrued interest payable ....................................... 183 237
Other liabilities .............................................. 437 1,498
--------- ---------
TOTAL LIABILITIES ........................................... 239,972 254,243
--------- ---------
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, 2,336,237 shares issued and outstanding ........ 234 230
Paid-in capital ................................................ 22,658 22,499
Retained earnings .............................................. 10,329 9,443
Unrealized loss on available for sale securities, net
of tax ........................................................ (1,314)
--------- ---------
31,907 32,172
Deferred compensation .......................................... - (150)
--------- ---------
Management Recognition and Retention Plan ("MRP")
TOTAL STOCKHOLDERS' EQUITY .................................. 31,907 32,022
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................. $ 271,879 286,265
========= =========
<FN>
See notes to consolidated financial statements
</FN>
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
WASHINGTON BANCORP, INC. & SUBSIDAIRY
Consolidated Statements Of Income (unaudited)
Six months Six months
ended June 30 ended June 30
------------- ---------------
1994 1993
------------- ---------------
<S> <C> <C>
Interest income:
Loans, including fees ..................................... $ 6,704 $ 7,688
U.S. Treasury obligations ................................. 1,756 609
Mortgage-backed securities ................................ 113 433
Federal funds sold ........................................ 50 96
Dividends ................................................. 64 76
Due from banks ............................................ 24 24
Other investment securities ............................... 287 544
------- -------
Total interest income ..................................... 8,998 9,470
------- -------
Interest expense:
Deposits .................................................. 3,625 4,664
Borrowed funds ............................................ 10 8
------- -------
Total interest expense .................................... 3,635 4,672
------- -------
Net interest income .................................... 5,363 4,799
Provision for losses on loans ............................... 825 300
------- -------
4,538 4,499
Other income:
Service charges on deposit accounts ....................... 85 88
Gain on sale of loans ..................................... 11 144
Security gains, net ....................................... - 42
Other ..................................................... 377 269
------- -------
Total other income ........................................ 473 543
------- -------
Other expenses:
Salaries and employee benefits ............................ 1,684 1,791
REO expense, net .......................................... 1,246 551
Occupancy and equipment expenses, net ..................... 395 409
Federal Deposit Insurance Corporation assessment........... 283 366
Other ..................................................... 1,941 1,196
------- -------
Total other expenses ...................................... 5,549 4,313
------- -------
Income before income taxes, extraordinary item
and cummulative effect of change in accounting principle (538) 729
Income tax (expense)/benefit .......................... 123 494
------- -------
Income before extraordinary item and cumulative
effect of change in accounting principle ............... (415) 1,223
Extraordinary item ...................................... - -
Cumulative effect of change in accounting principle ..... - 300
------- -------
NET INCOME (Loss)...................................... $ (415) $(1,523)
======= =======
Income per share:
Income before extraordinary item and cumulative
effect of change in accounting principle ............. (.18) 0.54
Extraordinary item .................................... - -
Cumulative effect of change in accounting principle ... - 0.13
------- -------
Earnings Per Share ..................................... (.18) 0.67
======= =======
Weighted average number of shares outstanding .............. 2,310 2,269
<FN>
See notes to consolidated financial statements
</FN>
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
WASHINGTON BANCORP, INC. AND SUBSIDAIRY
Consolidated Statements of Cash Flows
Six months Six months
ended June 30 ended June 30
------------- ---------------
1994 1993
------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net Income (loss)........................................... $ (415) $ 1,523
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible loan losses ....................... 825 656
Provision for depreciation and amortization .............. 67 159
Amortization of investment security premiums ............. 1,179 1,071
Accretion of investment security discount ................ (5) 0
Deferred income taxes .................................... (1,299) (300)
(Increase) decrease in interest receivable ................. (1) (17)
Increase (decrease) in interest payable ................... (7) (100)
Increase (decrease) in accrued taxes and other
liabilities ..................................... (748) 549
(Increase) decrease in other assets ........................ (56) 439
------- -------
Net cash provided by (used in) operating activities ..... (460) 3,980
------- -------
Cash flows from investing activities:
Proceeds from sales of investment securities .............. 0 8,267
Proceeds from maturities of investment securities ......... 10,418 26,142
Net decrease in loans ..................................... 5,337 6,316
Purchase of investment securities ......................... (12,260) (45,217)
Purchase of premises and equipment ......................... 75 (43)
Decrease in other real estate ............................. 5,945 3,096
------- -------
Net cash provided by (used in) investing activities ..... 9,515 (1,439)
------- -------
Cash flows from financing activities:
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts ...................... 542 3,926
Net increase (decrease) in certificates
of deposit .............................................. (8,910) (5,834)
Net increase (decrease) in federal funds
purchased and securities sold under
agreements to repurchase ................................ 0 400
New stock issue ........................................... 280 0
------- -------
Net cash provided by (used in) financing activities ..... (8,088) (1,508)
------- -------
Increase (decrease) in cash and cash equivalents ............ 967 1,033
Cash and cash equivalents at beginning of year .............. 6,183 7,336
------- -------
Cash and cash equivalents at end of year ..................... $ 7,150 $ 8,369
======= =======
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED STATEMENT OF CONDITION
(Unaudited)
Dollars in Thousands
As of June 30, 1994
Historical Historical Pro Forma
----------- ----------- Adjustments Pro Forma
ASSETS Hubco Washington Washington Combined
----------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Cash and Due From Banks .............. $ 54,891 $ 6,050 $ 0 $ 60,941
Investment Securities ................ 483,770 21,693 1,212 (a) 506,675
Investments Available for Sale ....... 56,669 69,739 (1,338) (b) 125,070
Federal Funds Sold ................... 5,000 1,100 0 6,100
Loans ................................ 523,457 168,547 1,768 (c) 693,772
Allowance for Possible Loan Losses ... (10,589) (4,524) 0 (15,113)
Premises and Equipment ............... 22,937 2,472 2,992 (d) 28,401
Other Real Estate .................... 1,873 1,133 0 3,006
Excess of Cost over Fair Value
of Assets Acquired, Net ............. 6,026 0 5,013 (e) 11,039
Other Assets ......................... 22,297 5,669 (1,047) (f) 26,919
------------- ------------- ------------- -------------
Total Assets ............... $ 1,166,331 $ 271,879 $ 8,600 $ 1,446,810
============= ============= ============= =============
LIABILITIES
Deposits ............................. $ 1,039,096 $ 238,952 ($ 1,586)(g) $ 1,276,462
Borrowed Money ....................... 19,770 400 19,142 (h) 39,312
Other Liabilities .................... 6,317 620 3,396 (i) 10,333
------------- ------------- ------------- -------------
Total Liabilities .......... 1,065,183 239,972 20,952 1,326,107
------------- ------------- ------------- -------------
Subordinated debentures .............. 25,000 0 0 25,000
------------- ------------- ------------- -------------
STOCKHOLDERS' EQUITY
Preferred Stock ...................... 0 0 19,555 (j) 19,555
Common Stock ......................... 18,492 234 (234) (k) 18,492
Capital in Excess of Par Value ....... 49,047 22,658 (22,658) (k) 49,047
Retained Earnings .................... 18,808 10,329 (10,329) (k) 18,808
Unrealized Gain (Loss) on Investment
Securities available for sale,
net of Taxes ........................ 477 (1,314) 1,314 (k) 477
Treasury Stock ....................... (9,623) 0 0 (9,623)
Restricted Stock Award ............... (1,053) 0 0 (1,053)
------------- ------------- ------------- -------------
Total Stockholders' Equity.. 76,148 31,907 (12,352) 95,703
------------- ------------- ------------- -------------
Total Liabilities and
Stockholders' Equity ..... $ 1,166,331 $ 271,879 $ 8,600 $ 1,446,810
============= ============= ============= =============
<FN>
See accompanying notes to proforma combined condensed financial statements.
</FN>
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(Unaudited)
(Dollar in Thousands, Except for Per Share Amounts)
For the 6 Months Ended June 30, 1994
Historical Historical Pro Forma
---------- ----------- Adjustments Pro Forma
Hubco Washington Washington Combined
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest Income:
Interest and Fees on loans ........... $ 21,503 $ 6,728 ($ 452)(l) $ 27,779
Interest and dividends on
Investments ......................... 14,337 2,220 142 (m) 16,751
53 (n)
(1) (o)
Interest on Federal Funds Sold ....... 291 50 0 341
-------- -------- -------- --------
Total Interest Income ............. 36,131 8,998 (258) 44,871
-------- -------- -------- --------
Interest Expense:
Interest on Deposits ................. 9,699 3,625 793 (p) 14,117
Interest on Borrowings ............... 246 10 430 (q) 686
Interest on Subordinated debt ........ 811 0 0 811
-------- -------- -------- --------
Total Interest Expense ............ 10,756 3,635 1,223 15,614
-------- -------- -------- --------
Net Interest Income Before
Provision for Possible Loan Losses... 25,375 5,363 (1,481) 29,257
Provision for Possible Loan Losses ..... 900 825 0 1,725
-------- -------- -------- --------
Net Interest Income After
Provision for Possible Loan Losses .. 24,475 4,538 (1,481) 27,532
-------- -------- -------- --------
Other Income ........................... 4,646 473 0 5,119
-------- -------- -------- --------
Other Expenses:
Salaries and Other Employee Benefits.. 9,257 1,684 0 10,941
Occupancy and Equipment Expense ...... 2,751 395 18 (r) 3,164
Other Expenses ....................... 4,806 3,470 500 (s) 8,776
-------- -------- -------- --------
Total Other Expenses .............. 16,814 5,549 518 22,881
-------- -------- -------- --------
Income Before taxes ............... 12,307 (538) (1,999) 9,770
Income Taxes ........................... 4,616 (123) (760) (t) 3,733
-------- -------- -------- --------
Net Income before cumulative effect
of change in accounting principle.. $ 7,691 ($ 415) ($ 1,239) $ 6,037
======== ======== ======== ========
<FN>
Earnings per Share - Primary ........... $1.18 $0.81*
Earnings per Share fully Diluted ....... $1.18 $0.82
Book Value per Common share ............ $11.74 $11.71
Dividends per Share - Common ........... $0.24 $0.24
Weighted Average Number of
Common Shares Outstanding ............. 6,507 6,507
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock
Dividend Requirements.**
Excluding interest on deposits ....... 9.24 4.82
Including interest on deposits ....... 2.10 1.59
</FN>
</TABLE>
33
<PAGE>
*After payment of Series A preferred dividends of $587
($1.44 per share), the dividend payment under the proposed
Washington Merger Agreement.
** The ratio of earnings to combined fixed charges and preferred stock dividend
is computed by dividing the sum of income before taxes, fixed charges and
preferred dividends by the sum of fixed charges and preferred dividends.
Fixed charges represent interest expenses (including interest attributable to
capital leases, the estimated interest component of operating lease rental
payments and both excluding and including interest on deposits). Prior to the
Merger, HUBCO will not have issued any preferred stock. Accordingly, the
"Historical HUBCO" ratios include no amount with respect to preferred
dividend.
See accompanying notes to pro forma combined condensed financial statements.
34
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
(Unaudited)
(Dollar in Thousands, Except for Per Share Amounts)
For the Year Ended December 31, 1993
Historical Historical Pro Forma
----------- ----------- Adjustments Pro Forma
Hubco Washington Washington Combined
----------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Interest Income:
Interest and Fees on loans ........... $ 43,546 $ 14,782 ($ 904)(l) $ 57,424
Interest and dividends on
Investments ......................... 23,442 3,604 285 (m) 27,435
105 (n)
(1)(o)
Interest on Federal Funds Sold ....... 771 172 0 943
-------- -------- -------- --------
Total Interest Income ............. 67,759 18,558 (515) 85,802
-------- -------- -------- --------
Interest Expense:
Interest on Deposits ................. 20,379 8,795 1,586 (p) 30,760
Interest on Borrowings ............... 362 18 861 (q) 1,241
Interest on Subordinated debt ........ 0 0 0 0
-------- -------- -------- --------
Total Interest Expense ............ 20,741 8,813 2,447 32,001
-------- -------- -------- --------
Net Interest Income Before
Provision for Possible Loan Losses ... 47,018 9,745 (2,962) 53,801
Provision for Possible Loan Losses ... 3,600 420 0 4,020
-------- -------- -------- --------
Net Interest Income After
Provision for Possible Loan Losses ... 43,418 9,325 (2,962) 49,781
-------- -------- -------- --------
Other Income ........................... 8,606 949 0 9,555
-------- -------- -------- --------
Other Expenses:
Salaries and Other Employee Benefits .. 16,501 3,468 0 19,969
Occupancy and Equipment Expense ...... 5,016 797 36 (r) 5,849
Other Expenses ....................... 8,454 4,503 1,001 (s) 13,958
-------- -------- -------- --------
Total Other Expenses .............. 29,971 8,768 1,037 39,776
-------- -------- -------- --------
Income Before taxes ............... 22,053 1,506 (3,999) 19,560
Income Taxes ........................... 7,851 (1,018) (1,520) (t) 5,313
-------- -------- -------- --------
Net Income before cumulative effect
of change in accounting principle ... $ 14,202 $ 2,524 ($ 2,479) $ 14,247
======== ======== ======== ========
<FN>
Earnings per Share - Primary ........... $2.06 $1.89 *
Earnings per Share fully Diluted ...... $2.06 $1.84
Book Value per Common share ............ $11.74 $11.74
Dividends per Share - Common ........... $0.47 $0.47
Weighted Average Number of
Common Shares Outstanding ............. 6,909 6,909
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock
Dividend Requirements.**
Excluding interest on deposits ....... 34.59 8.12
Including interest on deposits ....... 2.07 1.58
</FN>
</TABLE>
*After payment of Series A preferred dividends of $1,174 ($1.44
35
<PAGE>
per share), the dividend payment under the proposed Washington Merger Agreement.
** The ratio of earnings to combined fixed charges and preferred stock dividend
is computed by dividing the sum of income before taxes, fixed charges and
preferred dividends by the sum of fixed charges and preferred dividends.
Fixed charges represent interest expenses (including interest attributable to
capital leases, the estimated interest component of operating lease rental
payments and both excluding and including interest on deposits). Prior to the
Merger, HUBCO will not have issued any preferred stock. Accordingly, the
"Historical HUBCO" ratios include no amount with respect to preferred
dividend.
See accompanying notes to pro forma combined condensed financial statements.
36
<PAGE>
<TABLE>
<CAPTION>
NOTES TO PRO FORMA COMBINED CONDENSED UNAUDITED
FINANCIAL STATEMENTS
(Dollars in Thousands, Except Share Data)
1) The following summarizes the purchase transaction as reflected
in the accompanying pro forma combined condensed financial
statements:
<S> <C> <C> <C>
Issuance of 814,775 shares of Hubco preferred stock
at $24 per share ....................................... $19,555 (j)
Cash payment to shareholders ............................ 19,142 (h)
Washington shares currently held by Hubco ............... 1,338
------
Aggregate Cost........................................... 40,035
Add:
Acquisition Cost of $1,062 of which $1,047 (f) has been 1062
paid as of June 30, 1994 ............................. ------
41,097
Estimate of Fair Value of Washington
-------------------------------------
Stockholders' equity at June 30, 1994, as reported ....... 31,907 (k)
Additional capital from exercising stock options prior
to acquisition ........................................... 1,678
--------
Adjusted stockholders' equity ............................. 33,585
Fair value adjustments:
Excess of fair value over book value of:
Loans receivable ....................................... 4,144
Land and buildings ..................................... 2,992 (d)
Deposits ............................................... 1,586 (g)
------- 8,722
Fair value in excess of book value of investments ........ (451)
Other adjustments:
Recognition of liability for payment of income taxes
on recapture of allowance for possible loan losses. .... (1,002)
Recognition of certain other liabilities related to
the acquisition, primarily severence and estimated
liabilities for existing contingencies ................. (1,429)
Reduction in value of a real estate loan intended to
be liquidated by HUBCO shortly after acquisition. (2,376)*
Tax effect where appropriate, of purchase
accounting adjustments .................................. (965)
--------
Estimated fair value, as adjusted ........................ 36,084
------
Excess of cost over fair value ........................... $5,013 (e)
======
* Washington's intent was to hold a commerical real estate loan in its portfolio
and to restructure the loan. HUBCO has contracted to liquidate this loan, with
closing scheduled in July, 1994.
</TABLE>
37
<PAGE>
2) Investment Securities Pro-forma Adjustment
Record the excess of the book value over fair
market value of the investment portfolio ............... ($451)
Record the receipt of the proceeds from the exercising
of the Washington Bancorp stock options
prior to acquisition ................................... 1,678
Cash payment of acquisition cost ........................ (15)
--------
$1,212(a)
========
3) Investment Securities available for Sale Pro-forma Adjustment
Reduce investment portfolio for Washington Bancorp stock
held by HUBCO .......................................... ($1,338)
--------
($1,338)(b)
========
4) Loans Pro-forma Adjustments
Record the excess of the fair market value over the
book value of the loan portfolio ....................... $4,144
Establish reserve for liquidation of a commerical real
estate loan subsequent to acquisition .................. (2,376)
--------
$1,768(c)
========
38
<PAGE>
5) Other Liabilities Pro-forma Adjustments
Record liability for income taxes on recapture of
allowance for possible loan losses of Washington ....... $1,002
Recognition of certain other liabilities related
to the acquisition of Washington Bancorp ............... 1,429
Tax effect where appropriate, of purchase
accounting adjustments ................................. 965
-------
$3,396(i)
=======
6) The following is a summary of the adjustments required to the combined
statements of income for Combined Pro Forma for Historical HUBCO and
Historical Washington Bancorp 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 4.6 years.
(m) To record the amortization on a straight line basis (which is not
materially different than the level yield basis) of the discount on
the investment portfolio over its estimated life of 1.6 years.
(n) To reflect an increase of interest income from the proceeds of the
Washington stock options at 6.25%.
(o) To reflect a loss of interest income for the use of funds for
acquisition expenses at 6.25%.
(p) To record the amortization of the premium on deposits.
(q) To reflect an increase in the cost of funds for the payment to
Washington shareholders at 4.50%.
(r) To reflect an increase in depreciation expense reflecting the net
increase carrying value of premises and equipment.
(s) To reflect the increase in expense from the amortization of cost
over fair value of the Washington acquisition based on a 5 year
life.
(t) To reflect the anticipated tax benefit on the proforma adjustments.
39
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
HUBCO has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HUBCO, Inc.
Dated : September __, 1994 By: /s/ KENNETH T. NEILSON
_________________________
Kenneth T. Neilson
President and
Chief Executive Officer
40
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement
on Form 8-K/A of our report which includes an explanatory paragraph regarding
changes in accounting principles and includes an explanatory paragraph
regarding an action seeking unspecified damages and alleging violations of state
securities laws, certain banking laws and state common law and a lawsuit filed
by a former Bank officer which alleges wrongful termination and seeks
unspecified damages, dated January 28, 1994, on our audits of the consolidated
financial statements of Washington Bancorp, Inc. and Subsidary as of December
31, 1993 and 1992 and for each of the three years in the period ended December
31, 1993, which report is included in Washington's Annual Report on Form 10-K
for the year ended December 31, 1993.
Coopers & Lybrand L.L.P.
Parsippany, New Jersey
September 13, 1994