SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM l0-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1997
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____________ to _____________
Commission file number 0-l0699
HUBCO, Inc.
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(Exact name of registrant as specified in its Charter)
New Jersey 22-2405746
---------------------------- ---------------
(State or other jurisdiction I.R.S. Employer
of Incorporation or organization) Identification No.
1000 MacArthur Blvd.
Mahwah, New Jersey 07430
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(201)236-2600
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, no par value Series B Preferred Stock
-------------------------- ------------------------
(Title of Class) (Title of Class)
Indicate by check mark whether the registrant (l) has filed all reports required
to be filed by Section l3 or l5(d) of the Securities Exchange Act of l934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES |x| NO |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. | |
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, as of March 19, 1998 was $789,756,682.
The number of shares of Registrant's Common Stock, no par value,
outstanding as of March 19, 1998 was 22,648,970.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Part(s) into
Documents Which Incorporated
--------- ------------------
Annual Report to Shareholders for the fiscal year
ended December 31, 1997 ("HUBCO's 1997 Annual
Report"), Part I
pages 8 through 42 Part II
The Registrant's Proxy Statement in connection
with the Annual Meeting of Shareholders to be held
April 22, 1998 ("HUBCO's Proxy Statement for its
1998 Annual Meeting") under the captions
"Elections of Directors", "Executive
Compensation", "Stock Ownership of Management and
Principal Shareholders", "Compensation Committee
Interlocks and Insider Participation" and" Certain
Transactions with Management". Notwithstanding the
foregoing, the information contained in HUBCO's
Proxy Statement for its 1998 Annual Meeting
pursuant to Items 402(k) and 402 (1) of Regulation
S-K is not incorporated by reference and is not to
be deemed part of this report Part III
With the exception of information specifically incorporated by reference,
HUBCO's 1997 Annual Report and HUBCO's Proxy Statement for its 1998 Annual
Meeting are not to be deemed part of this report.
<PAGE>
HUBCO, INC.
Form l0-K Annual Report
For The Fiscal Year Ended December 31, 1997
PART I
ITEM 1. BUSINESS
(a)General Development of Business
HUBCO, Inc. ("HUBCO" or "Registrant" or the "Company") is a bank holding company
registered under the Bank Holding Company Act of 1956, as amended (the "Bank
Holding Company Act"). HUBCO was organized under the laws of New Jersey in 1982
by Hudson United Bank ("Hudson United") for the purpose of creating a bank
holding company for Hudson United. HUBCO directly owns Hudson United, Lafayette
American Bank ("Lafayette" and together with Hudson United, the "Banks"). HUBCO
is also the indirect owner, through Hudson United and Lafayette, of three
investment subsidiaries and five real estate holding companies. In addition,
HUBCO, through Hudson United, holds a 50% interest in a data processing and
imaged check processing company. Each of HUBCO's direct and indirect
subsidiaries is described in Item 1.
Recent Growth of HUBCO and Subsidiaries
The Company's acquisition philosophy is to seek in-market or contiguous market
opportunities which can be accomplished with little or no dilution to earnings.
From October 1990 through December 1997, the Company has acquired seventeen
institutions, adding to its assets and liabilities a total in excess of $2.7
billion and expanding its branch network from 15 branches to 84 branches. Over
$700 million of these assets and liabilities were acquired through government
assisted transactions which allowed the Company to reprice deposits, review
loans and purchase only those loans which met its underwriting criteria. The
balance of the acquisitions were accomplished in traditional negotiated
transactions.
The Company completed two acquisitions in the first quarter of 1998 and also has
3 pending acquisitions, 2 which the Company expects to close by the second
quarter of 1998 and 1 which the Company expects to close by the third quarter of
1998. The Company also has pending the purchase of 22 branches from First Union
National Bank. See also "Management's Discussion and Analysis of Financial
Condition and Results of Operation--Acquisition Summary".
<PAGE>
Summary of Acquisitions
The following chart summarizes the acquisitions undertaken by the Company since
October 1990. The amounts shown as "Purchase Price" represent either cash paid
or the market value of securities issued by HUBCO to the shareholders or owners
of the acquired entity:
<TABLE>
<CAPTION>
DEPOSITS LOANS
GOVERNMENT PURCHASE ASSUMED PURCHASED BRANCHES
INSTITUTION ASSISTED PRICE (IN MILLIONS) (IN MILLIONS) ACQUIRED
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mountain Ridge State Bank Yes $ 325,000 $ 47.0 $ 12.0 1
Meadowlands National Bank No 415,000 35.5 22.1 3
Center Savings and Loan Association Yes 10,000 89.9 78.6 1
Irving Savings and Loan Association Yes 5,000 161.1 62.4 5
Broadway Bank and Trust Company Yes 3,406,000 345.7 9.5 8
Pilgrim State Bank No 6,000,000 122.9 46.7 6
Polifly Savings Bank Yes 6,180,000 104.4 0.5 4
Washington Savings Bank No 40,500,000 237.8 168.5 8
Shoppers Charge Accounts No 16,300,000 - 55.6 -
Jefferson National Bank No 9,700,000 85.0 41.0 4
Urban National Bank No 38,200,000 204.0 90.0 9
Growth Financial Corp No 25,600,000 110.0 102.0 3
CrossLand Federal Savings Bank No 3,000,000 60.6 - 3
Lafayette American Bank & Trust No 120,000,000 647.0 548.0 19
Hometown Bancorporation, Inc. No 31,600,000 162.0 98.9 2
UST Bank, CT No 13,700,000 95.3 70.1 4
Westport Bancorp, Inc. No 67,800,000 259.0 183.0 7
</TABLE>
The Company's profitability and its financial condition may be significantly
impacted by its acquisition strategy and by the consummation of its recent
acquisitions.
The Company intends to continue to seek acquisition opportunities. There can be
no assurance that the Company will be successful in acquiring additional
financial institutions or, if additional financial institutions are acquired,
that these acquisitions will enhance the profitability of the Company.
On November 8, 1993, the Company's Board of Directors approved a stock
repurchase plan and authorized management to repurchase up to 10% of its
outstanding common stock per year. There is no assurance that the Company will
purchase the full amount authorized in any year. The acquired shares are to be
held in treasury to be used for stock option and other employee benefit plans,
preferred stock conversion, stock dividends or in connection with the issuance
of common stock in pending or future acquisitions. During 1997, the Company
purchased 2.0 million shares at an aggregate cost of $62.3 million. All of these
shares were reissued during 1997, primarily in connection with the conversion of
preferred stock to common stock, the 3% stock dividend paid to shareholders of
record as of November 13, 1997, and the exercise of stock options.
<PAGE>
Other Subsidiaries
In 1983, HUBCO formed a directly owned subsidiary called HUB Financial Services,
Inc., which was, in 1995 a wholly owned data processing subsidiary. On November
6, 1995, HUBCO sold 50% of the stock in HUB Financial Services, Inc. to United
National Bank. HUBCO simultaneously made a capital contribution of the remaining
50% to Hudson United Bank. The joint venture is operating pursuant to the
provisions of the Bank Service Corporation Act. Simultaneously with the sale of
50% to United National Bank, the name of HUB Financial Services, Inc. was
changed to United Financial Services, Inc.("UFS"). UFS provides data processing
and imaged check processing services to both of its owner banks and to
Lafayette.
In March, 1997, Hudson United established a directly owned subsidiary called HUB
Mortgage Investments, Inc. This wholly owned subsidiary owns approximately $200
million of mortgage loans and operates as a real estate investment trust.
As of December 31, 1997 $320.0 million of Hudson United's investment portfolio
is being managed by a subsidiary company, Hendrick Hudson Corp. of New Jersey.
This subsidiary was established in 1987 to operate as an investment company
under state law.
In February, 1995 HUBCO established a directly owned subsidiary called HUB
Investment Services, Inc. This wholly owned subsidiary provided Brokerage
Services through an agreement with BFP Financial Partners, Inc. which is a
subsidiary of Legg Mason, Inc. During 1996, HUBCO filed to change the name of
the company to HUB Financial Services, Inc. and HUB Financial Services, Inc.
obtained a series of insurance licenses and sells insurance products. In August,
1997, HUBCO made a capital contribution of this subsidiary to Hudson United. In
February of 1998, the agreement with BFP Financial Partners, Inc. was terminated
and all brokerage operations ceased. The subsidiary continues to sell insurance
products.
Hudson United Bank owns several real estate holding companies. Lafayette
Development Corp. was incorporated by Hudson United Bank and is presently
inactive. JNB Holdings, Inc. was created by Jefferson National Bank and holds
title to OREO properties upon which Jefferson National Bank had foreclosed. UNB
Holdings, Inc. was created by Urban National Bank and holds title to OREO
properties upon which Urban National Bank had foreclosed. Sole ownership of JNB
Holdings and UNB Holdings passed to Hudson United Bank upon merger of the
respective predecessor banks into Hudson United Bank.
Lafayette owns two real estate holding companies. AMBA Realty Corporation and
AMBA II Realty Corporation were incorporated by Lafayette for the purpose of
holding, developing and disposing of properties obtained through foreclosure
proceedings. Lafayette also owns LAI Company, which was incorporated for the
purpose of investing in the common stock of other Connecticut based financial
institutions and is currently inactive.
<PAGE>
Unionization of Hudson United Bank
Hudson United Bank was organized in 1952. Eleven branches are currently
unionized. Local 153 of the Office and Professional Employees International
Union represents the clerical staff in those eleven branches. Effective March 1,
1996 a three-year collective bargaining agreement was negotiated which provided
for a modest increase in wages, increased employee contributions towards the
cost of providing health care benefits and consolidation of all bargaining unit
jobs into one job description. These eleven branches operate as an open shop and
approximately 64% of the employees in these branches are members of the union.
The collective-bargaining agreement expires February 28, 1999.
Regulatory Matters
There are a variety of statutory and regulatory restrictions governing the
relations among HUBCO and its subsidiaries:
Capital Adequacy Guidelines and Deposit Insurance
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"),
required each federal banking agency to revise its risk-based capital standards
to ensure that those standards take adequate account of interest rate risk,
concentration of credit risk and the risks of non-traditional activities. In
addition, pursuant to FDICIA, each federal banking agency has promulgated
regulations, specifying the levels at which a financial institution would be
considered "well capitalized", "adequately capitalized", "undercapitalized",
"significantly undercapitalized", or "critically undercapitalized", and to take
certain mandatory and discretionary supervisory actions based on the capital
level of the institution.
The regulations implementing these provisions of FDICIA provide that an
institution will be classified as "well capitalized" if it (i) has a total
risk-based capital ratio of at least 10.0 percent, (ii) has a Tier 1 risk-based
capital ratio of at least 6.0 percent, (iii) has a Tier 1 leverage ratio for at
least 5.0 percent, and (iv) meets certain other requirements. An institution
will be classified as "adequately capitalized" if it (i) has a total risk-based
capital ratio of at least 8.0 percent, (ii) has a Tier 1 risk-based capital
ratio of at least 4.0 percent, (iii) has a Tier 1 leverage ratio of (a) at least
4.0 percent, or (b) at least 3.0 percent if the institution was rated 1 in its
most recent examination, and (iv) does not meet the definition of "well
capitalized". An institution will be classified as "undercapitalized" if it (i)
has a total risk-based capital ratio of less than 8.0 percent, (ii) has a Tier 1
risk-based capital ratio of less than 4.0 percent, or (iii) has a Tier 1
leverage ratio of (a) less than 4.0 percent, or (b) less than 3.0 percent if the
institution was rated 1 in its most recent examination. An institution will be
classified as "significantly undercapitalized" if it (i) has a total risk-based
capital ratio of less than 6.0 percent, (ii) has a Tier 1 risk-based capital
ratio of less than 3.0 percent, or (iii) has a Tier 1 leverage ratio of less
than 3.0 percent. An institution will be classified as "critically
undercapitalized" if it has a tangible equity to total assets ratio that is
equal to or less than 2.0 percent. An insured depository institution may be
deemed to be in a lower capitalization category if it receives an unsatisfactory
examination.
<PAGE>
As of December 31, 1997, Hudson United Bank had a risk weighted capital ratio of
12.5% and a leverage capital ratio of 7.8% and Lafayette had a risk weighted
capital ratio of 13.7% and a leverage capital ratio of 8.4%. These ratios exceed
the requirements to be considered a well capitalized institution under the FDIC
regulations.
Bank holding companies must comply with the Federal Reserve Board's risk-based
capital guidelines. Under the guidelines, risk weighted assets are calculated by
assigning assets and certain off-balance sheet items to broad risk categories.
The total dollar value of each category is then weighted by the level of risk
associated with that category. A minimum risk-based capital to risk based assets
ratio of 8.00% must be attained. At least one half of an institution's total
risk based capital must consist of Tier 1 capital, and the balance may consist
of Tier 2, or supplemental, capital. Tier 1 capital consists primarily of common
stockholder's equity along with preferred or convertible preferred stock, minus
goodwill. Tier 2 capital consists of an institution's allowance for loan and
lease losses, subject to limitation, hybrid capital instruments and certain
subordinated debt. The allowance for loan and lease losses which is considered
Tier 2 capital is limited to l.25% of an institution's risk-based assets. As of
December 31, 1997, HUBCO's total risk-based capital ratio was 16.6%, consisting
of a Tier 1 ratio of 10.3% and a Tier 2 ratio of 6.3%. Both ratios exceed the
requirements under these regulations.
In addition, the Federal Reserve Board has promulgated a leverage capital
standard, with which bank holding companies must comply. Bank holding companies
must maintain a minimum Tier l capital to total assets ratio of 3%. However,
institutions which are not among the most highly rated by federal regulators
must maintain a ratio 100-to-200 basis points above the 3% minimum. As of
December 31 1997, HUBCO had a leverage capital ratio of 7.1%.
Hudson United and Lafayette are each members of the Bank Insurance Fund ("BIF")
of the FDIC. The FDIC also maintains another insurance fund, the Savings
Association Insurance Fund ("SAIF"), which primarily covers savings and loan
association deposits but also covers deposits that are acquired by a BIF-insured
institution from a savings and loan association ("Oakar deposits"). Hudson
United has approximately $109.6 million of deposits at December 31, 1997 with
respect to which Hudson United pays SAIF insurance premiums.
For the first three quarter of 1995, both SAIF-member and BIF-member
institutions paid deposit insurance premiums based on a schedule from $0.23 to
$0.31 per $100 of deposits. In August, 1995, the FDIC, in anticipation of the
BIF's imminent achievement of a required 1.25% reserve ratio, reduced the
deposit insurance premium rates paid by BIF-insured banks from a range of $0.23
to $0.31 per $100 of deposits to a range of $0.04 to $0.31 per $100 of deposits.
The new rate schedule for the BIF was made effective June 1, 1995. On November
14, 1995, the FDIC voted to reduce annual assessments for the semi-annual period
beginning January 1, 1996 to the legal minimum of $2,000 for BIF insured
institutions, except for institutions that are not well capitalized and are
assigned to the higher supervisory risk categories.
<PAGE>
The Economic Growth and Regulatory Reduction Act of 1996 (the "1996 Act"),
signed into law on September 30, 1996, included the Deposit Insurance Funds Act
of 1996 (the "Funds Act") under which the FDIC was required to impose a special
assessment on SAIF assessable deposits to recapitalize the SAIF. As a result of
the Funds Act, HUB paid a special assessment of $825,000 for its SAIF deposits,
which it accrued in the third quarter of 1996. Under the Funds Act, the FDIC
also will charge assessments for SAIF and BIF deposits in a 5 to 1 ratio to pay
Financing Corporation ("FICO") bonds until January 1, 2000, at which time the
assessment will be equal. A FICO rate of approximately 1.29 basis points will be
charged on BIF deposits, and approximately 6.44 basis points will be charged on
SAIF deposits. The 1996 Act instituted a number of other regulatory relief
provisions.
Restrictions on Dividend Payments
The holders of HUBCO Common Stock are entitled to receive dividends, when, as
and if declared by the Board of Directors of HUBCO out of funds legally
available, subject to the preferential dividend rights of any preferred stock
that may be outstanding from time to time.
The only statutory limitation is that such dividends may not be paid when HUBCO
is insolvent. Because funds for the payment of dividends by HUBCO come primarily
from the earnings of HUBCO's bank subsidiaries, as a practical matter,
restrictions on the ability of Hudson United and Lafayette to pay dividends act
as restrictions on the amount of funds available for the payment of dividends by
HUBCO.
As a New Jersey chartered commercial bank, Hudson United is subject to the
restrictions on the payment of dividends contained in the New Jersey Bank
Act ("NJBA"). Under the NJBA, Hudson United may pay dividends only out of
retained earnings, and out of surplus to the extent that surplus exceeds 50% of
stated capital. Under the Banking Law of Connecticut (the "BLC"), Lafayette may
pay dividends only from its net profits, and the total of all dividends in any
calendar year may not (unless specifically approved by the Connecticut
Commissioner of Banking) exceed the total of its net profits of that year
combined with its retained net profits of the preceding two years. Under the
Financial Institutions Supervisory Act, the FDIC has the authority to prohibit a
state-chartered bank from engaging in conduct which, in the FDIC's opinion,
constitutes an unsafe or unsound banking practice. Under certain circumstances,
the FDIC could claim that the payment of dividend or other distributions by
Hudson United or Lafayette to HUBCO constitutes an unsafe or unsound practice.
HUBCO is also subject Federal Reserve Bank ("FRB") policies which may, in
certain circumstances, to limit its ability to pay dividends. The FRB policies
require, among other things, that a bank holding company maintain a minimum
capital base. The FRB would most likely seek to prohibit any dividend payment
which would reduce a holding company's capital below these minimum amounts. At
December 31, 1997, Hudson United had $118.9 million available and Lafayette had
$11.7 million available for the payment of dividends to HUBCO. At December 31,
1997, HUBCO had $95.5 million available for shareholder dividends, the payment
of which would not reduce any of its capital ratios below the minimum regulatory
requirements.
<PAGE>
Restrictions on Transactions Between HUBCO and its Banking Subsidiaries
The Banking Affiliates Act of 1982, as amended, severely restricts loans and
extensions of credit by the Banks to HUBCO and HUBCO affiliates (except
affiliates which are banks). In general, such loans must be secured by
collateral having a market value ranging from 100% to 130% of the loan,
depending upon the type of collateral. Furthermore, the aggregate of all loans
from the Banks to HUBCO and its affiliates may not exceed 20% of that Bank's
capital stock and surplus and, singly to HUBCO or any affiliate, may not exceed
10% of the Bank's capital stock and surplus. Similarly, the Banking Affiliates
Act of 1982 also restricts the Banks in the purchase of securities issued by,
the acceptance from affiliates of loan collateral consisting of securities
issued by, the purchase of assets from, and the issuance of a guarantee or
standby letter-of-credit on behalf of, HUBCO or any of its affiliates.
Holding Company Supervision
Under the Bank Holding Company Act, HUBCO may not acquire directly or indirectly
more than 5 percent of the voting shares of, or substantially all of the assets
of, any bank without the prior approval of the Federal Reserve Board.
In general, the Federal Reserve Board, under its regulations and the Bank
Holding Company Act, regulates the activities of bank holding companies and
non-bank subsidiaries of banks. The regulation of the activities of banks,
including bank subsidiaries of bank holding companies, generally has been left
to the authority of the supervisory government agency, which for Hudson United
is the FDIC and the New Jersey Department of Banking and Insurance (the
"NJDOBI"), and for Lafayette is the FDIC and the Connecticut Department of
Banking (the "CTDOB).
Interstate Banking Authority
The Riegle-Neale Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Banking and Branching Act") significantly changed interstate banking
rules. Pursuant to the Interstate Banking and Branching Act, a bank holding
company is able to acquire banks in states other than its home state beginning
September 29, 1995, regardless of applicable state law.
The Interstate Banking and Branching Act also authorizes banks to merge across
state lines, thereby creating interstate branches, beginning June, 1997. Under
such legislation, each state has the opportunity either to "opt out" of this
provision, thereby prohibiting interstate branching in such states, or to "opt
in" at an earlier time, thereby allowing interstate branching within that state
prior to June 1, 1997. Furthermore, a state may "opt in" with respect to de novo
branching, thereby permitting a bank to open new branches in a state in which
the bank does not already have a branch. Without de novo branching, an
out-of-state bank can enter the state only by acquiring an existing bank.
On April 17, 1996, New Jersey enacted legislation to opt-in with respect to
earlier interstate banking and branching and the entry into New Jersey for
foreign country banks. New Jersey did not authorize de novo branching into the
state.
<PAGE>
In 1995, Connecticut enacted legislation to opt-in with respect to earlier
interstate banking and the entry into Connecticut of foreign country banks.
Connecticut authorizes de novo branching into the state only if the laws of the
home state of the out-of-state bank are reciprocal in that respect.
Cross Guarantee Provisions and Source of Strength Doctrine
Under the Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA"), a depository institution insured by the FDIC can be held liable for
any loss incurred by, or reasonably expected to be incurred by, the FDIC in
connection with (I) the default of a commonly controlled FDIC-insured depository
institution in danger of default. "Default" is defined generally as the
appointment of a conservatory or receiver and "in danger of default" is defined
generally as the existence of certain conditions, including a failure to meet
minimum capital requirements, indicative that a "default" is likely to occur in
the absence of regulatory assistance. These provisions have commonly been
referred to as FIRREA's "cross guarantee" provisions. Further, under FIRREA the
failure to meet capital guidelines could subject a banking institution to a
variety of enforcement remedies available to federal regulatory authorities,
including the termination of deposit insurance by the FDIC.
According to Federal Reserve Board policy, bank holding companies are expected
to act as a source of financial strength to each subsidiary bank and to commit
resources to support each such subsidiary. This support may be required at times
when a bank holding company may not be able to provide such support.
Furthermore, in the event of a loss suffered or anticipated by the FDIC - either
as a result of default of a bank subsidiary of the Company or related to FDIC
assistance provided to the subsidiary in danger of default - the other bank
subsidiaries of the Company may be assessed for the FDIC's loss, subject to
certain exceptions.
(b) Industry Segments
The Registrant has one industry segment -- commercial banking.
(c) Narrative Description of Business
HUBCO exists primarily to hold the stock of its subsidiaries. During most of
1997, HUBCO had two directly-owned subsidiaries -- Hudson United and Lafayette.
In addition, HUBCO, through Hudson United, indirectly owns five additional
subsidiaries, and HUBCO, through Lafayette, indirectly owns three additional
subsidiaries. The historical growth of, and regulations affecting, each of
HUBCO's direct and indirect subsidiaries is described in Item 1(a) above, which
is incorporated herein by reference.
HUBCO is a legal entity separate from its subsidiaries. The stock of its Banks
is HUBCO's principal asset. Dividends from Hudson United and Lafayette are the
primary source of income for HUBCO. As explained above in Item 1(a), legal and
regulatory limitations are imposed on the amount of dividends that may be paid
by the Banks to HUBCO.
<PAGE>
Hudson United Bank currently maintains its executive offices in Mahwah, New
Jersey. At December 31, 1997, Hudson United operated out of 57 offices primarily
in eight northern New Jersey counties. These offices are located in the northern
New Jersey counties of Bergen, Essex, Hudson, Morris, Passaic, Middlesex,
Somerset and Union. Lafayette maintains its executive offices in Bridgeport,
Connecticut. At December 31, 1997, Lafayette operated 27 offices in the
southwestern Connecticut counties of New Haven and Fairfield. HUBCO owns a
64,350 square foot building in Mahwah, New Jersey which houses the executive
offices of HUBCO and United Financial Services, Inc., which services the Banks'
data processing and check processing needs and offers its services to other
banks in the Connecticut, New York and New Jersey area.
At December 31, 1997, HUBCO through its subsidiaries had deposits of $2.31
billion, net loans of $1.77 billion and total assets of $3.05 billion. HUBCO
ranked 3rd among commercial banks and bank holding companies headquartered in
New Jersey in terms of asset size.
Each Bank is a full service commercial bank and offers the services generally
performed by commercial banks of similar size and character, including imaged
checking, savings, and time deposit accounts, 24-hour telephone banking, trust
services, cash management services, safe deposit boxes, insurance, stock, bond,
and mutual fund sales, secured and unsecured personal and commercial loans,
residential and commercial real estate loans, and international services
including import and export needs, foreign currency purchases and letters of
credit. The Banks' deposit accounts are competitive in the current environment
and include money market accounts and a variety of interest-bearing transaction
accounts. In the lending area, the Bank primarily engages in consumer lending,
commercial lending and real estate lending, and 3rd party credit card programs.
Hudson United and Lafayette offer a variety of trust services. At December 31,
1997, Hudson's Trust Department had approximately $277.7 million of assets under
management or in its custodial control and Lafayette's Trust Department had
approximately $559.0 million of assets under management or in its custodial
control.
There are numerous commercial banks headquartered in New Jersey and Connecticut,
which compete in the market areas serviced by HUBCO. In addition, large
out-of-state banks compete for the business of New Jersey and Connecticut
residents and businesses located in HUBCO's primary market. A number of other
depository institutions compete for the business of individuals and commercial
enterprises in New Jersey and Connecticut including savings banks, savings and
loan associations, brokerage houses, financial subsidiaries of other industries
and credit unions. Other financial institutions, such as mutual funds, consumer
finance companies, factoring companies, and insurance companies, also compete
with HUBCO for both loans and deposits. Competition for depositors' funds, for
creditworthy loan customers and for trust business is intense.
<PAGE>
Despite intense competition with institutions commanding greater financial
resources, the Banks have been able to attract deposits and extend loans. While
each Bank may not exceed fifteen percent of its capital in a loan to a single
borrower, the Banks have a "house limit" significantly below that level. Each
Bank has, on occasion, arranged for participation by other banks in larger loan
accommodations.
Hudson United and Lafayette each have focused on becoming an integral part of
the community it serves. Officers and employees are incented to meet the needs
of their customers and to meet the needs of the local communities served.
HUBCO and its subsidiaries had 833 full-time employees and 187 part-time
employees as of December 31, 1997, compared to 827 full-time and 191 part-time
employees at the end of 1996, as restated to reflect the institutions acquired
and accounted for under the pooling of interests method.
(d) Financial Information about foreign and domestic
operations and export sales.
Not Applicable
(e) Executive Officers of the Registrant
The following table sets forth certain information as to each executive officer
of HUBCO who is not a director.
Name, Age and
Position with Officer of Principal Occupation
HUBCO HUBCO Since During Past Five Years
- -------------------------------------------------------------------------------
D. Lynn Van Borkulo- 1988 Executive Vice President and
Nuzzo, 48 Corporate Secretary, HUBCO,
Hudson United and Lafayette
American
Joseph F. Hurley, 47 1997 Executive Vice President and
Chief Financial Officer
John F. McIlwain, 59 1991 Executive Vice President and
Chief Credit Officer
Thomas R. Nelson, 53 1994 Executive Vice President and
Chief Operating Officer
<PAGE>
(f) Statistical Disclosure Required Pursuant to
Securities Exchange Act, Industry Guide 3
The statistical disclosures for a bank holding company required pursuant to
Industry Guide 3 are contained on the following pages of this Report on Form
10-K (Item I disclosures are contained on page 5 of HUBCO's 1997 Annual Report):
PAGES(S) OF
ITEM OF GUIDE 3 THIS REPORT
--------------- -----------
II. Investment Portfolio............................................ 16
III. Loan Portfolio.................................................. 17-19
IV. Summary of Loan Loss Experience................................. 20-22
V. Deposits........................................................ 23
VI. Return on Equity and Assets..................................... 24
VII. Short-Term Borrowings........................................... 25-26
<PAGE>
HUBCO, Inc. and Subsidiaries
S.E.C. GUIDE 3 - ITEM II
INVESTMENT PORTFOLIO
Book Value at End of Each Reporting Period
December 31
-----------------------------------------
1997 1996 1995
---- ---- ----
(In Thousands)
U.S. Treasury and Other U.S.
Government Agencies and
Corporations $670,166 $862,913 $761,376
State and Political Subdivisions 8,469 11,579 10,115
Other Debt Securities 28,943 4,386 16,627
Common Stock 70,497 57,529 8,320
-----------------------------------------
TOTAL $778,075 $936,406 $796,438
=========================================
Maturities and Weighted Average Yield at End of Latest Reporting Period
<TABLE>
<CAPTION>
Maturing
--------------------------------------------------------------------------
After One But After Five But
Within One Year Within Five Years Within Ten Years After Ten Years
--------------------------------------------------------------------------
Amount Yield Amount Yield Amount Yield Amount Yield
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury
and other
U.S. Government
Agencies and
Corporations $75,476 6.51% $419,686 6.27% $78,655 6.56% $96,349 6.66%
States and Political
Subdivisions 8,272 6.05 -- -- -- -- 197 7.50
Other Debt Securities 4,493 5.67 650 7.92 150 6.31 23,650 9.67
Common Stock 70,497 5.04 -- -- --
-------- -------- ------- ---------
TOTAL $159,895 5.81% $566,313 6.27% $78,805 6.56% $120,196 7.25%
======== ======== ======= ========
</TABLE>
Weighted average yields on tax-exempt obligations have been computed on a fully
tax-equivalent basis assuming a tax rate of 35 percent.
<PAGE>
HUBCO, Inc. and Subsidiaries
S.E.C. GUIDE 3 - ITEM III
LOAN PORTFOLIO
<TABLE>
Types of Loans At End of Each Reporting Period
<CAPTION>
December 31
-------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial, Financial,
and Agricultural $474,899 $482,064 $416,726 $401,788 $413,974
Real Estate -
Construction 21,525 25,080 30,186 20,323 19,928
Real Estate -
Mortgage 1,106,858 1,206,300 1,055,071 995,921 753,042
Installment 170,524 170,911 150,039 151,027 116,453
---------------------------------------------------------------
TOTAL $1,773,806 $1,884,355 $1,652,022 $1,569,059 $1,303,397
===============================================================
</TABLE>
<PAGE>
HUBCO, Inc. and Subsidiaries
S.E.C. GUIDE 3 - ITEM III
LOAN PORTFOLIO
The following table shows the maturity of loans (excluding residential mortgages
of 1-4 family residences, installment loans and lease financing) outstanding as
of December 31, 1997. Also provided are the amounts due after one year
classified according to the sensitivity to changes in interest rates.
Maturities and Sensitivity to Changes in Interest Rates
MATURING
---------------------------------------------------
After One After
Within But Within Five
One Year Five Years Years Total
-------- ---------- ----- -----
Commercial, Financial,
and Agricultural $186,013 $124,191 $164,695 $474,899
Real Estate Construction 11,943 9,582 -- 21,525
Real Estate - Mortgage 18,100 72,390 360,379 450,869
---------------------------------------------------
TOTAL $216,056 $206,163 $525,074 $947,293
===================================================
SENSITIVITY
------------------------
Fixed Variable
Rate Rate
------------------------
Due After One But Within Five Years $75,473 $130,690
Due After Five Years 94,225 430,849
------------------------
TOTAL $169,698 $561,539
========================
<PAGE>
HUBCO, Inc. and Subsidiaries
S.E.C. GUIDE 3 - ITEM III
LOAN PORTFOLIO
Nonaccrual, Past Due and Restructured Loans
December 31
---------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In Thousands)
Loans accounted for on
a nonaccrual basis $32,404 $29,029 $23,700 $35,043 $56,809
Loans contractually past
due 90 days or more as
to interest or principal
payments 9,124 8,531 6,221 3,670 5,124
Loans whose terms have been
renegotiated to provide a
reduction or deferral of
interest or principal
because of a
deterioration in the
financial position of
the borrower 1,760 2,779 1,879 6,528 16,759
At the end of the reporting period, there were no loans not disclosed in the
above table where known information about possible credit problems of borrowers
causes management of the Company to have serious doubts as to the ability of
such borrowers to comply with the present loan repayment terms and which may
result in disclosure of such loans in the above table in the future.
At December 31, 1997 and 1996, there were no concentrations of loans exceeding
10% of total loans which are not otherwise disclosed as a category of loans
pursuant to Item III.A. of Guide 3.
Recognition of interest on the accrual method is discontinued based on
contractual delinquency and when timely payment is not expected. A nonaccrual
loan is not returned to an accrual status until interest is received on a
current basis and other factors indicate collection ability is no longer
doubtful.
<PAGE>
HUBCO, Inc. and Subsidiaries
S.E.C. GUIDE 3 - ITEM IV
SUMMARY OF LOAN LOSS EXPERIENCE
The following is a summary of the activity in the allowance for possible loan
losses, broken down by loan category:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ----- ---- ----
<S> <C> <C> <C> <C> <C>
Amount of Loans Outstanding at End of Year $1,773,806 $1,884,355 $1,652,022 $1,569,059 $1,303,397
===========================================================
Daily Average Amount of Loans $1,819,651 $1,723,335 $1,590,663 $1,405,759 $1,349,440
===========================================================
Balance of Allowance for Possible
Loan Losses at Beginning of Year $35,153 $30,105 $ 30,958 $ 33,463 $ 32,809
Loans Charged Off:
Commercial, Financial and Agricultural (3,961) (6,477) (5,503) (7,099) (7,418)
Real Estate - Construction -- -- (75) (474) (482)
Real Estate - Mortgage (2,058) (4,580) (6,055) (12,247) (16,566)
Installment (5,699) (3,164) (1,535) (776) (2,233)
Lease Financing -- -- -- (13) (122)
-----------------------------------------------------------
Total Loans Charged Off (11,718) (14,221) (13,168) (20,609) (26,821)
-----------------------------------------------------------
Recoveries of Loans Previously Charged Off:
Commercial, Financial and Agricultural 1,850 469 926 1,766 818
Real Estate-Construction -- -- 40 17 --
Real Estate-Mortgage 392 776 1,182 442 604
Installment 1,404 1,071 553 377 436
Lease Financing -- -- 10 41 82
-----------------------------------------------------------
Total Recoveries 3,646 2,316 2,711 2,643 1,940
-----------------------------------------------------------
Net Loans Charged Off (8,072) (11,905) (10,457) (17,966) (24,881)
-----------------------------------------------------------
Provision Charged to Expense 7,327 12,295 9,515 9,309 31,917
Additions Acquired Through Acquisitions 2,800 4,658 -- 4,717 400
Other -- -- 89 1,435 (6,782)
-----------------------------------------------------------
Balance at End of Year $37,208 $35,153 $30,105 $30,958 $33,463
===========================================================
Ratios
Net Loans Charged Off to
Average Loans Outstanding .44% .69% .66% 1.28% 1.84%
Allowance for Possible Loan
Losses to Average Loans
Outstanding 2.04% 2.04% 1.89% 2.20% 2.48%
</TABLE>
Management formally reviews the loan portfolio and evaluates credit risk on at
least a quarterly basis throughout the year. Such review takes into
consideration the financial condition of the borrowers, fair market value of
collateral, level of delinquencies, historical loss experience by loan category,
industry trends, and the impact of local and national economics conditions.
<PAGE>
HUBCO, Inc. and Subsidiaries
S.E.C. GUIDE 3 - ITEM IV
SUMMARY OF LOAN LOSS EXPERIENCE
ALLOWANCE FOR POSSIBLE LOAN LOSSES ALLOCATION
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996 December 31, 1995 December 31, 1994 December 31,1993
---------------------------------------------------------------------------------------------------------
% of Loans % of Loans % of Loans % of Loans % of Loans
In Each In Each In Each In Each In Each
Category To Category To Category To Category To Category to
Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans
-------------------------------------------------------------------------------------------------------------
Balance at end of period applicable to domestic loans:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial
Financial and
Agricultural $10,009 26.8% $11,454 25.6% $14,604 25.2% $17,072 25.6% $22,522 31.8%
Real Estate --
Construction 453 1.2 188 1.3 252 1.8 375 1.3 909 1.5
Real Estate --
Mortgage 11,401 62.4 10,535 64.0 6,563 63.9 5,912 63.5 5,272 57.8
Installment 3,310 9.6 2,885 9.1 2,197 9.1 2,603 9.6 1,942 8.9
Unallocated 12,035 10,091 6,489 4,996 2,818
------------------------------------------------------------------------------------------------------------
TOTAL $37,208 100.0% $35,153 100.0% $30,105 100.0% $30,958 100.0% $33,463 100.0%
=============================================================================================================
</TABLE>
The allowance for possible loan losses has been allocated according to the
amount deemed to be reasonably necessary to provide for the possibility of
losses being incurred within the above categories of loans at the date
indicated.
<PAGE>
HUBCO, Inc. and Subsidiaries
S.E.C. GUIDE 3 - ITEM V
DEPOSITS
The following table sets forth average deposits and average rates for each of
the years indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------
1997 1996 1995
-------------------- ------------------- -----------------
Amount Rate Amount Rate Amount Rate
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Domestic Bank Offices:
Non-interest-bearing
demand deposits $580,444 $524,017 $487,031
Interest-bearing
demand deposits 476,959 1.86% 455,882 2.10% 413,185 2.50%
Savings deposits 589,972 1.81% 634,579 2.10 689,277 2.45
Time deposits 718,661 4.68% 805,948 4.94 768,253 4.49
------- ------- -------
TOTAL $2,420,426 $2,357,746 $2,256,213
========== ========== ==========
</TABLE>
Maturities of certificates of deposit and other time deposits of $100,000 or
more issued by domestic offices, outstanding at December 31, 1997 are summarized
as follows:
Time
Certificates Other Time
of Deposit Deposits Total
---------- -------- -----
(In Thousands)
3 months or less $ 79,621 $ -- $ 79,621
Over 3 through 6 months 23,338 -- 23,338
Over 6 through 12 month 14,298 14,298
Over 12 months 9,345 9,345
-------- --------
TOTAL $126,602 $ -- $126,602
======== ===== ========
<PAGE>
HUBCO, Inc. and Subsidiaries
S.E.C. GUIDE 3 - ITEM VI
RETURN ON EQUITY AND ASSETS
Year Ended December 31,
----------------------------------
1997 1996 1995
----------------------------------
Return on Average Assets 1.66% 0.76% 1.27%
Return on Average Equity 24.36 10.44 17.31
Common Dividend Payout Ratio 34.09 72.53 36.84
Average Stockholders' Equity
to Average Assets Ratio 6.82 7.25 7.35
<PAGE>
HUBCO, Inc. and Subsidiaries
S.E.C. GUIDE 3 - ITEM VII
SHORT-TERM BORROWINGS
The following table shows the distribution of the Company's short-term
borrowings and the weighted average interest rates thereon at the end of each of
the last three years. Also provided are the maximum amount of borrowings and the
average amounts of borrowings as well as weighted average interest rates for the
last three years. The term for each type of borrowing disclosed is one day.
Federal Funds
Purchased and
Securities Sold
Under Agreement Other Short-
to Repurchase Term Borrowings
-------------------------------------------
(In Thousands)
At Year end December 31:
1997 $263,370 $ 97,949
1996 74,411 113,568
1995 45,858 17,124
Weighted average interest
rate at year end:
1997 5.52% 5.86%
1996 4.80 6.05
1995 5.29 5.79
Maximum amount outstanding
at any month's end:
1997 $263,370 $184,796
1996 100,049 126,653
1995 175,604 35,096
Average amount outstanding
during the year:
1997 $ 78,716 $137,457
1996 87,336 48,205
1995 100,327 18,229
<PAGE>
Federal Funds
Purchased and
Securities Sold
Under Agreement Other Short-
to Repurchase Term Borrowings
-------------------------------------------
(In Thousands)
Weighted average interest
rate during the year:
1997 4.50% 5.79%
1996 4.76 4.30
1995 5.47 5.97
ITEM 2. PROPERTIES
The corporate headquarters of HUBCO is located in a three story facility in
Mahwah, New Jersey. The building is approximately 64,350 square feet and houses
the executive offices of the Company and its subsidiaries. The main office of
Hudson United is located in a leased facility in Union City, New Jersey. Hudson
United Bank occupies 57 branch offices, of which 30 are owned and 27 are leased.
Lafayette's main office is located in a leased facility in Bridgeport,
Connecticut. Lafayette occupies 27 branch offices, of which 4 are owned and 23
are leased.
Of the 50 properties leased, 32 have renewal options for terms of five to
fifteen years. The remaining 18 locations have expiration dates ranging from
1998-2005.
ITEM 3. LEGAL PROCEEDINGS
In the normal course of business, lawsuits and claims may be brought by and may
arise against HUBCO and its subsidiaries. In the opinion of management, no legal
proceedings which have arisen in the normal course of the Company's business and
which are presently pending or threatened against HUBCO or its subsidiaries,
when resolved, will have a material adverse effect on the business or financial
condition of HUBCO or any of its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of Shareholders of HUBCO during the fourth
quarter of 1997.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
As of December 31, 1997, HUBCO had approximately 3,588 shareholders.
HUBCO's common stock is listed on the Nasdaq National Market. The following
represents the high and low closing sale prices from each quarter during the
last two years. The numbers have been restated to reflect all stock dividends.
1997
----
High Low
--------------------
1st Quarter $25.85 $21.84
2nd Quarter 28.52 21.12
3rd Quarter 32.04 26.94
4th Quarter 39.13 30.94
1996
----
High Low
--------------------
1st Quarter $21.33 $18.32
2nd Quarter 20.50 17.32
3rd Quarter 20.39 18.61
4th Quarter 24.15 19.56
The following table shows the per share quarterly cash dividends paid upon the
common stock over the last two years, restated to give retroactive effect to
stock dividends.
1997 1996
---- ----
March 1 $0.184 March 1 $0.160
June 1 0.184 June 1 0.160
September 1 0.184 September 1 0.160
December 1 0.200 December 1 0.184
Dividends are generally declared within 30 days prior to the payable date, to
stockholders of record l0-20 days after the declaration date.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
(In Thousands Except For Per Share Amounts)
Reference should be made to pages 4-6 of this Report on Form 10-K for a
discussion of recent acquisitions which affect the comparability of the
information contained in this table.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Interest Income $140,244 $131,354 $133,211 $117,803 $98,757
Provision for Possible
Loan Losses 7,327 12,295 9,515 9,309 31,917
Net Income (Loss) 49,314 21,497 34,565 23,388 (6,008)
Per Share Data (1)
Earnings (Loss) Per Share:
Basic 2.20 0.91 1.52 1.13 (0.36)
Diluted 2.10 0.88 1.43 1.02 (0.31)
Cash Dividends - Common 0.75 0.66 0.56 0.34 0.29
Balance Sheet Totals
(at or for the year ended
December 31,):
Total Assets 3,046,505 3,115,687 2,778,416 2,770,667 2,322,713
Long Term Debt 150,000 100,000 25,000 25,000 --
Average Equity 202,410 205,927 199,721 148,273 120,037
Average Assets 2,967,015 2,838,854 2,716,612 2,561,466 2,266,235
</TABLE>
- ----------
(1) Per share data is adjusted retroactively to reflect a 10% stock dividend
paid June 1, 1993 to stockholders of record on May 11, 1993, a 3 for 2 stock
split payable January 14, 1995 to record holders of HUBCO Common Stock on
January 3, 1995, a 3% stock dividend paid November 15, 1996 to stockholders of
record on November 4, 1996, and a 3% stock dividend paid December 31, 1997 to
stockholders of record on November 13, 1997.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
HUBCO's 1997 Annual Report contains on pages 8 through 21 the information
required by Item 7 and that information is incorporated herein by reference.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
HUBCO'S 1997 Annual Report contains on pages 20 through 21 the information
required by Item 7a and that information is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
HUBCO's 1997 Annual Report contains on pages 22 through 42 the information
required by Item 8 and that information is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
HUBCO's Proxy Statement for its 1998 Annual Meeting under the caption "Election
of Directors", contains the information required by Item 10 with respect to
directors of HUBCO and certain information with respect to executive officers
and that information is to be incorporated herein by reference. Certain
additional information regarding executive officers of HUBCO, who are not also
directors, appears under subsection (e) of Item 1 of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
HUBCO's Proxy Statement for its 1998 Annual Meeting contains, under the caption
"Executive Compensation", and under the caption "Compensation Committee
Interlocks and Insider Participation", the information required by Item 11 and
that information is to be incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
HUBCO's Proxy Statement for its 1998 Annual Meeting contains, under the caption
"Stock Ownership of Management and Principal Shareholders", the information
required by Item 12 and that information is to be incorporated herein by
reference.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
HUBCO's Proxy Statement for its 1998 Annual Meeting under the captions
"Compensation Committee Interlocks and Insider Participation" and "Certain
Transactions with Management", contains the information required by Item 13 and
that information is to be incorporated herein by reference.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) (1) & (2) List of Financial Statements and Financial
Statement Schedules
The below listed consolidated financial statements and report of
independent public accountants of HUBCO, Inc. and subsidiaries,
included in HUBCO's 1997 Annual Report are incorporated by
reference in Item 8:
Report of Independent Public Accountants
Consolidated Balance Sheets at
December 31, 1997 and 1996
Consolidated Statements of Income for the Years
Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Changes in Stockholders'
Equity for the Years Ended December 31, 1997,
1996 and 1995
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
Schedules to the Consolidated Financial Statements required by Article 9 of
Regulation S-X are not required under the related instructions or are
inapplicable, and therefore have been omitted.
<PAGE>
(a) (3) Exhibits
List of Exhibits
(3a) The Revised Certificate of Incorporation of HUBCO, Inc. filed
January 31, 1997. (Incorporated by reference from the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, Exhibit (3)).
(3b) The By-Laws of HUBCO, Inc. (Incorporated by reference from the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, Exhibit (3)).
(4a) Indenture dated as of January 14, 1994 between HUBCO, Inc. and
Summit Bank as Trustee for $25,000,000 7.75% Subordinated
Debentures due 2004. (Incorporated by reference from the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993, Exhibit (4)).
(4b) Indenture dated as of September 13, 1996 between HUBCO, Inc.
and Summit Bank as Trustee for $75,000,000 8.20% Subordinated
Debentures due 2006. (Incorporated by reference from the
Company's Current Report on Form 8-K dated September 16,
1996.)
(4c) Indenture dated as of January 31, 1997 between HUBCO, Inc. and
The Bank of New York as Trustee for $50,000,000 8.98% Junior
Subordinated Debentures due 2027. (Incorporated by reference
from the Company's Current Report on Form 8-K dated February
11, 1997.)
(10a) Change in Control, Severance and Employment Agreement with
A. Roger Bosma dated January 20, 1998.
(10b) Change in Control, Severance and Employment Agreement with
Joseph F. Hurley dated January 2, 1998.
(10c) Agreement and Plan of Merger dated as of August 18, 1997,
among HUBCO, Inc., Lafayette American Bank and The Bank of
Southington. (Incorporated by reference from the Company's
Current Report on Form 8-K dated August 21, 1997.)
(10d) Stock Option Agreement dated as of August 18, 1997, between
HUBCO, Inc. and The Bank of Southington. (Incorporated by
reference from the Company's Current Report on Form 8-K dated
August 21, 1997.)
(10e) Agreement and Plan of Merger dated as of August 27, 1997,
among HUBCO, Inc., FS Acquisition Corporation and Fiduciary
Investment Company of New Jersey. (Incorporated by reference
from the Company's Current Report on Form 8-K dated September
9, 1997.)
(10f) Agreement and Plan of Merger dated as of August 27, 1997,
among Hudson United Bank and Security National Bank & Trust
Company. (Incorporated by reference from the Company's Current
Report on Form 8-K dated September 9, 1997.)
(10g) Stock Option Agreement dated as of August 27, 1997, among
HUBCO, Inc., and Security National Bank & Trust Company.
(Incorporated by reference from the Company's Current Report
on Form 8-K dated September 9, 1997.)
(10h) Agreement and Plan of Merger dated as of October 23, 1997,
among HUBCO, Inc., Poughkeepsie Financial Corp. and Bank of
the Hudson (Incorporated by reference from the Company's
Current Report on Form 8-K dated October 23, 1997.)
(10i) Stock Option Agreement dated as of October 23, 1997, among
HUBCO, Inc., and Poughkeepsie Financial Corp. (Incorporated by
reference from the Company's Current Report on Form 8-K dated
October 23, 1997.)
(10j) Agreement and Plan of Merger dated as of December 15, 1997,
among HUBCO, Inc., MSB Bancorp, Inc. and MSB Bank.
(Incorporated by reference from the Company's Current Report
on Form 8-K dated December 22, 1997.)
(10k) Stock Option Agreement dated as of December 15, 1997, among
HUBCO, Inc., and MSB Bancorp, Inc. (Incorporated by reference
from the Company's Current Report on Form 8-K dated December
22, 1997.)
<PAGE>
(10l) Agreement of Plan of Merger dated as of April 28, 1996,
between HUBCO, Inc., Hudson United Bank, Lafayette American
Bank and Trust, Hometown Bancorporation, Inc. and The Bank of
Darien. (Incorporated by reference from the Company's Current
Report on Form 8-K dated May 2, 1996.)
(10m) Stock Option Agreement dated as of April 28, 1996, between
HUBCO, Inc. and Hometown Bancorporation Inc. (Incorporated by
reference from the Company's Current Report on Form 8-K dated
May 2, 1996.)
(10n) Agreement of Plan of Merger dated as of June 21, 1996, between
HUBCO, Inc., Hudson United Bank, Lafayette American Bank and
Trust, Westport Bancorp, Inc. and The Westport Bank and Trust
Company. (Incorporated by reference from the Company's Current
Report on Form 8-K dated July 2, 1996.)
(10o) Stock Option Agreement dated as of June 21, 1996, between
HUBCO, Inc. Westport Bancorp, Inc. (Incorporated by reference
from the Company's Current Report on Form 8-K dated July 2,
1996.)
(10p) Change in Control, Severance and Employment Agreement with
Kenneth T. Neilson dated January 1, 1997. (Incorporated by
reference from the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996.)
(10q) Change in Control, Severance and Employment Agreement with
D. Lynn Van Borkulo-Nuzzo dated January 1, 1997. (Incorporated
by reference from the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996.)
(10r) Change in Control, Severance and Employment Agreement with
John F. McIlwain dated January 1, 1997. (Incorporated by
reference from the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996.)
(10s) HUBCO Supplemental Employees' Retirement Plan dated January 1,
1996. (Incorporated by reference from the Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1996.)
(10t) Collective Bargaining Agreement with Local 153 of the Office
and Professional Employees International Union, dated March 1,
1996. (Incorporated by reference from the Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1995.)
(10u) HUBCO, Inc. Directors Deferred Compensation Plan.(Incorporated
by reference from the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994.)
<PAGE>
(10v) Agreement and Plan of Merger dated August 15, 1996, between
HUBCO, Inc., Lafayette American Bank and Trust, UST Corp and
UST Bank/Connecticut. (Incorporated by reference from the
Company's Current Report on Form 8-K dated August 22, 1996.)
(13) Those portions of HUBCO's 1997 Annual Report which are
incorporated by reference into this 10-K.
(21) List of Subsidiaries.
(27) Financial Data Schedule.
<PAGE>
(b) Reports on Form 8-K
On December 12, 1997, HUBCO filed a Form 8-K Item 5 (date of earliest
event - December 3, 1997), to announce the signing of a definitive
agreement with Fiduciary Investment Company of New Jersey and Security
National Bank & Trust Company ("SNB"), whereby SNB will be merged with
and into Hudson United Bank.
On December 22, 1997, HUBCO filed a Form 8-K Item 5 (date of earliest
event - December 19, 1997), to announce the signing of a definitive
agreement with MSB Bancorp, Inc., whereby MSB Bank, MSB Bancorp's
banking subsidiary will be merged with and into Bank of the Hudson.
On January 14, 1998, HUBCO filed a Form 8-K Item 5 (date of earliest
event - January 8, 1998), containing HUBCO's press release announcing
the completion of HUBCO's acquisition of The Bank of Southington.
On January 16, 1997, HUBCO filed a Form 8-K Item 5 (date of earliest
event - January 15, 1997), containing HUBCO's press release reporting
earnings for the fourth quarter and full year 1997.
On February 13, 1997, HUBCO filed a Form 8-K Item 5 (date of earliest
event - February 5, 1997), containing HUBCO's press release announcing
the completion of HUBCO's acquisition of Security National Bank & Trust
Company.
On March 20, 1997, HUBCO filed a Form 8-K Item 5 (date of earliest
event - February 28, 1997), reporting the consolidated results of
operations for the 30 day period following HUBCO's acquisition of The
Bank of Southington.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
HUBCO, INC.
By: /s/ KENNETH T. NEILSON
-----------------------
Kenneth T. Neilson
Chairman of the Board
Dated: March 27, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ KENNETH T. NEILSON Chairman of the Board March 27, 1998
- ------------------------------ President, CEO, Director
Kenneth T. Neilson Principal Executive Officer
/s/ ROBERT J. BURKE Director March 27, 1998
- ------------------------------
Robert J. Burke
/s/ BRYANT D. MALCOLM Director March 27, 1998
- ------------------------------
Bryant D. Malcolm
/s/ CHARLES F.X. POGGI Director March 27, 1998
- ------------------------------
Charles F. X. Poggi
/s/ SR. GRACE FRANCES STRAUBER Director March 27, 1998
- ------------------------------
Sister Grace Frances
Strauber
/s/ W. PETER MCBRIDE Director March 27, 1998
- ------------------------------
W. Peter McBride
/s/ JOSEPH F. HURLEY Executive Vice President March 27, 1998
- ------------------------------ and Chief Financial Officer
Joseph F. Hurley
CHANGE IN CONTROL,
SEVERANCE AND EMPLOYMENT AGREEMENT
FOR A. ROGER BOSMA
(DOUBLE TRIGGER; CUTBACK)
THIS CHANGE IN CONTROL SEVERANCE AND EMPLOYMENT AGREEMENT (the
"Agreement"), is made this 20th day of January, 1998, between HUBCO, Inc.
("HUBCO" or the "Company"), a New Jersey corporation which maintains its
principal office at 1000 MacArthur Boulevard, Mahwah, New Jersey and A. ROGER
BOSMA (the "Executive").
BACKGROUND
WHEREAS, the Executive is presently employed by HUBCO as Executive Vice
President of HUBCO and will be employed as either Executive Vice President or as
President of Bank of the Hudson (the "Bank") a wholly owned HUBCO subsidiary;
WHEREAS, the Board of Directors of HUBCO believes that the future services
of the Executive are of great value to HUBCO and the Bank and that it is
important for the growth and development of HUBCO and the Bank that the
Executive continue in his position;
WHEREAS, if HUBCO receives any proposal from a third person concerning a
possible business combination with, or acquisition of equities securities of,
the Company, the Board of Directors of HUBCO (the "Board") believes it is
imperative that HUBCO and the Board
<PAGE>
be able to rely upon the Executive to continue in his position, and that they be
able to receive and rely upon his advice, if they request it, as to the best
interests of the Company and its shareholders, without concern that the
Executive might be distracted by the personal uncertainties and risks created by
such a proposal;
WHEREAS, to achieve that goal, and to retain the Executive's services prior
to any such activity, the Board of Directors and the Executive have agreed to
enter into this Agreement to provide the Executive with continued employment or
certain termination benefits in the event of a Change in Control, as hereinafter
defined;
NOW, THEREFORE, to assure the Company that it will have the continued
dedication of the Executive and the availability of his advice and counsel
notwithstanding the possibility, threat or occurrence of a bid to take over
control of the Company, and to induce the Executive to remain in the employ of
the Company, and for other good and valuable consideration, the Company and the
Executive, each intending to be legally bound hereby agree as follows:
1. DEFINITIONS
a. CAUSE. For purposes of this Agreement "Cause" with respect to the
termination by the Company of Executive's employment shall mean (i) willful and
continued failure by the Executive to materially perform his duties for the
Company under this Agreement after at least one warning in writing from the
Company's Board of Directors identifying specifically any such material failure
and offering a reasonable opportunity to cure such failure; (ii) the willful
engaging by the Executive in material misconduct which causes material injury to
the Company as specified in a written notice to the Executive from the Board of
Directors; or (iii) conviction of a crime (other than a traffic violation),
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<PAGE>
habitual drunkenness, drug abuse, or excessive absenteeism other than for
illness, after a warning (with respect to drunkenness or absenteeism only) in
writing from the Board of Directors to refrain from such behavior. No act or
failure to act on the part of the Executive shall be considered willful unless
done, or omitted to be done, by the Executive not in good faith and without
reasonable belief that the action or omission was in the best interest of the
Company. The Company shall have the burden of proving cause by clear and
convincing evidence.
b. CHANGE IN CONTROL.
(i) DEFINITION. For purposes of this Agreement, a "Change in Control"
shall mean the occurrence of any of the following events with respect to
HUBCO:
(A) The acquisition of the beneficial ownership, as defined under
the Exchange Act, of 25% or more of HUBCO's voting securities or all
or substantially all of the assets of HUBCO by a single person or
entity or group of affiliated persons or entities;
(B) The merger, consolidation or combination of HUBCO with an
unaffiliated corporation in which the directors of HUBCO as applicable
immediately prior to such merger, consolidation or combination
constitute less than a majority of the board of directors of the
surviving, new or combined entity unless one-half of the board of
directors of the surviving, new or combined entity were directors of
HUBCO immediately prior to such transaction and HUBCO's chief
executive officer immediately prior to such transaction continues as
the chief executive officer of the surviving, new or combined entity;
or
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<PAGE>
(C) During any period of two consecutive calendar years,
individuals who at the beginning of such period constitute the Board
of Directors of HUBCO cease for any reason to constitute at least
two-thirds thereof, unless the election or nomination for the election
by HUBCO's stockholders of each new director was approved by a vote of
at least two-thirds of the directors then still in office who were
directors at the beginning of the period; or
(D) The transfer of all or substantially all of HUBCO's assets or
all or substantially all of the assets of its primary subsidiaries.
(ii) TIME OF CHANGE IN CONTROL. For purposes of this Agreement, a
Change in Control of HUBCO shall be deemed to occur on the earlier of:
(A) The first date on which a single person or entity or group of
affiliated persons or entities acquire the beneficial ownership of 25%
or more of HUBCO's voting securities; or
(B) Forty-five (45) days prior to the date HUBCO enters into a
definitive agreement to merge, consolidate, combine or sell the assets
of HUBCO; provided however, that for purposes of any resignation by
the Executive, the Change in Control shall not be deemed to occur
until the consummation of the merger, consolidation, combination or
sale, as the case may be, except if this Agreement is not expressly
assumed in writing by the acquiring company, then the Change in
Control shall be deemed to occur the day before the consummation; and
further provided that if any definitive agreement to merge,
consolidate, combine or
4
<PAGE>
sell assets is terminated without consummation of the acquisition,
then no Change in Control shall have been deemed to have occurred; or
(C) The date upon which the election of directors occurs
qualifying under Section b(i)(C) above.
c. CONTRACT PERIOD. "Contract Period" shall mean the period commencing the
day immediately preceding a Change in Control and ending on the earlier of (i)
two years after the consummation of any event giving rise to the Change in
Control or (ii) the date the Executive would attain age 65.
d. EXCHANGE ACT. "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
e. GOOD REASON. When used with reference to a voluntary termination by
Executive of his employment with the Company, "Good Reason" shall mean any of
the following, if taken without Executive's express written consent:
(i) The assignment to Executive of any duties inconsistent with, or
the reduction of authority, powers or responsibilities associated with,
Executive's position, title, duties, responsibilities and status with the
Company immediately prior to a Change in Control; any removal of Executive
from, or any failure to re-elect Executive to, any position(s) or office(s)
Executive held immediately prior to such Change in Control. A change in
position, title, duties, responsibilities and status or position(s) or
office(s) resulting from a Change in Control or from a merger or
consolidation of the Company into or with another bank or company shall not
meet
5
<PAGE>
the requirements of this paragraph if, and only if, the Executive's new
title, duties and responsibilities are accepted in writing by the
Executive, in the sole discretion of the Executive.
(ii) A reduction by the Company in Executive's annual base
compensation as in effect immediately prior to a Change in Control or the
failure to award Executive any annual increases in accordance herewith;
(iii) A failure by the Company to continue any bonus plan in which
Executive participated immediately prior to the Change in Control or a
failure by the Company to continue Executive as a participant in such plan
on at least the same basis as Executive participated in such plan prior to
the Change in Control unless the elimination of bonus programs is applied
consistently throughout the Surviving Company following a Change in
Control;
(iv) The Company's transfer of Executive to a geographic location
other than the corporate headquarters of the Company or the main office of
the Bank or more than 25 miles from his present office location, except for
required travel on Company's business to an extent substantially consistent
with Executive's business travel obligations immediately prior to such
Change in Control;
(v) The failure by the Company to continue in effect any employee
benefit plan, program or arrangement (including, without limitation the
Company's 401(k) plan, the Company's pension plan, life insurance plan,
health and accident plan, disability plan, or stock option plan) in which
Executive is participating immediately prior to a Change in Control, unless
the elimination of such programs is applied consistently throughout the
Surviving Company following a Change in Control, (except that the Company
may institute or continue plans,
6
<PAGE>
programs or arrangements providing Executive with substantially similar
benefits); the taking of any action by the Company which would adversely
affect Executive's participation in or materially reduce Executive's
benefits under, any of such plans, programs or arrangements; the failure to
continue, or the taking of any action which would deprive Executive, of any
material fringe benefit enjoyed by Executive immediately prior to such
Change in Control; or the failure by the Company to provide Executive with
the number of paid vacation days to which Executive was entitled
immediately prior to such Change in Control;
(vi) The failure by the Company to obtain an assumption in writing of
the obligations of the Company to perform this Agreement by any successor
to the Company and to provide such assumption to the Executive prior to any
Change in Control; or
(vii) Any purported termination of Executive's employment by the
Company during the term of this Agreement which is not effected pursuant to
all of the requirements of this Agreement; and, for purposes of this
Agreement, no such purported termination shall be effective.
f. VOTING SECURITIES. "Voting securities" means HUBCO's common stock,
together with any preferred stock entitled to vote generally in elections for
directors or other matters. With respect to preferred stock, in determining the
percentage of beneficial ownership of voting securities, the number of votes to
which the holder is entitled in the election of directors with the common
holders, and not the number of shares, shall be the basis of the calculation.
7
<PAGE>
2. EMPLOYMENT. During the Contract Period, the Company hereby agrees to
employ the Executive, and the Executive hereby accepts employment upon the terms
and conditions set forth herein.
3. POSITION. During the Contract Period and prior to a Change in Control
the Executive shall be employed as an Executive Vice President of HUBCO or
President of the Bank, or such other corporate or divisional profit center as
may be assigned by the Company. However, upon a Change in Control as herein
defined, the Executive's position shall be governed by his title, position,
status, duties and authority as in effect immediately prior to the Change in
Control. The Executive shall devote his full time and attention to the business
of the Company, and shall not during the Contract Period be engaged in any other
business activity. This paragraph shall not be construed as preventing the
Executive from managing any investments of his which do not require any
substantial service on his part in the operation of such investments.
4. CASH COMPENSATION. The Company shall pay to the Executive compensation
for his services during the Contract Period as follows:
a. ANNUAL SALARY. An annual salary equal to the annual salary in effect as
of the Change in Control. The annual salary shall be payable in installments in
accordance with the Company's usual payroll method. The annual salary shall not
be reduced during the Contract Period.
b. ANNUAL BONUS. An annual cash bonus equal to higher of a) the highest
bonus paid to the Executive during the three fiscal years prior to the Change in
Control or b) the highest full year bonus to which the Executive would have been
entitled during the three fiscal years prior to the
8
<PAGE>
Change in Control. The bonus shall be payable at the time and in the manner
which the Company paid such bonuses prior to the Change in Control.
c. ANNUAL REVIEW. The Company during the Contract Period shall review
annually, or at more frequent intervals which the Company determines is
appropriate, the Executive's compensation and shall award his additional
compensation to reflect the Executive's performance, the performance of the
Company and competitive compensation levels, all as determined in the discretion
of the Company.
5. EXPENSES AND FRINGE BENEFITS.
a. EXPENSES. During the Contract Period, the Executive shall be entitled to
reimbursement for all business expenses incurred by him with respect to the
business of the Company in the same manner and to the same extent as such
expenses were previously reimbursed to him immediately prior to the Change in
Control.
b. CLUB MEMBERSHIP AND AUTOMOBILE. If, prior to the Change in Control, the
Executive was entitled to membership in a country club and/or the use of an
automobile, he shall be entitled to the same membership and/or use of an
automobile at least comparable to the automobile provided to him prior to the
Change in Control during the Contract Period.
c. OTHER BENEFITS. The Executive also shall be entitled to vacations and
sick days, in accordance with the practices and procedures of the Company, as
such existed immediately prior to the Change in Control. During the Contract
Period, the Executive also shall be entitled to hospital, health, medical and
life insurance, and any other benefits enjoyed, from time to time, by senior
officers of the Company, all upon terms as favorable as those enjoyed by other
senior officers of the Company.
9
<PAGE>
Notwithstanding anything in this paragraph 5(c) to the contrary, if the Company
adopts any change in the benefits provided for senior officers of the Company,
and such policy is uniformly applied to all officers of the Company (and any
successor or acquirer of the Company, if any), including the chief executive
officer of such entities, then no such change shall be deemed to be contrary to
this paragraph.
6. TERMINATION FOR CAUSE. The Company shall have the right to terminate the
Executive for Cause, upon written notice to him of the termination which notice
shall specify the reasons for the termination and provide, if practical, an
opportunity for the Executive to cure such Cause. In the event of a valid
termination for Cause the Executive shall not be entitled to any further
benefits under this Agreement.
7. DISABILITY. During the Contract Period if the Executive becomes
permanently disabled, or is unable to perform his duties hereunder for 4
consecutive months in any 12 month period, the Company may terminate the
employment of the Executive. In such event, the Executive shall be entitled to
the payments and benefits provided under Section 9 hereof as if the Executive
had been terminated hereunder without Cause upon such date.
8. DEATH BENEFITS. Upon the Executive's death during the Contract Period,
the Executive shall be deemed to terminate without cause as of the date of death
and his estate shall be entitled to the payments and benefits provided under
Section 9 hereof as if the Executive had been terminated without cause upon such
date.
9. TERMINATION WITHOUT CAUSE OR RESIGNATION.
a. TERMINATION WITHOUT CAUSE. The Company may terminate the Executive
without Cause during the Contract Period by written notice to the Executive.
10
<PAGE>
b. RESIGNATION FOR GOOD REASON. The Executive may resign for Good Reason
during the Contract Period upon prior written notice to the Company.
c. PAYMENTS AND BENEFITS. If the Company terminates the Executive's
employment during the Contract Period without Cause or if the Executive resigns
for Good Reason under paragraph 9(b), the Company shall, as promptly as
practical but in no event later than 10 business days after the termination of
employment pay the Executive a lump sum (the "Lump Sum") equal to 1.0 times the
sum of (i) the annual salary of the Executive immediately prior to the Change in
Control and the higher of, (ii) the highest bonus paid to the Executive during
the three fiscal years prior to the Change in Control or, (iii) the highest full
year bonus to which the Executive would have been entitled during the three
fiscal years prior to the Change in Control. For these purposes, any deferral of
salary by the Executive under the Company's 401(k) plan or otherwise shall be
included in salary. The Company also shall continue to provide the Executive,
his spouse and eligible dependents for a period of one year following the
termination of employment, with health, hospitalization and medical insurance,
as were provided at the time of the Change in Control, at the Company's cost,
subject only to the responsibility of the Executive to continue to pay a portion
of the premium, as well as co-pays or deductibles in such amounts as were paid
by the Executive prior to the termination. The Lump Sum and the benefits
provided hereunder shall be subject to Section 10 hereof.
d. NO DUTY TO MITIGATE. The Executive shall not have a duty to mitigate the
damages suffered by him in connection with the termination by the Company of his
employment without Cause under paragraph 9(a) or a resignation under paragraph
9(b) during the Contract Period. The
11
<PAGE>
Company shall not be entitled to offset from the payment due to the Executive
hereunder any amounts due from or claims against the Executive.
e. LEGAL FEES AND EXPENSES. If the Company fails to pay the Executive the
Lump Sum due him under this Agreement or to provide him with the health,
hospitalization and medical insurance benefits due under this Agreement, the
Executive, after giving 10 days' written notice to the Company identifying the
Company's failure, shall be entitled to recover from the Company, monthly upon
demand, any and all of his legal fees and other expenses incurred in connection
with his enforcement against the Company of the terms of this Agreement.
10. CERTAIN REDUCTION OF PAYMENTS AND BENEFITS.
a. REDUCTION. Anything in this Agreement to the contrary notwithstanding,
prior to the payment of the Lump Sum or the benefits payable hereunder in
connection with the Executive's termination of employment, the certified public
accountants for the Company immediately prior to a Change in Control (the
"Certified Public Accountants"), shall determine as promptly as practical and in
any event within 20 business days following the termination of employment of
Executive whether any payment or distribution by the Company to or for the
benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise) (a
"Payment") would more likely than not be nondeductible by HUBCO for Federal
income purposes because of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), and if it is then the aggregate present value of amounts
payable or distributable to or for the benefit of the Executive pursuant to this
Agreement in connection with the Executive's termination of employment (such
payments or distributions
12
<PAGE>
pursuant to this Agreement are hereinafter referred to as "Agreement Payments")
shall be reduced (but not below zero) to the Reduced Amount. For purposes of
this paragraph, the "Reduced Amount" shall be an amount expressed in present
value which maximizes the aggregate present value of Agreement Payments without
causing any Payment to be nondeductible by HUBCO because of said Section 280G of
the Code.
b. EXECUTIVE SELECTION OF REDUCTIONS. If under paragraph (a) of this
section the Certified Public Accountants determine that any payment would more
likely than not be nondeductible by HUBCO because of Section 280G of the Code,
HUBCO shall promptly give the Executive notice to that effect and a copy of the
detailed calculation thereof and of the Reduced Amount, and the Executive may
then elect, in his sole discretion, which and how much of the Agreement Payments
shall be eliminated or reduced (as long as after such election the aggregate
present value of the Agreement Payments equals the Reduced Amount), and shall
advise HUBCO in writing of his election within 5 business days of his receipt of
notice. If no such election is made by the Executive within such 5-day period,
HUBCO may elect which and how much of the Agreement Payments shall be eliminated
or reduced (as long as after such election the aggregate present value of the
Agreement Payments equals the Reduced Amount) and shall notify the Executive
promptly of such election. For purposes of this paragraph, present value shall
be determined in accordance with Section 280G(d)(4) of the Code. All
determinations made by the Certified Public Accountants shall be binding upon
HUBCO and the Executive and shall be made as promptly as practical but in any
event within 20 days of a termination of employment of the Executive. HUBCO may
suspend for a period of up to 30 days after termination of employment the
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payment of the Lump Sum and any other benefits due to the Executive under this
Agreement until the Certified Public Accountants finish the determination and
the Executive (or HUBCO, as the case may be) elect how to reduce the Agreement
Payments, if necessary. As promptly as practicable following such determination
and the elections hereunder, the Company shall pay to or distribute to or for
the benefit of the Executive such amounts as are then due to the Executive under
this Agreement and shall promptly pay to or distribute for the benefit of the
Executive in the future such amounts as they become due to the Executive under
this Agreement.
c. OVERPAYMENTS AND UNDERPAYMENTS. As a result of the uncertainty in the
application of Section 280G of the Code, it is possible that Agreement Payments
may have been made by the Company which should not have been made
("Overpayment") or that additional Agreement Payments which will have not been
made by HUBCO could have been made ("Underpayment"), in each case, consistent
with the calculation of the Reduced Amount hereunder. In the event that the
Certified Public Accountants, based upon the assertion of a deficiency by the
Internal Revenue Service against HUBCO or Executive which said Certified Public
Accountants believe has a high probability of success, determines that an
Overpayment has been made, any such Overpayment shall be treated for all
purposes as a loan to Executive which Executive shall repay to HUBCO together
with interest at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Code; provided, however, that no amount shall be payable by
Executive to HUBCO in and to the extent such payment would not reduce the amount
which is subject to taxation under Section 4999 of the Code. In the event that
the Certified Public Accountants, based upon controlling precedent, determine
that an Underpayment has occurred, any such Underpayment shall be promptly
14
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paid by the Company to or for the benefit of the Executive together with
interest at the applicable Federal rate provided for in Section 7872(f)(2)(A) of
the Code.
11. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.
a. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. Except in the course of his
employment with the Company and in the pursuit of the business of the Company or
any of its subsidiaries or affiliates, the Executive shall not, at any time
during or following the Contract Period, disclose or use, any confidential
information or proprietary data of the Company or any of its subsidiaries or
affiliates. The Executive agrees that, among other things, information
concerning the identity of and the Company's relations with its customers is
confidential information.
b. SPECIFIC PERFORMANCE. Executive agrees that the Company does not have an
adequate remedy at law for the breach of this section and agrees that he shall
be subject to injunctive relief and equitable remedies as a result of the breach
of this section. The invalidity or unenforceability of any provision of this
Agreement shall not affect the force and effect of the remaining valid portions.
No violation of this Section 11 shall entitle the Company to withhold any
payment or benefit due the Executive hereunder.
c. SURVIVAL. This section shall survive the termination of the Executive's
employment hereunder and the expiration of this Agreement.
12. TERM AND EFFECT PRIOR TO CHANGE IN CONTROL.
a. TERM. Except as otherwise provided for hereunder, this Agreement shall
commence on the date hereof and shall remain in effect for a period of one (1)
year from the date hereof (the "Initial Term") or until the end of the Contract
Period, whichever is later. The Initial Term shall be
15
<PAGE>
automatically extended for an additional one year period on the anniversary date
hereof (so that the Initial Term is always one (1) year) unless on or before
such date the Board of Directors of HUBCO by resolution passed by a majority
vote of the Directors then in office, votes not to extend the Initial Term any
further. The Company shall promptly advise the Executive in writing of the
passage of such resolution and if it fails to do so the passage of such
resolution shall be ineffective.
b. NO EFFECT PRIOR TO CHANGE IN CONTROL. Prior to a Change in Control, this
Agreement shall not affect any rights of the Company to terminate the Executive
or the benefits payable to the Executive. The rights and liabilities provided
hereunder shall only become effective upon a Change in Control. If the
employment of the Executive by the Company is ended for any reason whatsoever
prior to a Change in Control, this Agreement shall thereafter be of no further
force and effect.
13. COMPENSATION AND BENEFITS PROVIDED NOT IN DEROGATION OF OTHER BENEFITS.
Anything to the contrary herein contained notwithstanding, the payment or
obligation to pay any monies, or granting of any benefits, rights or privileges
to Executive as provided in this Agreement shall not be in lieu or derogation of
the rights and privileges that the Executive now has or will have under any
plans or programs of or agreements with the Company, except that the Executive
shall not be entitled to the benefits of any other plan or program of the
Company or agreement with the Company expressly providing for severance or
termination pay or post-employment medical benefits. In furtherance of the
foregoing, this Agreement is not in derogation of, but rather supplemental to,
the rights and benefits of the Executive, if any, under any stock option plan,
restricted stock plan, pension plan, 401(k) plan and SERP.
14. NOTICE. During the Contract Period, any notice of termination of the
employment of the Executive by the Company or by the Executive to the Company
shall be communicated by written
16
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Notice of Termination to the other party hereto. For purposes of this Agreement,
a "Notice of Termination" shall mean a dated notice which shall (i) indicate the
specific termination provision in this Agreement relied upon; (ii) set forth, if
necessary, in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the employment of the Executive or from the Company
under the provision so indicated; (iii) specify a date of termination, which
shall be not less than four weeks nor more than six weeks after such Notice of
Termination is given, except in the case of termination of employment by the
Company of the Executive for Cause pursuant to Section 6 hereof, in which case
the Notice of Termination may specify a date of termination as of the date such
Notice of Termination is given; and (iv) be given by personal delivery or, if
the individual is not personally available, by certified mail to the last known
address of the individual. Upon the death of the Executive, no Notice of
Termination need be given.
15. PAYROLL AND WITHHOLDING TAXES. All payments to be made or benefits to
be provided hereunder by the Company shall be subject to applicable federal and
state payroll or withholding taxes. Any Gross-Up Payment shall be made in the
form of withholding taxes and shall not be paid to the Executive, but shall be
sent to the IRS in the ordinary course of the Company's payroll withholding.
16. MISCELLANEOUS. The terms of this Agreement shall be governed by, and
interpreted and construed in accordance with, the laws of New Jersey. This
Agreement supersedes all prior agreements and understandings with respect to the
matters covered hereby. The amendment or termination of this Agreement may be
made only in a writing executed by the Company and the Executive, and no
amendment or termination of this Agreement shall be effective unless and until
made in such a writing. This Agreement shall be binding upon any successor
(whether direct or indirect, by
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purchase, merger, consolidation, liquidation or otherwise) to all or
substantially all of the assets of the Company. This Agreement is personal to
the Executive and the Executive may not assign any of his rights or duties
hereunder but this Agreement shall be enforceable by the Executive's legal
representatives, executors or administrators. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original, and it
shall not be necessary in making proof of this Agreement to produce or account
for more than one such counterpart.
IN WITNESS WHEREOF, HUBCO, Inc. has caused this Agreement to be signed by
its duly authorized representatives pursuant to the authority of their Board of
Directors, and the Executive has personally executed this Agreement, all as of
the day and year first written above.
ATTEST: HUBCO, INC.
/s/ D. LYNN VAN BORKULO-NUZZO By: /s/ KENNETH T. NEILSON
- ----------------------------------- ----------------------------------
D. Lynn Van Borkulo-Nuzzo, Esq. Kenneth T. Neilson,
Corporate Secretary Chairman, President and
Chief Executive Officer
WITNESS:
/s/ JENNIFER C. REYNOLDS ??? /s/ A. ROGER BOSMA
- ----------------------------------- ----------------------------------
Jennifer C. Reynolds ??? A. Roger Bosma
18
CHANGE IN CONTROL,
SEVERANCE AND EMPLOYMENT AGREEMENT
FOR JOSEPH F. HURLEY
(DOUBLE TRIGGER; CUTBACK)
THIS CHANGE IN CONTROL SEVERANCE AND EMPLOYMENT AGREEMENT (the
"Agreement"), is made this 2nd day of January, 1998, between HUBCO, Inc.
("HUBCO" or the "Company"), a New Jersey corporation which maintains its
principal office at 1000 MacArthur Boulevard, Mahwah, New Jersey and Joseph F.
Hurley (the "Executive").
BACKGROUND
WHEREAS, the Executive is presently employed by HUBCO as Executive Vice
President and Chief Financial Officer;
WHEREAS, the Board of Directors of HUBCO believes that the future services
of the Executive are of great value to HUBCO and that it is important for the
growth and development of HUBCO that the Executive continue in his position;
WHEREAS, if HUBCO receives any proposal from a third person concerning a
possible business combination with, or acquisition of equities securities of,
the Company, the Board of Directors of HUBCO (the "Board") believes it is
imperative that HUBCO and the Board
<PAGE>
be able to rely upon the Executive to continue in his position, and that they be
able to receive and rely upon his advice, if they request it, as to the best
interests of the Company and its shareholders, without concern that the
Executive might be distracted by the personal uncertainties and risks created by
such a proposal;
WHEREAS, to achieve that goal, and to retain the Executive's services prior
to any such activity, the Board of Directors and the Executive have agreed to
enter into this Agreement to provide the Executive with continued employment or
certain termination benefits in the event of a Change in Control, as hereinafter
defined;
NOW, THEREFORE, to assure the Company that it will have the continued
dedication of the Executive and the availability of his advice and counsel
notwithstanding the possibility, threat or occurrence of a bid to take over
control of the Company, and to induce the Executive to remain in the employ of
the Company, and for other good and valuable consideration, the Company and the
Executive, each intending to be legally bound hereby agree as follows:
1. DEFINITIONS
a. CAUSE. For purposes of this Agreement "Cause" with respect to the
termination by the Company of Executive's employment shall mean (i) willful and
continued failure by the Executive to materially perform his duties for the
Company under this Agreement after at least one warning in writing from the
Company's Board of Directors identifying specifically any such material failure
and offering a reasonable opportunity to cure such failure; (ii) the willful
engaging by the Executive in material misconduct which causes material injury to
the Company as specified in a written notice to the Executive from the Board of
Directors; or (iii) conviction of a crime (other than a traffic violation),
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habitual drunkenness, drug abuse, or excessive absenteeism other than for
illness, after a warning (with respect to drunkenness or absenteeism only) in
writing from the Board of Directors to refrain from such behavior. No act or
failure to act on the part of the Executive shall be considered willful unless
done, or omitted to be done, by the Executive not in good faith and without
reasonable belief that the action or omission was in the best interest of the
Company. The Company shall have the burden of proving cause by clear and
convincing evidence.
b. CHANGE IN CONTROL.
(i) DEFINITION. For purposes of this Agreement, a "Change in Control"
shall mean the occurrence of any of the following events with respect to
HUBCO:
(A) The acquisition of the beneficial ownership, as defined under
the Exchange Act, of 25% or more of HUBCO's voting securities or all
or substantially all of the assets of HUBCO by a single person or
entity or group of affiliated persons or entities;
(B) The merger, consolidation or combination of HUBCO with an
unaffiliated corporation in which the directors of HUBCO as applicable
immediately prior to such merger, consolidation or combination
constitute less than a majority of the board of directors of the
surviving, new or combined entity unless one-half of the board of
directors of the surviving, new or combined entity were directors of
HUBCO immediately prior to such transaction and HUBCO's chief
executive officer immediately prior to such transaction continues as
the chief executive officer of the surviving, new or combined entity;
or
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(C) During any period of two consecutive calendar years,
individuals who at the beginning of such period constitute the Board
of Directors of HUBCO cease for any reason to constitute at least
two-thirds thereof, unless the election or nomination for the election
by HUBCO's stockholders of each new director was approved by a vote of
at least two-thirds of the directors then still in office who were
directors at the beginning of the period; or
(D) The transfer of all or substantially all of HUBCO's assets or
all or substantially all of the assets of its primary subsidiaries.
(ii) TIME OF CHANGE IN CONTROL. For purposes of this Agreement, a
Change in Control of HUBCO shall be deemed to occur on the earlier of:
(A) The first date on which a single person or entity or group of
affiliated persons or entities acquire the beneficial ownership of 25%
or more of HUBCO's voting securities; or
(B) Forty-five (45) days prior to the date HUBCO enters into a
definitive agreement to merge, consolidate, combine or sell the assets
of HUBCO; provided however, that for purposes of any resignation by
the Executive, the Change in Control shall not be deemed to occur
until the consummation of the merger, consolidation, combination or
sale, as the case may be, except if this Agreement is not expressly
assumed in writing by the acquiring company, then the Change in
Control shall be deemed to occur the day before the consummation; and
further provided that if any definitive agreement to merge,
consolidate, combine or
4
<PAGE>
sell assets is terminated without consummation of the acquisition,
then no Change in Control shall have been deemed to have occurred; or
(C) The date upon which the election of directors occurs
qualifying under Section b(i)(C) above.
c. CONTRACT PERIOD. "Contract Period" shall mean the period commencing the
day immediately preceding a Change in Control and ending on the earlier of (i)
two years after the consummation of any event giving rise to the Change in
Control or (ii) the date the Executive would attain age 65.
d. EXCHANGE ACT. "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
e. GOOD REASON. When used with reference to a voluntary termination by
Executive of his employment with the Company, "Good Reason" shall mean any of
the following, if taken without Executive's express written consent:
(i) The assignment to Executive of any duties inconsistent with, or
the reduction of authority, powers or responsibilities associated with,
Executive's position, title, duties, responsibilities and status with the
Company immediately prior to a Change in Control; any removal of Executive
from, or any failure to re-elect Executive to, any position(s) or office(s)
Executive held immediately prior to such Change in Control. A change in
position, title, duties, responsibilities and status or position(s) or
office(s) resulting from a Change in Control or from a merger or
consolidation of the Company into or with another bank or company shall not
meet
5
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the requirements of this paragraph if, and only if, the Executive's new
title, duties and responsibilities are accepted in writing by the
Executive, in the sole discretion of the Executive.
(ii) A reduction by the Company in Executive's annual base
compensation as in effect immediately prior to a Change in Control or the
failure to award Executive any annual increases in accordance herewith;
(iii) A failure by the Company to continue any bonus plan in which
Executive participated immediately prior to the Change in Control or a
failure by the Company to continue Executive as a participant in such plan
on at least the same basis as Executive participated in such plan prior to
the Change in Control unless the elimination of bonus programs is applied
consistently throughout the Surviving Company following a Change in
Control;
(iv) The Company's transfer of Executive to a geographic location more
than 25 miles from his present office location, except for required travel
on Company business to an extent substantially consistent with Executive's
business travel obligations immediately prior to such Change in Control;
(v) The failure by the Company to continue in effect any employee
benefit plan, program or arrangement (including, without limitation the
Company's 401(k) plan, the Company's pension plan, life insurance plan,
health and accident plan, disability plan, or stock option plan) in which
Executive is participating immediately prior to a Change in Control, unless
the elimination of such programs is applied consistently throughout the
Surviving Company following a Change in Control, (except that the Company
may institute or continue plans, programs or arrangements providing
Executive with substantially similar benefits); the taking of
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<PAGE>
any action by the Company which would adversely affect Executive's
participation in or materially reduce Executive's benefits under, any of
such plans, programs or arrangements; the failure to continue, or the
taking of any action which would deprive Executive, of any material fringe
benefit enjoyed by Executive immediately prior to such Change in Control;
or the failure by the Company to provide Executive with the number of paid
vacation days to which Executive was entitled immediately prior to such
Change in Control;
(vi) The failure by the Company to obtain an assumption in writing of
the obligations of the Company to perform this Agreement by any successor
to the Company and to provide such assumption to the Executive prior to any
Change in Control; or
(vii) Any purported termination of Executive's employment by the
Company during the term of this Agreement which is not effected pursuant to
all of the requirements of this Agreement; and, for purposes of this
Agreement, no such purported termination shall be effective.
f. VOTING SECURITIES. "Voting securities" means HUBCO's common stock,
together with any preferred stock entitled to vote generally in elections for
directors or other matters. With respect to preferred stock, in determining the
percentage of beneficial ownership of voting securities, the number of votes to
which the holder is entitled in the election of directors with the common
holders, and not the number of shares, shall be the basis of the calculation.
2. EMPLOYMENT. During the Contract Period, the Company hereby agrees to
employ the Executive, and the Executive hereby accepts employment upon the terms
and conditions set forth herein.
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<PAGE>
3. POSITION. During the Contract Period the Executive shall be employed as
Executive Vice President and Chief Financial Officer of the Company. Upon a
Change in Control as herein defined, the Executive's position shall be governed
by his title, position, status, duties and authority as in effect immediately
prior to the Change in Control. The Executive shall devote his full time and
attention to the business of the Company, and shall not during the Contract
Period be engaged in any other business activity. This paragraph shall not be
construed as preventing the Executive from managing any investments of his which
do not require any substantial service on his part in the operation of such
investments.
4. CASH COMPENSATION. The Company shall pay to the Executive compensation
for his services during the Contract Period as follows:
a. ANNUAL SALARY. An annual salary equal to the annual salary in effect as
of the Change in Control. The annual salary shall be payable in installments in
accordance with the Company's usual payroll method. The annual salary shall not
be reduced during the Contract Period.
b. ANNUAL BONUS. An annual cash bonus equal to higher of a) the highest
bonus paid to the Executive during the three fiscal years prior to the Change in
Control or b) the highest full year bonus to which the Executive would have been
entitled during the three fiscal years prior to the Change in Control. The bonus
shall be payable at the time and in the manner which the Company paid such
bonuses prior to the Change in Control.
c. ANNUAL REVIEW. The Company during the Contract Period shall review
annually, or at more frequent intervals which the Company determines is
appropriate, the Executive's compensation and shall award his additional
compensation to reflect the Executive's performance, the
8
<PAGE>
performance of the Company and competitive compensation levels, all as
determined in the discretion of the Company.
5. EXPENSES AND FRINGE BENEFITS.
a. EXPENSES. During the Contract Period, the Executive shall be entitled to
reimbursement for all business expenses incurred by him with respect to the
business of the Company in the same manner and to the same extent as such
expenses were previously reimbursed to him immediately prior to the Change in
Control.
b. CLUB MEMBERSHIP AND AUTOMOBILE. If, prior to the Change in Control, the
Executive was entitled to membership in a country club and/or the use of an
automobile, he shall be entitled to the same membership and/or use of an
automobile at least comparable to the automobile provided to him prior to the
Change in Control during the Contract Period.
c. OTHER BENEFITS. The Executive also shall be entitled to vacations and
sick days, in accordance with the practices and procedures of the Company, as
such existed immediately prior to the Change in Control. During the Contract
Period, the Executive also shall be entitled to hospital, health, medical and
life insurance, and any other benefits enjoyed, from time to time, by senior
officers of the Company, all upon terms as favorable as those enjoyed by other
senior officers of the Company. Notwithstanding anything in this paragraph 5(c)
to the contrary, if the Company adopts any change in the benefits provided for
senior officers of the Company, and such policy is uniformly applied to all
officers of the Company (and any successor or acquirer of the Company, if any),
including the chief executive officer of such entities, then no such change
shall be deemed to be contrary to this paragraph.
9
<PAGE>
6. TERMINATION FOR CAUSE. The Company shall have the right to terminate the
Executive for Cause, upon written notice to him of the termination which notice
shall specify the reasons for the termination and provide, if practical, an
opportunity for the Executive to cure such Cause. In the event of a valid
termination for Cause the Executive shall not be entitled to any further
benefits under this Agreement.
7. DISABILITY. During the Contract Period if the Executive becomes
permanently disabled, or is unable to perform his duties hereunder for 4
consecutive months in any 12 month period, the Company may terminate the
employment of the Executive. In such event, the Executive shall be entitled to
the payments and benefits provided under Section 9 hereof as if the Executive
had been terminated hereunder without Cause upon such date.
8. DEATH BENEFITS. Upon the Executive's death during the Contract Period,
the Executive shall be deemed to terminate without cause as of the date of death
and his estate shall be entitled to the payments and benefits provided under
Section 9 hereof as if the Executive had been terminated without cause upon such
date.
9. TERMINATION WITHOUT CAUSE OR RESIGNATION.
a. TERMINATION WITHOUT CAUSE. The Company may terminate the Executive
without Cause during the Contract Period by written notice to the Executive.
b. RESIGNATION FOR GOOD REASON. The Executive may resign for Good Reason
during the Contract Period upon prior written notice to the Company.
c. PAYMENTS AND BENEFITS. If the Company terminates the Executive's
employment during the Contract Period without Cause or if the Executive resigns
for Good Reason under
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paragraph 9(b), the Company shall, as promptly as practical but in no event
later than 10 business days after the termination of employment pay the
Executive a lump sum (the "Lump Sum") equal to 1.0 times the sum of (i) the
annual salary of the Executive immediately prior to the Change in Control and
the higher of, (ii) the highest bonus paid to the Executive during the three
fiscal years prior to the Change in Control or, (iii) the highest full year
bonus to which the Executive would have been entitled during the three fiscal
years prior to the Change in Control. For these purposes, any deferral of salary
by the Executive under the Company's 401(k) plan or otherwise shall be included
in salary. The Company also shall continue to provide the Executive, his spouse
and eligible dependents for a period of one year following the termination of
employment, with health, hospitalization and medical insurance, as were provided
at the time of the Change in Control, at the Company's cost, subject only to the
responsibility of the Executive to continue to pay a portion of the premium, as
well as co-pays or deductibles in such amounts as were paid by the Executive
prior to the termination. The Lump Sum and the benefits provided hereunder shall
be subject to Section 10 hereof.
d. NO DUTY TO MITIGATE. The Executive shall not have a duty to mitigate the
damages suffered by him in connection with the termination by the Company of his
employment without Cause under paragraph 9(a) or a resignation under paragraph
9(b) during the Contract Period. The Company shall not be entitled to offset
from the payment due to the Executive hereunder any amounts due from or claims
against the Executive.
e. LEGAL FEES AND EXPENSES. If the Company fails to pay the Executive the
Lump Sum due him under this Agreement or to provide him with the health,
hospitalization and medical insurance benefits due under this Agreement, the
Executive, after giving 10 days' written notice to the
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<PAGE>
Company identifying the Company's failure, shall be entitled to recover from the
Company, monthly upon demand, any and all of his legal fees and other expenses
incurred in connection with his enforcement against the Company of the terms of
this Agreement.
10. CERTAIN REDUCTION OF PAYMENTS AND BENEFITS.
a. REDUCTION. Anything in this Agreement to the contrary notwithstanding,
prior to the payment of the Lump Sum or the benefits payable hereunder in
connection with the Executive's termination of employment, the certified public
accountants for the Company immediately prior to a Change in Control (the
"Certified Public Accountants"), shall determine as promptly as practical and in
any event within 20 business days following the termination of employment of
Executive whether any payment or distribution by the Company to or for the
benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise) (a
"Payment") would more likely than not be nondeductible by HUBCO for Federal
income purposes because of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), and if it is then the aggregate present value of amounts
payable or distributable to or for the benefit of the Executive pursuant to this
Agreement in connection with the Executive's termination of employment (such
payments or distributions pursuant to this Agreement are hereinafter referred to
as "Agreement Payments") shall be reduced (but not below zero) to the Reduced
Amount. For purposes of this paragraph, the "Reduced Amount" shall be an amount
expressed in present value which maximizes the aggregate present value of
Agreement Payments without causing any Payment to be nondeductible by HUBCO
because of said Section 280G of the Code.
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b. EXECUTIVE SELECTION OF REDUCTIONS. If under paragraph (a) of this
section the Certified Public Accountants determine that any payment would more
likely than not be nondeductible by HUBCO because of Section 280G of the Code,
HUBCO shall promptly give the Executive notice to that effect and a copy of the
detailed calculation thereof and of the Reduced Amount, and the Executive may
then elect, in his sole discretion, which and how much of the Agreement Payments
shall be eliminated or reduced (as long as after such election the aggregate
present value of the Agreement Payments equals the Reduced Amount), and shall
advise HUBCO in writing of his election within 5 business days of his receipt of
notice. If no such election is made by the Executive within such 5-day period,
HUBCO may elect which and how much of the Agreement Payments shall be eliminated
or reduced (as long as after such election the aggregate present value of the
Agreement Payments equals the Reduced Amount) and shall notify the Executive
promptly of such election. For purposes of this paragraph, present value shall
be determined in accordance with Section 280G(d)(4) of the Code. All
determinations made by the Certified Public Accountants shall be binding upon
HUBCO and the Executive and shall be made as promptly as practical but in any
event within 20 days of a termination of employment of the Executive. HUBCO may
suspend for a period of up to 30 days after termination of employment the
payment of the Lump Sum and any other benefits due to the Executive under this
Agreement until the Certified Public Accountants finish the determination and
the Executive (or HUBCO, as the case may be) elect how to reduce the Agreement
Payments, if necessary. As promptly as practicable following such determination
and the elections hereunder, the Company shall pay to or distribute to or for
the benefit of the Executive such amounts as are then due to the Executive under
this
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Agreement and shall promptly pay to or distribute for the benefit of the
Executive in the future such amounts as they become due to the Executive under
this Agreement.
c. OVERPAYMENTS AND UNDERPAYMENTS. As a result of the uncertainty in the
application of Section 280G of the Code, it is possible that Agreement Payments
may have been made by the Company which should not have been made
("Overpayment") or that additional Agreement Payments which will have not been
made by HUBCO could have been made ("Underpayment"), in each case, consistent
with the calculation of the Reduced Amount hereunder. In the event that the
Certified Public Accountants, based upon the assertion of a deficiency by the
Internal Revenue Service against HUBCO or Executive which said Certified Public
Accountants believe has a high probability of success, determines that an
Overpayment has been made, any such Overpayment shall be treated for all
purposes as a loan to Executive which Executive shall repay to HUBCO together
with interest at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Code; provided, however, that no amount shall be payable by
Executive to HUBCO in and to the extent such payment would not reduce the amount
which is subject to taxation under Section 4999 of the Code. In the event that
the Certified Public Accountants, based upon controlling precedent, determine
that an Underpayment has occurred, any such Underpayment shall be promptly paid
by the Company to or for the benefit of the Executive together with interest at
the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code.
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11. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION.
a. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. Except in the course of his
employment with the Company and in the pursuit of the business of the Company or
any of its subsidiaries or affiliates, the Executive shall not, at any time
during or following the Contract Period, disclose or use, any confidential
information or proprietary data of the Company or any of its subsidiaries or
affiliates. The Executive agrees that, among other things, information
concerning the identity of and the Company's relations with its customers is
confidential information.
b. SPECIFIC PERFORMANCE. Executive agrees that the Company does not have an
adequate remedy at law for the breach of this section and agrees that he shall
be subject to injunctive relief and equitable remedies as a result of the breach
of this section. The invalidity or unenforceability of any provision of this
Agreement shall not affect the force and effect of the remaining valid portions.
No violation of this Section 11 shall entitle the Company to withhold any
payment or benefit due the Executive hereunder.
c. SURVIVAL. This section shall survive the termination of the Executive's
employment hereunder and the expiration of this Agreement.
12. TERM AND EFFECT PRIOR TO CHANGE IN CONTROL.
a. TERM. Except as otherwise provided for hereunder, this Agreement shall
commence on the date hereof and shall remain in effect for a period of one (1)
year from the date hereof (the "Initial Term") or until the end of the Contract
Period, whichever is later. The Initial Term shall be automatically extended for
an additional one year period on the anniversary date hereof (so that the
Initial Term is always one (1) year) unless on or before such date the Board of
Directors of HUBCO by
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resolution passed by a majority vote of the Directors then in office, votes not
to extend the Initial Term any further. The Company shall promptly advise the
Executive in writing of the passage of such resolution and if it fails to do so
the passage of such resolution shall be ineffective.
b. NO EFFECT PRIOR TO CHANGE IN CONTROL. Prior to a Change in Control, this
Agreement shall not affect any rights of the Company to terminate the Executive
or the benefits payable to the Executive. The rights and liabilities provided
hereunder shall only become effective upon a Change in Control. If the
employment of the Executive by the Company is ended for any reason whatsoever
prior to a Change in Control, this Agreement shall thereafter be of no further
force and effect.
13. COMPENSATION AND BENEFITS PROVIDED NOT IN DEROGATION OF OTHER BENEFITS.
Anything to the contrary herein contained notwithstanding, the payment or
obligation to pay any monies, or granting of any benefits, rights or privileges
to Executive as provided in this Agreement shall not be in lieu or derogation of
the rights and privileges that the Executive now has or will have under any
plans or programs of or agreements with the Company, except that the Executive
shall not be entitled to the benefits of any other plan or program of the
Company or agreement with the Company expressly providing for severance or
termination pay or post-employment medical benefits. In furtherance of the
foregoing, this Agreement is not in derogation of, but rather supplemental to,
the rights and benefits of the Executive, if any, under any stock option plan,
restricted stock plan, pension plan, 401(k) plan and SERP.
14. NOTICE. During the Contract Period, any notice of termination of the
employment of the Executive by the Company or by the Executive to the Company
shall be communicated by written Notice of Termination to the other party
hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a
dated notice which shall (i) indicate the specific termination provision in this
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Agreement relied upon; (ii) set forth, if necessary, in reasonable detail the
facts and circumstances claimed to provide a basis for termination of the
employment of the Executive or from the Company under the provision so
indicated; (iii) specify a date of termination, which shall be not less than
four weeks nor more than six weeks after such Notice of Termination is given,
except in the case of termination of employment by the Company of the Executive
for Cause pursuant to Section 6 hereof, in which case the Notice of Termination
may specify a date of termination as of the date such Notice of Termination is
given; and (iv) be given by personal delivery or, if the individual is not
personally available, by certified mail to the last known address of the
individual. Upon the death of the Executive, no Notice of Termination need be
given.
15. PAYROLL AND WITHHOLDING TAXES. All payments to be made or benefits to
be provided hereunder by the Company shall be subject to applicable federal and
state payroll or withholding taxes. Any Gross-Up Payment shall be made in the
form of withholding taxes and shall not be paid to the Executive, but shall be
sent to the IRS in the ordinary course of the Company's payroll withholding.
16. MISCELLANEOUS. The terms of this Agreement shall be governed by, and
interpreted and construed in accordance with, the laws of New Jersey. This
Agreement supersedes all prior agreements and understandings with respect to the
matters covered hereby. The amendment or termination of this Agreement may be
made only in a writing executed by the Company and the Executive, and no
amendment or termination of this Agreement shall be effective unless and until
made in such a writing. This Agreement shall be binding upon any successor
(whether direct or indirect, by purchase, merger, consolidation, liquidation or
otherwise) to all or substantially all of the assets of the Company. This
Agreement is personal to the Executive and the Executive may not assign any of
his
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rights or duties hereunder but this Agreement shall be enforceable by the
Executive's legal representatives, executors or administrators. This Agreement
may be executed in two or more counterparts, each of which shall be deemed an
original, and it shall not be necessary in making proof of this Agreement to
produce or account for more than one such counterpart.
IN WITNESS WHEREOF, HUBCO, Inc. has caused this Agreement to be signed by
its duly authorized representatives pursuant to the authority of their Board of
Directors, and the Executive has personally executed this Agreement, all as of
the day and year first written above.
ATTEST: HUBCO, INC.
/s/ D. LYNN VAN BORKULO-NUZZO By: /s/ KENNETH T. NEILSON
- ----------------------------------- ----------------------------------
D. Lynn Van Borkulo-Nuzzo, Esq. Kenneth T. Neilson,
Corporate Secretary Chairman, President and
Chief Executive Officer
WITNESS:
/s/ JOSEPH F. HURLEY
- ----------------------------------- ----------------------------------
Joseph F. Hurley
18
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[GRAPHIC]
HUBCO, INC.
annual report
1997
[LOGO]
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<PAGE>
MISSION STATEMENT
HUBCO is a SERVICE organization whose Mission is to provide superior
banking SERVICE to its customers throughout the communities which it
serves.
With respect to its employees, it will provide a challenging work
environment with opportunities for top performing personnel to advance
within the organization.
With respect to its shareholders, it will provide better than industry
average returns on investment when combining the dividend payout with
capital appreciation.
In no event will safety and soundness be risked in a quest for higher
earnings.
1998 CORPORATE PROFILE
HUBCO, Inc. is a community banking franchise with $3.1 billion in assets.
Headquartered in New Jersey, where it is the 3rd largest commercial banking
company, HUBCO owns Hudson United Bank which operates 61 offices throughout
northern New Jersey, Lafayette American Bank which operates 31 offices in
southwestern Connecticut, and several joint ventures which provide computer
services, insurance products, and offer stocks, bonds, and mutual funds to
customers.
The company offers a full array of innovative products and services to the
retail and commercial markets including imaged checking accounts, 24-hour
telephone banking, bilingual ATMs, loans by phone, alternative investments,
insurance products, trust services, mortgages, consumer loans, and a wide
variety of commercial loans and services including international services,
cash management, asset-based loans, SBA loans and private label credit
programs.
HUBCO's bank subsidiaries serve small and mid-sized businesses as well as
consumers in their market areas in New Jersey and Connecticut. Our
exclusive focus on local markets combined with a closely-knit organization
allows our customers direct access to senior management and provides HUBCO
with a competitive advantage in attracting and maintaining customers.
Providing there are no changes in our current economic assumptions, our
long-term financial objectives include:
o Maintaining a return on average assets in excess of 1.5%.
o Maintaining a 20% plus return on shareholders' equity.
o Achieving earnings growth of 10% in 1998.
<PAGE>
Table of Contents
Chairman's Letter 1
Executive Management 2
Summary of Selected
Financial Data 7
Management's Discussion
& Analysis 8
Consolidated Balance Sheets 22
Consolidated Statements
of Income 23
Consolidated Statements
of Changes in
Stockholders' Equity 24
Consolidated Statements
of Cash Flows 26
Notes to Consolidated
Financial Statements 27
Report of Independent
Public Accountants 42
Market and Dividend
Information 43
Directors and Officers 44
Advisory Councils 45
Branch Offices 47
PRESENT FRANCHISE
[MAP]
LEGEND:
Hudson United Bank
Lafayette American Bank
Bank of The Hudson and MSB Bank (acquisition pending)
1997 CORPORATE HIGHLIGHTS
JANUARY
Announced regular cash dividend of $0.19 per common share.
FEBRUARY
Announced the placement of $50,000,000 in aggregate principal amount of
8.98% Capital Securities using HUBCO Capital Trust I, a statutory business
trust formed under the laws of Delaware. The net proceeds are expected to
be used for general corporate purposes, including acquisition
opportunities. The Capital Securities qualify as Tier I capital under
capital guidelines of the Federal Reserve.
APRIL
Announced regular cash dividend of $0.19 per common share.
First quarter results announced, reflecting 43% increase in Earnings Per
Share, from previous year.
JULY
Announced regular cash dividend of $0.19 per common share.
Second quarter results announced, reflecting 61% increase in Earnings Per
Share, from previous year.
AUGUST
Signed a Definitive Agreement to acquire Security National Bank and Trust
Co., headquartered in Newark, New Jersey.
Signed a Definitive Agreement to acquire Bank of Southington, headquartered
in Southington, Connecticut.
OCTOBER
Signed a Definitive Agreement to acquire Poughkeepsie Financial
Corporation, headquartered in Poughkeepsie, New York.
Third quarter results announced reflecting 21% increase in Earnings Per
Share, from previous year (excluding non-recurring charges in 1996).
Announced 3% stock dividend and an increase in regular cash dividend to
$0.20 per common share.
DECEMBER
Signed a Definitive Agreement to acquire MSB Bancorp, Inc. headquartered in
Goshen, New York.
JANUARY 1998
Announced year end results with earnings up 30% over 1996 (excluding 1996's
restructuring and acquisition costs), a Return on Average Equity of 24.4%,
and a Return on Average Assets of 1.66%.
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1997 1996 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA) AS ADJUSTED (1)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEAR
Net Income $ 49,314 $ 21,497 $ 39,266
Net Interest Income 140,244 131,354 131,354
Provision for Possible Loan Losses 7,327 12,295 8,295
Return on Average Assets 1.66% 0.76% 1.38%
Return on Average Stockholders' Equity 24.36% 10.44% 19.07%
- ---------------------------------------------------------------------------------------------------------------
PER SHARE DATA
Earnings Per Share:
Basic $ 2.20 $ 0.91 $ 1.71
Diluted 2.10 0.88 1.62
Cash Dividends Declared Per Common Share 0.75 0.66 0.66
Book Value Per Common Share at Year-End 8.49 9.10 9.10
Stock Price Per Common Share at Year-End 39.13 23.79 23.79
Weighted Average Shares Outstanding:
Basic 22,157 22,508 22,508
Diluted 23,443 24,309 24,309
- ---------------------------------------------------------------------------------------------------------------
AT YEAR END
Total Loans $1,773,806 $1,884,355 $1,884,355
Allowance for Possible Loan Losses 37,208 35,153 35,153
Total Deposits 2,314,399 2,592,092 2,592,092
Securities 778,075 936,406 936,406
Total Assets 3,046,505 3,115,687 3,115,687
Stockholders' Equity 186,140 206,333 206,333
Tier I Leverage Ratio 7.10% 5.71% 5.71%
Total Risk-Based Capital Ratio 16.62% 14.08% 14.08%
Non-performing Loans to Total Loans 1.93% 1.69% 1.69%
Non-performing Assets to Total Assets 1.23% 1.20% 1.20%
Allowance for Possible Loan Losses
to Total Loans 2.10% 1.87% 1.87%
Allowance for Possible Loan Losses
to Non-performing Loans 109% 111% 111%
</TABLE>
(1) Operating results exclude merger-related and restructuring charges, special
one-time SAIF assessment and special provision for loan losses.
HUBCO, INC. ANNUAL REPORT 1997
<PAGE>
TO OUR STOCKHOLDERS,
CUSTOMERS AND FRIENDS
We are pleased to report that 1997 was a record year for profits and for
profitability measures at HUBCO, Inc. For the full year, HUBCO earned $49.3
million, which was 30% higher than 1996--even when acquisition-related and
restructuring expenses were eliminated from the 1996 results. Diluted earnings
per share were $2.10.
For the full year, HUBCO earned a return on average equity of 24.4% and a return
on average assets of 1.66%. The company's return on average equity was one of
the highest in the banking industry. Our stock price benefited along with the
rest of the banking industry, and HUBCO ended the year with a 60% increase in
its stock price. Based on market capitalization, HUBCO, Inc. now ranks among the
100 largest commercial banks headquartered in the United States.
During 1997, the company completed the integration of its Connecticut
subsidiary, Lafayette American Bank, and also began its expansion into New York
State. The five acquisitions in Connecticut are all operating on one system
under the name Lafayette American Bank. The bank has 31 branch offices and a
strong presence in its market areas. During 1997, Paul C. Kreuch, Jr., a
Connecticut native and experienced banker, was hired as President and CEO of
Lafayette. Paul is focusing on growing this franchise internally, and will help
drive Lafayette to become the premiere community bank serving the Connecticut
market.
In October of 1997, HUBCO announced an agreement to acquire Poughkeepsie
Financial Corporation and its subsidiary, Bank of The Hudson. This $880 million
asset institution will be the company's first expansion into New York State.
This announcement was followed by another in December 1997 when HUBCO announced
an agreement to acquire MSB Bancorp, Inc. and its subsidiary, MSB Bank. MSB Bank
will be merged into Bank of The Hudson to form a New York subsidiary with 32
branches and assets over $1.5 billion.
During 1998, we plan to continue our expansion through acquisitions, along with
internal growth achieved by our highly qualified and motivated staff. Sales and
training are being emphasized and incentive programs are continuing. With our
product line complete and comparing well against our competition, we seek to
differentiate our company through attitude and service levels.
Overall, our primary goal has not changed: to be a high performance community
bank, capitalizing on customer and prospect preferences for a stable,
community-oriented financial institution. We will achieve this by providing high
quality, efficient service through knowledgeable, friendly people, and by
offering a broad product line with a convenient delivery system.
We would like to acknowledge the efforts and results achieved by our staff
members during this period of dramatic growth at HUBCO, and of extraordinary
change within our industry. We thank the Members of The Board of Directors for
their dedication, insight and advice, and our Advisory Boards for their support
and help.
Finally, we wish to thank you, our stockholders, for your support as our
industry continues to evolve. As depicted on this year's Annual Report cover,
through determination and team work we will continue to strive to see that your
investment and confidence in HUBCO are rewarded.
Sincerely,
/s/ Kenneth T. Neilson
Kenneth T. Neilson
Chairman, President and
Chief Executive Officer
1
<PAGE>
EXECUTIVE MANAGEMENT
One of HUBCO's greatest assets is its strong Executive Management team.
Individuals who are committed to maximizing the return on your investment and
dedicated to exercising sound judgement in managing banking risks.
[PHOTO]
KENNETH T. NEILSON, Chairman, President and Chief Executive Officer
Mr. Neilson has been President of HUBCO, Inc. and Hudson United Bank since
September 1989. In 1996, he was named Chairman of the Board for both HUBCO and
Hudson United. Mr. Neilson joined Hudson United Bank in October 1983 and served
as First Senior Vice President/Senior Loan Officer and Assistant to the
President. He is a graduate of St. Olaf College and the Stonier Graduate School
of Banking. Mr. Neilson is the Chairman of the New Jersey Bankers Association
and serves on its Board of Trustees. He is on the Board of Trustees of St.
Thomas Aquinas College and the Board of Governors of the Ramapo College
Foundation. He is the past Chairman of the Hudson County Chamber of Commerce.
Mr. Neilson also serves on the Nominating Committee of the Bergen Council of the
Boy Scouts of America.
[PHOTO]
D. LYNN VAN BORKULO-NUZZO, ESQ., Executive Vice President and Corporate
Secretary
Ms. Van Borkulo-Nuzzo joined Hudson United Bank in 1967 and has worked at the
branch level and in various departments throughout the bank. She was promoted to
First Senior Vice President, Corporate Affairs in 1988, Corporate Secretary in
1990, and was promoted to Executive Vice President in January 1995. Her areas of
responsibility include Corporate Affairs, Compliance, Legal, Regulatory Affairs,
Marketing, Shareholder and Investor Relations, and Trust. She serves as a
Director of Lafayette American Bank and is President of United Financial
Services, Inc. Ms. Van Borkulo-Nuzzo is a graduate of St. Peter's College and
received her Law Degree from Seton Hall Law School. Ms. Van Borkulo-Nuzzo also
is a graduate of the National Graduate Trust School at Northwestern University.
She is President of the William F. Grupe Foundation, Chairperson of the New
Jersey Bankers Association (NJBA) Bank Lawyers Council, and serves on the NJBA
Legislation Committee and the American Bankers Association Bank Counsel
Committee. Ms. Van Borkulo-Nuzzo is also a member of the American Society of
Corporate Secretaries.
[PHOTO]
A. ROGER BOSMA, Executive Vice President
Roger Bosma joined HUBCO, Inc. in early 1997 as Chief Credit Officer. He
presently serves as acting Director of Human Resources and upon acquisition of
Bank of The Hudson, will serve as President of that bank subsidiary. Prior to
joining HUBCO, Mr. Bosma served as President and Chief Executive Officer of
Independence Bank of New Jersey. He graduated from Empire State College, the
Stonier Graduate School of Banking and the National Commercial Lending Graduate
School. Mr. Bosma is Chairman of the Small Bank Advisory Committee of the Robert
Morris Association, as well as a member of the Lending/Finance Council. He is a
member of the New Jersey Bankers Association, Community Bankers Committee. Mr.
Bosma is a Board Member of Paterson Habitat for Humanity, and currently is
Chairman of Habitat's Corporate Challenge. He is also on the board of governors
of Ramapo College, and the President's Council of St. Thomas Acquinas College.
2
HUBCO, INC. ANNUAL REPORT 1997
<PAGE>
[PHOTO]
JOSEPH F. HURLEY, Executive Vice President and Chief Financial Officer
Mr. Hurley joined HUBCO in 1997 as Chief Financial Officer with responsibilities
for the Treasury, Investment Management and Controllership functions. He
previously served as Deputy Corporate Controller at Banker Trust and as
Corporate Controller at HSBC Securities and at Westpac Banking Corporation. Most
recently, Mr. Hurley was Associate Comptroller at Prudential Insurance Company.
He began his career with Price Waterhouse LLP and is a Certified Public
Accountant. Mr. Hurley holds a Bachelor of Arts degree in Economics and a
Masters of Business Administration from Rutgers University.
[PHOTO]
PAUL C. KREUCH, JR., President and Chief Executive Officer, Lafayette American
Bank
In 1997, Paul C. Kreuch, Jr. joined Lafayette American Bank as President and
Chief Executive Officer. Prior to this appointment, he served as Executive Vice
President of NatWest Bank, N.A., and as President, Chief Executive Officer and
Director of its New York subsidiary, National Westminster Bank USA. Before
joining NatWest, Mr. Kreuch was a Senior Vice President with Connecticut
National Bank, and was previously with Wachovia Bank and Trust Company and
Pittsburgh National Bank. Mr. Kreuch holds a BA degree from Allegheny College,
and is a graduate of Stonier Graduate School of Banking at Rutgers University
and the Advanced Executive Program at the Graduate School of Management at
Northwestern University. He presently serves on the Best Practices Council of
the National Association of Corporate Directors.
[PHOTO]
JOHN F. McILWAIN, Executive Vice President and Chief Credit Officer
Mr. McIlwain joined Hudson United Bank in July 1992. His responsibilities
include the Credit Policy and Administration, Loan Compliance, Loan Review, and
Loan Workout. During much of 1997, he served as President and CEO of Lafayette
American Bank. Before joining Hudson United, Mr. McIlwain spent most of his
banking career at Irving Trust/Irving Bank Corporation, serving as Senior Vice
President and Deputy Group Executive, Community Banking Group. He holds a
Bachelor of Arts degree in Economics from Duke University and a Masters of
Business Administration in Finance from New York University. Mr. McIlwain is a
member of the Executive Board of the Bergen Council of the Boy Scouts of
America.
[PHOTO]
THOMAS R. NELSON, Executive Vice President, Chief Operating Officer, HUBCO,
Inc., President, Shoppers Charge Accounts Co.
Mr. Nelson joined Hudson United Bank as a result of the acquisition of Shoppers
Charge Accounts Co. in 1994. His responsibilities include the management of
Shoppers Charge as well as HUBCO's customer call center, consumer lending, loan
operations, general services, system technology, including Year 2000 issues and
work flow within the company. Mr. Nelson, who has over 30 years of experience in
the retail credit industry, joined Shoppers Charge in 1991 as Executive Vice
President and Chief Operating Officer. Previously he was Vice President of
Credit Operations at R.H. Macys after spending 22 years in a variety of credit
management positions at Sears Roebuck & Company. Mr. Nelson is past President of
the Consumer Credit Association of Metropolitan N.Y., and he attended American
International College.
[PHOTO]
THOMAS J. SHARA, Executive Vice President
Mr. Shara joined Hudson United Bank in 1980. He now serves as Executive Vice
President of HUBCO, Inc. and serves as Executive Vice President and Senior Loan
Officer of Hudson United Bank. He brings over 15 years of commercial lending
experience to HUBCO and Hudson United. Mr. Shara graduated from Fairleigh
Dickinson University, where he also earned a Masters in Business Administration.
Currently, Mr. Shara is President of the Commercial Loan Committee of New Jersey
Banker's Association (NJBA) and is also President of the NJBA's Lender
Environmental Advisory Committee. In addition, he serves on the Board of
Trustees of the Boys and Girls Club of Paterson, New Jersey.
3
<PAGE>
HUBCO, INC. BOARD OF DIRECTORS
[PHOTO] KENNETH T. NEILSON [PHOTO] W. PETER MCBRIDE
CHAIRMAN, PRESIDENT & CEO, PRESIDENT,
HUBCO, INC. & MCBRIDE ENTERPRISES, INC.
HUDSON UNITED BANK
[PHOTO] ROBERT J. BURKE [PHOTO] CHARLES F.X. POGGI
PRESIDENT, PRESIDENT,
UNION DRY DOCK & REPAIR CO. THE POGGI PRESS
[PHOTO] DONALD P. CALCAGNINI [PHOTO] DAVID A. ROSOW
CHAIRMAN, LAFAYETTE CHAIRMAN,
AMERICAN BANK ROSOW AND CO., INC.
[PHOTO] JOAN DAVID [PHOTO] JAMES E. SCHIERLOH
EDUCATOR CHAIRMAN EMERITUS
[PHOTO] THOMAS R. FARLEY, ESQ. [PHOTO] SISTER GRACE FRANCES
RETIRED STRAUBER
CHAIRPERSON,
FRANCISCAN HEALTH CARE
SYSTEM OF NEW JERSEY
[PHOTO] BRYANT D. MALCOLM [PHOTO] JOHN H. TATIGIAN, JR.
PRESIDENT, SENIOR VICE PRESIDENT,
MALCOLM O BROOKER PETER PAUL-HERSHEY
COMPANY, INC.
4
HUBCO, INC. ANNUAL REPORT 1997
<PAGE>
[PHOTO] HUBCO, INC.
SENIOR MANAGEMENT
(standing l. to r.)
Michael J. Maloney, Senior Vice President; Donald W. Lowery, Senior
Vice President; Chris A. Witkowski, Senior Vice President and
Controller; John R. Oliver, Senior Vice President; Margaret Warianka,
First Senior Vice President and Auditor; Jeffrey E. Thomas, Senior
Vice President; John Cina, Senior Vice President
(seated l. to r.)
John Burk, Senior Vice President; Thomas R. Keady, Senior Vice
President; Lawrence E. Nachman, Senior Vice President
[PHOTO] HUDSON UNITED BANK
BOARD OF DIRECTORS
(standing l. to r.)
Joseph R. Pfeifer, Bryant D. Malcolm, Kenneth T. Neilson, Chairman,
Joan David, Emilio A. Pelaez, Jr., Charles F.X. Poggi
(seated l. to r.)
Robert J. Burke, Joseph A. Tighe, Jr.
(not pictured)
Thomas R. Farley, Esq., W. Peter McBride, James E. Schierloh, Sister
Grace Frances Strauber
[PHOTO] HUDSON UNITED BANK
SENIOR MANAGEMENT
(standing l. to r.)
Luis A. Nieves, Senior Vice President; John N. Calley, Senior Vice
President and Investment Officer; Saliann Scarpulla, Senior Vice
President and Bank Counsel; Michael M. O'Brien, First Senior Vice
President, Trust Department; Anthony V. Bilotta, Jr., Senior Vice
President
(seated l. to r.)
David S. Yanagisawa, Senior Vice President; Peter H. Streelman, Senior
Vice President
5
<PAGE>
[PHOTO] LAFAYETTE AMERICAN BANK
BOARD OF DIRECTORS
(standing l. to r., back row)
Paul C. Kreuch, Jr., President and CEO; Gary R. Ginsberg, Esq.;
William A. Brennan; Douglas D. Milne, III; Roman F. Garbacik, Esq.
(front row)
Donald P. Calcagnini, Chairman; John H. Tatigian, Jr.; Donald W.
Harrison
(not pictured)
John F. McIlwain; Roderick C. McNeil, III; Enzo R. Montesi; Kenneth T.
Neilson; Leif H. Olsen; William D. Rueckert; David A. Rosow; Louis F.
Tagliatela, Sr.; D. Lynn Van Borkulo-Nuzzo
[PHOTO] LAFAYETTE AMERICAN BANK
SENIOR MANAGEMENT
(standing l. to r., back row)
Geoffrey K. Milne, Bank Counsel; Paul C. Kreuch, Jr., President and
CEO; Richard T. Cummings, Jr., Regional President; Robert J. Connelly,
Senior Vice President and Senior Credit Officer
(front row)
Raymond J. Peach, Regional President; Donald P. Calcagnini, Chairman;
Mark Jenusaitis, Senior Vice President
6
HUBCO, INC. ANNUAL REPORT 1997
<PAGE>
FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) 1997 1996 1995 1994 1993(1)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31
INTEREST AND FEE INCOME $ 218,041 $ 204,182 $ 203,651 $ 170,929 $ 149,528
INTEREST EXPENSE 77,797 72,828 70,440 53,126 50,771
NET INTEREST INCOME 140,244 131,354 133,211 117,803 98,757
PROVISION FOR POSSIBLE LOAN LOSSES 7,327 12,295 9,515 9,309 31,917
TOTAL NONINTEREST INCOME 41,107 30,276 28,225 22,420 24,571
NONINTEREST EXPENSE 93,593 116,239 102,842 94,931 97,098
INCOME BEFORE INCOME TAXES 80,431 33,096 49,079 35,983 (5,687)
NET INCOME 49,314 21,497 34,565 23,388 (6,008)
- -----------------------------------------------------------------------------------------------------------------
PER SHARE DATA
EARNINGS PER SHARE:
BASIC $ 2.20 $ 0.91 $ 1.52 $ 1.13 $ (0.36)
DILUTED 2.10 0.88 1.43 1.02 (0.31)
CASH DIVIDENDS DECLARED
PER COMMON SHARE 0.75 0.66 0.56 0.34 0.29
BOOK VALUE PER COMMON SHARE
AT YEAR END 8.49 9.10 9.37 8.37 6.53
WEIGHTED AVERAGE SHARES OUTSTANDING
(IN THOUSANDS):
BASIC 22,157 22,508 22,127 20,367 16,687
DILUTED 23,443 24,309 24,205 23,013 19,267
COMMON SHARES OUTSTANDING
(IN THOUSANDS): 21,912 22,273 22,781 21,898 17,407
- -----------------------------------------------------------------------------------------------------------------
AT DECEMBER 31
SECURITIES AVAILABLE
FOR SALE $ 550,505 $ 655,492 $ 502,381 $ 213,815 $ 179,267
SECURITIES HELD TO MATURITY 227,570 280,914 294,057 715,509 599,587
LOANS, NET OF UNEARNED
AND DEFERRED FEES 1,773,806 1,884,355 1,652,022 1,569,059 1,303,397
TOTAL ASSETS 3,046,505 3,115,687 2,778,416 2,770,667 2,322,713
DEPOSITS 2,314,399 2,592,092 2,446,273 2,414,999 2,103,895
LONG-TERM DEBT 150,000 100,000 25,000 25,000 --
TOTAL STOCKHOLDERS' EQUITY 186,140 206,333 216,796 187,305 117,965
- -----------------------------------------------------------------------------------------------------------------
PERFORMANCE RATIOS
NET INTEREST MARGIN 5.20% 5.05% 5.35% 5.03% 4.75%
EFFICIENCY RATIO 50.43 68.13 61.27 63.90 73.20
RETURN ON AVERAGE ASSETS 1.66 0.76 1.27 0.91 (0.27)
RETURN ON AVERAGE EQUITY 24.36 10.44 17.31 15.77 (5.01)
- -----------------------------------------------------------------------------------------------------------------
CAPITAL RATIOS (2)
TIER 1 LEVERAGE RATIO 7.10% 5.71% 7.56% 6.28% 7.22%
TOTAL RISK-BASED CAPITAL RATIO 16.62 14.08 17.21 16.71 14.85
</TABLE>
(1) HUBCO HAS NEVER REPORTED AN ANNUAL OR QUARTERLY LOSS. THE LOSS SHOWN HERE
RESULTS FROM THE RETROACTIVE APPLICATION OF POOLING OF INTERESTS
ACCOUNTING.
(2) CAPITAL RATIOS FOR THE YEARS 1993 THROUGH 1995 ARE AS PREVIOUSLY STATED AND
DO NOT CONSIDER THE RETROACTIVE APPLICATION OF POOLING OF INTEREST
TRANSACTIONS
[PHOTO]
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
(IN THOUSANDS, EXCEPT SHARE DATA)
ACQUISITION SUMMARY
HUBCO, Inc. began its acquisition program in the fall of 1990. Since that time,
the company has completed nineteen acquisitions, including two which were
completed in the first quarter of 1998. The Company also has two pending
acquisitions which it expects to close by the second quarter of 1998. Through
these acquisitions, the company has grown from a $550 million banking company to
a community banking franchise which will have assets of approximately $4.9
billion upon completion of all pending acquisitions. The acquisition program has
been utilized to achieve efficiencies and to distribute the cost of new products
and technologies over a larger asset base. It is the Company's philosophy that
acquisitions become accretive to earnings within a short time frame, generally
within one year. The financial results of these acquisitions are difficult to
measure other than on an as-reported basis each quarter because pooling of
interest transactions change historical results from those actually reported by
HUBCO.
On January 12, 1996, the Company acquired Growth Financial Corp. (Growth) and
merged its subsidiary bank, Growth Bank, into Hudson United Bank (Hudson).
Growth Bank was a $128 million bank with 3 branch locations, headquartered in
Basking Ridge, New Jersey.
On July 1, 1996, the Company acquired Lafayette American Bank and Trust Company
(Lafayette) and continued to operate it as an independent commercial bank
headquartered in Connecticut. Lafayette was a $700 million bank which operated
19 branches, primarily in Fairfield County, Connecticut.
On December 13, 1996, the Company acquired Westport Bancorp, Inc. (Westport) and
merged its subsidiary bank, Westport Bank & Trust Company into Lafayette.
Westport Bank & Trust Company was a $317 million bank based in Westport,
Connecticut and operated 7 branch locations.
All three of these acquisitions were accounted for on the pooling-of-interests
accounting method, and, accordingly, the consolidated financial statements prior
to the mergers have been restated to include these institutions and their
results of operations.
On August 30, 1996 the Company acquired Hometown Bancorporation (Hometown), a
$194 million bank holding company headquartered in Darien, Connecticut.
Hometown's 2-branch banking subsidiary, The Bank of Darien, was merged into
Lafayette.
On November 29, 1996 Lafayette acquired UST Bank/Connecticut and merged it into
the Connecticut franchise. UST Bank was a $111 million commercial bank with 4
branch locations. Both of these acquisitions were accounted for under the
purchase method of accounting and, as such, their assets and earnings are
included in the Company's consolidated results only from the date of acquisition
and thereafter.
In addition, during 1996 the Company purchased 4 New Jersey branches with total
deposits of $70.3 million and merged them into Hudson. The Company also sold 1
branch during the year with deposits of $9.7 million.
On April 5, 1995, Jefferson National Bank was merged with Hudson and on June 30,
1995, Urban National Bank was merged with Hudson. Both acquisitions were
accounted for with the pooling-of-interests accounting method, and, therefore,
the financial statements for periods prior to the merger have been restated to
include the assets and results of operations of these banks. Jefferson was a $90
million bank headquartered in Passaic, New Jersey, that operated 4 branches and
Urban National was a $230 million bank headquartered in Franklin Lakes, New
Jersey, that operated 9 branch locations.
The Company consummated two acquisitions in the first quarter of 1998. On
January 8, 1998, the Company acquired The Bank of Southington (Southington) and
merged it into Lafayette. Southington was a $135 million bank with 2 branch
locations, headquartered in Southington, Connecticut. The merger was treated as
a pooling-of-interests for accounting purposes. Since this acquisition was
closed subsequent to December 31, 1997, the financial statements for periods
prior to the merger have not been restated to include the institution or its
results of operations.
On February 5, 1998, the Company acquired Security National Bank & Trust Company
of New Jersey (Security National) and merged Security National into Hudson.
Security National was a $86 million bank and trust company headquartered in
Newark, New Jersey with 4 branches in Nutley, Kearny and Newark, New Jersey. The
merger was accounted for under the purchase method of accounting.
The Company also has two pending acquisitions which it expects to close by the
second quarter of 1998. On October 23, 1997, the Company and Poughkeepsie
Financial Corp. (PFC) announced the signing of a definitive merger agreement.
Under the terms of the
8
HUBCO, INC. ANNUAL REPORT 1997
<PAGE>
agreement PFC will merge into HUBCO and PFC's subsidiary bank, Bank of the
Hudson, a $880 million institution headquartered in Poughkeepsie, New York will
be established as a separate New York banking subsidiary of HUBCO. Bank of the
Hudson has 16 branches in Rockland, Orange and Dutchess Counties in New York.
On December 16, 1997, the Company and MSB Bancorp, Inc. (MSB) announced the
signing of a definitive merger agreement. Under the terms of the agreement, MSB
will be merged into HUBCO and MSB's subsidiary bank, MSB Bank will be merged
into Bank of the Hudson, HUBCO's New York subsidiary following the PFC
acquisition. MSB Bank is a $774 million institution headquartered in Goshen, New
York and operates 16 branches in Orange, Putnam and Sullivan Counties in New
York.
1996 SPECIAL CHARGES SUMMARY
In 1996, the Company incurred one-time charges ("special charges") as detailed
below. Further details relative to the special charges are discussed in the
Noninterest Expense category.
CHARGE (IN THOUSANDS) PRE-TAX AFTER-TAX
- --------------------------------------------------------------------
SPECIAL SAIF ASSESSMENT $ 825 $ 512
MERGER RELATED AND
RESTRUCTURING CHARGES --
LAFAYETTE 13,018 9,016
WESTPORT 8,986 5,901
---------------------
TOTAL SPECIAL CHARGES
IN NONINTEREST EXPENSE $22,829 $15,429
SPECIAL PROVISION FOR
POSSIBLE LOAN LOSSES 4,000 2,340
---------------------
TOTAL SPECIAL CHARGES $26,829 $17,769
=====================
RESULTS OF OPERATIONS
HUBCO, Inc. and Subsidiaries reported net income of $49.3 million for the year
ended December 31, 1997 compared to $21.5 million for the year 1996 as reported,
$39.3 million for the year 1996 excluding special charges and $34.6 million for
1995. Diluted earnings per share was $2.10 for 1997 compared to $0.88 for 1996
as reported and represents a 30% increase from $1.62 for 1996 excluding special
charges which was a 13% increase from $1.43 for 1995. Basic earnings per share
was $2.20 for 1997 compared to $0.91 as reported for 1996 and represents a 29%
increase from $1.71 for 1996 excluding special charges which was a 13% increase
from $1.52 for 1995.
Return on average assets was 1.66% for 1997 compared to 0.76% for 1996 as
reported, 1.38% for 1996 excluding special charges and 1.27% for 1995. Return on
average equity was 24.36% for 1997 compared to 10.44% for 1996 as reported,
19.07% for 1996 excluding special charges and 17.31% for 1995.
[PHOTO]
9
<PAGE>
The following table presents a summary of the Company's average balances, the
yields earned on average assets and the cost of average liabilities and
stockholders' equity for the years ended December 31, 1997, 1996 and 1995
(dollars in thousands): Average Balances, Net Interest Income, Yields, and
Rates
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing deposits $ -- $ -- --% $ 679 $ 30 4.42% $ 1,385 $ 60 4.33%
with banks
Federal funds sold 11,165 695 6.22% 17,594 1,023 5.81% 27,384 1,575 5.75%
Securities-taxable 861,668 56,862 6.60% 855,021 53,141 6.22% 853,505 53,801 6.30%
Securities-tax exempt (1) 8,848 578 6.53% 10,617 677 6.38% 30,844 1,735 5.63%
Loans (2) 1,819,651 160,204 8.80% 1,723,335 149,664 8.68% 1,590,663 147,241 9.26%
---------------------------- ---------------------------- -------------------------------
Total Earning Assets 2,701,332 218,339 8.08% 2,607,246 204,535 7.84% 2,503,781 204,412 8.16%
Cash and due from banks 142,074 130,449 118,438
Allowance for loan losses (37,250) (31,881) (31,276)
Premises and equipment 42,783 43,484 45,761
Other assets 118,076 89,556 79,908
---------- ---------- -----------
Total Assets $2,967,015 $2,838,854 $ 2,716,612
========== ========== ===========
Taxable-equivalent
adjustment $ 298 $ 353 $ 761
--------- --------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing
transaction accounts $ 476,959 $ 8,891 1.86% $ 455,882 $ 9,574 2.10% $ 413,185 $ 10,329 2.50%
Savings accounts 589,972 11,333 1.92% 634,579 13,335 2.10% 689,277 16,858 2.45%
Time deposits 718,661 33,631 4.68% 805,948 39,795 4.94% 768,253 34,490 4.49%
---------------------------- ---------------------------- ------------------------------
Total Interest-Bearing
Deposits 1,785,592 53,855 3.02% 1,896,409 62,704 3.31% 1,870,715 61,677 3.30%
Short-term borrowings 216,173 11,509 5.32% 135,541 6,219 4.59% 110,704 6,610 5.97%
Long-term debt 145,205 12,433 8.56% 47,483 3,905 8.22% 25,000 2,153 8.61%
---------------------------- ---------------------------- ------------------------------
Total Interest-Bearing
Liabilities 2,146,970 77,797 3.62% 2,079,433 72,828 3.50% 2,006,419 70,440 3.51%
Demand deposits 580,444 524,017 487,031
Other liabilities 37,191 29,477 23,441
Stockholders' equity 202,410 205,927 199,721
---------- ---------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $2,967,015 $2,838,854 $2,716,612
========== ========== ===========
Net Interest Income $140,542 $131,707 $133,972
======== ======== ========
Net Interest Margin (3) 5.20% 5.05% 5.35%
==== ==== ====
</TABLE>
(1) The tax equivalent adjustments for the years ended December 31, 1997, 1996
and 1995 were $202, $237 and $607, respectively, and are based on a tax
rate of 35%.
(2) The tax equivalent adjustments for the years ended December 31, 1997, 1996
and 1995 were $96, $116 and $154, respectively, and are based on a tax rate
of 35%. Average loan balances include nonaccrual loans and loans held for
resale.
(3) Represents tax equivalent net interest income divided by interest-earning
assets.
10
HUBCO, INC. ANNUAL REPORT 1997
<PAGE>
The following table presents the relative contribution of changes in volumes and
changes in rates to changes in net interest income for the periods indicated.
The change in interest income and interest expense attributable to the combined
impact of both volume and rate has been allocated proportionately to the change
due to volume and the change due to rate (in thousands):
CHANGES IN TAXABLE EQUIVALENT
NET INTEREST INCOME-RATE/VOLUME ANALYSIS
<TABLE>
<CAPTION>
INCREASE/(DECREASE) INCREASE/(DECREASE)
1997 OVER 1996 1996 OVER 1995
--------------------------------------------------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans $ 8,457 $ 2,083 $ 10,540 $ 11,845 $ (9,422) $ 2,423
Securities-taxable 416 3,305 3,721 95 (755) (660)
Securities-tax exempt (115) 16 (99) (1,264) 206 (1,058)
Federal funds sold (396) 68 (328) (569) 17 (552)
Interest bearing deposits (30) -- (30) (31) 1 (30)
--------------------------------------------------------------------
Total interest and fee income 8,332 5,472 13,804 10,076 (9,953) 123
--------------------------------------------------------------------
Interest expense:
Interest bearing
transaction accounts 428 (1,111) (683) 1,000 (1,755) (755)
Savings (901) (1,101) (2,002) (1,270) (2,253) (3,523)
Time deposits (4,158) (2,006) (6,164) 1,748 3,557 5,305
Short-term borrowings 4,167 1,123 5,290 1,314 (1,705) (391)
Long-term debt 8,361 167 8,528 1,853 (101) 1,752
--------------------------------------------------------------------
Total interest expense 7,897 (2,928) 4,969 4,645 (2,257) 2,388
--------------------------------------------------------------------
Net Interest Income $ 435 $ 8,400 $ 8,835 $ 5,431 $ (7,696) $ (2,265)
====================================================================
</TABLE>
NET INTEREST INCOME
Net interest income is the difference between the interest earned on earning
assets and the interest paid on deposits and borrowings. The principal earning
assets are the loan portfolio, comprised of commercial loans for businesses,
mortgage loans for businesses and individuals, consumer loans (such as car
loans, home equity loans, etc.) and credit card loans, along with the investment
portfolio. The investment portfolio represents the liquidity of the Company.
Deposits and borrowings not required to fund loans and other assets are invested
primarily in government and government agency securities.
Net interest income is affected by a number of factors including the level,
pricing, and maturity of earning assets and interest-bearing liabilities,
interest rate fluctuations, asset quality, and the amount of noninterest-bearing
deposits and capital. In the following discussion, interest income is presented
on a fully taxable-equivalent basis ("FTE"). Fully taxable-equivalent interest
income restates reported interest income on tax-exempt loans and securities as
if such interest were taxed at the statutory Federal income tax rate of 35%.
In 1997, net interest income on a FTE basis was $140.5 million, a 6.7% increase
from the $131.7 million in 1996. The $131.7 million of net interest income in
1996 was a 1.7% decrease from 1995. The increase in net interest income between
1997 and 1996 was due to the increase in the balance and the yield on interest
earning assets and the decrease in the rate paid on deposits exceeding the
effect of the increase in the balance of interest-bearing liabilities. The
growth in the average balance sheet was realized primarily through the purchases
of Hometown and UST Bank/Connecticut which occurred late in 1996.
The decrease in net interest income from 1995 to 1996 was due to the decrease in
the yield on interest earning assets and the increase in the volume of interest
bearing liabilities exceeding the effect of the increase in loan balances and
the decrease in rates paid on deposits. The purchases of Hometown and UST
Bank/Connecticut contributed to the growth in the average balance sheet in 1996
along with the branch purchases completed during 1996.
11
<PAGE>
NET INTEREST MARGIN
The net interest margin is computed by dividing net interest income on a FTE
basis by average earning assets. The Company's net interest margin was 5.20%,
5.05%, and 5.35% for 1997, 1996, and 1995, respectively. The increase in the net
interest margin from 1996 to 1997 is primarily due to an increase of 38 basis
points in the yield on securities which comprised one-third of the average
earning assets and an increase of 12 basis points on loan yields. These
increases in earning asset yields were only slightly offset by an increase in
funding costs from borrowings which comprised only 17% of the interest-bearing
liabilities. The increase in yields on securities is the result of sales of
lower yielding assets from acquired institutions. The increase in the loan
portfolio yields is primarily due to the growth of Shoppers Charge (a private
label credit card portfolio).
The decrease in net interest margin from 1995 to 1996 was primarily due to a
decrease in the yield on earning assets of 32 basis points. The primary factors
to this decline are a decrease of 6 basis points in the yield on securities and
a decrease of 58 basis points on loan yields. The lower yield on securities is
the result of maturities in the portfolio where funds were reinvested at lower
rates. The decline in loan yield results from a decrease in the prime rate, from
an average of 8.83% in 1995 to an average of 8.27% in 1996 along with an
increase of $4.0 million or 14% in nonperforming loans.
The Company's average cost of all deposits for 1997 was 2.28% compared to 2.59%
for 1996 and 2.62% for 1995.
Approximately 48% of the Company's deposits are in transaction accounts, another
24% in savings accounts, and only 28% of its deposits are in the higher cost
certificates of deposit as of year-end 1997.
Most of the securities are either U.S. Treasury or U.S. Government Agency
securities. Maturities are generally kept below 5 years for final maturity and
the weighted average life of the portfolio is approximately three years. The
mortgage-backed securities portfolio is comprised primarily of agency
passthrough and Planned Amortization Class (PAC) obligations.
PROVISION AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
Management determines the provision and adequacy of the allowance for loan
losses based on a number of factors including an in-house loan review program
conducted throughout the year. The loan portfolio is evaluated to identify
potential problem loans, credit concentrations, and other risk factors such as
current and projected economic conditions locally and nationally. General
economic trends can greatly affect loan losses and there are no assurances that
future changes to the loan loss allowance may not be significant in relation to
the amount provided during a particular period. Management does, however,
consider the allowance for loan losses to be adequate for the reporting periods
based on evaluation and analysis of the loan portfolio at the time. Accompanying
tables reflect the three-year history of charge-offs and the allocation of the
allowance by loan category.
The provision for loan losses was $7.3 million for 1997 compared with $12.3
million and $9.5 million in 1996 and 1995, respectively. The decrease in the
provision in 1997 of $5.0 million, or 4%, as well as the increase in provision
from 1995 to 1996, is due to the $4 million special provision which was taken in
1996. This special charge, reflecting the application of the Company's reserve
methodology to the new Connecticut bank subsidiary and to address this
subsidiary's problem loans, brought the allowance for possible loan losses to a
level considered by management to be adequate. The allowance for possible loan
losses as a percentage of loans outstanding for the last three years was 2.10%,
1.87% and 1.82%. The allowance for loan losses as a percentage of nonperforming
loans for the last three years was 109%, 111% and 118%, representing consistent
coverage of problem loans.
12
HUBCO, INC. ANNUAL REPORT 1997
<PAGE>
The following is a summary of the activity in the allowance for possible loan
losses, by loan category for the years indicated (dollars in thousands):
<TABLE>
<CAPTION>
ALLOWANCE FOR POSSIBLE LOAN LOSSES
Year ended December 31,
-----------------------------------------------
1997 1996 1995
-----------------------------------------------
<S> <C> <C> <C>
Amount of Loans Outstanding at End of Year $ 1,773,806 $ 1,884,355 $ 1,652,022
===============================================
Daily Average Amount of Loans Outstanding $ 1,819,651 $ 1,723,335 $ 1,590,663
===============================================
ALLOWANCE FOR POSSIBLE LOAN LOSSES
Balance at beginning of year $ 35,153 $ 30,105 $ 30,958
Loans charged off:
Real estate mortgages 2,058 4,580 6,130
Commercial 3,961 6,477 5,503
Consumer 5,699 3,164 1,535
-----------------------------------------------
Total loans charged off 11,718 14,221 13,168
-----------------------------------------------
Recoveries:
Real estate mortgages 392 776 1,222
Commercial 1,850 469 926
Consumer 1,404 1,071 563
-----------------------------------------------
Total recoveries 3,646 2,316 2,711
-----------------------------------------------
Net loans charged off 8,072 11,905 10,457
-----------------------------------------------
Allowance of acquired companies 2,800 4,658 --
Transfers from assets held for sale or
reserve for foreclosed property losses - - 89
Provision for possible loan losses 7,327 12,295 9,515
-----------------------------------------------
Balance at end of year $ 37,208 $ 35,153 $ 30,105
===============================================
Allowance for possible loan losses as a percentage of loans
outstanding at year end 2.10% 1.87% 1.82%
Net charge offs as a percentage of average loans
outstanding 0.44% 0.69% 0.66%
===============================================
</TABLE>
The following is the allocation of the allowance for possible loan losses, by
loan category for the years indicated (dollars in thousands):
<TABLE>
<CAPTION>
ALLOCATION OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES
Year ended December 31,
----------------------------------------------------------------------------
1997 1996 1995
----------------------------------------------------------------------------
CATEGORY CATEGORY CATEGORY
PERCENT PERCENT PERCENT
ALLOWANCE OF LOANS ALLOWANCE OF LOANS ALLOWANCE OF LOANS
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Real estate mortgages $11,401 55.4% $10,723 56.3% $ 6,815 58.1%
Commercial 10,462 26.8% 11,454 25.6% 14,604 25.2%
Consumer 3,310 17.8% 2,885 18.1% 2,197 16.7%
Unallocated 12,035 10,091 6,489
----------------------------------------------------------------------------
Total $37,208 100.0% $35,153 100.0% $30,105 100.0%
============================================================================
</TABLE>
13
<PAGE>
NONINTEREST INCOME
Noninterest income, excluding securities gains and losses, increased 11% to
$32.6 million for 1997 from $29.3 million in 1996. The $29.3 million in 1996 was
an increase of 7% over 1995. The increases for 1997 and 1996 are primarily a
result of growth in fee income arising from late charges and increased fee
income from Shoppers Charge. The Shoppers Charge fee income increased $4.9
million, or 119% over 1996 which had been an increase of 55% over 1995.
Other factors affecting the increase of noninterest income in 1997 are an
increase in trust income of $294, or 9%, an increase in international fees of
$134, or 15% and an increase in gains on sale of loans of $1.1 million. These
increases were offset by a decrease in service charges on deposit accounts of
$590, or 4%, and a decrease in other income of $1.3 million or 16%. Other income
for 1996 included a $622 gain resulting from the sale of a Hudson United branch.
The Company realized $8.5 million in securities gains in 1997 and $1.0 million
in 1996 and 1995. The gains realized in 1997, 1996 and 1995, resulted primarily
from the sale of equity investments in other financial institutions. In the
fourth quarter of 1995, however, with the SFAS #115 window of opportunity to
realign the held-to-maturity and available for sale portfolios, the Company sold
nearly 300 small security issues that had been acquired through acquisitions
over the past two years. The proceeds were reinvested in several larger
securities with similar maturities and a large portion of the portfolio was
allocated to available for sale. This allowed the Company more flexibility to
manage the investment portfolio.
NONINTEREST EXPENSES
Noninterest expense decreased 19%, or $22.6 million to $93.6 million in 1997
from $116.2 million in 1996. 1996 had increased 13% or $13.4 million from $102.8
million for 1995. Comparability between 1997 and 1996 and between 1996 and 1995
is impacted by the special charges in 1996, discussed earlier and the purchase
accounting acquisitions of Hometown, UST and branch purchases during 1996. As
indicated earlier, the Westport, Lafayette, Growth, Jefferson and Urban
acquisitions were accounted for as poolings and, therefore, all periods
presented have been restated although expense structures are different after
acquisition than they were before. The full annualized effect of the anticipated
cost savings from the centralization of support functions related to the
acquisitions closed in the later part of 1996 were only fully realized in the
second quarter of 1997 as the computer conversions for Lafayette, Hometown and
Westport took place near year-end 1996 and the UST conversion in the first
quarter of 1997. Salary expense for each of the last three years was $33.6
million in 1997, $34.9 million and $37.9 million in 1996 and 1995, respectively.
The 4% and 8% reductions in salary expense from $34.9 million in 1996 to $33.6
million in 1997 and from $37.9 million in 1995 to 1996 is even more significant
than it appears when the purchase accounting acquisitions are taken into
account. These savings were realized despite the 1996 addition of four branches
in New Jersey and six in Connecticut. Employee benefits as a percentage of
salaries were 25% in 1997, down from 28% in 1996 and 33% in 1995. This decrease
is due to the consolidation of acquired health benefit plans.
Occupancy expense amounted to $9.6 million, $10.1 million, and $11.0 million for
1997, 1996 and 1995, respectively. The gradual decrease in occupancy expense
from 1995 to 1997 is related to the integration and consolidation of the
acquisitions closed during 1996. Equipment expense amounted to $6.0 million,
$5.3 million and $5.8 million in 1997, 1996 and 1995, respectively. There were
no significant changes in equipment expense during this period other than the
slight increase from 1996 to 1997 due primarily to the implementation of a local
area network and replacement of equipment. The savings in 1996 from 1995 was due
to the sale of 50% of the Company's data processing subsidiary.
Deposit and other insurance expense has shown significant reductions from $4.9
million in 1995 to $2.2 million in 1996 and $901 in 1997. Although the most
significant portion of the savings is attributable to the reduction in the
deposit insurance assessment rate for the Company's banking subsidiaries, the
Company has also benefited from savings realized through negotiations on its
other insurance coverages.
Outside services expense has increased from $10.2 million in 1995 to $11.9
million in 1996 and to $16.0 million for 1997. The increase from 1996 to 1997 as
well as from 1995 to 1996 is primarily attributable to the payments for data
processing services to the jointly owned service provider. Other less
significant increases have occurred in various expenses which have been related
primarily to the general growth of the Company.
Other Real Estate Owned (OREO) expense decreased from $3.2 million in 1996 to
$1.7 million in 1997, a decrease of 45%. This decrease is a result of a
reduction
14
HUBCO, INC. ANNUAL REPORT 1997
<PAGE>
in OREO assets of $2.3 million from 1996 to 1997. Of the $1.3 million increase
in OREO expense from $1.9 million in 1995 to $3.2 million in 1996, $897
represents the increase in the provision for possible OREO losses which
management had effected in the beginning of 1996. The remaining increase of $413
is the result of disposition and maintenance costs during 1996.
The increase in the amortization of intangibles from 1996 to 1997 and from 1995
to 1996 is attributable to the increase in goodwill established for the Hometown
and UST purchases of $14.6 million and $6.2 million, respectively, in the later
part of 1996.
Merger related and restructuring costs were $270, $22.0 million and $2.9 million
for 1997, 1996 and 1995, respectively. The costs for 1995 and 1997 included
printing, legal, accounting, mailing conversion costs, consulting fees and other
like costs associated with the 1995 acquisitions and current pending
acquisitions, respectively. For 1996, the merger related costs were comprised of
basically the same types of expenses as described above. The additional element
in 1996 -- the restructuring costs -- were expensed in the then current period
of acquisition to provide for the ongoing cost of restructuring the payroll and
rental expense of the Connecticut franchise to meet the Company's operational
strategies. Such costs include targeted branch and operations center closings,
change of control contracts, data processing issues, demolition, moving and
restoration costs and other expenses related to the integration of the acquired
companies.
Other expenses decreased 4%, from $12.7 million in 1996 to $12.2 million in 1997
and decreased 6%, from $13.5 million in 1995 to 1996. These decreases were due
primarily to reductions in miscellaneous gains and losses occurring primarily
from branch operations as well as related to the acquisitions.
FEDERAL INCOME TAXES
The provision for Federal and state taxes approximates 39% for 1997, 35% for
1996 and 30% for 1995. The increase in the effective tax rates for both 1997 and
1996 are due to the addition of intangible assets, which are not deductible for
income tax purposes, resulting from the Hometown purchase in August, 1996. The
reduction in the overall rate in 1995 is due to the reversal of a tax reserve no
longer deemed necessary primarily as a result of an IRS settlement during the
second quarter which covered the tax years 1991, 1992, and 1993.
FINANCIAL CONDITION
Total assets at December 31, 1997 were $3.05 billion, a decrease of 2% from
assets of $3.12 billion at December 31, 1996. This reduction of assets is a
result of repayments and maturities in the investment and loan portfolios along
with reductions in time deposits related to acquired institutions.
The Company considers its liquidity and capital to be adequate. At the end of
1997, the Company had $218.0 million in Federal funds sold and $778.1 million in
securities, $550.5 million in its available for sale portfolio, and $227.6
million in its held to maturity portfolio that are available to meet future loan
demand. A net decline in total capital of $20.2 million resulted from the
Company's purchase of $62.3 million in common treasury shares and dividends paid
of $17.2 million, which was partially offset by the addition of $49.3 million
from net income, and a $7.3 million increase in the mark-to-market of available
for sale securities. The purchased treasury shares were reissued in connection
with the conversion of preferred stock into common stock, the 3% stock dividend
paid in December 1997 and the exercise of stock options. At the end of 1997, the
Company's Tier 1 Leverage ratio was 7.10%. Despite the decline in total capital,
the Tier I Leverage ratio increased from 5.71% at December 31, 1996 to 7.10% at
December 31, 1997 due primarily to the issuance of $50.0 million in capital
securities offered by HUBCO Capital Trust I on January 31, 1997. The $50.0
million is included in Tier I Capital for regulatory purposes, subject to
certain limitations.
SECURITIES HELD TO MATURITY AND SECURITIES AVAILABLE FOR SALE
The securities portfolios serve to manage interest rate risk and as a source of
liquidity. Consequently, the portfolios are managed over time in response to
changes in market conditions and as loan demand changes.
At December 31, 1997 and 1996, the portfolios comprised 26% and 30% of the total
assets of the Company. The amount of securities as a percentage of earning
assets is a function of the amount of deposits and the amount of loans.
The Company's philosophy with respect to managing the portfolio is to purchase
primarily government and agency securities with maturities laddered over a five
year period.
[PHOTO]
15
<PAGE>
The following table summarizes the composition of the securities portfolios as
of December 31, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
ESTIMATED ESTIMATED
AMORTIZED GROSS UNREALIZED MARKET AMORTIZED GROSS UNREALIZED MARKET
COST GAINS (LOSSES) VALUE COST GAINS (LOSSES) VALUE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Held to Maturity Portfolio
U.S. Government $ 42,108 $ 546 $ -- $ 42,654 $ 76,837 $ 326 $ (21) $ 77,142
U.S. Government Agencies 185,462 2,413 (855) 187,020 204,077 1,508 (3,117) 202,468
-------------------------------------------------------------------------------------------------
$ 227,570 $ 2,959 $ (855) $ 229,674 $ 280,914 $ 1,834 $ (3,138) $ 279,610
Available for Sale Portfolio
U.S. Government $ 61,403 $ 865 $ (7) $ 62,261 $ 85,403 $ 535 $ (51) $ 85,887
U.S. Government Agencies 379,245 2,214 (1,125) 380,334 496,370 3,118 (3,376) 496,112
States and Political
Subdivisions 8,453 40 (24) 8,469 11,575 6 (2) 11,579
Other debt securities 28,890 61 (8) 28,943 4,344 53 (11) 4,386
Other securities 55,079 15,419 -- 70,498 52,730 5,088 (290) 57,528
-------------------------------------------------------------------------------------------------
$ 533,070 $ 18,599 $ (1,164) $ 550,505 $ 650,422 $ 8,800 $ (3,730) $ 655,492
</TABLE>
LOAN PORTFOLIO DISTRIBUTION OF LOANS BY CATEGORY
(In thousands) December 31,
- --------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------
Loans secured by real estate:
Residential
mortgage
loans-fixed $ 198,422 $ 209,015 $ 197,471
Residential
mortgage loans-
variable 353,429 372,059 311,763
Residential
home equity
loans 124,142 145,660 95,985
Construction
loans 21,525 25,080 30,186
Commercial
mortgage loans 430,865 479,566 449,852
--------------------------------------
1,128,383 1,231,380 1,085,257
--------------------------------------
Commercial and industrial loans:
Secured by
real estate 73,432 113,102 124,568
Other 401,467 368,962 292,158
--------------------------------------
474,899 482,064 416,726
--------------------------------------
Shoppers Charge
credit cards 91,047 61,759 57,915
Other loans to
individuals 79,477 109,152 92,124
--------------------------------------
Total Loan
Portfolio $1,773,806 $1,884,355 $1,652,022
======================================
Total Loans decreased by $110.5 million or 6% from $1.88 billion at December 31,
1996, to $1.77 billion at December 31, 1997. The majority of the decrease
occurred in the real estate portfolio as predominantly all 1997 residential loan
production was sold into the secondary market. Commercial mortgage loans
decreased by $48.7 million or 10% from $479.6 million in 1996 to $430.9 million
at December 31, 1997. The reduction resulted primarily from the runoff or sale
of non owner-occupied loans which were originated at acquired institutions and
did not fit the Company's credit criteria. Commercial loans were relatively
flat, with the overall mix shifting away from loans secured by real estate as
the Company built its traditional portfolio of commercial and industrial loans.
Non real estate secured loans grew by $32.5 million or 9% to $401.5 million at
December 31, 1997. Shoppers Charge Credit Cards (Shoppers) showed significant
growth during the year with an increase of $29.3 million or 47% from $61.8
million in 1996 to $91.0 million in 1997. Shoppers growth was fueled by the
addition of several new national chains as well as the purchase of credit card
receivables and corresponding reserves. Other loans to individuals declined
primarily as a result of the Company's decision to allow an acquired indirect
automobile portfolio to decrease significantly during the year.
16
HUBCO, INC. ANNUAL REPORT 1997
<PAGE>
ASSET QUALITY
The Company's principal earning assets are its loans, which are primarily to
businesses and individuals located in New Jersey and Connecticut with the
exception of the credit card loans which are originated in 44 states. Inherent
in the lending business is the risk of deterioration in a borrower's ability to
repay loans under existing loan agreements. Other risk elements include the
amount of nonaccrual and past-due loans, the amount of potential problem loans,
industry or geographic loan concentrations, and the level of Other Real Estate
Owned (OREO) that must be managed and disposed of. The following table shows the
loans past due 90 days or more and still accruing and applicable asset quality
ratios:
(Dollars in thousands) December 31,
- -------------------------------------------------------------------------------
1997 1996 1995
- -------------------------------------------------------------------------------
Commercial $2,549 $2,921 $1,026
Real estate 2,042 3,292 4,142
Consumer 1,784 832 461
Credit card 2,749 1,486 592
---------------------------------------
Total Loans
Past-Due 90-Days
or More and
Still Accruing $9,124 $8,531 $6,221
=======================================
As a percent
of Total Loans 0.51% 0.45% 0.38%
As a percent
of Total Assets 0.30% 0.27% 0.22%
=======================================
These ratios have increased from the Company's historical levels due primarily
to the growth in the Shoppers portfolio, the continued impact of the asset
quality of acquired institutions and the change in method of reporting
delinquent credit card receivables. In March 1996, the credit card division
switched from the recency method to the contractual method of reporting
delinquencies.
Nonaccruing loans consist of commercial loans and commercial mortgage loans
past-due 90-days or more. Residential real estate loans are generally placed on
nonaccrual status after 180 days of delinquency and consumer loans after 90 days
of delinquency and are charged off after 120 days of delinquency. Any loan may
be put on nonaccrual status earlier if the Company has concerns about the future
collectability of the loan or its ability to return to current status.
Nonaccrual real estate loans are principally loans in the foreclosure process
secured by real estate, including single family residential, multi-family, and
commercial properties.
Nonaccruing consumer loans are loans to individuals. These loans are principally
secured by automobiles or real estate.
Renegotiated loans are loans which were renegotiated as to the term or rate or
both to assist the borrower after the borrower has suffered adverse effects in
financial condition. Terms are designed to fit the ability of the borrower to
repay and the Company's objective of obtaining repayment. The Company has $1.8
million of loans which are considered renegotiated. OREO consists of properties
on which the Bank has foreclosed or has taken a deed in lieu of the loan
obligation.
OREO properties are carried at fair value at all times. The cost to dispose of
OREO properties, the cost to maintain them during ownership, and any declines in
fair value from the inception of ownership are charged to current earnings. The
Company has been successful in disposing of OREO properties, including those
acquired in acquisitions. At December 31, 1997, 1996, and 1995, OREO amounted to
$3.3 million, $5.7 million, and $11.6 million. The decline from year to year
reflects the Company's success in disposing of these properties.
At December 31, 1997, nonperforming loans increased by $2.4 million, or 7% from
December 31, 1996. The acquired companies added significantly to the Company's
level of nonperforming loans and while the Company has been able to either
dispose of or obtain repayment on the great majority of these problem loans
acquired in previous acquisitions, they continue to impact asset quality. The
Company continues to work with classified assets from the acquired institutions,
which were identified in the due diligence process, and to conform these
existing credits to the Company's credit policy.
The amount of interest income on nonperforming loans which would have been
recorded had these loans continued to perform under their original terms
amounted to $2.9 million, $2.7 million, and $2.5 million for the years 1997,
1996, and 1995, respectively. The amount of interest income recorded on such
loans for each of the years was $239, $367, and $584. The Company has no
outstanding commitments to advance additional funds to borrowers whose loans are
in a nonperforming status.
Measures to control and reduce the level of nonperforming loans are continuing.
Efforts are made to identify slow paying loans and collection procedures are
instituted. After identification, steps are taken to understand the problems of
the borrower and to work with the borrower toward resolving the problem, if
practicable. Continuing collection efforts are a priority for the Banks.
17
<PAGE>
The allowance for possible loan losses at December 31, 1997, 1996, and 1995 as a
percentage of total loans was 2.10%, 1.87%, and 1.82%, respectively. Management
formally reviews the loan portfolio and evaluates credit risk on at least a
quarterly basis throughout the year. Such review takes into consideration the
financial condition of the borrowers, fair market value of collateral, level of
delinquencies, historical loss experience by loan category, industry trends, and
the impact of local and national economic conditions. The table on page 11 shows
the allowance by loan category and the level of unallocated allowance. The
unallocated portion, which is available to absorb loan losses but which is not
deemed necessary for any specific loan or loan category, has increased in each
of the years 1995, 1996, and 1997.
The following table summarizes the Company's nonperforming assets at the dates
indicated (dollars in thousands):
<TABLE>
<CAPTION>
NONPERFORMING ASSETS
December 31,
- ------------------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonaccrual Loans $ 32,404 $ 29,029 $ 23,700
Renegotiated Loans 1,760 2,779 1,879
-----------------------------------
Total Nonperforming Loans 34,164 31,808 25,579
Other Real Estate Owned 3,325 5,651 11,564
-----------------------------------
Total Nonperforming Assets $ 37,489 $ 37,459 $ 37,143
===================================
Ratios:
Nonaccrual Loans to Total Loans 1.83% 1.54% 1.43%
Nonperforming Assets to Total Assets 1.23% 1.20% 1.34%
Allowance for Loan Losses to Nonaccrual Loans 115% 121% 127%
Allowance for Loan Losses to Nonperforming Loans 109% 111% 118%
- ------------------------------------------------------------------------------------------------
</TABLE>
DEPOSITS
As of December 31, 1997, Hudson United Bank has 57 branch offices located
primarily in Bergen, Essex, Hudson, and Passaic counties with other locations in
Middlesex, Morris, Union and Somerset counties. Hudson manages the branch system
by regionalizing into 4 regions with each managed by a regional manager.
Lafayette American Bank has 27 branch offices located in New Haven and Fairfield
counties. Lafayette has 2 established regions.
The Company devotes as much attention to the cost side of the net interest
margin as to loans, emphasizing the generation of the lowest cost deposits.
The following table presents the composition of the deposit base at the dates
indicated (in thousands):
December 31,
- --------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------
Noninterest-
bearing deposits $ 621,981 $ 622,718 $ 555,928
NOW/MMDA deposits 481,252 520,088 477,172
Savings deposits 558,311 622,880 633,707
Time deposits 652,855 826,406 779,466
--------------------------------------------
Total Deposits $2,314,399 $2,592,092 $2,446,273
============================================
The decrease in deposits from 1996 to 1997 of $277.7 million, or 11% is
primarily attributable to the decline in the higher rate deposits related to the
Connecticut acquisitions. As noted earlier, 48% of the deposit base is in low or
noninterest bearing core deposits and another 24% is in low cost savings
deposits. This funding base provides a very low cost funding source for the
Company.
18
HUBCO, INC. ANNUAL REPORT 1997
<PAGE>
LIQUIDITY
Liquidity is a measure of the Company's ability to meet the needs of depositors,
borrowers, and creditors at a reasonable cost and without adverse financial
consequences. The Company has several liquidity measurements that are evaluated
on a frequent basis. The Company has adequate sources of liquidity including
Securities Available for Sale, Federal funds lines, and the ability to acquire
funds from the Federal Home Loan Bank. The management of balance sheet volumes,
mixes, and maturities enables the Company to maintain adequate levels of
liquidity.
The liquidity requirements of the Company, primarily for dividends to
shareholders, debt service, and other corporate purposes are met through cash
and short-term money market investments and regular periodic dividends from the
subsidiary banks. The Company also has the ability, when and if necessary, to
access the capital markets. Management considers the liquidity of the Company
and the subsidiary banks to be adequate to meet current and anticipated funding
requirements.
CAPITAL
Capital adequacy is a measure of the amount of capital needed to support asset
growth, absorb unanticipated losses, and provide safety for depositors. The
regulators establish minimum capital ratio guidelines for the banking industry.
The capital ratios impact the performance of the Company in that these ratios
determine the FDIC deposit insurance premium rate a bank must pay.
The following table sets forth the regulatory minimum capital ratio guidelines
and the current capital ratios of the Company.
Regulatory Company
Capital Capital
Guidelines Ratios
- ------------------------------------------------------------------------------
Tier 1 Leverage Ratio 3.0 - 5.0% 7.1%
Tier 1 Risk-Based
Capital Ratio 4.0% 10.3%
Total Risk-Based Capital 8.0% 16.6%
At December 31, 1997, 1996, and 1995 the Company exceeded all regulatory capital
guidelines including those for a well-capitalized institution.
In January, 1995, the Company issued a 3-for-2 stock split and prior to that a
10% stock dividend was declared on June 1, 1993. Following the January stock
split, the $0.15 per quarter cash dividend was retained which effectively
resulted in a 50% increase in the cash dividend. On November 15, 1996, the
Company paid a 3% stock dividend and increased its regular quarterly cash
dividend from $0.17 to $0.19 per common share, effecting a 15% dividend
increase. On December 1, 1997, the Company paid a 3% stock dividend and
increased its regular quarterly cash dividend from $0.19 to $0.20 per common
share, effecting an 8% dividend increase. The dividend payout ratio, based on
cash dividends per share and diluted earnings per share, was 36% for 1997
compared to 75% for 1996 and 39% in 1995. The increase in the 1996 ratio is due
to the lower net income resulting from the special charges. Excluding the
special charges, the payout ratio was 41%.
In 1994, the Company issued $19.1 million in convertible preferred stock in
connection with the Washington acquisition. Based on the terms of the
acquisition, the stock became convertible in 1995. Approximately $2 million in
preferred stock which was not converted by the holders as of June 30, was
redeemed for cash. Pursuant to the November 1993 Board authorization to
repurchase up to 10% of the shares outstanding each year, the Company acquired
approximately 1.16 million shares of common stock in 1995 which were then
utilized for the 1.2 million shares issued in the conversion of the preferred
stock. During 1996 and 1997, the Company's treasury stock was reissued for the
3% stock dividends, and also in 1996 for acquisitions and the conversion of
preferred stock into common stock. At December 31, 1997, there were no shares
held in treasury.
In September, 1996, the Company sold $75 million of subordinated debt in a
private placement which was subsequently registered with the SEC. The
subordinated debentures bear interest at 8.20% per annum payable semi-annually
and mature in 2006. In January 1994, the Company sold $25.0 million aggregate
principal amount of subordinated debentures which mature in 2004 and bear
interest at 7.75% per annum payable semi-annually. Proceeds of these issuances
were used for general corporate purposes including providing Tier I capital to
the subsidiary banks. The debt has been structured to comply with the Federal
Reserve Bank rules regarding debt qualifying as Tier 2 capital at HUBCO. On
January 31, 1997, the Company issued $50.0 million in capital securities offered
by HUBCO Capital Trust I pursuant to Rule 144A under the Securities Act of 1933.
The 8.98% capital securities represent a preferred beneficial interest in the
assets of HUBCO Capital Trust 1, a statutory business trust. The Trust exists
for the sole purpose of issuing the Trust Securities and investing the proceeds
in 8.98% Junior Subordinated Deferrable Interest Debentures issued by HUBCO
which mature on February 1, 2027. The capital securities have preference over
the common securities under certain circumstances with respect to cash
distributions and amounts payable on liquidation and are guaranteed by the
Company. The $50.0 million is included in Tier I capital for regulatory
purposes, subject to certain limitations, but is classified as
19
<PAGE>
long-term debt for financial reporting purposes.
At the end of the reporting period, there were no known uncertainties that will
have or that are reasonably likely to have a material effect on the Company's
liquidity or capital resources.
LIQUIDITY AND INTEREST RATE SENSITIVITY MANAGEMENT
The primary objectives of asset/liability management are to provide for the
safety of depositor and investor funds, assure adequate liquidity and to
maintain an appropriate balance between interest sensitive earning assets and
interest-sensitive liabilities. Liquidity management is a planning process that
ensures that the Company has ample funds to satisfy operational needs, projected
deposit outflows, repayment of borrowing and loan obligations and the projected
credit needs of its customer base. Interest rate sensitivity management ensures
that the Company maintains acceptable levels of interest rate risk exposure
throughout a range of interest rate environments. The Company seeks to maintain
its interest rate risk within a range that it believes is both manageable and
prudent, given its capital and income generating capacity.
Liquidity risk is the risk to earnings or capital that arises from a bank's
inability to meet its obligations when they come due, without incurring
unacceptable losses. HUBCO uses several measurements of liquidity in monitoring
its liquidity position. In addition, the Company has a number of borrowing
facilities with other banks and with the Federal Home Loan Bank that are or can
be used as sources of liquidity without having to sell assets to raise cash. At
December 31, 1997, the Company's liquidity ratios exceed all minimum standards
set forth by internal policies.
HUBCO has an asset/liability management committee which manages the risks
associated with the volatility of interest rates and the resulting impact on net
interest income. The management of interest rate risk at the Company is
performed by: (i) analyzing the maturity and repricing relationships between
interest earning assets and interest bearing liabilities at specific points in
time (`GAP') and (ii) "income simulation analysis" which analyzes the effects of
interest rate changes on net interest income over specific periods of time and
captures the dynamic impact of interest rate changes on the Company's mix of
assets and liabilities.
The table on the following page presents the gap position of the Company at
December 31, 1997. In preparing this table, management has anticipated
prepayments for mortgage-backed securities and mortgage loans according to
standard industry prepayment assumptions in effect at year-end. Money market
deposits and interest bearing demand accounts have been included in the due
within 90 days category. Assets with daily floating rates are included in the
due within 90 days category. Assets and liabilities are included in the table
based on their maturities or period of first repricing, subject to the foregoing
assumptions.
In analyzing its GAP position, although all time periods are considered, HUBCO
emphasizes the next twelve month period. An institution is considered to be
liability sensitive, or as having a negative GAP, when the amount of
interest-bearing liabilities maturing or repricing within a given time period
exceeds the amount of its interest-earning assets also repricing within that
time period. Conversely, an institution is considered to be asset sensitive, or
having a positive GAP, when the amount of its interest-bearing liabilities
maturing or repricing is less than the amount of its interest-earning assets
also maturing or repricing during the same period. Generally, in a falling
interest rate environment, a negative GAP should result in an increase in net
interest income, and in a rising interest rate environment this negative GAP
should adversely affect net interest income. The converse would be true for a
positive GAP.
However, shortcomings are inherent in a simplified GAP analysis that may result
in changes in interest rates affecting net interest income more or less than the
GAP analysis would indicate. For example, although certain assets and
liabilities may have similar maturities or periods to repricing, they may react
in different degrees to changes in market interest rates. Furthermore, repricing
characteristics of certain assets and liabilities may vary substantially within
a given time period. In the event of a change in interest rates, prepayment and
early withdrawal levels could also deviate significantly from those assumed in
calculating GAP. Also, GAP does not permit analysis of how changes in the mix of
various assets and liabilities and growth rate assumptions impact net interest
income. In addition, NOW/MMDA and savings deposits, which have no contractual
maturity, have been assigned to the "due within 90 days" category despite the
fact that a number of studies on depositor behavior conclude that a significant
percentage of these accounts should be classified as less interest sensitive.
Due in part to the shortcomings of GAP analysis, the asset/liability committee
of HUBCO believes that income simulation modeling more accurately estimates the
effects of and exposure to interest rate changes. At December 31, 1997, HUBCO's
simulation modeling indicated that the Company's balance sheet will be adversely
affected in a falling interest rate environment, and as such, using a rate
forecast which approximates a
20
HUBCO, INC. ANNUAL REPORT 1997
<PAGE>
decline in short to intermediate rates of 200 basis points and a decline in
longer term rates of 60-80 basis points with no changes in the balance sheet,
net interest income is projected to decline by approximately 4.50% over a 12
month period, within HUBCO's asset/liability strategy and board approved limits.
The following table shows the GAP position of the Company (in thousands):
<TABLE>
<CAPTION>
GAP ANALYSIS
December 31, 1997
- --------------------------------------------------------------------------------------------------------------------------
DUE BETWEEN
DUE WITHIN 91 DAYS AND DUE OVER NON-INTEREST
90 DAYS ONE YEAR 1-5 YEARS 5 YEARS BEARING TOTAL
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Federal Funds Sold $ 218,000 $ -- $ -- $ -- $ -- $ 218,000
Securities 180,562 188,954 294,562 113,997 -- 778,075
Total Loans 914,470 230,250 262,748 366,338 -- 1,773,806
Non-Interest Bearing Assets -- -- -- -- 276,624 276,624
---------------------------------------------------------------------------------------
Total Assets $1,313,032 $ 419,204 $ 557,310 $ 480,335 $ 276,624 $ 3,046,505
Percent of Total Assets 43.10% 13.76% 18.29% 15.77% 9.08% 100.00%
==========================================================================================================================
SOURCE OF FUNDS
Interest-Bearing Deposits $1,293,672 $ 319,315 $ 27,046 $ 52,385 $ -- $ 1,692,418
Short-Term Borrowings 358,512 -- -- -- -- 358,512
Long-Term Debt -- -- -- 152,807 -- 152,807
Non-Interest Bearing Deposits -- -- -- -- 621,981 621,981
Other Liabilities -- -- -- -- 34,647 34,647
Stockholders' Equity -- -- -- -- 186,140 186,140
---------------------------------------------------------------------------------------
Total Source of Funds $1,652,184 $ 319,315 $ 27,046 $ 205,192 $ 842,768 $ 3,046,505
Percent of Total Source of Funds 54.23% 10.48% 0.89% 6.74% 27.66% 100.00%
==========================================================================================================================
Interest Rate Sensitivity Gap $ (339,152) $ 99,889 $ 530,264 $ 275,143 $ (566,144) $ --
- --------------------------------------------------------------------------------------------------------------------------
Cumulative
Interest Rate Sensitivity Gap $ (339,152) $ (239,263) $ 291,001 $ 566,144
==========================================================================================================================
</TABLE>
RECENT ACCOUNTING STANDARDS
In June, 1997, the Financial Accounting Standards Board (FASB), issued two
Statements. SFAS No. 130, "Reporting Comprehensive Income", establishes
standards for reporting and display of comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of general-purpose
financial statements. The Statement is effective for fiscal years beginning
after December 15, 1997; earlier application is permitted. The Company has
elected not to adopt this Statement prior to its effective date and has not
determined which financial statement will be utilized to display comprehensive
income. The second statement, SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Income", requires that a public business enterprise
report financial and descriptive information about its reportable operating
segments. This Statement becomes effective for fiscal years beginning after
December 15, 1997; earlier adoption is permitted. The Company has elected not to
adopt this Statement prior to its effective date.
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, as well as the impact of announced
acquisitions and acquisitions closed on or after December 31, 1997, and factors
resulting from or exacerbated by these acquisitions. The Company assumes no
obligation for updating any such forward-looking statements at any time.
YEAR 2000 COMPLIANCE
The Company, through it 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 the Company 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.
21
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
December 31, (in thousands, except share data) 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 167,096 $ 128,868
Federal funds sold 218,000 24,200
-------------------------------
TOTAL CASH AND CASH EQUIVALENTS 385,096 153,068
Securities available for sale, at market value 550,505 655,492
Securities held to maturity, at cost 227,570 280,914
(market value of $229,674 and $279,610 for 1997
and 1996, respectively)
Loans:
Real estate mortgage 982,716 1,085,720
Commercial and financial 496,424 499,004
Consumer credit 203,619 237,872
Credit card 91,047 61,759
-------------------------------
TOTAL LOANS 1,773,806 1,884,355
Less: Allowance for possible loan losses (37,208) (35,153)
-------------------------------
NET LOANS 1,736,598 1,849,202
Premises and equipment, net 41,713 43,510
Other real estate owned 3,325 5,651
Intangibles, net of amortization 24,332 29,225
Other assets 77,366 98,625
-------------------------------
TOTAL ASSETS $ 3,046,505 $ 3,115,687
===============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 621,981 $ 622,719
Interest bearing 1,692,418 1,969,373
-------------------------------
TOTAL DEPOSITS 2,314,399 2,592,092
Short-Term Borrowings 361,319 187,979
Other liabilities 34,647 29,283
-------------------------------
TOTAL LIABILITIES 2,710,365 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 debentures of the Company 50,000 --
-------------------------------
Commitments and contingencies
Stockholders' Equity:
Convertible Preferred stock-Series B, no par value; authorized 10,300,000
shares; 1,250 shares issued and outstanding in 1997;
39,600 shares issued and outstanding in 1996 125 3,960
Common stock, no par value;
authorized 53,045,000 shares;
21,911,502 shares issued and outstanding in 1997 and 22,273,202
issued and outstanding in 1996 38,959 38,448
Additional paid-in capital 71,099 104,233
Retained earnings 66,065 56,968
Restricted stock award (444) (279)
Unrealized gain on securities available for sale,
net of income taxes 10,336 3,003
-------------------------------
TOTAL STOCKHOLDERS' EQUITY 186,140 206,333
-------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,046,505 $ 3,115,687
================================
</TABLE>
See Notes to Consolidated Financial Statements
22
HUBCO, INC. ANNUAL REPORT 1997
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, (in thousands, except share data) 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST AND FEE INCOME:
Loans $160,107 $149,548 $147,087
Securities 56,709 53,581 54,929
Other 1,225 1,053 1,635
--------------------------------------
TOTAL INTEREST AND FEE INCOME 218,041 204,182 203,651
--------------------------------------
INTEREST EXPENSE:
Deposits 53,855 62,704 61,677
Short-term borrowings 11,509 6,219 6,610
Subordinated and other debt 12,433 3,905 2,153
--------------------------------------
TOTAL INTEREST EXPENSE 77,797 72,828 70,440
--------------------------------------
NET INTEREST INCOME 140,244 131,354 133,211
PROVISION FOR POSSIBLE LOAN LOSSES 7,327 12,295 9,515
--------------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 132,917 119,059 123,696
--------------------------------------
NONINTEREST INCOME:
Trust department income 3,445 3,151 3,579
Service charges on deposit accounts 13,409 13,999 13,661
Shoppers Charge Fee Income 9,072 4,138 2,668
Securities gains 8,494 987 986
Other income 6,687 8,001 7,331
--------------------------------------
TOTAL NONINTEREST INCOME 41,107 30,276 28,225
NONINTEREST EXPENSE:
Salaries 33,614 34,857 37,888
Pension and other employee benefits 8,337 9,874 12,708
Occupancy expense 9,615 10,089 10,985
Equipment expense 5,995 5,285 5,784
Deposit and other insurance 901 2,173 4,899
Special SAIF assessment -- 825 --
Outside services 15,961 11,912 10,159
Other real estate owned expense 1,742 3,189 1,879
Amortization of intangibles 4,979 3,358 2,181
Merger related and restructuring costs 270 22,005 2,907
Other expense 12,179 12,672 13,452
--------------------------------------
TOTAL NONINTEREST EXPENSE 93,593 116,239 102,842
--------------------------------------
INCOME BEFORE INCOME TAXES 80,431 33,096 49,079
PROVISION FOR INCOME TAXES 31,117 11,599 14,514
--------------------------------------
NET INCOME $ 49,314 $ 21,497 $ 34,565
======================================
EARNINGS PER SHARE:
Basic $ 2.20 $ 0.91 $ 1.52
Diluted $ 2.10 $ 0.88 $ 1.43
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 22,157 22,508 22,127
Diluted 23,443 24,309 24,205
</TABLE>
See Notes to Consolidated Financial Statements
23
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK
--------------- ------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------
(in thousands, except share data)
<S> <C> <C> <C> <C>
Balance at December 31,1994 841,761 $ 23,542 20,677,103 $ 36,746
=======================================================
Net income-1995 -- -- -- --
Cash dividends-common -- -- --
Cash dividends-preferred -- -- -- --
Stock dividend of
acquired company -- -- 55,655 99
Issuance of common stock for-
Stock options exercised -- -- 63,825 114
Warrants exercised -- -- 663,353 1,179
Dividend reinvestment
and stock Purchase plan -- -- 1,715 3
Preferred stock
conversion (2,100) (210) 69,757 124
Redemption of preferred
stock and conversion
of preferred stock
to common stock 797,811) (19,147) -- --
Purchase of treasury stock:
Preferred -- -- -- --
Common -- -- -- --
Restricted stock transactions -- -- -- --
Effect of compensation plans -- -- -- --
Regulatory approved
transfer of acquired
subsidiary -- -- -- --
change in unrealized
gain (loss)
on securities
available for sale -- -- -- --
-------------------------------------------------------
Balance at December 31,1995 41,850 4,185 21,521,408 38,265
=======================================================
Net income-1996 -- -- -- --
Cash dividends-common -- -- -- --
Cash dividends-preferred -- -- -- --
3% stock dividend -- -- 15,269 27
Issuance of common stock for--
Stock options exercised -- -- 256,608 455
Warrants exercised -- -- 143,836 255
Dividend reinvestment and -- -- 371 1
stock purchase plan
Preferred stock conversion (2,250) (225) 74,739 133
Issuance and retirement of
treasury stock -- -- (387,763) (688)
Purchase of treasury stock -- -- -- --
Restricted stock transactions -- -- -- --
Effect of compensation plans -- -- -- --
Tax effect of exercise
of nonqualifying
stock options -- -- -- --
Change in unrealized
gain (loss) on
securities available
for sale -- -- -- --
-------------------------------------------------------
Balance at December 31,1996 39,600 3,960 21,624,468 38,448
=======================================================
<CAPTION>
UNREALIZED
GAIN
ADDITIONAL RESTRICTED (LOSS) ON
PAID-IN RETAINED TREASURY STOCK SECURITIES
CAPITAL EARNINGS STOCK AWARD AVAILABLE TOTAL
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,1994 $ 120,866 $ 25,949 $ (11,764) $ (1,266) $ (6,768) $ 187,305
=======================================================================================
Net income-1995 -- 34,565 -- -- -- 34,565
Cash dividends-common -- (8,545)
Cash dividends-preferred -- (901) -- -- -- (901)
Stock dividend of
acquired company 824 (923) -- -- -- --
Issuance of common stock for-
Stock options exercised 503 -- -- -- -- 617
Warrants exercised 319 -- -- -- -- 1,498
Dividend reinvestment
and stock Purchase plan 23 -- -- -- -- 26
Preferred stock
conversion 86 -- -- -- -- --
Redemption of preferred
stock and conversion
of preferred stock
to common stock 452 -- 16,214 -- -- (2,481)
Purchase of treasury stock:
Preferred -- -- (71) -- -- (71)
Common -- -- (4,885) -- -- (4,885)
Restricted stock transactions -- -- (141) 578 -- 437
Effect of compensation plans 184 -- -- -- -- 184
Regulatory approved
transfer of acquired
subsidiary (13,028) 13,028 -- -- -- --
change in unrealized
gain (loss)
on securities
available for sale -- -- -- -- 9,047 9,047
---------------------------------------------------------------------------------------
Balance at December 31,1995 110,229 63,173 (647) (688) 2,279 216,796
=======================================================================================
Net income-1996 -- 21,497 -- -- -- 21,497
Cash dividends-common -- (14,600) -- -- -- (14,600)
Cash dividends-preferred -- (825) -- -- -- (825)
3% stock dividend 680 (12,398) 11,657 -- -- (34)
Issuance of common stock for--
Stock options exercised (873) -- 782 -- -- 364
Warrants exercised 207 -- 74 -- -- 536
Dividend reinvestment and 6 -- -- -- -- 7
stock purchase plan
Preferred stock conversion 92 -- -- -- -- --
Issuance and retirement of
treasury stock (7,218) -- 7,906 -- -- --
Purchase of treasury stock -- -- (19,770) -- -- (19,770)
Restricted stock transactions -- 17 (2) 409 -- 424
Effect of compensation plans 116 104 -- -- -- 220
Tax effect of exercise
of nonqualifying
stock options 994 -- -- -- -- 994
Change in unrealized
gain (loss) on
securities available
for sale -- -- -- -- 724 724
---------------------------------------------------------------------------------------
Balance at December 31,1996 104,233 56,968 -- (279) 3,003 206,333
=======================================================================================
</TABLE>
See Notes to Consolidated Financial Statements
24
HUBCO, INC. ANNUAL REPORT 1997
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Continued) Years Ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
UNREALIZED
CONVERTIBLE GAIN (LOSS)
PREFERRED STOCK COMMON STOCK ADDITIONAL RESTRICTED ON
--------------- ------------ PAID-IN RETAINED TREASURY STOCK SECURITIES
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS STOCK AWARD AVAILABLE TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------
(in thousands, except share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net income - 1997 -- -- -- -- -- 49,314 -- -- -- 49,314
Cash dividends - common -- -- -- -- -- (16,538) -- -- -- (16,538)
Cash dividends - preferred -- -- -- -- -- (650) -- -- -- (650)
3% stock dividend -- -- 287,034 511 9,896 (23,029) 12,709 -- -- 87
Issuance of common stock for
Stock options exercised -- -- -- -- (6,371) -- 8,916 -- -- 2,545
Warrants exercised -- -- -- -- (48) -- 65 -- -- 17
Preferred stock
conversion (38,350) (3,835) -- -- (36,513) -- 40,348 -- -- --
Cash in lieu of
fractional shares -- -- -- -- (98) -- -- -- -- (98)
Purchase of treasury stock -- -- -- -- -- -- (62,338) -- -- (62,338)
Restricted stock
transactions -- -- -- -- -- 300 (165) -- 135
Change in unrealized
gain (loss)
on securities
available for sale -- -- -- -- -- -- -- -- 7,333 7,333
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 1,250 $125 21,911,502 $38,959 $71,099 $66,065 $ -- $(444) $10,336 $186,140
===================================================================================================================================
</TABLE>
[PHOTO]
See Notes to Consolidated Financial Statements
25
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, (in thousands) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 49,314 $ 21,497 $ 34,565
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible loan losses 7,327 12,295 9,515
Provision for depreciation and amortization 10,340 10,495 7,695
Amortization of securities premiums, net 571 2,436 393
Securities gains (8,494) (987) (986)
Gain on sale of loans (1,131) (153) (595)
Gain on sale of interest in subsidiary -- -- (817)
Deferred income tax provision (benefit) 3,769 (2,818) 6,539
Decrease (increase) in other assets 12,489 17,013 (17,386)
Increase in other liabilities 6,103 2,538 3,895
---------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 80,288 62,316 42,818
---------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale 115,448 103,767 158,446
Proceeds from repayments and maturities of securities:
Available for sale 158,929 122,192 42,289
Held to maturity 61,640 54,677 121,074
Purchases of securities:
Available for sale (157,398) (347,257) (91,452)
Held to maturity -- (47,929) (87,709)
Net cash acquired through acquisitions -- 78,747 --
Net decrease (increase) in loans 85,183 (82,070) (109,955)
Loans purchased (29,704) -- (8,257)
Loans sold 50,929 9,450 21,357
Proceeds from sales of premises and equipment 104 1,233 --
Purchases of premises and equipment (3,650) (4,949) (3,322)
Decrease in other real estate owned 2,326 6,151 4,361
---------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 283,807 (105,988) 46,832
---------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in demand deposits, NOW accounts and savings accounts (104,142) (91,630) (55,127)
Net (decrease) increase in certificates of deposit (173,551) (80,466) 86,401
Net increase (decrease) in short-term borrowings 173,340 108,295 (57,113)
Net Proceeds from the issuance of capital trust securities 49,250 -- --
Net Proceeds from the issuance of subordinated debt -- 73,738 --
Proceeds from the issuance of common stock 2,562 907 2,141
Redemption of convertible preferred stock -- -- (2,481)
Cash dividends paid (17,188) (15,425) (9,446)
Purchase of treasury stock (62,338) (19,770) (4,956)
Proceeds from sale of interest in subsidiary -- -- 4,215
---------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (132,067) (24,351) (36,366)
---------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 232,028 (68,023) 53,284
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 153,068 221,091 167,807
---------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 385,096 $153,068 $221,091
========================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for-
Interest $80,348 $71,874 $68,706
Income taxes 24,467 15,286 10,887
========================================
Liabilities assumed in purchase business combinations
and branch acquisitions $ -- $347,104 $ --
========================================
</TABLE>
See Notes to Consolidated Financial Statements
26
HUBCO, INC. ANNUAL REPORT 1997
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 (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) and Lafayette American Bank (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 agencies.
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 classifies 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. Sales or transfers 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 management 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, 1997 and 1996.
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 that collection of principal and interest 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 to 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.
In accordance with 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," a loan is deemed impaired when, based on current
information and events, it is probable that the Company will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. These accounting standards require that the measurement of impairment
of a loan be based on either: the present value of expected future cash flows,
net of estimated costs to sell, discounted at the loan's effective interest
rate; a loan's observable market price; or the fair value of collateral, if the
loan is collateral dependent. If the measure of the impaired
27
<PAGE>
loan is less than the recorded investment in the loan, the Company 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 valuation allowance, if any, is maintained as part of the
allowance for possible loan losses. The Company's process of identifying
impaired loans is conducted as part of its review of the adequacy of the
allowance for possible loan losses.
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 allowance for possible loan losses of subsidiary banks.
Such agencies may require additions to the allowance based on their judgments of
information available to them at the time of their examinations.
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 ranging from 3-25 years. Maintenance and repairs are expensed as incurred
and additions and improvements are capitalized.
OTHER REAL ESTATE OWNED
Other real estate owned (OREO) includes loan collateral that has been formally
repossessed. These assets are transferred to OREO and recorded at the lower of
carrying cost or fair value of the properties. Subsequent provisions that result
from ongoing periodic evaluations of these OREO properties are charged to
expense in the period in which they are identified. OREO 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 periods ranging from five to ten 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).
PURCHASED MORTGAGE SERVICING RIGHTS
Purchased mortgage servicing rights are carried at the lower of amortized cost
or the discounted value (based on current interest rates) 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 uses the liability method of accounting for income taxes. 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, and all of the outstanding shares of
Westport Bancorp, Inc. (Westport) on December 13, 1996. Lafayette and Westport
established valuation allowances due to uncertainties surrounding their ability
to realize their deferred tax assets. 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
previously been combined. Accordingly, the accompanying financial statements
(including quarterly financial information in Note 21) have been restated to
reflect what the changes to the valuation allowance would have been had the
companies always been combined.
28
HUBCO, INC. ANNUAL REPORT 1997
<PAGE>
TREASURY STOCK
The Company determines the cost of treasury shares under the weighted-average
cost method.
STOCK-BASED COMPENSATION
Effective January 1, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation." This statement establishes financial accounting and
reporting standards for stock-based employee compensation plans and allows
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
elected the disclosure option of this standard. See Note 15.
TRANSFERS & SERVICING OF FINANCIAL ASSETS
Effective January 1, 1997, the Company adopted 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. Such 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. The adoption of the
standard did not have a material impact on the Company's financial position or
results of operations.
PER SHARE AMOUNTS
In the fourth quarter of 1997, the Company adopted SFAS No. 128, "Earnings per
Share." This statement establishes standards for computing and presenting
earnings per share and requires dual presentation of basic and diluted earnings
per share.
Basic earnings per 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. Diluted earnings 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 incremental
number of shares issuable from the exercise of stock options and warrants,
calculated using the treasury stock method. All per share amounts have been
retroactively adjusted for the three-for-two common stock split on January 14,
1995 and for all stock dividends. All prior annual and interim periods presented
in this report have been restated in the new format.
RECENT ACCOUNTING STANDARDS
In June, 1997, the Financial Accounting Standards Board (FASB), issued two
Statements. SFAS No. 130, "Reporting Comprehensive Income", establishes
standards for reporting and display of comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of general-purpose
financial statements. The Statement is effective for fiscal years beginning
after December 15, 1997; earlier application is permitted. The Company has
elected not to adopt this Statement prior to its effective date and has not
determined which financial statement will be utilized to display comprehensive
income. The second Statement, SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information", requires that a public business enterprise
report financial and descriptive information about its reportable operating
segments. This Statement becomes effective for fiscal years beginning after
December 15, 1997; earlier adoption is permitted. The Company has elected not to
adopt this Statement prior to its effective date.
CASH EQUIVALENTS
Cash equivalents include amounts due from banks and Federal funds sold.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 and 1995 amounts in order
to conform with 1997's presentation.
(2) BUSINESS COMBINATIONS
The following business combinations have been accounted for using the pooling of
interests method.
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 2.861 shares of the
Company's common stock, for a total of 646,981 shares. At the time of the
acquisition, Jefferson had approximately $90 million 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 2.30 shares of the Company's common
stock, for a total of 2,265,207 shares. At the time of the acquisition, Urban
had approximately $230 million in assets.
On January 12, 1996, the Company acquired all of the
29
<PAGE>
outstanding shares of Growth Financial Corp (Growth), based in Basking Ridge,
New Jersey. Each share of Growth common stock outstanding was converted into
.732 shares of the Company's common stock, for a total of 1,309,704 shares. At
the time of the acquisition, Growth had approximately $128 million 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 .624 shares
of the Company's common stock, for a total of 6,066,753 shares. At the time of
the acquisition, Lafayette had approximately $741 million in assets.
On December 13, 1996, the Company acquired all the outstanding shares of
Westport Bancorp, Inc., (Westport) based in Westport, Connecticut. Each share of
Westport common stock outstanding was converted into .3421 shares of the
Company's common stock for a total of 1,922,068 shares. Westport's convertible
preferred stock was converted into a new preferred issue with identical terms,
including equivalent dividend yield. At the time of the acquisition, Westport
had approximately $317 million in assets.
Under the pooling-of-interests method, the accompanying consolidated financial
statements include the accounts of these acquired institutions for all periods
presented.
Separate results of the combining pooled entities for the period prior to their
acquisition are as follows:
1995
- --------------------------------------------------------------------------------
Net interest income-
The Company, as previously reported $ 81,102
Growth 5,969
Lafayette 31,442
Westport 14,698
--------
$133,211
========
Net income-
The Company, as previously reported $ 23,684
Growth 198
Lafayette# (1) 6,715
Westport (1)# 3,968
--------
$ 34,565
========
(1) Represents amounts previously reported by Lafayette and Westport as restated
for certain changes in the timing of deferred tax asset valuation allowance
changes (see Note 1 Federal Income Taxes).
The following business combinations have been accounted for using the purchase
method.
On August 30, 1996, the Company acquired Hometown Bancorporation (Hometown), a
$194 million bank holding company with 2 branch locations in Fairfield County,
Connecticut, for an aggregate cash consideration of $31.6 million which was
$14.6 million in excess of the fair value of the net assets acquired. Hometown's
banking subsidiary, The Bank of Darien, was merged into Lafayette. Since this
transaction was accounted for as a purchase, Hometown's results of operations
have been included in the accompanying financial statements subsequent to August
30, 1996.
On November 29, 1996, Lafayette acquired UST Bank/ Connecticut, a subsidiary of
UST Corp, for a cash purchase price of $13.7 million which was $6.7 million in
excess of the fair value of the net assets acquired. UST Bank/Connecticut is a
$111 million commercial bank with 4 branch locations in Fairfield County,
Connecticut. Since this transaction was also accounted for as a purchase, UST
Bank/Connecticut's results of operations have been included in the accompanying
financial statements subsequent to November 29, 1996.
Pro forma results of operations have not been disclosed herein because the
Hometown and UST Bank/Connecticut business combinations were not deemed to be
significant.
Merger related and restructuring charges include payouts on existing employment
contracts, branch and operations center closings, professional services related
to the business combinations and other expenses related to the integration of
the acquired companies.
In addition, during 1996, the Company purchased 4 branches with total deposits
of $70.3 million for an aggregate premium of $3.6 million. The resulting core
deposit intangible is being amortized to expense on a straight line basis over 5
years. The Company also sold 1 branch during 1996 with deposits of $9.7 million
and recorded a gain of $622.
(3) CASH AND DUE FROM BANKS
The Company's subsidiary banks are required to maintain certain average reserve
balances as established by the Federal Reserve Board. The amount of those
reserve balances for the reserve computation period, which included December 31,
1997 was $4.2 million.
30
HUBCO, INC. ANNUAL REPORT 1997
<PAGE>
(4) SECURITIES
The amortized cost and estimated market value of securities as of December 31,
1997 and 1996 are summarized as follows (in thousands):
1997
---------------------------------------------------
Gross Unrealized Estimated
Amortized ---------------- Market
Cost Gains (Losses) Value
- --------------------------------------------------------------------------------
Available for Sale
U.S. Government $ 61,403 $ 865 $ (7) $ 62,261
U.S. Government
agencies 379,245 2,214 (1,125) 380,334
States and
political
subdivisions 8,453 40 (24) 8,469
Other debt
securities 28,890 61 (8) 28,943
Equity securities 55,079 15,419 -- 70,498
--------------------------------------------------
$ 533,070 $ 18,599 $ (1,164) $ 550,505
==================================================
Held to Maturity
U.S. Government $ 42,108 $ 546 $ -- $ 42,654
U.S. Government
agencies 185,462 2,413 (855) 187,020
--------------------------------------------------
$ 227,570 $ 2,959 $ (855) $ 229,674
==================================================
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
==================================================
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
==================================================
The amortized cost and estimated market value of debt securities at December 31,
1997, 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
(in thousands) Cost Value
- --------------------------------------------------------------------------------
Available for Sale
Due in one year or less $ 47,640 $ 47,650
Due after one year
through five years 229,139 230,821
Due after five years
through ten years 24,712 25,228
Due after ten years 23,785 23,887
-------------------------
325,276 327,586
Mortgage-backed securities 152,715 152,422
Equity securities 55,079 70,497
-------------------------
$533,070 $550,505
=========================
Held to Maturity
Due in one year or less $ 39,217 $ 39,557
Due after one year
through five years 60,911 61,349
Due after five years
through ten years 39,642 40,825
-------------------------
139,770 141,731
Mortgage-backed securities 87,800 87,943
-------------------------
$227,570 $229,674
=========================
Sales of securities for the years ended December 31 are summarized as follows
(in thousands):
1997 1996 1995
- -------------------------------------------------------------------------------
Proceeds from sales $ 115,448 $ 103,767 $ 158,446
Gross gains from sales 8,904 2,024 2,208
Gross losses from sales (410) (1,037) (1,222)
Securities with a book value of $292.1 million and $122.6 million at December
31, 1997 and 1996, respectively, are pledged to secure public funds, repurchase
agreements and for other purposes as required by law.
(5) LOANS AND THE ALLOWANCE FOR POSSIBLE LOAN LOSSES
The Company's loan portfolio is diversified with no industry comprising greater
than 10% of the total loans outstanding. Real estate loans are primarily made in
the local lending area of the subsidiary banks.
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.
31
<PAGE>
A summary of the activity in the allowance for possible loan losses is as
follows (in thousands):
1997 1996 1995
- -------------------------------------------------------------------------------
Balance at January 1 $ 35,153 $ 30,105 $ 30,958
Additions (deductions):
Provision charged
to expense 7,327 12,295 9,515
Allowance acquired through
Mergers or acquisitions 2,800 4,658 --
Recoveries on loans
previously charged off 3,646 2,316 2,711
Loans charged off (11,718) (14,221) (13,168)
Transfers from assets held
for sale or reserve for
foreclosed property losses -- -- 89
-------------------------------------
Balance at December 31 $ 37,208 $ 35,153 $ 30,105
=====================================
(6) 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.
December 31,
(in thousands) 1997 1996
- --------------------------------------------------------------------------------
Nonaccrual loans $32,404 $29,029
Renegotiated loans 1,760 2,779
-----------------------
Total nonperforming loans $34,164 $31,808
=======================
90 days or more past due and
still accruing $ 9,124 $ 8,531
=======================
Year ended December 31,
1997 1996 1995
- --------------------------------------------------------------------------------
Gross interest income which
would have been recorded
under original terms $2,946 $2,684 $2,519
--------------------------------
Gross interest income
recorded during the year $ 239 $ 367 $ 584
================================
At December 31, 1997 and 1996 impaired loans, comprised principally of
nonaccruing loans, totaled $34.2 million and $31.7 million, respectively. The
allowance for possible loan losses related to such impaired loans was $8.5
million and $6.0 million at December 31, 1997 and 1996, respectively. The
average balance of impaired loans for 1997 and 1996 was $31.6 million and $32.7
million, respectively.
(7) LOANS TO RELATED PARTIES
In the ordinary course of business, subsidiary banks have extended credit to
various directors, officers and their associates.
The aggregate loans outstanding to related parties are summarized below for the
year ended December 31, 1997 (in thousands):
Balance at January 1 $ 11,213
New loans issued 1,505
Repayment of loans (3,733)
Loans to former directors (674)
--------
Balance at December 31 $ 8,311
========
(8) PREMISES AND EQUIPMENT
The following is a summary of premises and equipment at December 31 (in
thousands):
1997 1996
- --------------------------------------------------------------------------------
Land $ 9,464 $ 8,959
Premises 40,871 41,224
Furniture, fixtures and equipment 30,432 29,468
-------------------------
80,767 79,651
Less-Accumulated depreciation (39,054) (36,141)
-------------------------
$ 41,713 $ 43,510
=========================
Depreciation and amortization expense for premises and equipment for 1997, 1996
and 1995 amounted to $5.1 million, $5.1 million and $5.0 million, respectively.
(9) INCOME TAXES
The components of the provision (benefit) for income taxes for the year ended
December 31 are as follows (in thousands):
1997 1996 1995
- --------------------------------------------------------------------------------
Federal-
Current $ 22,251 $ 13,858 $ 6,088
Deferred 3,769 (2,818) 6,539
State 5,097 559 1,887
---------------------------------------
Total provision for
income taxes $ 31,117 $ 11,599 $ 14,514
=======================================
A reconciliation of the provision for income taxes, as reported, with the
Federal income tax at the statutory rate of 35 percent for the year ended
December 31 is as follows (in thousands):
1997 1996 1995
- --------------------------------------------------------------------------------
Tax at statutory rate $ 28,151 $ 11,584 $ 17,155
Increase (decrease)
in taxes resulting from-
Tax-exempt income (194) (424) (495)
State income taxes,
net of Federal income
tax benefit 3,313 363 1,226
Reversal of reserves
no longer deemed necessary -- -- (2,076)
Change in valuation
allowance -- (1,250) (2,861)
Other, net (153) 1,326 1,565
-------------------------------------
Provision
for income taxes $ 31,117 $ 11,599 $ 14,514
=====================================
32
HUBCO, INC. ANNUAL REPORT 1997
<PAGE>
Significant components of deferred tax assets and liabilities are as follows (in
thousands):
December 31,
1997 1996 1995
- --------------------------------------------------------------------------------
Deferred Tax Assets
(Liabilities):
Allowance for possible
loan losses $ 11,302 $ 14,061 $ 10,605
Federal and state tax
operating loss carry
forwards 2,572 6,349 11,288
Director and officer
compensation plans 1,152 1,189 1,212
Purchased mortgage
servicing rights 1,046 1,067 1,140
Allowance for losses
on other real estate 676 902 826
Depreciation 1,535 1,116 503
Unrealized (gain) loss
on available for sale
securities (6,438) (2,002) (1,471)
Amortization of
intangible assets 2,003 2,692 --
Other 4,431 2,319 1,659
---------------------------------------
18,279 27,693 25,762
Valuation Allowance -- -- (1,250)
---------------------------------------
Net Deferred Tax Asset $ 18,279 $ 27,693 $ 24,512
=======================================
Management periodically evaluates the realizability of its deferred tax asset
and will adjust the level of the valuation allowance if it is deemed more likely
than not that all or a portion of the asset is realizable.
As of December 31, 1997, the Company had approximately $8.1 million and $4.6
million in Federal and state carry forwards, respectively, available for tax
reporting purposes resulting from the Lafayette business combination which are
subject to certain limitations as to the amount which may be utilized in any
given year.
(10) 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:
1997 1996 1995
- --------------------------------------------------------------------------------
Service cost - benefits
earned during the year $ 1,261 $ 1,055 $ 876
Interest cost on projected
benefit obligation 1,303 1,480 1,382
Actual return on plan assets (3,252) (2,816) (3,977)
Net amortization and deferral 1,494 1,322 2,687
----------------------------------
Net periodic pension cost $ 806 $ 1,041 $ 968
==================================
Assumptions used by the Company in the accounting for its plans in 1997, 1996
and 1995 were:
1997 1996 1995
- --------------------------------------------------------------------------------
Weighted average discount rate 6.5% 7.0%-7.75% 7.0%
Rate of increase in compensation 3.5% 4.0%-5.0% 4.0%
Expected long-term rate of
return on assets 8.0% 8.0%-8.5% 8.0%
The following table sets forth the funded status and amounts recognized in the
consolidated balance sheets at December 31 for the Company's plans:
1997 1996
- -------------------------------------------------------------------------------
Actuarial present value
of benefit obligations-
Accumulated benefit obligation,
including vested benefits of
$18,967 and $18,894 for 1997 and
1996 respectively $ 20,352 $ 19,348
=========================
Projected benefit obligation
for service rendered to date $ 21,346 $ 22,553
Plan assets at fair value 24,659 22,806
-------------------------
Projected benefit obligation
less than plan assets 3,313 253
Unrecognized portion as of
December 31, of net asset existing
at date of adoption of FASB
Statement No. 87 (234) (377)
Prior service cost not yet
recognized in net periodic
pension cost 975 1,200
Unrecognized net asset at
December 31 (2,595) (479)
-------------------------
Prepaid pension costs included
in other assets $ 1,459 $ 597
=========================
The Company has a 401 (k) savings plan covering substantially all of its
employees. Under the Plan, the Company matches varying percentages of the first
6% of the employee's contribution. The Company's contributions under this Plan
were approximately $726, $654 and $598 in 1997, 1996 and 1995, respectively.
Except for the above plans, the Company does not provide any significant
post-retirement benefits.
(11) DEPOSITS
The aggregate amount of short-term jumbo certificates of deposit, each with a
minimum denomination of $100, was approximately $126.6 million and $112.9
million in 1997 and 1996, respectively.
The scheduled maturities of certificates of deposit are as follows at December
31, 1997 (in thousands):
1998 $569,802
1999 51,544
2000 19,660
2001 7,976
2002 and thereafter 3,873
--------
$652,855
========
33
<PAGE>
(12) SHORT-TERM BORROWINGS
The following is a summary of short-term borrowings at December 31 (in
thousands):
1997 1996
- --------------------------------------------------------------------------------
Federal Home Loan Bank advances $ 92,600 $110,000
Securities sold under agreements
to repurchase 263,370 56,911
Federal funds purchased -- 17,500
Treasury, Tax and Loan note 2,542 893
Other borrowings 2,807 2,675
------------------------
Total borrowings $361,319 $187,979
========================
Information concerning securities sold under agreements to repurchase is
summarized as follows at December 31 (in thousands):
1997 1996
- -------------------------------------------------------------------------------
Average daily balance during the year $ 58,899 $ 58,734
Average interest rate during the year 3.94% 3.43%
Maximum month-end balance
during the year 263,370 97,649
Mortgage-backed securities underlying the agreements at December 31 (in
thousands):
1997 1996
- --------------------------------------------------------------------------------
Carrying value $18,531 $57,470
Estimated fair value $18,710 $57,709
(13) SUBORDINATED DEBT
In September, 1996, the Company sold $75.0 million aggregate principal amount of
subordinated debentures. The debentures, which mature in 2006, bear interest at
8.20% per annum payable semiannually. In January, 1994, the Company sold $25.0
million aggregate principal amount of subordinated debentures. The debentures,
which mature in 2004, bear interest at 7.75% per annum payable semi-annually.
(14) CAPITAL TRUST SECURITIES On January 31, 1997, the Company issued
$50.0 million in capital securities offered by HUBCO Capital Trust 1 pursuant to
Rule 144A under the Securities Act of 1933. The 8.98% capital securities
represent a preferred beneficial interest in the assets of HUBCO Capital Trust
1, a statutory business trust. This wholly-owned Trust exists for the sole
purpose of issuing the Trust Securities and investing the proceeds in 8.98%
Junior Subordinated Deferrable Interest Debentures issued by the Company which
mature on February 1, 2027. The capital securities have preference over the
common securities under certain circumstances with respect to cash distributions
and amounts payable on liquidation and are guaranteed by the Company. The $50.0
million is included in Tier I capital for regulatory purposes, subject to
certain limitations, but is classified as long-term debt for financial reporting
purposes.
(15) STOCKHOLDERS' EQUITY
On October 13, 1994, the Company announced that its Board of Directors had
approved a 3-for-2 stock split effective January 14,1995 to record holders of
HUBCO Common Stock on January 3, 1995. On November 15, 1996, the Company paid a
3% stock dividend to stockholders of record on November 4, 1996. On December 1,
1997, the Company paid a 3% stock dividend to stockholders of record on November
13, 1997. As a result, all share data has been retroactively restated.
In December, 1996, as part of the Westport acquisition, the Company converted
all outstanding preferred shares of Westport into a new class of preferred
stock. Holders of the preferred stock are entitled to dividends when and if
declared by the Company's Board of Directors. Each share of the preferred stock
is convertible at any time at the option of the holder thereof into 33.2175
shares of common stock, subject to certain adjustments. Each share is entitled
to 33.2175 votes.
In July, 1996, as part of the Lafayette acquisition, the Company converted all
outstanding Lafayette warrants into HUBCO warrants. Each HUBCO warrant is
exercisable at $7.06 for one share of HUBCO common stock. The warrants are
exercisable at the option of the holder, until February 1999 at which time the
warrants expire. During 1997, 2,605 warrants were exercised resulting in 33,285
outstanding warrants as of December 31, 1997.
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 of Option Price
Shares Per Share
- --------------------------------------------------------------------------------
Outstanding,
December 31, 1995 484,301 $12.09-$19.80
Granted 20,157 $19.45-$20.26
Exercised (76,544) $ 4.02-$12.46
Westport options converted 316,227 $ 5.84-$17.53
---------------------------------
Outstanding,
December 31, 1996 744,141 $ 5.84-$20.26
---------------------------------
Granted 150,978 $23.79-$33.81
Exercised (376,078) $ 5.84-$17.53
Forfeited (21,219) $ 16.49
---------------------------------
Outstanding,
December 31, 1997 497,822 $ 5.84-$33.81
=================================
34
HUBCO, INC. ANNUAL REPORT 1997
<PAGE>
As of December 31, 1997, 297,558 shares are exercisable. 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.
The Company applies APB Opinion 25 and related Interpretations in accounting for
its plan. Accordingly, no compensation cost has been recognized. Had
compensation cost been determined based on the fair value at the grant dates for
awards under those plans consistent with the method of SFAS No.123, the
Company's net income and income per share would have been reduced to the
proforma amounts indicated below.
1997 1996
- --------------------------------------------------------------------------------
Net income As reported $49,314 $ 21,497
Pro forma 48,380 21,421
Basic earnings
per share As reported $ 2.20 $ 0.91
Pro forma 2.15 0.91
Diluted earnings
per share As reported $ 2.10 $ 0.88
Pro forma 2.06 0.88
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions used for 1997
and 1996: dividend yield of 2.37% to 3.36% for 1997 and 4.00% for 1996;
risk-free interest rates of 5.90% to 6.73% for 1997 and 5.64% to 6.84% for 1996;
volatility factors of the expected market price of the Company's common stock of
approximately 29%; and expected life of 7 years.
The Company has a restricted stock plan in which 510,000 shares of the Company's
common stock may be granted to officers and key employees. During 1997 and 1996,
16,686 and 4,880 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 ($444) and ($279) has been recorded as a reduction of stockholders'
equity for 1997 and 1996, respectively. Amortization of restricted stock awards
charged to expense amounted to $135, $423 and $455 in 1997, 1996 and 1995,
respectively.
On November 8, 1993, the Company's Board of Directors authorized management to
repurchase up to 10 percent of its outstanding common stock each year. The
program may be discontinued or suspended at any time, and there is no assurance
that the Company will purchase the full amount authorized. The acquired shares
are to be held in treasury to be used for stock option and other employee
benefit plans, stock dividends, preferred stock conversion or in connection with
the issuance of common stock in pending or future acquisitions. During 1997, the
Company purchased 2.0 million shares at an aggregate cost of $62.3 million. All
of these shares were reissued during 1997, primarily in connection with the
conversion of preferred stock to common stock, the 3% stock dividend and the
exercise of stock options.
Deferred compensation arrangements have been established for certain members of
management. Lafayette had a deferred compensation plan for certain directors at
acquisition which did not carry forward for new Board 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 1997, 1996 and 1995 was
$260, $241 and $80, respectively.
(16) EARNINGS PER SHARE
In the fourth quarter of 1997, the Company adopted SFAS No. 128, "Earnings per
Share." This statement establishes standards for computing and presenting
earnings per share and requires dual presentation of basic and diluted earnings
per share. A reconciliation of net income to net income available to common
stockholders and of weighted average common shares outstanding to weighted
average common shares outstanding assuming dilution follows (in thousands,
except per share data):
Year Ended December 31,
- --------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------
Basic Earnings Per Share
Net Income $49,314 $21,497 $34,565
Less: Preferred stock
dividends 650 825 901
---------------------------------
Net income available to
common stockholders $48,664 $20,672 $33,664
Weighted average common
shares outstanding 22,157 22,508 22,127
Basic Earnings per Share $ 2.20 $ 0.91 $ 1.52
=================================
Diluted Earnings Per Share
Net Income $49,314 $21,497 $34,565
Weighted average common
shares outstanding 22,157 22,508 22,127
Effect of Dilutive Securities:
Convertible
Preferred Stock 979 1,315 1,425
Warrants 26 36 142
Stock Options 281 450 511
---------------------------------
23,443 24,309 24,205
Diluted Earnings per Share $ 2.10 $ 0.88 $ 1.43
=================================
35
<PAGE>
(17) RESTRICTIONS ON BANK DIVIDENDS, LOANS OR ADVANCES
Certain restrictions exist regarding the ability of Hudson United Bank and
Lafayette 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, 1997, $118.9 million
was available for distribution to the Company from Hudson United and $11.7
million was available for distribution to the Company from Lafayette.
Under Federal Reserve regulations, each of the Banks is 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 $4.0 million in order to finance the
purchase of its administrative facility. The loan has been collateralized by the
property.
(18) LEASES
Total rental expense for all leases amounted to approximately $4.3 million, $5.2
million and, $4.7 million in 1997, 1996 and 1995, respectively.
At December 31, 1997, the minimum total rental commitments under all
noncancelable leases on bank premises with initial or remaining terms of more
than one year were as follows (in thousands):
1998 $3,170
1999 3,066
2000 2,887
2001 2,302
2002 and Thereafter 11,575
It is expected that in the normal course of business, leases that expire will be
renewed or replaced by leases of other properties.
(19) COMMITMENTS AND CONTINGENT LIABILITIES
The Company and its subsidiaries, from time to time, may be defendants in legal
proceedings. In the opinion of management, based upon consultation with legal
counsel, the ultimate resolution of these legal proceedings will not have a
material effect on the consolidated financial statements. In the normal course
of business, the Company and its subsidiaries have various commitments and
contingent liabilities such as commitments to extend credit, letters of credit
and liability for assets held in trust which are not reflected in the
accompanying financial statements. Loan commitments, 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, 1997 was $675.7 million and $22.0 million,
respectively. Commitments under commercial letters of credit used to facilitate
customers trade transactions were $1.8 million at December 31, 1997.
36
HUBCO, INC. ANNUAL REPORT 1997
<PAGE>
(20) HUBCO, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION
<TABLE>
<CAPTION>
(in thousands) December 31,
-------------------
BALANCE SHEETS 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash $ 12,965 $ 12,092
Securities-
Available for sale 56,014 43,130
Held to maturity 803 1,307
Investment in subsidiaries 250,292 236,639
Accounts receivable 8,736 334
Premises and equipment, net 5,955 5,541
Other assets 16,779 15,400
-------------------
TOTAL ASSETS $351,544 $314,443
===================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable $ 4,686 $ 251
Notes payable-subsidiary 2,822 3,194
Accrued taxes and other liabilities 7,896 4,665
-------------------
TOTAL LIABILITIES 15,404 8,110
===================
Subordinated Debt 100,000 100,000
Company-obligated mandatorily redeemable
Preferred Series B Capital Securities of a subsidiary
trust holding solely junior subordinated debentures
of the Company 50,000 --
Stockholders' equity 186,140 206,333
-------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $351,544 $314,443
===================
</TABLE>
<TABLE>
<CAPTION>
(in thousands) Year Ended December 31
--------------------------------
STATEMENTS OF INCOME 1997 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Cash dividends from bank subsidiaries $ 38,360 $ 49,041 $ 17,908
Interest 6,213 1,218 873
Securities gains 8,601 1,063 813
Rental income 1,165 1,093 1,714
Other 9,956 -- 748
--------------------------------
64,295 52,415 22,056
Expenses:
General and administrative 16,626 3,482 1,729
Interest 12,645 4,147 2,420
--------------------------------
29,271 7,629 4,149
--------------------------------
Income before income tax provision (benefit) and equity in
undistributed net income (loss) of subsidiaries 35,024 44,786 17,907
Income tax provision (benefit) (1,503) (1,453) 46
--------------------------------
36,527 46,239 17,861
Equity in undistributed net income (loss) of subsidiaries 12,787 (24,742) 16,704
--------------------------------
NET INCOME $ 49,314 $ 21,497 $ 34,565
================================
</TABLE>
37
<PAGE>
(20) HUBCO, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
(in thousands) Year Ended December 31,
--------------------------------
STATEMENTS OF CASH FLOWS 1997 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $ 49,314 $ 21,497 $ 34,565
Adjustments to reconcile net income to net cash
provided by (used in) operating activities-
Provision for depreciation 475 331 186
Amortization of restricted stock 135 424 455
Securities gains (8,601) (1,063) (813)
Gain on sale of interest in subsidiary -- -- (817)
Increase in investment in subsidiaries (12,787) (30,601) (22,380)
(increase) Decrease in accounts receivable (1,764) 7,238 (6,451)
Increase in other assets (1,399) (5,217) (6,116)
Decrease in notes payable (372) (372) (372)
Decrease (increase) in accounts payable 4.435 (517) 121
(Decrease) Increase in accrued taxes and other liabilities (7.732) 2,576 245
--------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 21,704 (5,704) (1,377)
--------------------------------
Investing activities:
Proceeds from sale of securities 78,174 11,742 18,909
Proceeds from maturities of securities 19,888 1,444 196
Purchase of securities (90,812) (42,284) (5,191)
Net decrease in loans -- 426 68
Capital expenditures (414) (272) (1,116)
--------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 6,836 (28,944) 12,866
--------------------------------
Financing activities:
Proceeds from sale of interest in subsidiary -- -- 4,215
Proceeds from issuance of common stock 2,562 907 2,100
Net proceed from issuance of capital trust securities 49,250 -- --
Net Proceeds from issuance of subordinated debt -- 73,738 --
Dividends paid (17,188) (15,425) (9,446)
Redemption of convertible preferred stock -- -- (2,481)
Purchase of treasury stock (62,338) (19,770) (4,956)
Other 47 2,442 41
--------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (27,667) 41,892 (10,527)
--------------------------------
INCREASE IN CASH 873 7,244 962
CASH AT BEGINNING OF YEAR 12,092 4,848 3,886
--------------------------------
CASH AT END OF YEAR $ 12,965 $ 12,092 $ 4,848
================================
</TABLE>
38
HUBCO, INC. ANNUAL REPORT 1997
<PAGE>
(21) SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following quarterly financial information for the two years ended December
31, 1997 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.
<TABLE>
<CAPTION>
Three Months Ended
- ----------------------------------------------------------------------------------------------------------------
(Dollars in thousands) March 31 June 30 September 30 (a) December 31 (a)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
Net interest income $34,224 $36,216 $36,037 $33,767
Provision for possible loan losses 1,481 1,621 1,925 2,300
Income before income taxes 18,534 20,165 21,579 20,153
Net income 11,484 12,041 12,893 12,896
Net income per share-basic 0.51 0.53 0.57 0.59
Net income per share-diluted 0.48 0.51 0.54 0.57
1996
Net interest income $32,318 $32,693 $32,431 $33,912
Provision for possible loan losses 2,253 2,743 1,679 5,620
Income before income taxes 13,512 12,658 3,075 3,851
Net income 8,317 7,732 1,988 3,460
Net income per share-basic 0.36 0.33 0.08 0.14
Net income per share-diluted 0.34 0.32 0.08 0.14
</TABLE>
(A) Net income and related per share amounts for these periods in 1996 were
significantly impacted by merger related and restructuring costs resulting from
the acquisitions of Lafayette and Westport (see Note 2) that were completed in
the third quarter and fourth quarter, respectively.
(22) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments 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,
1997 and 1996 were as follows:
Cash and cash equivalents include cash and due from bank balances and Federal
funds sold. 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>
1997 1996
Estimated Recorded Estimated Recorded
(In thousands) Fair Value Book Value Fair Value Book Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $385,096 $385,096 $153,068 $153,068
Securities 780,179 778,075 935,102 936,406
</TABLE>
The Company aggregated loans into pools having similar characteristics when
comparing their terms, contractual rates, type of collateral, risk profile and
other pertinent loan characteristics. Since no active market exists for these
pools, fair values were estimated using the present value of future cash flows
expected to be received. Loan rates currently offered by the Bank were used in
determining the appropriate discount rate.
39
<PAGE>
<TABLE>
<CAPTION>
1997 1996
Estimated Recorded Estimated Recorded
(In thousands) Fair Value Book Value Fair Value Book Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loans, net of allowance $1,746,664 $1,736,598 $1,881,553 $1,849,202
</TABLE>
The fair value of demand deposits, savings deposits and certain money market
accounts approximate their recorded book balances. The fair value of fixed
maturity certificates of deposit was estimated using the present value of
discounted cash flows based on rates currently offered for deposits of similar
remaining maturities.
<TABLE>
<CAPTION>
1997 1996
Estimated Recorded Estimated Recorded
(In thousands) Fair Value Book Value Fair Value Book Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deposits $2,314,707 $2,314,399 $2,594,386 $2,592,092
</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>
1997 1996
Estimated Recorded Estimated Recorded
(In thousands) Fair Value Book Value Fair Value Book Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Accrued interest receivable $21,416 $21,416 $33,204 $33,204
Cash surrender value of life insurance 10,968 10,968 9,959 9,959
Short-term borrowings 361,319 361,319 187,979 187,979
</TABLE>
The fair value of the subordinated debt and capital trust securities were
determined by reference to quoted market prices.
<TABLE>
<CAPTION>
1997 1996
Estimated Recorded Estimated Recorded
(In thousands) Fair Value Book Value Fair Value Book Value
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Subordinated Debt $106,733 $100,000 $103,475 $100,000
Capital Trust Securities 54,934 50,000 -- --
</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.
40
HUBCO, INC. ANNUAL REPORT 1997
<PAGE>
(23) REGULATORY MATTERS
The Company and its subsidiary banks are subject to various regulatory capital
requirements administered by federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company and its subsidiary banks must meet specific capital guidelines that
involve quantitative measures of assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices.
Capital amounts and classification are also subject to qualitative judgements by
the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require each of the Banks to maintain minimum amounts and ratios of total and
Tier I capital (as defined in the regulations) to risk-weighted assets (as
defined), and of Tier I capital (as defined) to average assets (as defined).
Management believes, as of December 31, 1997, that the Company and its
subsidiary banks meet all capital adequacy requirements to which they are
subject.
The Bank's actual capital amounts and ratios are presented in the following
table:
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
- -------------------------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Capital to Risk Weighted Assets:
HUBCO $325,967 16.6% $156,862 >8.0% $196,077 >10.0%
Hudson United Bank 141,171 12.5% 90,168 >8.0% 112,710 >10.0%
Lafayette American Bank 107,569 13.7% 62,996 >8.0% 78,745 >10.0%
Tier I Capital to Risk Weighted Assets:
HUBCO 201,301 10.3% 78,431 >4.0% 117,646 >6.0%
Hudson United Bank 127,030 11.3% 45,084 >4.0% 67,626 >6.0%
Lafayette American Bank 97,614 12.4% 31,498 >4.0% 47,247 >6.0%
Tier I Capital to Average Assets:
HUBCO 201,301 7.1% 113,484 >4.0% 141,855 >5.0%
Hudson United Bank 127,030 7.8% 65,302 >4.0% 81,627 >5.0%
Lafayette American Bank 97,614 8.4% 46,377 >4.0% 57,971 >5.0%
</TABLE>
[PHOTO}
41
<PAGE>
(24) SUBSEQUENT EVENTS
On October 23, 1997, the Company and Poughkeepsie Financial Corp. (PFC)
announced the signing of a definitive merger agreement. Under the terms of the
agreement PFC will merge into HUBCO and PFC's subsidiary bank, Bank of the
Hudson, a $880 million institution headquartered in Poughkeepsie, New York will
be established as a separate New York banking subsidiary of HUBCO. Bank of the
Hudson has 16 branches in Rockland, Orange and Dutchess Counties in New York.
On December 16, 1997, the Company and MSB Bancorp, Inc. (MSB) announced the
signing of a definitive merger agreement. Under the terms of the agreement, MSB
will be merged into HUBCO and MSB's subsidiary bank, MSB Bank will be merged
into Bank of the Hudson, HUBCO's New York subsidiary following the PFC
acquisition. MSB Bank is a $774 million institution headquartered in Goshen, New
York and operates 16 branches in Orange, Putnam and Sullivan Counties in New
York.
On January 8, 1998, the Company acquired The Bank of Southington (Southington)
and merged it into Lafayette American Bank. Southington is a $135 million bank
with 3 branch locations, headquartered in Southington, Connecticut. The merger
was treated as a pooling-of-interests for accounting purposes. Since this
acquisition was closed subsequent to December 31, 1997, the financial statements
for periods prior to the merger have not been restated to include Southington or
its results of operations.
On February 5, 1998, the Company acquired Security National Bank & Trust Company
of New Jersey (Security National) and merged Security National into Hudson.
Security National is an $86 million bank and trust company headquartered in
Newark, New Jersey with 4 branches in Nutley, Kearny and Newark, New Jersey. The
merger was accounted for under the purchase method of accounting.
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, 1997 and 1996, 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,
1997. 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 conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of HUBCO, Inc. and subsidiaries as
of December 31, 1997 and 1996, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Roseland, New Jersey
January 10, 1998
42
HUBCO, INC. ANNUAL REPORT 1997
<PAGE>
MARKET AND DIVIDEND INFORMATION
HUBCO, Inc. is traded on the NASDAQ National Market under the symbol of HUBC. At
year end, there were approximately 3,588 common stockholders of record. The
following table sets forth by quarter the high and low closing sale price for
HUBCO, Inc. common stock and dividend information per common share:
QUARTERLY COMMON STOCK AND DIVIDEND INFORMATION
(restated to give retroactive effect to stock dividends)
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------------------------------------------------------
Cash Cash
Quarter Ending High Low Dividends High Low Dividends
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
March 31 $ 25.85 $ 21.84 $ 0.184 $ 21.33 $ 18.32 $ 0.160
June 30 $ 28.52 $ 21.12 $ 0.184 $ 20.50 $ 17.32 $ 0.160
September 30 $ 32.04 $ 26.94 $ 0.184 $ 20.39 $ 18.61 $ 0.160
December 31 $ 39.13 $ 30.94 $ 0.200 $ 24.15 $ 19.56 $ 0.184
</TABLE>
HUBCO, Inc. will provide, free of charge, to any stockholders, upon written
request, a copy of the Corporation's Annual Report on Form 1O-K, including the
financial statements and schedules which have been filed with the Securities &
Exchange Commission. Requests should be addressed to D. Lynn Van Borkulo-Nuzzo,
Corporate Secretary, HUBCO, Inc., 1000 MacArthur Blvd., Mahwah, New Jersey,
07430.
Duplicate accounts and mailings are costly and often unnecessary. We can
consolidate such accounts upon written request if you will notify either the
Corporate Secretary at the above address or Carolyn B. O'Neill, American Stock
Transfer and Trust Company, 40 Wall Street, New York, NY 10269.
DIVIDEND REINVESTMENT PLAN
If you are not enrolled in the Corporation's Dividend Reinvestment Plan and
would like to join the plan, you may obtain information by writing to the
Corporate Secretary at the above address.
43
<PAGE>
<TABLE>
<CAPTION>
HUBCO, INC. & SUBSIDIARIES
HUBCO, INC
BOARD OF DIRECTORS
<S> <C> <C>
KENNETH T. NEILSON BRYANT D. MALCOLM SISTER GRACE FRANCES STRAUBER
Chairman, President & CEO, President, Malcolm o Brooker Company, Inc. Chairperson, Franciscan Health
HUBCO, Inc. & Care System of New Jersey
Hudson United Bank W. PETER MCBRIDE
President, JOHN H. TATIGIAN, JR.
ROBERT J. BURKE McBride Enterprises, Inc. Senior Vice President,
President, Peter Paul-Hershey
Union Dry Dock & Repair Co. CHARLES F.X. POGGI
President, The Poggi Press
DONALD P. CALCAGNINI Chairman, Lafayette
American Bank DAVID A. ROSOW
Chairman, Rosow and Co., Inc.
JOAN DAVID
Educator JAMES E. SCHIERLOH
Chairman Emeritus
THOMAS R. FARLEY, Esq.
Retired
HUBCO, INC. HUDSON UNITED BANK LAFAYETTE AMERICAN BANK
EXECUTIVE OFFICERS BOARD OF DIRECTORS BOARD OF DIRECTORS
KENNETH T. NEILSON KENNETH T. NEILSON DONALD P. CALCAGNINI
Chairman, President & CEO Chairman Chairman
D. LYNN VAN BORKULO-NUZZO, ESQ. ROBERT J. BURKE PAUL C. KREUCH, JR.
Executive Vice President & President &
Corporate Secretary JOAN DAVID Chief Executive Officer
A. ROGER BOSMA THOMAS R. FARLEY, ESQ. WILLIAM A. BRENNAN
Executive Vice President BRYANT D. MALCOM ROMAN F. GARBACIK, ESQ.
JOSEPH F. HURLEY W. PETER MCBRIDE GARY R. GINSBERG, ESQ.
Executive Vice President &
Chief Financial Officer EMILIO A. PELAEZ, JR. DONALD W. HARRISON
JOHN F. MCILWAIN JOSEPH PFEIFER JOHN F. MCILWAIN
Executive Vice President &
Chief Credit Officer CHARLES F.X. POGGI RODERICK C. MCNEIL, III
THOMAS R. NELSON JAMES E. SCHIERLOH DOUGLAS D. MILNE, III
Executive Vice President,
Chief Operating Officer, HUBCO SISTER GRACE FRANCES STRAUBER ENZO R. MONTESI
President, Shoppers Charge Accounts, Co.
JOSEPH A. TIGHE, JR. KENNETH T. NEILSON
THOMAS J. SHARA
Executive Vice President D. LYNN VAN BORKULO-NUZZO
MARGARET WARIANKA LEIF H. OLSEN
First Senior Vice President & Auditor
DAVID A. ROSOW
CHRIS A. WITKOWSKI
Senior Vice President & Controller WILLIAM D. RUECKERT
LOUIS F. TAGLIATELA, SR.
JOHN H. TATIGIAN, JR.
</TABLE>
44
HUBCO, INC. ANNUAL REPORT 1997
<PAGE>
<TABLE>
<CAPTION>
ADVISORY COUNCIL MEMBERS
HUDSON UNITED BANK LAFAYETTE AMERICAN BANK
Branch Advisory Boards
<S> <C> <C>
BERGEN COUNTY BRIDGEPORT FAIRFIELD
Carl Dell'Olio Barnum Avenue Black Rock
Harold J. Galenkamp, Jr. Victor Darish Edward Grella
Richard Lane Salvatore C. DePiano, Atty Albert Kleban
Frank Leanza, Esq. Arnold Fagan George Lipton, CPA
Steven Sklow William S. Miko, Jr. Dennis Magid
Bernard Stubovsky, CPA James F. Morton Judith Meshken
Steven Sy Sen. Alvin W. Penn Lawrence Roberts
Stephen Thompson Dr. Frank J. Riccio Dr. Salvatore Santella
Gerald H. Werdann, CPA George Tuoti
LAFAYETTE BOULEVARD David L. Williams
ESSEX AND MORRIS
COUNTIES Alfred Belinkie, Atty POST ROAD
Dr. Robert Caserta
Dominick Celentano Raymond Heche, Atty Richard Becker
Charles Cummins Dr. John R. King Michael Dailey
Barry Mandelbaum, Esq. Alfred Lenoci Evelyn Kossak
Thomas Maoli James Melko, Sr. Dr. Colman Lopatin
Barbara Miskiv, CPA Dennis A. Miko Paul F. Miller
James Mortenson, CPA Donald Sherman Joseph W. Rocco, Jr.
Stuart A. Rosenblatt, CPA Matthew Vetro Harris Russell
Jack Welch Dr. Robert D. Russo, Jr.
NORTH END
HUDSON COUNTY HAMDEN
Joan Benedetto
Rene Abreu Domenic DiCamillo Hoyte Brown
Joseph Baldomero, CPA Anthony Julian, Jr. Samuel A. Burrell, Jr.
Michael Barry Raymond Julian Douglas L. Calcagni
Louis DeFalco, CPA Benjamin Levin Steven P. Ciardiello, Atty
Stewart Farber, CPA Harold Levy Louis A. Follis
George Filosa Samuel Liskov, Atty Howard Goldfarb
Ernesto Garcia Madeline Ripley William H. Hume
Herman Hockmeyer Stuart Schloss Louis E. Naclerio
Helga Licardo John Scianna Robert Paolella, Sr.
Bruce J. Markowitz Zoltan Tuba Thomas Piscitelli
Antonio Pelaez, Sr. Emanuel Zimmer A. David Roth
Chris Wolf Dr. Milton B. Wallack, DDS
CHESHIRE Robert White
PASSAIC COUNTY
Joseph F. Barba, Jr. MERIDEN
William Book Edward Bowman, Jr.
Vincent Citarelli Steven J. Calcagni Vincent A. Amato
John Demetrius, CPA Paul Camerato John J. Biafore
George Homcy Andrew Coleman, Atty Richard J. Carabetta, CPA
Kenneth Rose, Esq. James Dacunto Guy R. DeFrances, Atty
Joseph DeLucia Glenna B. Grelak
Anthony Fazzone, Atty Allan M. Solomon, Atty
James Fazzone George B. Wilkinson, Jr.
Marsha Guarnieri John A. Zima
Beverly Hilzinger
William L. Warner
</TABLE>
45
<PAGE>
ADVISORY COUNCIL MEMBERS
<TABLE>
<CAPTION>
LAFAYETTE AMERICAN BANK
Branch Advisory Boards (Continued)
<S> <C> <C>
MIDDLEFIELD STRATFORD WESTPORT/NORWALK
BIRCHWOOD CORNERS/NORWALK
Vincent J. Bitel, Jr. Kurt M. Ahlberg, Atty
Walter J. Douglass Robert Berkowitz Irving Avrick
Edward G. Lang, Atty John Bigley, Atty Sally Bolster
Richard K. Otte Martin S. Burger Leo S. Field
Frank R. Petrucci Thomas W. Curran, Sr. Clay H. Fowler
Layne Xenelis Richard Gentile B.J. Frazier
John E. Hampford Paul L. Jones
NEW HAVEN Paul J. Louloudes Charles Marshall
Frank J. Riccio, Atty Sherman Siegel
F. Vining Bigelow Thomas J. Rosati, Atty Robert J. Virgulak
Francis P. Barberio, Atty Frank Zullo, Atty
Michael Fezza, MD TRUMBULL
John W. Hogan, Jr., Atty WESTPORT REGIONAL
Hon. John A. Keyes Robert Malin S. Robert Breitbarth
Morris Klein, CPA Raymond Rizio, Atty Lawrence I. Brown
Walter Nester, Jr. Anthony H. Salce Anita Caggiano
Joseph Paolella Paul Timpanelli Thomas W. Curran, Sr.
Harry Seymon William Wadman Arthur Dinitz
Mark G. Sklarz, Atty Alvin J. Epstein
Harry Torello WEST HAVEN John F. Farrell
John Turner, Atty Deborah Foehr
F. Perry Wilson, Jr. Ceasar Anquillare, CPA Martha S. Hauhuth
John Apicella Sandra K. Kincaid
NORTH HAVEN Carroll E. Brown Roger J. Leifer, Atty
Raymond J. Conniff Frederic W. Levin
Gary Benzel Robert A. Costanzo Susan L. Neville
Eugene CoFrancesco Salvatore Esposito James A. Randel, Atty
Hon. Albert W. Cretella, Jr. Gloria Ireland Elizabeth Reese
Sandra Cummings Chief William S. Johnson Arthur Sachs
Robert S. Fers, Jr. Paul Kurowski Richard S. Seclow
Alfonso Jannotta Thomas O. Malec, Atty John E. Watson III
Elizabeth LaBonia James Shanbrom
Lawrence T. McKevitt, Jr. Michael R. Shiner
Victor A. Muzio
Anthony Papa
Emilio Parese
Frank Pullano
</TABLE>
[PHOTO]
46
HUBCO, INC. ANNUAL REPORT 1997
<PAGE>
<TABLE>
<CAPTION>
BRANCH LOCATIONS
HUDSON UNITED BANK LAFAYETTE AMERICAN BANK
<S> <C> <C> <C> <C>
BERGEN COUNTY ESSEX COUNTY MORRIS COUNTY FAIRFIELD COUNTY NEW HAVEN COUNTY
Bergenfield Cedar Grove Mendham Bridgeport Cheshire
95 No. Washington Ave.* 85-107 Pompton Ave.* 29 E. Main Street* 1649 Barnum Ave. 1699 Highland Ave.*
509A S. Washington Ave.* 630 Brooklawn Ave.*
Fairfield Morris Township 1000 Lafayette Blvd.* Hamden
Cliffside Park 280 Passaic Ave.* Convent Station 975 Madison Ave.* 1225 Dixwell Ave.
732 Anderson Ave.* 221 Madison Ave.* 2992 Dixwell Ave.*
354 Palisade Ave. Montclair Darien 20 West Ave.* 555 New Road*
733 Palisade Ave.* 536 Bloomfield Ave.* Morristown
32 Speedwell Ave.* Fairfield Meriden
Fairview Newark 1838 Black Rock Tpke 30 E. Main Street
410 Fairview Ave. 155 Halsey Street PASSAIC COUNTY 1643 Post Road*
New Haven
Franklin Lakes Nutley Clifton Greens Farms 2 Whitney Ave.
807 Franklin Ave. 213 Harrison Street* 295 Clifton Ave.* 1111 Post Road East*
805 Franklin Lake Rd.* 433 Kingsland Street 309 Lakeview Ave. North Haven
985 Paulison Ave.* Norwalk 2 Broadway Square
Glen Rock Roseland 184 Main Street*
193 Rock Road* 103 Eisenhower Pkwy.* West Haven
Little Falls Redding 636 Campbell Ave.
Hackensack Upper Montclair 70 Main Street 60 Redding Road*
341 Essex Street* 604 Valley Road* MIDDLESEX COUNTY
North Haledon Shelton
Haledon West Orange 530 High Mountain Rd.* 675 Bridgeport Ave.* Middlefield
418 Belmont Ave.* 455 Prospect Ave.* 44 Huntington Plaza* 500 Main Street
Paterson
Lyndhurst Hudson County 100 Hamilton Plaza Stratford
425 Valley Brook Ave. 330 21st Ave.* 951 Stratford Ave.
Guttenberg 399 Union Ave.
Mahwah 6812 Park Ave. Trumbull
195 Franklin Tpke.* Passaic 5065 Main Street*
Hoboken 155 Jefferson Street 925 White Plains Road
Maywood 60-68 14th Street*
25 West Pleasant Ave. 101 Washington Street* Pompton Lakes Weston
609 Washington Street* 22 Lakeside Ave.* 190 Weston Road*
Montvale Westport
149 Kinderkamack Rd. Kearny 102 Ringwood 420 Post Road West
Passaic Ave.* 145 Skyline Drive* 50 Charles Street*
Ramsey 87 Post Road East*
245 E. Main Street North Bergen Totowa
4223 Bergen Tpke. 361 Union Ave.* HARTFORD COUNTY
Ridgefield Park 7815 Kennedy Blvd.*
240-244 Main Street Wayne Bristol
Union City 2055 Hamburg Tpke.* 414 Broad Street*
Wallington 3100 Bergenline Ave.+ 641 Farmington Ave.*
357 Paterson Ave.* 4312 Bergenline Ave.+ SOMERSET COUNTY
800 Summit Ave.+ Southington
Wyckoff Basking Ridge 130 N. Main Street*
690 Wyckoff Ave.* Weehawken 1500 Route 202*
4200 Park Ave.
Bernardsville
West New York 50 Minebrook Road*
6137 Bergenline Ave.+
UNION COUNTY
MIDDLESEX COUNTY
Rahway
Fords 1525 Irving Street*
848 King George Road*
Dunellen
324 North Ave.*
</TABLE>
* Branch Has ATM Locations
+ English/Spanish ATM Locations
<PAGE>
1997
[GRAPHIC]
annual report
[LOGO]
HUBCO, INC., 1000 MACARTHUR BOULEVARD, MAHWAH, NEW JERSEY 07430
LIST OF SUBSIDIARIES
SUBSIDIARIES OF HUBCO, INC.:
Hudson United Bank, organized under the banking laws of the State of New Jersey.
Lafayette American Bank and Trust, organized under the banking laws of the State
of Connecticut.
SUBSIDIARIES OF HUDSON UNITED BANK:
Hendrick Hudson Corp. of New Jersey, organized under the New Jersey Business
Corporation Act.
Lafayette Development Corp., organized under the New Jersey Business
Corporation Act.
JNB Holdings, Inc. Organized under the New Jersey Business Corporation Act.
UNB Holdings, Inc. Organized under the New Jersey Business Corporation Act.
HUB Financial Services, Inc., organized under the New Jersey Business
Corporation Act.
HUB Mortgage Investments, Inc., organized under the New Jersey Business
Corporation Act.
SUBSIDIARIES OF LAFAYETTE AMERICAN BANK AND TRUST:
AMBA Realty Corporation, organized under the Connecticut Business Laws.
AMBA II Realty Corporation, organized under the Connecticut Business Laws.
LAI Company, organized under the Connecticut Business Laws.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 167,096
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 218,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 550,505
<INVESTMENTS-CARRYING> 227,570
<INVESTMENTS-MARKET> 229,674
<LOANS> 1,773,806
<ALLOWANCE> 37,208
<TOTAL-ASSETS> 3,046,505
<DEPOSITS> 2,314,399
<SHORT-TERM> 361,319
<LIABILITIES-OTHER> 34,647
<LONG-TERM> 150,000
0
125
<COMMON> 38,959
<OTHER-SE> 147,056
<TOTAL-LIABILITIES-AND-EQUITY> 3,046,505
<INTEREST-LOAN> 160,107
<INTEREST-INVEST> 56,709
<INTEREST-OTHER> 1,225
<INTEREST-TOTAL> 218,041
<INTEREST-DEPOSIT> 53,855
<INTEREST-EXPENSE> 77,797
<INTEREST-INCOME-NET> 140,244
<LOAN-LOSSES> 7,327
<SECURITIES-GAINS> 8,494
<EXPENSE-OTHER> 93,593
<INCOME-PRETAX> 80,431
<INCOME-PRE-EXTRAORDINARY> 80,431
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 49,314
<EPS-PRIMARY> 2.20
<EPS-DILUTED> 2.10
<YIELD-ACTUAL> 5.20
<LOANS-NON> 32,404
<LOANS-PAST> 9,124
<LOANS-TROUBLED> 1,760
<LOANS-PROBLEM> 43,288
<ALLOWANCE-OPEN> 35,153
<CHARGE-OFFS> 11,718
<RECOVERIES> 3,646
<ALLOWANCE-CLOSE> 37,208
<ALLOWANCE-DOMESTIC> 37,208
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 12,035
</TABLE>
