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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM l0-K
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/X / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______________ to ___________________
Commission file number 0-l0699
HUBCO, INC.
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(Exact name of registrant as specified in its Charter)
New Jersey 22-2405746
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.
1000 MacArthur Blvd.
Mahwah, New Jersey 07430
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 236-2600
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, no par value Series A Preferred Stock
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(Title of Class) (Title of Class)
Indicate by check mark whether the registrant (l) has filed all reports
required to be filed by Section l3 or l5(d) of the Securities Exchange Act of
l934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, as of March 12, 1996 was $276,528,553.
The number of shares of Registrant's Common Stock, no par value,
outstanding as of March 12, 1996 was 13,655,731.
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<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Part(s) Into
Documents Which Incorporated
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Annual Report to Shareholders Part I
for the fiscal year ended Part II
December 31, 1995 ("HUBCO's 1995
Annual Report"), pages 6 through 29
The information contained in the
Registrant's Proxy Statement
which is expected to be filed within 120
days of fiscal year-end 1995 to be used
in connection with the Annual Meeting of
Shareholders which is anticipated to
be held June 11, 1996
("HUBCO's Proxy Statement
for its 1996 Annual Meeting")
under the captions "Election of Directors",
"Executive Compensation", "Stock Ownership of
Management and Principal Shareholders",
"Compensation Committee Interlocks and
Insider Participation" and "Certain
Transactions with Management".
Notwithstanding the foregoing, the
information contained in HUBCO's
Proxy Statement for its 1996
Annual Meeting pursuant to Items 402(k)
and 402(1) of Regulation S-K is not
incorporated by reference and is not
to be deemed part of this report. (Registrant
anticipates that its 1996 Annual Meeting Proxy
Statement will take the form of a Joint
Proxy Statement Prospectus, and will initially be
filed as part of a Registration Statement on
Form S-4.) Part III
With the exception of information specifically incorporated by reference,
HUBCO's 1996 Annual Report and HUBCO's Proxy Statement for its 1996 Annual
Meeting are not to be deemed part of this report.
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HUBCO, INC.
Form l0-K Annual Report
For The Fiscal Year Ended December 31, 1995
PART I
ITEM 1. BUSINESS
(a) General Development of Business.
HUBCO, Inc. ("HUBCO" or "Registrant" or the "Company") is a bank holding
company registered under the Bank Holding Company Act of 1956, as amended (the
"Bank Holding Company Act"). HUBCO was organized under the laws of New Jersey in
1982 by Hudson United Bank ("HUB" or the "Bank") for the purpose of creating a
bank holding company for the Bank. HUBCO directly owns the Bank and a brokerage
subsidiary, HUB Investment Services, Inc. HUBCO is also the indirect owner,
through the Bank, of an investment subsidiary and three real estate holding
companies. In addition, HUBCO, through the Bank, holds a 50% interest in a data
processing and imaged check processing company. Each of HUBCO's direct and
indirect subsidiaries is described in Item 1.
Recent Growth of HUBCO and Hudson United Bank
On January 12, 1996 the Company acquired all of the outstanding shares of
Growth Financial Corp. ("Growth") based in Basking Ridge, New Jersey. Each share
of Growth common stock was converted into .69 shares of the Company's common
stock for a total of 1,234,500 shares issued. At December 31, 1995, Growth
reported total assets, deposits and stockholders equity of $127,695,000,
$110,259,000 and $13,835,000, respectively. The transaction adds three branches
to the Company's franchise and will be accounted for as a pooling-of-interests.
On February 29, 1996, the Company acquired the three New Jersey branches of
CrossLand Federal Savings Bank based in Brooklyn, New York in a cash purchase.
The Company paid a deposit premium of $3,099,514 and, in its preliminary
settlement, assumed deposits of $61,281,090. The acquisition will be accounted
for as a purchase.
On February 6, 1996, the Company and Lafayette American Bank and Trust
Company ("Lafayette") signed a definitive agreement under which the Company will
acquire Lafayette in a merger which is intended to be a tax free transaction and
which the Company anticipates will be accounted for as a pooling-of-interests.
Each of the outstanding shares of Lafayette will be exchanged for .588 shares of
the Company's common stock.
At December 31, 1995, Lafayette had total assets of $735 million, deposits
of $636 million, and shareholders' equity of $59 million, and net income of $19
million for the year ended December 31, 1995.
The merger is conditioned upon necessary bank regulatory approvals, the
approval of stockholders of the Company and Lafayette, and
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other customary conditions. It is anticipated that the merger will be
consummated in the third quarter of 1996.
The Company's acquisition philosophy is to seek in-market or contiguous
market opportunities which can be accomplished with little dilution to earnings.
From October 1990 through December 1995, the Company has acquired the assets and
liabilities of eleven institutions, adding to its assets and liabilities a total
in excess of $1 billion and expanding its branch network from 15 branches to 57
branches. Over 60% of these assets and liabilities were acquired through
government assisted transactions which allowed the Bank to reprice deposits,
review loans and purchase only those loans which meet its underwriting criteria.
The balance of the assets and liabilities were acquired in traditional
negotiated transactions which the Company believes present a different level of
risk than the risk presented in government assisted transactions.
Summary of Acquisitions
The following chart summarizes the other acquisitions undertaken by the
Company since October 1990:
<TABLE>
<CAPTION>
Deposits Loans
Government Purchase Assumed Purchased Branches
Institution Assisted Price (In Millions) (In Millions) Acquired
- ----------- ---------- -------- ------------- ------------- --------
<S> <C> <C> <C> <C> <C>
Mountain Ridge State Bank .................. Yes $ 325,000 $ 47.0 $ 12.0 1
Meadowlands National Bank .................. No $ 415,000(1) $ 35.5 $ 22.1 3
Center Savings and Loan Association ........ Yes $ 10,000 $ 89.9 $ 78.6 1
Irving Savings and Loan Association ........ Yes $ 5,000 $161.1 $ 62.4 5
Broadway Bank and Trust Company ............ Yes $ 3,406,000 $345.7 $ 9.5 8
Pilgrim State Bank ......................... No $ 6,000,000(2) $122.9 $ 46.7 6
Polifly Savings Bank ....................... Yes $ 6,180,000 $104.4 $ .5 4
Washington Savings Bank .................... No $40,500,000(3) $237.8 $168.5 8
Shoppers Charge Accounts ................... No $16,300,000(4) -- $ 55.6 --
Jefferson National Bank .................... No $ 9,700,000(5) $ 85.0 $ 41.0 4
Urban National Bank ........................ No $38,200,000(6) $204.0 $ 90.0 9
</TABLE>
- ----------
(1) Represents the purchase price paid to the shareholders of Meadowlands
National Bank.
(2) Represents the amount paid as purchase price to Ramapo Bank, the owner of
the assets immediately prior to closing.
(3) Represents the purchase price paid to the shareholders of Washington
Bancorp.
(4) Represents the purchase price paid to the shareholders of the Shoppers
Charge Accounts Co.
(5) Represents the purchase price paid to the shareholders of Jefferson
National Bank.
(6) Represents the purchase price paid to the shareholders of Urban National
Bank.
The Company's profitability and its financial condition may be
significantly impacted by the continuing implementation of its acquisition
strategy and by the consummation of its recent and pending acquisitions.
The Company intends to continue to seek acquisition opportunities in its
market area. There can be no assurance that the Company will be able to acquire
additional financial institutions or, if additional
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financial institutions are acquired, that these acquisitions will be managed
successfully to enhance the profitability of the Company.
On November 8, 1993, the Company's Board of Directors authorized a stock
repurchase plan and authorized management to repurchase up to 10% of its
outstanding common stock per year. At that time, the Company had approximately
10.3 million shares outstanding (adjusted for the 1995 3-for-2 stock split). The
program may be discontinued or suspended at any time, and there is no assurance
that the Company will purchase the full amount authorized. The acquired shares
are to be held in treasury to be used for stock option and other employee
benefit plans, preferred stock conversion or in connection with the issuance of
common stock in pending or future acquisitions accounted for under the purchase
method of accounting. During 1995, the Company purchased 302,000 shares at an
aggregate cost of $4.9 million.
In April 1994, the Company purchased a new corporate headquarters in
Mahwah, New Jersey. The 64,350 square foot facility was renovated during the
year and, as of March 1995, houses the executive offices of the Company and the
Company's data processing joint venture company.
Other Subsidiaries
In 1983, HUBCO formed a directly owned subsidiary called HUB Financial
Services, Inc., which was, in 1995 a wholly owned data processing subsidiary. On
November 6, 1995, HUBCO sold 50% of the stock in HUB Financial Services, Inc. to
United National Bank. HUBCO simultaneously made a capital contribution of the
remaining 50% to Hudson United Bank. The joint venture is operating pursuant to
the provisions of the Bank Service Corporation Act. Simultaneously with the sale
of 50% to United
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National Bank, the name of HUB Financial Services, Inc. was changed to United
Financial Services, Inc.("UFS"). UFS provides data processing and imaged check
processing services to both of its owner banks and offers such services to other
institutions.
As of December 31, 1995 $379,382,644 of the Bank's investment portfolio is
being managed by a subsidiary company, Hendrick Hudson Corp. of New Jersey. This
subsidiary was established in 1987 to operate under state tax law as an
investment company.
In February, 1995 HUBCO established a directly owned subsidiary called HUB
Investment Services, Inc. This wholly owned subsidiary provides full Brokerage
Services and products including mutual funds and annuities through an agreement
with BFP Financial Partners, Inc. which is a subsidiary of Legg Mason, Inc.
Hudson United Bank also owns several real estate holding companies.
Lafayette Development Corp. was incorporated by Hudson United Bank and is
presently inactive. JNB Holdings, Inc. was created by Jefferson National Bank
and holds title to OREO properties upon which Jefferson National Bank had
foreclosed. UNB Holdings, Inc. was created by Urban National Bank and holds
title to OREO properties upon which Urban National Bank had foreclosed. Sole
ownership of JNB Holdings and UNB Holdings passed to Hudson United Bank upon
merger of the respective predecessor banks into Hudson United Bank.
Unionization of Hudson United Bank
Hudson United Bank is administratively divided into four administrative
regions: the Bergen, Hudson, Passaic and Essex regions. Thirteen branches,
primarily in the Hudson region, of Hudson United Bank are unionized. Local 153
of the Office and Professional Employees International Union represents the
bank's clerical staff in the bargaining unit. Effective March 1, 1996 a
three-year collective bargaining agreement was negotiated which provides for a
modest increase in wages, increased employee contributions towards the cost of
providing health care benefits and consolidation of all bargaining unit jobs
into one position. Currently, approximately 62% of the employees in the
bargaining unit are members of the union. The collective-bargaining agreement
expires February 28, 1999.
Regulatory Matters
There are a variety of statutory and regulatory restrictions governing the
relations among HUBCO and its subsidiaries:
Capital Adequacy Guidelines and Deposit Insurance
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), which became law in December of 1991, required each federal
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banking agency to revise its risk-based capital standards to ensure that those
standards take adequate account of interest rate risk, concentration of credit
risk and the risks of non-traditional activities. In addition, pursuant to
FDICIA, each federal banking agency has promulgated regulations, specifying the
levels at which a financial institution would be considered "well capitalized",
"adequately capitalized", "undercapitalized", "significantly undercapitalized",
or "critically undercapitalized", and to take certain mandatory and
discretionary supervisory actions based on the capital level of the institution.
The regulations implementing these provisions of FDICIA provide that an
institution will be classified as "well capitalized" if it (i) has a total
risk-based capital ratio of at least 10.0 percent, (ii) has a Tier 1 risk-based
capital ratio of at least 6.0 percent, (iii) has a Tier 1 leverage ratio for at
least 5.0 percent, and (iv) meets certain other requirements. An institution
will be classified as "adequately capitalized" if it (i) has a total risk-based
capital ratio of at least 8.0 percent, (ii) has a Tier 1 risk-based capital
ratio of at least 4.0 percent, (iii) has a Tier 1 leverage ratio of (a) at least
4.0 percent, or (b) at least 3.0 percent if the institution was rated 1 in its
most recent examination, and (iv) does not meet the definition of "well
capitalized". An institution will be classified as "undercapitalized" if it (i)
has a total risk-based capital ratio of less than 8.0 percent, (ii) has a Tier 1
risk-based capital ratio of less than 4.0 percent, or (iii) has a Tier 1
leverage ratio of (a less than 4.0 percent, or (b) less than 3.0 percent if the
institution was rated 1 in its most recent examination. An institution will be
classified as "significantly undercapitalized" if it (i) has a total risk-based
capital ratio of less than 6.0 percent, (ii) has a Tier 1 risk-based capital
ratio of less than 3.0 percent, or (iii) has a Tier 1 leverage ratio of less
than 3.0 percent. An institution will be classified as "critically
undercapitalized" if it has a tangible equity to total assets ratio that is
equal to or less than 2.0 percent. An insured depository institution may be
deemed to be in a lower capitalization category if it receives an unsatisfactory
examination.
As of December 31, 1995, Hudson United Bank had a risk weighted capital
ratio of 13.88% and a leverage capital ratio of 7.20%. These ratios exceed the
requirements under the FDIC regulations. See also "Management's Discussion and
Analysis of Financial Condition and Results of Operation -- Capital".
Bank holding companies must comply with the Federal Reserve Board's
risk-based capital guidelines. Under the guidelines, risk weighted assets are
calculated by assigning assets and certain off-balance sheet items to broad risk
categories. The total dollar value of each category is then weighted by the
level of risk associated with that category. A minimum risk-based capital to
risk based assets ratio of 8.00% must be attained. At least one half of an
institution's total risk based capital must consist of Tier 1 capital, and the
balance may consist of Tier 2, or supplemental, capital. Tier 1 capital consists
primarily of common stockholders' equity along with preferred or convertible
preferred stock, minus goodwill. Tier 2 capital consists of an institution's
allowance for loan and lease losses, subject to limitation, hybrid capital
instruments and certain subordinated debt. The allowance for loan and lease
losses which is considered Tier 2 capital is limited to l.25% of an
institution's risk-based assets. As of December 31, 1995, HUBCO's total
risk-based capital ratio was 17.21%, consisting of a Tier 1 ratio of 13.20% and
a Tier
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2 ratio of 4.01%. Both ratios exceed the requirements under these regulations.
In addition, the Federal Reserve Board has promulgated a leverage capital
standard, with which bank holding companies must comply. Bank holding companies
must maintain a minimum Tier l capital to total assets ratio of 3%. However,
institutions which are not among the most highly rated by federal regulators
must maintain a ratio 100-to-200 basis points above the 3% minimum. As of
December 31 1995, HUBCO had a leverage capital ratio of 7.56%.
FDICIA also required that the FDIC insurance assessments move from
flat-rate premiums to a system of risk-based premium assessments, in order to
recapitalize the Bank Insurance Fund ("BIF") at a reserve ratio specified in
FDICIA. In August 1995, the FDIC, in anticipation of BIF's imminent achievement
of a required 1.25% reserve ratio, reduced the deposit insurance premium rates
paid on BIF-insured banks from a range of $.23 to $.31 per $100 of deposits to a
range of $.04 to $.31 per $100 of deposits. The new rate schedule for the BIF
was made effective June 1, 1995. The FDIC refunded to BIF-insured institutions
the excess premiums they had paid for the period beginning on June 1, 1995. On
November 14, 1995, the FDIC voted to reduce annual assessments for the
semi-annual period beginning January 1, 1996 to the legal minimum of $2,000 for
BIF-insured institutions, except for institutions that are not well capitalized
and are assigned to higher supervisory risk categories. Deposits insured under
the Savings Association Insurance Fund ("SAIF") range between 23 and 31 cents.
Due to certain acquisitions, as of December 31, 1995, 85.9% of the Bank's
deposits were BIF-insured and 14.1% were SAIF-insured.
The provisions of FDICIA and the risk-based insurance assessment have not
had a material effect upon the financial position of HUBCO since the Bank
qualifies for the lowest assessment rate.
Restrictions on Dividend Payments
The holders of HUBCO Common Stock are entitled to receive dividends, when,
as and if declared by the Board of Directors of HUBCO out of funds legally
available therefore, subject to the preferential dividend rights of any
preferred stock that may be outstanding from time to time.
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The only statutory limitation is that such dividends may not be paid when HUBCO
is insolvent. Because funds for the payment of dividends by HUBCO come primarily
from the earnings of HUBCO's bank subsidiary, as practical matter, restrictions
on the ability of HUB to pay dividends act as restrictions on the amount of
funds available for the payment of dividends by HUBCO.
As a New Jersey chartered commercial bank, HUB is subject to the
restrictions on the payment of dividends contained in the New Jersey Bank
Act("NJBA"). Under the NJBA, HUB may pay dividends only out of retained
earnings, and out of surplus to the extent that surplus exceeds 50% of stated
capital. Under the Financial Institutions Supervisory Act, the FDIC has the
authority to prohibit a state-chartered bank from engaging in conduct which, in
the FDIC's opinion, constitutes an unsafe or unsound banking practice. Under
certain circumstances, the FDIC could claim that the payment of dividend or
other distribution by HUB to HUBCO constitutes an unsafe or unsound practice.
HUBCO is also subject to Federal Reserve Bank ("FRB") policies which may,
in certain circumstances, to limit its ability to pay dividends. The FRB
policies require, among other things, that a bank holding company maintain a
minimum capital base. The FRB would most likely seek to prohibit any dividend
payment which would reduce a holding company's capital below these minimum
amounts.
Restrictions on Transactions Between HUBCO and the Bank
The Banking Affiliates Act of 1982, as amended, severely restricts loans
and extensions of credit by the Bank to HUBCO and HUBCO affiliates (except
affiliates which are banks). In general, such loans must be secured by
collateral having a market value ranging from 100% to 130% of the loan,
depending upon the type of collateral. Furthermore, the aggregate of all loans
from the Bank to HUBCO and its affiliates may not exceed 20% of that Bank's
capital stock and surplus and, singly to HUBCO or any affiliate, may not exceed
10% of the Bank's capital stock and surplus. Similarly, the Banking Affiliates
Act of 1982 also restricts the Bank in the purchase of securities issued by, the
acceptance from affiliates of loan collateral consisting of securities issued
by, the purchase of assets from, and the issuance of a guarantee or standby
letter-of-credit on behalf of, HUBCO or any of its affiliates.
Holding Company Supervision
Under the Bank Holding Company Act, HUBCO may not acquire directly or
indirectly more than 5 percent of the voting shares of, or substantially all of
the assets of, any bank without the prior approval of the Federal Reserve Board.
HUBCO cannot acquire any bank located outside New Jersey unless the law of such
other state specifically permits the acquisition.
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In general, the Federal Reserve Board, under its regulations and the Bank
Holding Company Act, regulates the activities of bank holding companies and
non-bank subsidiaries of banks. The regulation of the activities of banks,
including bank subsidiaries of bank holding companies, generally has been left
to the authority of the supervisory government agency, which for the Bank is the
FDIC and the New Jersey Department of Banking (the "Department").
Interstate Banking Authority
The Riegle-Neale Interstate Banking and Branching Efficiency Act of 1994
(the "Interstate Banking and Branching Act") passed by Congress and signed into
law on September 29, 1994, significantly changed interstate banking rules.
Pursuant to the Interstate Banking and Branching Act, a bank holding company is
able to acquire banks in states other than its home state beginning September
29, 1995, regardless of applicable state law.
The Interstate Banking and Branching Act also authorizes banks to merge
across state lines, thereby creating interstate branches, beginning June, 1997.
Under such legislation, each state has the opportunity either to "opt out" of
this provision, thereby prohibiting interstate branching in such states, or to
"opt in" at an earlier time, thereby allowing interstate branching within that
state prior to June 1, 1997. Furthermore, a state may "opt in" with respect to
de novo branching, thereby permitting a bank to open new branches in a state in
which the bank does not already have a branch. Without de novo branching, an
out-of-state bank can enter the state only by acquiring an existing bank.
On February 29, 1996 the New Jersey General Assembly unanimously passed an
Interstate Banking/Branching Bill which "opts in", under the Interstate Banking
and Branching Act, but the method of entry would require domestic out-of-state
and international banks to acquire a bank or branch. The method of entry into
New Jersey would not be "de novo" under the legislation. The bill has been sent
to the Governor, but as of March 16, 1996 it had not yet been signed into law.
There can be no assurance that the bill will become law.
Cross Guarantee Provisions and Source of Strength Doctrine
Under the Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA"), a depository institution insured by the FDIC can be held liable
for any loss incurred by, or reasonably expected to be incurred by, the FDIC in
connection with (i) the default of a commonly controlled FDIC-insured depository
institution in danger of default. "Default" is defined generally as the
appointment of a conservatory or receiver and "in danger of default" is defined
generally as the existence of certain conditions, including a failure to meet
minimum capital
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requirements, indicative that a "default" is likely to occur in the absence of
regulatory assistance. These provisions have commonly been referred to as
FIRREA's "cross guarantee" provisions. Further, under FIRREA the failure to meet
capital guidelines could subject a banking institution to a variety of
enforcement remedies available to federal regulatory authorities, including the
termination of deposit insurance by the FDIC.
According to Federal Reserve Board policy, bank holding companies are
expected to act as a source of financial strength to each subsidiary bank and to
commit resources to support each such subsidiary. This support may be required
at times when a bank holding company may not be able to provide such support.
Furthermore, in the event of a loss suffered or anticipated by the FDIC --
either as a result of default of a bank subsidiary of the Company or related to
FDIC assistance provided to the subsidiary in danger of default -- the other
bank subsidiaries of the Company may be assessed for the FDIC's loss, subject to
certain exceptions.
(b) Industry Segments.
The Registrant has one industry segment -- commercial banking.
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(c) Narrative Description of Business.
HUBCO exists primarily to hold the stock of its subsidiaries. During most
of 1995, HUBCO had three directly-owned subsidiaries -- Hudson United Bank, HUB
Investment Services, Inc. and HUB Financial Services, Inc. In November, HUB
Financial Services, Inc. was sold 50% to United National Bank and the other 50%
was donated to Hudson United Bank, structured as a joint venture. In addition,
HUBCO, through Hudson United Bank, indirectly owns four additional subsidiaries.
The historical growth of, and regulations affecting, each of HUBCO's direct and
indirect subsidiaries is described in Item 1(a) above, which is incorporated
herein by reference.
HUBCO is a legal entity separate from its subsidiaries. The stock of the
Bank is HUBCO's principal asset. Dividends from Hudson United Bank are the
primary source of income for HUBCO. As explained above in Item 1(a), legal and
regulatory limitations are imposed on the amount of dividends that may be paid
by the Bank to HUBCO.
Hudson United Bank currently maintains its executive offices in Mahwah, New
Jersey. At December 31, 1995, the Bank operated out of 57 offices primarily in
six northern New Jersey counties. Of these offices, all but one are located in
the northern New Jersey counties of Bergen, Essex, Hudson, Morris and Passaic.
One other branch is located in Dunellen, Middlesex County, New Jersey. In April
1994, HUBCO purchased a 64,350 square foot building in Mahwah, New Jersey to
house the executive offices of HUBCO and the Company's data processing
subsidiary (now a joint venture), which services the Bank's data processing and
check processing needs and offers its services to smaller banks in the New York
and New Jersey area.
At December 31, 1995, HUBCO through its subsidiaries had deposits of
$1,425,001,424, net loans of $837,033,227 and total assets of $1,613,193,529.
HUBCO ranked 6th among commercial banks and bank holding companies headquartered
in New Jersey in terms of asset size.
The Bank is a full service commercial bank and offers the services
generally performed by commercial banks of similar size and character, including
imaged checking, savings, and time deposit accounts, 24-hour telephone banking,
trust services, safe deposit boxes, secured and unsecured personal and
commercial loans, residential and commercial real estate loans, and
international services including import and export needs, foreign currency
purchases and letters of credit. The Bank's deposit accounts are competitive in
the current environment and include money market accounts and a variety of
interest-bearing transaction accounts. In the lending area, the Bank primarily
engages in consumer lending, commercial lending and real estate lending
activities.
Hudson United Bank offers a variety of trust services. At December 31,
1995, the Trust Department had $138,622,122 of assets under management or in its
custodial control.
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There are over 70 commercial banks throughout New Jersey, many of which
have offices in Northern New Jersey. In addition, large out-of-state banks
compete for the business of New Jersey residents and businesses located in
HUBCO's primary market. A number of other depository institutions compete for
the business of individuals and commercial enterprises in New Jersey including
savings banks, savings and loan associations, brokerage houses, financial
subsidiaries of other industries and credit unions. Other financial
institutions, such as mutual funds, consumer finance companies, factoring
companies, and insurance companies, also compete with HUBCO for both loans and
deposits. Competition for depositors' funds, for creditworthy loan customers and
for trust business is intense.
Despite intense competition with institutions commanding greater financial
resources, the Bank's supply of funds has imposed no substantial impediment to
its normal lending functions. While the Bank is limited to making commercial
loans to a single borrower in an amount not to exceed fifteen percent of its
capital and has a "house limit" significantly below that level, it has, on
occasion, arranged for participation by other banks in larger loan
accommodations.
The Bank has focused on becoming an integral part of the communities it
serves. Officers and employees are trained to meet the needs of their customers
and emphasis is placed on addressing the needs of the local communities served.
HUBCO and its subsidiaries had 580 full-time employees and 115 part-time
employees as of December 31, 1995, compared to 571 full-time and 108 part-time
employees at the end of 1994.
(d) Financial Information about foreign and domestic operations and export
sales.
Not Applicable
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(e) Executive Officers of the Registrant
The following table sets forth certain information as to each executive
officer of HUBCO who is not a director.
Name, Age and
Position with Officer of Principal Occupation
HUBCO HUBCO Since During Past Five Years
- ------------- ------------ ----------------------
D. Lynn Van Borkulo- 1988 Executive Vice President, HUBCO
Nuzzo, 47 and Hudson United Bank,
Corporate Secretary, HUBCO.
Richard I. Linhart, 52 1995 Executive Vice President, HUBCO
and Hudson United Bank,
(October 1995 -- Present)
Prior to Registrant, Mr.
Linhart was Executive Vice
President, Chief Administrative
and Financial Officer of NBT
Bancorp Inc., Norwich, NY.
(October 1990 -- September 1995)
Christina L. Maier, 42 1987 Assistant Treasurer of HUBCO and
Senior Vice President and
Controller of the Bank.
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(f) Statistical Disclosure Required Pursuant to Securities Exchange Act,
Industry Guide 3.
The statistical disclosures for a bank holding company required pursuant to
Industry Guide 3 are contained on the following pages of this Report on Form
10-K (Item I disclosures are contained on page 5 of HUBCO's 1995 Annual Report):
Pages(s) Of
Item Of Guide 3 This Report
--------------- -----------
II. Investment Portfolio................................. 16
III. Loan Portfolio....................................... 17-19
IV. Summary of Loan Loss Experience...................... 20-21
V. Deposits............................................. 22
VI. Return on Equity and Assets.......................... 23
VII. Short-Term Borrowings................................ 24
15
<PAGE>
HUBCO, Inc. and Subsidiaries
S.E.C. GUIDE 3 - ITEM II
INVESTMENT PORTFOLIO
Book Value at End of Each Report Period
December 31,
----------------------------------
1995 1994 1993
---- ---- ----
(In Thousands of Dollars)
U.S. Treasury and Other U.S.
Government Agencies and
Corporations ..................... $537,989 $623,055 $506,900
State and Political Subdivisions ... 9,236 34,564 35,161
Other Securities ................... 3,908 7,126 8,970
Common Stock ....................... 15,291 9,426 5,264
-------- -------- --------
TOTAL ........................... $566,424 $674,171 $556,295
======== ======== ========
Maturities and Weighted Average Yield at End of Latest Reporting Period
<TABLE>
<CAPTION>
Maturing
-------------------------------------------------------------------------------------
After One But After Five But
Within One Year Within Five Years Within Ten Years After Ten Years
-------------------- ----------------- ---------------- -----------------
Amount Yield Amount Yield Amount Yield Amount Yield
-------- ------- -------- ------ ------ ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and other U.S.
Government Agencies and
Corporations ........................ $121,762 5.33% $354,228 6.35% $22,448 6.16% $39,551 6.34%
States and Political Subdivisions .... 9,027 4.26 -- -- -- -- 209 7.50
Other Securities ..................... 262 8.49 3,185 7.32 461 3.49 -- --
Common Stock ......................... 15,291 3.87 -- -- -- -- -- --
-------- ---- -------- ---- ------- ---- ------- ----
TOTAL ........................... $146,342 5.12% $357,413 6.36% $22,909 6.11% $39,760 6.35%
======== ==== ======== ==== ======= ==== ======= ====
</TABLE>
Weighted average yields on tax-exempt obligations have been computed on a
fully tax-equivalent basis assuming a tax rate of 35 percent.
16
<PAGE>
HUBCO, Inc. and Subsidiaries
S.E.C. GUIDE 3 - ITEM III
LOAN PORTFOLIO
<TABLE>
<CAPTION>
Types of Loans At End of Each Reported Period
December 31,
---------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Loans secured by real estate:
Residential mortgage loans
--fixed ..................... $118,719 $154,499 $139,509 $174,841 $156,113
Residential mortgage loans
--variable .................. 144,450 155,266 67,842 75,069 70,206
Residential home equity
loans ....................... 45,690 57,706 62,452 33,421 34,464
Construction loans ............ 15,082 9,804 8,075 4,428 3,823
Commercial mortgage loans ..... 161,145 137,832 108,036 115,413 95,468
-------- -------- -------- -------- --------
485,086 515,107 385,914 403,172 360,074
-------- -------- -------- -------- --------
Commercial and industrial loans:
Secured by real estate ........ 115,533 123,861 60,260 54,078 41,787
Other ......................... 115,518 83,694 154,116 141,677 171,654
-------- -------- -------- -------- --------
231,051 207,555 214,376 195,755 213,441
-------- -------- -------- -------- --------
Shoppers Charge credit cards .... 57,915 67,577 0 0 0
Other loans to individuals for
household, family and other
personal expenditures ......... 79,932 72,145 63,298 67,214 68,434
-------- -------- -------- -------- --------
Total Loan Portfolio ........ $853,984 $862,384 $663,588 $666,141 $641,949
======== ======== ======== ======== ========
</TABLE>
17
<PAGE>
HUBCO, Inc. and Subsidiaries
S.E.C. GUIDE 3--ITEM III
LOAN PORTFOLIO
The following table shows the maturity of loans (excluding residential
mortgages of 1-4 family residences, installment loans and lease financing)
outstanding as of December 31, 1995. Also provided are the amounts due after one
year classified according to the sensitivity to changes in interest rates.
Maturities and Sensitivity to Changes in Interest Rates
<TABLE>
<CAPTION>
Maturing
-------------------------------------------
After One After
Within But Within Five
One Year Five Years Years Total
-------- ---------- ------- --------
<S> <C> <C> <C> <C>
Commercial, Financial,
and Agricultural ..................... $138,789 $36,195 $11,043 $186,027
Real Estate Construction ............... 15,083 -0- 68 15,151
Real Estate - Mortgage ................. 118,346 38,912 50,793 208,051
-------- ------- ------- --------
TOTAL .......................... $272,218 $75,107 $61,904 $409,229
======== ======= ======= ========
</TABLE>
Interest Sensitivity
--------------------
Fixed Variable
Rate Rate
------- ---------
Due After One But Within Five Years .... $ 49,913 $26,552
Due After Five Years ................... 60,546 1,358
-------- -------
TOTAL ............................... $110,459 $25,194
======== =======
18
<PAGE>
HUBCO, Inc. and Subsidiaries
S.E.C. GUIDE 3 -- ITEM III
LOAN PORTFOLIO
<TABLE>
<CAPTION>
Nonaccrual, Past Due and Restructured Loans
December 31,
---------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(In Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Loans accounted for on
a nonaccrual basis ............ $15,593 $19,456 $15,244 $15,368 $7,575
Loans contractually past
due 90 days or more as
to interest or principal
payments ...................... 5,473 3,187 3,560 4,165 12,013
Loans whose terms have been
renegotiated to provide a
reduction or deferral of
interest or principal because
of a deterioration in the
financial position of
the borrower ................... 745 732 2,177 2,257 3,527
</TABLE>
At the end of the reporting period, there were no loans not disclosed under
the preceding two sections where known information about possible credit
problems of borrowers causes management of the Company to have serious doubts as
to the ability of such borrowers to comply with the present loan repayment terms
and which may result in disclosure of such loans in the two preceding sections
in the future.
At December 31, 1995 and 1994, there were no concentrations of loans
exceeding 10% of total loans which are not otherwise disclosed as a category of
loans pursuant to Item III.A. of Guide 3.
Recognition of interest on the accrual method is discontinued when based on
contractual delinquency and timely payment is not expected. A nonaccrual loan is
not returned to an accrual status until interest is received on a current basis
and other factors indicate collection ability is no longer doubtful.
19
<PAGE>
HUBCO, Inc. and Subsidiaries
S.E.C. GUIDE 3 -- ITEM IV
SUMMARY OF LOAN LOSS EXPERIENCE
The following is a summary of the activity in the allowance for possible loan
losses, broken down by loan category:
<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Amount of Loans Outstanding at End of Year ............ $853,984 $862,384 $663,588 $666,141 $641,949
======== ======== ======== ======== ========
Daily Average Amount of Loans ......................... $850,936 $734,371 $665,349 $679,434 $584,437
======== ======== ======== ======== ========
Balance of Allowance for Possible
Loan Losses at Beginning of Year .................... $ 16,559 $ 14,109 $ 11,354 $ 9,181 $ 7,122
Loans Charged Off:
Commercial, Financial and Agricultural .............. (3,037) (653) (1,563) (5,896) (2,380)
Real Estate-Construction ............................ -- -- -- -- --
Real Estate-Mortgage ................................ (1,011) (5,833) (860) (915) (503)
Installment ......................................... (1,200) (311) (528) (555) (545)
Lease Financing ..................................... -- (13) (122) (355) (364)
-------- -------- -------- -------- --------
Total Loans Charged Off ............................... (5,248) (6,810) (3,073) (7,721) (3,792)
-------- -------- -------- -------- --------
Recoveries of Loans Previously Charged Off:
Commercial, Financial and Agricultural .............. 300 660 197 697 194
Real Estate-Construction ............................ -- -- -- -- --
Real Estate-Mortgage ................................ 668 129 120 18 4
Installment ......................................... 462 163 155 89 157
Lease Financing ..................................... 10 41 82 158 337
-------- -------- -------- -------- --------
Total Recoveries ...................................... 1,440 993 554 962 692
-------- -------- -------- -------- --------
Net Loans Charged Off ................................. (3,808) (5,817) (2,519) (7,432) (3,100)
Provision Charged to Expense .......................... 4,200 3,550 4,874 7,432 3,672
Additions Acquired Through Acquisitions ............... -- 4,717 400 1,500 1,487
-------- -------- -------- -------- --------
Balance at End of Year ................................ $ 16,951 $ 16,559 $ 14,109 $ 11,354 $ 9,181
======== ======== ======== ======== ========
Ratios
Net Loans Charged Off to
Average Loans Outstanding ......................... .45% .79% .38% 1.09% .53%
Allowance for Possible Loan
Losses to Average Loans
Outstanding ....................................... 1.99% 2.25% 2.12% 1.67% 1.57%
</TABLE>
Management formally reviews the loan portfolio and evaluates credit risk on at
least a quarterly basis throughout the year. Such review takes into
consideration the financial condition of the borrowers, fair market value of
collateral, level of delinquencies, historical loss experience by loan category,
industry trends, and the impact of local and national economic conditions.
20
<PAGE>
HUBCO, Inc. and Subsidiaries
S.E.C. GUIDE 3 -- ITEM IV
SUMMARY OF LOAN LOSS EXPERIENCE
ALLOWANCE FOR POSSIBLE LOAN LOSSES ALLOCATION
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994 December 31, 1993 December 31, 1992 December 31,1991
------------------- ------------------- ------------------ -------------------- -------------------
% of Loans % of Loans % of Loans % of Loans % of Loans
In Each In Each In Each In Each In Each
Category To Category To Category To Category To Category to
Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans
------ ----------- ------ ----------- ------ ----------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Applicable To:
Loans secured by real
estate:
Residential mortgage
loans fixed:......... $ 506 13.90% $ 1,490 17.92% $ 1,270 21.02% $ 1,930 26.25% $1,194 24.32%
Residential mortgage
loans variable....... 530 16.91 1,159 18.00 847 10.22 908 11.27 643 10.94
Residential home
equity loans.......... 228 5.35 265 6.69 282 9.41 114 5.02 92 5.37
Construction loans..... 113 1.77 70 1.14 113 1.22 341 0.66 459 0.60
Commercial mortgage
loans ................ 895 18.87 1,159 15.98 705 16.28 908 17.33 643 14.87
Commercial and
Industrial Loans:
Secured by real
estate............... 2,505 13.53 2,981 14.36 2,963 9.08 2,157 8.12 1,653 6.51
Other................ 963 13.53 828 9.70 1,975 23.22 1,249 21.27 1,194 26.74
Shoppers Charge
credit cards.......... 394 6.78 331 7.84 N/A N/A N/A N/A N/A N/A
Other loans to
individuals for
household, family and
other personal
expenditures ......... 417 9.36 222 8.37 652 9.54 1,817 10.09 1,377 10.66
Unallocated............ 10,400 N/A 8,054 N/A 5,302 N/A 1,930 N/A 1,926 N/A
------- ------ ------- ------ ------- ------ ------- ------- ------ ------
TOTAL $16,951 100.00% $16,559 100.00% $14,109 100.00% $11,354 100.00% $9,181 100.00%
</TABLE>
The allowance for possible loan losses has been allocated according to the
amount deemed to be reasonably necessary to provide for the possibility of
losses being incurred within the above categories of loans at the date
indicated.
21
<PAGE>
HUBCO, Inc. and Subsidiaries
S.E.C. GUIDE 3 -- ITEM V
DEPOSITS
The following table sets forth average deposits and average rates for each of
the years indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------
1995 1994 1993
----------------- ---------------- -----------------
Amount Rate Amount Rate Amount Rate
---------- ---- --------- ---- ---------- ----
(In Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Domestic Bank Offices:
Non-interest-bearing
demand deposits ....... $ 275,915 $ 273,491 $ 232,746
Interest-bearing
demand deposits ....... 233,000 2.75% 240,002 2.49% 203,118 2.53%
Savings deposits ....... 475,000 2.44 510,517 2.51 396,183 2.59
Time deposits .......... 442,014 3.97 369,222 2.84 328,116 3.41
---------- ---------- ----------
TOTAL ........... $1,425,929 $1,393,232 $1,160,163
========== ========== ==========
</TABLE>
Maturities of certificates of deposit and other time deposits of $100,000 or
more issued by domestic offices, outstanding at December 31, 1995 are summarized
as follows:
Time Certificates Other Time
of Deposit Deposits Total
----------------- ---------- -------
(In Thousands of Dollars)
3 months or less ............. $47,832 $ -- $47,832
Over 3 through 6 months ...... 3,864 -- 3,864
Over 6 through 12 months ..... 10,076 -- 10,076
------- ---- -------
TOTAL ............... $61,772 $ -- $61,772
======= ==== =======
22
<PAGE>
HUBCO, Inc. and Subsidiaries
S.E.C. GUIDE 3 -- ITEM VI
RETURN ON EQUITY AND ASSETS
Year Ended December 31,
---------------------------
1995 1994 1993
----- ----- -----
Return on Average Assets .............. 1.46% 1.11% 1.07%
Return on Average Equity .............. 19.49 16.57 14.95
Dividend Payout Ratio ................. 33.52 26.47 29.25
Average Equity to Average
Assets Ratio ......................... 7.49 6.69 7.16
23
<PAGE>
HUBCO, Inc. and Subsidiaries
S.E.C. GUIDE 3 -- ITEM VII
SHORT-TERM BORROWINGS
The following table shows the distribution of the Company's short-term
borrowings and the weighted average interest rates thereon at the end of each of
the last three years. Also provided are the maximum amount of borrowings and the
average amounts of borrowings as well as weighted average interest rates for the
last three years. The term for each type of borrowing disclosed is one day.
Federal Funds
Purchased and
Securities Sold
Under Agreement Other Short-
to Repurchase Term Borrowings
--------------- ---------------
(In Thousand of Dollars)
Year ended December 31:
1995 ...................... $20,654 $1,000
1994 ...................... 48,964 2,693
1993 ...................... 36,774 7,000
Weighted average interest rate
at year end:
1995 ...................... 5.34% 5.42%
1994 ...................... 4.44 5.16
1993 ...................... 2.69 2.84
Maximum amount outstanding
at any month's end:
1995 ...................... $68,199 $1,478
1994 ...................... 67,161 3,669
1993 ...................... 51,605 8,122
Average amount outstanding
during the year:
1995 ...................... $37,184 $1,552
1994 ...................... 37,162 4,305
1993 ...................... 31,385 2,934
Weighted average interest
rate during the year:
1995 ...................... 4.80% 3.93%
1994 ...................... 2.92 3.85
1993 ...................... 2.62 2.87
24
<PAGE>
ITEM 2. PROPERTIES
The corporate headquarters of HUBCO is located in a three story facility in
Mahwah, New Jersey. The building is approximately 64,350 square feet and houses
the executive offices of the Company and its subsidiaries. The main office of
Hudson United Bank is located in the former corporate headquarters, a four story
facility in Union City, New Jersey, which is owned by Hudson United Bank. Hudson
United Bank occupies 56 additional branch offices, of which 32 are owned and 24
are leased.
All leased properties have rental payments at or below fair market value. Of the
twenty-four properties leased, nine have renewal options for terms of five to
fifteen years. The remaining nineteen locations have expiration dates ranging
from 1996-2005.
ITEM 3. LEGAL PROCEEDINGS
In the normal course of business, lawsuits and claims may be brought by and may
arise against HUBCO and its subsidiaries. In the opinion of management, no legal
proceedings which have arisen in the normal course of the Company's business and
which are presently pending or threatened against HUBCO or its subsidiaries,
when resolved, will have a material adverse effect on the business or financial
condition of HUBCO or any of its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of Shareholders of HUBCO during the fourth
quarter of 1995.
25
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
As of December 31, 1995, HUBCO had approximately 2,284 shareholders.
HUBCO's common stock is listed on the Nasdaq National Market. The following
represents the high and low sale prices from each quarter during the last two
years. The numbers have been restated to reflect a 3 for 2 stock split effective
January 14, 1995.
1995
------------------------
High Low
------- ------
1st Quarter ............... $17.38 $14.67
2nd Quarter ............... 18.00 15.50
3rd Quarter ............... 21.13 17.25
4th Quarter ............... 22.13 19.25
1994
------------------------
High Low
------- ------
1st Quarter ............... $15.83 $13.42
2nd Quarter ............... 15.00 13.33
3rd Quarter ............... 15.17 13.13
4th Quarter ............... 15.00 12.50
The following table shows the per share quarterly cash dividends paid upon
the common stock over the last two years.
1995 1994
---- ----
March 1 ......... $.15 March 1 ......... $.08
June 1 .......... .15 June 1 .......... .08
September 1 ..... .15 September 1 ..... .10
December 1 ...... .15 December 1 ...... .10
Dividends are generally declared within 30 days prior to the payable date,
to stockholders of record l0-20 days after the declaration date.
26
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
(In Thousands Except For Per Share Amounts)
Reference should be made to pages 4-6 of this Report on Form 10-K for a
discussion of recent acquisitions which affect the comparability of the
information contained in this table.
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Interest Income ....................... $ 81,102 $ 71,096 $ 59,039 $ 52,935 $ 38,043
Provision for Loan Losses.................. 4,200 3,550 4,874 7,432 3,672
Net Income ................................ 23,684 17,432 13,871 8,971 6,278
Per Share Data(1)
Net Income .............................. 1.82 1.36 1.06 .76 .62
Primary Fully Diluted ................... 1.79 1.33 1.06 .76 .62
Cash Dividends .......................... .60 .36 .31 .27 .22
Balance Sheet Totals:
Total Assets-12/31 ...................... 1,613,194 1,709,384 1,363,674 1,233,910 981,297
Long Term Debt-12/31 .................... 25,000 25,000 -- -- 763
Average Equity--for year ................ 121,525 105,318 92,786 75,371 58,919
Average Assets--for year ................ 1,622,811 1,572,935 1,296,773 1,215,108 908,192
- ----------
</TABLE>
(1) Per share data is adjusted retroactively to reflect a 10% stock dividend
paid November 15, 1991 to stockholders of record on November 6, 1991, a 10%
stock dividend paid June 1, 1993 to stockholders of record on May 11, 1993,
and a 3 for 2 stock split payable January 14, 1995 to record holders of
HUBCO Common Stock on January 3, 1995.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
HUBCO's 1995 Annual Report contains on pages 6 through 15 the information
required by Item 7 and that information is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
HUBCO's 1995 Annual Report contains on pages 16 through 29 the information
required by Item 8 and that information is incorporated herein by reference.
27
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
HUBCO's Proxy Statement for its 1996 Annual Meeting under the caption
"Election of HUBCO Directors", will contain the information required by Item 10
with respect to directors of HUBCO and certain information with respect to
executive officers and that information is to be incorporated herein by
reference. Certain additional information regarding executive officers of HUBCO,
who are not also directors, appears under subsection (e) of Item 1 of this
Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
HUBCO's Proxy Statement for its 1996 Annual Meeting will contain, under the
caption "Executive Compensation", and under the caption "Compensation Committee
Interlocks and Insider Participation", the information required by Item 11 and
that information is to be incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
HUBCO's Proxy Statement for its 1996 Annual Meeting will contain, under the
caption "Stock Ownership of Management and Principal Shareholders", the
information required by Item 12 and that information is to be incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
HUBCO's Proxy Statement for its 1996 Annual Meeting under the captions
"Compensation Committee Interlocks and Insider Participation" and "Certain
Transactions with Management", will contain the information required by Item 13
and that information is to be incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) (1) & (2) List of Financial Statements and Financial
Statement Schedules
The below listed consolidated financial statements and report of
independent public accountants of
28
<PAGE>
HUBCO, Inc. and subsidiaries, included in the Annual Report of the
Registrant to its Shareholders for the year ended December 31, 1995,
are incorporated by reference in Item 8:
Reports of Independent Public Accountants
Consolidated Balance Sheets at
December 31, 1995 and 1994
Consolidated Statements of Income for the Years
Ended December 31, 1995, 1994 and 1993
Consolidated Statements of Changes in Stockholders'
Equity for the Years Ended December 31, 1995,
1994 and 1993
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
Schedules to the Consolidated Financial Statements required by Article 9 of
Regulation S-X are not required under the related instructions or are
inapplicable, and therefore have been omitted.
(a) (3) Exhibits
List of Exhibits
(2a) Agreement and Plan of Merger dated as of February 5, 1996,
between HUBCO, Inc. and Lafayette American Bank and Trust
Company.(Incorporated by reference from the Company's Current
Report on Form 8-K dated February 6, 1996.)
(2b) Stock Option Agreement dated as of February 5, 1996, between
HUBCO, Inc. and Lafayette American Bank and Trust Company.
(Incorporated by reference from the Company's Current Report on
Form 8-K dated February 6, 1996.)
(3a) The Certificate of Incorporation of HUBCO, Inc. filed May 5,
1982 and amendments to the Certificate of Incorporation, dated
November 22, 1983, January 30, 1984, January 11, 1985, July 17,
1986, March 25, 1987, April 26, 1991, November 26, 1991, March
25, 1992, May 17, 1993, January 4, 1995, and June 1, 1995.
(3b) The By-Laws of HUBCO, Inc.
(4) Indenture dated as of January 14, 1994 between HUBCO, Inc. and
Summit Bank as Trustee for $25,000,000 7.75% Subordinated
Debentures due 2004. (Incorporated by reference from the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993, Exhibit (4))
29
<PAGE>
(10a) Employment contract with Kenneth T. Neilson. (Incorporated by
reference from the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994, Exhibit (10a).)
(10b) Amendment to employment contract with Kenneth T. Neilson dated
as of January 1, 1995.
(10c) Employment contract with D. Lynn Van Borkulo-Nuzzo.
(Incorporated by reference from the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994, Exhibit
(10b).)
(10d) Amendment to employment contract with D. Lynn Van Borkulo-Nuzzo
dated as of January 1, 1995.
(10e) Employment contract with Richard I. Linhart.
(10f) Collective Bargaining Agreement with Local 153 of the Office and
Professional Employees International Union, dated January 26,
1993. (Incorporated by reference from the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1992,
Exhibit (10d))
(10g) Agreement and Plan of Merger dated October 7, 1994 between
HUBCO, Hudson United Bank and Jefferson National Bank.
(Incorporated by reference from the Company's Current Report on
Form 8-K filed October 20, 1994.)
(10h) HUBCO, Inc. Directors Deferred Compensation Plan.(Incorporated
by reference from the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994, Exhibit (10g))
(10i) Amended and Restated Agreement and Plan of Merger, dated as of
February 14, 1995 and among Urban National Bank, HUBCO, Inc. and
HUBCO's New Jersey commercial bank subsidiary, Hudson United
Bank. (Incorporated by reference from the Company's Current
Report on Form 8-K filed February 23, 1995.)
(10j) Agreement and Plan of Merger dated as of August 18, 1995 among
HUBCO, Inc., Hudson United Bank, Growth Financial Corp and
Growth Bank. (Incorporated by reference from the Company's
Current Report on Form 8-K filed August 24, 1995.)
(13) Those portions of HUBCO's 1995 Annual Report which are
incorporated by reference into this 10-K.
(22) List of Subsidiaries.
(27) Financial Data Schedule.
(b) Reports on Form 8-K
Form 8-K filed October 19, 1995.
30
<PAGE>
Item 5. Other Events --
Reported the declaration of the Company's regular quarterly cash
dividend. Also reported the Company's earnings for the
three-month and nine-month periods ended September 30, 1995.
Item 7. Exhibits --
Included two press releases regarding the above.
Form 8-K filed October 23, 1995.
Item 5. Other Events --
Reported the restatement of the Company's financial statements
in order to reflect the effect of recent acquisitions accounted
for as poolings-of-interest.
Items 7. Exhibits --
Included restated financial statements, pro forma financial
information and exhibits.
Form 8-K filed November 15, 1995.
Item 5. Other Events --
Reported jointly with United National Bancorp ("United") the
consummation of a joint venture between the Company's and
United's wholly owned bank subsidiaries under which each will
participate equally as owners of a financial services
corporation providing data processing, check processing,
management information services and other automated record
keeping functions for the two banks.
Item 7. Exhibits --
Included one press release, Stock Purchase and Stockholder
Agreement dated as of October 24, 1995 among HUB Financial
Services Inc., HUBCO, Inc., Hudson United Bank, United National
Bancorp and United National Bank, Data Processing Service and
Clearing Agency Agreement dated November 2, 1995 between United
National Bank and HUB Financial Services, Inc., Data Processing
Service and Clearing Agency Agreement dated November 2, 1995
between Hudson United Bank and HUB Financial Services, Inc.,
Administrative Services Agreement dated November 2, 1995 between
Hudson United Bank and HUB Financial Services, Inc.
Form 8-K filed December 1, 1995.
Item 5. Other Events --
Reported the announcement by the Company of the signing of an
agreement to acquire the three New Jersey branches of CrossLand
Federal Savings Bank.
Item 7. Exhibits --
Included a press release and the Agreement dated as of November
21, 1995 between CrossLand Federal Savings Bank and Hudson
United Bank.
31
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
HUBCO, INC.
By: /s/ JAMES E. SCHIERLOH
----------------------
James E. Schierloh
Chairman of the Board
Dated: March 15, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ JAMES E. SCHIERLOH Chairman of the
- ---------------------------- Board and Director March 15, 1996
James E. Schierloh
/s/ KENNETH T. NEILSON President, CEO and March 15, 1996
- ---------------------------- Director
Kenneth T. Neilson
/s/ ROBERT J. BURKE Director March 15, 1996
- ----------------------------
Robert J. Burke
/s/ BRYANT D. MALCOLM Director March 15, 1996
- ----------------------------
Bryant D. Malcolm
/s/ Harry J. Leber Director March 15, 1996
- ----------------------------
Harry J. Leber
/s/ CHARLES F.X. POGGI Director March 15, 1996
- ----------------------------
Charles F. X. Poggi
/s/ SR. GRACE FRANCES STRAUBER Director March 15, 1996
- ----------------------------
Sister Grace Frances
Strauber
32
<PAGE>
Signature Title Date
--------- ----- ----
/s/ W. PETER MCBRIDE Director March 15, 1996
- ----------------------------
W. Peter McBride
/s/ RICHARD I. LINHART Executive Vice March 15, 1996
- ---------------------------- President
Richard I. Linhart
/s/ CHRISTINA L. MAIER Assistant March 15, 1996
- ---------------------------- Treasurer
Christina L. Maier
33
<PAGE>
Exhibit 22
LIST OF SUBSIDIARIES
SUBSIDIARIES OF HUBCO, INC.:
Hudson United Bank, organized under the banking laws of the State of
New Jersey.
HUB Investment Services, Inc., organized under the New Jersey Business
Corporation Act.
SUBSIDIARIES OF HUDSON UNITED BANK:
Hendrik Hudson Corp. of New Jersey, organized under the New Jersey Business
Corporation Act.
Lafayette Development Corp., organized under the New Jersey Business
Corporation Act.
JNB Holdings, Inc., organized under the New Jersey Business Corporation
Act.
UNB Holdings, Inc., organized under the New Jersey Business Corporation
Act.
34
CERTIFICATE OF INCORPORATION
OF
HUBCO, Inc.
The undersigned, being over the age of 18 years old, for the purposes of
forming a corporation under the New Jersey Business Corporation Act, does hereby
execute the following certificate of incorporation:
ARTICLE I
CORPORATE NAME
The name of the Corporation shall be HUBCO, Inc. (hereinafter the
"Corporation").
ARTICLE II
CURRENT REGISTERED OFFICE
AND CURRENT REGISTERED AGENT
The address of the Corporation's initial registered office is 80 Park
Plaza, 23rd Floor, Newark New Jersey 07102. The name of the current registered
agent at that address is Ronald H. Janis.
ARTICLE III
INITIAL BOARD OF DIRECTORS
AND NUMBER OF DIRECTORS
The number of directors shall be governed by the by-laws of the
Corporation. The number of directors constituting the initial Board of Directors
shall be twelve. The names and addresses of the initial Board of Directors are
as follows:
Name Address
- ---- -------
John T. Clark ......... 3100 Bergenline Avenue
Union City, New Jersey 07087
James C. McClave ...... 3100 Bergenline Avenue
Union City, New Jersey 07087
Ronald David .......... 2 Broadway
New York, New York 10004
Arthur L. Dickson ..... 51 Newark Street
Hoboken, New Jersey 07030
1
<PAGE>
Name Address
- ---- -------
Henry Hugelheim ....... 752 Greeley Avenue
Fairview, New Jersey 07022
Harry J. Leber ........ 2000 Kennedy Boulevard
Union City, New Jersey 07087
George P. Moser, Sr. .. 415 32nd Street
Union City, New Jersey 07087
Harold J. Olsen ....... 638 Anderson Avenue
Cliffside Park, New Jersey 07010
Charles F.X. Poggi .... 15th and Adams Street
Hoboken, New Jersey 07030
James E. Schierloh .... East 210 Route 4
Paramus, New Jersey 07652
Sister Grace Frances .. 308 Willow Avenue
Strauber Hoboken, New Jersey 07030
Robert J. Burke ....... Foot of Pershing Road
Weehawken, New Jersey 07087
ARTICLE IV
CORPORATE PURPOSE
The purpose for which the Corporation is organized is to engage in any
activities for which corporations may be organized under the New Jersey Business
Corporation Act, subject to any restrictions which may be imposed from time to
time by the laws of the United States or the State of New Jersey with regard to
the activities of a bank holding company.
2
<PAGE>
ARTICLE V
CAPITAL STOCK
The Corporation is authorized to issue 2,000,000 shares of common stock,
all of which are without nominal or par value.
ARTICLE VI
INDEMNIFICATION
The Corporation shall indemnify its officers, directors, employees, and
agents and former officers, directors, employees and agents, and any other
persons serving at the request of the Corporation as an officer, director,
employee or agent of another corporation, association, partnership, joint
venture, trust, or other enterprise, against expenses (including attorneys'
fees, judgments, fines, and amounts paid in settlement) incurred in connection
with any pending or threatened action, suit, or proceeding, whether civil,
criminal, administrative or investigative, with respect to which such officer,
director, employee, agent or other person is a party, or is threatened to be
made a party, to the full extent permitted by the New Jersey Business
Corporation Act. The indemnification provided herein shall not be deemed
exclusive of any other right to which any person seeking indemnification may be
entitled under any by-law, agreement, or vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity, and shall inure to the benefit of the heirs,
executors, and the administrators of any such person. The Corporation shall have
this power to purchase and maintain insurance on behalf of any persons
enumerated above against any liability asserted against him and incurred by him
in any such capacity, arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of this Article.
ARTICLE VII
NAME AND ADDRESS OF INCORPORATOR
The name and address of the incorporator is: Ronald H. Janis, c/o Clapp &
Eisenberg, 80 Park Plaza, 23rd Floor, Newark, New Jersey 07102.
IN WITNESS WHEREOF, I, the incorporator of the above named Corporation,
have hereunto signed this certificate of incorporation on the 5th day of May,
1982.
Ronald H. Janis
3
<PAGE>
CERTIFICATE OF AMENDMENT
to
CERTIFICATE OF INCORPORATION
of
HUBCO, Inc.
Pursuant to actions taken at a properly called and duly noticed special
meeting of stockholders of HUBCO, Inc. and in accordance with Section 14A:9-4(3)
of the New Jersey Business Corporation Act, the undersigned does hereby execute
the following Certificate of Amendment to the Certificate of Incorporation of
HUBCO, Inc.:
1. The name of the Corporation is HUBCO, Inc (the "Corporation").
2. A special meeting of the stockholders owning common stock of the
Corporation called for the purpose, inter alia, of considering amendments to the
Corporation's Certificate of Incorporation was convened on December 11, 1984,
adjourned to January 4, 1985 and further adjourned to January 11, 1985.
3. The number of shares of common stock of the Corporation entitled to vote
on the adoption of the amendments to the Corporation's Certificate of
Incorporation was 1,724,625.
4. At the January 11, 1985 session of the special meeting, the stockholders
adopted amended Article III of the Certificate of Incorporation of the
Corporation. The number of shares voted for the amendment was 1,165,174; The
number of shares voted against the amendment was 324,110. Amended Article III
will read in its entirety as follows:
4
<PAGE>
ARTICLE III
INITIAL BOARD OF DIRECTORS
AND NUMBER OF DIRECTORS
The number of directors shall be governed by the by-laws of the
Corporation. The number of directors constituting the initial Board of Directors
shall be twelve. The names and addresses of the initial Board of Directors are
as follows:
Name Address
- ---- -------
John T. Clark ............. 3100 Bergenline Avenue
Union City, New Jersey 07087
James C. McClave .......... 3100 Bergenline Avenue
Union City, New Jersey 07087
Ronald David .............. 2 Broadway
New York, New York 10004
Arthur L. Dickson ......... 51 Newark Street
Hoboken, New Jersey 07030
Henry Hugelheim ........... 752 Greeley Avenue
Fairview, New Jersey 07022
Harry J. Leber ............ 2000 Kennedy Boulevard
Union City, New Jersey 07087
George P. Moser, Sr. ...... 415 32nd Street
Union City, New Jersey 07087
5
<PAGE>
Name Address
- ---- -------
Harold J. Olsen .......... 638 Anderson Avenue
Cliffside Park, New Jersey 07010
Charles F.X. Poggi ....... 15th and Adams Street
Hoboken, New Jersey 07030
James E. Schierloh ....... East 210 Route 4
Paramus, New Jersey 07652
Sister Grace ............. 308 Willow Avenue
Frances Strauber Hoboken, New Jersey 07030
Robert J. Burke .......... Foot of Pershing Road
Weehawken, New Jersey 07087
Shareholders shall have no right to increase or decrease the number of
directors constituting the Board, except by the affirmative vote of at least
three-quarters of all of the outstanding shares of common stock entitled to vote
thereon, said vote to take place at an annual or special meeting of the
Corporation's stockholders called for the purpose of considering such matter.
Any director may be removed from office by the stockholders of the Corporation,
but only for cause.
Notwithstanding anything else in this Certificate of Incorporation to the
contrary (and notwithstanding the fact that a lesser percentage may be permitted
by law, this Certificate of Incorporation or the by-laws of the Corporation),
the provisions of this Article III may not be amended, altered, changed or
repealed in any respect, nor may any provision inconsistent herewith be adopted,
unless such action is approved by the affirmative vote of at least
three-quarters of all of the outstanding shares of common stock entitled to vote
thereon, said vote to take place at an annual or special meeting of the
Corporation's stockholders called for the purpose of considering such matter.
5. At the January 11, 1985 session of the special meeting, the stockholders
adopted an amendment to the Certificate of Incorporation of the Corporation by
adding a new Article VIII thereto. The number of shares voted for the amendment
was 1,169,869; the number of shares voted against the amendment was 319,763.
6
<PAGE>
New Article VIII will read as follows:
ARTICLE VIII
CLASSIFICATION OF DIRECTORS
The directors shall be divided into three classes, as nearly equal in
number as possible, with the term of office of the first class to expire at the
first annual meeting of stockholders following the meeting at which this Article
VIII is adopted, the term of office of the second class to expire at the second
annual meeting of stockholders following the meeting at which this Article VIII
is adopted and the term of office of the third class to expire at the third
annual meeting of stockholders following the meeting at which this Article VIII
is adopted.
If this Article VIII is adopted at a special meeting of stockholders,
directors of the second and third classes shall be elected to their terms at
such special meeting, and directors of the first class shall be designated in
advance of such special meeting by the Board of Directors from among the
directors elected at the preceding annual meeting of stockholders and shall not
be required to stand for election at such special meetings of stockholders. If
this Article VIII is adopted at an annual meeting of stockholders, all three
classes of directors shall be elected to their terms at such annual meeting. At
each annual meeting of stockholders following the initial classification and
election, directors elected to succeed those directors whose terms expire shall
be elected for a term of office to expire at the third succeeding annual meeting
of stockholders after their election or as soon thereafter as their successors
have been elected and qualified.
Notwithstanding anything else in this Certificate of Incorporation to the
contrary (and notwithstanding the fact that a lesser percentage may be permitted
by law, this Certificate of Incorporation or the by-laws of the Corporation),
the provisions of this Article VIII may not be amended, altered, changed or
repealed in any respect, nor may any provision inconsistent herewith be adopted,
unless such action is approved by the affirmative vote of at least
three-quarters of all of the outstanding shares of common stock entitled to vote
thereon, said vote to take place at an annual or special meeting of the
Corporation's stockholders called for the purpose of considering such matter.
7
<PAGE>
6. At the January 11, 1985 session of the special meeting, the stockholders
adopted an amendment to the Certificate of Incorporation of the Corporation
adding a new Article IX thereto. The number of shares voted for the amendment
was 1,178,252; the number of shares voted against the amendment was 313,726. New
Article IX will read as follows:
ARTICLE IX
MINIMUM PRICE
The stockholder vote required to approve a Business Combination (as
hereinafter defined) shall be as set forth in this section.
A. (1) Except as otherwise expressly provided in this section, the
affirmative vote of at least three-quarters of all of the outstanding
shares of common stock entitled to vote thereon shall be required in
order to authorize any of the following:
(a) any merger or consolidation of the Corporation or any subsidiary
thereof with a Related Person (as hereinafter defined) or any
other corporation which after such merger or consolidation would
be a Related Person;
(b) any sale, lease, exchange, transfer or other disposition,
including without limitation, a mortgage, or any other security
device, of all or any Substantial Part (as hereinafter defined)
of the assets of the Corporation (including without limitation
any voting securities of subsidiary) or of a subsidiary, to a
Related Person;
(c) the issuance or transfer by the Corporation or any subsidiary
thereof of any securities of the Corporation or a subsidiary of
the Corporation to a Related Person;
(d) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of a
Related Person;
(e) any reclassification of securities (including any reverse stock
split) or recapitalization of the Corporation, or any merger or
consolidation of the Corporation, with any of its Subsidiaries or
any other transaction (whether or not with or otherwise involving
Related Person) which has the effect, directly or indirectly, of
increasing the proportionate share of any class of equity or
convertible securities of the Corporation or any Subsidiary which
is directly or indirectly beneficially owned by any Related
Person;
8
<PAGE>
(f) any agreement, contract or other arrangement providing for any of
the transactions described in this section of the Certificate of
Incorporation.
(2) Such affirmative vote shall be required notwithstanding any other
provision of this Certificate of Incorporation, any provision of law
or any agreement with any national securities exchange which might
otherwise permit a lesser vote or no vote.
(3) The term "Business Combination" as used in this section shall mean any
transaction which is referred to in any one or more of subparagraphs
(a) through (f) above.
B. The provisions of Part A of this section shall not be applicable to any
particular Business Combination, and such Business Combination shall
require only such affirmative shareholder vote and such approval by the
Board of Directors as is required by any other provision of this
Certificate of Incorporation, any provision of law or any agreement with
any national securities exchange, if all of the conditions specified in
either of the following subparagraphs (1) or (2) are met:
(1) The Business Combination shall have been approved by a majority of
the directors of the Corporation then in office.
(2) All the following conditions have been met:
(a) The aggregate amount of (x) cash and (y) Fair Market Value (as
hereinafter defined), as of the date of the consummation of the
Business Combination, of consideration other than cash to be
received per share by holders of common stock in such Business
Combination shall be at least equal to the amount determined
under sub-clauses (i) and (ii) below:
(i) if the Related Person has acquired shares of the
Corporation's common stock in a tender offer for or has
requested or invited the tender of the Corporation's common
stock in a transaction subject to the provisions of Section
14(d) of the Securities Exchange Act of 1934, the highest per
share price (including any brokerage commissions, transfer
taxes and soliciting dealers' fees) paid by the Related
Person for any share of common stock acquired by it (a)
within the one-year period immediately prior to the first
public announcement of the proposal of the Business
Combination (the "Announcement Date") or (b) in connection
with the tender offer or request or invitation of tenders,
whichever is higher;
9
<PAGE>
(ii) if the Related Person has not made such a tender offer for or
invited or requested the tender of the Corporation's common
stock, two time the highest Fair Market Value per share of
the Corporation's common stock during the one-year period
ending with the Announcement Date.
(b) The consideration to be received by holders of a particular class
of outstanding voting stock shall be in cash or in the same form
as the Related Person has previously paid for shares of such class
of voting stock. If the Related Person has paid for shares of any
class of voting stock with varying forms of consideration, the
form of consideration such class of voting stock shall be either
cash or the form used to acquire the largest number of shares of
such class of voting stock previously acquired by it.
C. For the purpose of this section the following definitions apply:
(1) The term "Related Person" shall mean and include (a) any individual,
corporation, partnership or other person or entity which together with
its "affiliates" (as that term is defined in Rule 12b-2 of the General
Rules and Regulations under the Securities Exchange Act of 1934), is
the "beneficial owner" (as that term is defined in Rule 13d-3 of the
General Rules and Regulations under the Securities Exchange Act of
1934) in the aggregate of 10 percent or more of the outstanding shares
of the common stock of the Corporation; and (b) any "affiliate" (as
that term is defined in Rule 12b-2 under the Securities Exchange Act of
1934) of any such individual, corporation, partnership or other person
or entity. Without limitation, any shares of the common stock of the
Corporation which any Related Person has the right to acquire pursuant
to any agreement, or upon exercise of conversion rights, warrants or
options or otherwise, shall be deemed "beneficially owned" by such
Related Person.
10
<PAGE>
(2) The term "Substantial Part" shall mean more than 25 percent of the
total assets of the Corporation, as of the end of its most recent
fiscal year ending prior to the time the determination is made.
(3) The term "Fair Market Value" shall mean: (a) in the case of stock, the
highest closing sale price during the 30-day period immediately
preceding the date in question if a specific date for valuation thereof
is specified or during the period in question if a period for valuation
thereof is specified of a share of such stock on the Composite Tape for
American Stock Exchange-Listed Stocks, or, if such stock is not quoted
on the Composite Tape, on the America Stock Exchange, or, if such stock
is not listed on such Exchange, on the principal United States
securities exchange registered under the Securities Exchange Act of
1934 on which such stock is listed, or, if such stock is not listed on
any such exchange, the highest closing price or closing bid quotation
with respect to a share of such stock during the 30-day period
preceding such date in question or during such period in question on
the National Association of Securities Dealers, Inc. Automated
Quotation System or any system then in use, or if no such quotations
are available, the fair market value on the date in question of a share
of such stock as determined by the Board of Directors, in good faith;
and (b) in the case of property other than cash or stock, the fair
market value of such property on the date in question as determined by
the Board of Directors in good faith.
(4) In the event of any Business Combination in which the Corporation
survives, the phrase "consideration other than cash to be received" as
used in paragraph (2)(a) of Part B of this Article shall include the
shares of common stock and/or the shares of any other class of
outstanding voting stock retained by the holders of such shares.
D. Nothing contained in this section shall be construed to relieve any
related Party from any fiduciary obligation imposed by law.
E. If any question shall arise as to the applicability of this Article IX or
as to the interpretation of any of its provisions, such question shall be
resolved by the Board of Directors, and the Board's resolution shall be
final and binding.
F. Notwithstanding any other provision of this Certificate of Incorporation
(and notwithstanding the fact that a lesser percentage may be permitted by
law, this Certificate of Incorporation or the by-laws of the Corporation),
the provisions of this Article IX may not be amended, altered, changed or
repealed in any respect, nor may any provision inconsistent herewith be
adopted, unless such action is approved by the affirmative vote of the
holders of at least three-quarters of all of the outstanding shares of
common stock entitled to vote thereon, said vote to take place at an
annual or special meeting of the Corporation's stockholders called for the
purpose of considering such matter.
IN WITNESS WHEREOF, this certificate has been executed by a duly authorized
officer of the Corporation on this 11th day of January, 1985.
HUBCO, Inc.
By:
John T. Clark, President
11
<PAGE>
ARTICLE V
CAPITAL STOCK
The Corporation is authorized to issue
4,224,625 shares of Common Stock, all of
which are without nominal or par value.
6. The share division and the amendment to the Corporation's Certificate of
Incorporation affected by this certificate shall become effective August 1,
1986.
IN WITNESS WHEREOF, this certificate has been executed by a duly authorized
officer of the Corporation this 17th day of July, 1986.
HUBCO, Inc.
By:
John T, Clark, President
12
<PAGE>
AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
HUBCO, INC.
HUBCO, Inc., a New Jersey corporation, does hereby certify as follows:
1. The name of the corporation is: HUBCO, Inc. (the "Corporation").
2. The Corporation is hereby amending its certificate of incorporation as
follows:
(A) The existing "ARTICLE V-CAPITAL STOCK" is deleted in its entirety. In
lieu thereof, the following Article V is added to the certificate of
incorporation:
ARTICLE V
CAPITAL STOCK
The Corporation is authorized to issue 5,200,00 shares of common stock, all
of which are without nominal or par value.
(B) NEW ARTICLE X
A new Article X is added to the Corporation's certificate of incorporation
as follows:
ARTICLE X
LIMITATION ON LIABILITY OF DIRECTORS AND OFFICERS
A director or officer of the Corporation shall not be personally liable to
the Corporation or its shareholders for damages for breach of any duty owed to
the Corporation or its shareholders, except that such provision shall not
relieve a director or officer from liability for ant breach of duty based upon
an act or omission (i) in breach of such person's duty of loyalty to the
Corporation or its shareholders, (ii) not in good faith or involving a knowing
violation of law, or (iii) resulting in receipt by such person of an improper
personal benefit. If the New Jersey Business Corporation Act is amended after
approval by the shareholders of this provision to authorize corporate action
further eliminating or limiting the personal liability of directors officers,
then the liability of a director and/or officer of the Corporation shall be
eliminated or limited to the fullest extent permitted by the New Jersey Business
Corporation Act as so amended.
13
<PAGE>
Any repeal or modification of the foregoing paragraph by the shareholders
of the Corporation or otherwise shall not adversely affect any right or
protection of a director or officer of the Corporation existing at the time of
such repeal or modification.
3. The foregoing amendments were adopted at the annual meeting of
shareholders of HUBCO, Inc. held March 24, 1987.
4. At such annual meeting there were outstanding and entitled to vote
3,552,727 shares of common stock, without nominal or par value.
5. At such annual meeting shareholders cast 2,557,012 votes for, and
120,190 votes against the amendment of Article V and 2,531,799 votes for, and
133,827 votes against the addition of Article X.
6. The amendment to Article V and the addition of Article X were adopted by
a majority of the votes cast by the holders of shares entitled to vote thereon.
IN WITNESS WHEREOF, John T. Clark, President of HUBCO, Inc., has executed
this certificate on behalf of HUBCO, Inc. on this 25th day of March, 1987.
HUBCO, INC.
By:
John T. Clark, President
14
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE CERTIFICATE OF INCORPORATION
OF
HUBCO, INC.
Dated: As of March 27, 1991
Pursuant to the provisions of Section 14A:9-4(3) of the New Jersey Business
Corporation Act, the undersigned corporation hereby certifies as follows:
1. The name of the corporation is HUBCO, Inc. (the "Corporation").
2. The following amendment to the Corporation's Certificate of
Incorporation was approved by the directors of the Corporation and duly adopted
by the shareholders of the Corporation at a meeting duly held on March 26, 1991:
Article V of the Corporation's Certificate of Incorporation is deleted in
its entirety, and following is substituted therefore:
ARTICLE V
CAPITAL STOCK
(A) The total authorized capital stock of the Corporation shall be
6,700,000 shares, consisting of 5,200,000 shares of Common Stock and 1,500,000
shares of preferred Stock which may be issued in one or more classes or series.
The shares of Common Stock shall constitute a single class and shall be without
nominal or par value. The shares of Preferred Stock of each class of series
shall be without nominal or par value, except that the amendment authorizing the
initial issuance of any class or series, adopted by the Board of Directors as
provided herein, may provide that shares of any class or series shall have a
specified par value per share, in which event all of the shares of such class or
series shall have the par value per share so specified.
(B) The Board of Directors of the Corporation is expressly authorized from
time to time to adopt and to cause to be executed and filed without further
approval of the shareholders amendments to this Certificate of Incorporation
authorizing the issuance of one or more classes or series of Preferred Stock for
such consideration as the Board of Directors may fix. In an amendment
authorizing any class or series of Preferred Stock, the Board of Directors is
expressly authorized to determine:
15
<PAGE>
(a) The distinctive designation of the class or series and the number
of shares which will constitute the class or series, which number may be
increased or decreased (but not below the number of shares then outstanding
in that class or above the total shares authorized herein) from time to
time by action of the Board of Directors.
(b) The dividend rate of the shares of the class or series, whether
dividends will be cumulative, and, if so, from what date or dates;
(c) The price or prices at which, and the terms and conditions on
which, the shares of the class or series may be redeemed at the option of
the Corporation;
(d) Whether or not the shares of the class or series will be entitled
to the benefit of a retirement of sinking fund to be applied to the
purchase or redemption of such shares and, if so entitled, the amount of
such fund and the terms and provisions relative to the operation thereof;
(e) Whether or not the shares of the class or series will be
convertible into, or exchangeable for, any other shares of stock of the
Corporation or other securities, and if so convertible or exchangeable, the
conversion price or prices, or the rates of exchange, and any adjustments
thereof, at which such conversion or exchange may be made, and any other
terms and conditions of such conversion or exchange;
(f) The rights of the shares of the class or series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation;
(g) Whether or not the shares of the class or series will have
priority over, parity with, or be junior to the shares of any other class
or series in any respect, whether or not the shares of the class or series
will be entitled to the benefit of limitations restricting the issuance of
shares of any other class or series having priority over or on parity with
the shares of such class or series and whether or not the shares of the
class or series are entitled to restrictions on the payment of dividends
on, the making of other distributions in respect of, and the purchase or
redemption of shares of any other class or series of Preferred Stock or
Common Stock ranking junior to the shares of the class or series;
(h) Whether the class or series will have voting rights,, in addition
to any voting rights provided by law, and if so, the terms of such voting
rights; and
(i) Any other preferences, qualifications, privileges, options and
other relative or special rights and limitations of that class or series.
3. 4,083,828 shares of the Corporation's common stock were entitled to vote
on the amendment. 2,286,958 shares were voted in favor of the amendment and
636,102 shares were vote against the amendment.
IN WITNESS WHEREOF the undersigned has caused this certificate to be
executed by its duly qualified officer as of the date and year first written
above.
HUBCO, INC.
By:
Kenneth Neilson, President
16
<PAGE>
AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
HUBCO, INC.
Hubco, Inc., a New Jersey corporation, pursuant to N.J.S.A. 14A:7-15.1,
does hereby certify as follows:
(a) The name of the corporation is: Hubco, Inc. (the "Corporation").
(b) A ten percent (10%) stock split was declared by the Corporation on
October 29, 1991 pursuant to which one share of Common Stock, no par value, will
be distributed for each 10 shares of Common Stock, no par value, held by
shareholders on the record date of November 6, 1991, effective November 15,
1991. A resolution approving the share division was adopted by the Board of
directors of the Corporation at its regular meeting held on the 29th day of
October, 1991.
(c) The share division will not adversely affect the rights or preferences
of the holders of outstanding shares and will not result in the percentage of
authorized shares that remains unissued after the share division exceeding the
percentage of authorized shares that was unissued before the share division.
(d) There were issued and outstanding as of the record date of November 6,
1991, 4,120,078 shares of Common Stock without par value which are shares
subject to the share division. As a result of the share division, in which one
share will be issued for every 10 shares issued and outstanding, those 4,120,078
shares will be divided into 4,532,086 shares issued and outstanding.
(e) The Corporation is hereby amending its certificate of incorporation in
connection with the share division to increase the authorized common stock, as
follows:
The existing "Article V(A)" is deleted in its entirety. In lieu thereof,
the following Article V(A) is added to the certificate of incorporation:
(A) The total authorized capital stock of the Corporation shall be
7,220,000 shares, consisting of 5,720,000 shares of Common Stock and
1,500,000 shares of Preferred Stock which may be issued in one or more
classes or series. The shares of Preferred Stock of each class of series
shall be without nominal or par value, except that the amendment
authorizing the initial issuance of any class or series, adopted by the
Board of Directors as provided herein, may provided that shares of any
class or series shall have a specified par value per share, in which event
all of the shares of such class or series shall have the par value per
share so specified.
IN WITNESS WHEREOF, Kenneth T. Neilson, President of Hubco, Inc., has
executed this certificate on behalf of Hubco, Inc. on this 26th day of November,
1991.
HUBCO, INC.
By:
Kenneth T. Neilson, President
17
<PAGE>
AMENDMENT TO THE
CERTIFICATE OF INCORPORATION
OF
HUBCO, INC.
HUBCO, Inc., a New Jersey corporation, does hereby certify as follows:
1. The name of the corporation is: HUBCO, Inc. (the "Corporation").
2. The Corporation is hereby amending its certificate of incorporation as
follows:
Paragraph A of Article V is deleted in its entirety, and in place therefore
the following is substituted:
"(A) The total authorized capital stock of the Corporation shall be
15,000,000 shares, consisting of 12,000,000 shares of Common Stock and
3,000,000 shares of Preferred Stock which may be issued in one or more
classes or series. The shares of Common Stock shall constitute a single
class and shall be without nominal or par value, except that the amendment
authorizing the initial issuance of any class or series, adopted by the
Board of Directors as provided herein, may provide that shares of any class
or series shall have a specific par value per share, in which event all of
the shares of such class or series shall have the par value per share so
specified."
3. The foregoing amendment was adopted at the annual meeting of
shareholders of the Corporation held March 24, 1992.
4. At such annual meeting there were outstanding and entitled to vote
4,531,492 shares of common stock, without nominal or par value.
5. At such annual meeting shareholders cast 2,747,095 votes for, and
411,302 votes against the amendment to Article V.
6. The amendment to Article V was adopted by a majority of the votes cast
by the holders of shares entitled to vote thereon.
IN WITNESS WHEREOF, Kenneth T. Neilson, President of the Corporation, has
executed this certificate on behalf of the Corporation on this 25th day of
March, 1992.
HUBCO, INC.
By
Kenneth T. Neilson, President
18
<PAGE>
AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
HUBCO, INC.
HUBCO, Inc. a New Jersey Corporation, pursuant to N.J.S.A. 14A:7-15.1, does
hereby certify as follows:
(a) The name of the Corporation is: HUBCO, Inc. (The "Corporation").
(b) A ten percent (10%) stock split was declared by the Corporation on
April 20, 1993, pursuant to which one share of common stock, no par value, will
be distributed for each 10 shares of common stock, no par value, held by
shareholders on the record date of May 11, 1993, effective June 1, 1993. A
resolution approving the share division was adopted by the Board of Directors of
the Corporation at its regular meeting held on the 20th day of April, 1993.
(c) The share division will not adversely affect the rights or preferences
of the holders of outstanding shares and will not result in the percentage of
authorized shares that remains unissued after the share division excluding the
percentage of authorized shares that was unissued before the share division.
(d) That there were issued and outstanding as of the record date of May 1,
1993, 6,286,342 shares of common stock without par value which are the shares
subject to the share division. As a result of the share division, in which one
share will be issued for every 10 shares issued and outstanding, those 6,286,342
shares will be divided into 6,914,353 shares issued and outstanding.
(e) The Corporation is hereby amending its Certificate of Incorporation in
connection with the share division to increase the authorized common stock and
the authorized preferred stock as follows:
The existing "Article V(A)" is deleted in its entirety. In lieu
thereof, the following Article V(A) is added to the Certification of
Incorporation:
"(A) The total authorized capital stock of the Corporation shall be
16,500,000 shares, consisting of 13,200,000 shares of common stock and
3,300,000 shares of Preferred Stock which may be issued in one or more
classes or series. The shares of common stock shall constitute a single
class and shall be without nominal or par value, except that the amendment
authorizing the initial issuance of any class or series, adopted by the
Board of Directors, as provided herein, may provide that shares of any
class or series shall have a specific par value per share, in which event
all of the shares of such class of series shall have the par value so
specified."
In Witness Whereof, Kenneth T. Neilson, President of HUBCO, Inc. has
executed this Certificate on behalf of HUBCO, Inc. on this 17th day of May,
1993.
HUBCO, Inc.
By:
Kenneth T. Neilson, President
19
<PAGE>
AMENDMENT TO THE
CERTIFICATE OF INCORPORATION
OF HUBCO, INC.
HUBCO, Inc. a New Jersey Corporation, pursuant to N.J.S.A. 14:7-15.1, does
hereby certify as follows:
(a) The name of the Corporation is: HUBCO, Inc. ("The Corporation").
(b) A fifty percent (50) common stock split was declared by the Corporation
on October 13, 1994, pursuant to which one share of common stock, no par value,
will be distributed for each 2 shares of common stock, no par value, held by
shareholders on the record date of January 3, 1995, effect January 14, 1995. A
resolution approving the share division was adopted by the Board of Directors of
the Corporation at its regular meeting held on the 13th day of October, 1994.
(c) The share division will not adversely affect the rights or preferences
of the holders of outstanding shares and will not result in the percentage of
authoized shares that remains unissued after the share division excluding the
percentage of authorized shares that was unissued before the share division.
(d) That there were issued and outstanding as of the record date of January
3, 1995, 7,053,457 shares of common stock without par value which are the shares
subject to the share division. As a result of the share division, in which one
share will be issued for every two (2) shares issued and outstanding, those
7,053,457 shares will be divided into 10,580,185 shares issued and outstanding.
(e) The Corporation is hreby amending its Certificate of Incorporation in
connection with the share division to increase the authorized common stock and
the authorized preferred stock as follows:
The existing "Article V(A)" is deleted in its entirety. In lieu
thereof, the following Article V(A) is added to the Certificate of
Incorporation.
"(A) The total authorized stock of the Corporation shall be 23,100,000
shares, consisting of 19,800,000 shares of common stock and 3,300,000
shares of Preferred Stock--which may be issued in one or more classes or
series. The shares of common stock shall constitute a single class and
shall be without nominal or par value, except that the amendment
authorizing the initial issuance of any class or series adopted by the
Board of Directors, as provided herein, may provide that shares of any
class or series shall have a specific par value per share, in which event
all of the shares of such class or series shall have the par value so
specified."
In Witness Whereof, Kenneth T. Neilson, President of HUBCO, Inc. has
executed this Certificate on behalf of HUBCO, Inc. on this 4th day of January,
1995.
HUBCO, INC.
By: /s/ KENNETH T. NEILSON
--------------------------------------
Kenneth T. Neilson, President & C.E.O.
20
<PAGE>
AMENDMENT OF THE
CERTIFICATE OF INCORPORATION
OF
HUBCO, INC.
Dated as of June 1, 1995
Pursuant to the provisions of NJSA 14A:9-4(3), the undersigned corporation
hereby certifies as follows:
1. The name of the Corporation is HUBCO, Inc. (the "Corporation").
2. The following amendment to the Corporation's Certificate of Incorporation was
approved by the Directors of the Corporation and duly adopted by the
shareholders of the Corporation at a meeting duly held on June 1, 1995:
Paragraph (A) of Article V of the Corporation's Certificate of Incorporation
is deleted in its entirety, and the following is substituted therefore:
"(A) The total authorized stock of the Corporation shall be 29,500,000
shares, consisting of 25,000,000 shares of common stock and 4,500,000 shares
of Preferred Stock which may be issued in one or more classes or series. The
shares of common stock shall constitute a single class and shall be without
nominal or par value, except that the amendment authorizing the initial
issuance of any class or series adopted by the Board of Directors, as
provided herein, may provide that shares of any class or series shall have a
specific par value per share, in which event all of the shares of such class
or series shall have the par value so specified."
3. 10,075,984 shares were entitled to vote on the amendment, 5,890,559 were
voted in favor of the amendment and 594,947 shares were voted against the
amendment.
IN WITNESS WHEREOF, the undersigned has caused the Certificate to be
executed by its duly qualified officers as of the date and year first written
above.
ATTESTED: HUBCO, INC.
- ------------------------- --------------------------
D. Lynn Van Borkulo-Nuzzo, Kenneth T. Neilson,
Executive Vice President President & C.E.O.
and Corporate Secretary
21
HUBCO, Inc.
Union City, New Jersey
REVISED BYLAWS
Adopted by the Board of Directors
March 14, 1995
ARTICLE I -- SHAREHOLDERS MEETINGS
1. ANNUAL MEETING -- The Annual Meeting of Shareholders for the election of
directors and such other business as may properly come before the meeting
shall be held within 30 days of March 31st (either before or after) on such
date, time and at such place each year as may be set by vote of the Board.
The meeting shall be held upon not less than ten nor more than 60 days
written notice of the date, time, place and purpose of the meeting.
2. SPECIAL MEETINGS -- A special meeting of shareholders may be called for any
purpose by the Chairman of the Board, the President or the Board of
Directors. A special meeting shall be held upon not less than ten nor more
than sixty day written notice of the time, place and purposes of the meeting.
3. ACTION WITHOUT MEETING -- The shareholders may act without meeting by written
consent or consents pursuant to N.J.S. 14A:5-6. Such written consent or
consents shall be filed in the minute book.
4. QUORUM -- A majority of the outstanding common stock represented in person or
by proxy shall constitute a quorum at any meeting of shareholders. Less than
a quorum may adjourn any meeting, and the meeting may be held, as adjourned
without further notice.
5. SHAREHOLDER ACTION -- A majority of the votes cash shall decide every
question or matter submitted to the shareholders at any meeting, unless
otherwise provided by law or by the certificate of incorporation.
6. RECORD DATE -- The Board of Directors shall fix a record date for each
meeting of shareholders and for other corporate action for purposes of
determining the shareholders of the Corporation who are entitled to: (i)
notice of or to vote at any meeting of shareholders; (ii) give a written
consent to any action without a meeting: or (iii) receive payment of any
dividend, distribution, or allotment of any right. The record date shall not
be more than sixty days nor less than ten days prior to the shareholders
meeting, or other corporate action or event to which it relates.
<PAGE>
7. MAILING OR DELIVERING NOTICE -- Shareholders shall be under duty to notify
the Secretary of the Corporation of any change in their address. All notices,
dividends or distributions to which a shareholder is entitled shall be mailed
to the most recent address listed for each shareholder on the books of the
Corporation.
8. INSPECTORS OF ELECTION -- Every election of directors shall be managed by an
inspector, who shall be appointed by the Board of Directors. The inspector of
election shall tabulate the proxies and ballots for the election of directors
and, after the election, shall file with the secretary of the meeting a
certificate under their hands, certifying the result thereof and the names of
the directors elected. The inspector of election, at the request of the Board
of Directors or Chairman of the meeting, shall act as tellers of any other
vote by ballot taken at such meeting, and shall certify the result thereof.
9. PROXIES -- Shareholders may vote at any meeting of the shareholders by
proxies duly authorized in writing.
ARTICLE II -- DIRECTORS
1. BOARD OF DIRECTORS -- The Board of Directors (the "Board") shall have power
to manage and administer the business and affairs of the Corporation. Except
as expressly limited by law, all powers of the Corporation shall be vested
and may be exercised by the Board.
2. NUMBER AND TERM OF OFFICE -- The number of directors shall be not less than
five and not more than twenty-five. The exact number shall be determined by
the Board. Directors shall be divided into three classes, as nearly equal in
number as possible. Directors of one of the classes shall be elected by the
shareholders at each annual meeting, and the directors so elected shall hold
office until the third succeeding annual meeting of shareholders and until
their successors shall have been elected and qualified. If the Board changes
the number of directors constituting a full Board, the new number shall be
apportioned as nearly equally as possible among the three classes, provided
that no director's term of office may be shortened by his or her being
reassigned to another class, and provided further that new directors may be
elected to terms shorter than three years if necessary, to keep the classes
of equal or nearly equal size. The Board shall have the right to increase the
number of directors between annual meetings and to fill vacancies so created
and other vacancies occurring for any reason, provided that vacancies caused
by increasing the number of directors shall be apportioned as nearly equally
as possible among the three classes of directors, and provided further that
directors appointed by the Board to fill vacancies occurring for any reason
shall serve only until the next annual meeting of shareholders (and until
their
<PAGE>
successors shall have been elected and qualified) at whic time the balance of
their terms, if any, shall be filled by directors elected by the
shareholders. (revised January 18, 1984).
3. REGULAR MEETINGS -- A regular meeting of the Board shall be held without
notice immediately following and at the same place as the annual
shareholders' meeting for the purpose of electing officers and conducting any
other business as may come before the meeting. The Board shall hold a regular
meeting on the second and fourth Tuesday of each month but any regular
meeting may be held on such other day as the Board by resolution may
designate. Any regular meeting may be omitted entirely. All regular meetings
may be held without notice to any director, except that a forth different or
additional regular meeting dates shall be entitled to notice of those
meetings.
4. SPECIAL MEETINGS -- A special meeting of the Board may be called for any
purpose at any time by the Chairman of the Board, the President or by five
directors. The meeting shall be held upon such notice as is reasonable under
the circumstances, but if the meeting is not called by the Chairman or the
President then upon not less than one day notice if given orally (either by
telephone or in person), or upon not less than two days notice if given by
telegraph or by mail to the business or residence address of each director.
The notice shall specify the time and place of the meeting.
5. ACTION WITHOUT MEETING -- The Board may act without a meeting if, prior or
subsequent to the action, each member of the board shall consent in writing
to the action. The written consent or consent or consents shall be filed in
the minute book.
6. QUORUM -- A majority of the directors shall constitute a quorum at any
meeting, except when otherwise provided by law or these bylaws. However, a
smaller number may adjourn any meeting and the meeting may be held, as
adjourned, without further notice. The act of the majority present at a
meeting at which a quorum is present shall be the act of the Board, unless
otherwise provided by law or these bylaws.
7. VACANCIES IN BOARD OF DIRECTORS -- Any vacancy in the Board, including a
vacancy caused by an increase in the number of directors, may be filled by
the affirmative vote of a majority of the remaining directors.
<PAGE>
ARTICLE III -- COMMITTEES OF THE BOARD
1. EXECUTIVE COMMITTEE -- The Bank's Amended and Integrated Certificate of
Incorporation provides that:
"An Executive Committee of the Board of Directors may be appointed
from time to time by the Board of Directors from among the Directors."
There shall be an Executive Committee of the Board of Directors composed of
seven members to be appointed from time to time by the Board of Directors,
all of whom shall hold office from the time of their appointment until the
first meeting of the Board of Directors following the next annual meeting of
stockholders and until their successors are appointed. Two of such members
shall be the Chairman and the President.
The Executive Committee may make rules and regulations for the transaction of
its business subject to the approval of the Board of Directors.
The Executive Committee shall have all of the powers and be subject to all of
the duties provided by law subject, however to the limitation that the
executive Committee shall act only between meetings of the Board and only on
matters which in the opinion of the Committee should not be deferred for
Board action.
The minutes of each meeting of the Executive Committee shall be presented to
the Board of Directors at its next meeting following such meeting of the
Executive Committee, except as otherwise provided by law.
2. OTHER COMMITTEES -- The Board may appoint, from time to time, other
committees for such purposes and with such powers as the Board may determine.
ARTICLE IV - WAIVERS OF NOTICE
Any notice required by these bylaws, by the certificate of incorporation, or
by the New Jersey Business Corporation Act may be waived in writing by any
person entitled to notice. The waiver, or waivers, may be executed either
before or after the event with respect to which the notice is waived. Each
director or shareholder attending a meeting without protesting, prior to its
conclusion, the lack of proper notice shall be deemed conclusively to have
waived notice of the meeting.
<PAGE>
ARTICLE V -- OFFICERS
1. ELECTION -- At its regular meeting following the annual meeting of
shareholders, the Board shall elect a Chairman, a President, a Treasurer, a
Secretary, and it may elect such other officers as it shall deem necessary.
One person may hold two or more offices.
2. CHAIRMAN OF THE BOARD -- The Board shall appoint one of its members to be
Chairman of the Board to serve at the pleasure of the Board. Such person
shall preside at all meetings of the Board and of the shareholders. The
Chairman of the Board shall supervise the carrying out of the overall
policies and objectives of the Corporation and may exercise such specific
additional powers and duties as from time to time may be assigned by the
Board. In the absence or disability of the President, the Chairman shall
perform his duties.
3. PRESIDENT -- The Board shall appoint one of its members to be President of
the Corporation. In the absence or disability of the Chairman, the President
shall preside at any meeting of the Board unless the Board appoints a
temporary Chairman. Subject to the Authority of the Board, and on matters of
overall policy subject to consultation with the Chairman, the President
shall have general executive powers and shall have and may exercise any and
all other powers and duties pertaining by law or practice to the office of
President. The President shall also have and may exercise such further
powers and duties as from time to time may be conferred or assigned by the
Board. The President shall be an ex-office member, of all Board Committees
to which he is not appointed.
4. VICE PRESIDENT -- The Board may appoint one or more Vice Presidents who
shall perform the duties and have the authority as from time to time may
be delegated to him by the Chairman, the President or by the Board.
5. SECRETARY -- The Board shall appoint a Secretary of the Corporation who
shall be custodian of the corporate seal, records, documents and papers. The
Secretary shall have and may exercise any and a11 other powers and duties
pertaining by law or practice to the office of Secretary and shall also
perform such other duties as may be assigned from time to time by the Board.
6. SECRETARY TO THE BOARD -- The Board shall appoint a Secretary to the Board
who shall be Secretary for meetings of the Board and shall keep accurate
minutes of those meetings.
<PAGE>
7. TREASURER -- The Board shall appoint a Treasurer who shall have the custody
of the funds and securities of the Corporation and shall keep or cause to be
kept regular books of account for the Corporation. The Treasurer shall
perform such other duties and possess such other powers as are incident to
his office or as shall be assigned to him by the President or the Board.
8. OTHER OFFICERS -- The Board may appoint one or more Assistant Vice
Presidents, one or more Assistant Secretaries, one or more Assistant
Treasurers, and such other officers as from time to time may appear to the
Board to be required or desirable to transact the business of the
Corporation. Such officers shall respectively exercise such powers and
perform such duties as pertain to their several offices, or as may be
conferred upon, or assigned to them by the Board, the Chairman of the Board,
or the President.
9. TENURE OF OFFICE -- The Chairman, the President and all other officers shall
hold office at the will of the Board. Any vacancy occurring in the office of
Chairman, President Secretary or Treasurer shall be filled by the Board.
ARTICLE VI -- SHARE CERTIFICATES
The shares of the Corporation shall be represented by certificates signed by
or in the name of the Corporation, by the Chairman of the Board, or the
President or a Vice President, and by the Secretary, Treasurer, Assistant
Secretary or Assistant Treasurer of the Corporation, and may be sealed with
the seal of the Corporation. Any signature and the seal may be reproduced by
facsimile. In case any officer who has signed or whose facsimile signature
has been placed upon such certificate shall have ceased to be such officer
before such certificate is issued, it may be issued by the Corporation with
the same effect as if he were such officer at the date of its issue.
ARTICLE VII -- AMENDMENTS TO AND EFFECT OF BYLAWS: FISCAL YEAR
1. FORCE AND EFFECT OF BYLAWS -- These bylaws are subject to the provisions of
the New Jersey Business Corporation Act and the Corporation's Certificate of
Incorporation, as it may be amended from time to time. If any provision in
these bylaws is inconsistent with provisions of the Act or the Certificate
of Incorporation shall govern.
2. AMENDMENTS TO BYLAWS -- These bylaws may be altered, amended, or repealed by
the shareholders or the Board. Any bylaw adopted, amended, or repealed by
the shareholders may be amended or repealed by the Board, unless the
resolution of the shareholders adopting such bylaw expressly reserves to the
shareholders the right to amend or repeal it.
<PAGE>
3. FISCAL YEAR -- The fiscal year of the Corporation shall begin on the first
day of January each year.
4. RECORDS -- The Certificate of Incorporation, the bylaws, and the proceedings
of all meetings of the shareholders, the Board, and standing committees of
the Board, shall be recorded in appropriate minute books provided for the
purpose. The minutes of each meeting shall be signed by the Secretary or
other officer appointed to act as secretary of the meeting.
5. INSPECTION -- A copy of the bylaws, with all amendment thereto, shall at all
times be kept in a convenient place at the principal place of business of
the Corporation, and for proper purpose shall be open for inspection to any
shareholder during business hours.
AMENDMENT TO
EMPLOYMENT AGREEMENT
Dated as of January 1, 1995
This Agreement dated as of January 1, 1995 (the "Amendment") is among
Hudson United Bank (the "Bank"), HUBCO, Inc. ("HUBCO"), and Kenneth T. Neilson
("Neilson"), and amends the Employment Agreement dated November 7, 1989 (the
"Employment Agreement") among the same parties.
WHEREAS, the parties wish to amend the Employment Agreement,
It Is Hereby agreed as follows:
1. Whenever "Base Salary" is referred to in the Employment Agreement, it shall
be defined as W-2 compensation, which shall include, but not be limited to,
salary, bonuses, restricted stock awards, and other items of taxable income
included on the W-2 issued by HUBCO or the Bank.
2. "Average annual compensation" shall be computed based upon W-2 compensation.
3. Except as set forth herein, the Employment Agreement shall remain in full
force and effect.
IN WITNESS WHEREOF, HUBCO and the Bank have executed this Amendment by
their duly authorized officers and Neilson has executed this Amendment as his
own voluntary act.
HUBCO, INC.
By: -----------------------------------
Kenneth T. Neilson, President & CEO
By: -----------------------------------
James E. Schierloh, Chairman
HUDSON UNITED BANK
By: -----------------------------------
Kenneth T. Neilson, President & CEO
By: -----------------------------------
James E. Schierloh, Chairman
AGREED TO AND ACCEPTED:
- --------------------------------
Kenneth T. Neilson, Employee
AMENDMENT TO
EMPLOYMENT AGREEMENT
DATED AS OF JANUARY 1, 1995
This Agreement dated as of January 1, 1995 (the "Amendment") is among
Hudson United Bank (the "Bank"), HUBCO, Inc. ("HUBCO"), and D. Lynn Van
Borkulo-Nuzzo ("Van Borkulo-Nuzzo"), and amends the Employment Agreement dated
May 24, 1990 (the "Employment Agreement") among the same parties.
WHEREAS, the parties wish to amend the Employment Agreement and to extend
the Term thereof,
It Is Hereby agreed as follows:
1. The term of the Employment shall be extended through December 31, 1998.
2. Whenever "Base Salary" is referred to in the Employment Agreement, it shall
be defined as W-2 compensation, which shall include, but not be limited to,
salary, bonuses, restricted stock awards, and other items of taxable income
included on the W-2 issued by HUBCO or the Bank.
3. "Average annual compensation" shall be computed based upon W-2 compensation.
3. Except as set forth herein, the Employment Agreement shall remain in full
force and effect.
IN WITNESS WHEREOF, HUBCO and the Bank have executed this Amendment by
their duly authorized officers and Van Borkulo-Nuzzo has executed this Amendment
as her own voluntary act.
HUBCO, INC.
/s/ KENNETH T. NEILSON
By: -----------------------------------
Kenneth T. Neilson,
President & C.E.O.
/s/ JAMES E. SCHIERLOH
By: -----------------------------------
James E. Schierloh,
Chairman
HUDSON UNITED BANK
/s/ KENNETH T. NEILSON
By: -----------------------------------
Kenneth T. Neilson,
President & C.E.O.
/s/ JAMES E. SCHIERLOH
By: -----------------------------------
James E. Schierloh,
Chairman
AGREED TO AND ACCEPTED:
/s/ D. LYNN VAN BORKULO-NUZZO
- -----------------------------------
D. Lynn Van Borkulo-Nuzzo, Employee
October 2, 1995
Richard Linhart
209 Burns Lane
Williamsburg, VA 23185
Dear Mr. Linhart:
The Board of Directors of HUBCO, INC. ("Hubco") has determined that it is
in the best interests of Hubco and its subsidiary bank, Hudson United Bank (the
"Bank") for Hubco and the Bank (collectively, the "Corporation") to agree, as
provided herein, to pay you termination compensation in the event you should
leave the employ of the Corporation under the circumstances described below.
The Board recognizes that the continuing possibility of a change of control
(as hereafter defined) of the Corporation is unsettling to you and other senior
executives. Therefore, these arrangements are being made to help assure
continuing dedication by you to your duties to the Corporation notwithstanding
the threat or occurrence of a change of control. The Corporation believes that,
consequently, these arrangements will inure to the benefit of the Corporation.
In particular, the Board believes it important, should the Corporation receive
proposals from third parties with respect to its future, to enable you, without
being influenced by the uncertainties of your own situation, to assess and
advise the Board whether such proposals would be in the best interests of the
Corporation and its shareholders and to take such other action regarding such
proposals as the Board might determine to be appropriate. The Board also wishes
to demonstrate to executives of the Corporation that the Corporation is
concerned with the welfare of its executives and intends to see that loyal
executives are treated fairly.
In view of the foregoing and in further consideration of your continued
employment with the Corporation, the Corporation will promptly pay you as
termination compensation a lump sum amount, without any offset, determined as
provided below, in the event that within two (2) years after any change of
control of the Corporation your employment with the Corporation is terminated by
the Corporation for any reason, other than your death, permanent disability, or
for cause (as hereafter defined). Moreover, you will also be entitled to the
same lump sum termination compensation again without any offset, in the event
within two (2) years after any change of control of the Corporation you resign
from your employment with the Corporation for good reason (as hereafter
defined).
The lump sum compensation so payable shall be equal to one times the
highest annual W-2 compensation which was reported during the three years
preceding your termination or resignation (but in no event may such lump sum,
plus the cost to the Corporation of the benefits provided
<PAGE>
2
below and other vesting benefit accelerations (such as an acceleration in
vesting for restricted stock awards) included in the calculation of parachute
payments, equal or exceed three times your average annual W-2 compensation
during the five years preceding your termination or resignation, all calculated
in accordance with and intended to avoid the penalties for excess parachute
payments under the provisions of Section 280G of the Internal Revenue Code of
1986).
In addition, in the event your employment with the Corporation so
terminates within two (2) years after such a change of control of the
Corporation, then for a one year period following such termination of employment
you will be entitled (at the Corporation's expense) to continue to participate
(under the terms in effect prior to the termination of your employment) in the
benefits offered under the Corporation's medical, hospitalization, life
insurance and disability plans, subject to any limitations on such participation
provided by such plans and provided that you shall not be entitled to continue
such participation beyond your normal retirement date. In the event
participation in any such plan is so limited, the Corporatiion will provide you
during such period with equivalent benefits.
In the event of termination of employment under the circumstances described
above within two (2) years after a change of control, you also shall be entitled
to purchase from the Corporation the automobile then assigned to you by the
Corporation for your use at its then book value determined in accordance with
customary policies.
For the purpose of this agreement, a "change of control" means the
execution by Hubco of any formal agreement relating to (a) any merger or
consolidation, plan of acquisition or plan of exchange of Hubco with or into, or
any sale, lease, exchange, transfer or other disposition outside of the ordinary
course of business of all or substantially all of the assets of Hubco to, any
other person or group of persons acting in concert, except (i) with respect to
any such transaction, a change of control shall not be deemed to have occurred
if the formal agreement is terminated or the transaction is otherwise not
consummated for any reason, (ii) with respect to any merger, consolidation, plan
of acquisition or plan of exchange, a change of control shall not be deemed to
have occurred if following such transaction the persons who were directors of
Hubco immediately prior to entering into such agreement constitute a majority of
the Board of Directors of the surviving public corporation after such
transaction, and (iii) with respect to any such transaction, a change of control
shall not be deemed to have occurred if the transaction was ordered or arranged
by any bank regulatory agency, (b) the acquisition by any person or group of
persons acting in concert of beneficial ownership of 35% or more of any class
voting securities of Hubco; or (c) the acquisition by any person or group of
persons acting in concert, directly or indirectly, through the use of proxies or
otherwise, of the ability to elect or appoint a majority of the Board of
Directors of Hubco with the passage of time. "Person" means any individual,
partnership, firm, corporation, association, trust, unincorporated organization
or other entity, as well as any Group of Persons Acting in Concert. "Group of
Persons Acting in Concert" means a group of persons who (a) knowingly
participate in a joint activity or conscious parallel action towards a common
goal, whether or not pursuant to an express agreement; or (b) combine or pool
voting or other
<PAGE>
3
interests in the securities or an issuer for a common purpose pursuant to any
contract, understanding, relationship, agreement or other arrangement, whether
written or otherwise.
For the purpose of this agreement, you shall have "good reason" to resign
within two (2) years following any change of control if any of the following
occurs without your prior written consent, (i) you are assigned a title,
position, duties or responsibilities inconsistent with your title, position,
duties or responsibilities immediately prior to the change of control; (ii) your
annual base salary is decreased (unless the Corporation is acquired by another
bank or bank holding company and such decrease is consistently applied to all
officers of the acquiring institution as well) or you are not awarded salary
increases or bonuses consistent with the salary increases or bonuses provided to
you before the change in control; (iii) you are deprived of or required to pay
more for any benefits made available to you immediately prior to the change of
control, such as the use of a company owned car, hospital and medical benefit
plans, restricted stock awards, pension benefits or reimbursement for business
expenses (unless any such changes are applied to all officers of the Corporation
generally); or (iv) following your request after a change of control for written
confirmation that the Corporation (or its successor) agrees to perform its
obligations hereunder, the Corporation fails to provide you with such
reassurance within 15 days.
For purposes of this agreement, "cause" shall mean your willful and
repeated significant actions or omissions against the best interests of the
Corporation after written notice to refrain from such action, or conviction for
a crime other than any traffic or parking violation.
This agreement shall terminate on December 31, 1998 unless prior to such
date there has been a change of control. This agreement shall not effect any
rights of the Corporation or you prior to a change of control and prior to any
change of control your employment may be terminated for any reason without
triggering your rights hereunder and following such termination this agreement
shall cease.
You shall not be required to mitigate any payments provided for hereunder
by seeking other employment, nor shall any payment be reduced by any
compensation earned as the result of other employment after the date of
termination. However, with regard to benefits only, the Corporation need not
continue to pay for benefits if you receive substantially similar benefits from
any new employment.
Following any termination of your employment, you shall retain in
confidence any confidential information known to you concerning the Corporation
and its business so long as such information is not publicly disclosed.
This Agreement shall be binding upon and inure to the benefit of you, your
estate and the Corporation and any successor of the Corporation, but neither
this Agreement nor any rights arising hereunder may be assigned or pledged by
you.
For purposes of this Agreement, all references to the Corporation shall
include and refer to both the Corporation and the Bank. This Agreement shall be
construed in accordance with the
<PAGE>
4
laws of the State of New Jersey. If after 30 days' written notice given to
the Corporation identifying any failure of the Corporation to honor any portion
of this agreement, the Corporation fails to pay you the compensation, or provide
you the benefits due under this agreement, you shall be entitled to recover from
the Corporation all of your legal fees and expenses incurred in connection with
the successful enforcement of the terms of this agreement.
If you are in agreement with the foregoing, please so indicate by signing
and returning to Hubco the enclosed copy of this letter, whereupon this letter
shall constitute a binding agreement between you and the Corporation, which may
not be amended, canceled or supplemented except in a writing signed by the
parties hereto.
Very truly yours,
HUBCO, INC.
BY: /s/ KENNETH T. NEILSON
-------------------------------------
Kenneth T. Neilson, President & CEO
BY: /s/ JAMES SCHIERLOH
-------------------------------------
James Schierloh, Chairman
HUDSON UNITED BANK
BY: /s/ KENNETH T. NEILSON
-------------------------------------
Kenneth T. Neilson, President & CEO
BY: /s/ JAMES SCHIERLOH
-------------------------------------
James Schierloh, Chairman
AGREED TO AND ACCEPTED:
/s/ RICHARD LINHART
- -----------------------------------
Richard Linhart
Five Year Summary of Selected Financial Data
<TABLE>
<CAPTION>
In Thousands, Except Per Share Data) 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31
Interest and fee income $ 120,711 $ 103,353 $ 86,550 $ 88,296 $ 76,887
Interest expense 39,609 32,257 27,511 35,361 38,844
Net interest income 81,102 71,096 59,039 52,935 38,043
Provision for possible loan losses 4,200 3,550 4,874 7,432 3,672
Noninterest income 16,844 12,248 10,496 9,434 7,570
Securities gains/(losses) 947 (420) 83 1,283 0
Noninterest expense 60,164 51,050 42,313 46,612 33,017
Income before income taxes 34,529 28,324 22,431 9,608 8,924
Net income 23,684 17,432 13,871 8,971 6,278
Common shares outstanding 13,106 12,355 12,832 12,173 10,222
- ------------------------------------------------------------------------------------------------------------------------------------
Per Common Share
Net income--fully diluted $ 1.79 $ 1.33 $ 1.06 $ 0.76 $ 0.62
Cash dividends declared 0.60 0.36 0.31 0.27 0.22
Book value at year end 9.92 7.83 7.63 7.20 5.98
Average common shares outstanding-fully diluted 13,251 13,098 13,109 11,881 10,177
- ------------------------------------------------------------------------------------------------------------------------------------
At December 31
Securities available for sale $ 300,721 $ 111,604 $ 56,816 $ 15,430 $ --
Securities held to maturity 265,703 562,567 499,479 397,722 198,843
Total loans 853,984 862,384 663,588 666,141 641,949
Total assets 1,613,194 1,709,384 1,363,674 1,233,910 981,297
Deposits 1,425,001 1,491,544 1,213,336 1,111,681 887,425
Long-term debt 25,000 25,000 0 0 763
Total stockholders' equity 129,966 115,551 97,654 87,585 61,154
- ------------------------------------------------------------------------------------------------------------------------------------
Performance Ratios
Net interest margin 5.46% 4.96% 4.99% 4.88% 4.73%
Efficiency ratio 61.7% 54.9% 53.2% 69.6% 67.6%
Return on average assets 1.46% 1.11% 1.07% 0.74% 0.69%
Return on average equity 19.49% 16.57% 14.95% 11.90% 10.66%
- ------------------------------------------------------------------------------------------------------------------------------------
Capital Ratios
Tier 1 leverage ratio 7.56% 6.28% 7.22% 7.38% 6.11%
Total risk-based capital ratio 17.21% 16.71% 14.85% 14.10% 9.58%
</TABLE>
5
<PAGE>
Management's Discussion and Analysis
Acquisition Summary
In April, 1995, Jefferson National Bank was merged with the Company and on June
30, 1995, Urban National Bank was merged with the Company. Both acquisitions
were accounted for on the pooling-of-interests accounting method, and,
therefore, the financial statements for periods prior to the merger have been
restated to include the assets and earnings of these banks. Jefferson was a $90
million bank headquartered in Passaic, New Jersey, that operated 4 branches and
Urban National was a $230 million bank headquartered in Franklin Lakes, New
Jersey, that had 9 branches.
In 1994, the Company completed three acquisitions that were accounted for on the
purchase method of accounting. In May, 1994, the Company purchased four branches
of the Polifly Federal Savings & Loan Association from the Resolution Trust
Company (RTC). These branches held $104 million in deposits in Bergen county. In
July, 1994, the acquisition of Washington Bancorp was consummated. Washington
was a $272 million savings institution serving Hudson and Bergen counties. In
December, 1994, Shoppers Charge Accounts Co. was acquired for $16.3 million in
cash. Shoppers is a private label credit card issuer with approximately $63
million in high yielding credit card receivables at the time of the acquisition.
It serves approximately 258 stores with 498 locations in 35 states. The earnings
from the 1994 acquisitions are included in the Company's consolidated results
only from the dates of acquisition.
In addition, the Company had two pending acquisitions that were consummated in
the first quarter of 1996. Growth Financial, a $125 million asset bank with 3
branch locations in Somerset and Morris counties was acquired on January 12 in a
stock-for-stock transaction and accounted for on the pooling-of-interests
method. On February 29 the Company completed the acquisition of three branches
from CrossLand Federal Savings Bank. The branch deposits acquired total
approximately $61 million and will compliment the Company's current branches in
Bergen and Middlesex counties.
During 1995, the Company continued its strategy of growing earnings, enhancing
shareholder value, and building increased market share through both internal and
external growth. As part of the strategy of external growth through
acquisitions, it is the Company's philosophy that acquisitions must become
accretive to earnings within a very short time frame.
Net Income Summary
In 1995, the Company earned $23.7 million or $1.79 per share. This represents a
35.9% increase over the $17.4 million earned in 1994. On an earnings per share
basis, 1995 increased 34.6% over the $1.33 earnings per share for 1994. The
earnings and earnings per share for 1994 represented a 25% increase over the
$13.9 million or $1.06 per share earned in 1993.
Return on assets for 1995, 1994, and 1993 were 1.46%, 1.11%, and 1.07%,
respectively and return on average equity were 19.49%, 16.57%, and 14.95%. It
should be noted that the return on assets for 1994 and 1993 before restatement
for the poolings had been reported as 1.35% and 1.44% and the return on equity
had been 19.44% and 19.34%. This indicates that the Company acquired banks which
had earned at a much lower rate prior to being acquired and the Company improved
the performance of the acquired banks.
The main component to earnings, the net interest margin, increased to 5.46% in
1995 from 4.96% in 1994. The other two contributing factors to earnings were the
50% increase in noninterest income and the reduction in expenses at the acquired
companies. A more detailed analysis of these components will be discussed later.
Net Interest Income
Net interest income is the difference between the interest earned on
earning assets and the interest paid on deposits and borrowings. The principal
earning assets are the loan portfolio, comprised of commercial loans for
businesses, mortgage loans to
Return on Average Assets
[The following table was represented by a graph in the printed material.]
[INSERT CHART]
Return on Average Equity
[The following table was represented by a graph in the printed material.]
[INSERT CHART]
6
<PAGE>
Average Balances, Net Interest Income, Yields, and Rates
(Dollars in thousands)
<TABLE>
<CAPTION>
1995 1994 1993
------------------------------- ------------------------------- ------------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-bearing
deposits with banks $ -- $ -- $ 4,182 $ 177 4.23% $ 5,275 $ 163 3.09%
Federal funds sold 19,153 1,143 5.97% 25,378 1,066 4.20% 49,092 1,399 2.85%
Securities-taxable 599,005 37,973 6.34% 642,645 38,412 5.98% 449,330 27,535 6.13%
Securities-tax exempt 30,000 1,827 6.09% 43,795 2,354 5.38% 29,880 1,901 6.36%
Loans 850,536 80,503 9.46% 734,371 62,250 8.48% 665,349 56,305 8.46%
---------- -------- ----- ---------- -------- ----- ---------- ------- -----
Total Earning Assets 1,498,693 121,446 8.10% 1,450,371 104,259 7.19% 1,198,926 87,303 7.28%
Cash and due from banks 67,535 70,729 58,393
Allowance for possible
loan losses (16,874) (16,112) (12,595)
Premises and equipment 33,568 27,704 20,347
Other assets 39,889 40,243 31,702
---------- ---------- ----------
Total Assets $1,622,811 $1,572,935 $1,296,773
========== ========== ==========
Taxable-equivalent
adjustment $ 735 $ 906 $ 753
-------- -------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearning
transaction accounts $ 233,000 $ 6,417 2.75% $ 240,002 $ 5,969 2.49% $ 203,118 $ 5,141 2.53%
Savings accounts 475,000 11,606 2.44% 510,517 12,808 2.51% 396,183 10,268 2.59%
Time deposits 442,014 17,534 3.97% 369,222 10,491 2.84% 328,116 11,195 3.41%
---------- -------- ---------- -------- ---------- -------
Total Interest-Bearing
Deposits 1,150,014 35,557 3.09% 1,119,741 29,268 2.61% 927,417 26,604 2.87%
Short-term borrowings 38,736 1,899 4.90% 41,467 1,253 3.02% 34,320 907 2.64%
Long-term debt 25,000 2,153 8.61% 24,110 1,736 7.20% 0 0
---------- -------- ---------- -------- ---------- -------
Total Interest-Bearing
Liabilities 1,213,750 39,609 3.26% 1,185,318 32,257 2.72% 961,737 27,511 2.86%
-------- -------- -------
Demand deposits 275,915 273,491 232,746
Other liabilities 11,621 8,808 9,504
Stockholders' equity 121,525 105,318 92,786
---------- ---------- ----------
Total Liabilities and
Stockholders' Equity $1,622,811 $1,572,935 $1,296,773
========== ========== ==========
Net Interest Income $ 81,837 $ 72,002 $59,792
======== ======== =======
Net Interest Margin 5.46% 4.96% 4.99%
===== ===== =====
</TABLE>
- --------------------------------------------------------------------------------
businesses and individuals, consumer loans (such as car loans, home equity
loans, etc.) and credit card loans, along with the investment portfolio. The
investment portfolio represents the liquidity of the Company. Deposits and
borrowings not required to fund loans or other assets are invested primarily in
government and government agency securities.
Net interest income is affected by a number of factors including the level,
pricing, and maturity of earning assets and interest-bearing liabilities,
interest rate fluctuations, asset quality, and the amount of noninterest-bearing
deposits and capital. In the following discussion, interest income is presented
on a fully taxable-equivalent basis ("FTE"). Fully taxable-equivalent interest
income restates reported interest income on tax-exempt loans and securities as
if such interest were taxed at the statutory Federal income tax rate of 35% in
1995 and 1994 and 34% in 1993.
In 1995, net interest income on a FTE basis was $81.8 million, a 13.6% increase
over the $72.0 million for 1994. The $72.0 million for 1994 increased 20.4% over
1993. Explanations for the changes in net interest income between years is
divided into two components. One is the change in the balances of earning assets
and interest-bearing liabilities, or the change due to "Volume". The second
component of the change is the yield/rate on these balances. Yield/rate changes
are attributable to either the Company changing rates from time-to-time or to
changes due to the general level of interest rates.
As indicated by the table, Changes in Taxable Equivalent Net Interest Income,
the increase in net interest income between 1995 and 1994 was due to the
increase in the volume of earning assets and due to rates.
- --------------------------------------------------------------------------------
7
<PAGE>
Changes in Taxable Equivalent Net Interest Income--Rate/Volume Analysis
<TABLE>
<CAPTION>
Increase/(Decrease) Increase/(Decrease)
------------------------------------ ------------------------------------
1995 over 1994 1994 over 1993
------------------------------------ ------------------------------------
(Dollars in thousands) Volume Rate Total Volume Rate Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest and fee income:
Loans $ 10,543 $ 7,710 $ 18,253 $ 5,851 $ 94 $ 5,945
Securities-taxable (2,692) 2,253 (439) 11,571 (694) 10,877
Securities-tax exempt (811) 284 (527) 782 (329) 453
Federal funds sold (302) 379 77 (837) 504 (333)
Interest bearing deposits (177) 0 (177) (38) 52 14
------------------------------------ ------------------------------------
Total interest and fee income 6,561 10,626 17,187 17,328 (372) 16,956
------------------------------------ ------------------------------------
Interest expense:
Interest bearing transaction accounts (178) 626 448 919 (91) 828
Savings (874) (328) (1,202) 2,878 (338) 2,540
Time deposits 2,341 4,702 7,043 1,302 (2,006) (704)
Short-term borrowings (87) 733 646 205 141 346
Long-term debt 66 351 417 1,736 0 1,736
------------------------------------ ------------------------------------
Total interest expense 1,267 6,085 7,352 7,040 (2,294) 4,746
------------------------------------ ------------------------------------
Net Interest Income $ 5,294 $ 4,541 $ 9,835 $ 10,288 $ 1,922 $ 12,210
==================================== ====================================
</TABLE>
The growth in net interest income was realized predominately through
acquisitions, primarily Shoppers Charge Accounts Co. in December 1994 and
Washington and Polify in mid-1994. As the table also shows, the change in net
interest income due to rate changes was positive in both periods. This is
significant in that the acquired companies offered higher rates on deposit
products than the Company. Upon acquisition, the Company's rate structure was
implemented. This sometimes causes run-off in time deposits, particularly when a
savings bank is acquired. In addition, interest rates were at their lowest level
in 25 years at the end of 1993 and then rates increased during 1994. Rates
declined somewhat in 1995 but remain well above the December 1993 level. Despite
these movements in interest rates and the acquisitions of banks with a higher
rate structure, the Company was able to manage rate volatility with only minor
effects on net interest income.
Net Interest Margin
The net interest margin is computed by dividing net interest income on a FTE
basis by average earning assets. The Company's net interest margin was 5.46%,
4.96%, and 4.99% for 1995, 1994, and 1993, respectively. The yield on earning
assets increased 91 basis points in 1995 over 1994. The rising interest rates
and the addition of the credit card receivables from Shoppers were the
contributing factors along with a lower level of nonperforming assets. The cost
of interest-bearing deposits increased 48 basis points during this same period
resulting in a significantly improved net interest margin. By comparison,
between 1994 and 1993, the increase in net interest income was due predominately
to growth in earning assets and a reduction in rates at the acquired
institutions which resulted in a positive impact on the net interest margin.
The Company focuses on the cost side of the net interest margin resulting in a
modest change in the cost of interest-bearing liabilities during a rising rate
period.
The Company's average cost of all deposits for 1995 was 2.49%, very modest by
bank comparisons. Approximately 42% of the Company's deposits are in transaction
accounts, another 30% in savings accounts, and only 28% of its deposits are in
the higher cost certificates of deposit based accounts at year-end 1995.
The Company also has a very conservative philosophy in managing its securities
portfolio. Most of the securities are either U.S. Treasury or U.S. Government
Agency securities. Maturities are generally less than 5 years to final maturity.
The weighted average life of the portfolio is three and one-half years. The
Company does not invest in exotic securities or derivatives. The mortgage-backed
securities are agency obligations with monthly principal and interest payments.
- --------------------------------------------------------------------------------
8
<PAGE>
Provision and Allowance for Loan Losses
Management determines the provision and adequacy of the allowance for loan
losses based on a number of factors including an in-house loan review program
conducted throughout the year. The loan portfolio is reviewed to identify
potential problem loans, credit concentrations, and other risk factors such as
current and projected economic conditions locally or nationally. General
economic trends can greatly affect loan losses and there are no assurances that
future charges to the loan loss allowance may not be significant in relation to
the amount provided during a particular period. Management does, however,
consider the allowance for loan losses to be adequate for the reporting periods
based on evaluation and analysis of the loan portfolio. The accompanying tables
reflect the three-year history of charge-offs and the allocation of the
allowance by loan category.
The provision for loan losses was $4.2 million for 1995 compared with $3.6
million and $4.9 million in 1994 and 1993, respectively. The allowance for loan
losses as a percentage of loans outstanding for the last three years was 1.99%,
1.92%, and 2.13%.
The following is a summary of the activity in the Allowance for Loan Losses, by
loan category:
Allowance for Loan Losses
<TABLE>
<CAPTION>
Year ended December 31,
(Dollars in thousands) 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Amount of Loans Outstanding at End of Year $853,984 $862,384 $663,588
======== ======== ========
Daily Average Amount of Loans Outstanding $850,536 $734,371 $665,349
======== ======== ========
Allowance for Loan Losses
Balance at beginning of year $ 16,559 $ 14,109 $ 11,354
Loans charged off:
Real estate mortgages 1,011 5,833 860
Commercial 3,037 653 1,563
Consumer 1,200 324 650
-------- -------- --------
Total loans charged off 5,248 6,810 3,073
-------- -------- --------
Recoveries:
Real estate mortgages 668 129 120
Commercial 300 660 197
Consumer 472 204 237
-------- -------- --------
Total recoveries 1,440 993 554
-------- -------- --------
Net loans charged off 3,808 5,817 2,519
-------- -------- --------
Allowance of acquired companies 0 4,717 400
Provision for loan losses 4,200 3,550 4,874
-------- -------- --------
Balance at end of year $ 16,951 $ 16,559 $ 14,109
======== ======== ========
Allowance for loan losses as a percentage of
loans outstanding at year end 1.99% 1.92% 2.13%
Net charge offs as a percentage of average
loans outstanding 0.45% 0.79% 0.38%
======== ======== ========
</TABLE>
The following is the allocation of the Allowance for Loan Losses, by loan
category:
Allocation of the Allowance for Loan Losses
<TABLE>
<CAPTION>
December 31,
1995 1994 1993
----------------------- ----------------------- -------------------------
Category Category Category
Percent Percent Percent
(Dollars in thousands) Allowance of Loans Allowance of Loans Allowance of Loans
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Real estate mortgages $ 3,898 49.6% $ 2,766 53.3% $ 2,273 48.8%
Commercial and industrial 5,762 29.9% 7,570 24.5% 9,080 30.2%
Consumer 1,515 20.5% 2,013 22.2% 1,276 21.0%
Unallocated 5,776 4,210 1,480
----------------------- ----------------------- -------------------------
Total $16,951 100.0% $16,559 100.0% $14,109 100.0%
======================= ======================= =========================
</TABLE>
- --------------------------------------------------------------------------------
9
<PAGE>
The allowance for loan losses as a percentage of nonperforming loans for the
last three years was 104%, 82%, and 81% representing an improving coverage of
problem loans.
Noninterest Income
Noninterest income, excluding securities gains or losses, was $16.8 million for
1995, a 38% increase over 1994. Noninterest income for 1994 was $12.2 million, a
16.2% increase over 1993. The significant growth reported by the Company for
1995 is a result of a strategic initiative to add new fee based products and
services along with several nonrecurring items. Excluding the nonrecurring
items, noninterest income increased 18%. Service charges on deposit accounts
decreased 6.5% as a result of the competitive environment, whereas fees for
other services increased 28.9%, and Trust department fee income increased 20.7%.
New services, such as International Services generated $.4 million of fee income
and fees from Shoppers Charge Accounts added $2.5 million of fee income.
Included in noninterest income for 1995 are one-time receipts of $2.4 million of
which $1.6 million represents the collection of a legal claim arising from the
Urban National acquisition and $.8 million arises from the sale of a 50%
interest in the Company's data processing subsidiary to another financial
institution. This joint venture will reduce future data processing costs and
will spread the cost of future technology investments.
The Company realized $.9 million in securities gains in 1995 compared with $.4
million of losses in 1994 and a very modest security gain in 1993. Of the 1995
gain $.6 million occurred in the first half of the year when two financial
institutions which the Company held positions in were acquired. In the fourth
quarter, however, with the FAS #115 window to realign the held-to-maturity and
available for sale portfolios without accounting penalty, the Company sold
nearly 300 small security issues that had been acquired through acquisitions
over the past two years. The proceeds were reinvested in several larger
securities with similar maturities and a large portion of the portfolio was
allocated to available for sale. This will allow the Company to better manage
the investment portfolio.
Noninterest Expenses
Noninterest expense increased 17.8% or $9.1 million to $60.2 million in 1995
from $51.1 million for 1994. The $51.1 million noninterest expense for 1994
increased over 1993 by $8.8 million. Comparability between 1995 and 1994 and
between 1994 and 1993 is impacted by purchased acquisitions (Polify, Washington
and Shoppers during 1994 and Pilgrim in 1993). As indicated earlier, the
Jefferson and Urban acquisitions were accounted for as poolings and, therefore,
all periods presented have been restated although expense structures are
different after acquisition than they were before.
Salary expense for each of the last three years was $21.7, $18.5, and $16.2
million. Although the growth in salary expense from 1993 to 1995 is $5.5
million, salary expense of the last four acquisitions has been reduced from
$10.3 million pre-acquisition to $4.6 million post acquisition, or a reduction
of $5.7 million. Staffing has been reduced from 375 full time equivalent
employees at the time of acquisition to 215 currently. Thus, salary expense has
increased only $.9 million (5.6%) between 1993 and 1995, exclusive of the
effects of acquisitions.
Occupancy expense amounted to $5.7 million, $5.3 million, and $4.2 million for
1995, 1994, and 1993, respectively. The increase from 1993 to 1994 was due to
the acquisitions and the relocation to new corporate headquarters. The increase
in occupancy expense from 1994 to 1995 is primarily attributable to Shoppers
Charge occupancy costs at its original headquarters, where the last rental
payment was December, 1995. Equipment expense amounted to $2.6 million, $3.0
million, and $3.2 million in 1995, 1994 and 1993, respectively. There were no
significant changes in expense during this period other than from acquisitions.
OREO expense for the three year period has declined from $1.7 million in 1993,
to $1.2 million in 1994, and to $.3 million in 1995. The decline is due to the
disposition and decline in the amount of OREO assets.
Outside services expense has increased from $3.9 million in 1993 to $4.2 million
in 1994 and to $5.7 million for 1995. The increase between 1993 and 1994 is
primarily due to the costs associated with the issuance and registration of the
subordinated debentures and preferred stock. Of the $1.5 million increase from
1994 to 1995, marketing and advertising increased $.5 million, stationery and
supplies increased $.2 million, loan origination costs increased $.2 million,
and external professional fees increased $.6 million. These increases are
primarily due to the growth of the Company.
The increase in the amortization of intangibles from 1994 to 1995 is
attributable to the full year amortization applicable to the 1994 acquisitions.
Other expenses amounted to $9.5 million, $6.5 million, and $5.0 million for
1995, 1994, and 1993, respectively. Of the $3.0 million increase from 1994 to
1995, $2.7 million is attributable to acquisition costs which includes printing,
legal, accounting, mailing costs, conversion costs, consulting fees, and other
like costs associated with the acquisitions. The increase from 1993 to 1994 of
$1.5 million is attributable to $.8 million of acquisition costs, and increases
in postage and communication costs as a result of the growth in the Company.
Federal Income Taxes
The income tax provision for Federal and state taxes approximates 31% for 1995
and 38% for 1994 and 1993. The reduction in the overall rate in 1995 is due to
the reversal of a tax reserve no longer deemed necessary primarily as a result
of an IRS settlement during the second quarter which covered the tax years 1991,
1992, and 1993.
- --------------------------------------------------------------------------------
10
<PAGE>
Financial Condition
Total assets at December 31, 1995, decreased to $1.6 billion primarily due to a
reduction in deposits and short-term borrowings. The reduction in deposits
occurred in the higher cost time deposit products. Due to soft loan demand and a
strong liquidity position, the Company did not aggressively price time deposits.
At the same time, noninterest-bearing transaction accounts increased $32 million
from the end of 1994 to the end of 1995.
The Company is in a strong financial condition in terms of liquidity and
capital. At the end of 1995, the Company had $46.7 million in Federal funds sold
and $566 million in the securities portfolio that is available to meet future
loan demand. With the FAS #115 window, the Company moved securities
from the Held to Maturity to the Available for Sale category. When all
proceeds are reinvested approximately 60% of the security portfolio will be in
the Available for Sale category and 40% in the Held to Maturity category. This
will enable management to more effectively manage liquidity, the portfolio, and
the net interest margin.
Capital increased from 1994 to 1995 by $14.4 million to $130 million. Net income
less dividends paid to stockholders added $16 million to capital, the
mark-to-market of the securities in the available for sale portfolio changed
from a $3.0 million loss to a $2.4 gain which added $5.4 million to capital, and
the redemption of preferred stock utilizing cash and stock reduced capital by
$7.5 million. The accounting for restricted stock increased capital $.5 million.
At the end of 1995, the Tier 1 Leverage ratio was 7.56%.
Securities Held to Maturity and Securities Available for Sale
The securities portfolios primarily serve as an adjunct to the management of
interest rate risk and as a source of liquidity. Consequently, the portfolios
are managed over time as financial market conditions and loan demand conditions
change. In 1993, with the adoption of FAS #115, the Company had approximately
17% of the portfolio in Available for Sale ("AFS") and 83% in Held to Maturity
("HTM"). After a year of experience and with the FAS #115 "window" to reclassify
securities within the portfolio, the Company realigned the portfolio to
approximately 60% in the AFS portfolio and 40% in the HTM portfolio.
At December 31, 1995, 1994, and 1993, the portfolios comprised 35%, 39%, and 41%
of the total assets of the Company. The amount of securities as a percentage of
earning assets is a function of the amount of loans. The Company does not have a
policy with respect to the size of the portfolio.
The Company's philosophy with respect to managing the portfolio is to purchase
primarily government and agency securities with maturities laddered over a five
year period. As mentioned previously, the Company sold approximately 300
individual small holdings in December, 1995, and reinvested in 3 new purchases,
realizing a gain of $.3 million. The purpose was to decrease the number of small
securities in the portfolio.
The following table summarizes the composition of the portfolios as of December
31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
----------------------------------------------- ----------------------------------------------
Estimated Estimated
Amortized Gross Unrealized Market Amortized Gross Unrealized Market
---------------- ----------------
Cost Gains (Losses) Value Cost Gains (Losses) Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Held to Maturity
Portfolio
U. S. Government $ 95,521 $ 2,438 $ (18) $ 97,941 $ 248,926 $ 4 $ (7,022) $ 241,908
U.S. Government
Agencies 170,182 1,939 (1,160) 170,961 273,529 35 (17,739) 255,825
States and Political
Subdivisions 0 0 0 0 33,986 58 (631) 33,413
Other securities 0 0 0 0 6,126 20 (202) 5,944
----------------------------------------------- -----------------------------------------------
$ 265,703 $ 4,377 $ (1,178) $ 268,902 $ 562,567 $ 117 $ (25,594) $ 537,090
=============================================== ===============================================
Available for Sale
Portfolio
U. S. Government $ 144,496 $ 1,662 $ (402) $ 145,756 $ 51,455 $ 11 $ (935) $ 50,531
U.S. Government
Agencies 126,626 723 (819) 126,530 53,480 0 (3,411) 50,069
States and Political
Subdivisions 9,217 29 (10) 9,236 580 0 (2) 578
Other securities 16,505 2,959 (265) 19,199 9,278 1,271 (123) 10,426
----------------------------------------------- -----------------------------------------------
$ 296,844 $ 5,373 $ (1,496) $ 300,721 $ 114,793 $ 1,282 $ (4,471) $ 111,604
=============================================== ===============================================
</TABLE>
- --------------------------------------------------------------------------------
11
<PAGE>
Loan Portfolio.
Distribution of Loans by Category
December 31,
(Dollars in thousands) 1995 1994 1993
- --------------------------------------------------------------------------------
Loans secured by real estate:
Residential mortgage
loans-fixed $118,719 $154,499 $139,509
Residential mortgage
loans-variable 144,450 155,266 67,842
Residential home
equity loans 45,690 57,706 62,452
Construction loans 15,082 9,804 8,075
Commercial mortgage
loans 161,145 137,832 108,036
------------------------------------
485,086 515,107 385,914
------------------------------------
Commercial and
industrial loans:
Secured by real estate 115,533 123,861 60,260
Other 115,518 83,694 154,116
------------------------------------
231,051 207,555 214,376
------------------------------------
Shoppers Charge
credit cards 57,915 67,577 0
Other loans to individuals
for household,family
and other personal
expenditures 79,932 72,145 63,298
------------------------------------
Total Loan Portfolio $853,984 $862,384 $663,588
====================================
Overall loans declined $8 million during 1995 to $854 million at the end of the
year. Commercial and financial loans were the only category of loans to
increase. These loans grew by $37.2 million for the year which represents an 18%
increase. The Company has experienced success in originating commercial loans in
the markets served. Declines were experienced in the real estate portfolio and
the consumer loan portfolio for a number of reasons. In the real estate
portfolio, many loans were refinanced due to the low interest rate level
compared with prior years and there is a preference for fixed rate loans by
consumers today. The Company makes such loans but sells all fixed rate
residential mortgage loans into the secondary market. As a result of these
factors, the portfolio declined. In the consumer portfolio, the Company elected
to decrease indirect consumer lending as a strategy. Therefore, the outstanding
balance in this portfolio declined by over $4.2 million. The Shoppers Charge
credit card portfolio, which the Company acquired in December, 1994, declined by
$9.7 million. The portfolio is seasonal in nature and was expected to be higher
at the end of the year but is reflective of the weak retail selling season
experienced nationally this year.
Asset Quality
The Company's principal earning assets are its loans, which are primarily to
businesses and individuals located in New Jersey with the exception of the
credit card loans which are originated in 35 states. Inherent in the lending
business is the risk of deterioration in a borrower's ability to repay loans
under existing loan agreements. Other risk elements include the amount of
nonaccrual and past-due loans, amount of potential problem loans, industry or
geographic loan concentrations, and the level of other real estate owned (OREO)
that must be managed and disposed of.
The following table shows the loans past due 90-days or more and still accruing
and applicable asset quality ratios:
December 31,
1995 1994 1993
- --------------------------------------------------------------------------------
Commercial $ 579 $ 727 $2,190
Real estate 4,007 1,765 1,257
Consumer 295 51 113
Credit card 592 644 0
-------------------------------------
Total Loans
Past-Due 90-Days
or More and Still
Accruing $5,473 $3,187 $3,560
=====================================
As a percent of
Total Loans 0.64% 0.37% 0.54%
=====================================
As a percent of
Total Assets 0.34% 0.19% 0.26%
=====================================
These ratios have increased from the Company's historical levels due to the
asset quality of the banks acquired.
The amount of interest income on nonperforming loans which would have been
recorded had these loans continued to perform under their original terms
amounted to $1.1, $1.5, and $1.7 million for the years 1995, 1994, and 1993,
respectively. The amount of interest income recorded on such loans for each of
the years was $.2, $.2, and $.3 million. The Company has no outstanding
commitments to advance additional funds to borrowers whose loans are in a
nonperforming status.
Nonaccruing loans consist of commercial and commercial mortgage loans past-due
90-days or more. Residential real estate loans are generally put on nonaccrual
status after 180 days of delinquency and consumer loans after 90 days of
delinquency and are generally charged off after 120 days of delinquency except
for home equity loans. Any loan may be put on nonaccrual status earlier if the
Company has concern about the future collectability of the loan or its ability
to return to current status.
Nonaccrual real estate loans are principally loans in the foreclosure process
secured by real estate, including single family residential, multi-family, and
commercial properties.
Nonaccruing consumer loans are loans to individuals. Excluding the credit card
receivables, these loans are principally secured by automobiles or real estate.
- --------------------------------------------------------------------------------
12
<PAGE>
The following table summarizes the Company's nonperforming assets:
Nonperforming Assets
<TABLE>
<CAPTION>
December 31,
(Dollars in thousands) 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonaccrual loans $ 15,593 $ 19,456 $ 15,244
Renegotiated loans 745 732 2,177
------------------------------------------
Total Nonperforming Loans 16,338 20,188 17,421
Other Real Estate Owned 4,479 8,528 9,766
------------------------------------------
Total Nonperforming Assets $ 20,817 $ 28,716 $ 27,187
==========================================
Ratios:
Nonaccrual Loans to Total Loans 1.83% 2.26% 2.30%
Nonperforming Assets to Total Assets 1.29% 1.68% 1.99%
Allowance for Loan Losses to Nonaccrual Loans 109% 85% 93%
Allowance for Loan Losses to Nonperforming Loans 104% 82% 81%
</TABLE>
- --------------------------------------------------------------------------------
Renegotiated loans are loans which are renegotiated as to the term or rate or
both to assist borrowers after the borrower has suffered an adverse effect in
their financial condition. Terms are tailored to fit the ability of the borrower
to repay in line with the Company's objective of obtaining full repayment. The
Company has $.7 million that are considered renegotiated loans.
Other real estate owned (OREO) consists of properties on which the Bank has
foreclosed or taken a deed in lieu of the loan obligation. OREO properties are
carried at fair value at all times. The cost to dispose of OREO properties, the
cost of maintenance during ownership, and any declines in fair value from the
inception of ownership are charged to current earnings. The Company has been
successful in disposing of OREO properties. See Noninterest Expense discussion.
At December 31, 1995, 1994, and 1993, Other Real Estate Owned amounted to $4.5
million, $8.5 million, and $9.8 million. The decline from year to year reflects
the Company's efforts to dispose of these properties.
At December 31, 1995, nonperforming loans had decreased to $16.3 million from
$20.2 million at the end of 1994 and $17.4 million at the end of 1993. The
acquired companies have added significantly to the Company's level of
nonperforming assets. Pilgrim added $5.3 million in 1993, Washington added $15.2
million in 1994 and Jefferson and Urban added $11.3 million in 1995 in
nonperforming loans as of the date of the acquisitions. Combined, these
companies added $32 million in nonperforming loans. With the balance at December
31, 1995 at $16.3 million, the Company has been able to either dispose of or
return the loans to current status on the majority of the problem loans
acquired.
The allowance at December 31, 1995, 1994, and 1993 as a percentage of total
loans was 1.99%, 1.96%, and 2.13%, respectively. Management formally reviews the
loan portfolio and evaluates credit risk on at least a quarterly basis
throughout the year. Such review takes into consideration the financial
condition of the borrowers, fair market value of collateral, level of
delinquencies, historical loss experience by loan category, industry trends, and
the impact of local and national economic conditions. The table on page 9 showed
the allowance by loan category and the level of unallocated allowance. The
unallocated, which is available to absorb loan losses but which is not deemed
necessary for any specific loan or loan category, has increased in each of the
years 1993, 1994, and 1995.
Measures to control and improve the level of nonperforming loans are continuing.
Efforts are made to identify slow paying loans and generally collection
procedures are instituted. After identification, steps are taken to understand
the problems of the borrower and to work with the borrower toward resolving the
problem, if practicable. Continuing collection efforts are a priority for the
Bank.
Deposits
Following the Growth Financial and Crossland Savings acquisitions in the first
quarter of 1996, the Company will have 62 branch offices located primarily in
Bergen, Essex, Hudson, and Passaic counties with other locations in Middlesex,
Morris, Somerset and Union counties. The Company manages the distribution system
by regionalizing into 4 regions with each managed by a regional president.
- --------------------------------------------------------------------------------
13
<PAGE>
The Company focuses on the cost side of the net interest margin emphasizing the
generation of the lowest cost deposits. The following table summarizes the
deposit base:
December 31,
1995 1994 1993
- --------------------------------------------------------------------------------
Noninterest-
bearing
deposits $ 310,588 $ 278,737 $ 258,063
NOW/MMDA
deposits 286,687 292,232 210,320
Savings deposits 432,653 500,872 436,479
Time deposits 395,073 419,703 308,474
Total Deposits $1,425,001 $1,491,544 $1,213,336
As noted earlier, 42% of the deposit base is in transaction accounts and another
30% is in low cost savings accounts. This funding base provides a very low cost
funding source for the Company.
Liquidity
Liquidity is a measure of the Company's ability to meet the needs of depositors,
borrowers, and creditors at a reasonable cost and without adverse financial
consequences. The Company uses several liquidity measurements that are evaluated
on a frequent basis. The Company has adequate sources of liquidity such as the
securities available for sale, federal funds lines, and the ability to
borrow funds from the Federal Home Loan Bank. In addition, the security
portfolio maturities are generally spread over 5 years which provides
continuous maturities of securities. The effective management of balance sheet
volumes, mixes, and maturities enables the bank to maintain adequate levels of
liquidity while maximizing profitability.
The liquidity requirements of the Parent company, primarily for dividends to
stockholders, debt servicing, and other corporate purposes are met through cash
and short-term money market investments and regular periodic dividends from the
subsidiary bank. The Parent also has the ability, when and if necessary, to
access the capital markets. Management considers the liquidity of the Parent and
the subsidiary bank to be adequate to meet current anticipated funding
requirements.
Capital
Capital adequacy is a measure of the amount of capital needed to support asset
growth, absorb unanticipated losses, and provide safety for depositors. The
regulators also establish minimum capital ratio guidelines for the banking
industry. The amount of capital also impacts the performance of the Company in
that capital ratios are factored into the FDIC deposit insurance rate which a
bank must pay. In recent years deposit insurance has become a significant
operating cost. The following table sets forth the regulatory minimum capital
ratios and the current capital ratios of the Company.
Regulatory Company
Capital Capital
Guidelines Ratios
- --------------------------------------------------------------------------------
Tier 1 Leverage Ratio 3 - 5% 7.56%
Tier 1 Risk-Based
Capital Ratio 4% 13.20%
Total Risk-Based Capital 8% 17.21%
At December 31, 1995, 1994, and 1993 the Company exceeded all regulatory capital
guidelines.
In January, 1995, the Company issued a 3-for-2 stock split and prior to that a
10% stock dividend was declared on June 1, 1993. Following the January stock
split, the $.15 per quarter cash dividend was retained which effectively
resulted in a 50% increase in the cash dividend. Based on 1995 fully diluted
earnings of $1.79 per share, the dividend payout ratio is 33% compared
with 22% in 1994 and 23% in 1993.
In 1994, the Company issued $19.1 million in convertible preferred stock in
connection with the Washington acquisition. Based on the terms the stock was
redeemed and became convertible in 1995. Approximately $2 million in preferred
stock which was not converted and was redeemed for cash. Following the November
1993 Board authorization to repurchase up to 10% of the shares outstanding per
year, the Company acquired approximately 1.16 million shares of common stock
that were then utilized for the 1.2 million shares issued in the conversion of
the preferred stock.
On January 14, 1994, the Company sold $25 million of subordinated debt in a
private placement. The subordinated debentures bear interest at 7.75% per annum
payable semi-annually and mature in 2004. Proceeds of the issuance were used for
general corporate purposes including the funding of a bank stock portfolio. The
debt has been structured to comply with the Federal Reserve Bank rules regarding
debt qualifying as Tier 2 capital.
At the end of the reporting period, there were no known uncertainties that will
have or that are reasonably likely to have a material effect on the Company's
liquidity, capital resources or operations; nor is the Company aware of any
current regulatory pronouncements which, if implemented, would have such an
effect.
- --------------------------------------------------------------------------------
14
<PAGE>
Liquidity and interest rate sensitivity management.
The primary objectives of asset/liability management are to provide for the
safety of depositor and investor funds, assure adequate liquidity and maintain
an appropriate balance between interest sensitive earning assets and
interest-bearing liabilities. Liquidity management involves the ability to meet
the cash flow requirements of customers who may be either depositors wanting to
withdraw funds or borrowers needing assurance that sufficient funds will be
available to meet their credit needs. Interest rate sensitivity management seeks
to avoid widely fluctuating net interest margins and to ensure consistent net
interest income through periods of changing economic conditions.
Given the above, liquidity for HUBCO is defined as the ability to raise cash
quickly at a reasonable cost without principal loss. The Company uses several
measurements of liquidity in monitoring its liquidity position. In addition, the
Company has a number of borrowing facilities with other banks and with the
Federal Home Loan Bank that are or can be used as sources of liquidity without
having to sell assets to raise cash. At December 31, 1995, the Company's
liquidity ratios exceeded all minimum standards set forth by internal policies.
The Company's Asset and Liability Committee is responsible for monitoring and
managing the Company's exposure to changes in market interest rates. The
Committee attempts to maintain a stable net interest margin by repricing and
reallocating assets and liabilities within the competitive banking environment.
Interest rate risk is determined by the relative sensitivities of earning assets
and interest-bearning liabilities to changes in interest rates. Overnight
Federal Funds on which rates change daily and loans which are tied to the prime
rate differ considerably from long-term securities and fixed rate loans.
Similarly, time deposits and money market deposit accounts are much more rate
sensitive than NOW and Savings accounts.
The Company uses a number of tools in evaluating its risk to changes in interest
rates. Critical to any analysis are the assumptions used to evaluate the
interest sensitivity of noninterest-bearing deposit accounts, NOW, and Savings
accounts, or other core deposits. What core deposit customers do in changing
interest rate environments depends on the overall rate environment, the
Company's strategy in adjusting interest rates, and adjustments in interest
rates by competitive financial institutions. The following "gap" analysis
utilizes certain maturity distribution limits set forth in FDICIA Section 305
for nonmaturity deposit accounts.
The Company is asset sensitive with respect to assets versus liabilities that
reprice immediately when interest rates change. Approximately 19% of assets, or
$314 million of assets in excess of liabilities reprice immediately. On a
cumulative basis, the Company is slightly positive from three months out. This
is consistent with the Company's strategy of keeping the investment portfolio
laddered to five years, focusing on variable rate loans, and emphasizing growth
in core deposits. The Company has managed its overall asset/liability
sensitivity through balance sheet pricing strategies. The following table
indicates that the Company would have a short term negative impact on net
interest income in a declining rate environment and a positive impact in a
rising rate environment. However, because the Company has a high percentage of
funding from core deposits and a high level of liquidity, the effect of changes
in interest rates are mitigated in less than one year.
Interest Rate Sensitivity Analysis
December 31, 1995
<TABLE>
<CAPTION>
Immediate Due Within Due Within Due Within Over
($ in millions) Repricing 3 Months 6 Months 1 Year 1 Year
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cumulative Interest Rate
Sensitive GAP $ 314 $ 55 $ 41 $ 71 $ (0)
% of Assets 19% 3% 3% 4% 0%
</TABLE>
In 1996, the Company has enhanced its Asset/Liability process by implementing an
interest rate risk process that includes market value of equity concepts to
compliment the current process of simulation and gap analysis.
- --------------------------------------------------------------------------------
15
<PAGE>
Consolidated Balance Sheets
HUBCO, INC. and Subsidiaries
<TABLE>
<CAPTION>
December 31, (in thousands, except share data) 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 85,670 $ 71,498
Federal funds sold 46,700 33,530
----------- -----------
TOTAL CASH AND CASH EQUIVALENTS 132,370 105,028
Securities available for sale, at market value (amortized cost of
$296,844 and $114,793 for 1995 and 1994, respectively) 300,721 111,604
Securities held to maturity, at cost (market value of $268,902
and $537,090 for 1995 and 1994, respectively) 265,703 562,567
Loans:
Real estate mortgage 424,996 457,042
Commercial and financial 245,451 207,914
Consumer credit 125,622 129,851
Credit card 57,915 67,577
----------- -----------
TOTAL LOANS 853,984 862,384
Less: Allowance for possible loan losses (16,951) (16,559)
----------- -----------
NET LOANS 837,033 845,825
Premises and equipment, net 30,111 35,330
Other real estate owned 4,479 8,528
Intangibles, net of amortization 7,572 9,645
Other assets 35,205 30,857
----------- -----------
TOTAL ASSETS $ 1,613,194 $ 1,709,384
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 310,588 $ 278,737
Interest bearing 1,114,413 1,212,807
----------- -----------
TOTAL DEPOSITS 1,425,001 1,491,544
Short-term borrowings 21,654 50,658
Other liabilities 11,573 26,631
----------- -----------
TOTAL LIABILITIES 1,458,228 1,568,833
Subordinated debt 25,000 25,000
Commitments and contingencies
Stockholders' Equity:
Convertible Preferred stock--Series A, no par value; authorized
3,300,000 shares, 797,811 shares issued and 788,811
shares outstanding in 1994 -- 19,147
Common stock, no par value; authorized 25,000,000
shares; issued 13,145,059 and outstanding
13,105,627 shares in 1995 and issued 13,145,059
and outstanding 12,355,391 in 1994 23,372 23,372
Additional paid-in capital 49,741 49,289
Retained earnings 55,716 39,699
Treasury stock, at cost, 39,432 shares in 1995
and 789,668 common shares and 9,000
preferred shares in 1994 (606) (11,723)
Restricted stock award (688) (1,266)
Unrealized gain/(loss) on securities available
for sale, net of income taxes 2,431 (2,967)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 129,966 115,551
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,613,194 $ 1,709,384
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
- --------------------------------------------------------------------------------
16
<PAGE>
Consolidated Statements of Income
HUBCO, INC. and Subsidiaries
<TABLE>
<CAPTION>
Year ended December 31, (in thousands, except share data) 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST AND FEE INCOME:
Loans--taxable $ 80,230 $ 61,660 $ 55,834
Loans--tax-exempt 273 371 306
Securities--taxable 37,973 38,310 27,474
Securities--tax-exempt 1,092 1,648 1,260
Other 1,143 1,364 1,676
--------- --------- ---------
TOTAL INTEREST AND FEE INCOME 120,711 103,353 86,550
INTEREST EXPENSE:
Deposits 35,557 29,268 26,604
Short-term borrowings 1,899 1,253 907
Subordinated debt 2,153 1,736 0
--------- --------- ---------
TOTAL INTEREST EXPENSE 39,609 32,257 27,511
--------- --------- ---------
NET INTEREST INCOME 81,102 71,096 59,039
PROVISION FOR POSSIBLE LOAN LOSSES 4,200 3,550 4,874
--------- --------- ---------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 76,902 67,546 54,165
NONINTEREST INCOME:
Trust department income 761 630 525
Service charges on deposit accounts 8,506 9,082 7,428
Securities gains (losses) 947 (420) 83
Other income 7,577 2,536 2,543
--------- --------- ---------
TOTAL NONINTEREST INCOME 17,791 11,828 10,579
NONINTEREST EXPENSE:
Salaries 21,708 18,541 16,156
Pension and other employee benefits 9,126 7,132 5,512
Occupancy expense 5,683 5,313 4,150
Equipment expense 3,249 3,002 2,618
Deposit insurance and other insurance 2,726 3,835 3,279
Outside services 5,690 4,188 3,891
Other real estate owned expense 307 1,227 1,691
Amortization of intangibles 2,181 1,299 40
Other 9,494 6,513 4,976
--------- --------- ---------
TOTAL NONINTEREST EXPENSE 60,164 51,050 42,313
--------- --------- ---------
INCOME BEFORE INCOME TAXES 34,529 28,324 22,431
PROVISION FOR INCOME TAXES 10,845 10,892 8,560
--------- --------- ---------
NET INCOME $ 23,684 $ 17,432 $ 13,871
========= ========= =========
INCOME PER COMMON SHARE:
Primary $1.82 $1.36 $1.06
Fully diluted 1.79 1.33 1.06
WEIGHTED AVERAGE SHARES OUTSTANDING:
Common 12,743 12,496 13,109
Preferred 508 602 0
</TABLE>
See Notes to Consolidated Financial Statements.
- --------------------------------------------------------------------------------
17
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Changes in Stockholders' Equity
HUBCO, INC. and Subsidiaries For the Years Ended December 31, 1995, 1994, and 1993
Unrealized
Holding Gain
Convertible (Loss) On
Preferred Stock Common Stock Additional Restricted Securities
---------------- ------------------- Paid-in Retained Treasury Stock Available
(in thousands, except share data) Shares Amount Shares Amount Capital Earnings Stock Award for Sale
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December, 1992 12,174,530 $21,646 $34,318 $31,924 $(6) $(566) $--
Net income-- 1993 -- -- -- -- -- 13,871 -- --
Cash dividends-- -- -- -- -- -- (3,267) -- -- --
10% stock dividend -- -- 942,017 1,675 14,653 (16,328) -- -- --
Return of 1,122 shares of
restricted stock -- -- -- -- -- -- (11) 10 --
Issuance of restriced stock -- -- 28,512 51 318 1 280 (668) --
Amortization of restricted stock -- -- -- -- -- 19 -- 278 --
Purchase of 221,000 shares of
treasury stock -- -- -- -- -- -- (4,834) -- --
Unrealized holding gains (losses) on
available for sale securities -- -- -- -- -- -- -- -- $4,290
------- ------ ---------- ------- ------- ------- ------- ------ ------
Balance at December, 1993 -- -- 13,145,059 23,372 49,289 26,220 (4,571) (946) 4,290
Net income-- 1994 -- -- -- -- -- 17,432 -- -- --
Cash dividends -- -- -- -- -- (3,512) -- -- --
Cash dividends --
$.54 per share, preferred -- -- -- -- -- (447) -- -- --
Issuance of preferred stock,
net of expenses 797,811 $19,147 -- -- -- -- -- -- --
Return of 4,446 shares of
restricted stock -- -- -- -- -- 6 (43) 37 --
Issuance of restriced stock -- -- -- -- 746 (746) --
Amortization of restricted stock -- -- -- -- -- -- -- 389 --
Purchase of 9,000 shares of
preferred treasury stock -- -- -- -- -- -- (190) -- --
Purchase of 526,621 shares of
common treasury stock -- -- -- -- -- -- (7,665) -- --
Change in unrealized holding -- --
gains (losses) on
available for sale securities -- -- -- -- -- -- -- -- (7,257)
------- ------ ---------- ------- ------- ------- ------- ------ ------
Balance at December, 1994 797,811 19,147 13,145,059 23,372 49,289 39,699 (11,723) (1,266) (2,967)
Net income-- 1995 -- -- -- -- -- 23,684 -- -- --
Cash dividends -- -- -- -- -- (7,146) -- -- --
Cash dividends --
$.90 per share, preferred -- -- -- -- -- (521) -- -- --
Return of 11,610 shares of
restricted stock -- -- -- -- -- -- (141) 141 --
Issuance of restricted stock -- -- -- -- -- -- -- (18) --
Amortization of
restricted stock -- -- -- -- -- -- -- 455 --
Purchase of 302,000 shares of
common treasury stock -- -- -- -- -- -- (4,885) -- --
Purchase of 3,000 shares of
preferred treasury stock -- -- -- -- -- -- (71) -- --
Redemption of preferred
stock and conversion of
preferred stock to
common stock (797,811) (19,147) -- -- 452 -- 16,214 -- --
Change in unrealized
holding gains (losses) on
available for sale securities -- -- -- -- -- -- -- -- 5,398
------- ------ ---------- ------- ------- ------- ------- ------ ------
Balance at December, 1995 -- $-- 13,145,059 $23,372 $49,741 $55,716 $(606) $(688) $2,431
======= ====== ========== ======= ======= ======= ======= ====== ======
</TABLE>
See Notes to Consolidated Financial Statements.
- --------------------------------------------------------------------------------
18
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
HUBCO, INC. and Subsidiaries For the Years Ended December 31, 1995, 1994, and 1993
(in thousands) 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $23,684 $17,432 $13,871
Adjustments to reconcile net income to net cash
provided by (used in) operating activities--
Provision for possible loan losses 4,200 3,550 4,874
Provision for depreciation and amortization 5,025 4,189 2,446
Amortization of securities premiums, net 294 2,482 1,132
Securities (gains) losses (947) 420 (83)
Gain on sale of interest in subsidiary (817) -- --
Deferred income tax provision (benefit) 4,757 3,192 (536)
(Increase) decrease in other assets (9,105) (8,941) 7,610
(Decrease) increase in other liabilities (15,058) (50,283) 1,226
-------- -------- --------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 12,033 (27,959) 30,540
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities:
Available for sale 101,097 85,758 --
Held to maturity -- -- 52,595
Proceeds from maturities of securities:
Available for sale 5,849 30,459 --
Held to maturity 103,807 97,249 121,439
Purchases of securities:
Available for sale (30,150) (3,917) --
Held to maturity (66,805) (246,599) (282,371)
Net cash acquired through acquisitions -- 117,773 43,134
Net cash paid for acquisitions -- (26,660) (227)
Net decrease in loans 4,592 30,609 47,599
Purchases of premises and equipment (694) (10,128) (4,157)
Decrease in other real estate 4,049 2,671 2,328
-------- -------- --------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 121,745 77,215 (19,660)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in demand deposits, NOW accounts and
savings accounts (41,913) (20,326) (6,369)
Net decrease in certificates of deposit (24,630) (47,853) (14,862)
Net (decrease) increase in short-term borrowings (29,004) 7,884 15,615
Proceeds from the issuance of subordinated debt -- 25,000 --
Redemption of convertible preferred stock (2,481) -- --
Cash dividends (7,667) (3,959) (3,267)
Acquisition of treasury stock (4,956) (7,855) (4,834)
Proceeds from sale of interest in subsidiary 4,215 -- --
-------- -------- --------
NET CASH USED IN FINANCING ACTIVITIES (106,436) (47,109) (13,717)
-------- -------- --------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 27,342 2,147 (2,837)
CASH AND CASH EQUIVALENTS
BEGINNING OF YEAR 105,028 102,881 105,718
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $132,370 $105,028 $102,881
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for--
Interest $39,408 $30,858 $27,954
Income taxes 10,735 8,545 9,762
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
- --------------------------------------------------------------------------------
19
<PAGE>
Notes To Consolidated Financial Statements
HUBCO, INC. and Subsidiaries
DECEMBER 31, 1995 (in thousands, except share data)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
HUBCO, Inc. (the Company) provides a full range of banking services to
individual and corporate customers through its subsidiary and branch locations
in New Jersey. The Company is subject to the regulations of certain Federal and
State banking agencies and undergoes periodic examinations by those regulatory
authorities.
Basis Of Presentation And Consolidation:
The consolidated financial statements include the accounts of HUBCO, Inc. and
its subsidiaries, all of which are wholly owned.
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent liabilities, as of the date of the
financial statements and revenues and expenses for the period. Actual results
could differ significantly from those estimates.
All significant intercompany accounts and transactions are eliminated in
consolidation.
Securities:
The Company adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115),
effective December 31, 1993. In accordance with the pronouncement, the Company
classified its securities as held to maturity, available for sale and held for
trading purposes.
Securities for which the Company has the ability and intent to hold until
maturity are classified as held to maturity. These securities are carried at
cost adjusted for amortization of premiums and accretion of discounts on a
straight-line basis which is not materially different from the interest method.
Management reviews its intent to hold securities to maturity as a result of
changes in circumstances including major business combinations. A sale or
transfer of held to maturity securities may be necessary to maintain the
Company's existing interest rate risk position or credit risk policy.
Securities which are held for indefinite periods of time which management
intends to use as part of its asset/liability strategy, or that may be sold in
response to changes in interest rates, changes in prepayment risk or other
similar factors, are classified as available for sale and are carried at fair
value. Differences between available for sale securities' amortized cost and
fair value are charged/credited directly to stockholders' equity, net of income
taxes. The cost of securities sold is determined on a specific identification
basis.
The Company has no securities held for trading purposes at December 31, 1995 and
1994.
Loans:
Loans are recorded at their principal amounts outstanding. Interest income on
loans not made on a discounted basis is credited to income based on principal
amounts outstanding at applicable interest rates. Interest income on consumer
credit loans is recorded primarily using the simple interest method.
Recognition of interest on the accrual method is discontinued when based on
contractual delinquency and when timely payment is not expected. A nonaccrual
loan is not returned to an accrual status until interest is received on a
current basis and other factors indicate collection ability is no longer
doubtful.
The net amount of loan origination fees, direct loan origination costs and loan
commitment fees are deferred and recognized over the estimated life of the
related loans as an adjustment of yield.
Allowance For Possible Loan Losses:
The allowance is maintained at a level believed adequate by management to absorb
potential losses in the loan portfolio. Management's determination of the
adequacy of the allowance is based on an evaluation of the portfolio, past loan
loss experience, current economic conditions, volume, growth and composition of
the loan portfolio and other relevant factors. The allowance is increased by
provisions charged to expense and reduced by net charge-offs.
While management uses available information to estimate potential losses on
loans, future additions to the allowance may be necessary based on changes in
economic conditions, particularly in New Jersey. In addition, various regulatory
agencies, as an integral part of their examination processes, periodically
review the Company's allowance for possible loan losses. Such agencies may
require the Company to recognize additions to the allowance based on their
judgments of information available to them at the time of their examination.
Premises And Equipment:
Land, buildings and furniture, fixtures and equipment are carried at cost.
Depreciation on substantially all buildings and furniture, fixtures and
equipment is provided using the straight-line method based on estimated useful
lives. Maintenance and repairs are expensed as incurred and additions and
improvements are capitalized.
Other Real Estate:
Other real estate (ORE) includes loan collateral that has been formally
repossessed. These assets are transferred to ORE and recorded at the lower of
carrying cost or fair value of the properties. Subsequent provisions that result
from ongoing periodic evaluations of these ORE properties are charged to expense
in the period in which they are identified. ORE is carried at the lower of cost
or fair value, less estimated costs to sell. Carrying costs, such as maintenance
and property taxes, are charged to expense as incurred.
Investment in Joint Venture:
The Company owns 50% of the common stock of United Financial Services Inc., a
third-party data processing service provider. The investment is being accounted
for by the equity method. During 1995, the Company sold the other 50% interest,
resulting in a realized gain of $817.
Intangibles:
Intangible assets resulting from acquisitions under the purchase method of
accounting consist of goodwill and core deposit intangibles. Goodwill is being
amortized on a straight-line basis over five years. Core deposit intangibles are
being amortized, on a straight-line basis, over the estimated average remaining
lives of such intangible assets (primarily five years).
- --------------------------------------------------------------------------------
20
<PAGE>
NOTES -- (continued)
- --------------------------------------------------------------------------------
Federal Income Taxes:
In 1992, the Company adopted SFAS No. 109, "Accounting for Income Taxes," which
changed the method of accounting for income taxes from the deferred method to
the liability method. Certain income and expense items are recorded differently
for financial reporting purposes than for Federal income tax purposes and
provisions for deferred taxes are made in recognition of these temporary
differences.
The Company and its subsidiaries file a consolidated Federal income tax return.
Under tax sharing agreements, each subsidiary provides for and settles income
taxes with the Company as if they would have filed on a separate return basis.
Per Share Amounts:
Primary income per common share is computed by dividing net income, less
dividends on any convertible preferred stock, by the weighted average number of
common shares outstanding during the year. Fully diluted income per share is
computed by dividing net income by the weighted average number of common shares
plus the number of shares issuable on conversion of the preferred stock. Shares
issuable upon the exercise of options are not included in the calculation of
income per common share since their effect is not material. All per share
amounts have been retroactively adjusted for the three-for-two common stock
split on January 14, 1995.
Cash Equivalents:
Cash equivalents include amounts due from banks and Federal funds sold.
Reclassifications:
Certain reclassifications have been made to the 1994 and 1993 amounts in order
to conform with the 1995 presentation.
(2) ACQUISITIONS
On April 5, 1995, the Company acquired all of the outstanding shares of
Jefferson National Bank (Jefferson), based in Passaic, New Jersey. Each share of
Jefferson common stock outstanding was converted into 2.697 shares of the
Company's common stock, for a total of 609,842 shares. At the time of the
acquisition, Jefferson had approximately $90,000 in assets.
On June 30, 1995, the Company acquired all of the outstanding shares of Urban
National Bank (Urban), based in Franklin Lakes, New Jersey. Each share of Urban
common stock outstanding was converted into 2.17 shares of the Company's common
stock, for a total of 2,135,175 shares. At the time of the acquisition, Urban
had approximately $230,000 in assets.
The Jefferson and Urban acquisitions have been accounted for by the pooling of
interests method of accounting. Accordingly, the accompanying consolidated
financial statements include the accounts of Jefferson and Urban for all periods
presented.
Separate results of the combining entities are as follows:
1994 1993
- --------------------------------------------------------------------------------
Net interest income-
The Company $58,021 $47,018
Jefferson 3,775 3,808
Urban 9,300 8,213
------- -------
$71,096 $59,039
======= =======
Net income (loss):
The Company $16,931 $14,202
Jefferson (983) (1,356)
Urban 1,484 1,025
------- -------
$17,432 $13,871
======= =======
On June 30, 1993, the Company, through Hudson United Bank, acquired deposits and
certain assets of Pilgrim State Bank from Ramapo Financial. On May 6, 1994, the
Company, through Hudson United Bank, acquired deposits and certain assets of
Polifly Federal Savings & Loan Association from the Resolution Trust
Corporation.
A summary of these transactions is as follows:
Pilgrim Polifly
June 30, 1993 May 6, 1994
- --------------------------------------------------------------------------------
Cash paid at acquisition $227 $6,180
Balances at acquisition date:
Cash and cash equivalents 42,907 104,077
Loans 46,670 456
Total assets 123,113 98,353
Deposits 122,876 104,446
Total liabilities 123,340 104,533
On July 1, 1994, the Company acquired Washington Bancorp, Inc. (Washington) for
a combination of cash and convertible preferred stock with an aggregate
consideration of approximately $40.5 million. In the transaction, 51% of the
Washington shares were converted into preferred stock at .6708 per share and 49%
of the Washington shares were converted to cash at $16.10 per share. The Bank
assumed deposits of approximately $237.8 million, received $7.1 million in cash
and cash equivalents and acquired $91.4 million in securities and $168.5 million
in loans. The transaction has been accounted for as a purchase and, accordingly,
the results of operations have been included in the accompanying consolidated
financial statements since the date of acquisition. The excess of book value of
net assets acquired over their fair value was approximately $5.1 million, which
is being amortized over a five-year period.
On December 7, 1994, the Bank acquired Shoppers Charge Accounts Co. ("Shoppers")
for approximately $16.3 million in cash, which approximated the fair value of
the assets acquired. The Bank recorded approximately $63.4 million in assets and
$46.9 million in liabilities.
(3) CASH AND DUE FROM BANKS
Banks are required to maintain an average reserve balance with the Federal
Reserve Bank. The average 1995 amount of this reserve for the Company's
subsidiary bank was approximately $19,000.
- --------------------------------------------------------------------------------
21
<PAGE>
NOTES -- (continued)
- --------------------------------------------------------------------------------
(4) SECURITIES
The amortized cost and estimated market value of securities as of December 31
are summarized as follows:
1995
- --------------------------------------------------------------------------------
Gross Unrealized Estimated
Amortized ---------------- Market
Cost Gains (Losses) Value
- --------------------------------------------------------------------------------
Available for Sale
U. S. Government $ 144,496 $ 1,662 $ (402) $ 145,756
U. S. Government
agencies 126,626 723 (819) 126,530
States and political
subdivisions 9,217 29 (10) 9,236
Other debt securities 3,849 70 (11) 3,908
Equity securities 12,656 2,889 (254) 15,291
--------- --------- --------- ---------
$ 296,844 $ 5,373 $ (1,496) $ 300,721
========= ========= ========= =========
Held to Maturity
U. S. Government $ 95,521 $ 2,438 $ (18) $ 97,941
U. S. Government
agencies 170,182 1,939 (1,160) 170,961
--------- --------- --------- ---------
$ 265,703 $ 4,377 $ (1,178) $ 268,902
========= ========= ========= =========
1994
- --------------------------------------------------------------------------------
Gross Unrealized Estimated
Amortized ---------------- Market
Cost Gains (Losses) Value
- --------------------------------------------------------------------------------
Available for Sale
U. S. Government $ 51,455 $ 11 ($ 935) $ 50,531
U. S. Government
agencies 53,480 0 (3,411) 50,069
States and political
subdivisions 580 0 (2) 578
Other debt securities 1,000 0 0 1,000
Equity securities 8,278 1,271 (123) 9,426
--------- --------- --------- ---------
$ 114,793 $ 1,282 ($ 4,471) $ 111,604
========= ========= ========= =========
Held to Maturity
U. S. Government $ 248,926 $ 4 ($ 7,022) $ 241,908
U. S. Government
agencies 273,529 35 (17,739) 255,825
States and political
subdivisions 33,986 58 (631) 33,413
Other debt securities 6,126 20 (202) 5,944
--------- --------- --------- ---------
$ 562,567 $ 117 ($ 25,594) $ 537,090
========= ========= ========= =========
The amortized cost and estimated market value of debt securities at December 31,
1995, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
Estimated
Amortized Market
Cost Value
- --------------------------------------------------------------------------------
Available for Sale
Due in one year or less $ 98,108 $ 98,302
Due after one year
through five years 124,205 125,833
Due after five years
through ten years 8,517 8,460
Due after ten years 3,214 3,186
-------- --------
234,044 235,781
Mortgage-backed securities 50,144 49,649
Equity securities 12,656 15,291
-------- --------
$296,844 $300,721
======== ========
Held to Maturity
Due in one year or less $ 32,977 $ 32,994
Due after one year
through five years 144,687 148,235
Due after five years
through ten years 10,065 9,888
Due after ten years 11,699 11,240
-------- --------
199,428 202,357
Mortgage-backed securities 66,275 66,545
-------- --------
$265,703 $268,902
======== ========
Securities with an amortized cost basis of $36,489 and an estimated market value
of $36,143 previously held by Urban and Jefferson and classified as
held-to-maturity were reclassified as available for sale upon consummation of
the acquisitions of Urban and Jefferson to maintain the Company's interest rate
risk positions.
In December 1995, the Financial Accounting Standards Board issued a special
report- "A Guide to Implementation of Statement No. 115 on Accounting for
Certain Investments in Debt and Equity Securities". This special report allowed
the Company to make a one-time reclassification of securities within the
categories without tainting other securities held-to-maturity. In December 1995,
the Company reclassified securities with an amortized cost basis of $229, 310
and an estimated market value of $223,425 from held-to-maturity to available for
sale.
In July, 1994, the Company transferred securities with an amortized cost basis
of $117,393 and an estimated market value of $116,696 from available for sale to
held to maturity. The transfer resulted from the Company's review of its
interest rate risk position in connection with the Washington business
combination (see Note 2). As of December 31, 1995 and 1994 these securities are
included in held to maturity at the estimated fair value at the transfer date,
and the unrealized loss is being accreted over the remaining life of the
securities.
In December 1994, the Company transferred securities with an amortized cost
basis of $98,505 and an estimated market value of $97,482 from held to maturity
to available for sale. Securities with an amortized cost of $50,295 and an
estimated market value of $49,996 were immediately sold resulting in a realized
loss of $299. The purpose of the transfer and sale was to fund the purchase
price and repay assumed debt related to the
- --------------------------------------------------------------------------------
22
<PAGE>
NOTES -- (continued)
- --------------------------------------------------------------------------------
Shoppers business combination (see Note 2). As a result of the Shoppers business
combination, the Company transferred securities with an amortized cost basis of
$48,210 and an estimated fair value of $47,486 from held to maturity to
available for sale. The purpose of the transfer was to maintain the Company's
interest rate risk position and to adjust for the credit risk associated with
the purchase of credit card receivables.
Sales of securities are summarized as follows:
1995 1994 1993
- --------------------------------------------------------------------------------
Proceeds from sales $ 101,097 $ 85,758 $ 52,595
Gross gains from sales 1,621 22 275
Gross losses from sales (674) (442) (96)
Securities with a book value of $72,412 and $62,420 at December 31, 1995 and
1994, respectively, are pledged to secure public funds, securities sold under
agreements to repurchase and for other purposes as required by law.
(5) LOANS:
The Company's loan portfolio is diversified with no industry comprising greater
than 10% of the total outstanding. Real estate loans are primarily made in the
local lending area, defined as Northern New Jersey. The Company requires
collateral on all real estate loans and generally requires loan to value ratios
of not greater than 67% for commercial mortgages and 75% for residential
mortgages.
(6) ALLOWANCE FOR POSSIBLE LOAN LOSSES:
The allowance for possible loan losses is based on estimates, and ultimate
losses may vary from the current estimates. These estimates are reviewed
periodically and, as adjustments become necessary, they are reflected in
operations in the periods in which they become known.
A summary of the activity in the allowance for possible loan losses is as
follows:
1995 1994 1993
- --------------------------------------------------------------------------------
Balance at January 1 $ 16,559 $ 14,109 $ 11,354
Additions (deductions):
Provision charged to
expense 4,200 3,550 4,874
Allowance acquired
through mergers
or acquisitions 0 4,717 400
Recoveries on loans
previously charged off 1,440 993 554
Loans charged off (5,248) (6,810) (3,073)
-------- -------- --------
Balance at December 31 $ 16,951 $ 16,559 $ 14,109
======== ======== ========
(7) NONPERFORMING LOANS
The following table presents information related to loans which are on
nonaccrual, contractually past due ninety days or more as to interest or
principal payments and loans which have been restructured to provide a reduction
or deferral of interest or principal for reasons related to the debtors'
financial difficulties.
1995 1994
- --------------------------------------------------------------------------------
Nonaccrual loans $15,593 $19,456
Renegotiated loans 745 732
------- -------
Total nonperforming loans $16,338 $20,188
======= =======
90 days or more past due
and still accruing $5,473 $3,187
======= =======
Gross interest income which
would have been recorded
under original terms $1,109 $1,491
Gross interest income recorded
during the year 199 181
Commitments for additional funds 0 0
======= =======
In May 1993 and October 1994, the Financial Accounting Standards Board issued
SFAS 114, "Accounting by Creditors for Impairment of a Loan" and SFAS 118,"
Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosure." As defined in SFAS 114 and SFAS 118, a loan is impaired when, based
on current information and events, it is probable that a creditor will be unable
to collect all amounts due according to the contractual terms of the loan
agreement. SFAS 114 and SFAS 118 require that the measurement of impairment of a
loan be based on the present value of expected future cash flows, net of
estimated costs to sell discounted at the loan's effective interest rate.
Impairment can also be measured based on a loan's observable market price or the
fair value of collateral, if the loan is collateral dependent. If the measure of
the impaired loan is less than the recorded investment in the loan, the Bank
will be required to establish a valuation allowance, or adjust existing
valuation allowances, with a corresponding charge or credit to the provision for
possible loan losses.
The Company adopted SFAS 114 as of January 1, 1994. The effect of adopting this
new accounting standard was not material.
At December 31, 1995 and 1994 impaired loans, comprised principally of
nonaccruing loans totaled $16,338 and $20,188 , respectively. The allowance for
possible loan losses related to such impaired loans was $2,667 and $2,899 at
December 31, 1995 and 1994, respectively.
(8) LOANS TO RELATED PARTIES
In the ordinary course of business, the Company and its subsidiaries have
extended credit to various directors, officers and their associates.
The aggregate extension of this credit is summarized below for the year ended
December 31, 1995:
Balance at January 1 $ 6,458
New loans issued 0
Repayment of loans (741)
Loans to former directors (3,081)
-------
Balance at December 31 $ 2,636
=======
(9) PREMISES AND EQUIPMENT
The following is a summary of premises and equipment:
1995 1994
- --------------------------------------------------------------------------------
Land $ 7,739 $ 8,666
Premises 25,693 26,766
Furniture, fixtures and equipment 12,417 14,195
------- -------
45,849 49,627
Less- Accumulated depreciation 15,738 14,297
------- -------
$30,111 $35,330
======= =======
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23
<PAGE>
Depreciation and amortization expense for premises and equipment for 1995, 1994
and 1993 amounted to $2,515, $2,541 and $2,148, respectively.
(10) INCOME TAXES
The components of the provision for income taxes are as follows:
1995 1994 1993
- --------------------------------------------------------------------------------
Federal:
Current $ 4,348 $ 5,873 $ 8,054
Deferred 4,757 3,192 (536)
State 1,740 1,827 1,042
------- ------- -------
Total provision for
income taxes $10,845 $10,892 $ 8,560
======= ======= =======
A reconciliation of the provision for income taxes, as reported, with the
Federal income tax at the statutory rate of 35 percent is as follows:
1995 1994 1993
- --------------------------------------------------------------------------------
Tax at statutory rate $ 12,085 $ 9,917 $ 7,850
Increase (decrease) in taxes
resulting from:
Tax-exempt income (482) (707) (548)
State income taxes, net of
Federal income tax benefit 1,131 1,187 677
Reversal of reserves no
longer deemed necessary (2,076) 0 0
Other, net 187 495 581
-------- -------- --------
Provision for income
taxes $ 10,845 $ 10,892 $ 8,560
======== ======== ========
Significant components of Federal deferred tax assets and liabilities as of
December 31, 1995 and 1994 were as follows:
1995 1994
- --------------------------------------------------------------------------------
Deferred Tax Assets (Liabilities):
Allowance for possible loan losses $ 5,745 $ 2,140
Available for sale securities (1,357) 1,483
Other 500 (652)
------- -------
$ 4,888 $ 2,971
======= =======
In order to fully realize its deferred tax assets, the Company will need to
generate future taxable income during periods in which existing deductible
temporary differences reverse. Based upon the Company's historical and current
pretax earnings, management believes it is more likely than not that the Company
will generate future net taxable income in sufficient amounts to realize its net
deferred tax asset at December 31, 1995, however, there can be no assurance that
the Company will generate earnings or a specific level of continuing earnings.
The Company did not record any valuation allowances against its deferred tax
assets at December 31, 1995 and 1994.
(11) PENSION PLANS AND POSTRETIREMENT BENEFITS
The Company has two noncontributory pension plans which cover eligible employees
(a base plan and a nonbargaining plan). The plans provide for payments to
qualified employees based on salary and years of service. The Company's funding
policy for these plans is to make the maximum annual contributions allowed by
the applicable regulations.
Net pension cost (income) includes the following:
1995 1994 1993
- --------------------------------------------------------------------------------
Service cost -- benefits earned
during the year $ 543 $ 383 $ 231
Interest cost on projected
benefit obligation 982 630 550
Actual return on plan assets (3,391) (670) (674)
Net amortization and deferral 2,510 15 12
------- ------- -------
Net periodic pension
cost $ 644 $ 358 $ 119
======= ======= =======
Assumptions used in the accounting for the plans in 1995, 1994 and 1993 were:
1995 1994 1993
- --------------------------------------------------------------------------------
Weighted average
discount rate 7.0% 7.0% 7.0%
Rate of increase
in compensation 4.0% 4.0% 4.0%
Expected long-term
rate of return on assets 8.0% 8.0% 8.0%
The following table sets forth the funded status and amounts recognized in the
consolidated balance sheets at December 31 for the Company's plans:
1995 1994
- --------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Accumulated benefit obligation,
including vested benefits of
$12,710 and $7,435 for 1995
and 1994, respectively $ 13,106 $ 6,057
Projected benefit obligation for
service rendered to date (14,951) (9,637)
Plan assets at fair value 15,522 9,359
Projected benefit obligation
(greater than) less than plan assets 571 (278)
Unrecognized portion as of
December 31, of net asset
existing at date of adoption of
FASB Statement No. 87 31 15
Prior service cost not yet
recognized in net periodic
pension cost 1,171 805
Unrecognized net asset
at December 31 (536) 616
Prepaid pension costs included
in other assets $ 1,237 $ 1,158
The Company has two 401(k) savings plans covering substantially all employees.
Under the Plans, the Company matches varying percentages of the first 6% of the
employee's contribution. The Company's contributions under these Plans were
approximately $427, $184 and $130 in 1995, 1994 and 1993, respectively.
Except for the pension plan, the Company does not provide any post-retirement
benefits.
- --------------------------------------------------------------------------------
24
<PAGE>
NOTES -- (continued)
- --------------------------------------------------------------------------------
(12) SUBORDINATED DEBT
In January 1994, the Company sold $25,000 aggregate principal amount of
subordinated debentures. The debentures, which matures in 2004, bear interest at
7.75% per annum payable semiannually.
(13) COMMON STOCK
On October 13, 1994, the Company announced that its Board of Directors had
approved a 3-for-2 stock split payable January 14, 1995 to record holders of
HUBCO Common Stock on January 3, 1995. As a result, all share data and per share
data has been retroactively restated.
In December 1994, the Board of Directors adopted the 1995 Stock Option Plan
which provides for the issuance of up to 525,000 stock options to employees of
the Company. The option price cannot be less than the fair market value of the
common stock at the date of the grant and options are granted by the Company's
restricted stock committee.
Transactions under the plan are summarized as follows:
Number Option Price
of Shares Per Share
- --------------------------------------------------------------------------------
Outstanding, December 31, 1993 0 $--
Granted 450,000 12.83
------- -----
Outstanding, December 31, 1994 450,000 12.83
Granted 59,000 17.50-21.00
Cancelled (52,500) 12.83
------- -----
Outstanding, December 31, 1995 456,500 $12.83-$21.00
------- -------------
As of December 31, 1995, 114,000 shares are exercisable. In connection with the
Urban acquisition, options to purchase Urban common stock were converted into
options to purchase 32,550 shares of the Company's common stock at exercise
prices ranging from $4.15 to $4.61. These options are in addition to the above
plan.
During 1989, the Company adopted a restricted stock plan in which 150,000 shares
of the Company's common stock may be granted to officers and key employees.
During 1992, the Company amended the Plan to increase the maximum number of
shares of common stock which may be awarded to 495,000 shares, after giving
retroactive effect to stock dividends and the stock split. During 1995 and 1994,
3,800 and 54,450 shares of common stock were awarded which vest between two to
five years from the date of grant. The value of shares issued that have not been
earned ($688) and ($1,266) has been recorded as a reduction of stockholders'
equity for 1995 and 1994, respectively. Amortization of restricted stock awards
charged to expense amounted to $455, $389 and $278 in 1995, 1994 and 1993,
respectively.
On November 8, 1993, the Company's Board of Directors authorized management to
repurchase up to 10 percent of its outstanding common stock each year. The
program may be discontinued or suspended at any time, and there is no assurance
that the Company will purchase the full amount authorized. The acquired shares
are to be held in treasury to be used for stock option and other employee
benefit plans, preferred stock conversion or in connection with the issuance of
common stock in pending or future acquisitions accounted for under the purchase
method of accounting. During 1995, the Company purchased 302,000 shares at an
aggregate cost of $4.9 million.
(14) RESTRICTIONS ON BANK DIVIDENDS, LOANS
OR ADVANCES
Certain restrictions exist regarding the ability of the Hudson United Bank (the
Bank) to transfer funds to the Company in the form of cash dividends, loans or
advances. State banking regulations allow for the payment of dividends in any
amount provided that capital stock will be unimpaired and there remains an
additional amount of paid-in capital of not less than 50 percent of the capital
stock amount. As of December 31, 1995, $107,492 was available for distribution
to the Company.
Under Federal Reserve regulations, the Bank is also limited as to the amount it
may loan to its affiliates, including the Company. All such loans are required
to be collateralized. During 1994, the Company obtained a loan from the Bank for
$4,000 in order to finance the purchase of its new administrative facility. The
loan has been collateralized by the property and certain investment securities.
(15) LEASES:
Total rental expense for all leases amounted to approximately $1,798, $1,717
and, $1,393 in 1995, 1994 and 1993, respectively. At December 31, 1995, the
minimum total rental commitments under all noncancellable leases on bank
premises with initial or remaining terms of more than one year were as follows-
1996 $1,125
1997 1,007
1998 816
1999 739
2000 655
Thereafter 1,802
(16) COMMITMENTS AND CONTINGENT LIABILITIES
In 1994, the Company entered into an interest rate exchange agreement for the
purpose of hedging the interest rate related to the subordinated debt. The
agreement is a contractual agreement between the Company and its counterparty to
exchange fixed and floating rate interest obligations without exchange of the
underlying notional amount of $25,000. Such agreement involves interest rate
risk. If interest rates increase, the benefit resulting from the agreement will
be diminished. The notional principal amount is used to express the volume of
the transaction involved in this agreement; however this amount does not
represent exposure to credit loss. The counterparty to the agreement is the
fixed rate payor on the agreement and the Company is the floating rate payor on
the agreement. The floating rate is reset every three months. The term of this
agreement is three years. Management does not anticipate any material loss as a
result of this transaction.
The Company and its subsidiaries, from time to time, may be defendants in legal
proceedings. In the opinion of management, based upon consultation with legal
counsel, the ultimate resolution of these legal proceedings will not have a
material effect on the consolidated financial statements. In the normal course
of business, the Company and its subsidiaries have various commitments and
contingent liabilities such as commitments to extend credit, letters of credit
and liability for assets held in trust which are not reflected in the
accompanying financial statements.
Loan commitments and standby letters of credit are made to customers in the
ordinary course of business. Both arrangements have credit risk essentially the
same as that involved in extending loans to customers and are subject to the
Company's normal credit policies. The Company's maximum exposure to credit loss
for loan commitments, primarily unused credit card lines of credit and standby
letters of credit outstanding at December 31, 1995 was $208,418 and $14,763,
respectively. Commitments under commercial letters of credit used to facilitate
customers trade transactions were $1,414 at December 31, 1995.
- --------------------------------------------------------------------------------
25
<PAGE>
NOTES-- (continued)
- --------------------------------------------------------------------------------
(17) HUBCO, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION:
<TABLE>
<CAPTION>
December 31
BALANCE SHEETS 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash $ 3,538 $ 3,543
Securities:
Available for sale 12,157 7,760
Held to maturity -- 11,904
Investment in subsidiaries 121,583 109,669
Accounts receivable 7,572 1,121
Premises and equipment, net 5,600 8,066
Other assets 10,069 4,076
-------- --------
TOTAL ASSETS $160,519 $146,139
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable $ 499 $ 378
Notes payable-subsidiary 3,566 3,938
Accrued taxes and other liabilities 1,488 1,272
-------- --------
TOTAL LIABILITIES 5,553 5,588
-------- --------
Subordinated debt 25,000 25,000
Stockholders' equity 129,966 115,551
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $160,519 $146,139
======== ========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31
STATEMENTS OF INCOME 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Cash dividends from bank subsidiary $ 17,908 $ 14,261 $ 11,381
Interest 725 1,155 124
Securities gains 813 -- --
Rental income 1,714 238 238
Other 744 -- --
-------- -------- --------
21,904 15,654 11,743
Expenses:
General and administrative 1,581 1,587 581
Interest 2,420 1,914 --
-------- -------- --------
4,001 3,501 581
-------- -------- --------
Income before income tax benefit
and equity in undistributed
net income of subsidiaries 17,903 12,153 11,162
-------- -------- --------
Income tax benefit (2) (742) (73)
17,905 12,895 11,235
Equity in undistributed net income of subsidiaries 5,779 4,537 2,636
-------- -------- --------
NET INCOME $ 23,684 $ 17,432 $ 13,871
======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
26
<PAGE>
HUBCO, INC. (PARENT COMPANY ONLY)
FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Year Ended December 31
STATEMENTS OF CASH FLOWS 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $23,684 $17,432 $13,871
Adjustments to reconcile net income to
net cash provided by operating activities-
Provision for depreciation 184 294 81
Amortization of restricted stock 455 389 278
Securities gains 813 -- --
Gain on sale of interest in subsidiary (817) -- --
Increase in investment in subsidiaries (11,914) (865) (2,635)
Increase in accounts receivable (6,451) (644) (140)
Increase in other assets (6,011) (4,011) (65)
(Decrease) in notes payable (372) -- --
Increase (decrease) in accounts payable 121 (1,847) 2,225
Increase (decrease) in accrued taxes
and other liabilities 216 952 (38)
------- ------- -------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (1,718) 11,700 13,577
------- ------- -------
Investing activities:
Purchase of securities (5,191) (15,351) (4,373)
Proceeds from sale of securities 18,909 --
Capital expenditures (1,116) (7,077) --
------- ------- -------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 12,602 (22,428) (4,373)
------- ------- -------
Financing activities:
Proceeds from sale of interest in subsidiary 4,215 -- --
Issuance of subordinated debt -- 25,000 --
Decrease in amount due to Hudson
United Bank -- -- (21)
Dividends paid (7,667) (3,959) (3,267)
Redemption of convertible preferred stock (2,481) -- --
Acquisition of treasury stock (4,956) (7,855) (4,834)
------- ------- -------
NET CASH PROVIDED BY (USED
IN) FINANCING ACTIVITIES (10,889) 13,186 (8,122)
------- ------- -------
INCREASE (DECREASE) IN CASH (5) 2,458 1,082
CASH AT BEGINNING OF YEAR 3,543 1,085 3
------- ------- -------
CASH AT END OF YEAR $ 3,538 $ 3,543 $ 1,085
======= ======= =======
</TABLE>
(18) SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following quarterly financial information for the two years ended December
31, 1995 is unaudited. However, in the opinion of management, all adjustments,
which include only normal recurring adjustments necessary to present fairly the
results of operations for the periods are reflected. Results of operations for
the periods are not necessarily indicative of the results of the entire year or
any other interim period.
- --------------------------------------------------------------------------------
27
<PAGE>
NOTES -- (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
March 31 June 30 September 30 December 31
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995
Net interest income $20,470 $20,243 $20,047 $20,342
Provision for possible loan losses 1,050 1,050 1,050 1,050
Income before income taxes 8,353 6,738 9,537 9,901
Net income 5,480 5,924 5,973 6,307
Net income per share-primary .42 .46 .46 .48
Net income per share-fully diluted .40 .45 .46 .48
1994
Net interest income $15,434 $16,325 $19,201 $20,136
Provision for possible loan losses 600 515 1,135 1,300
Income before income taxes 6,653 6,771 7,711 7,189
Net income 4,130 4,332 4,755 4,215
Net income per share - primary .33 .35 .37 .31
Net income per share - fully diluted .33 .35 .35 .31
</TABLE>
(19) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The Financial Accounting Standards Board issued Statement No. 107, "Disclosures
About Fair Value of Financial Instruments." Financial instruments encompassing
this standard's definition include cash, loan agreements, accounts receivable
and payable, debt securities, deposit liabilities, loan commitments, standby
letters of credit and financial guarantees, among others. The fair value of a
financial instrument is the amount at which the instrument could be exchanged in
a current transaction between willing parties, other than a forced or
liquidation sale.
Estimated fair values have been determined by the Company using the best
available data and estimation methodology suitable for each category of
financial instruments. For those loans and deposits with floating rates, it is
presumed that estimated fair values generally approximate their recorded book
balances. The estimation methodologies used, the estimated fair values and
recorded book balances of the Company's financial instruments at December 31,
1995 and 1994 were as follows:
Cash and cash equivalents include cash and due from bank balances, Federal funds
sold and securities purchased under agreements to resell. For these instruments,
the recorded book balance approximates their fair value.
For securities in the Company's portfolio, fair value was determined by
reference to quoted market prices. In the few instances where quoted market
prices were not available, prices for similar securities were used. Additional
detail is contained in Note 4 to these consolidated financial statements
<TABLE>
<CAPTION>
1995 1994
-------------------------------- --------------------------------
Estimated Recorded Estimated Recorded
Fair Value Book Value Fair Value Book Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $132,370 $132,370 $105,028 $105,028
Securities 569,623 566,424 648,694 674,171
</TABLE>
The Company aggregated loans into pools having similar characteristics when
comparing their terms, contractual rates, type of collateral, risk profile and
other pertinent loan characteristics. Since no active market exists for these
pools, fair values were estimated using the present value of future cash flows
expected to be received. Loan rates currently offered by the Bank were used in
determining the appropriate discount rate.
<TABLE>
<CAPTION>
1995 1994
-------------------------------- --------------------------------
Estimated Recorded Estimated Recorded
Fair Value Book Value Fair Value Book Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loans, net $855,699 $ 837,033 $ 860,506 $ 845,557
</TABLE>
The fair value of demand deposits, savings deposits and certain money market
accounts approximate their recorded book balances. The fair value of fixed
maturity certificates of deposit was estimated using the present value of
discounted cash flows based on rates currently offered for deposits of similar
remaining maturities.
<TABLE>
<CAPTION>
1995 1994
-------------------------------- --------------------------------
Estimated Recorded Estimated Recorded
Fair Value Book Value Fair Value Book Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deposits $1,417,289 $ 1,425,001 $ 1,494,038 $ 1,491,544
</TABLE>
The fair value for accrued interest receivable and for the other borrowed funds
approximates their respective recorded book balance.
<TABLE>
<CAPTION>
1995 1994
-------------------------------- --------------------------------
Estimated Recorded Estimated Recorded
Fair Value Book Value Fair Value Book Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Accrued interest receivable $15,232 $15,232 $16,072 $16,072
Short-term borrowings 21,654 21,654 50,658 50,658
</TABLE>
The fair value of the subordinated debt was determined by reference to quoted
market prices.
<TABLE>
<CAPTION>
1995 1994
-------------------------------- --------------------------------
Estimated Recorded Estimated Recorded
Fair Value Book Value Fair Value Book Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Subordinated debt $24,621 $25,000 $21,813 $25,000
</TABLE>
- --------------------------------------------------------------------------------
28
<PAGE>
NOTES -- (continued)
- --------------------------------------------------------------------------------
The Company's remaining assets and liabilities which are not considered
financial instruments have not been valued differently than has been customary
with historical cost accounting. There is no material difference between the
notional amount and estimated fair value of off-balance sheet items which are
primarily comprised of unfunded loan commitments which are generally priced at
market at the time of funding.
For certain homogeneous categories of loans, such as some residential mortgages,
fair value is estimated using the quoted market prices for securities backed by
similar loans, adjusted for differences in loan characteristics. The fair value
of other types of loans is estimated by discounting the future cash flows using
the current rates at which similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities.
(20) SUBSEQUENT EVENTS
On January 12, 1996, the Company acquired all of the outstanding shares of
Growth Financial Corp. (Growth) based in Basking Ridge, New Jersey. Each share
of Growth common stock was converted into .69 shares of the Company's common
stock for a total of 1,234,500 shares issued. At the time of the acquisition,
Growth had approximately $125 million in assets. The acquisition has been
accounted for as a pooling of interests. On February 29 the Company completed
the acquisition of three branches from CrossLand Federal Savings Bank. The
branch deposits acquired total approximately $61 million and will compliment the
Company's current branches in Bergen and Middlesex counties.
Unaudited pro forma results of the combining entities are as follows:
1995 1994 1993
- --------------------------------------------------------------------------------
Net interest income:
The Company $81,102 $71,096 $59,039
Growth 5,969 5,298 3,712
------- ------- -------
$87,071 $76,394 $62,751
======= ======= =======
Net income:
The Company $23,684 $17,432 $13,871
Growth 199 1,120 312
------- ------- -------
$23,883 $18,552 $14,183
======= ======= =======
On February 6, 1996, the Company and Lafayette American Bank and Trust Company
signed a definitive agreement under which the Company will acquire Lafayette in
a merger which is intended to be a tax free transaction and which the Company
anticipates will be accounted for as a pooling-of-interests. Each of the
outstanding shares of Lafayette will be exchanged for .588 shares of the
Company's common stock.
At December 31, 1995, Lafayette had total assets of $735 million, deposits of
$636 million, and shareholders' equity of $59 million, and net income of $19
million for the year ended December 31, 1995.
The merger is conditioned upon necessary bank regulatory approvals, the approval
of stockholders of the Company and Lafayette, and other customary conditions. It
is anticipated that the merger will be consummated in the Third Quarter of 1996.
Report of Independent Public Accountants
To the Stockholders and Board of Directors of
HUBCO, Inc.:
We have audited the accompanying consolidated balance sheets of HUBCO, Inc. (a
New Jersey corporation) and subsidiaries as of December 31, 1995 and 1994, and
the related consolidated statements of income, changes in stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the 1993 consolidated financial
statements of Urban National Bank and subsidiary, a company acquired during 1995
in a transaction accounted for as a pooling of interests, as discussed in Note
2. Such statements are included in the 1993 consolidated statements of income,
changes in stockholders' equity and cash flows of HUBCO, Inc. and reflect net
interest income of 14 percent of the consolidated total. These statements were
audited by other auditors whose report has been furnished to us and our opinion,
insofar as it relates to amounts included for Urban National Bank and
subsidiary, is based solely upon the report of the other auditors.
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 and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audit and the report of the other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of HUBCO, Inc. and subsidiaries as of December 31, 1995
and 1994, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1993 the
Company changed its method of accounting for investments in debt and equity
securities.
Roseland, New Jersey
January 11, 1996 (except with respect to the matters
discussed in Note 20, as to which the date is February 6, 1996)
- --------------------------------------------------------------------------------
29
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 85,670
<INT-BEARING-DEPOSITS> 1,114,413
<FED-FUNDS-SOLD> 46,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 300,721
<INVESTMENTS-CARRYING> 265,703
<INVESTMENTS-MARKET> 268,902
<LOANS> 853,984
<ALLOWANCE> 16,951
<TOTAL-ASSETS> 1,613,194
<DEPOSITS> 1,425,001
<SHORT-TERM> 21,654
<LIABILITIES-OTHER> 11,573
<LONG-TERM> 25,000
<COMMON> 23,372
0
0
<OTHER-SE> 106,594
<TOTAL-LIABILITIES-AND-EQUITY> 1,613,194
<INTEREST-LOAN> 80,503
<INTEREST-INVEST> 39,065
<INTEREST-OTHER> 1,143
<INTEREST-TOTAL> 120,711
<INTEREST-DEPOSIT> 35,557
<INTEREST-EXPENSE> 39,609
<INTEREST-INCOME-NET> 81,102
<LOAN-LOSSES> 4,200
<SECURITIES-GAINS> 947
<EXPENSE-OTHER> 60,164
<INCOME-PRETAX> 34,529
<INCOME-PRE-EXTRAORDINARY> 34,529
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,684
<EPS-PRIMARY> 1.82
<EPS-DILUTED> 1.79
<YIELD-ACTUAL> 5.46
<LOANS-NON> 15,593
<LOANS-PAST> 5,473
<LOANS-TROUBLED> 745
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 16,559
<CHARGE-OFFS> (5,248)
<RECOVERIES> 1,440
<ALLOWANCE-CLOSE> 16,951
<ALLOWANCE-DOMESTIC> 11,175
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 5,776
</TABLE>
