================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO __________________
COMMISSION FILE NUMBER 0-010699
HUBCO, INC.
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW JERSEY 22-2405746
- ------------------------------- ---------------------------------------
(STATE OF OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
1000 MACARTHUR BLVD, MAHWAH, NJ 07430
- --------------------------------------- ----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
(201)-236-2600
----------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
----------------------------------------------------
FORMER NAME, FORMER ADDRESS, AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT.
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [_]
APPLICABLE ONLY TO CORPORATE ISSUERS:
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH, OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LAST PRACTICABLE DATE: 26,153,951 SHARES, NO PAR VALUE,
OUTSTANDING AS OF MAY 12, 1998.
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Consolidated Balance Sheets
At March 31, 1998 and December 31, 1997...................... 1
Consolidated Statements of Income and Comprehensive Income
For the three-months ended
March 31, 1998 and 1997...................................... 2
Consolidated Statements of Changes in Stockholders' Equity
For the three months ended
March 31, 1998 and for the Year ended December 31, 1997...... 3
Consolidated Statements of Cash Flows
For the three-months ended
March 31, 1998 and 1997...................................... 4
Notes to Consolidated Financial Statements................... 5-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................ 9-12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................. 13-14
Signatures................................................... 15
PART III. FINANCIAL DATA SCHEDULE ..................................... 16
<PAGE>
HUBCO, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
PART I. FINANCIAL INFORMATION CONSOLIDATED BALANCE SHEETS (Unaudited)
MARCH 31, DECEMBER 31,
(in thousands, except share data) 1998 1997
- --------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 147,640 $ 177,815
Federal funds sold 76,958 220,300
----------- -----------
TOTAL CASH AND CASH EQUIVALENTS 224,598 398,115
Securities available for sale, at market value 635,537 578,658
Securities available for sale, at cost
(market value of $231,461 and $229,674 for
1998 and 1997, respectively) 228,992 227,570
Loans:
Real estate mortgage 1,027,599 1,031,073
Commercial and financial 513,899 526,568
Consumer credit 209,634 208,989
Credit card 85,228 91,047
----------- -----------
TOTAL LOANS 1,836,360 1,857,677
Less: Allowance for possible loan losses (40,337) (39,240)
----------- -----------
NET LOANS 1,796,023 1,818,437
Premises and equipment, net 44,199 43,896
Other real estate owned 3,373 3,745
Intangibles, net of amortization 28,276 24,332
Other assets 89,969 79,501
----------- -----------
TOTAL ASSETS $ 3,050,967 $ 3,174,254
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 623,023 $ 650,480
Interest bearing 1,824,993 1,780,634
----------- -----------
TOTAL DEPOSITS 2,448,016 2,431,114
Short-term borrowings 216,915 361,351
Other liabilities 35,767 35,056
----------- -----------
TOTAL LIABILITIES 2,700,698 2,827,521
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 50,000
----------- -----------
Commitments and contingencies
Stockholders' Equity:
Convertible Preferred stock - Series B,
no par value; authorized 10,300,000
shares; 500 shares issued and
outstanding in 1998; 1,250 shares
issued and outstanding in 1997 50 125
Common stock, no par value; authorized
53,045,000 shares; 22,668,940 shares
issued and outstanding in 1998; and
22,664,057 shares issued and outstanding
in 1997 40,305 40,297
Additional paid-in capital 75,974 77,607
Retained earnings 75,200 68,784
Restricted stock award (708) (444)
Unrealized gain on securities available
for sale, net of income taxes 9,448 10,364
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 200,269 196,733
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 3,050,967 $ 3,174,254
=========== ===========
See notes to consolidated financial statements.
1
<PAGE>
HUBCO, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited)
March 31, (in thousands, except share data) 1998 1997
- --------------------------------------------------------------------------------
INTEREST AND FEE INCOME:
Loans $ 40,582 $ 41,405
Securities 12,586 15,243
Other 561 182
-------- --------
TOTAL INTEREST AND FEE INCOME 53,729 56,830
-------- --------
INTEREST EXPENSE:
Deposits 13,421 15,650
Short-term borrowings 3,200 2,446
Subordinated and other debt 2,091 2,839
-------- --------
TOTAL INTEREST EXPENSE 18,712 20,935
-------- --------
NET INTEREST INCOME 35,017 35,895
PROVISION FOR POSSIBLE LOAN LOSSES 1,939 1,734
-------- --------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 33,078 34,161
-------- --------
NONINTEREST INCOME:
Trust department income 864 592
Service charges on deposit accounts 3,304 3,610
Securities gains 2,869 1,268
Shoppers Charge fee income 2,271 1,329
Other income 1,640 2,096
-------- --------
TOTAL NONINTEREST INCOME 10,948 8,895
-------- --------
NONINTEREST EXPENSE:
Salaries 8,366 8,153
Pension and other employee benefits 2,886 3,219
Occupancy expense 2,629 2,610
Equipment expense 1,637 1,456
Deposit and other insurance 314 202
Outside services 4,575 3,699
Other real estate owned expense 387 549
Amortization of intangibles 1,412 1,267
Merger related and restructuring costs 2,352 86
Other expense 2,846 2,991
-------- --------
TOTAL NONINTEREST EXPENSE 27,404 24,232
-------- --------
INCOME BEFORE INCOME TAXES 16,622 18,824
PROVISION FOR INCOME TAXES 5,652 7,156
-------- --------
NET INCOME $ 10,970 $ 11,668
======== ========
COMPREHENSIVE INCOME, NET OF TAX:
Total holding gains (losses) arising
during period $ 978 (3,424)
Less: reclassification adjustment for
gains included in net income 1,894 786
-------- --------
Net change during period (916) (4,210)
-------- --------
COMPREHENSIVE INCOME $ 10,054 $ 7,458
======== ========
NET INCOME PER SHARE:
Basic $ 0.48 $ 0.50
Diluted $ 0.48 $ 0.47
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 22,644 23,024
Diluted 22,952 24,767
See notes to consolidated financial statements.
2
<PAGE>
HUBCO, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock
------------------------------------------------------ Additional
Shares Amount Shares Amount Paid-in-
Capital
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 39,600 3,960 22,367,873 39,770 110,643
- ------------------------------------------------------------------------------------------------------------------------------------
Net income -- -- -- -- --
Shares issued for:
stock options exercised -- -- 5,707 11 (6,351)
warrants exercised -- -- -- -- (48)
Dividend reinvestment
and stock -- -- 3,444 6 77
Conversion of preferred
stock (38,350) (3,835) -- -- (36,513)
Cash dividends paid:
Common -- -- -- -- --
Preferred -- -- -- -- --
Cash in lieu of
fractional shares -- -- -- -- (97)
Purchase of Treasury shares -- -- -- -- --
Restricted stock
transactions -- -- -- -- --
Stock Dividend -- -- 287,034 510 9,896
Unrealized gain/(loss) on
securities available for
sale -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 1,250 125 22,664,058 40,297 77,607
- ------------------------------------------------------------------------------------------------------------------------------------
Net income -- -- -- -- --
Shares issued for:
options -- -- -- -- (105)
warrants -- -- 4,050 7 21
Conversion of Preferred
Stock (750) (75) 16,608 30 (130)
Issuance &
Retirement Of
Treasury Stock -- -- (30,651) (55) (1,830)
Dividends paid:
Common -- -- -- -- --
Other Transactions -- -- -- -- 8
Cash in lieu of
fractional shares -- -- -- -- (79)
Purchase of Treasury shares -- -- -- -- --
Restricted stock transactions -- -- 14,875 26 482
Unrealized gain/(loss) on
securities available for sale -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Balance At March 31, 1998 500 50 22,668,94O 40,305 75,974
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Unrealized
Gain/(Loss) on
Retained Treasury Restricted Securities Total
Earnings Stock Stock Available for
Award Sale
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 59,685 -- (279) 2,856 216,635
- ------------------------------------------------------------------------------------------------------------------------------------
Net income 49,676 -- -- -- 49,676
Shares issued for:
stock options exercised -- 8,916 -- -- 2,576
warrants exercised -- 65 -- -- 17
Dividend reinvestment
and stock -- -- -- -- 83
Conversion of preferred
stock -- 40,348 -- -- --
Cash dividends paid:
Common (16,898) -- -- -- (16,898)
Preferred (650) -- -- -- (650)
Cash in lieu of
fractional shares -- -- -- -- (97)
Purchase of Treasury shares -- (62,338) -- -- (62,338)
Restricted stock
transactions -- 300 (165) -- 135
Stock Dividend (23,029) 12,709 -- -- 86
Unrealized gain/(loss) on
securities available for
sale -- -- -- 7,508 7,508
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 68,784 -- (444) 10,364 196,733
- ------------------------------------------------------------------------------------------------------------------------------------
Net income 10,970 -- -- -- 10,970
Shares issued for:
options -- 220 -- -- 115
warrants -- -- -- -- 28
Conversion of Preferred
Stock -- 175 -- -- --
Issuance &
Retirement Of
Treasury Stock -- 1,885 -- -- --
Dividends paid:
Common (4,504) -- -- -- (4,504)
Other Transactions (50) -- -- -- (42)
Cash in lieu of
fractional shares -- -- -- -- (79)
Purchase of Treasury shares -- (2,087) -- -- (2,087)
Restricted stock transactions -- (193) (264) -- 51
Unrealized gain/(loss) on
securities available for sale -- -- -- (916) (916)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance At March 31, 1998 75,200 -- (708) 9,448 200,269
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
HUBCO, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
THREE MONTHS ENDED
MARCH 31
--------------------------
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 10,970 $ 11,668
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible loan losses 1,939 1,734
Provision for depreciation and amortization 2,766 3,338
Amortization of security premium, net 141 152
Securities gains (2,869) (1,268)
Gain on sale of premises and equipment (25) (6)
Gain on sale of loans (106) --
(Increase) decrease in other assets (7,747) 9,572
(Decrease) increase in other liabilities (2,798) 4,098
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,271 29,288
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of securities:
Available for sale 8,121 4,455
Proceeds from repayments and maturities of
securities:
Available for sale 70,586 33,500
Held to maturity 7,161 42,013
Purchases of available for sale securities (117,333) (78,411)
Net cash paid for acquisitions (2,270) --
Net decrease in loans 58,129 32,747
Proceeds from sales of premises and equipment 25 35
Proceeds from sales of loans 9,694 --
Purchases of premises and equipment (1,096) (824)
Decrease in other real estate 372 694
--------- ---------
NET CASH PROVIDED BY INVESTING ACTIVITIES 33,389 34,209
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in demand deposits, NOW accounts,
and savings accounts (62,837) (84,771)
Net (decrease) increase in certificates of deposits 4,887 (65,793)
Net (decrease) increase in short term borrowings (144,779) 49,817
Net proceeds from issuance of debt securities -- 49,250
Proceeds from issuance of common stock 143 443
Cash dividends (4,504) (4,473)
Acquisition of treasury stock (2,087) (3,615)
--------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (209,177) (59,142)
--------- ---------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (173,517) 4,355
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 398,115 161,525
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 224,598 $ 165,880
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest $ 20,863 $ 20,729
Income Taxes -- 4,250
========= =========
See note to Consolidated Financial Statements.
4
<PAGE>
HUBCO, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
HUBCO INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A -- BASIS OF PRESENTATION
The accompanying financial statements of HUBCO, Inc. and Subsidiaries ("HUBCO"
or "the Company") include the accounts of the parent company, HUBCO, Inc. and
its wholly-owned subsidiaries: Hudson United Bank ("Hudson United Bank"),
Lafayette American Bank ("Lafayette"), and HUB Capital Trust I. All material
intercompany balances and transactions have been eliminated in consolidation.
These unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, the information presented includes all
adjustments, consisting of normal recurring accruals, considered necessary for a
fair presentation, in all material respects, of the interim period results. The
results of operations for periods of less than one year are not necessarily
indicative of results for the full year. The consolidated financial statements
should be read in conjunction with the Annual Report on Form 10-K for the year
ended December 31, 1997.
NOTE B -- 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. 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 period. 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
stock warrants, calculated using the treasury stock method. All per share
amounts have been retroactively restated to reflect all stock splits and stock
dividends. All prior periods presented have been restated in this new format.
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 to weighted average shares outstanding assuming dilution
follows (in thousands, except per share data):
Quarter Ended March 31
- --------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
Basic Earnings Per Share
Net Income $10,970 $11,668
Less Preferred Stock Dividends -- 219
-------------------------
Net Income Available To Common Stockholders 10,970 11,449
Weighted Average Common Shares Outstanding 22,644 23,024
Basic Earnings Per Share $ 0.48 $ 0.50
=========================
Diluted Earnings Per Share
Net Income $10,970 $11,668
Weighted Average Common Shares Outstanding 22,644 23,024
Effect Of Dilutive Securities:
Convertible Preferred Stock 38 1,316
Warrants 27 25
Stock Options 243 402
-------------------------
Total Effect of Dilutive Securities 22,952 24,767
Diluted Earnings Per Share $ 0.48 $ 0.47
=========================
5
<PAGE>
NOTE C -- ACQUISITIONS
On January 8, 1998, the Company acquired The Bank of Southington ("BOS"), and
merged it into Lafayette. BOS was a $135 million asset state bank and trust
company with 3 branch locations, headquartered in Southington, Connecticut. In
the merger, each share of BOS common stock was converted into .618 shares of
HUBCO common stock. The acquisition was treated as a pooling of interests for
accounting purposes. The financial statements have been restated to include BOS
for all periods presented.
On February 5, 1998, the Company acquired Security National Bank & Trust Company
of New Jersey ("SNB"), and merged it into Hudson United Bank. Security was a $86
million asset bank and trust company with 4 branch locations, headquartered in
Newark, New Jersey. In the merger, shareholders of SNB received $34.00 in cash
for each share of SNB common stock. The merger was accounted for under the
purchase method of accounting and therefore, SNB's results of operations have
been included in the accompanying financial statements subsequent to February 5,
1998.
On March 2, 1998, the Company signed a definitive agreement to purchase 22
branches of First Union National Bank located in New Jersey, New York and
Connecticut with deposits of approximately $310 million, in the aggregate. The
purchase is expected to close in the second quarter of 1998.
On March 31, 1998, the Company signed a definitive agreement to acquire IBS
Financial Corp. ("IBSF"), and merge Inter-Boro Savings and Loan Association,
IBSF's wholly-owned subsidiary, into Hudson United Bank. In the merger, each
share of IBSF common stock will be exchanged for a fixed number of shares of
HUBCO common stock at an exchange ratio of .534 share of HUBCO common stock for
each share of IBSF. IBSF is a $734 million asset savings and loan holding
company headquartered in Cherry Hill, New Jersey. The IBSF merger is expected to
close in the third quarter of 1998 and to be treated as a pooling of interests.
On March 31, 1998, the Company signed a definitive agreement to acquire Dime
Financial Corp. ("DFC"), and merge The Dime Savings Bank of Wallingford, DFC's
wholly-owned subsidiary, into Lafayette. In the merger, DFC shareholders will
receive HUBCO common stock with an indicated value of $38.25 per share based
upon the median price of HUBCO common stock in a period immediately before
regulatory approval. A maximum exchange ratio of 1.05 shares of HUBCO common
stock for each share of DFC common stock will apply if HUBCO's pre-approval
price is below $36.43. A minimum exchange ratio of .93 shares will apply if
HUBCO's pre-approval price is above $41.13. DFC is a $961 million asset holding
company headquartered in Wallingford, Connecticut. The DFC merger is expected to
close in the third quarter of 1998 and to be treated and a pooling of interests.
On April 24, 1998, the Company completed its acquisition of Poughkeepsie
Financial Corp. ("PFC"). PFC's wholly-owned subsidiary, Bank of the Hudson
became HUBCO's New York-based bank subsidiary. In the merger, each share of PFC
common stock was converted into .30 shares of HUBCO common stock. PFC had $875
million in assets and was treated as a pooling of interests for accounting
purposes. Since this acquisition was closed subsequent to March 31, 1998, the
financial statements for periods prior to the merger have not been restated to
include PFC or its results of operations.
On December 16, 1997, the Company signed a definitive agreement to acquire MSB
Bancorp ("MSB"), and merge MSB Bank, MSB's wholly-owned subsidiary into Bank of
the Hudson. In the merger, each share of MSB common stock will be converted into
between .97 and 1.03 shares of HUBCO common stock. MSB is a $765 million holding
company headquartered in Goshen, New York. The MSB merger is expected to close
in the second quarter of 1998 and to be treated as a pooling of interests.
6
<PAGE>
NOTE D -- SECURITIES
The following table presents the amortized cost and estimated market value of
securities available-for sale and held-to maturity at the dates indicated:
March 31, 1998
-----------------------------------------------
Gross Unrealized Estimated
Amortized -------------------- Market
Cost Gains (Losses) Value
---------- ------------------------ ----------
Available For Sale
U.S. Government $ 63,414 $ 1,079 $ (5) $ 64,488
U.S. Government
agencies 445,029 2,483 (685) 446,827
States and political
subdivisions 16,794 52 (21) 16,825
Other debt securities 29,166 54 -- 29,220
Equity securities 65,256 12,962 (41) 78,177
-------- -------- --------- --------
$619,659 $ 16,630 $ (752) $635,537
======== ======== ========= ========
March 31, 1998
-----------------------------------------------
Gross Unrealized Estimated
Amortized -------------------- Market
Cost Gains (Losses) Value
---------- ------------------------ ----------
Held To Maturity
U.S. Government $ 42,173 $ 610 $-- $ 42,783
U.S. Government
agencies 184,803 2,546 (651) 186,698
States and political
subdivisions 2,016 -- (36) 1,980
======== ======== ========= ========
$228,992 $ 3,156 $ (687) $231,461
======== ======== ========= ========
December 31, 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 402,941 2,353 (1,161) 404,133
States and political
subdivisions 10,619 59 (26) 10,652
Other debt securities 30,162 91 (8) 30,245
Equity securities 56,060 15,308 (1) 71,367
--------
$561,185 $ 18,676 $ (1,203) $578,658
======== ======== ========= ========
December 31, 1997
-----------------------------------------------
Gross Unrealized Estimated
Amortized -------------------- Market
Cost Gains (Losses) Value
---------- ------------------------ ----------
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
======== ======== ========= ========
7
<PAGE>
NOTE E -- COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SERIES B CAPITAL
SECURITIES OF A SUBSIDIARY TRUST HOLDING SOLELY JUNIOR SUBORDINATED DEBENTURES
OF THE COMPANY
On January 31, 1997, the Company placed $50.0 million in aggregate liquidation
amount of 8.98% Capital Securities due February 2027, using HUBCO Capital Trust
I, a statutory business trust formed under the laws of the State of Delaware.
The sole asset of the trust, that is the obligor on the Series B Capital
Securities, is $51.5 million principal amount of 8.98% Junior Subordinated
Debentures due 2027 of HUBCO. The net proceeds of the offering are being used
for general corporate purposes and to increase capital levels of the Company and
its subsidiaries. The securities qualify as Tier I capital under the capital
guidelines of the Federal Reserve.
NOTE F -- RECENT ACCOUNTING STANDARDS
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income", which establishes standards for the reporting of
comprehensive income and its components in a full set of general-purpose
financial statements. The Company has elected to utilize the Consolidated
Statements of Income and Comprehensive Income to display its comprehensive
income related to the disclosed periods. Comprehensive income is displayed on
the Consolidated Balance Sheets and Consolidated Statements of Changes in
Stockholders' Equity as a separate item entitled unrealized gains(losses) on
securities available for sale since this is the only component of comprehensive
income. The following is a reconciliation of the tax effect allocated to each
component of comprehensive income for the periods presented (in thousands):
For the three-months ended
March 31, 1998
--------------------------------
Tax
Before tax (Expense) Net of Tax
amount Benefit Amount
--------------------------------
Unrealized holding gains arising
during the period $ 1,274 $(296) $ 978
Less: reclassification adjustment for gains
realized in net income 2,869 (975) 1,894
--------------------------------
Net change during period $(1,595) $ 679 $ (916)
--------------------------------
For the three-months ended
March 31, 1997
--------------------------------
Tax
Before tax (Expense) Net of Tax
amount Benefit Amount
--------------------------------
Unrealized holding losses arising
during the period $ (5,597) $ 2,173 $(3,424)
Less: reclassification adjustment for gains
realized in net income 1,268 (482) 786
--------------------------------
Net change during period $ (6,865) $2,655 $(4,210)
--------------------------------
Effective January 1, 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information", which requires that a public
business enterprise report financial and descriptive information about its
reportable operating segments. The Company's two banking subsidiaries, Hudson
United Bank and Lafayette, which meet the criteria of SFAS No. 131 to be
considered in the aggregated, have been aggregate for purposes of segment
reporting. HUBCO, Inc., the banks' holding company, is not a reportable segment
because it does not exceed any of the quantitative thresholds.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This financial review presents management's discussion and analysis of financial
condition and results of operations. It should be read in conjunction with the
Company's Consolidated Financial Statements and the accompanying notes. All
dollar amounts, other than per share information, are presented in thousands
unless otherwise noted.
The financial statements for the comparative periods presented herein have been
restated to reflect the acquisitions that have been accounted for on the
pooling-of-interests accounting method during the periods presented herein. The
Bank of Southington was acquired on January 8, 1998 and was accounted for on a
pooling-of-interests method, and accordingly, the consolidated financial
statements have been restated to include the accounts of this institution for
all periods presented. All share data has been retroactively restated to reflect
the shares issued in the aforementioned transaction including restatement of all
prior periods. In addition, the Company acquired Security National Bank on
February 5, 1998, which was accounted for on the purchase method and thus
operations and earnings are reflected in the Company's results subsequent to the
date of acquisition. The balance sheet and income statement comparisons are
influenced by this purchase transaction.
This document contains forward-looking statements within the meaning of The
Private Securities Litigation Reform Act of 1995. Forward looking statements can
be identified by the use of words such as "believes, expects" and similar words
or variations. Such statements are not historical facts and involve certain
risks and uncertainties. Actual results may differ materially from the results
discussed in these forward-looking statements. Factors that might cause a
difference include, but are not limited to, changes in interest rates, economic
conditions, deposit and loan growth, loan loss provisions, and customer
retention. The Company assumes no obligation for updating any such
forward-looking statements at any time.
The Company, through its servicing subsidiary, established a "Year 2000 Team"
which is responsible for ensuring implementation of the required change to the
Date of Century format for all software programs used by the Company. The
management of the Company anticipates that they will be in Year 2000 compliance
before the beginning of the new century. The Company has not incurred
significant expenses related to this project and does not anticipate the impact
will be material to the Company's business, operations, financial condition,
results of operations, liquidity or capital resources.
RESULTS OF OPERATIONS
OVERVIEW
Net income for the three-month period ended March 31, 1998 was $11.0 million,
compared to net income of $11.7 million for the three-month period ended March
31, 1997, a 6% decrease. Excluding merger related and restructuring charges of
$2.3 million, pre-tax, related to the Bank of Southington acquisition, first
quarter 1998 income was $12.6 million, an increase of 8% over the first quarter
of 1997. Diluted earnings per share were $0.48 ($0.55 including merger related
costs) for the first quarter of 1998, an increase of 2%(an increase of 17%
excluding merger related costs) over $0.47 for the same period in 1997. Basic
earnings per share were $0.48 ($0.56 excluding merger related costs) for the
first quarter of 1998, a decrease of 4% (an increase of 12% excluding merger
related costs) over $0.50 for the same period in 1997. Return on average equity
and return on average assets were 22.80% and 1.51%, respectively, as reported
for the three-month period ended March 31, 1998, 21.31% and 1.47%, respectively,
for the same period in 1997 and 26.17% and 1.73% respectively, for the
three-month period ended March 31, 1998 excluding merger related costs.
9
<PAGE>
NET INTEREST INCOME
Net interest income for the three-month period ended March 31, 1998 was $35.0
million compared to $35.9 million for the same period in 1997. This decline is
primarily due to a decrease in average interest-earning assets of $247.2 million
from March 31, 1997 to March 31, 1998 primarily resulting from maturities of
investment securities and the sale of new mortgage loan originations. Interest
income for the three-month period ended March 31, 1998 was $53.7 million
compared to $56.8 million for the same period in 1997, a decrease of $3.1
million, while interest expense decreased $2.2 million. The net
interest margin for the three-month period ended March 31, 1998 was 5.28%
compared to 4.96% for the same period in 1997.
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses for the three-month period ended March
31, 1998 was $1.9 million compared to $1.7 million for the same period in 1997.
The increase in the provision for possible loan losses is a reflection of, among
other factors, the increased level of credit card receivables from March 1997 to
March 1998. The Company performs an evaluation of the adequacy of the allowance
for loan losses each quarter. The results of this analysis and the expectation
of potential credit losses and economic conditions are some of the factors which
determine the required quarterly provision. In connection with a purchase of
credit card receivables by Shoppers Charge in March 1998, an allowance for
potential credit losses of $1.2 million was also acquired. Management believes
that the allowance at March 31, 1998 of $40.3 million, or 2.20% of total loans
and 107% of non-performing loans, is adequate. Comparative ratios for March 31,
1997 and December 31, 1997 are 1.92% and 117% and 2.11% and 111%, respectively.
Non-performing assets as a percentage of total assets at March 31, 1998 was
1.35% compared to 1.23% at December 31, 1997. The following table presents the
composition of non-performing assets and loans past due 90 days or more and
accruing and selected asset quality ratios at the dates indicated:
ASSET QUALITY SCHEDULE
----------------------
(In Thousands)
3/31/98 12/31/97
------- --------
Non-Accrual Loans:
Commercial $11,101 $10,345
Real Estate 23,528 21,841
Consumer 1,940 1,253
------- -------
Total Non-Accrual Loans
36,569 33,439
------- -------
Renegotiated Loans 1,139 1,760
------- -------
Total Nonperforming Loans 37,708 35,199
Other Real Estate Owned 3,373 3,745
------- -------
Total Nonperforming Assets $41,081 $38,944
======= =======
Non-Accrual Loan to Total Loans 1.99% 1.80%
Non-Performing Assets to Total Assets 1.35% 1.23%
Allowance for Loans Losses to Non-Accrual
Loans 110% 117%
Allowance for Loans Losses to Non-Performing
Loans 107% 111%
Loans Past Due 90 Days or More and Accruing
Commercial $ 1,670 $ 2,549
Real estate 2,139 2,905
Consumer 2,113 1,786
Credit card 2,746 2,749
------- -------
Total Past Due Loans $ 8,668 $ 9,989
======= =======
10
<PAGE>
The following table presents the activity in the allowance for possible loan
losses for the periods indicated:
Summary of Activity in the Allowance
Broken Down by Loan Category
----------------------------
Three Months Ended Year Ended
3/31/98 12/31/97
------------------------------
(Dollars in thousands)
Amount of Loans Outstanding at
Period End $ 1,836,360 $ 1,857,677
=========== ===========
Daily Average Amount of Loans
Outstanding $ 1,834,572 $ 1,903,547
=========== ===========
ALLOWANCE FOR LOAN LOSSES
Balance at beginning of year $ 39,241 $ 36,692
Loans charged off:
Real estate mortgages (934) (2,612)
Commercial (463) (4,166)
Consumer (2,051) (5,711)
----------- -----------
Total loans charged off (3,448) (12,489)
----------- -----------
Recoveries:
Real estate mortgages 47 408
Commercial 307 1,895
Consumer 301 1,405
----------- -----------
Total recoveries 655 3,708
----------- -----------
Net loans charged off (2,793) (8,781)
Allowance of acquired companies 1,950 2,800
Provision for loan losses 1,939 8,530
----------- -----------
Balance at end of year $ 40,337 $ 39,241
=========== ===========
Ratio of Annualized Net Loans
Charged-Off During Period to
Average Loans Outstanding 0.61% 0.46%
=========== ===========
Non-interest income increased 23% or $2.1 million from $8.9 million for the
first quarter of 1997 to $10.9 million for the same period in 1998. This
increase in non-interest income relates primarily to increased fees from
Shoppers Charge, trust services revenue, security gains, and international fees.
Non-interest expense was $27.4 million for the first quarter of 1998 as reported
and $25.1 million excluding merger related costs, compared to $24.2 million for
the same period in 1997. Reductions were realized for the three-month period
ended March 31, 1998 in employee benefits due to the consolidation of health
benefit plans, other real estate owned expense and other expenses. Increases for
the three-month period ended March 31, 1998 compared to the same period in 1997
occurred in outside services which increased $876, related to payments for
computer processing and other data processing services and amortization of
intangibles which increased $145, due to the intangibles resulting from the
acquisition of Security National Bank which are being amortized over a 10 year
period.
The Company's effective tax rate for the three-month period ended March 31, 1998
was 34%. This compares with an effective tax rate for the comparable period in
1997 of 38%. The decrease in the effective tax rate is related to tax
planning initiatives.
11
<PAGE>
FINANCIAL CONDITION
Total assets at March 31, 1998, were $3.05 billion, a decrease of $123 million
or 4% from $3.17 billion of assets at December 31, 1997, as restated for all
poolings through the Bank of Southington acquisition. The securities portfolio
increased 7% or $58.3 million from $806.2 million at December 31, 1997 to $864.5
million at March 31, 1998 due primarily to the purchase of securities.Total
Loans decreased $21.3 million, or 1% to $1.84 billion at March 31, 1998 from
$1.86 billion at December 31, 1997 reflecting declines in residential mortgage
loans where most new originations are being sold and commercial and financial
loans which have experienced repayments. Other real estate owned decreased $372
or 10% from $3.7 million at December 31, 1997 to $3.4 million at March 31, 1998
as management continued to focus on asset quality. Intangibles, net of
amortization, increased from $24.3 million at December 31, 1997 to $28.3 million
at March 31, 1998 due to the addition of the goodwill created from the Security
National acquisition and as the intangibles related to prior acquisitions are
amortized over periods ranging from 5 to 10 years.
Deposits increased slightly from $2.43 billion at December 31, 1997, to $2.45
billion at March 31, 1998, due primarily to the Security National acquisition.
Total borrowings decreased $144.4 million from $361.4 million at December 31,
1997 to $216.9 million at March 31, 1998. This reduction is primarily the result
of repayments of short-term advances. Total stockholders' equity at March 31,
1998 was $200.3 million compared to $196.7 million at December 31, 1997. The
increase in stockholders' equity is primarily attributable to $11.0 million in
earnings for the three-month period ended March 31, 1998, offset by $4.5 million
of cash dividends, the change in the unrealized gain on securities available for
sale of $916, and the purchase of $2.1 million in treasury shares.
On January 31, 1997, the Company placed $50.0 million in aggregate liquidation
amount of 8.98% Capital Securities due February 2027, using HUBCO Capital Trust
I, a statutory business trust formed under the laws of the State of Delaware.
The net proceeds of the offering are being used for general corporate purposes
and to increase capital levels of the Company and its subsidiaries. The
securities qualify as Tier I capital under the capital guidelines of the Federal
Reserve.
The Company is not aware of any current recommendations by the regulatory
authorities which would have a material adverse effect on the Company's capital
resources or operations. The capital ratios for the Company at March 31, 1998,
and the minimum regulatory guidelines for such capital ratios for qualification
as a well-capitalized institution are as follows:
Ratios at Regulatory
March 31, 1998 Guidelines
Tier I Risk-Based Capital 10.5% 6.0%
Total Risk-Based Capital 16.7% 10.0%
Tier 1 Leverage Ratio 7.3% 5.0%
12
<PAGE>
PART II. OTHER INFORMATION
Items 1 through 3 are not applicable or the responses are negative
Item 4:
(a) The Annual Meeting of Shareholders of HUBCO, Inc. was held on April 22,
1998.
(b) The names of the directors who are nominees for election for the 1998
Annual Meeting and the names of the directors whose terms extend beyond the
1998 Annual Meeting are set forth in the tables below.
Nominees for 1998 Annual Meeting:
Thomas R. Farley
Kenneth T. Neilson
Joan David
Sister Grace Frances Strauber
Directors whose terms extend beyond this Annual Meeting:
Robert J. Burke Donald P. Calcagnini
Bryant D. Malcolm W. Peter McBride
Charles F.X. Poggi David A. Rosow
John H. Tatigian James E. Schierloh (Chairman Emeritus)
(c) The following is a brief description as well as the tabulation of votes for
each of the matters which were voted upon at the 1998 Annual Meeting.
1. Election of the following four persons as directors of HUBCO:
For Authority Withheld
---------- ------------------
Thomas R. Farley 19,265,328 181,610
Kenneth T. Neilson 19,298,031 148,908
Joan David 19,297,521 149,417
Sister Grace Frances Strauber 19,296,408 150,530
2. An Amendment to the HUBCO, Inc. Restricted Stock Plan (the "Restricted
Stock Plan")to extend the termination date of the Restricted Stock
Plan to December 12, 2005, to increase the maximum number of shares of
common stock which may be awarded by authorizing an additional 250,000
shares and in the event of a change in control, for the automatic
expiration of the Restricted period related to any grants of
restricted shares which at such time is five years or less in
duration.
Votes
-----
For 17,927,564
Against 1,274,897
Abstain 244,499
13
<PAGE>
3. An Amendment to the HUBCO, Inc., 1995 Stock Option Plan (the "Stock
Option Plan") to increase the maximum number of shares of common stock
which may be made subject to options granted pursuant to the Stock
Option Plan by authorizing an additional 750,000 shares to increase
the maximum number of shares of common stock with respect to these
options which may be granted to any one person during the term of the
Stock Option Plan to an aggregate of 437,500 shares and to remove
language which links the number of shares which may be granted
pursuant to the Stock Option Plan to the number of shares pursuant to
the Restricted Stock Plan. Votes
Votes
-----
For 18,534,278
Against 697,520
Abstain 215,132
(d) not applicable
Item 5: not applicable
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
(3) 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)).
(3)(I)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 (3b).
(b) Reports on Form 8-K
(1) On March 31, 1998, HUBCO filed a Form 8-K Item 5 (date of earliest
event - March 31, 1998), to announce the signing of a definitive
merger agreement with IBS Financial Corporation, whereby Inter-Boro
Savings and Loan Association, IBS Financial Corporation's wholly-owned
subsidiary will be merged with and into Hudson United Bank. Also to
announce the signing of a definitive merger agreement with Dime
Financial Corp., whereby The Dime Savings Bank of Wallingford, Dime
Financial Corp.'s wholly-owned subsidiary will be merged with and into
Lafayette American Bank.
(2) On April 2, 1998, HUBCO filed a Form 8-K Item 5 (date of earliest
event - March 3, 1998), to announce the signing of a definitive merger
agreement with Community Financial Holding Corporation, whereby
Community National Bank of New Jersey, Community Financial Holding
Corporation's wholly-owned subsidiary will be merged with and into
Hudson United Bank.
(3) On April 20, 1998, HUBCO filed a Form 8-K Item 5 (date of earliest
event - April 15, 1998), containing HUBCO's press release reporting
earnings for the first quarter of 1998.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HUBCO, Inc.
May 14, 1997 /s/ KENNETH T. NEILSON
- ------------------- ------------------------------------
Date Kenneth T. Neilson
Chairman, President &
Chief Executive Officer
May 14, 1997 /s/ JOSEPH F. HURLEY
- ------------------- ------------------------------------
Date Joseph F. Hurley
Executive Vice President &
Chief Financial Officer
15
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<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 147,640
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 76,958
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 635,537
<INVESTMENTS-CARRYING> 228,992
<INVESTMENTS-MARKET> 231,461
<LOANS> 1,836,360
<ALLOWANCE> 40,337
<TOTAL-ASSETS> 3,050,967
<DEPOSITS> 2,448,016
<SHORT-TERM> 216,915
<LIABILITIES-OTHER> 35,767
<LONG-TERM> 150,000
<COMMON> 40,305
0
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<OTHER-SE> 159,914
<TOTAL-LIABILITIES-AND-EQUITY> 3,050,967
<INTEREST-LOAN> 40,582
<INTEREST-INVEST> 12,586
<INTEREST-OTHER> 561
<INTEREST-TOTAL> 53,729
<INTEREST-DEPOSIT> 13,421
<INTEREST-EXPENSE> 5,291
<INTEREST-INCOME-NET> 35,017
<LOAN-LOSSES> 1,939
<SECURITIES-GAINS> 2,869
<EXPENSE-OTHER> 27,404
<INCOME-PRETAX> 16,622
<INCOME-PRE-EXTRAORDINARY> 16,622
<EXTRAORDINARY> 0
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<NET-INCOME> 10,970
<EPS-PRIMARY> .48
<EPS-DILUTED> .48
<YIELD-ACTUAL> 5.28
<LOANS-NON> 36,569
<LOANS-PAST> 8,668
<LOANS-TROUBLED> 1,139
<LOANS-PROBLEM> 37,708
<ALLOWANCE-OPEN> 39,241
<CHARGE-OFFS> 3,448
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<ALLOWANCE-DOMESTIC> 40,337
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