SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20545
------------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report
(Date of earliest event reported--August 22, 1996
HUBCO, INC.
(Exact Name of Registrant as Specified in Charter)
NEW JERSEY
(State or Other Jurisdiction of Incorporation)
1-10699 22-2405745
(Commission File Number) (IRS Employer Identification No.)
1000 MacArthur Boulevard, Mahwah, New Jersey 07430
(Address of Principal Executive Offices)
(201) 236-2200
(Registrant's Telephone Number)
<PAGE>
Item 5--Other Events
On August 22, 1996, HUBCO, Inc. ("HUBCO") restated its financial statements
in order to reflect the effect of recent acquisitions accounted for as poolings
of interest. HUBCO'S restated balance sheets at December 31, 1995 and 1994 and
restated income statements for each of the three years in the period ended
December 31, 1995 are included as an exhibit to the Current Report on Form 8-K.
Item 7--Financial Statements, Pro Forma Financial Information and Exhibits
99 Restated Financial Statements of HUBCO, Inc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, HUBCO,
Inc. has duly caused this report to be signed on its behalf by the undersigned
hereunder duly authorized.
HUBCO, INC.
Dated: August 22, 1996 By: KENNETH T. NEILSON
-------------------------------------
Kenneth T. Neilson
President and
Chief Executive Officer
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995, 1994 AND 1993
TOGETHER WITH
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
<PAGE>
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 consolidated financial
statements of Growth Financial Corporation for any of the years presented nor
did we audit the 1993 consolidated financial statements of Urban National Bank.
These entities were acquired during 1996 and 1995, respectively, in transactions
accounted for under the pooling of interests method, as discussed in Note 2.
Such statements collectively reflect net interest income of 7%, 5% and 10% of
the consolidated totals in 1995, 1994 and 1993, respectively. These statements
were audited by other auditors whose reports have been furnished to us and our
opinion, insofar as it related to amounts included for Growth Financial
Corporation and Urban National Bank, for the periods referred to above, is based
solely upon the reports of 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 provide a reasonable basis for our opinion.
In our opinion, based on our audit and the reports 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.
In 1993 the Company changed its method of accounting for investments in debt and
equity securities and purchased mortgage servicing rights.
Roseland, New Jersey
July 1, 1996
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
- ---------------------------------------------------------------------------------------------------
HUBCO, INC. AND SUBSIDIARIES
December 31,
(In thousands, except share data) 1995 1994
- ---------------------------------------- ---------- ----------
<S> <C> <C>
Assets
Cash and due from banks $ 132,778 $ 112,017
Federal funds sold 49,700 37,780
---------- ----------
Total Cash and Cash Equivalents 182,478 149,797
Securities available for sale, at market value
(amortized cost of $416,461 and $196,521
for 1995 and 1994, respectively) 420,162 189,744
Securities held to maturity, at cost (market value
of $297,585 and $640,016 for 1995 and 1994,
respectively) 294,057 672,303
Loans:
Real estate mortgage 871,433 821,206
Commercial and financial 397,662 341,981
Consumer credit 146,960 151,647
Credit card 57,915 67,577
---------- ----------
Total Loans 1,473,970 1,382,411
Less: Allowance for possible loan losses (27,251) (27,617)
---------- ----------
Net Loans 1,446,719 1,354,794
Premises and equipment, net 37,227 42,209
Other real estate owned 11,564 15,494
Intangibles, net of amortization 7,572 9,645
Other assets 68,839 56,296
---------- ----------
TOTAL ASSETS $2,468,618 $2,490,282
========== ==========
Liabilities and Stockholders' Equity
Deposits:
Noninterest bearing $ 477,507 $ 434,613
Interest bearing 1,694,096 1,726,428
---------- ----------
Total Deposits 2,171,603 2,161,041
Borrowings 55,249 109,611
Other liabilities 21,132 23,465
---------- ----------
Total Liabilities 2,247,984 2,294,117
---------- ----------
Subordinated debt 25,000 25,000
---------- ----------
Commitments and contingencies
Stockholders' Equity:
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 19,867,885 and outstanding
19,824,337 shares in 1995 and issued 19,751,644
and outstanding 18,957,860 in 1994 35,325 35,118
Additional paid-in capital 97,439 108,517
Retained earnings 61,888 27,767
Treasury stock, at cost, 43,548 common shares in
1995 and 793,784 common and 9,000 preferred
shares in 1994 (647) (11,764)
Restricted stock award (688) (1,266)
Unrealized gain (loss) on securities available
for sale, net of income taxes 2,317 (6,354)
---------- ----------
Total Stockholders' Equity 195,634 171,165
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,468,618 $2,490,282
========== ==========
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
- ----------------------------------------------------------------------------------------------------
HUBCO, INC. AND SUBSIDIARIES
Year ended December 31, 1995 1994 1993
- ----------------------- -------- -------- --------
<S> <C> <C> <C>
(in thousands, except per share data)
Interest and fee income:
Loans--taxable $130,601 $102,471 $ 95,073
Loans--tax-exempt 286 393 337
Securities--taxable 49,435 47,353 34,969
Securities--tax-exempt 1,128 1,651 1,290
Other 1,476 1,727 2,150
-------- -------- --------
Total interest and fee income 182,926 153,595 133,819
Interest expense:
Deposits 56,567 43,410 42,555
Short-term borrowings 5,600 2,725 1,658
Subordinated debt and other debt 2,246 2,242 874
-------- -------- --------
Total interest expense 64,413 48,377 45,087
-------- -------- --------
Net interest income 118,513 105,218 88,732
Provision for possible loan losses 8,015 7,509 29,027
-------- -------- --------
Net interest income after provision
for possible loan losses 110,498 97,709 59,705
Noninterest income:
Trust department income 1,699 2,025 2,040
Service charges on deposit accounts 12,317 12,554 11,119
Securities gains (losses) 1,215 (420) 1,607
Other income 8,989 4,333 4,421
-------- -------- --------
Total noninterest income 24,220 18,492 19,187
Noninterest expense:
Salaries 33,366 30,100 27,373
Pension and other employee benefits 11,630 9,678 8,003
Occupancy expense 9,540 8,907 8,162
Equipment expense 5,492 5,348 5,008
Deposit insurance and other insurance 4,287 6,219 5,680
Outside services 8,465 7,075 7,318
Other real estate owned expense 1,742 2,869 7,116
Amortization of intangibles 2,181 1,299 40
Other 14,761 11,849 13,711
-------- -------- --------
Total noninterest expense 91,464 83,344 82,411
-------- -------- --------
Income (loss) before income taxes and cumulative
effect of change in accounting principle 43,254 32,857 (3,519)
Provision (benefit) for income taxes 12,657 11,831 (208)
-------- -------- --------
Income (loss) before cumulative effect of change
in accounting principle 30,597 21,026 (3,311)
Cumulative effect of change in accounting principle -- -- (3,118)
-------- -------- --------
Net income (loss) $ 30,597 $ 21,026 $ (6,429)
======== ======== ========
Income (loss) per common share before cumulative
effect of change in accounting principle:
Primary $ 1.53 $ 1.11 $ (0.22)
Fully diluted $ 1.52 $ 1.10 $ (0.22)
Income (loss) per common share after cumulative
effect of change in accounting principle:
Primary $ 1.53 $ 1.11 $ (0.43)
Fully diluted $ 1.52 $ 1.10 $ (0.43)
Weighted Average Shares Outstanding:
Primary 19,671 18,491 14,918
Fully diluted 20,199 19,093 14,918
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------------------------
HUBCO, INC. AND SUBSIDIARIES
For the Years Ended December 31, 1995, 1994, and 1993
(in thousands, except share data)
<CAPTION>
Unrealized
Holding Gain
Convertible (Loss) on
Preferred Stock Common Stock Additional Restricted Securities
----------------- -------------------- Paid-in- Retained Treasury Stock Available
Shares Amount Shares Amount Capital Earnings Stock Award for Sale Total
------- ------- ---------- ------- -------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 51,824 $ 52 13,823,402 $24,577 $ 68,040 $38,017 $ (6) $ (566) $ -- $130,114
Net loss -- 1993 -- -- -- -- -- (6,429) -- -- -- (6,429)
Cash dividends -- -- -- -- -- (3,267) -- -- -- (3,267)
Stock dividends, including
stock dividend of acquired
company -- -- 992,550 1,765 15,266 (17,031) -- -- -- --
Return of 1,122 shares of
restricted stock -- -- -- -- -- -- (11) 10 -- (1)
Issuance of restricted stock -- -- 28,512 51 318 1 280 (668) -- (18)
Amortization of restricted
stock -- -- -- -- -- 19 -- 278 -- 297
Issuance of preferred stock 16,811 17 -- -- 487 -- -- -- -- 504
Purchase of treasury stock -- -- -- -- -- -- (4,834) -- -- (4,834)
Unrealized holding gains on
securities available
for sale -- -- -- -- -- -- -- -- 4,525 4,525
------- ------- ---------- ------- -------- ------- ------ ----- ------ --------
Balance at December 31, 1993 68,635 69 14,844,464 26,393 84,111 11,310 (4,571) (946) 4,525 120,891
======= ======= ========== ======= ======== ======= ====== ===== ====== ========
Net income -- 1994 -- -- -- -- -- 21,026 -- -- -- 21,026
Cash dividends -- common -- -- -- -- -- (3,512) -- -- -- (3,512)
Cash dividends -- preferred -- -- -- -- -- (447) (447) -- -- --
Stock dividend of acquired
company -- 53,029 94 521 (615) -- -- -- --
Return of 4,446 shares of
restricted stock -- -- -- -- -- 6 (43) 37 -- --
Issuance of restricted stock -- -- -- -- -- -- 746 (746) -- --
Amortization of restricted
stock -- -- -- -- -- -- -- 389 -- 389
Issuance of common stock -- -- 4,578,995 8,142 24,175 -- -- -- -- 32,317
Issuance of preferred stock 797,811 19,147 -- -- -- -- -- -- -- 19,147
Conversion of preferred
stock to common stock (68,635) (69) 275,156 489 (420) -- -- -- -- --
Purchase of treasury stock:
preferred -- -- -- -- -- -- (190) -- -- (190)
common -- -- -- -- -- -- (7,665) -- -- (7,665)
Exchange of common stock in
lieu of debt -- -- -- -- -- -- (100) -- -- (100)
Sale of treasury stock -- -- -- -- 5 -- 59 -- -- 64
Effect of compensation plans -- -- -- -- 130 -- -- -- -- 130
Unrealized holding losses on
securities available
for sale -- -- -- -- -- -- -- -- (10,879) (10,879)
Other -- -- -- -- (5) (1) -- -- -- (6)
------- ------- ---------- ------- -------- ------- ------- ----- ------ --------
Balance at December 31, 1994 797,811 19,147 19,751,644 35,118 108,517 27,767 (11,764) (1,266) (6,354) 171,165
======= ======= ========== ======= ======== ======= ====== ===== ====== ========
Net income -- 1995 -- -- -- -- -- 30,597 -- -- -- 30,597
Cash dividends -- common -- -- -- -- -- (8,060) -- -- -- (8,060)
Cash dividends -- preferred -- -- -- -- -- (521) -- -- -- (521)
Stock dividend of acquired
company -- -- 55,655 99 824 (923) -- -- -- --
Return of 11,610 shares of --
restricted stock -- -- -- -- -- -- (141) 141 -- --
Issuance of restricted stock . -- -- -- -- -- -- -- (18) -- (18)
Amortization of restricted
stock -- -- -- -- -- -- -- 455 -- 455
Redemption of preferred stock
and conversion of preferred
stock to common stock (797,811) (19,147) -- -- 452 -- 16,214 -- -- (2,481)
Purchase of treasury stock:
preferred -- -- -- -- -- -- (71) -- -- (71)
common -- -- -- -- -- -- (4,885) -- -- (4,885)
Exercise of stock options -- -- 60,586 108 490 -- -- -- -- 598
Effect of compensation plans -- -- -- -- 184 -- -- -- -- 184
Regulatory approved transfer
of acquired subsidiary -- -- -- -- (13,028) 13,028 -- -- -- --
Unrealized holding gains on
securities available
for sale -- -- -- -- -- -- -- -- 8,671 8,671
------- ------- ---------- ------- -------- ------- ------ ----- ------ --------
Balance at December 31, 1995 -- -- 19,867,885 $35,325 $ 97,439 $61,888 $ (647) $(688) $2,317 $195,634
======= ======= ========== ======= ======== ======= ====== ===== ====== ========
</TABLE>
See Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
HUBCO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(in thousands)
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 30,597 $ 21,026 $ (6,429)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Provision for possible loan losses 8,015 7,509 29,027
Provision for depreciation and amortization 6,944 6,229 4,664
Amortization of securities premiums, net 281 2,769 3,536
Securities (gains) losses (1,215) 420 (1,607)
Gain on sale of loans (308) (681) (566)
Gain on sale of interest in subsidiary (817) -- --
Deferred income tax benefit (7,306) (432) (548)
Branch closure and restructuring costs -- -- 2,370
Cumulative effect of change in accounting for purchased
mortgage servicing rights -- -- 3,118
Net change in loans originated for sale (1,079) 8,939 (1,017)
(Increase) decrease in other assets (1,163) (6,508) 9,939
Decrease in other liabilities (2,535) (48,664) (3,332)
--------- --------- ---------
Net cash provided by (used in) operating activities 31,414 (9,393) 39,155
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities:
Available for sale 129,676 85,763 105,429
Held to maturity -- -- 62,952
Proceeds from repayments and maturities of securities:
Available for sale 35,789 50,436 54,585
Held to maturity 114,597 110,316 156,014
Purchases of securities:
Available for sale (39,777) (29,302) (151,884)
Held to maturity (82,710) (311,221) (323,664)
Net cash acquired through acquisitions -- 117,773 43,134
Net cash paid for acquisitions -- (26,660) (227)
Net decrease in loans (95,323) (7,383) 48,223
Loans purchased (7,260) (1,645) (3,204)
Proceeds from sales of premises and equipment -- 26 --
Purchases of premises and equipment (2,769) (12,541) (5,241)
Decrease in other real estate 4,049 2,671 2,328
--------- --------- ---------
Net cash provided by (used in) investing activities 56,272 (21,767) (11,555)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in demand deposits, NOW accounts and savings accounts $ (39,732) $ (26,676) $ (30,991)
Net increase (decrease) in certificates of deposit 50,294 (7,049) (26,709)
Net (decrease) increase in borrowings (54,362) 30,372 29,850
Proceeds from the issuance of subordinated debt -- 25,000 --
Proceeds from the issuance of common stock 598 32,317 --
Proceeds from the issuance of preferred stock -- -- 504
Redemption of convertible preferred stock (2,481) -- --
Cash dividends (8,581) (3,959) (3,267)
Proceeds from the sale of treasury stock -- 64 --
Acquisition of treasury stock (4,956) (7,855) (4,834)
Proceeds from sale of interest in subsidiary 4,215 -- --
--------- --------- ---------
Net cash provided by (used in) financing activities (55,005) 42,214 (35,447)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents 32,681 11,054 (7,847)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 149,797 138,743 146,590
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 182,478 $ 149,797 $ 138,743
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for--
Interest $ 63,036 $ 46,475 $ 45,485
Income taxes 10,776 8,073 10,222
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 two banking subsidiaries,
Hudson United Bank (Hudson United Bank) and Lafayette American Bank and
Trust Company (Lafayette), with branch locations in New Jersey and
Connecticut. 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. The
financial statements of institutions acquired which have been
accounted for by the pooling of interests method are included herein
for all periods presented.
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. Such 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, increases in capital requirements 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.
<PAGE>
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, 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 all loan origination fees, direct loan origination
costs and loan commitment fees are deferred and recognized over the
estimated life of the related loans as an adjustment of yield.
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 recognize potential
losses on loans, future additions to the allowance may be necessary
based on changes in economic conditions, particularly in its market
areas. 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,
a third-party data processing service provider. The investment is
being accounted for by the equity method.
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).
<PAGE>
Purchased Mortgage Servicing Rights
Purchased mortgage servicing rights are carried at the lower of
amortized cost or the discounted value of the related estimated future
net cash flow stream. The cost of purchased mortgage servicing rights
is amortized over the estimated period of net servicing revenues.
Federal Income Taxes
The Company adopted SFAS No. 109, "Accounting for Income Taxes," in
1992. SFAS No. 109 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.
A deferred tax valuation allowance is established if it is more likely
than not that all or a portion of the Company's deferred tax asset
will not be realized. Changes in the deferred tax valuation allowance
are reported through charges or credits to the income tax provision.
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.
As discussed further in Note (2), the Company acquired all of the
outstanding shares of Lafayette on July 1, 1996. Lafayette established
a valuation allowance due to uncertainties surrounding the ability of
Lafayette to realize its deferred tax assets. This valuation allowance
was reduced during 1995 and 1994 through credits to the provision for
income taxes. Considering the combined operating results of HUBCO, it
is unlikely that the Company would have established this valuation
allowance with respect to its federal deferred tax assets had the
companies been combined. Accordingly, the accompanying financial
statements (including quarterly financial information in Note 18) have
been restated to reflect what the changes to the valuation allowance
would have been had the companies always been combined. This
restatement resulted in a decrease in net income of $12,212 and $3,663
in 1995 and 1994, respectively, and a decrease in net loss of $8,524
in 1993.
Recent Accounting Pronouncements
Effective January 1, 1996, the Company will be required to adopt SFAS
No. 121, "Accounting for Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of." This standard requires that
long-lived assets and certain identifiable intangibles held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Management believes that the adoption of the standard
will not have a material impact on the Company's financial position or
results of operations.
Effective January 1, 1996, the Company will be required to adopt SFAS
No. 123, "Accounting for Stock-Based Compensation." This statement
establishes financial accounting and reporting standards for
stock-based employee compensation plans and will allow companies to
choose either 1) a fair value method of valuing stock-based
compensation plans which will affect reported net income, or 2) to
continue following the existing accounting rules for stock option
accounting but disclose what the impacts would have been had the new
standard been adopted. The Company will choose the disclosure option
of this standard which would require disclosing the pro forma net
income and earnings per share amounts assuming the fair value method
was adopted on January 1, 1995. As a result, the adoption of this
standard will not impact the Company's financial position or results
of operations.
Effective January 1, 1997, the Company will be required to adopt SFAS
No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities." This statement provides
accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. Those standards
are based on consistent application of a financial-components approach
that focuses on control. Under that approach, after a transfer of
financial assets, an entity recognizes the financial and servicing
assets it controls and the liabilities it has incurred, derecognizes
financial assets when control has been surrendered, and derecognizes
liabilities when extinguished. This statement provides consistent
standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings. Management believes
that the adoption of the standard will not have a material impact on
the Company's financial position or results of operation.
<PAGE>
Per Share Amounts
Primary income per common share is computed by dividing net income,
less dividends on the 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.
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 outstanding was converted into .69 shares of
the Company's common stock, for a total of 1,234,522 shares. At the time of
the acquisition, Growth had approximately $128,000 in assets.
On July 1, 1996, the Company acquired all of the outstanding shares of
Lafayette American Bank and Trust Company (Lafayette), based in Bridgeport,
Connecticut. Each share of Lafayette common stock outstanding was converted
into .588 shares of the Company's common stock, for a total of 5,718,257
shares. At the time of the acquisition, Lafayette had approximately
$741,000 in assets.
The above acquisitions have been accounted for by the pooling-of-interests
method of accounting. Accordingly, the accompanying consolidated financial
statements include the accounts of these acquired institutions for all
periods presented.
<PAGE>
Separate results of the combining entities are as follows-
1995
--------
Net interest income-
The Company $ 81,102
Growth 5,969
Lafayette 31,442
--------
$118,513
========
Net income-
The Company $ 23,684
Growth 198
Lafayette 6,715
--------
$ 30,597
========
1994 1993
-------- --------
Net interest income-
The Company $ 58,021 $ 47,018
Jefferson 3,775 3,808
Urban 9,300 8,213
Growth 5,298 3,712
Lafayette 28,824 25,981
-------- --------
$105,218 $ 88,732
======== ========
Net income (loss) -
The Company $ 16,931 $ 14,202
Jefferson (983) (1,356)
Urban 1,484 1,025
Growth 1,120 312
Lafayette (1) 2,474 (20,612)
-------- --------
$ 21,026 $ (6,429)
======== ========
(1) Represents amounts previously reported by Lafayette as restated for certain
changes in the timing of deferred tax asset valuation allowance changes (see
Note 1 - Federal Income Taxes).
On June 30, 1993, the Company, through Hudson United Bank acquired deposits of
$123,000 and certain assets of Pilgrim State Bank from Ramapo Bank. On May 6,
1994, the Company, through Hudson United Bank acquired deposits of $104,000 and
certain assets of Polifly Federal Savings & Loan Association from the Resolution
Trust Corporation.
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.
<PAGE>
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.
On June 21, 1996, the Company and Westport Bancorp, Inc., ("Westport")
based in Westport, Connecticut, signed a definitive agreement under which
the Company will acquire Westport in a merger which is intended to be a
tax-free transaction and which will be accounted for as a
pooling-of-interests. Each of the outstanding shares of Westport will be
exchanged for .3225 shares of the Company's common stock. Management
expects that the acquisition, which is subject to regulatory approval, will
be consumated in November, 1996. In addition, in February 1996, The Company
completed the acquisition of three branches from Crossland Federal Savings
Bank having deposits of approximately $60,000.
(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 banks was approximately $31,000.
(4) SECURITIES
The amortized cost and estimated market value of securities as of December
31, are summarized as follows:
<TABLE>
<CAPTION>
1995
------------------------------------------------------------------
Gross Unrealized Estimated
Amortized ---------------------------- Market
Cost Gains Losses Value
----------- --------- --------- ----------
<S> <C> <C> <C> <C>
Available for Sale
U. S. Government $148,016 $ 1,662 $ (408) $149,270
U. S. Government agencies 233,089 1,333 (1,706) 232,716
States and political subdivisions 10,095 30 (10) 10,115
Other debt securities 16,476 198 (52) 16,622
Equity securities 8,785 2,935 (281) 11,439
-------- -------- ------- --------
$416,461 $ 6,158 $(2,457) $420,162
======== ======== ======= ========
Held to Maturity
U. S. Government $ 95,521 $ 2,438 $ (18) $ 97,941
U. S. Government agencies 198,536 2,300 (1,192) 199,644
-------- -------- ------- --------
$294,057 $ 4,738 $(1,210) $297,585
======== ======== ======= ========
1994
-----------------------------------------------------------------
Gross Unrealized Estimated
Amortized ---------------------------- Market
Cost Gains Losses Value
----------- --------- --------- -----------
Available for Sale
U. S. Government $ 73,916 $ 11 ($ 1,850) $ 72,077
U. S. Government agencies 116,757 -- (6,469) 110,288
States and political subdivisions 1,202 1 (4) 1,199
Other debt securities 3,216 -- -- 3,216
Equity securities 1,430 1,657 (123) 2,964
-------- ------ -------- --------
$196,521 $ 1,669 ($ 8,446) $189,744
======== ======== ======== ========
Held to Maturity
U. S. Government $248,926 $ 4 ($ 7,022) $241,908
U. S. Government agencies 371,144 46 (24,278) 346,912
States and political subdivisions 33,986 58 (631) 33,413
Other debt securities 18,247 20 (484) 17,783
-------- -------- -------- --------
$672,303 $ 128 ($32,415) $640,016
======== ======== ======== ========
</TABLE>
<PAGE>
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 $101,897 $102,113
Due after one year through five years 154,482 155,948
Due after five years through ten years 8,667 8,610
Due after ten years 3,339 3,312
-------- --------
268,385 269,983
Mortgage-backed securities 139,291 138,740
Equity securities 8,785 11,439
-------- --------
$416,461 $420,162
======== ========
Held to Maturity
----------------
Due in one year or less $ 33,477 $ 33,494
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
-------- --------
199,928 202,857
Mortgage-backed securities 94,129 94,728
-------- --------
$294,057 $297,585
======== ========
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 $316,828 and an estimated market value of $310,915 from
held-to-maturity to available for sale. Securities with an amortized cost
of $ 24,998 and an estimated market value of $24,749 were sold in December
1995, resulting in a realized loss of $249.
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. 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 $99,721 and an estimated market value of $98,698 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 a portion of the
transfer and sale was to fund the purchase price and repay assumed debt
related to the Shoppers business combination. 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:
<PAGE>
1995 1994 1993
-------- ------- --------
Proceeds from sales $129,676 $85,763 $168,381
Gross gains from sales 2,149 22 1,705
Gross losses from sales (934) (442) (98)
Securities with a book value of $107,740 and $121,223 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 of the subsidiary banks.
(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-
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Balance at January 1 $ 27,617 $ 30,439 $ 28,811
Additions (deductions)-
Provision charged to expense 8,015 7,509 29,027
Allowance acquired through mergers
or acquisitions -- 4,717 400
Recoveries on loans previously charged off 2,421 2,031 1,431
Loans charged off (10,802) (18,514) (22,448)
Transfers from (to) assets held for sale or reserve
for foreclosed property losses -- 1,435 (6,782)
-------- -------- --------
Balance at December 31 $ 27,251 $ 27,617 $ 30,439
======== ======== ========
</TABLE>
(7) NONPERFORMING ASSETS
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 $23,203 $28,768
Renegotiated loans 2,376 5,631
------- -------
Total nonperforming loans $25,579 $34,399
======= =======
90 days or more past due and still accruing $ 6,064 $ 3,365
======= =======
Gross interest income which would have
been recorded under original terms $ 2,297 $ 2,881
Gross interest income recorded during the year 489 418
Commitments for additional funds -- --
======= =======
<PAGE>
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 $26,194 and $29,500 , respectively. The allowance
for possible loan losses related to such impaired loans was $2,885 and
$4,127 at December 31, 1995 and 1994, respectively.
Included in the consolidated balance sheets as of December 31, 1995 and
1994 is $5,347 and $5,581, respectively, of net cash surrender value (net
of insurance premium loans in the amount of $1,521 and $585, respectively)
pertaining to life insurance policies issued by a company (affiliated with
Confederation Life Insurance Company of Canada) which was placed in
rehabilitation during 1994. Although uncertainties exist as a result of the
rehabilitation process and although the Company has ceased accruing
interest on this asset, the information available to the Company does not
indicate that this asset (which is not included in the preceding
nonperforming asset table) is impaired.
(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 $17,822
New loans issued 9,966
Repayment of loans (10,249)
Loans to former directors (3,081)
-------
Balance at December 31 $14,458
=======
(9) PREMISES AND EQUIPMENT
The following is a summary of premises and equipment-
1995 1994
-------- --------
Land $ 8,186 $ 9,113
Premises 32,816 33,291
Furniture, fixtures and equipment 22,291 23,937
-------- --------
63,293 66,341
Less- Accumulated depreciation (26,066) (24,132)
-------- --------
$ 37,227 $ 42,209
======== ========
Depreciation and amortization expense for premises and equipment for 1995,
1994 and 1993 amounted to $4,258, $4,292 and $4,022, respectively.
<PAGE>
(10) INCOME TAXES
The components of the provision (benefit) for income taxes are as follows-
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Federal-
Current $ 5,985 $ 5,664 $ 7,587
Deferred 4,799 3,795 (8,853)
State 1,873 2,372 1,058
------- ------- -------
Total provision (benefit) for income taxes $12,657 $11,831 $ (208)
======= ======= =======
</TABLE>
A reconciliation of the provision (benefit) for income taxes, as reported,
with the Federal income tax at the statutory rate of 35 percent is as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Tax at statutory rate $15,139 $11,500 $(1,231)
Increase (decrease) in taxes resulting from-
Tax-exempt income (495) (715) (569)
State income taxes, net of
Federal income tax benefit 1,217 1,541 (688)
Reversal of reserves no longer deemed
necessary (2,076) -- --
Change in valuation allowance (2,861) (1,296) 1,339
Provision for assessments 1,078 530 --
Other, net 655 271 862
------- ------- -------
Provision (benefit) for income taxes $12,657 $11,831 $ (208)
======= ======= =======
</TABLE>
Significant components of deferred tax assets and liabilities as of
December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Deferred Tax Assets (Liabilities):
Allowance for possible loan losses $10,605 $ 6,595
Federal and state tax operating loss carryforwards 8,801 10,654
Director and officer compensation plans 1,212 1,245
Purchased mortgage servicing rights 1,140 1,250
Provision for foreclosed property losses 826 1,259
Depreciation 503 336
Unrealized (gain) loss on available for sale securities (1,498) 1,684
Cash basis of reporting tax return income 478 729
Other 898 (399)
------- -------
22,965 23,353
Valuation Allowance (1,225) (4,086)
------- -------
Net Deferred Tax Asset $21,740 $19,267
======= =======
</TABLE>
<PAGE>
The deferred tax valuation allowance of $1,225 as of December 31, 1995,
represents management's estimate of state operating loss carryforwards
which may not be fully realizable. Management periodically evaluates the
realizability of its deferred tax asset and will adjust the level of the
valuation reserve if it is deemed more likely than not that all or a
portion of the asset is realizable.
As of December 31, 1995, the Company had the following Federal and state
carryforwards available for tax reporting purposes which are subject to
certain limitations as to the amount which may be utilized in any given
year:
Amount Expiration Dates
------- ----------------
Federal regular net operating
loss carryforwards $17,472 1998 - 2009
Federal AMT credit carryforwards $ 856 N/A
State net operating loss carryforwards $28,786 1996 - 1999
(11) PENSION PLANS AND
POSTRETIREMENT BENEFITS
The Company and its acquired subsidiaries have certain pension plans which
cover eligible employees. 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 includes the following-
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Service cost -- benefits earned during the year $ 735 $ 572 $ 406
Interest cost on projected benefit obligation 1,186 812 735
Actual return on plan assets (3,804) (541) (830)
Net amortization and deferral 2,709 (329) (83)
------- ------- -------
Net periodic pension cost $ 826 $ 514 $ 228
======= ======= =======
</TABLE>
Assumptions used by HUBCO in the accounting for its 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%
<PAGE>
The following table sets forth the funded status and amounts recognized in
the consolidated balance sheets at December 31 for the Company's plans:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Actuarial present value of benefit obligations-
Accumulated benefit obligation, including
vested benefits of $15,578 and $9,688 for
1995 and 1994, respectively $16,085 $ 8,393
------- --------
Projected benefit obligation for service rendered to date (17,955) (11,997)
Plan assets at fair value 18,088 11,303
------- --------
Projected benefit obligation (greater than) less than
plan assets 133 (694)
Unrecognized portion as of December 31, of
net asset existing at date of adoption of FASB
Statement No. 87 (217) (274)
Prior service cost not yet recognized in net
periodic pension cost 1,089 679
Unrecognized net asset at December 31 (61) 1,063
------- --------
Prepaid pension costs included in other assets $ 944 $ 774
======= ========
</TABLE>
The Company and its acquired subsidiaries have four 401(k) savings plans
covering substantially all of its 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 $549, $262 and $196 in 1995, 1994 and 1993, respectively.
Except for the pension plans, the Company does not provide any significant
post-retirement benefits.
(12) SUBORDINATED DEBT
In January, 1994, the Company sold $25,000 aggregate principal amount of
subordinated debentures. The debentures, which mature 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 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 750,000 stock options or
restricted stock grants to employees of the Company in addition to
restricted stock awards previously granted. The option or grant 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. In connection with
the Lafayette and Growth acquisitions, the Company issued HUBCO common
shares to the holders of options to purchase Lafayette or Growth common
stock, the value of which was based on the value of the options on the date
of acquisition.
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
<PAGE>
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.
Deferred compensation arrangements have been established for certain
directors and management members. These plans provide for certain annual
payments upon retirement. In conjunction with certain of these
arrangements, Lafayette is the beneficiary under life insurance policies
that it has purchased on the respective participants and other
nonparticipating employees. These plans do not hold any assets.
Deferred compensation expense related to the plans for 1995, 1994 and 1993
was $80, $209 and $1,149, respectively.
(14) RESTRICTIONS ON BANK DIVIDENDS, LOANS OR ADVANCES
Certain restrictions exist regarding the ability of Hudson United Bank to
transfer funds to the Company in the form of cash dividends, loans or
advances. New Jersey 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. Connecticut state banking regulations
allow for the declaration and payment of cash dividends only from the
current year's and the two prior year's retained net profits. As of
December 31, 1995, $107,492 was available for distribution to the Company
from Hudson United Bank.
Under Federal Reserve regulations, the Banks are limited as to the amounts
it may loan to its affiliates, including the Company. All such loans are
required to be collateralized by specific obligations. During 1994, the
Company obtained a loan from Hudson United Bank for $4,000 in order to
finance the purchase of its new administrative facility. The loan has been
collateralized by the property.
(15) LEASES:
Total rental expense for all leases amounted to approximately $3,973,
$3,877 and, $3,524 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 $3,232
1997 2,990
1998 2,722
1999 2,261
2000 1,927
Thereafter 7,525
It is expected that in the normal course of business, leases that expire
will be renewed or replaced by leases of other properties.
(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
<PAGE>
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, commitments to extend lines of credit 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 lines of credit and standby letters of credit
outstanding at December 31, 1995 was $272,253 and $20,201, respectively.
Commitments under commercial letters of credit used to facilitate customers
trade transactions were $1,414 at December 31, 1995.
(17) HUBCO, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION:
<TABLE>
<CAPTION>
December 31
----------------------
BALANCE SHEETS 1995 1994
-------------- -------- --------
<S> <C> <C>
Assets:
Cash $ 4,619 $ 3,799
Securities-
Available for sale 12,387 8,146
Held to maturity - 11,904
Loan receivable - 494
Investment in subsidiaries 185,845 164,154
Accounts receivable 7,572 1,121
Premises and equipment, net 5,600 8,066
Other assets 10,179 4,081
-------- --------
Total assets $226,202 $201,765
======== ========
Liabilities and Stockholders' Equity:
Accounts payable $ 499 $ 378
Notes payable-subsidiary 3,566 3,938
Accrued taxes and other liabilities 1,503 1,284
-------- --------
Total liabilities 5,568 5,600
Subordinated debt 25,000 25,000
Stockholders' equity 195,634 171,165
-------- --------
Total liabilities and stockholders' equity $226,202 $201,765
======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------
STATEMENTS OF INCOME 1995 1994 1993
-------------------- ------- ------- -------
Income:
<S> <C> <C> <C>
Cash dividends from bank subsidiary $17,908 $14,261 $11,381
Interest 851 1,286 256
Securities gains 813 -- --
Rental income 1,714 238 238
Other 748 -- --
------- ------- -------
22,034 15,785 11,875
Expenses:
General and administrative 1,581 1,625 756
Interest 2,420 1,914 --
------- ------- -------
4,001 3,539 756
------- ------- -------
Income before income tax provision (benefit)
and equity in undistributed
net income (loss) of subsidiaries 18,033 12,246 11,119
Income tax provision (benefit) 46 (742) (73)
------- ------- -------
17,987 12,988 11,192
Equity in undistributed net income (loss) of subsidiaries 12,610 8,038 (17,621)
------- ------- -------
Net income (loss) $30,597 $21,026 $(6,429)
======= ======= =======
</TABLE>
<PAGE>
HUBCO, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------
STATEMENTS OF CASH FLOWS 1995 1994 1993
------------------------ ------- ------- -------
Operating activities:
<S> <C> <C> <C>
Net income (loss) $30,597 $21,026 $(6,429)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities--
Provision for depreciation 186 301 66
Amortization of restricted stock 455 389 278
Securities gains (813) -- --
Gain on sale of interest in subsidiary (817) -- --
(Increase) decrease in investment in
subsidiaries (18,745) (4,366) 17,622
Increase in accounts receivable (6,451) (644) (140)
Increase in other assets (6,116) (4,006) (66)
Decrease in notes payable (372) -- --
Increase (decrease) in accounts payable 121 (1,847) 2,225
Increase (decrease) in accrued taxes
and other liabilities 229 916 (167)
------- ------- -------
Net cash provided by (used in)
operating activities (1,726) 11,769 13,389
------- ------- -------
Investing activities:
Proceeds from sale of securities 18,909 -- --
Proceeds from maturities of securities 196 865 1,339
Purchase of securities (5,191) (15,651) (6,227)
Net decrease (increase) in loans 494 (494) --
Capital expenditures (1,116) (7,077) --
------- ------- -------
Net cash provided by (used in)
investing activities 13,292 (22,357) (4,888)
------- ------- -------
Financing activities:
Proceeds from sale of interest in subsidiary 4,215 -- --
Proceeds from issuance of common stock 557 -- --
Proceeds from issuance of subordinated debt -- 25,000 --
Dividends paid (8,081) (3,959) (3,267)
Redemption of convertible preferred stock (2,481) -- --
Acquisition of treasury stock (4,956) (7,855) (4,834)
Other -- -- (21)
------- ------- -------
Net cash provided by (used
in) financing activities (10,746) 13,186 (8,122)
------- ------- -------
Increase in cash 820 2,598 379
Cash at beginning of year 3,799 1,201 822
------- ------- -------
Cash at end of year $4,619 $3,799 $1,201
======= ======= =======
</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.
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------------------------
March 31 June 30 September 30 December 31
-------------- ------------ ------------------ -------------------
1995
<S> <C> <C> <C> <C>
Net interest income $29,587 $29,560 $29,434 $29,932
Provision for possible loan losses 2,225 2,015 1,650 2,125
Income before income taxes 10,018 9,076 12,424 11,736
Net income 6,626 8,400 8,606 6,965
Net income per share-primary .33 .42 .43 .35
Net income per share-fully diluted .32 .42 .43 .35
1994
Net interest income $23,162 $24,658 $28,091 $29,307
Provision for possible loan losses 1,282 1,658 1,941 2,628
Income before income taxes 7,658 7,588 9,030 8,581
Net income 4,936 5,024 5,808 5,258
Net income per share - primary .30 .26 .29 .26
Net income per share - fully diluted .30 .26 .28 .26
</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 $182,478 $182,478 $149,797 $149,797
Securities 717,747 714,219 829,760 862,047
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>
<TABLE>
<CAPTION>
1995 1994
------------------------------------ -----------------------------------
Estimated Recorded Book Estimated Recorded Book
Fair Value Value Fair Value Value
---------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Loans, net $1,409,851 $1,446,719 $1,302,714 $1,354,794
</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
<PAGE>
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 $2,164,909 $2,171,603 $2,163,524 $2,161,041
</TABLE>
The fair value for accrued interest receivable, the cash surrender
value of life insurance policies 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 $20,602 $20,602 $21,109 $21,109
Cash surrender value of
life insurance 8,474 8,474 7,592 7,592
Short-term borrowings 55,279 55,249 109,611 109,611
</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>
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.
