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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM l0-K/A
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/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
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
1000 MACARTHUR BLVD.
MAHWAH, NEW JERSEY 07430
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(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
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(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
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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 (not restated for poolings).
The number of shares of Registrant's Common Stock, no par value, outstanding as
of March 19, 1998 was 22,648,970 (not restated for poolings).
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<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Part(s) into
Documents Which Incorporated
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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/A 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 Bank of the Hudson ("BOTH" and together with
Hudson United and Lafayette, the "Banks"). HUBCO is also the indirect owner,
through the banks, of thirteen subsidiaries. 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 five acquisitions in the first half of 1998 and also has
three pending acquisitions which the Company expects to close by the third
quarter of 1998. See also "Management's Discussion and Analysis of Financial
Condition and Results of Operations - 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. HUBCO owns MSB Travel, which was organized in January 1996 to offer
travel services to the Bank's customers.
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>
BOTH owns three real estate holding companies. Plural Realty and POSABK were
incorporated by Bank of the Hudson for the purpose of holding, developing, and
disposing of properties obtained through foreclosure proceeding. BOTH also owns
PSB Building Corp., which holds the leasehold interest to a 100,000 square foot
office building located in Poughkeepsie, New York. BOTH owns Hudson Trader
Brokerage Services which offers a full range of investment, trust, and insurance
products and services.
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 bank's 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
<PAGE>
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.
As of December 31, 1997, the Banks' capital ratios exceed the requirements to be
considered well capitalized institutions under the FDIC or OTS 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%. HUBCO 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 HUBCO's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, HUBCO 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 judgments 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), of Tier I capital (as
defined) to average assets (as defined) for Hudson United and Lafayette, and
tangible and core capital (as defined) to adjusted total assets (as defined) for
Bank of the Hudson. Management believes, as of December 31, 1997, that HUBCO and
its subsidiary banks meet all capital adequacy requirements to which they are
subject.
<PAGE>
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.
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, Loans, Or Advances
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, Lafayette, and Bank of the Hudson
to pay dividends act as restrictions on the amount of funds available for the
payment of dividends by HUBCO.
Certain restrictions exist regarding the ability of Hudson United, Lafayette and
Bank of the Hudson to transfer funds to HUBCO 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
<PAGE>
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. Office of
Thrift Supervision (OTS) regulations, which apply to Bank of the Hudson, allow
for a institution that has capital in excess of all fully phased-in regulatory
capital requirements before and after a proposed capital distribution and that
is not otherwise restricted in making capital distributions, to make capital
distributions during a calendar year equal to the greater of (i) 100% of its net
earnings to date during the calendar year plus the amount that would reduce by
one-half its "surplus capital ratio" at the beginning of the calendar year, or
(ii) 75% of its net earnings for the previous four quarters. As of December 31,
1997, $118.9 million was available for distribution to HUBCO from Hudson United,
$11.7 million was available for distribution to HUBCO from Lafayette and
approximately $9.7 million was available for distribution to HUBCO from Bank of
the Hudson.
HUBCO is also subject to 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.
Under Federal Reserve regulations, each of the Banks is limited as to the
amounts it may loan to its affiliates, including HUBCO. All such loans are
required to be collateralized by specific obligations. During 1994, HUBCO
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.
In conformity with the OTS regulations, a "liquidation account" was established
for Bank of the Hudson and acquired banks at the time of their conversion to the
stock form of ownership. In the unlikely event of a complete liquidation of Bank
of the Hudson, holders of savings accounts with qualifying deposits, who
continue to maintain their savings accounts, would be entitled to a distribution
from the "liquidation account" in an amount equal to their then current adjusted
savings account balance before any liquidation distribution could be made with
respect to capital stock. The balance in the "liquidation account" was $12.3
million at December 31, 1997, for Bank of the Hudson. This amount may not be
utilized for the payment of cash dividends to HUBCO.
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,
<PAGE>
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.
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
<PAGE>
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 three directly-owned subsidiaries -- Hudson United, Lafayette,
and Bank of the Hudson. In addition, HUBCO, through Hudson United, indirectly
owns five additional subsidiaries, HUBCO, through Lafayette, indirectly owns
three additional subsidiaries, and HUBCO, through BOTH, indirectly owns four
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, Lafayette, and Bank of
the Hudson 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 60 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 31 offices in the
southwestern Connecticut counties of New Haven and Fairfield. At December 31,
1997, BOTH operated 32 offices in the New York counties of Rockland, Orange,
Putnam, Dutchess, and Sullivan counties. 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 $3.73
billion, net loans of $2.93 billion and total assets of $4.78 billion. HUBCO
ranked 3rd among commercial banks and bank holding companies headquartered in
New Jersey in terms of asset size.
Hudson United and Lafayette are full service commercial banks and offer 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. BOTH is a Savings Bank and offers the services
generally performed by savings banks of similar size and character. 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 Banks primarily engages in consumer lending, commercial
lending, 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 , Connecticut,
and New York, which compete in the market areas serviced by HUBCO. In addition,
large out-of-state banks compete for the business of residents and businesses
located in HUBCO's primary market. A number of other depository institutions
compete for the business of individuals and commercial enterprises 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, Lafayette, and Bank of the Hudson each have focused on becoming
an integral part of the community they serve. 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 1,257 full-time employees and 301 part-time
employees as of December 31, 1997, 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-Nuzzo, 48 1988 Executive Vice President and Corporate
Secretary, HUBCO, Hudson United Bank
and Lafayette American Bank
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.......................... 20-21
V. Deposits................................................. 22
VI. Return on Equity and Assets.............................. 23
VII. Short-Term Borrowings.................................... 24-26
(Item I disclosures are contained on page 5 of HUBCO's 1997 Annual Report):
<PAGE>
HUBCO, Inc. and Subsidiaries
S.E.C. GUIDE 3 - ITEM II
INVESTMENT PORTFOLIO
Book Value at End of Each Reporting Period
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------
1997 1996 1995
------------------------ ------------------------ -----------------
(In Thousands)
<S> <C> <C> <C>
U.S. Treasury and Other
U.S. Government Agencies and
Corporations $1,120,776 $1,421,376 $1,042,602
State and Political Subdivisions 10,652 15,456 15,348
Other Debt Securities 31,475 12,514 62,768
Equity Securities 48,414 34,127 7,219
------------------------ ------------------------ -----------------
TOTAL $1,211,317 $1,483,473 $1,127,937
======================== ======================== =================
Maturities and Weighted Average Yield at End of Latest Reporting Period
<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 $224,552 6.47% $635,744 6.30% $125,441 6.53% $135,039 6.76%
States and Political
Subdivisions 9,012 6.08 939 6.37 308 6.37 393 6.94
Other Debt Securities 4,639 5.65 2,621 6.63 565 5.00 23,650 9.67
Equity Securities 48,414 5.62 -- -- -- -- -- --
---------- -------- ---------- -------- ---------- ------- ---------- -------
TOTAL $286,617 6.30% $639,304 6.30% $126,314 6.52% $159,082 7.20%
========== ======== ========== ======== ========== ======= ========== =======
</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>
<CAPTION>
Types of Loans At End of Each Reporting Period
December 31,
---------------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------------- ---------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
Commercial, Financial,
and Agricultural $ 520,211 $ 526,927 $ 514,270 $ 481,271 $ 487,985
Real Estate Construction 97,201 84,245 61,006 40,708 35,360
Real Estate Mortgage 2,104,900 2,143,326 1,848,385 1,641,291 1,362,006
Installment 204,147 194,476 168,593 165,922 130,494
--------------- ---------------- --------------- ---------------- ---------------
TOTAL $2,926,459 $2,948,974 $2,592,254 $2,329,192 $2,015,845
=============== ================ =============== ================ ===============
</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.
<TABLE>
<CAPTION>
Maturities and Sensitivity to Changes in Interest Rates
MATURING
--------------------------------------------------------------------------------------
After One But
Within One Year Within Five Years After Five Years Total
----------------------- -------------------- ------------------ ----------------------
<S> <C> <C> <C> <C>
Commercial, Financial,
and Agricultural $191,737 $137,540 $182,863 $ 512,140
Real Estate Construction 37,948 39,391 8,992 86,331
Real Estate - Mortgage 55,206 239,760 465,989 760,955
----------------------- -------------------- ------------------ ----------------------
TOTAL $284,891 $416,691 $657,844 $1,359,426
======================= ==================== ================== ======================
<CAPTION>
SENSITIVITY
---------------------------------------------------
Fixed Rate Variable Rate
------------------------ --------------------------
<S> <C> <C>
Due After One But Within Five Years $206,216 $260,158
Due After Five Years 282,541 658,218
------------------------ --------------------------
TOTAL $488,757 $918,376
======================== ==========================
</TABLE>
<PAGE>
HUBCO, Inc. and Subsidiaries
S.E.C. GUIDE 3 - ITEM III
LOAN PORTFOLIO
Nonaccrual, Past Due and Restructured Loans
<TABLE>
<CAPTION>
December 31
---------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------------- --------------- -------------- -------------- --------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Loans accounted for on
a nonaccrual basis $47,175 $51,565 $34,512 $53,748 $74,884
Loans contractually past
due 90 days or more as
to interest or principal
payments 16,213 15,753 8,550 7,130 26,939
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 16,162 12,278 1,908 34,481 42,187
</TABLE>
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
<TABLE>
<CAPTION>
The following is a summary of the activity in the allowance for possible loan losses, broken down by loan
category:
Year Ended December 31
---------------------------------------------------------------------
1997 1996 1995 1994 1993
============== ============= ============= ============ =============
<S> <C> <C> <C> <C> <C>
Loans Outstanding at End of Year $2,926,459 $2,948,974 $2,592,254 $2,369,188 $2,015,845
============== ============= ============= ============ =============
Daily Average Amount of Loans $2,915,843 $2,270,316 $2,457,377 $2,139,842 $2,043,758
============== ============= ============= ============ =============
Balance of Allowance for Possible
Loan Losses at Beginning of Year $47,304 $41,694 $ 51,898 $ 56,080 $ 55,571
Loans Charged Off:
Commercial, Financial and
Agricultural (4,202) (6,531) (15,511) (7,435) (8,043)
Real Estate - Construction - - (75) (474) (482)
Real Estate - Mortgage (4,893) (6,214) (8,682) (14,956) (17,658)
Installment (5,796) (3,232) (1,648) (884) (2,602)
Lease Financing and Other (384) (485) (73) (118) (434)
-------------- ------------- ------------- ------------ -------------
Total Loans Charged Off (15,275) (16,462) (25,989) (23,867) (29,219)
-------------- ------------- ------------- ------------ -------------
Recoveries of Loans Previously
Charged Off:
Commercial, Financial and
Agricultural 2,023 565 975 1,829 833
Real Estate-Construction -- -- 40 17 --
Real Estate-Mortgage 1,203 914 1,559 494 612
Installment 1,427 1,146 808 837 1,025
Lease Financing and Other 41 19 32 48 155
-------------- ------------- ------------- ------------ -------------
Total Recoveries 4,694 2,644 3,414 3,225 2,625
-------------- ------------- ------------- ------------ -------------
Net Loans Charged Off (10,581) (13,818) (22,575) (20,642) (26,594)
-------------- ------------- ------------- ------------ -------------
Provision Charged to Expense 11,945 14,770 12,282 10,308 33,485
Additions Acquired Through
Acquisitions 2,800 4,658 -- 4,717 400
Other -- -- 89 1,435 (6,782)
-------------- ------------- ------------- ------------ -------------
Balance at End of Year $51,468 $47,304 $41,694 $51,898 $56,080
============== ============= ============= ============ =============
Ratios
Net Loans Charged Off to
Average Loans Outstanding 0.36% 0.51% 0.51% 0.96% 1.30%
Allowance for Possible Loan
Losses to Average Loans
Outstanding 1.77% 1.74% 1.70% 2.43% 2.74%
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.
</TABLE>
<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 1996 1995
----------------------- ------------------------- -----------------------
% of Loans % of Loans % of Loans
in Each in Each in Each
Amount Category Amount Category to Amount Category to
to Total Total Loans Total Loans
Loans
---------- ------------ ----------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at end of period
applicable to domestic
loans:
Commercial, Financial and $16,571 17.8% $16,643 17.8% $18,297 19.8%
Agricultural
Real Estate Construction 453 3.3 188 2.9 252 2.4
Real Estate Mortgage 17,428 71.9 16,239 72.7 13,796 71.3
Installment 4,324 7.0 3,700 6.6 2,860 6.5
Unallocated 12,692 10,533 6,489
---------- ------------ ----------- ------------- --------- -------------
TOTAL $51,468 100.0% $47,303 100.0% $41,694 100.0%
========== ============ =========== ============= ========= =============
<CAPTION>
December 31,
---------------------------------------------------
1994 1993
------------------------ -------------------------
% of Loans % of Loans
in Each in Each
Amount Category Amount Category
to Total to Total
Loans Loans
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at end of period
applicable to domestic
loans:
Commercial, Financial and 31,128 20.7% 37,481 24.2%
Agricultural
Real Estate Construction 391 1.7 948 1.8
Real Estate Mortgage 11,917 70.5 12,152 67.5
Installment 3,258 7.1 2,561 6.5
Unallocated 5,204 2,938
----------- ------------ ------------ ------------
TOTAL $51,898 100.0% $56,080 100.0%
=========== ============ ============ ============
</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
------------- -------- ------------ ------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Domestic Bank Offices:
Non-interest-bearing
demand deposits $ 673,152 $ 605,121 $ 546,871
Interest-bearing
demand deposits 746,808 2.57% 683,118 2.67% 592,102 2.93%
Savings deposits 921,828 2.33 979,975 2.36 968,266 2.56
Time deposits 1,455,246 5.06 1,561,848 5.20 1,234,150 4.91
------------- ------------- ----------------
TOTAL $3,797,034 $3,830,062 $3,341,389
============= ============= ================
</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:
<TABLE>
<CAPTION>
Time Certificates Other Time
of Deposit Deposits Total
---------------------- ------------------ -----------------
(In Thousands)
<S> <C> <C> <C>
3 months or less $ 94,197 $ -- $ 94,197
Over 3 through 6 months 40,908 -- 40,908
Over 6 through 12 month 32,755 -- 32,755
Over 12 months 26,597 -- 26,597
---------------------- ------------------ -----------------
TOTAL $ 194,457 $ -- $ 194,457
====================== ================== =================
</TABLE>
<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 1.12% 0.54% 0.91%
Return on Average Equity 16.29% 7.60% 12.40%
Common Dividend Payout Ratio 41.67% 81.48% 44.09%
Average Stockholders' Equity to
Average Assets Ratio 6.91% 7.05% 7.31%
<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.
<TABLE>
<CAPTION>
Federal Funds Purchased and
Securities Sold Under
Agreements to Repurchase Short-Term Borrowings
---------------------------- - ---------------------
<S> <C> <C>
At Year end December 31:
1997 $365,306 $164,881
1996 188,305 198,368
1995 79,344 190,623
Weighted average interest rate at year end:
1997 5.64% 5.81%
1996 5.29 5.85
1995 5.71 5.66
Maximum amount outstanding at any month's end:
1997 $395,670 $256,992
1996 226,049 217,902
1995 342,319 66,195
Average amount outstanding during the year:
1997 $196,139 $206,384
1996 163,488 180,966
1995 197,546 121,620
Weighted average interest rate during the year:
1997 5.28% 5.77%
1996 5.09 5.20
1995 5.70 5.67
</TABLE>
<PAGE>
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 Hudson United Bank. 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 31 branch offices, of which 8 are owned and 23
are leased. BOTH's main office is located in an owned facility in Poughkeepsie,
New York. BOTH occupies 32 branch offices, of which 16 are owned and 16 are
leased.
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 5,817 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 $197,775 $185,556 $176,325 $158,526 $134,289
Provision for Possible
Loan Losses 11,945 14,770 12,282 10,308 33,274
Net Income (Loss) 53,217 24,680 36,384 29,233 724
Per Share Data(1)
Earnings (Loss) Per Share:
Basic 1.80 0.81 1.27 1.10 0.03
Diluted 1.73 0.79 1.21 1.01 0.03
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 4,782,179 4,889,610 4,155,766 4,009,464 3,551,613
Long Term Debt 150,000 100,000 25,000 25,000 -
Average Equity 326,627 324,534 293,502 250,721 216,804
Average Assets 4,729,270 4,601,519 4,017,723 3,787,603 3,483,909
</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
and
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
<TABLE>
<CAPTION>
Five Year Summary of Selected Financial Data
(Dollars in thousands, except per share data) 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31
Interest and fee income $ 347,191 $ 330,337 $ 300,368 $ 252,102 $ 228,581
Interest expense 149,416 144,821 124,043 93,576 94,292
Net interest income 197,775 185,556 176,325 158,526 134,292
Provision for loan losses 11,945 14,770 12,282 10,308 33,274
Noninterest income 41,232 35,282 24,138 27,538 29,018
Securities gains/(losses) 8,730 1,018 793 93 6,512
Noninterest expense 147,282 168,091 136,523 130,583 130,900
Income before income taxes 88,510 38,995 52,451 45,266 5,645
Cumulative effect of accounting change - - - 117 -
Net income 53,217 24,680 36,384 29,233 724
PER SHARE DATA
Basic $ 1.80 $ 0.81 $ 1.27 $ 1.10 $ 0.03
Common $ 1.73 $ 0.79 $ 1.21 $ 1.01 $ 0.03
Cash dividends declared
per common share $ 0.75 $ 0.66 $ 0.56 $ 0.34 $ 0.29
Book value per common share
at year end $ 10.83 $ 11.10 $ 11.31 $ 9.60 $ 9.72
Weighted average share outstanding
(in thousands)
Basic 29,164 29,440 27,844 26,065 21,231
Diluted 30,676 31,380 30,082 28,861 23,872
Common shares outstanding
(in thousands) 28,705 29,032 28,530 27,688 23,156
AT DECEMBER 31
Securities available for sale $ 958,210 $1,172,602 $ 833,880 $ 506,395 $ 404,655
Securities held to maturity 253,107 310,871 294,057 766,691 794,678
Loans, net of unearned and deferred fees 2,926,459 2,948,974 2,592,254 2,369,188 2,015,845
Total assets 4,782,179 4,889,610 4,155,766 4,009,464 3,551,613
Deposits 3,731,733 4,025,761 3,476,693 3,356,637 2,988,460
Long-term debt 150,000 100,000 25,000 25,000 -
Total stockholders' equity 311,110 326,159 326,887 289,435 224,992
PERFORMANCE RATIOS
Net interest margin 4.56% 4.38% 4.72% 4.54% 4.19%
Efficiency ratio 56.2% 70.7% 65.4% 66.4% 78.1%
Return on average assets 1.13% 0.54% .91% 0.77% 0.02%
Return on average equity 16.29% 7.60% 12.40% 11.66% 0.33%
CAPITAL RATIOS *
Tier 1 Leverage Ratio 6.47% 5.71% 7.56% 6.28% 7.22%
Total Risk-Based Capital Ratio 15.07% 14.08% 17.21% 16.71% 14.85%
</TABLE>
- --------
* Capital ratios for the years 1992 through 1996 are as previously stated
and do not consider the retroactive application of pooling of interest
transactions.
MANAGEMENT'S DISCUSSION AND ANALYSIS
ACQUISITION SUMMARY
HUBCO began its acquisition program in the fall of 1990. Since that time, the
Company has completed twenty-two acquisitions, including five which were
completed in the first half of 1998. The Company also has three pending
acquisitions which it expects to close by the third quarter of 1998. Through
these acquisitions, the Company has grown from a $550 million asset banking
company to a community banking franchise which will have assets of approximately
$6.5 billion following 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
United). Growth was a $128 million asset 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 asset 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 was a $317 million asset 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 asset 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 asset 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 these mergers 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 asset bank headquartered in Franklin
Lakes, New Jersey, that operated 9 branch locations.
The Company consummated five acquisitions in the first half of 1998. On January
8, 1998, the Company acquired the Bank of Southington (BOS) and merged it into
Lafayette. BOS was a $135 million asset bank with 2 branch locations,
headquartered in Southington, Connecticut.
On April 24, 1998, the Company acquired Poughkeepsie Financial Corp. (PFC) and
merged PFC into HUBCO, PFC's subsidiary bank, Bank of the Hudson, a $880 million
asset institution headquartered in Poughkeepsie, New York has been established
as a separate New York banking subsidiary of HUBCO. Bank of the Hudson then had
16 branches in Rockland, Orange and Dutchess counties in New York.
On May 29, 1998, the Company acquired MSB Bancorp, Inc. (MSB) and merged MSB
into HUBCO and MSB's subsidiary bank into Bank of the Hudson. MSB was a $774
million asset institution headquartered in Goshen, New York and operated 16
branches in Orange, Putnam and Sullivan counties in New York.
The BOS, PFC and MSB acquisitions were all accounted for on the pooling of
interests accounting method and, accordingly, the supplemental statements for
periods prior to the merger have been restated to include these institutions and
their results of operations.
On February 5, 1998, the Company acquired Security National Bank & Trust Company
of New Jersey (SNB) and merged SNB into Hudson. SNB was a $86 million asset 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.
On June 26, 1998, the Company acquired 21 branches of First Union National Bank
located in New Jersey and Connecticut. The 8 Connecticut branches representing
$99.6 million in deposits were merged into Lafayette. The 13 New Jersey branches
representing $143.3 million in deposits were merged into Hudson United.
The Company, in its March 2, 1998 purchase and assumption agreement with First
Union National Bank, has agreed to acquire two additional branches in Hyde Park
and Woodstock, New York. The deposits, approximating $24 million, are expected
to be merged into Bank of the Hudson on July 24, 1998.
The Company has three additional pending acquisitions which it expects to close
in the third quarter of 1998. On March 3, 1998, the Company and Community
Financial Holding Corporation (CFHC) announced the signing of a definitive
merger agreement. Under the terms of the agreement, CFHC will merge into HUBCO
and CFHC's subsidiary bank, Community National Bank of New Jersey, will be
merged into Hudson United and will be operated as the Community National
division of Hudson United. Community National Bank of New Jersey has 8 branches
and will mark Hudson United's first entry into Camden, Burlington and Gloucester
counties in New Jersey.
On March 31, 1998, the Company announced the signing of separate definitive
merger agreements with Dime Financial Corporation (DFC) and IBS Financial
Corporation (IBS). DFC is the holding company for the Dime Savings Bank of
Wallingford, Connecticut, a $961 million asset institution which operates 11
offices in New Haven county. Under the terms of the agreement, DFC will merge
into HUBCO and DFC's subsidiary bank, Dime Savings Bank will merge into
Lafayette.
IBS is the holding company for Inter-Boro Savings and Loan Association
headquartered in Cherry Hill, New Jersey, a $734 million asset institution which
operates 10 offices in New Jersey's Suburban, Philadelphia communities.
Under the terms of the agreement, IBS will merge into HUBCO and IBS's subsidiary
bank, Inter-Boro Savings and Loan Association will merge into Hudson United.
<PAGE>
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 PRE-TAX AFTER-TAX
------------------------------------------------
Special SAIF assessment $ 6,374 $ 3,865
Merger related and
restructuring
charges--
Lafayette 13,018 9,016
Westport 8,986 5,901
-------------------------
Total special charges
in noninterest
expense $ 28,378 $ 18,782
Special provision for
possible loan losses 4,000 2,340
=========================
Total special charges $ 32,378 $ 21,122
=========================
RESULTS OF OPERATIONS FOR THE YEARS
ENDED DECEMBER 31, 1997, 1996, AND 1995
HUBCO, Inc. and Subsidiaries reported net income of $53.2 million for the year
ended December 31, 1997 compared to $24.7 million for the year 1996 as reported,
$45.8 million for the year 1996 excluding special charges and $36.4 million for
1995. Diluted earnings per share was $1.73 for 1997 compared to $0.79 for 1996
as reported and represents an 18% increase from $1.46 for 1996 excluding special
charges. Excluding special charges, 1996 diluted earnings per share increased
21% from $1.21 for 1995. Basic earnings per share was $1.80 for 1997 compared to
$0.81 as reported for 1996 and represents an 18% increase from $1.53 for 1996,
excluding special charges. Excluding special charges, 1996 basic earnings per
share increased 20% from $1.27 for 1995.
Return on average assets was 1.12% for 1997 compared to 0.54% for 1996 as
reported, 0.99% for 1996 excluding special charges and 0.91% for 1995. Return on
average equity was 16.29% for 1997 compared to 7.60% for 1996 as reported,
14.11% for 1996 excluding special charges and 12.40% for 1995.
The following table presents a summary of HUBCO'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 (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 $ -- $ -- -- % $ 679 $ 30 4.42% $ 1,385 $ 60 4.33%
deposits with banks
Federal funds sold 49,363 3,294 6.67% 50,347 2,636 5.24% 48,287 2,788 5.77%
Securities-taxable 1,368,328 90,665 6.63% 1,460,810 93,760 6.42% 1,213,539 76,652 6.32%
Securities-tax exempt(1) 11,813 782 6.62% 15,186 978 6.44% 36,075 2,138 5.93%
Loans(2) 2,915,843 252,819 8.67% 2,720,316 233,432 8.58% 2,457,377 219,632 8.94%
-------------------------------- ---------------------------------- ----------------------------------
Total Earning Assets 4,345,347 347,560 8.00% 4,247,338 330,836 7.79% 3,756,663 301,270 8.02%
Cash and due from banks 170,879 151,852 130,991
Allowance for loan
losses (47,988) (40,302) (49,166)
Premises and equipment 50,261 50,001 51,403
Other assets 210,771 192,630 127,832
========== =========== ===========
TOTAL ASSETS $4,729,270 $ 4,601,519 $ 4,017,723
========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing
transaction accounts $ 746,808 $ 19,185 2.57% $ 683,118 18,256 2.67% $ 592,102 $ 17,372 2.93%
Savings accounts 921,828 21,515 2.33% 979,975 23,107 2.36% 967,266 24,735 2.56%
Time deposits 1,455,246 73,632 5.06% 1,561,848 81,227 5.20% 1,234,150 60,564 4.91%
-------------------------------- ---------------------------------- ----------------------------------
Total Interest-Bearing
Deposits 3,123,882 114,332 3.66% 3,224,941 122,590 3.80% 2,793,518 102,661 3.67%
Short-term borrowings 402,523 22,651 5.63% 344,454 18,326 5.32% 319,166 19,229 6.02%
Long-term debt 145,206 12,433 8.56% 47,483 3,905 8.22% 25,000 2,153 8.61%
-------------------------------- ---------------------------------- ----------------------------------
Total Interest-Bearing
Liabilities 3,671,611 149,416 4.07% 3,616,878 144,821 4.00% 3,137,684 124,043 3.95%
Demand deposits 673,152 605,121 546,871
Other liabilities 57,880 54,986 39,666
Stockholders' equity 326,627 324,534 293,502
----------- ------------ -----------
TOTAL LIABILITIES
AND STOCKHOLDERS'
EQUITY $4,729,270 $ 4,601,519 $ 4,017,723
========== =========== ===========
NET INTEREST INCOME $ 198,144 $ 186,015 $177,227
========= =========== =======
NET INTEREST MARGIN(3) 4.56% 4.38% 4.72%
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
(1) The tax equivalent adjustments for the years ended December 31, 1997, 1996
and 1995 were $274, $342 and $748, 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, $117 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.
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 $16,931 $ 2,457 $19,388 $22,818 $(9,018) $13,800
Securities-taxable (6,063) 2,968 (3,095) 15,852 1,256 17,108
Securities-tax exempt (223) 26 (197) (1,332) 172 (1,160)
Federal funds sold (52) 710 658 115 (267) (152)
Interest bearing deposits (30) -- (30) (31) 1 (30)
------------------------------- -------------------------------------
Total interest and fee income 10,563 6,161 16,724 37,422 (7,856) 29,566
------------------------------- -------------------------------------
INTEREST EXPENSE:
Interest bearing transaction
accounts 1,656 (727) 929 2,520 (1,636) 884
Savings (1,359) (233) (1,592) 321 (1,939) (1,618)
Time deposits (5,437) (2,158) (7,595) 16,866 3,797 20,663
Short-term borrowings 3,222 1,103 4,325 1,452 (2,355) (903)
Long-term debt 8,361 167 8,528 1,853 (101) 1,752
------------------------------- -------------------------------------
Total interest expense 6,443 (1,848) 4,595 23,012 (2,234) 20,778
=============================== =====================================
Net Interest Income $ 4,120 $ 8,009 $12,129 $14,410 $(5,622) $ 8,788
=============================== =====================================
</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 an FTE basis was $198.1 million, a 6.5% increase
from the $186.0 million in 1996. The $186.0 million of net interest income in
1996 was a 5.0% increase 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 which exceeded 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 increase in net interest income between 1995 and 1996 was due to the fact
that the increase in the balance of interest earning assets was sufficient to
not only compensate for the reduction in yield on earning assets, but also to
produce income sufficient to exceed the increased balance of interest-bearing
liabilities.
NET INTEREST MARGIN
The net interest margin is computed by dividing net interest income on an FTE
basis by average earning assets. The Company's net interest margin was 4.56%,
4.38%, and 4.72% for 1997, 1996, and 1995, respectively. The increase in the net
interest margin from 1996 to 1997 is primarily due to an increase of 21 basis
points in the yield on securities which comprised approximately one-third of the
average earning assets and an increase of 9 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 15% of the interest-bearing
liabilities. The increase in yields on securities is primarily 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 23 basis points. The primary factor
in this decline is a decrease of 36 basis points on loan yields. 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 $27.4 million
in nonperforming loans.
The Company's average cost of all deposits for 1997 was 3.01% compared to 3.20%
for 1996 and 3.07% for 1995.
Approximately 40% of the Company's deposits are in transaction accounts, another
24% in savings accounts, and only 36% 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.
<PAGE>
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 $11.9 million for 1997 compared with $14.8
million and $12.3 million in 1996 and 1995, respectively. The decrease in the
provision in 1997 of $2.8 million, or 19%, as well as the increase in provision
from 1995 to 1996, is primarily 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 1.76%, 1.60%, and 1.61%. The allowance for loan losses as a percentage
of nonperforming loans for the last three-years was 81%, 74%, and 114%
representing consistent coverage of problem loans.
The following is a summary of the activity in the allowance for possible loan
losses, by loan category for the years indicated (in thousands):
ALLOWANCE FOR POSSIBLE LOAN LOSSES
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------------------
1997 1996 1995
-------------------------------------------------------------
<S> <C> <C> <C>
Amount of Loans Outstanding at End of Year $ 2,926,459 $ 2,948,974 $ 2,592,254
=============================================================
Daily Average Amount of Loans Outstanding $ 2,915,843 $ 2,720,316 $ 2,457,377
=============================================================
ALLOWANCE FOR LOAN LOSSES
Balance at beginning of year $ 47,304 $ 41,694 $ 51,898
Loans charged off-
Real estate mortgages 4,893 6,214 8,757
Commercial 4,202 6,531 15,511
Consumer 5,796 3,232 1,648
Other loans 384 485 73
-------------------------------------------------------------
Total loans charged off 15,275 16,462 25,989
-------------------------------------------------------------
Recoveries:
Real estate mortgages 1,203 914 1,599
Commercial 2,023 565 975
Consumer 1,427 1,146 818
Other recoveries 41 19 22
-------------------------------------------------------------
Total recoveries 4,694 2,644 3,414
-------------------------------------------------------------
Net loans charged off 10,581 13,818 22,575
-------------------------------------------------------------
Allowance of acquired companies 2,800 4,658 --
Transfers from OREO valuation allowance to
the allowance for possible loan losses -- -- 89
Provision for loan losses 11,945 14,770 12,282
-------------------------------------------------------------
Balance at end of year $ 51,468 $ 47,304 $ 41,694
=============================================================
Allowance for loan losses as a percentage of
loans outstanding at year end 1.76% 1.60% 1.61%
Net charge offs as a percentage of average
loans outstanding 0.36% 0.51% 0.51%
=============================================================
</TABLE>
<PAGE>
The following is the allocation of the allowance for possible loan losses, by
loan category (in thousands):
ALLOCATION OF THE ALLOWANCE FOR POSSIBLE LOAN LOSSES
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------
1997 1996 1995
---------------------- ----------------------- -------------------
CATEGORY CATEGORY CATEGORY
PERCENT PERCENT OF PERCENT
ALLOWANCE OF LOANS ALLOWANCE LOANS ALLOWANCE OF LOANS
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Real estate mortgages $17,428 69.0% $16,239 69.9% $13,796 68.6%
Commercial and industrial 17,024 18.7% 16,832 18.4% 18,549 20.5%
Consumer 4,324 12.3% 3,700 11.7% 2,860 10.9%
Unallocated 12,692 10,533 6,489
=====================================================================
Total $51,468 100.0% $47,304 100.0% $41,694 100.0%
=====================================================================
</TABLE>
<PAGE>
NONINTEREST INCOME
Noninterest income, excluding securities gains and losses, increased 17% to
$41.2 million for 1997 from $35.3 million in 1996. The $35.3 million in 1996 was
an increase of 46% over 1995. The increases for 1997 and 1996 are primarily a
result of growth in fee income arising 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. Also contributing to the increase in total noninterest income
from 1995 to 1997 were losses recognized by the Company in 1995 and 1996 of $7.5
million and $894, respectively. These losses were taken to further reduce the
carrying value of certain PFC loans held for sale.
Other factors effecting the increase in 1997 is an increase in trust income of
$294, or 9%, an increase in international fees of $134, or 15% and an increase
in service charges on deposit accounts of $770, or 4%. These increases were
offset by a decrease in other income of $1.3 million, or 16% primarily due to a
$622 gain resulting from the sale of a Hudson United branch in 1996.
The Company realized $8.7 million in securities gains in 1997 and $1.0 million
in 1996 and $793 in 1995. The gains realized in 1997 and 1996 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
Non interest expense decreased 12%, or $20.8 million to $147.3 million in 1997
from $168.1 million in 1996. 1996 noninterest expense had increased 23% or $31.6
million from $136.5 million in 1995. Comparability between 1997 and 1996 as well
as 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 BOS, PFC, MSB, Westport,
Lafayette, Growth, Jefferson and Urban acquisitions were accounted for as
poolings of interests 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 occurred near year-end
1996 and the UST conversion occurred in the first quarter of 1997.
Salary expense was $51.1 million, $51.9 million and $51.0 million in 1997, 1996
and 1995, respectively. The $950, or 2% increase in 1996 compared with 1995 is
primarily attributable to the aforementioned purchase acquisitions and the
subsequent decline of $832 in salary expense in 1997 is primarily attributable
to the centralization of support functions for those acquisitions. Employee
benefits as a percentage of salaries were 33% in 1997, 27% in 1996 and 32% in
1995.
Occupancy expense remained stable at approximately $13.5 million in 1997
compared with $13.6 million and $13.5 million for the years 1996 and 1995,
respectively. Equipment expense increased to $9.1 million in 1997 compared to
$8.1 million in 1996 and $8.4 million in 1995. The $932 increase in 1997 is due
to the implementation of a local area network and replacement of equipment. The
reduction in costs from 1995 to 1996 are attributable to the sale of 50% of the
Company's data processing subsidiary.
Deposit and other insurance expense declined significantly from $7.2 million in
1995 to $4.7 million in 1996 and $2.1 million in 1997. The cost reductions of
35% in 1996 and 54% in 1997 are primarily attributable to the decrease 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 to $21.2 million in 1997 from $16.5
million in 1996 and $14.0 million in 1995. The $4.8 million or 29% increase from
1996 to 1997 as well as the 18% increase from 1995 to 1996 are primarily
attributable to the payments for data processing services to the Company's
jointly owned service provider and reflect increased transaction volume
resulting from acquisitions. Other less significant expense increases have
occurred for services provided by unrelated parties due to the general growth of
the Company.
Other Real Estate Owned (OREO) expense decreased from $4.8 million in 1996 to
$4.6 million in 1997, a decline of 4%. This decrease is primarily a result of a
reduction in OREO assets of $6.9 million from 1996 to 1997. From 1995 to 1996
OREO expense increased from $2.5 million to $4.8 million, an 89% change. The
OREO expense increase from 1995 to 1996 includes a $897 increase in the
provision for possible OREO losses. The remainder of the increase is the result
of lower gains on the sale of OREO property disposition and maintenance costs
incurred during 1996.
Amortization of intangibles expense increased to $8.7 million in 1997 from $6.9
million in 1996 and $2.3 million in 1995. Each of the increases is attributable
to the increases in goodwill established for the acquisitions described
previously. The increase from 1995 to 1996 is also impacted by core deposit
intangible created, and its associated amortization, as a result of a branch
purchase completed by MSB in January 1996.
Merger related and restructuring costs were $270 in 1997, $22.0 million in 1996
and $2.9 million in 1995. The costs for 1995 and 1997 included printing, legal,
accounting, mailing, conversion costs, consulting fees and other like costs
associated with the 1995 and current pending acquisitions, respectively. For
1996, the merger related costs were comprised of 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 increased slightly to $20.0 million in 1997 from $19.1 million in
1996 and $18.3 million in 1995. The increases were due to the general growth of
the Company.
<PAGE>
FEDERAL INCOME TAXES
The income tax provision for Federal and state taxes approximates 40% for 1997,
37% for 1996 and 31% 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, as well as reversals of deferred tax
valuation allowances and tax reserves no longer deemed necessary in 1995 and
1996.
FINANCIAL CONDITION
Total assets at December 31, 1997 were $4.78 billion, a slight decrease from
assets of $4.89 billion at December 31, 1996. This reduction of assets is a
result of repayments and maturities in the investment and loan portfolios which
have not been reinvested, 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 $241.4 million in Federal funds sold and $1.21 billion in
securities, $958.2 million in its available for sale portfolio, and $253.1
million in its held to maturity portfolio that are available to meet future loan
demand. A net decline in total capital of $15.0 million resulted from the
Company's purchase of $62.3 million in common treasury shares and dividends paid
of $20.8 million, which was partially offset by the addition of $53.2 million
from net income, and a $11.5 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. Despite the decline in
total capital, the Company's Tier I Leverage ratio remained stable at 6.5% 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 as a source of liquidity and to manage interest
rate risk. 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 25% 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 agency and mortgage-backed securities with maturities
laddered over a five year period.
The following table summarizes the composition of the 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 97,662 1,575 (160) 99,077 82,635 603 (1,883) 81,355
Mortgage-backed
securities 113,337 838 (807) 113,368 151,399 905 (1.594) 150,710
------------------------------------------ -----------------------------------------
$253,107 $2,959 $ (967) $255,099 $ 310,871 $1,834 $ (3,498) $ 309,207
========================================== =========================================
AVAILABLE FOR SALE
PORTFOLIO
U.S. Government $110,485 $ 890 $ (340) $111,035 $ 132,517 $ 539 $ (1,276) $ 131,780
U.S. Government
Agencies 253,437 1,726 (249) 254,914 323,481 1,823 (2,188) 323,116
Mortgage-backed
securities 502,697 1,522 (2,499) 501,720 661,965 2,090 (8,446) 655,609
States and Political
Subdivisions 10,619 59 (26) 10,652 15,490 15 (49) 15,456
Other debt
securities 31,378 105 (8) 31,475 12,486 76 (48) 12,514
Equity securities 43,637 4,839 (62) 48,414 40,008 4,116 (9,997) 34,127
========================================== =========================================
$952,253 $9,141 $(3,184) $958,210 $1,185,947 $8,659 $(22,004) $1,172,602
========================================== =========================================
</TABLE>
<PAGE>
LOAN PORTFOLIO DISTRIBUTION BY CATEGORY
December 31,
------------------------------------
1997 1996 1995
----------- ---------- ----------
(in thousands)
Loans secured by
real estate:
Residential
mortgage loans $1,232,718 $1,232,669 $1,057,318
Residential home
equity loans 167,043 182,456 131,000
Construction loans 97,201 84,245 61,006
Commercial
mortgage loans 705,139 728,201 660,067
------------------------------------
2,202,101 2,227,571 1,909,391
------------------------------------
Commercial and
industrial loans:
Secured by real
estate 99,622 115,254 116,790
Other 420,589 411,673 397,480
------------------------------------
520,211 526,927 514,270
------------------------------------
Shoppers Charge
credit cards 91,047 61,759 57,915
Other loans to
individuals for
household, family
and other
personal
expenditures 113,100 132,717 110,678
====================================
Total Loan
Portfolio $2,926,459 $2,948,974 $2,592,254
====================================
Total loans at December 31, 1997 decreased by $22.5 million from $2.95 billion
at December 31, 1996, to $2.93 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 $23.1 million or 3% from $728.2 million in 1996 to
$705.1 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 commercial loans grew by $8.9 million
or 2.2% to $420.6 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.
ASSET QUALITY
The Company's principal earning assets are its loans, which are primarily to
businesses and individuals located in New Jersey, New York 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:
December 31,
----------------------------
(Dollars in thousands) 1997 1996 1995
---------------------------------------------------
Commercial $ 2,926 $ 3,852 $1,026
Real estate 8,752 9,581 6,471
Consumer 1,786 834 461
Credit card 2,749 1,486 592
----------------------------
Total Loans
Past-Due 90-Days or
More and Still
Accruing $16,213 $15,753 $8,550
============================
AS A PERCENT OF
TOTAL LOANS 0.55% 0.53% 0.33%
============================
AS A PERCENT OF
TOTAL ASSETS 0.34% 0.32% 0.21%
============================
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 concern about the future
collectibility 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. Excluding the credit card
receivables, 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 $16.2
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, net of estimated costs to sell. The cost to maintain the properties
during ownership, and any further declines in fair value 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 $10.8 million, $17.7 million, and $26.3 million. The decline
from year to year reflects the Company's success in disposing of these
properties.
At December 31, 1997, nonperforming loans decreased by $506 to $63.3 million in
1997 from $63.8 million in 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
<PAGE>
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 $4.6 million, $5.2 million, and $5.4 million for the years 1997,
1996, and 1995, respectively. The amount of interest income recorded on such
loans for each of the years was $1.3 million, $1.8 million, and $2.7 million,
respectively. 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.
The allowance for possible loan losses at December 31, 1997, 1996, and 1995 as a
percentage of total loans was 1.76%, 1.60%, and 1.61%, 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 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):
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
December 31,
-------------------------------------------
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonaccrual Loans $47,175 $51,565 $34,512
Renegotiated Loans 16,162 12,278 1,908
-------------------------------------------
Total Nonperforming Loans 63,337 63,843 36,420
Other Real Estate Owned 10,752 17,697 26,343
===========================================
Total Nonperforming Assets $74,089 $81,540 $62,763
===========================================
Ratios:
Nonaccrual Loans to Total Loans 1.61% 1.75% 1.33%
Nonperforming Assets to Total Assets 1.55% 1.67% 1.51%
Allowance for Loan Losses to Nonaccrual Loans 109% 92% 121%
Allowance for Loan Losses to Nonperforming Loans 81% 74% 114%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
DEPOSITS
As of December 31, 1997, Hudson United has 60 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 5 regions with each managed by a regional manager with a
loan staff.
Lafayette American has 31 branch offices located in New Haven and Fairfield
counties. Lafayette has 2 established regions.
Bank of the Hudson has 32 branch offices located in Rockland, Orange, Dutchess,
Putnam and Sullivan counties in New York.
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 summarizes the deposit base at the dates indicated (in
thousands)
December 31,
----------------------------------
1997 1996 1995
----------------------------------
Noninterest-
bearing deposits $ 739,723 $ 721,455 $ 628,432
NOW/MMDA deposits 750,528 773,722 678,996
Savings deposits 881,281 937,608 885,868
Time deposits 1,360,201 1,592,976 1,283,397
==================================
Total Deposits $3,731,733 $4,025,761 $3,476,693
==================================
The decrease in deposits from 1996 to 1997 of $294.0 million, or 7%, is
primarily attributable to the decline in the higher rate deposits related to the
Connecticut acquisitions. As noted earlier, 40% 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.
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
<PAGE>
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 - 5% 6.5%
Tier 1 Risk-Based
Capital Ratio 4% 10.4%
Total Risk-Based
Capital 8% 15.1%
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.l5 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.l9 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 43.5% for 1997
compared to 84% for 1996 and 46.3% 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 45.5%.
In 1994, the Company issued $19.1 million in convertible preferred stock in
connection with the acquisition of Washington Bancorp, Inc. Based on the terms
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.
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 the issuance 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 I, 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 l1, 2007. 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.
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 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 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. the Company 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.
The Company 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 which follows 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
<PAGE>
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.
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
- ------------------------------------------------------------
The following table shows the gap position of the Company at December 31, 1997
(in thousands):
GAP ANALYSIS
<TABLE>
<CAPTION>
DUE WITHIN DUE BETWEEN
ONE YEAR ONE AND DUE OVER NON-INTEREST
OR LESS FIVE YEARS FIVE YEARS BEARING TOTAL
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Federal Funds Sold $ 241,365 $ -- $ -- $ -- $ 241,365
Securities 539,212 506,399 165,706 -- 1,211,317
Total Loans 1,608,236 673,199 635,002 10,022 2,926,459
Non-Interest Bearing Assets -- -- -- 398,709 398,709
-----------------------------------------------------------------
Total Assets $2,388,813 $1,179,598 $800,708 $ 413,060 $4,782.179
Percent of Total Assets 50.0% 24.7% 16.7% 8.6% 100.0%
SOURCE OF FUNDS
Interest-Bearing Deposits 2,414,046 476,776 101,188 -- 2,992,010
Short-Term Borrowings 522,546 -- - -- 522,546
Long-Term Debt -- -- 157,641 -- 157,641
Non-Interest Bearing Deposits -- -- -- 739,723 739,723
Other Liabilities -- -- -- 59,149 59,149
Stockholders' Equity -- -- -- 311,110 311,110
-----------------------------------------------------------------
Total Source of Funds $2,936,592 $ 476,776 $ 258,829 $1,109,982 $4,782,179
Percent of Total Source of Funds 61.4% 10.0% 5.4% 23.2% 100.0%
==========================================================================================================
Interest Rate Sensitivity Gap (547,779) $ 702,822 $ 541,879 $ (696,922) $ --
- ----------------------------------------------------------------------------------------------------------
Cumulative Interest Rate Sensitivity Gap $ (547,779) $ 155,043 $ 696,922 $ -- $ --
- ----------------------------------------------------------------------------------------------------------
</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. 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
become 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 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 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.
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
============================
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, (in thousands, except share data) 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 206,399 $ 158,963
Federal funds sold 241,365 58,390
-----------------------------
TOTAL CASH AND CASH EQUIVALENTS 447,764 217,353
Investment and mortgage-backed securities available for sale, at market value 958,210 1,172,602
Investment and mortgage-backed securities held to maturity, at cost
(market value of $255,099 and $309,207 for 1997 and 1996, respectively) 253,107 310,871
Loans:
Real estate mortgage 2,020,723 2,058,828
Commercial and financial 546,878 543,867
Consumer credit 267,811 284,520
Credit card 91,047 61,759
-----------------------------
TOTAL LOANS 2,926,459 2,948,974
Less: Allowance for possible loan losses (51,468) (47,304)
-----------------------------
NET LOANS 2,874,991 2,901,670
Premises and equipment, net 66,369 67,692
Other real estate owned 10,752 17,697
Intangibles, net of amortization 53,505 62,060
Other assets 117,481 139,665
-----------------------------
TOTAL ASSETS $4,782,179 $4,889,610
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 739,723 $ 721,455
Interest bearing 2,992,010 3,304,306
-----------------------------
TOTAL DEPOSITS 3,731,733 4,025,761
Short-term borrowings 530,187 386,673
Other liabilities 59,149 51,017
-----------------------------
TOTAL LIABILITIES 4,321,069 4,463,451
-----------------------------
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; 28,942,165 shares
issued and 28,705,621 shares outstanding in 1997 and 29,278,737 shares
issued and 29,031,762 shares outstanding 1996 51,459 50,904
Additional paid-in capital 154,770 187,841
Retained earnings 107,888 98,521
Treasury stock, at cost, 236,544 shares in 1997 and 246,975 shares in 1996 (5,878) (6,074)
Employee stock awards and unallocated shares held by ESOP, at cost (668) (883)
Unrealized gain (loss) on securities
available for sale, net of income taxes 3,414 (8,110)
-----------------------------
TOTAL STOCKHOLDERS' EQUITY 311,110 326,159
-----------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $4,782,179 $4,889,610
=============================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
============================
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended December 31, (in thousands, except per share data) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST AND FEE INCOME:
Loans $252,724 $233,315 $219,478
Investment and mortgage-backed securities 91,173 94,396 78,042
Other 3,294 2,666 2,848
----------------------------------
TOTAL INTEREST AND FEE INCOME 347,191 330,377 300,368
----------------------------------
INTEREST EXPENSE:
Deposits 114,332 122,590 102,661
Short-term borrowings 22,651 18,326 19,229
Subordinated and other debt 12,433 3,905 2,153
----------------------------------
TOTAL INTEREST EXPENSE 149,416 144,821 124,043
----------------------------------
NET INTEREST INCOME 197,775 185,556 176,325
PROVISION FOR POSSIBLE LOAN LOSSES 11,945 14,770 12,282
----------------------------------
NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE
LOAN LOSSES 185,830 170,786 164,043
----------------------------------
NONINTEREST INCOME:
Trust department income 3,445 3,151 3,579
Service charges on deposit accounts 20,308 19,538 16,926
Shoppers Charge 9,072 4,138 2,668
Securities gains 8,730 1,018 793
Loss on sale of commercial loans -- (894) (7,546)
Other income 8,407 9,349 8,511
----------------------------------
TOTAL NONINTEREST INCOME 49,962 36,300 24,931
NONINTEREST EXPENSE:
Salaries 51,093 51,925 50,975
Pension and other employee benefits 16,773 14,235 16,444
Occupancy expense 13,481 13,569 13,527
Equipment expense 9,060 8,128 8,381
Deposit and other insurance 2,131 4,683 7,183
Special SAIF assessment -- 6,374 --
Outside services 21,223 16,470 13,961
Other real estate owned expense 4,580 4,760 2,514
Amortization of intangibles 8,641 6,875 2,318
Merger related and restructuring costs 270 22,004 2,907
Other 20,030 19,068 18,313
----------------------------------
TOTAL NONINTEREST EXPENSE 147,282 168,091 136,523
----------------------------------
INCOME BEFORE INCOME TAXES 88,510 38,995 52,451
PROVISION FOR INCOME TAXES 35,293 14,315 16,067
----------------------------------
NET INCOME $ 53,217 $ 24,680 $ 36,384
==================================
EARNINGS PER SHARE:
Basic $1.80 $0.81 $1.27
Diluted $1.73 $0.79 $1.21
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 29,164 29,440 27,844
Diluted 30,676 31,380 30,082
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
============================
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY For the Years Ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK
--------------- ------------ ADDITIONAL
(in thousands, except share PAID-IN RETAINED
data) SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 841,761 $ 23,542 26,421,094 $ 47,040 $ 186,784 $ 68,458
============================================================================
Net income - 1995 -- -- -- -- -- 36,384
Cash dividends - common -- -- -- -- -- (10,813)
Cash dividends - preferred -- -- -- -- -- (901)
Stock dividend of acquired
company -- -- 90,405 99 1,302 (1,401)
Issuance of common stock for-
Stock options exercised -- -- 104,590 186 359 --
Warrants exercised -- -- 663,353 1,179 319 --
Dividend reinvestment and
stock purchase plan -- -- 13,053 21 158 --
Conversion and redemption of
preferred stock (799,911) (19,357) 69,757 124 538 --
Purchase of treasury stock:
Preferred -- -- -- -- -- --
Common -- -- (92,138) (163) 163 --
Effect of compensation plans -- -- -- -- 64 63
Regulatory approved transfer of
acquired subsidiary -- -- -- -- (13,028) 13,028
Change in unrealized gain
(loss) on securities
available for sale -- -- -- -- -- --
----------------------------------------------------------------------------
Balance at December 31, 1995 41,850 4,185 27,270,114 48,486 176,659 104,818
============================================================================
Net income - 1996 -- -- -- -- -- 24,680
Cash dividends - common -- -- -- -- -- (17,915)
Cash dividends - preferred -- -- -- -- -- (825)
3% stock dividend -- -- 15,269 27 680 (12,364)
Issuance of common stock for-
Stock options exercised -- -- 275,929 489 (715) --
Warrants exercised -- -- 143,836 255 207 --
Dividend reinvestment and
stock purchase plan -- -- 7,694 14 162 --
Common stock offering -- -- 1,230,185 2,187 17,378 --
Preferred stock conversion (2,250) (225) 74,739 133 92 --
Cash in lieu of fractional
shares -- -- -- -- -- (34)
Issuance and retirement of
treasury stock -- -- (387,763) (687) (7,219) --
Purchase of treasury stock -- -- -- -- -- --
Effect of compensation plans -- -- -- -- 1,110 161
Change in unrealized gain
(loss) on securities
available for sale -- -- -- -- -- --
Other transactions -- -- -- -- (513) --
----------------------------------------------------------------------------
============================================================================
Balance at December 31, 1996 39,600 3,960 28,630,003 50,904 187,841 98,521
============================================================================
</TABLE>
EMPLOYEE
STOCK
AWARDS AND UNREALIZED
UNALLOCATED GAIN
SHARES (LOSS) ON
HELD SECURITIES
(in thousands, except share TREASURY IN ESOP, AVAILABLE
data) STOCK AT COST FOR SALE TOTAL
-----------------------------------------------
Balance at December 31, 1994 $(16,219) $ (2,940) $(17,230) $ 289,435
===============================================
Net income - 1995 -- -- -- 36,384
Cash dividends - common -- -- -- (10,813)
Cash dividends - preferred -- -- -- (901)
Stock dividend of acquired
company -- -- -- --
Issuance of common stock for-
Stock options exercised 399 -- -- 944
Warrants exercised -- -- -- 1,498
Dividend reinvestment and
stock purchase plan -- -- -- 179
Conversion and redemption of
preferred stock 16,214 -- -- (2,481)
Purchase of treasury stock:
Preferred (71) (71)
Common (6,923) -- -- (6,923)
Effect of compensation plans (141) 1,207 -- 1,193
Regulatory approved transfer of
acquired subsidiary -- -- -- --
Change in unrealized gain
(loss) on securities
available for sale -- -- 18,443 18,443
-----------------------------------------------
Balance at December 31, 1995 (6,741) (1,733) 1,213 326,887
===============================================
Net income - 1996 -- 24,680
Cash dividends - common -- (17,915)
Cash dividends - preferred -- (825)
3% stock dividend 11,657 -- -- --
Issuance of common stock for-
Stock options exercised 802 -- -- 576
Warrants exercised 74 -- -- 536
Dividend reinvestment and
stock purchase plan -- -- -- 176
Common stock offering -- -- -- 19,565
Preferred stock conversion -- -- -- --
Cash in lieu of fractional
shares -- -- -- (34)
Issuance and retirement of
treasury stock 7,906 -- -- --
Purchase of treasury stock (19,770) -- -- (19,770)
Effect of compensation plans (2) 850 -- 2,119
Change in unrealized gain
(loss) on securities
available for sale -- -- (9,323) (9,323)
Other transactions -- -- -- (513)
-----------------------------------------------
===============================================
Balance at December 31, 1996 (6,074) (883) (8,110) 326,159
===============================================
See Notes to Consolidated Financial Statements.
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
============================
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
(in thousands, except share --------------- ------------ PAID-IN RETAINED TREASURY
data) SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS STOCK
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income - 1997 -- -- -- -- -- 53,217 --
Cash dividends - common -- -- -- -- -- (20,177) --
Cash dividends - preferred -- -- -- -- -- (650) --
3% stock dividend -- -- 287,033 510 9,896 (23,029) 12,709
Issuance of common stock for -
Stock options exercised -- -- 21,685 39 (6,386) -- 9,112
Warrants exercised -- -- -- -- (48) -- 65
Dividend reinvestment and
stock purchase plan -- -- 3,444 6 77 -- --
Preferred stock conversion (38,350) (3,835) -- -- (36,513) -- 40,348
Cash in lieu of fractional -- -- -- -- (97) -- --
shares
Purchase of treasury stock -- -- -- -- -- -- (62,338)
Effect of compensation plans -- -- -- -- -- 6 300
Change in unrealized gain
(loss) on securities -- -- -- -- -- -- --
available for sale
---------------------------------------------------------------------------------
Balance at December 31, 1997 1,250 $ 125 28,942,165 $51,459 $154,770 $107,888 $(5,878)
=================================================================================
<CAPTION>
EMPLOYEE
STOCK UNREALIZED
AWARDS AND GAIN
UNALLOCATED (LOSS) ON
STOCK HELD SECURITIES
(in thousands, except share IN ESOP, AT AVAILABLE
data) COST FOR SALE TOTAL
- ----------------------------------------------------------------
<S> <C> <C> <C>
Net income - 1997 -- -- 53,217
Cash dividends - common -- -- (20,177)
Cash dividends - preferred -- -- (650)
3% stock dividend -- -- 86
Issuance of common stock for -
Stock options exercised -- -- 2,765
Warrants exercised -- -- 17
Dividend reinvestment and
stock purchase plan -- -- 83
Preferred stock conversion -- -- --
Cash in lieu of fractional
shares -- -- (97)
Purchase of treasury stock -- -- (62,338)
Effect of compensation plans 215 -- 521
Change in unrealized gain
(loss) on securities
available for sale -- 11,524 11,524
-------------------------------
Balance at December 31, 1997 $(668) $ 3,414 $ 311,110
===============================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
============================
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended December 31, 1997, 1996, and 1995 (in thousands) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 53,217 $ 24,680 $ 36,384
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for possible loan losses 11,945 14,770 12,282
Provision for depreciation and amortization 16,381 16,113 9,515
Amortization of securities premiums, net 2,869 3,794 897
Securities gains (8,730) (1,018) (793)
Gain on sale of assets (1,178) (486) (1,530)
Loss on sale of commercial loans -- 894 7,546
Gain on sale of interest in subsidiary -- -- (817)
Deferred income tax provision (benefit) 5,371 (2,499) 7,476
Net change in loans originated for sale 1,852 1,863 (289)
Decrease (increase) in other assets 9,964 17,146 (18,192)
Increase (decrease) in other liabilities 8,025 (5,191) 17,728
----------------------------------------------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 99,716 70,066 70,207
----------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investment and mortgage-backed securities
Available for sale 271,105 274,837 248,032
Held to maturity -- -- 3,000
Proceeds from repayments and maturities of investment and mortgage-backed
securities:
Available for sale 246,265 193,994 124,679
Held to maturity 65,867 58,300 135,564
Purchases of investment and mortgage-backed securities:
Available for sale (285,463) (828,180) (230,594)
Held to maturity -- (47,929) (111,728)
Net cash acquired through acquisitions -- 459,046 20,934
Net increase in loans other than purchases and sales (44,263) (264,449) (280,693)
Loans purchased (29,704) -- (8,257)
Loans sold 87,397 62,456 30,814
Proceeds from sales of premises and equipment 107 1,235 --
Purchases of premises and equipment (6,801) (10,811) (8,355)
Decrease in other real estate owned 7,944 10,179 9,649
----------------------------------------------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 312,454 (91,322) (66,955)
----------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in demand deposits, NOW accounts and savings accounts (64,849) (81,774) (98,201)
Net (decrease) increase in certificates of deposit (229,179) (101,920) 196,450
Net increase (decrease) in short-term borrowings 143,569 100,004 (28,763)
Repayment of ESOP loan (250) (310) (309)
Proceeds from the issuance of capital trust securities and
subordinated debt 49,250 73,738 --
Proceeds from the issuance of common stock 2,865 20,340 2,692
Redemption of convertible preferred stock -- -- (2,481)
Cash dividends paid (20,827) (18,740) (11,714)
Purchase of treasury stock (62,338) (19,770) (6,994)
Proceeds from sale of interest in subsidiary -- -- 4,215
----------------------------------------------------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (181,759) (28,432) 54,895
----------------------------------------------------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 230,411 (49,688) 58,147
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 217,353 267,041 208,894
----------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 447,764 $ 217,353 $ 267,041
====================================================
DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest $ 152,213 $ 144,112 $ 119,559
Income taxes 27,772 18,456 12,253
====================================================
Liabilities assumed in purchase business combinations and branch
acquisitions $ -- $ 763,580 $ 21,809
====================================================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
============================
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 three banking subsidiaries,
Hudson United Bank (Hudson United), Lafayette American Bank (Lafayette) and Bank
of the Hudson, with branch locations in New Jersey, Connecticut and New York.
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 of yield.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance is maintained at a level believed adequate by management to absorb
potential losses in the loan portfolio. Management's determination of the
adequacy of the allowance is based on an evaluation of the portfolio, past loan
loss experience, current economic conditions, volume, growth and composition of
the loan portfolio and other relevant factors. The allowance is increased by
provisions charged to expense and reduced by net charge-offs.
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 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 for 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
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
============================
amortized, on a straight-line basis, over the estimated average remaining lives
of such intangible assets (primarily five years).
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, all of the outstanding shares of Westport
Bancorp, Inc. (Westport) on December 13, 1996, and all of the outstanding shares
of Poughkeepsie Financial Corp. (PFC) on April 24, 1998. Lafayette, Westport and
PFC 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 these
valuation allowances with respect to its 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.
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 impact 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 common share is computed by dividing net income, less
dividends on the convertible preferred stock, by the weighted average number of
common shares outstanding during the year. 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 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. 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 to 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 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.
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
============================
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.
On January 8, 1998, the Company acquired all the outstanding shares of The Bank
of Southington ("BOS") based in Southington, Connecticut. Each share of BOS
common stock outstanding was converted into .618 shares of the Company's common
stock for a total of 755,366 shares. At the time of the acquisition, BOS had
approximately $135 million in assets.
On April 24, 1998, the Company acquired all the outstanding shares of
Poughkeepsie Financial Corp. ("PFC") based in Poughkeepsie, New York. Each share
of PFC's common stock outstanding was converted into 0.30 shares of the
Company's common stock for a total of 3,481,903 shares. At the time of the
acquisition, PFC had approximately $830 million in assets.
On May 29, 1998, the Company acquired all the outstanding shares of MSB Bancorp
("MSB") based in Goshen, New York. Each share of MSB's common stock outstanding
was converted into 1.0209 shares of the Company's common stock for a total of
2,848,367 shares. At the time of the acquisition MSB had approximately $745
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-
1997 1996 1995
---------------------------------
Net interest income-
The Company, as
previously
reported(1) $139,110 $130,252 $81,102
Growth -- -- 5,969
Lafayette(2) -- -- 31,442
Westport(2) -- -- 14,698
BOS 6,733 5,984 5,662
PFC(2) 27,448 25,763 23,484
MSB 24,484 23,557 13,968
---------------------------------
$197,775 $185,556 $176,325
=================================
Net income (loss)-
The Company, as
previously
reported(1) $48,180 $20,395 $23,684
Growth -- -- 198
Lafayette(2) -- -- 6,715
Westport(2) -- -- 3,968
BOS 327 1,138 1,043
PFC(2) 2,429 1,436 (1,585)
MSB 2,281 1,711 2,361
---------------------------------
$53,217 $24,680 $36,384
=================================
(1) Represents amounts previously reported by the Company as restated for the
elimination of preferred stock dividends paid by MSB to the Company of
$1.13 million in 1997 and $1.10 million in 1996.
(2) Represents amounts previously reported by Lafayette, Westport and PFC as
restated for certain changes in the timing of deferred tax asset valuation
allowance changes (see Note 1 Federal Income Taxes).
Results of operations have been included for periods subsequent to the
acquisition date for business combinations that 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.
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 was a
$111 million commercial bank with 4 branch locations in Fairfield County,
Connecticut.
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.
Pro forma results of operations have not been disclosed herein because the
Hometown, UST Bank/Connecticut and SNB 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.
(3) CASH AND DUE FROM BANKS
The Company's subsidiary banks are required to maintain an average reserve
balance as established by the Federal Reserve Board. The amount of those reserve
balances for the reserve computation period, which included December 31, 1997
was approximately $12.6 million.
(4) INVESTMENT AND MORTGAGE-BACKED SECURITIES
The amortized cost and estimated market value of investment and mortgage-backed
securities as of December 31, are summarized as follows (in thousands):
1997
--------------------------------------------
GROSS UNREALIZED ESTIMATED
AMORTIZED ------------------ MARKET
COST GAINS (LOSSES) VALUE
- ------------------------------------------------------------------
AVAILABLE FOR SALE
U.S. Government $ 110,485 $ 890 $ (340) $111,035
U.S. Government
agencies 253,437 1,726 (249) 254,914
Mortgage-backed
securities 502,697 1,522 (2,499) 501,720
States and political
subdivisions 10,619 59 (26) 10,652
Other debt securities 31,378 105 (8) 31,475
Equity securities 43,637 4,839 (62) 48,414
--------------------------------------------
$ 952,253 $ 9,141 $(3,184) $958,210
============================================
HELD TO MATURITY
U.S. Government $ 42,108 $ 546 $ -- $ 42,654
U.S. Government
Agencies 97,662 1,575 (160) 99,077
Mortgage-backed
securities 113,337 838 (807) 113,368
--------------------------------------------
$ 253,107 $ 2,959 $ (967) $255,099
============================================
1996
--------------------------------------------
GROSS UNREALIZED ESTIMATED
AMORTIZED ------------------ MARKET
COST GAINS (LOSSES) VALUE
- ------------------------------------------------------------------
AVAILABLE FOR SALE
U. S. Government $ 132,517 $ 539 $ (1,276) $ 131,780
U. S. Government
agencies 323,481 1,823 (2,188) 323,116
Mortgage-backed
securities 661,965 2,090 (8,446) 655,609
States and political
subdivisions 15,490 15 (49) 15,456
Other debt securities 12,486 76 (48) 12,514
Equity securities 40,008 4,116 (9,997) 34,127
--------------------------------------------
$1,185,947 $ 8,659 $(22,004) $1,172,602
============================================
HELD TO MATURITY
U. S. Government $ 76,837 $ 326 $ (21) $ 77,142
U. S. Government
agencies 82,635 603 (1,883) 81,355
Mortgage-backed
securities 151,399 905 (1,594) 150,710
--------------------------------------------
$ 310,871 $ 1,834 $ (3,498) $ 309,207
============================================
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
============================
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.
AMORTIZED ESTIMATED
COST MARKET
VALUE
--------------------------
(in thousands)
AVAILABLE FOR SALE
Due in one year or less $ 57,482 $ 57,466
Due after one year through five years 261,451 262,926
Due after five years through ten years 61,611 62,207
Due after ten years 25,375 25,478
--------------------------
405,919 408,077
Mortgage-backed securities 502,697 501,720
Equity securities 43,637 48,413
--------------------------
$ 952,253 $ 958,210
==========================
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 113,337 113,368
--------------------------
$ 253,107 $ 255,099
==========================
Sales of securities for the year ended December 31 are summarized as follows (in
thousands):
1997 1996 1995
- ------------------------------------------------------------------
Proceeds from sales 271,105 274,837 248,032
=====================================
Gross gains from sales 9,173 2,342 2,728
=====================================
Gross losses from sales (443) (1,324) (1,935)
=====================================
Securities with a book value of $409.5 million and $259.4 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.
A summary of the activity in the allowance for possible loan losses is as
follows (in thousands):
1997 1996 1995
- ----------------------------------------------------------------
Balance at January 1 $ 47,304 $ 41,694 $ 51,898
Additions (deductions):
Provision charged to
expense 11,945 14,770 12,282
Allowance acquired through
mergers or acquisitions 2,800 4,658 --
Recoveries on loans
previously charged off 4,694 2,644 3,414
Loans charged off (15,275) (16,462) (25,989)
Transfers from OREO
valuation allowance to
the allowance for loan
losses -- -- 89
--------------------------------
Balance at December 31 $ 51,468 $ 47,304 $ 41,694
================================
(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.
(in thousands) DECEMBER 31,
----------------------------
1997 1996
- ---------------------------------------------------------------
Nonaccrual loans $ 47,175 $ 51,565
Renegotiated loans 16,162 12,278
----------------------------
Total nonperforming loans $ 63,337 $ 63,843
============================
90 days or more past due and
still accruing $ 16,389 15,840
============================
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
----------------------------
Gross interest income which would
have been recorded under original
terms $ 4,568 $ 5,243 $ 5,429
============================
Gross interest income recorded
during the year $ 1,272 $ 1,839 $ 2,710
============================
At December 31, 1997 and 1996 impaired loans, comprised principally of
nonaccruing loans, totaled $63.4 million and $55.6 million, respectively. The
allowance for possible loan losses related to such impaired loans was $10.5
million and $6.7 million at December 31, 1997 and 1996, respectively. The
average balance of impaired loans for 1997 and 1996 was $58.0 million and $45.5
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 $ 15,240
New loans issued 2,160
Repayment of loans (3,871)
Loans to former directors (674)
==============
Balance at December 31 $ 12,855
==============
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
============================
(8) PREMISES AND EQUIPMENT
The following is a summary of premises and equipment at December 31 (in
thousands):
1997 1996
- -----------------------------------------------------------
Land $ 12,921 $ 12,415
Premises 65,461 64,758
Furniture, fixtures and equipment 49,013 49,044
-----------------------
127,395 126,217
Less- Accumulated depreciation (61,026) (58,525)
=======================
$ 66,369 $ 67,692
=======================
Depreciation and amortization expense for premises and equipment for 1997, 1996
and 1995 amounted to $7.6 million, $7.4 million and $7.0 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 $ 23,910 $ 15,575 $ 7,709
Deferred 5,371 (2,499) 7,476
State 6,012 1,239 882
===============================
Total provision for
income taxes $ 35,293 $ 14,315 $ 16,067
===============================
A reconciliation of the provision for income taxes, as reported, with the
Federal income tax at the statutory rate for the year ended December 31 is as
follows (in thousands):
1997 1996 1995
- ---------------------------------------------------------------
Tax at statutory rate $ 30,978 $ 13,648 $ 18,358
Increase (decrease) in taxes
resulting from-
Tax-exempt income (264) (487) (577)
State income taxes, net of
Federal income tax benefit 3,908 805 573
Reversal of reserves no
longer deemed necessary - - (2,076)
Change in valuation
allowance - (1,250) (4,822)
Bad debt deduction - - 1,768
Other, net 671 1,599 2,843
--------------------------------
Provision for income taxes $ 35,293 $ 14,315 $ 16,067
================================
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 $ 16,337 $ 18,200 $ 19,615
Federal and state tax
operating loss carry
forwards 9,837 14,844 17,308
Director and officer
compensation plans 1,281 1,388 1,401
Purchased mortgage
servicing rights 1,046 1,067 1,140
Allowance for losses on
other real estate 804 1,189 832
Depreciation 555 296 (196)
Unrealized (gain) loss on
available for sale
securities (5,944) 1,121 (1,154)
Acquisition expenses 3,081 3,278 95
Other 9,110 8,379 6,049
-------------------------------
Valuation Allowance -- -- (1,250)
-------------------------------
Net Deferred Tax Asset $ 36,107 $ 49,762 $ 43,840
===============================
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 $34.0 million in Federal
and state carryforwards available for tax reporting purposes resulting from the
Lafayette and PFC business combinations which are subject to certain limitations
as to the amount which may be utilized in any given year.
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
============================
(10) BENEFIT 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 (in thousands):
1997 1996 1995
- -------------------------------------------------------------
Service cost - benefits
earned during the year $ 1,294 $ 1,055 $ 876
Interest cost on projected
benefit obligation 1,365 1,543 1,443
Actual return on plan assets (3,492) (2,957) (4,162)
Net amortization and deferral 1,639 1,382 2,800
===============================
Net periodic pension cost $ 806 $ 1,023 $ 957
===============================
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%-7.75% 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%-8.5% 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 (in
thousands):
1997 1996
-----------------------
Actuarial present value of benefit
obligations-
Accumulated benefit obligation,
including vested benefits of
$19,800 and$19,667 for 1997 and
1996 respectively $ 21,185 $ 20,148
=======================
Projected benefit obligation for
service rendered to date 22,179 23,353
Plan assets at fair value 26,044 24,113
-----------------------
Projected benefit obligation less
than plan assets 3,865 760
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 976 1,201
Unrecognized net asset at
December 3 (2,419) (258)
-----------------------
Prepaid pension costs included in
other assets $ 2,188 $ 1,326
=======================
The Company has 401(k) savings plans 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 these Plans
were approximately $923, $791 and $716 in 1997, 1996 and 1995, respectively.
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.
Except for the pension 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 $194.5 million and $180.9
million in 1997 and 1996, respectively.
The scheduled maturities of certificates of deposit are as follows at December
31, 1997 (in thousands):
1998 $1,043,880
1999 172,735
2000 109,020
2001 13,019
2002 and thereafter 21,547
----------
$1,360,201
==========
(12) SHORT-TERM BORROWINGS
The following is a summary of borrowings at December 31 (in thousands):
1997 1996
- ----------------------------------------------------------------
Federal Home Loan Bank advances $159,500 $194,800
Securities sold under agreements to
repurchase 365,306 170,805
Federal funds purchased -- 17,500
Treasury, Tax and Loan note 2,574 893
Other borrowings 2,807 2,675
========================
Total borrowings $530,187 $386,673
========================
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 $ 177,256 $ 134,325
Average interest rate during the year 5.39% 4.93%
Maximum month-end balance during the
year 392,670 211,543
Securities underlying the agreements at December 31 (in thousands):
1997 1996
- ----------------------------------------------------------------
Carrying value $ 382,446 $ 170,883
Estimated fair value $ 383,876 $ 171,003
(13) SUBORDINATED DEBT
In September, 1996, the Company sold $75.0 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
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 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 interests in the
assets of HUBCO Capital Trust I, 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.
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
============================
(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 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 in 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.
In connection with the PFC and MSB acquisitions, all of the outstanding PFC and
MSB options were converted into options to purchase common stock of the Company.
Transactions under these plans are summarized as follows:
NUMBER OF OPTION PRICE
SHARES PER SHARE
- ------------------------------------------------------------------
Outstanding, December 31, 1995 880,609 $4.02-$19.80
Granted 151,557 $17.07-$20.26
Exercised (98,928) $4.02-$12.46
Forfeited/Cancelled (1,236) $15.06
Westport options converted 316,227 $5.84-$17.53
------------------------------
Outstanding, December 31, 1996 1,248,229 $5.84-$20.26
------------------------------
Granted 152,369 $23.79-$33.81
Exercised (394,219) $5.84-$17.53
Forfeited/Cancelled (21,219) $16.49
------------------------------
Outstanding, December 31, 1997 985,160 $5.84-$33.81
------------------------------
As of December 31, 1997, 676,956 shares are exercisable. In connection with the
Lafayette, Growth and BOS 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 (in thousands, except share data):
1997 1996
- ----------------------------------------------------------------
Net income As reported $ 53,217 $ 24,680
Pro forma 52,283 24,543
Basic earnings per share As reported $ 1.80 $ 0.81
Pro forma 1.77 0.81
Diluted earnings per share As reported $ 1.73 $ 0.79
Pro forma 1.70 0.78
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 2.00% to 4.00% for 1996;
risk-free interest rates of 5.90% to 6.73% for 1997 and 5.50% to 6.84% for
1996;volatility factors of the expected market price of the Company's common
stock of approximately 29% in both 1997 and 1996 and an expected life of 7 years
in both 1997 and 1996.
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, $424 and $455 in 1997, 1996 and 1995,
respectively.
The Company maintains an Employee Stock Ownership Plan (ESOP) which was
originally established by MSB. The ESOP loan calls for equal annual payments on
December 31, 1998 and 1999 with interest at a variable rate equal to the prime
rate. Loan payments are funded principally from the Company's contributions to
the ESOP on behalf of eligible employees, which are charged to expense as
incurred. Shares purchased by the ESOP are held in a suspense account until
allocation to individual participants and are reflected as a reduction of
stockholders' equity.
The Company has a Bank Recognition and Retention Plan and Trust (BRP), which was
originally established by MSB, in which shares of the Company's common stock may
be granted to BRP participants. Awards vest at a rate of 20% per year commencing
one year from the date of the award. The expense recognized for the BRP and ESOP
amounted to $380, $441, and $472 for the years ended December 31, 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.
(16) EARNINGS PER SHARE
In the fourth quarter of 1997, the Company adopted SFAS No. 128, "Earnings Per
Share." This statement established 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 share data):
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
============================
Year Ended
December 31,
--------------------------------
1997 1996 1995
--------------------------------
Basic Earnings Per Share
- -------------------------------
Net income $ 53,217 $ 24,680 $ 36,384
Less: Preferred stock
dividends 650 825 901
--------------------------------
Net income available to
common stockholders $ 52,567 $ 23,855 $ 35,483
Weighted average common
shares outstanding 29,164 29,440 27,844
Basic Earnings Per Share $ 1.80 $ 0.81 $ 1.27
================================
Diluted Earnings Per Share
- -------------------------------
Net income $ 53,217 $ 24,680 $ 36,384
Weighted average common
shares outstanding 29,164 29,440 27,844
Effect of Dilutive Securities:
Convertible Preferred Stock 979 1,315 1,425
Warrants 26 36 142
Stock Options 507 589 671
--------------------------------
30,676 31,380 30,082
Diluted Earnings Per Share $ 1.73 $ 0.79 $ 1.21
================================
(17) RESTRICTIONS ON BANK DIVIDENDS, LOANS OR ADVANCES
Certain restrictions exist regarding the ability of Hudson United, Lafayette and
Bank of the Hudson 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. Office of
Thrift Supervision (OTS) regulations, which apply to Bank of the Hudson, allow
for a institution that has capital in excess of all fully phased-in regulatory
capital requirements before and after a proposed capital distribution and that
is not otherwise restricted in making capital distributions, to make capital
distributions during a calendar year equal to the greater of (i) 100% of its net
earnings to date during the calendar year plus the amount that would reduce by
one-half its "surplus capital ratio" at the beginning of the calendar year, or
(ii) 75% of its net earnings for the previous four quarters. As of December 31,
1997, $118.9 million was available for distribution to the Company from Hudson
United, $11.7 million was available for distribution to the Company from
Lafayette and approximately $9.7 was available for distribution to the Company
from Bank of the Hudson.
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.
In conformity with the OTS regulations, a "liquidation account" was established
for Bank of the Hudson and acquired banks at the time of their conversion to the
stock form of ownership. In the unlikely event of a complete liquidation of Bank
of the Hudson, holders of savings accounts with qualifying deposits, who
continue to maintain their savings accounts, would be entitled to a distribution
from the "liquidation account" in an amount equal to their then current adjusted
savings account balance before any liquidation distribution could be made with
respect to capital stock. The balance in the "liquidation account" was $12.3
million at December 31, 1997, for Bank of the Hudson. This amount may not be
utilized for the payment of cash dividends to the Company.
(18) LEASES
Total rental expense for all leases amounted to approximately $5.5 million $6.2
million and, $5.5 million in 1997, 1996 and 1995, respectively.
At December 31, 1997, the minimum total rental commitments under all
noncancellable leases on bank premises with initial or remaining terms of more
than one year were as follows (in thousands):
1998 $ 4,652
1999 4,060
2000 3,772
2001 2,981
2002 and Thereafter 15,456
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 $835.6 million and $27.1 million,
respectively. Commitments under commercial letters of credit used to facilitate
customers trade transactions were $1.8 million at December 31, 1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
HUBCO, INC. AND SUBSIDIARIES
============================
(20) HUBCO, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION
(in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
BALANCE SHEETS 1997 1996
----------------------------
<S> <C> <C>
ASSETS:
Cash $ 13,282 $ 12,550
Securities-
Available for sale 18,088 5,129
Held to maturity 803 1,307
Investment in subsidiaries 408,805 390,197
Accounts receivable 8,736 334
Premises and equipment, net 5,955 5,541
Other assets 22,758 20,512
-------------------------
TOTAL ASSETS $478,427 $435,570
=========================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable $ 5,293 $ 412
Notes payable-subsidiary 3,004 3,626
Accrued taxes and other liabilities 9,020 5,373
-------------------------
TOTAL LIABILITIES 17,317 9,411
-------------------------
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 311,110 326,159
-------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $478,427 $435,570
=========================
<CAPTION>
YEAR ENDED DECEMBER 31,
(in thousands) -------------------------------------
STATEMENTS OF INCOME 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME:
Cash dividends from bank subsidiaries $ 43,180 $ 49,994 $ 18,028
Interest 5,096 138 1,623
Securities gains 8,601 1,063 813
Rental income 1,165 1,093 1,714
Other 9,956 -- 748
-------------------------------------
67,998 52,288 22,926
EXPENSES:
General and administrative 17,502 3,822 2,109
Interest 12,645 4,147 2,420
-------------------------------------
30,147 7,969 4,529
-------------------------------------
Income before income taxes and equity in
undistributed net income (loss) of subsidiaries 37,851 44,319 18,397
Income taxes (1,650) (1,544) (69)
-------------------------------------
39,501 45,863 18,466
Equity in undistributed net income (loss) of subsidiaries 13,716 (21,183) 17,918
-------------------------------------
NET INCOME $ 53,217 $ 24,680 $ 36,384
=====================================
</TABLE>
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
============================
HUBCO, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION
(in thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
STATEMENTS OF CASH FLOWS 1997 1996 1995
---------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $ 53,217 $ 24,680 $ 36,384
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 (13,716) (34,160) (23,594)
Decrease (increase) in accounts receivable (1,764) 7,238 (6,451)
Increase in other assets (2,517) (5,242) (5,929)
Decrease in notes payable (372) (372) (372)
Decrease (increase) in accounts payable 4,435 (517) 121
Increase in accrued taxes and other liabilities (6,978) 3,216 237
---------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 24,314 (5,465) (593)
---------------------------------------------
Investing activities:
Proceeds from sale of securities 78,174 11,742 18,909
Proceeds from maturities of securities 19,888 1,444 2,196
Purchase of securities (90,887) (29,349) (5,191)
Net decrease (increase) in loans -- 426 68
Capital expenditures (414) (272) (1,116)
---------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 6,761 (16,009) 14,866
---------------------------------------------
Financing activities:
Proceeds from sale of interest in subsidiary -- -- 4,215
Proceeds from issuance of common stock 2,751 19,950 2,312
Proceeds from issuance of capital trust securities 49,250 -- --
Proceeds from issuance of subordinated debt -- 73,738 --
Dividends paid (20,153) (17,175) (10,425)
Redemption of convertible preferred stock -- -- (2,481)
Purchase of treasury stock (62,338) (19,770) (6,994)
Infusion of capital into subsidiary -- (33,513) --
Other 147 2,442 41
---------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (30,343) 25,672 (13,332)
---------------------------------------------
INCREASE IN CASH 732 4,198 941
CASH AT BEGINNING OF YEAR 12,550 8,352 7,411
=============================================
CASH AT END OF YEAR $ 13,282 $ 12,550 $ 8,352
=============================================
</TABLE>
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
============================
(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 $ 48,488 $ 50,650 $ 50,579 $ 48,058
Provision for possible loan losses 2,334 2,346 2,850 4,415
Income before income taxes 22,001 24,042 25,144 17,323
Net income 13,467 14,198 14,843 10,709
Earnings per share-basic 0.45 0.48 0.50 0.37
Earnings per share-diluted 0.43 0.46 0.48 0.36
1996
Net interest income 45,493 46,035 46,068 47,960
Provision for possible loan losses 2,703 3,258 2,379 6,430
Income before income taxes 15,957 14,542 751 7,745
Net income 9,664 8,752 578 5,686
Earnings per share-basic 0.32 0.29 0.01 0.19
Earnings per share-diluted 0.30 0.28 0.02 0.19
</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
FAIR VALUE BOOK VALUE FAIR VALUE BOOK VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $447,764 $447,764 $217,353 $217,353
Investment and mortgage-backed securities available for sale 958,210 958,210 1,172,602 1,172,602
Investment and mortgage-backed securities held to maturity 255,099 253,107 309,207 310,871
</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.
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
============================
<TABLE>
<CAPTION>
1997 1996
-------------------------- -------------------------
ESTIMATED RECORDED ESTIMATED RECORDED
FAIR VALUE BOOK VALUE FAIR VALUE BOOK VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loans, net of allowance $ 2,892,420 $ 2,874,991 $ 2,935,361 $ 2,901,670
</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
FAIR VALUE BOOK VALUE FAIR VALUE BOOK VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deposits $ 3,732,753 $ 3,731,733 $ 4,029,686 $ 4,025,761
</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
FAIR VALUE BOOK VALUE FAIR VALUE BOOK VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Accrued interest receivable $ 32,690 $ 32,690 $45,022 $45,022
Cash surrender value of life insurance 10,968 10,968 9,959 9,959
Short-term borrowings 530,187 530,187 386,673 386,673
</TABLE>
The fair value of the subordinated debt was determined by reference to quoted
market prices.
<TABLE>
<CAPTION>
1997 1996
-------------------------- -------------------------
ESTIMATED RECORDED ESTIMATED RECORDED
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.
(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), of Tier I capital (as defined) to average assets (as defined) for
Hudson United and Lafayette, and tangible and core capital (as defined) to
adjusted total assets (as defined) for Bank of the Hudson. Management believes,
as of December 31, 1997, that the Company and its subsidiary banks meet all
capital adequacy requirements to which they are subject.
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
============================
The Bank's actual capital amounts and ratios at December 31, 1997 are presented
in the following table:
<TABLE>
<CAPTION>
To Be Well Capitalized Under
For Capital Prompt Corrective Action
Actual Adequacy Purposes 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 $ 440,814 15.1% $ 234,074 8.0% $ 292,592 10.0%
Hudson United Bank 141,168 12.5% 90,148 8.0% 112,685 10.0%
Lafayette American Bank 119,926 13.7% 70,168 8.0% 87,710 10.0%
Bank of the Hudson 130,497 14.1% 74,038 8.0% 92,547 10.0%
Tier I Capital to Risk Weighted Assets:
HUBCO 304,056 10.4% 117,037 4.0% 175,555 6.0%
Hudson United Bank 127,030 11.3% 45,074 4.0% 67,611 6.0%
Lafayette American Bank 108,839 12.4% 35,084 4.0% 52,626 6.0%
Bank of the Hudson 118,920 12.8% -- -- 55,528 6.0%
Tier I Capital to Average Assets:
HUBCO 304,056 6.5% 188,102 4.0% 235,127 5.0%
Hudson United Bank 127,030 7.8% 65,302 4.0% 81,627 5.0%
Lafayette American Bank 108,839 8.4% 51,573 4.0% 64,466 5.0%
Bank of the Hudson 118,920 7.2% -- -- -- --
Tangible Capital to Adjusted Total
Assets:
Bank of the Hudson 105,274 6.6% 23,991 1.5% -- --
Tangible Capital to Adjusted Total
Assets
Bank of the Hudson 105,274 6.6% 47,983 3.0% 79,971 5.0%
</TABLE>
(24) SUBSEQUENT EVENTS
On March 3, 1998, the Company signed a definitive agreement to acquire Community
Financial Holding Corporation ("CFHC"), and merge Community National Bank,
CFHC's wholly-owned subsidiary, into Hudson United Bank. In the merger, each
share of CFHC common stock will be exchanged for 0.695 shares of HUBCO common
stock, so long as the median closing price for HUBCO common stock during a
pre-closing period is not below $29.00. CFHC is a $160 million asset holding
company headquartered in Westmont, New Jersey. The merger is expected to close
in the third quarter of 1998 and to be treated and a pooling of interests.
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 shares 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 June 19, 1998, the Company issued $50.0 in capital securities offered by
HUBCO Capital Trust II pursuant to Rule 144A under the Securities Act of 1933.
The 7.65% capital securities represent a preferred beneficial interest in the
assets of HUBCO Capital Trust II, a statutory business trust. This wholly-owned
trust exists for the sole purpose of issuing the Trust Securities and investing
the proceeds in 7.65% Junior Subordinated Deferrable Interest Debentures issued
by the Company which mature on June 20, 2028. 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.
On June 26, 1998, the Company acquired 21 branches of First Union National Bank
located in New Jersey and Connecticut. The 13 New Jersey branches, representing
$143.3 million in deposits, were merged into Hudson United and the 8 Connecticut
branches, representing $99.6 million in deposits, were merged into Lafayette.
The purchase was accounted for under the purchase method of accounting.
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
============================
Report of Independent
Public Accountants
To the Stockholders and Board of Directors of HUBCO, Inc.:
We have audited the accompanying 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 did not audit the financial statements of PFC or MSB, which
statements reflect total assets constituting 18 percent, and 16 percent,
respectively, in 1997 and 19 percent and 17 percent, respectively, in 1996 and
net interest income constituting 14 percent and 12 percent, respectively, in
1997 and 14 percent and 13 percent, respectively, in 1996 of the related
consolidated totals. These statements were audited by other auditors whose
reports thereon have been furnished to us, and our opinion, insofar as it
relates to the amounts included for PFC and MSB, is based solely upon the
reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based upon our audits and the reports of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Hubco, Inc. and its 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.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
August 13, 1998
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
============================
Reports of Independent
Public Accountants
The Board of Directors and Stockholders
MSB Bancorp, Inc.
We have audited the consolidated balance sheets of MSB Bancorp, Inc. 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 years in the two-year period then ended, not presented separately herein.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of MSB Bancorp, Inc.
and Subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the two-year period
then ended in conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
-------------------------------------
KPMG Peat Marwick LLP
Short Hills, New Jersey
January 27, 1998
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
============================
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
POUGHKEEPSIE FINANCIAL CORP.
Poughkeepsie, New York
We have audited the accompanying consolidated statements of financial
condition of Poughkeepsie Financial Corp. and subsidiary (the "Company") 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Poughkeepsie
Financial Corp. and subsidiary at 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/ DELOITTE & TOUCHE LLP
- ----------------------------------------
DELOITTE & TOUCHE LLP
Stamford, Connecticut
January 23, 1998
<PAGE>
HUBCO, INC. AND SUBSIDIARIES
============================
Market and Dividend Information
HUBCO, Inc. is traded on the Nasdaq National Market under the symbol of HUBC. At
year end, there were approximately 5,817 common stockholders of record. The
quarterly common stock and dividend information is as follows:
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>
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.
<PAGE>
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.
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. (Incorporated by
reference from the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997)
(10b) Change in Control, Severance and Employment Agreement with
Joseph F. Hurley dated January 2, 1998. (Incorporated by
reference from the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997)
(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.)
<PAGE>
(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.)
(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.)
<PAGE>
(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.)
(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: August 14, 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 August 14, 1998
- ----------------------------
Kenneth T. Neilson President, CEO, Director
Principal Executive Officer
s/ROBERT J. BURKE Director August 14, 1998
- ----------------------------
Robert J. Burke
s/DONALD P. CALCAGNINI Director August 14, 1998
- ----------------------------
Donald P. Calcagnini
Director August __, 1998
- ----------------------------
Joan David
s/THOMAS FARLEY Director August 14, 1998
- ----------------------------
Thomas Farley
s/BRYANT D. MALCOLM Director August 14, 1998
- ----------------------------
Bryant D. Malcolm
s/CHARLES F.X. POGGI Director August 14, 1998
- ----------------------------
Charles F. X. Poggi
s/DAVID A. ROSOW Director August 14, 1998
- ----------------------------
David A. Rosow
Director August __, 1998
- ----------------------------
James E. Shierloh
Director August __, 1998
- ----------------------------
John Tatigian
Director August __, 1998
- ----------------------------
Sister Grace Frances Strauber
s/NOEL DECORDOVA Director August 14, 1998
- ----------------------------
Noel deCordova
s/JOSEPH P. TOCKARSHEWSKY Director August 14, 1998
- ----------------------------
Joseph P. Tockarshewsky
s/WILLIAM C. MYERS Director August 14, 1998
- ----------------------------
William C. Myers
s/W. PETER MCBRIDE Director August 14, 1998
- ----------------------------
W. Peter McBride
s/JOSEPH F. HURLEY Executive Vice President August 14, 1998
- ---------------------------- and Chief Financial Officer
Joseph F. Hurley
s/CHRIS WITOWSKY Senior Vice President August 14, 1998
- ---------------------------- and Controller
Chris Witowsky
Exhibit 21
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.
Bank of the Hudson, organized under the banking laws of the State of New York
MSB Travel, Inc. organized under the New York Business Laws
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.
SUBSIDIARIES OF BANK OF THE HUDSON
POSABK, Inc., organized under the New York Business Laws
Plural Realty, Inc., organized under the New York Business Laws
PSB Building Corp., organized under the New York Business Laws
Hudson Trader Brokerage Services, organized under the New York Business Laws
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