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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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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, 1997
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.
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(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
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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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:
21,360,201 shares, no par value, outstanding as of November 11, 1997.
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<PAGE>
HUBCO, INC. AND SUBSIDIARIES
----------
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Consolidated Balance Sheets
At September 30, 1997 and December 31, 1996..................... 1
Consolidated Statements of Income
For the three-months and nine-months ended
September 30, 1997 and 1996.. .................................. 2-3
Consolidated Statements of Cash Flows
For the nine-months ended
September 30, 1997 and 1996..................................... 4
Notes to Consolidated Financial Statements...................... 5-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................... 8-12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................ 13
Signatures...................................................... 14
PART III. FINANCIAL DATA SCHEDULE ..................................... 15
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
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<TABLE>
PART I. FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In Thousands Except Share Data)
<CAPTION>
September 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks .................................. $ 165,157 $ 128,868
Federal funds sold ....................................... 100,000 24,200
---------- ----------
TOTAL CASH AND CASH EQUIVALENTS .................. 265,157 153,068
Securities available for sale, at market value ........... 653,879 655,492
Securities held to maturity, at cost (market value of
$234,822 and $279,610 in 1997 and 1996, respectively) .. 232,970 280,914
Loans:
Real estate mortgage ................................... 1,018,258 1,085,720
Commercial and financial ............................... 469,069 499,004
Consumer credit ........................................ 210,916 237,872
Credit card ............................................ 83,171 61,759
---------- ----------
TOTAL LOANS ....................................... 1,781,414 1,884,355
Less: Allowance for possible loan losses ............... (37,622) (35,153)
---------- ----------
NET LOANS ......................................... 1,743,792 1,849,202
Premises and equipment, net .............................. 42,501 43,510
Other real estate owned .................................. 3,531 5,651
Intangibles, net of amortization ......................... 25,578 29,225
Other assets ............................................. 78,626 98,625
---------- ----------
TOTAL ASSETS ...................................... $3,046,034 $3,115,687
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing ................................... $ 581,402 $ 622,719
Interest bearing ....................................... 1,716,919 1,969,373
---------- ----------
TOTAL DEPOSITS .................................... 2,298,321 2,592,092
Borrowings ............................................... 362,354 187,979
Other liabilities ........................................ 23,466 29,283
---------- ----------
TOTAL LIABILITIES ................................. 2,684,141 2,809,354
---------- ----------
Subordinated Debt ........................................ 100,000 100,000
Company-obligated mandatorily redeemable Preferred
Series B Capital Securities of a Subsidiary trust
holding solely junior subordinated debendures
of the Company ......................................... 50,000 --
---------- ----------
Commitments and contingencies
Stockholders' equity:
Convertible Preferred Stock-Series B, no par value;
authorized 10,300,000 shares; 22,159 shares issued
and outstanding in 1997 and 39,600 shares
issued and outstanding in 1996 ....................... 2,216 3,960
Common stock, no par value; authorized 51,500,000
shares; 22,273,202 issued and outstanding in
1997 and 1996 ........................................ 38,448 38,448
Additional paid-in capital ............................. 83,959 104,233
Retained earnings ...................................... 80,518 56,968
Restricted stock awards ................................ (486) (279)
Unrealized gain on securities
available for sale, net of income taxes .............. 7,238 3,003
---------- ----------
TOTAL STOCKHOLDERS' EQUITY ........................ 211,893 206,333
---------- ----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY .......... $3,046,034 $3,115,687
========== ==========
See notes to consolidated financial statements
</TABLE>
1
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In Thousands Except Per Share Data)
Three Months Ended
September 30,
---------------------
1997 1996
------- -------
INTEREST AND FEE INCOME:
Loans .............................................. $40,285 $36,834
Securities ......................................... 13,947 13,144
Other .............................................. 316 184
------- -------
TOTAL INTEREST AND FEE INCOME ............... 54,548 50,162
------- -------
INTEREST EXPENSE:
Deposits ........................................... 12,965 15,589
Borrowings ......................................... 2,353 1,320
Subordinated and other debt ........................ 3,193 822
------- -------
TOTAL INTEREST EXPENSE ...................... 18,511 17,731
------- -------
NET INTEREST INCOME ......................... 36,037 32,431
PROVISION FOR POSSIBLE LOAN LOSSES ................. 1,925 1,679
------- -------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES .................. 34,112 30,752
NON-INTEREST INCOME:
Trust department income .......................... 766 780
Service Charges on deposit accounts .............. 3,285 3,817
Securities gains ................................. 2,341 109
Shoppers charge fee income ....................... 2,658 1,141
Other income ..................................... 1,444 1,391
------- -------
TOTAL NON-INTEREST INCOME ................... 10,494 7,238
------- -------
NON-INTEREST EXPENSE:
Salaries ......................................... 7,713 8,996
Pension and other employee benefits .............. 2,074 2,603
Occupancy expense ................................ 2,352 1,944
Equipment expense ................................ 1,581 1,178
Deposit insurance and other insurance ............ 233 306
Outside services ................................. 3,724 3,058
Other real estate owned expense .................. 437 563
Amortization of intangibles ...................... 1,199 777
Other ............................................ 3,714 15,490
------- -------
TOTAL NON-INTEREST EXPENSE .................. 23,027 34,915
------- -------
INCOME BEFORE INCOME TAXES .................. 21,579 3,075
PROVISION FOR INCOME TAXES ......................... 8,686 1,087
------- -------
NET INCOME .................................. $12,893 $ 1,988
======= =======
NET INCOME PER COMMON SHARE: ....................... $ 0.55 $ 0.08
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING: ................... 23,302 23,967
See notes to consolidated financial statements
2
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In Thousands Except Per Share Data)
Nine Months Ended
September 30,
----------------------
1997 1996
-------- --------
INTEREST AND FEE INCOME:
Loans .............................................. $120,579 $110,249
Securities ......................................... 43,860 39,092
Other .............................................. 810 592
-------- --------
TOTAL INTEREST AND FEE INCOME ............... 165,249 149,933
-------- --------
INTEREST EXPENSE:
Deposits ........................................... 41,000 46,978
Borrowings ......................................... 8,558 3,686
Subordinated and other debt ........................ 9,214 1,827
-------- --------
TOTAL INTEREST EXPENSE ...................... 58,772 52,491
-------- --------
NET INTEREST INCOME ......................... 106,477 97,442
PROVISION FOR POSSIBLE LOAN LOSSES ................. 5,027 6,675
-------- --------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES .................. 101,450 90,767
NON-INTEREST INCOME:
Trust department income .......................... 2,313 2,269
Service charges on deposit accounts .............. 10,263 10,627
Securities gains ................................. 5,461 1,033
Shoppers Charge fee income ....................... 6,019 3,556
Other income ..................................... 4,937 4,430
-------- --------
TOTAL NON-INTEREST INCOME ................... 28,993 21,915
-------- --------
NON-INTEREST EXPENSE:
Salaries ......................................... 24,058 26,478
Pension and other employee benefits .............. 6,929 7,379
Occupancy expense ................................ 7,248 7,542
Equipment expense ................................ 4,505 3,682
Deposit insurance and other insurance ............ 886 902
Outside services ................................. 11,624 8,968
Other real estate owned expense .................. 1,427 2,242
Amortization of intangibles ...................... 3,732 2,119
Other ............................................ 9,756 24,125
-------- --------
TOTAL NON-INTEREST EXPENSE .................. 70,165 83,437
-------- --------
INCOME BEFORE INCOME TAXES .................. 60,278 29,245
PROVISION FOR INCOME TAXES ......................... 23,860 11,208
-------- --------
NET INCOME .................................. $ 36,418 $ 18,037
======== ========
NET INCOME PER COMMON SHARE: ....................... $ 1.55 $ 0.75
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING: ................... 23,471 24,070
See notes to consolidated financial statements
3
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
Nine Months Ended
September 30,
----------------------
1997 1996
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ........................................... $ 36,418 $ 18,037
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible loan losses ............... 5,027 6,675
Provision for depreciation and amortization ...... 7,786 8,157
Amortization of security premiums, net ........... 484 1,333
Securities gains ................................. (5,461) (1,033)
(Gain) loss on sale of premises and equipment .... (64) 5
Deferred income tax provision .................... -- 2,488
Decrease in other assets ............................. 19,846 27,432
(Decrease) in other liabilities ...................... (8,024) (492)
--------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES .... 56,012 62,602
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of securities:
Available for sale ................................. 65,861 60,252
Proceeds from repayments and maturities of securities:
Available for sale ................................. 89,073 129,027
Held to maturity ................................... 56,159 58,486
Purchases of securities:
Available for sale ................................. (149,448) (350,370)
Held to maturity ................................... -- (27,417)
Net cash acquired through acquisitions ............... -- 77,187
Net decrease (increase) in loans ..................... 100,383 (47,743)
Proceeds from sales of premises and equipment ........ 104 1,233
Purchases of premises and equipment .................. (2,921) (4,208)
Decrease in other real estate ........................ 2,117 4,470
--------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES .... 161,328 (99,083)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in demand deposits,
NOW accounts and savings accounts .................. (140,015) (116,295)
Net decrease in certificates of deposits ............. (153,756) (52,196)
Net increase in short-term borrowings ................ 174,375 127,950
Net proceeds from issuance of:
Capital trust securities ........................... 49,250 --
Subordinated debentures ............................ -- 73,738
Proceeds from issuance of common stock ............... 2,168 785
Cash dividends ....................................... (12,868) (11,055)
Acquisition of treasury stock ........................ (24,405) (17,254)
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES .... (105,251) 5,673
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ....... 112,089 (30,808)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ....... 153,068 221,091
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............. $ 265,157 $ 190,283
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for--
Interest ............................................. $ 60,343 $ 49,008
Income taxes ......................................... 19,162 10,057
========= =========
See notes to Consolidated Financial Statements.
4
<PAGE>
HUBCO INC. AND SUBSIDIARIES
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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 ("Lafayette"), and HUB Capital Trust I. 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. The consolidated financial statements
should be read in conjunction with the Annual Report on Form 10-K for the year
ended December 31, 1996.
NOTE B -- INCOME PER SHARE
Net income per share is computed by dividing net income by the weighted average
number of common shares plus the number of shares issuable upon conversion of
the preferred stock and the number of shares issuable upon the exercise of
warrants. Shares issuable upon the exercise of options are not included in the
calculation of net income per share since their effect is not material. All
common share data has been retroactively restated to reflect all stock splits
and stock dividends, including the 3% stock dividend declared October 9, 1997
and payable December 1, 1997 to stockholders of record as of November 13, 1997.
The Company plans to adopt Statement of Financial Accounting Standards No. 128-
"Earnings Per Share" in the fourth quarter of 1997, the impact of which is not
expected to be material.
NOTE C -- ACQUISITIONS
On August 18, 1997, HUBCO executed a Definitive Agreement with The Bank of
Southington ("Southington"), to merge Southington into Lafayette. In the merger,
each share of Southington common stock will be exchanged for HUBCO common stock
valued at $21.00, provided that the median closing sales price of HUBCO common
stock during a pricing period prior to closing is between $26.70 and $33.98. If
the median HUBCO common stock price during the pricing period is at or above
$33.98, Southington shareholders will receive .618 of a share of HUBCO for each
share of Southington common stock. If the median HUBCO price during the pricing
period is at or below $26.70, Southington shareholders will receive .787 of a
share of HUBCO for each share of Southington common stock. Southington is a $135
million asset bank and trust company headquartered in Southington, Connecticut.
The transaction will be accounted for by HUBCO as a pooling of interests.
On August 27, 1997, HUBCO and Security National Bank & Trust Company of New
Jersey ("Security National") signed a definitive agreement to merge Security
National into Hudson United Bank. In the merger, shareholders of Security
National will receive $34.00 in cash for each share of Security National common
stock. Security National is an $86 million asset bank and trust company
headquartered in Newark, New Jersey. The transaction will be accounted for by
HUBCO as a purchase.
5
<PAGE>
NOTE C -- ACQUISITIONS (Continued)
On October 22, 1997, HUBCO and Poughkeepsie Financial Corp, ("Poughkeepsie")
signed a definitive agreement to merge Poughkeepsie into HUBCO. In the merger,
each share of Poughkeepsie common stock will be exchanged for HUBCO common stock
valued at $10.00, provided that the median pre-closing price of HUBCO common
stock during a pricing period prior to closing is between $31.25 and $33.33. If
the median pre-closing price of HUBCO common stock during the period is at or
above $33.33, Poughkeepsie shareholders will receive .30 of a share of HUBCO
common stock for each share of Poughkeepsie common stock. If the median
pre-closing price of HUBCO common stock during the period is below $31.25,
Poughkeepsie shareholders will receive .32 of a share of HUBCO common stock for
each share of Poughkeepsie common stock. Poughkeepsie is the holding company of
Bank of the Hudson, an $880 million asset institution headquartered in
Poughkeepsie, New York. Bank of the Hudson will be maintained by HUBCO as its
New York subsidiary. The transaction will be accounted for by HUBCO as a
pooling of interests.
NOTE D -- COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SERIES B
CAPITAL SECURITIES OF A SUBSIDIARY TRUST HOLDING SOLELY
JUNIOR SUBORDINATED DEBENTURES OF THE COMPANY
On January 31, 1997, the Company placed $50.0 million in aggregate liquidation
amount of 8.98% Capital Securities due February 2027, using HUBCO Capital
Trust I, a statutory business trust formed under the laws of the State of
Delaware. The sole asset of the trust, that is the obligor on the Series B
Capital Securities, is $51.5 million principal amount of 8.98% Junior
Subordinated Debentures due 2027 of HUBCO. The net proceeds of the offering are
being used for general corporate purposes and to increase capital levels of
the Company and its subsidiaries. The securities qualify as Tier I capital
under the capital guidelines of the Federal Reserve.
NOTE E -- STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
This document contains forward-looking statements within the meaning of The
Private Securities Litigation Reform Act of 1995. Such statements are not
historical facts and involve certain risks and uncertainties. Actual results may
differ materially from the results discussed in these forward-looking
statements. Factors that might cause a difference include, but are not limited
to, changes in interest rates, economic conditions, deposit and loan growth,
loan loss provisions, and customer retention. The Company assumes no obligation
for updating any such forward-looking statements at any time.
NOTE F -- YEAR 2000 COMPLIANCE
The Company, through its servicing subsidiary, established a "Year 2000 Team"
which is responsible for ensuring implementation of the required change to the
Date of Century format for all software programs used by the Company. The
management of the Company anticipates that they will be in Year 2000 compliance
before the beginning of the new century. The Company has not incurred
significant expenses related to this project and does not anticipate the impact
will be material.
NOTE G -- SECURITIES
The following table presents the amortized cost and estimated market value of
securities available-for sale and held-to maturity at the dates indicated:
September 30, 1997
----------------------------------------------
Gross Unrealized Estimated
Amortized ------------------- Market
Cost Gains (Losses) Value
-------- ------- ------- --------
AVAILABLE FOR SALE
U.S. Government .......... $ 61,386 $ 803 $ (10) $ 62,179
U.S. Government
agencies ............... 450,179 2,279 (1,475) 450,983
States and political
subdivisions ........... 9,695 111 (9) 9,797
Other debt securities .... 61,735 402 (129) 62,008
Equity securities ........ 58,703 10,213 (4) 68,912
-------- ------- ------- --------
$641,698 $13,808 $(1,627) $653,879
======== ======= ======= ========
September 30, 1997
----------------------------------------------
Gross Unrealized Estimated
Amortized ------------------- Market
Cost Gains (Losses) Value
-------- ------- ------- --------
HELD TO MATURITY
U.S. Government .......... $ 42,041 $ 603 $ -- $ 42,644
U.S. Government
agencies ............... 190,929 2,355 (1,106) 192,178
-------- ------- ------- --------
$232,970 $ 2,958 $(1,106) $234,822
======== ======= ======= ========
6
<PAGE>
NOTE G -- SECURITIES (Continued)
December 31, 1996
----------------------------------------------
Gross Unrealized Estimated
Amortized ------------------- Market
Cost Gains (Losses) Value
-------- ------- ------- ---------
AVAILABLE FOR SALE
U.S. Government .......... $ 85,403 $ 535 $ (51) $ 85,887
U.S. Government
agencies ............... 496,370 3,118 (3,376) 496,112
States and political
subdivisions ........... 11,575 6 (2) 11,579
Other debt securities .... 4,344 53 (11) 4,386
Equity securities ........ 52,730 5,088 (290) 57,528
-------- ------ ------- --------
$650,422 $8,800 $(3,730) $655,492
======== ====== ======= ========
December 31, 1996
----------------------------------------------
Gross Unrealized Estimated
Amortized ------------------- Market
Cost Gains (Losses) Value
-------- ------- ------- ---------
HELD TO MATURITY
U.S. Government .......... $ 76,837 $ 326 $ (21) $ 77,142
U.S. Government
agencies ............... 204,077 1,508 (3,117) 202,468
-------- ------ ------- --------
$280,914 $1,834 $(3,138) $279,610
======== ====== ======= ========
7
<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 thousands
unless otherwise noted. All Common Share data has been retroactively restated
to reflect all stock splits and stock dividends, including the 3% stock dividend
declared October 9, 1997 and payable December 1, 1997 to Stockholders of record
as of November 13, 1997.
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, Lafayette
American Bank and Trust Company was acquired on July 1, 1996 and Westport
Bancorp, Inc. was acquired on December 13, 1996. These acquisitions were
accounted for on a pooling-of-interests method, and accordingly, the
consolidated financial statements have been restated to include the accounts of
these institutions for all periods presented. All share data has been
retroactively restated to reflect the shares issued in the aforementioned
transactions including restatement of all prior periods. In addition, the
Company acquired Hometown Bancorporation on August 30, 1996, UST
Bank/Connecticut on November 29, 1996, three branches from CrossLand Federal
Savings Bank on February 29, 1996, and a branch from Interchange State Bank on
December 20, 1996. These acquisitions were accounted for on the purchase method
and thus operations and earnings are reflected in the Company's results
subsequent to the dates of acquisition. The balance sheet and income statement
comparisons are influenced by these purchase transactions.
RESULTS OF OPERATIONS
OVERVIEW
Net income for the three-month period ended September 30, 1997 was $12.9 million
compared to net income of $2.0 million for the three-month period ended
September 30, 1996, or an increase of 21% compared to net income of $10.6
million excluding merger related, restructuring and SAIF recapitalization
charges. Earnings per share was $.55 for the third quarter of 1997 compared to
$.08 for the same period in 1996, or an increase of 24% when compared to
earnings per share of $.45 exluding excluding merger related, restructuring and
SAIF recapitalization charges. Return on average equity and return on average
assets were 24.60% and 1.75%, respectively, for the three-month period ended
September 30, 1997 compared to 3.97% and .28%, respectively, for the same period
in 1996, or 21.23% and 1.51% exluding merger related, restructuring and SAIF
recapitalization charges.
Net income for the nine-month period ended September 30, 1997 was $36.4 million
or $1.55 per share compared to $18.0 million or $0.75 per share for the same
period in 1996, or an increase of 29% when compared to net income of $28.1
million for the nine-month period ended September 30, 1996 excluding merger
related, restructuring and SAIF recapitalization charges. Return on average
equity and return on average assets were 23.44% and 1.62%, respectively, for the
nine-month period ended September 30, 1997 compared to 11.67% and .87%,
respectively, for the same period in 1996, or 18.21% and 1.36% exluding merger
related, restructuring and SAIF recapitalization charges.
8
<PAGE>
NET INTEREST INCOME
Net interest income for the three-month and nine-month periods ended Septmeber
30, 1997 was $36.0 million and $106.5 million compared to $32.4 million and
$97.4 million for the same periods in 1996. This represents an increase of $3.6
million or 11% for the three-month period and an increase of $9.0 million or
9% for the nine-month period. The net interest margin for the three-month and
nine-month periods ended September 30, 1997 was 5.38% and 5.22%, respectively,
compared to 5.02% and 5.14%, respectively, for the same periods in 1996.
Interest income for the nine-month period ended September 30, 1997 compared to
the same period in 1996, increased $15.3 million, or 10% while interest expense
increased $6.3 million, or 12%. The increased interest expense was primarily
attributable to the $75.0 million of 8.20% subordinated debt which was issued in
September 1996 and the $50.0 million of 8.98% capital trust securities issued in
January 1997, as well as an increase of $100.2 million in average short-term
borrowings.
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses for the three-month and nine-month
periods ended September 30, 1997 was $1.9 million and $5.0 million compared to
$1.7 million and $6.7 million in 1996. 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 economic conditions
are some of the factors which determine the required quarterly provision. In
connection with the purchase of credit card receivables by Shoppers Charge, $2.8
miilion of allowance for potential credit losses was also acquired. Management
believes that the allowance at September 30, 1997 of $37.6 million, or 2.11% of
total loans and 116% of non-performing loans, is adequate. Comparative ratios
for September 30, 1996 and December 31, 1996 are 1.83% and 95% and 1.87% and
111%, respectively.
Non-performing assets as a percentage of total assets at September 30, 1997 was
1.18% compared to 1.20% at December 31, 1996. 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:
ASSET QUALITY SCHEDULE
(In Thousands)
9/30/97 12/31/96
------- --------
Non-Accrual Loans:
Commercial ....................................... $11,047 $10,212
Real Estate ...................................... 19,224 17,299
Consumer ......................................... 1,621 1,518
------- -------
Total Non-Accrual Loans ..................... 31,892 29,029
Renegotiated Loans ................................. 616 2,779
------- -------
Total Non-Performing Loans .................. 32,508 31,808
Other Real Estate .................................. 3,531 5,651
------- -------
Total Non-Performing Assets ................. $36,039 $37,459
======= =======
9
<PAGE>
ASSET QUALITY SCHEDULE (Continued)
(In Thousands)
9/30/97 12/31/96
-------- --------
Non-Accrual Loans to Total Loans ................... 1.79% 1.54%
Non-Performing Assets to Total Assets .............. 1.18 1.20
Allowance for Loan Losses to Non-Accrual Loans ..... 117.97 121.10
Allowance for Loan Losses to Non-Performing Loans .. 115.73 110.51
Loans Past Due 90 Days or More and Accruing:
Commercial ...................................... $3,169 $2,921
Real Estate ..................................... 2,700 3,292
Consumer ........................................ 1,268 832
Credit Cards .................................... 2,247 1,486
------ ------
Total Past Due Loans ........................ $9,384 $8,531
====== ======
The following table presents the activity in the allowance for possible loan
losses for the periods indicated:
Summary of Activity in the Allowance
Broken Down by Loan Category
-----------------------------------
Nine Months Ended Year Ended
9/30/97 12/31/96
------------------- ------------
(In Thousands of Dollars)
Amount of Loans Outstanding ................ $1,781,414 $1,884,355
Daily Average Amount of Loans .............. $1,833,612 $1,723,335
Balance of Allowance for
Possible Loan Losses at
Beginning of Period ...................... $ 35,153 $ 30,105
Loans Charged Off:
Real Estate -- Mortgage .................. (1,668) (4,580)
Commercial ............................... (3,132) (6,477)
Consumer ................................. (3,720) (3,164)
---------- ----------
Total Loans Charged Off ............. (8,520) (14,221)
---------- ----------
Recoveries of Loans Previously Charged Off:
Real Estate -- Mortgage .................. 341 776
Commercial ............................... 1,803 469
Consumer ................................. 1,018 1,071
---------- ----------
Total Recoveries .................... 3,162 2,316
---------- ----------
10
<PAGE>
Summary of Activity in the Allowance
Broken Down by Loan Category
(Continued)
-----------------------------------
Nine Months Ended Year Ended
9/30/97 12/31/96
------------------- ------------
(In Thousands of Dollars)
Net Loans Charged Off ...................... (5,358) (11,905)
Reserves Acquired in Purchase Transaction .. 2,800 4,658
Provision for Possible Loan Losses ......... 5,027 12,295
------- --------
Balance at End of Period ................... $37,622 $ 35,153
======= ========
Ratio of Annualized Net Loans Charged-Off
During Period to Average
Loans Outstanding ........................ .39% .69%
==== ====
Non-interest income increased 45% or $3.3 million from $7.2 million for the
third quarter of 1996 to $10.5 million the same period in 1997, and increased
32% or $7.1 million from $21.9 milliom for the nine-months ended September 30,
1996 to $29.0 million for the same period in 1997. This increase in non-interest
income from 1996 to 1997 relates primarily to increased security gains,
international fees, fees from Shoppers Charge and other miscellaneous income.
Non-interest expense decreased $11.9 million or 34% from $34.9 million for the
third quarter of 1996 to $23.0 million for the third quarter of 1997 and
decreased $13.3 million or 16% from $83.4 million for the nine-months ended
September 30, 1996 to $70.2 million for the same period in 1997. Reductions were
realized for the three-months and nine-months ended September 30, 1997 in
salaries and employee benefits, deposit and other insurance, other real estate
owned expense and other expenses. Excluding merger related, restructuring and
SAIF recapitalization charges, non-interest expense for the three-months and
nine-months ended September 30, 1997 increased $450 or 2% and $1.1 million or
2%, respectively, due primarily to the Hometown and UST acquisitions in August
and November 1996 which were not included in 1996 non-interest expense prior to
acquisition date, and cost savings initiatives following the Lafayette and
Westport acquisitions in July and December 1996 which were accounted for as
pooling of interests.
Increases for the three-month and nine-month periods ended Septmeber 30, 1997
compared to the same period in 1996 occurred primarily in outside services which
increased $666 and $2.7 million, respectively, related to payments for computer
processing and other data processing services and amortization of intangibles
which increased $422 and $1.6 million, respectively, due to the acquisitions of
Hometown and UST/Bank Connecticut in the later half of 1996, which were
accounted for under the purchase method of accounting and are being amortized
over a 10 year period.
The Company's effective tax rate for the three-month and nine-month periods
ended September 30, 1997 was 40.3% and 39.6%, respectively. This compares with
an effective tax rate for the comparable periods in 1996 of 35.4% and 38.3%. The
increase in the effective tax rate is primarily due to the increase in
non-deductible intangibles as a result of the recent acquisitions.
11
<PAGE>
FINANCIAL CONDITION
Total assets at September 30, 1997, were $3.05 billion, a decrease of $69.7
million or 2% from $3.12 billion of assets at December 31, 1996. The securities
portfolio decreased 5% or $49.6 million from $936.4 million at December 31, 1996
to $886.8 million at September 30, 1997 due primarily to maturities and
principal repayments. Total loans decreased $102.9 million, or 5% to $1.78
billion at September 30, 1997 from $1.88 billion at December 31, 1996 reflecting
declines primarily in residential mortgage loans where most new originations are
being sold and consumer credit loans where indirect lending has been phased out.
The Shoppers Charge receivables increased $21.4 million from December 31, 1996
to September 30, 1997 due to the purchase of credit card receivables in the
second quarter of 1997. Other real estate owned decreased $2.1 million or 38%
from $5.6 million at December 31, 1996 to $3.5 million at September 30, 1997 as
management continues to focus on asset quality. Intangibles, net of
amortization, decreased from $29.2 million at December 31, 1996 to $25.6 million
at September 30, 1997 as the intangibles related to acquisitions are amortized
over periods ranging from 5 to 10 years.
Deposits decreased 11% from $2.59 billion at December 31, 1996, to $2.30 billion
at September 30, 1997. The Company generally anticipates deposit shrinkage
following acquisitions as the rates on deposits of the acquired companies are
conformed to rates generally offered by the Company. Total borrowings increased
$174.4 million from $188.0 million at December 31, 1996 to $362.4 million at
September 30, 1997. This increase is due primarily to an increase in repurchase
agreements and short-term advances from the Federal Home Loan Bank. Total
stockholders' equity at September 30, 1997 was $211.9 million compared to $206.3
million at December 31, 1996. The increase in stockholders' equity is primarily
attributable to $36.4 million in earnings for the nine-month period and the
change in the unrealized gain on securities available for sale of $4.2 million,,
offset by $12.9 million of cash dividends and the purchase of $24.4 million in
treasury shares to fund the conversion of some convertible preferred stock and
the exercise of some options and warrants.
On January 31, 1997, the Company placed $50.0 million in aggregate liquidation
amount of 8.98% Capital Securities due February 2027, using HUBCO Capital Trust
I, a statutory business trust formed under the laws of the State of Delaware.
The net proceeds of the offering are being used for general corporate purposes
and to increase capital levels of the Company and its subsidiaries. The
securities qualify as Tier I capital under the capital guidelines of the Federal
Reserve.
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,
1997, and the minimum regulatory guidelines for such capital ratios are as
follows:
Ratios at Regulatory
September 30, 1997 Guidelines*
------------------ -----------
Tier I Risk-Based Capital .......... 12.3% 6.0%
Total Risk-Based Capital ........... 18.9% 10.0%
Tier 1 Leverage Ratio .............. 7.8% 5.0%
- ----------
* For qualification as a well-capitalized institution.
12
<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 21, 1997, HUBCO filed a Form 8-K Item 5 (date of earliest
event--August 18, 1997), to announce the signing of a definitive agreement with
The Bank of Southington ("Southington"), whereby Southington will be merged
with and into Lafayette American Bank and Trust Company.
(2) On October 23, 1997, HUBCO filed a Form 8-K Item 5 (date of earliest
event--October 23, 1997), to announce the signing of a definitive agreement with
Poughkeepsie Financial Corp. ("Poughkeepsie") and Bank of the Hudson, under
which HUBCO will acquire Poughkeepsie in a stock for stock exchange.
(a) not applicable
(b) not applicable
13
<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, 1997 /s/ KENNETH T. NEILSON
- ----------------- --------------------------------------
Date Kenneth T. Neilson
Chairman, President &
Chief Executive Officer
November 14, 1997 /s/ JOSEPH F. HURLEY
- ---------------- --------------------------------------
Date Joseph F. Hurley
Executive Vice President &
Chief Financial Officer
14
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<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 165,157
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 100,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 653,879
<INVESTMENTS-CARRYING> 232,970
<INVESTMENTS-MARKET> 234,822
<LOANS> 1,781,414
<ALLOWANCE> 37,622
<TOTAL-ASSETS> 3,046,034
<DEPOSITS> 2,298,321
<SHORT-TERM> 362,354
<LIABILITIES-OTHER> 23,466
<LONG-TERM> 150,000
<COMMON> 38,448
0
2,216
<OTHER-SE> 171,229
<TOTAL-LIABILITIES-AND-EQUITY> 3,046,034
<INTEREST-LOAN> 120,579
<INTEREST-INVEST> 43,860
<INTEREST-OTHER> 810
<INTEREST-TOTAL> 165,249
<INTEREST-DEPOSIT> 41,000
<INTEREST-EXPENSE> 58,772
<INTEREST-INCOME-NET> 106,477
<LOAN-LOSSES> 5,027
<SECURITIES-GAINS> 5,461
<EXPENSE-OTHER> 70,165
<INCOME-PRETAX> 60,278
<INCOME-PRE-EXTRAORDINARY> 60,278
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,418
<EPS-PRIMARY> 1.55
<EPS-DILUTED> 1.55
<YIELD-ACTUAL> 5.22
<LOANS-NON> 31,892
<LOANS-PAST> 9,384
<LOANS-TROUBLED> 616
<LOANS-PROBLEM> 32,508
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