SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------------------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- ----ACT OF 1934
For the quarterly period ended September 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----EXCHANGE ACT OF 1934
For the transition period from____________________to
Commission File Number 0-010699
HUBCO, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-2405746
---------- ----------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1000 MacArthur Blvd
Mahwah, New Jersey 07430
------------------ -----
(Address of principal executive office) (Zip Code)
(201)-236-2600
(Registrant's telephone number, including area code)
Not Applicable
Former name, former address, and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days Yes X No
---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each, of the issuer's classes of
common stock, as of the last practicable date:
19,798,836 shares, no par value, outstanding as of November 13, 1996.
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements (Unaudited):
Consolidated Balance Sheets
At September 30, 1996 and December 31, 1995.................. 1
Consolidated Statements of Income
For the three-month and nine-month periods ended
September 30, 1996 and 1995.................................. 2 - 3
Consolidated Statements of Cash Flows
For the nine-month periods ended
September 30, 1996 and 1995.................................. 4
Notes to Consolidated Financial Statements................... 5 - 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................ 8 - 14
PART II. OTHER INFORMATION
- --------------------------
Item 6. Exhibits and Reports on Form 8-K............................. 15
Signatures................................................... 16
PART III. FINANCIAL DATA SCHEDULE .................................. 17
- -----------------------------------
<PAGE>
PART I. FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In Thousands Except Share Data)
<TABLE>
<CAPTION>
September 30 December 31
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
Cash and due from banks $162,360 $132,778
Federal funds sold -- 49,700
-------- --------
TOTAL CASH EQUIVALENTS 162,360 182,478
Securities available for sale, at market value
(amortized cost of $569,111 and $416,461
in 1996 and 1995, respectively) 567,393 420,162
Securities held to maturity, at cost (market value of
$273,065 and $297,585 in 1996 and 1995, respectively) 274,226 294,057
Loans:
Real estate-mortgage 945,866 852,872
Commercial and financial 440,618 387,989
Consumer credit 171,427 175,194
Credit card 51,499 57,915
-------- ---------
TOTAL LOANS 1,609,410 1,473,970
Less: Allowance for possible loan losses (29,709) (27,251)
---------- -----------
NET LOANS 1,579,701 1,446,719
Premises and equipment, net 39,983 37,227
Other real estate owned 7,094 11,564
Intangibles, net of amortization 23,074 7,572
Other assets 70,833 68,839
-------- ----------
TOTAL ASSETS $2,724,664 $2,468,618
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing $ 481,751 $ 477,507
Interest bearing 1,757,406 1,694,096
---------- ----------
TOTAL DEPOSITS 2,239,157 2,171,603
Borrowings 180,751 55,249
Other liabilities 22,125 21,132
---------- ----------
TOTAL LIABILITIES 2,442,033 2,247,984
---------- ----------
Subordinated Debt 100,000 25,000
---------- ----------
Commitments and contingencies
Stockholders' equity:
Convertible Preferred Stock-Series A, no par value;
authorized 10,000,000 shares, no shares outstanding
Common stock, no par value, authorized 50,000,000
shares; issued 19,785,424 and outstanding
19,277,511 shares in 1996 and issued 19,867,885
and outstanding 19,824,337 in 1995 35,178 35,325
Additional paid-in capital 90,450 97,439
Retained earnings 68,607 61,888
Treasury shares, at cost, 507,913 shares in 1996
and 43,548 shares in 1995 (10,408) (647)
Restricted stock awards (344) (688)
Unrealized gain (loss) on securities
available for sale, net of income taxes (852) 2,317
---------- ---------
TOTAL STOCKHOLDERS' EQUITY 182,631 195,634
---------- ----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $2,724,664 $2,468,618
========== ==========
</TABLE>
See notes to consolidated financial statements
<PAGE>
HUBCO, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In Thousands Except Share Data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
SEPTEMBER 30
------------
1996 1995
---- ----
INTEREST AND FEE INCOME:
<S> <C> <C>
Loans-taxable $32,712 $32,951
Loans-tax exempt 54 67
Securities-taxable 11,617 12,148
Securities-tax-exempt 111 253
Other 141 432
------- -------
TOTAL INTEREST AND FEE INCOME 44,635 45,851
------- -------
INTEREST EXPENSE:
Deposits 14,201 14,596
Borrowings 1,107 1,286
Subordinated debt 822 535
------- -------
TOTAL INTEREST EXPENSE 16,130 16,417
------- -------
NET INTEREST INCOME 28,505 29,434
------- -------
PROVISION FOR POSSIBLE LOAN LOSSES 1,429 1,650
------- -------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 27,076 27,784
NON-INTEREST INCOME:
Trust department income 267 393
Service charges on deposit accounts 3,448 3,194
Securities gains 85 73
Other income 2,284 2,645
------- -------
TOTAL NON-INTEREST INCOME 6,084 6,305
------- -------
NON-INTEREST EXPENSE:
Salaries 7,812 8,248
Pension and other employee benefits 2,318 2,725
Occupancy expense 1,571 2,587
Equipment expense 1,100 1,639
Deposit insurance and other insurance 260 864
Outside services 2,120 1,885
Other real estate owned expense 563 619
Amortization of intangibles 777 546
Other 3,404 2,551
SAIF special assessment 825 --
Merger related and restructuring charges 10,931 --
------- -------
TOTAL NON-INTEREST EXPENSE 31,681 21,664
INCOME BEFORE INCOME TAXES 1,479 12,425
PROVISION FOR INCOME TAXES 211 3,819
------- -------
NET INCOME $ 1,268 $ 8,606
======= =======
INCOME PER COMMON SHARE:
Primary $ 0.06 $ 0.42
Fully Diluted $ 0.06 $ 0.42
WEIGHTED AVERAGE SHARES OUTSTANDING:
Common 19,835 20,632
</TABLE>
See notes to consolidated financial statements
<PAGE>
HUBCO, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In Thousands Except Share Data)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------
SEPTEMBER 30
------------
1996 1995
---- ----
<S> <C> <C>
INTEREST AND FEE INCOME:
Loans-taxable $ 97,893 $ 97,304
Loans-tax exempt 165 227
Securities-taxable 34,659 37,351
Securities-tax-exempt 346 840
Other 445 1,050
-------- --------
TOTAL INTEREST AND FEE INCOME 133,508 136,772
-------- --------
INTEREST EXPENSE:
Deposits 42,742 41,851
Borrowings 3,068 4,714
Subordinated debt 1,827 1,626
-------- --------
TOTAL INTEREST EXPENSE 47,637 48,191
-------- --------
NET INTEREST INCOME 85,871 88,581
-------- --------
PROVISION FOR POSSIBLE LOAN LOSSES 5,825 5,890
-------- --------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 80,046 82,691
NON-INTEREST INCOME:
Trust department income 810 1,410
Service charges on deposit accounts 9,559 9,738
Securities gains 996 1,165
Other income 7,252 6,082
-------- --------
TOTAL NON-INTEREST INCOME 18,617 18,395
-------- --------
NON-INTEREST EXPENSE:
Salaries 22,966 25,531
Pension and other employee benefits 6,447 8,936
Occupancy expense 6,407 7,181
Equipment expense 3,438 4,955
Deposit insurance and other insurance 765 3,866
Outside services 7,183 5,659
Other real estate owned expense 2,242 1,223
Amortization of intangibles 2,119 1,636
Other 9,194 10,580
SAIF special assessment 825 --
Merger related and restructuring charges 13,018 --
-------- --------
TOTAL NON-INTEREST EXPENSE 74,604 69,567
INCOME BEFORE INCOME TAXES -------- --------
PROVISION FOR INCOME TAXES 24,059 31,519
8,841 7,887
-------- --------
NET INCOME $ 15,218 $ 23,632
======== ========
INCOME PER COMMON SHARE:
Primary $ 0.76 $ 1.15
Fully Diluted $ 0.76 $ 1.14
WEIGHTED AVERAGE SHARES OUTSTANDING:
Common 20,044 20,057
Preferred -- 680
</TABLE>
See notes to consolidated financial statements
<PAGE>
HUBCO, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In Thousands Except Share Data)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
------------
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 15,218 $ 23,632
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible loan losses 5,825 5,890
Provision for depreciation and amortization 7,544 6,021
Amortization of security premiums, net 1,333 1,196
Securities gains (996) (1,165)
Loss on sale of premises and equipment -- 232
Deferred income tax provision 234 947
Decrease in other assets 26,253 500
Increase (decrease) in other liabilities 2,162 (12,284)
--------- ---------
NET CASH PROVIDED BY(USED IN)
OPERATING ACTIVITIES 57,573 24,969
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of securities:
Available for sale 37,759 23,680
Held to maturity -- --
Proceeds from repayments and maturities of securities:
Available for sale 120,440 31,976
Held to maturity 54,967 98,484
Purchases of securities:
Available for sale (307,125) (29,626)
Held to maturity (27,417) (58,929)
Net cash acquired through acquisitions 17,037 --
Loan purchased -- (3,597)
Net increase in loans (39,872) (56,339)
Proceeds from sales of premises and equipment 34 1,533
Purchases of premises and equipment (4,024) (3,355)
Decrease in other real estate 4,763 230
--------- ---------
NET CASH PROVIDED BY
(USED IN)INVESTING ACTIVITIES (143,438) 4,057
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in demand deposits,
NOW accounts and savings accounts (89,036) (149,066)
Net increase in certificates of deposits (5,447) 85,700
Net increase (decrease) in short-term borrowings 111,260 (233)
Net increase in other borrowings 1,742 108
Net proceeds from issuance of subordinated debt 73,738 --
Proceeds from issuance of common stock 271 --
Cash dividends (9,527) (5,669)
Acquisition of treasury stock (17,254) (4,886)
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 65,747 (74,046)
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (20,118) (45,020)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 182,478 149,797
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 162,360 $ 104,777
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest $ 44,113 $ 44,425
Income taxes 10,057 10,512
========= =========
</TABLE>
See notes to Consolidated Financial Statements.
<PAGE>
HUBCO, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
HUBCO Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A -- BASIS OF PRESENTATION
The accompanying financial statements of HUBCO, Inc. and Subsidiaries ("HUBCO"
or "the Company") include the accounts of the parent company, HUBCO, Inc. and
its wholly-owned subsidiaries: Hudson United Bank ("Hudson United Bank"),
Lafayette American Bank & Trust Co. ("Lafayette") and HUB Investment Co. All
material intercompany balances and transactions have been eliminated in
consolidation. These unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the information presented
includes all adjustments, consisting of normal recurring accruals, considered
necessary for a fair presentation, in all material respects, of the interim
period results. The results of operations for periods of less than one year are
not necessarily indicative of results for the full year.
NOTE B -- ACQUISITIONS
Completed
On January 12, 1996, HUBCO acquired Growth Financial Corp. ("Growth"), a $128
million bank holding company with 3 branch locations in Somerset and Morris
counties, New Jersey, in a stock-for-stock transaction which was accounted for
on the pooling-of-interests method of accounting. Under the terms of the merger
agreement, Growth Bank was immediately merged into Hudson United Bank and
Growth's stockholder's received .69 of a share of HUBCO common stock, .71 of a
share as adjusted for the 3% stock dividend declared on October 24, 1996, in
exchange for each share of Growth common stock, resulting in the issuance of
approximately 1.3 million shares of HUBCO common stock. Since the Growth
acquisition was accounted for as a pooling-of-interests, the consolidated
financial statements have been restated to include the accounts of Growth for
all periods presented.
On February 29, 1996, HUBCO acquired three branch offices located in Bergen and
Middlesex counties, New Jersey, and related deposits from CrossLand Federal
Savings Bank ("CrossLand"). As a result of this transaction, Hudson United Bank
assumed approximately $60.6 million of deposit liabilities and cash of
approximately $56.7 million, net of a deposit premium of approximately $3.0
million.
On July 1, 1996, HUBCO acquired Lafayette American Bank and Trust Company
("Lafayette"), a $741 million commercial bank headquartered in Fairfield county,
Connecticut, in a stock-for-stock transaction which was accounted for on the
pooling-of-interests method of accounting. Under the terms of the agreement,
Lafayette's stockholders received .588 of a share of HUBCO common stock, .606 of
a share as adjusted for the 3% stock dividend declared on October 24, 1996, in
exchange for each share of Lafayette common stock, resulting in the issuance of
approximately 5.9 million shares of HUBCO common stock. Lafayette is a separate
subsidiary of HUBCO.
On August 30, 1996, HUBCO acquired Hometown Bancorporation ("Hometown"), a $194
million bank holding company with 2 branch locations in Fairfield county
Connecticut, for $17.75 per share in cash for each share of Hometown common
stock. Hometown's banking subsidiary, The Bank of Darien was merged into
Lafayette. This transaction was accounted for as a purchase and therefore,
Hometown's results of operations have been included in HUBCO's from August 30,
1996 forward.
<PAGE>
Pending
On June 21, 1996, HUBCO entered into an Agreement and Plan of merger with
Westport Bancorp, Inc. ("Westport"), by which HUBCO will acquire Westport and
will merge its subsidiary, The Westport Bank & Trust Company, into Lafayette
adding approximately $317 million of assets to HUBCO. The transaction calls for
HUBCO to exchange .332175 of a share of HUBCO common stock, as adjusted for the
3% stock dividend declared on October 24, 1996, for each outstanding share of
Westport common stock. Westport's convertible preferred stock will be converted
into a new HUBCO preferred issue with identical terms including an equivalent
dividend yield. The transaction will be accounted for as a pooling-of-interests
and is expected to close in the fourth quarter of 1996.
On August 16, 1996, Lafayette executed a Definitive Agreement to acquire UST
Bank/Connecticut, a subsidiary of UST Corp, in a cash transaction. UST
Bank/Connecticut is a $111 million commercial bank with 4 branch locations in
Fairfield county, Connecticut. This transaction will be accounted for as a
purchase and is expected to close in the fourth quarter of 1996.
NOTE C -- INCOME PER SHARE
Primary income per share has been computed based on the weighted average number
of common shares outstanding during the periods. Fully diluted earnings per
share for 1995 include the effect of shares issuable upon conversion of the
preferred stock. All share data has been retroactively restated for all poolings
and stock dividends, including the 3% stock dividend declared on October 24,
1996 and to be paid on November 15, 1996.
NOTE D -- SECURITIES
The following table presents the amortized cost and estimated market value of
securities at the dates indicated:
September 30, 1996
------------------------------------------------
Gross Unrealized Estimated
Amortized ------------------ Market
Cost Gains (Losses) Value
----------------------------------------------
Available for Sale
U.S. Government $ 128,674 $ 409 ($ 408) $ 128,675
U.S. Government
agencies 379,376 201 (4,653) 374,924
States and political
subdivisions 8,694 -- -- 8,694
Other debt securities 8,858 35 -- 8,893
Equity securities 43,509 3,022 (324) 46,207
--------- --------- --------- ---------
$ 569,111 $ 3,667 ($ 5,385) $ 567,393
========= ========= ========= =========
September 30, 1996
------------------------------------------------
Gross Unrealized Estimated
Amortized ------------------ Market
Cost Gains (Losses) Value
----------------------------------------------
Held to Maturity
U.S. Government $ 80,755 $ 612 $- $ 81,367
U.S. Government
agencies 193,471 499 (2,272) 191,698
--------- --------- --------- ---------
$ 274,226 $ 1,111 ($ 2,272) $ 273,065
========= ========= ========= =========
<PAGE>
NOTE D -- SECURITIES (Continued)
December 31, 1995
------------------------------------------------
Gross Unrealized Estimated
Amortized ------------------ Market
Cost Gains (Losses) Value
----------------------------------------------
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
========= ========= ========= =========
December 31, 1995
------------------------------------------------
Gross Unrealized Estimated
Amortized ------------------ Market
Cost Gains (Losses) Value
----------------------------------------------
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
========= ========= ========= =========
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This financial review presents management's discussion and analysis of financial
condition and results of operations. It should be read in conjunction with the
Company's Consolidated Financial Statements and the accompanying notes. All
dollar amounts, other than per share information, are presented in millions
unless otherwise noted.
The financial statements for the comparative periods presented herein have been
restated to reflect the acquisitions that have been accounted for on the
pooling-of-interests accounting method during the periods presented herein.
Growth Financial Corporation was acquired on January 12, 1996 and Lafayette
American Bank and Trust Company was acquired on July 1, 1996 both on a
pooling-of-interests method. All periods prior to the effective dates of these
acquuisitions have been restated to reflect the poolings. In addition, the
Company acquired three branches from CrossLand Federal Savings Bank on February
29, 1996, and the Hometown Bancorporation was acquired on August 30, 1996. These
acquisitions were accounted for on the purchase method and thus operations and
earnings are reflected in the Company's results since the dates of acquisition.
The Company has two pending acquisitions -- Westport Bancorp, which is expected
to be acquired on December 13, 1996, and will be accounted for on the
pooling-of-interests method, and UST/Connecticut which will be acquired on or
about November 30, 1996, and will be accounted for on the purchase method.
A summary of the companies acquired, exclusive of the $60 million in deposits
acquired in the CrossLand acquisition, are as follows:
Assets Deposits
------ --------
Growth Financial $128 $110
Lafayette American 741 647
Hometown 194 162
Westport 317 259
UST/Conn. 111 100
The balance sheet and income statement comparisons are influenced by the
transactions mentioned above. All share data has been retroactively restated to
reflect the shares issued in the aforementioned transactions including
restatement of all prior periods for the pooled acquisitions.
RESULTS OF OPERATIONS
Earnings for the three-month comparative periods ended September 30 were as
follows(in thousands, except per share amounts):
1996 1995
---- ----
Net Income $1,268 $8,606
Per share, fully diluted $ 0.06 $ 0.42
Weighted average common shares
outstanding 19,835 20,632
Excluding one-time charges:
Net Income $9,334 $8,606
Per share, fully diluted $ 0.47 $ 0.42
<PAGE>
Earnings for the nine-month comparative periods ended September 30 were as
follows(in thousands, except per share amounts):
1996 1995
---- ----
Net Income $15,218 $23,632
Per share, fully diluted $ 0.76 $ 1.14
Weighted average common shares
outstanding 20,044 20,057
Excluding one-time charges:
Net Income $24,746 23,632
Per share, fully diluted $ 1.23 $ 1.14
The one-time charges consists of restructuring charges and merger related
expenses in connection with the Lafayette acquisition of $7.6 million on an
after-tax basis ($10.9 million pre-tax) for the third quarter and $9.0 million
on an after-tax basis ($13.0 million pre-tax) for the nine-month period,
respectively. Also included in the third quarter and for the nine-month period,
is a one-time charge to the SAIF fund for savings deposits owned as of March 31,
1995, in the amount of $.5 million on an after-tax basis ($.8 million pre-tax).
These one-time charges had the effect of reducing earnings per share by $.41 per
share for the quarter and $.47 for the nine-months.
- ------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
Net interest income for the third quarter was $28.5 million compared with $29.4
million for the third quarter of 1995. This represents a decline of $.9 million
or 3.2%. The net interest margin for the comparative quarters was 4.92% for 1996
compared with 5.31% in 1995. The reduction is a result of a decline in interest
income on earning assets offset partially by a decrease in interest expense on
interest-bearing liabilities. The decline is due to yields and rates as opposed
to the volume of average earning assets which were $102.4 million higher in the
third quarter of 1996 compared with third quarter of 1995. The increase in
earning assets is primarily attributable to the acquisition of Hometown, which
was acquired August 30, 1996, on the purchase method, and therefore, the assets
are included in the 1996 results for one month. The decline in net interest
income and in the net interest margin for the third quarter was impacted by
Hometown which operated at less than a 4% margin, Lafayette, which had
approximately a 5% margin, and modestly by the $75 million in subordinated debt
issued by HUBCO on September 13, 1996.
Interest income was down $1.2 million, or 2.6% while interest expense declined
$.3 million, or 1.8%. The yield on earning assets declined from 8.30% in the
third quarter of 1995 to 7.72% for the third quarter of 1996. The competitive
deposit rates in Connecticut are currently slightly higher than the competitive
deposit rates in New Jersey.
The provision for possible loan losses for the comparative third quarters was
$1.4 million in 1996 compared with $1.7 million for 1995. The Company performs
an evaluation of the adequacy of the allowance for loan losses each quarter. The
results of this analysis and the expectation of potential credit losses and the
economic conditions are some of the factors that determines the required
quarterly provision. Management believes that the allowance at September 30,
1996 of $29.7 million, or 1.85% of loans and 93% of non-performing loans, is
adequate. Comparative ratios for September 30, 1995 are 1.88% and 105%
respectively. Non-performing assets as a percentage to total assets was 1.43% at
September 30, 1996 and 1.62% at September 30, 1995.
<PAGE>
The following table presents the composition of non-performing assets and loans
past due 90 days or more and accruing and selected asset quality ratios at the
dates indicated:
<TABLE>
<CAPTION>
ASSET QUALITY SCHEDULE - QUARTERLY RECAP
(In Thousands)
9/30/96 6/30/96 3/31/95 12/31/95
------- ------- ------- --------
Non-Accrual Loans:
<S> <C> <C> <C> <C>
Commercial $12,075 $10,762 $10,040 $10,749
Real Estate 17,513 19,002 15,437 11,805
Consumer 1,171 646 912 881
Credit Cards -- -- -- 443
------- ------- ------- -------
Total Non-Accrual Loans 30,759 30,410 26,389 23,878
------- ------- ------- -------
Renegotiated Loans 1,201 629 1,357 1,701
------- ------- ------- -------
Total Non-Performing Loans 31,960 31,039 27,746 25,579
Other Real Estate 7,094 6,846 10,739 11,564
------- ------- ------- -------
Total Non-Performing Assets $39,054 $37,885 $38,485 $37,143
======= ======= ======= =======
Non-Accrual Loans to Total
Loans 1.91% 2.02% 1.79% 1.62%
Non-Performing Assets to
Total Assets 1.43 1.53 1.56 1.50
Allowance for Loan Losses
to Non-Accrual Loans 96.59 91.15 105.30 114.13
Allowance for Loan Losses
to Non-Performing Loans 92.96 89.30 100.15 106.54
Loans Past Due 90 Days or
More and Accruing:
Commercial $ 49 $ 264 $ 13 $ 1,027
Real Estate 2,189 2,676 1,878 4,137
Consumer 478 1,181 582 308
Credit Cards 1,501 1,526 2,066 592
------- ------- ------- -------
Total Past Due Loans $ 4,217 $ 5,647 $ 4,539 $ 6,064
======= ======= ======= =======
</TABLE>
Non-interest income (excluding securities gains) decreased 3.7% from $6.2
million in the third quarter 1995 to $6.0 in 1996. The variances between the
three months ended September 30, 1996 and September 30, 1995 are as follows:
Trust income declined $.1 million as a result of Lafayette selling its trust
business in 1995 with no income earned in 1996 whereas Hudson United Bank had 8%
growth in trust income for the period. Service charges on deposit accounts
increased $.3 million or 8%. Other income declined $.4 million from 1995, when
HUBCO realized a $1 million insurance claim settlement asssociated with the
Urban acquisition. Excluding this one-time item in 1995, non-interest income
increased $.8 million or 15%. This increase is attributed to the exporting of
late charges on delinquent accounts by Shoppers Charge. Shoppers is realizing
approximately $.1 million per month in late fee income.
Non-interest expense increased $10 million from $21.7 million for the third
quarter of 1995 to $31.7 million for the third quarter of 1996. However, the
company took a one-time restructuring charge and merger related expenses of
$10.9 million in connection with the Lafayette acquisition that was consummated
on July 1, 1996. In addition, a special one-time assessment on SAIF-assessable
deposits of 52.56 basis points on such deposits held on March 31, 1995 was
recorded in the third quarter of this year and totaled $.8 million. Excluding
these one-time charges, non-interest expense would have been $19.9 million, or a
reduction of $1.7 million (8%) from last year's comparable quarter. Reductions
were realized in nearly all categories such as salaries, pension and other
employee benefits, occupancy and equipment expense. These reductions are a
result of the cost reductions following the Growth Financial acquisition in
January and the Lafayette acquisition in July along with the sale of a 50%
interest in its data processing subsidiary to another financial institution in
the fourth quarter of 1995. The full effect of the Lafayette cost saving
initiatives and the Hometown cost reductions will occur in the fourth quarter of
this year and in 1997.
In other categories, outside services increased $.2 million and other expenses
$.9 million. Payments for computer processing and other services amounted to
$1.1 million for the quarter thus accounting for more than the $.9 million
increase in other expenses but were more than offset in other categories.
A reconciliation of the combined statutory federal and state income taxes to the
effective tax provision is as follows:
Three Months
------------
Ended September 30
------------------
1996 1995
---- ----
Combined statutory federal and state taxes (41%) $606 $5,094
Non-deductible intangible amortization 319 224
Non-deductible merger expenses 1,105 --
Reversal of tax reserves upon finalization of
examinations (1,010) --
Reversal of Lafayette valuation allowance - (2,478)
Other (809) 979
---- ------
Provision for Income Taxes $211 $3,819
==== ======
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1996 and September 30, 1995
Net interest income for the nine-month period was $85.9 million compared with
$88.6 million for the first nine-months of 1995. This represents a decline of
$2.7 million or 3%. The net interest margin for the comparative periods were
5.07% for 1996 compared with 5.31% in 1995. The reduction is a result of a $3.2
million decline in interest income on earning assets offset partially by a
decrease in interst expense on interest-bearing liabilities of $.6 million. The
decline is due to lower yields on earning assets as the volume of average
earning assets was $29 million higher in 1996.
Interest income declined $3.2 million, and interest expense declined $.6. The
yield on earning assets declined from 8.20% in 1995 to 7.88% for the first nine
months of 1996 on a $97 million increase in average loans and a $68 million
decline in average securities. Average borrowed funds increased during this
period which also contributed to the decline in the net interest margin.
The provision for possible loan losses for the comparative nine-months amounted
to $5.8 million in 1996 compared with $5.9 million for 1995. The Company
performs an evaluation of the adequacy of the allowance for loan losses each
quarter. The results of the analysis including the expectation of potential
credit losses and current economic conditions are some of the factors that
determine the required quarterly provision. Management believes that the
allowance at September 30 is adequate.
<PAGE>
The following table presents the composition of non-performing assets and loans
past due 90 days or more and accruing and selected asset quality ratios at the
dates indicated:
Summary of Activity in the Allowance
Broken Down by Loan Category
----------------------------
Nine Months
Ended Year Ended
9/30/96 12/31/95
--------------------------
(In Thousands of Dollars)
Amount of Loans Outstanding $1,609,410 $1,473,970
Daily Average Amount of Loans $1,497,106 $1,408,694
Balance of Allowance for
Possible Loan Losses at
Beginning of Period $ 27,251 $ 27,617
Loans Charged Off:
Real Estate - Mortgage (1,448) (4,729)
Commercial (4,116) (4,708)
Consumer (1,991) (1,365)
-------- --------
Total Loans Charged Off (7,555) (10,802)
Recoveries of Loans Previously
Charged Off:
Real Estate - Mortgage 650 1,104
Commercial 328 808
Consumer 660 509
-------- --------
Total Recoveries 1,638 2,421
Net Loans Charged Off (5,917) (8,381)
Reserves Acquired in Purchase Transaction 2,550 --
Provision for Possible Loan Losses 5,825 8,015
Balance at End of Period $ 29,709 $ 27,251
======== ========
Ratio of Net Loans Charged-Off
During Period to Average
Loans Outstanding .53% .59%
======== ========
Non-interest income (excluding securities gains) increased slightly from $17.2
million in 1995 to $17.6 million in 1996. The variances between the nine months
ended September 30, 1996 and September 30, 1995 are as follows: Trust income
declined $.6 million as a result of Lafayette selling its trust business in 1995
and therefore no income was earned in 1996 whereas Hudson United had growth in
the trust income for the periods. Service charges on deposit accounts decreased
approximatily $.2 million. Other income increased $1.2 million. However, in
1995, HUBCO had realized a $1 million insurance claim settlement associated with
the Urban acquisition in the third quarter. Excluding this one-time item in
1995, other income would have increased $2.2 million. This increase is almost
entirely attributed to the exporting of late charges on delinquent accounts by
<PAGE>
Shoppers Charge, increased merchant discount fee income, and growth in
international fee income.
Non-interst expense increased $5.0 million from $69.6 million for the first
nine-months of 1995 to $74.6 million for the same period in 1996. However, in
connection with the Lafayette acquisition, the Company took restructuring and
merger related charges in the second and third quarters resulting in a total
charge of $13 million. Excluding these expenses and the one-time SAIF assessment
previously discussed, non-interest expense would have been $60.8 million, or a
decline of $8.8 million (12.6%). Salaries declined $2.6 million, benefits were
down $2.5 million, occupancy was down $.7 million, and equipment expense was
down $1.5 million. These reductions are due to the economies realized following
the acquisitions of Jefferson, Urban and Growth. In addition, the reductions are
also attributable to the sale of the data processing operations previously
mentioned. The reduction in deposit and other insurance is due to the reduction
in the deposit insurance assesssment rate to the company. The increase in
outside services of $1.5 million is primarily attributable to the payments for
data processing services to the jointly owned service provider. The increase in
the amortization of intangibles of $.5 million is due to the amortization of
core deposit intangibles in connection with the acquisition of the CrossLand
Savings branch deposits ($.4 million), and the amortization of the intangibles
in connection with the Hometown Bancorporation on August 30, 1996. Other
expenses decreased $1.4 million.
The Company's effective tax rate for book purposes for the nine-month period
ended September 30, 1996, was 37%. This compares with an effective tax rate for
the comparable period in 1995 of 25%. The lower tax rate in 1995 was the result
of the reversal of tax reserves no longer deemed necessary and the reversal of a
portion of Lafayette's valuation allowance. See Results of Operations for the
Three Months Ended September 30, 1996 and September 30, 1995.
FINANCIAL CONDITION
Total assets at September 30, 1996, were $2.724 billion, an increase of $282
million or 11.6% over the $2.442 billion at September 30, 1995 (as restated for
the Growth and Lafayette poolings). The balances at September 30, 1996 include
$197 million in assets from Hometown and $60 million from CrossLand both
acquired on a purchase method in 1996. From September 30, 1995 to September 30,
1996, loans increased $175 million to $1.6 billion. Of this increase,
approximately $100 million is due to the acquisition of Hometown. The company
has experienced internal growth in commercial and industrial loans and
commercial mortgage loans with declines in consumer loans where indirect lending
is being phased out and in the Shoppers Charge receivables which is seasonal.
Deposits increased from $2.1 billion at September 30, 1995, to $2.2 billion at
September 30, 1996. The company generally plans for and experiences deposit
shrinkage following acquisitions as the rates on deposits of the acquired
companies are reduced to rates generally offered by the Company.
The securities portfolios increased from an aggregate $805 million at September
30, 1995, to $842 million at September 30, 1996. The increase was due to the
Company's strategy of pre-investing a portion of its securities maturing in late
1996 and early 1997. This strategy also had the effect of increasing borrowings
which increased from $109 million at September 30, 1995 to $181 million at
September 30, 1996.
Intangibles, net of amortization, increased from $8.1 million to $23.1 million
attributable to the $3.0 million premium paid on the $60 million in branch
deposits
<PAGE>
acquired in February, 1996, and $14.6 million in intangibles incurred in
connection with the Hometown acquisition on August 30.
Total stockholders' equity at September 30 amounted to $182 million compared
with $189.4 million at September 30, 1995, and $195.6 million at December 31,
1995. The decline is attributable to the Company's purchase of 9.5% of the
shares of Lafayette and Growth prior to acquisition and due to the change in the
unrealized gain/(loss) on securities which changed from an after-tax gain of
$1.2 million at September 30, 1995 to an after-tax loss of $.9 million at
September 30, 1996, and the purchase of treasury shares which were reissued for
the 3% stock dividend issued in November 1996.
On September 30, 1996, the Company issued $75 million in 8.20%, 10-year
Subordinated Debt. The all-in effective cost of the debt is 8.39%. The net
proceeds of the offering will be used for general corporate purposes, as
necessary, and to increase capital levels of the Company and its subsidiaries as
my be required for potential acquisitions in the future.
At the end of the reporting period, the Company is not aware of any current
recommendations by the regulatory authorities which would have a material
adverse effect on the company's capital resources or operations. The capital
ratios for the Company at September 30, 1996, and the minimum regulatory
guidelines for such capital ratios are as follows
Ratios at Regulatory
September 30, 1996 Guidelines
------------------ ----------
Tier I Risk-Based Capital 9.47% 6.0%
Total Risk-Based Capital 15.46% 10.0%
Tier 1 Leverage Ratio 6.40% 5.0%
The regulatory guidelines are for qualification as a well-capitalized
institution.
<PAGE>
PART II. OTHER INFORMATION
Items 1 through 5 are not applicable or the responses are negative
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits - not applicable
(b) Reports on Form 8-K
- --- -------------------
(1) On August 15, 1996, HUBCO filed a Form 8-K Item 5 (date of earliest
event - August 14, 1996), to present the consolidated results of
operations for the 30 day period following the Lafayette American Bank
& Trust acquisition.
(2) On August 19, 1996, HUBCO filed a Form 8-KA Item 7 (date of earliest
event - July 1, 1996), to make readily available, a copy of
Lafayette's unaudited interim financial statements for the period
ending June 30, 1996.
(3) On August 22, 1996, HUBCO filed a Form 8-K Item 5 (date of earliest
event - June 28, 1996), to announce the signing of a definitive
agreement with UST Bank/Connecticut, a subsidiary of UST Corp. in an
all cash transaction. UST Bank/Connecticut will be merged into
Lafayette
(4) On September 18, 1996, HUBCO filed a Form 8-K Item 5 (date of earliest
event - September 13, 1996), in connection with the issuance of $75
million of subordinated debt.
(5) On September 22, 1996, HUBCO filed a Form 8-KA Item 7 (date of
earliest event - September 13, 1996), containing exhibits related to
the subordinated debt offering.
(6) On October 22, 1996, HUBCO filed a Form 8-K Item 5 (date of earliest
event - October 22, 1996), containing HUBCO's press release announcing
third quarter earnings results.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HUBCO, Inc.
November 14, 1996 /S/ Kenneth T. Neilson
- ----------------- ----------------------
Date Kenneth T. Neilson
Chairman, President & Chief Executive Officer
November 14, 1996 /S/ Christina L. Maier
- ----------------- ----------------------
Date Christina L. Maier
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 162,360
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 567,393
<INVESTMENTS-CARRYING> 274,226
<INVESTMENTS-MARKET> 273,065
<LOANS> 1,609,410
<ALLOWANCE> 29,709
<TOTAL-ASSETS> 2,724,664
<DEPOSITS> 2,239,157
<SHORT-TERM> 178,695
<LIABILITIES-OTHER> 22,125
<LONG-TERM> 102,056
0
0
<COMMON> 35,178
<OTHER-SE> 147,453
<TOTAL-LIABILITIES-AND-EQUITY> 2,724,664
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<INTEREST-INCOME-NET> 85,871
<LOAN-LOSSES> 5,825
<SECURITIES-GAINS> 996
<EXPENSE-OTHER> 74,604
<INCOME-PRETAX> 24,059
<INCOME-PRE-EXTRAORDINARY> 24,059
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,218
<EPS-PRIMARY> .76
<EPS-DILUTED> .76
<YIELD-ACTUAL> 5.07
<LOANS-NON> 30,759
<LOANS-PAST> 4,217
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