SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM l0-K/A
(Amendment No. 1)
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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, 1998
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 Identification No.)
Incorporation or organization)
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 [_]
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. [x]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, as of March 11, 1999 was $1,344,064,439.
The number of shares of Registrant's Common Stock, no par value, outstanding as
of March 11, 1999 was 39,677,179.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Part(s) into
Documents Which Incorporated
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Annual Report to Shareholders for the fiscal year ended
December 31, 1998 ("HUBCO's 1998 Annual Report"), Part I
pages 12 through 50 Part II
The Registrant's Proxy Statement in connection with the
Annual Meeting of Shareholders to be held April 21, 1999
("HUBCO's Proxy Statement for its 1999 Annual Meeting")
under the captions "Election 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 1999 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 1998 Annual Report and HUBCO's Proxy Statement for its 1999 Annual
Meeting are not to be deemed part of this report.
EXPLANATORY NOTE
This Form 10-K/A amends the Form 10-K filed by the Registrant with the
Commission on March 16, 1999. This form is being filed to correct typographical
errors on the signature page in the Registrant's Form 10-K.
<PAGE>
HUBCO, INC.
Form l0-K Annual Report
For The Fiscal Year Ended December 31, 1998
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 also directly owns MSB Travel,
Inc. HUBCO is also the indirect owner, through the Banks, of thirteen investment
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 1998, the Company has acquired 25
institutions. During this time the company has grown from total assets of $550
million to $6.8 billion at December 31, 1998 and has expanded its branch network
from 15 branches to 165 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.
On January 5, 1999, the Company announced the signing of a Purchase and
Assumption Agreement to acquire the sole branch of First National Bank of New
England. In accordance with the agreement, First National will sell its single
branch with approximately $150 million in deposits to Hudson United. On January
26, 1999, the Company and Little Falls Bancorp, Inc. announced the signing of a
definitive merger agreement by which the Company will acquire Little Falls
Bancorp, Inc., a $341 million asset institution operating six offices in New
Jersey, in a combination stock and cash transaction. In addition, in 1999, the
Company plans the consolidation of the Banks under a single name.
<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>
PURCHASE DEPOSITS LOANS
GOVERNMENT PRICE ASSUMED PURCHASED BRANCHES
INSTITUTION ASSISTED (IN MILLIONS) (IN MILLIONS) (IN MILLIONS) ACQUIRED
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mountain Ridge State Bank Yes $ 0.3 $ 47 $ 12 1
Meadowlands National Bank No 0.4 36 22 3
Center Savings and Loan Yes 0.1 90 79 1
Irving Federal Savings and Loan Yes 0.1 160 62 5
Broadway Bank and Trust Yes 3.4 346 10 8
Pilgrim State Bank No 6.0 123 47 6
Polifly Federal Savings and Loan Yes 6.2 105 1 4
Washington Savings Bank No 40.5 238 169 8
Shoppers Charge Accounts No 16.3 - 56 -
Jefferson National Bank No 9.7 85 42 4
Urban National Bank No 38.2 204 90 9
Growth Financial Corp No 25.6 110 102 3
CrossLand Federal Savings Branches No 3.0 60 1 3
Lafayette American Bank & Trust No 120.0 647 548 19
Hometown Bancorporation, Inc. No 31.6 162 99 2
UST Bank, CT No 13.7 95 70 4
Westport Bancorp, Inc. No 67.8 259 183 7
The Bank of Southington No 26.7 122 85 2
Security National Bank & Trust No 11.0 77 48 4
Poughkeepsie Financial No 136.0 611 648 16
MSB Bancorp No 115.0 686 375 16
First Union Branches No 32.0 320 1 23
Community Financial No 29.6 137 87 8
Dime Financial No 201.0 817 374 11
IBS Financial No 227.0 560 218 10
</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 1998, the Company
purchased 2.1 million shares at an aggregate cost of $69.9 million. During 1998,
these shares were used for payment of stock dividends and the exercise of
options.
<PAGE>
Other Subsidiaries
In 1983, HUBCO formed a directly owned subsidiary called HUB Financial Services,
Inc., which was, in 1995 a wholly owned data processing subsidiary. On November
6, 1995, HUBCO sold 50% of the stock in HUB Financial Services, Inc. to United
National Bank. HUBCO simultaneously made a capital contribution of the remaining
50% to Hudson United Bank. The joint venture is operating pursuant to the
provisions of the Bank Service Corporation Act. Simultaneously with the sale of
50% to United National Bank, the name of HUB Financial Services, Inc. was
changed to United Financial Services, Inc. ("UFS"). UFS provides data processing
and imaged check processing services to both of its owner banks and to
Lafayette.
In March, 1997, Hudson United established a directly owned subsidiary called HUB
Mortgage Investments, Inc. This wholly owned subsidiary owns approximately $170
million of mortgage loans, $270 million of mortgage-backed securities and
operates as a real estate investment trust.
As of December 31, 1998, $159 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 1998, three additional investment companies were established--NJ Investments
of Delaware, Inc., LAB Investment Corp. of Delaware, Inc., and BOTH Investments
of Delaware, Inc. As of December 31, 1998, $345.3 million of Hudson United's
investment portfolio is being managed by its subsidiary company, NJ Investments
of Delaware, Inc., $589.4 million of Lafayette's investment portfolio is being
managed by its subsidiary company, LAB Investment Corp of Delaware, Inc., and
$154.5 million of BOTH's investment portfolio is being managed by its subsidiary
company, BOTH Investments of Delaware, Inc.
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. The subsidiary continues to sell insurance products.
Hudson United Bank owns one real estate holding company. Lafayette
Development Corp. was incorporated by Hudson United Bank and is presently
inactive.
<PAGE>
Lafayette owns two real estate holding companies. AMBA Realty Corporation
was 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.
BOTH owns three real estate holding companies. Plural Realty and POSABK were
incorporated by BOTH for the purpose of holding, developing and disposing of
properties obtained through foreclosure proceedings. 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 has been extended to
March 31, 1999 since negotiations are not concluded.
Regulatory Matters
The banking industry is highly regulated. Statutory and regulatory controls
increase a bank holding company's cost of doing business and limit the options
of its management to deploy assets and maximize income. Proposals to change the
laws and regulations governing the banking industry are frequently introduced in
Congress, in the state legislatures and before the various bank regulatory
agencies. The likelihood and timing of any changes and the impact such changes
might have on HUBCO cannot be determined at this time. The following discussion
is not intended to be a complete list of all the activities regulated by the
banking laws or of the impact of such laws and regulations on HUBCO or its
banks. It is intended only to briefly summarize some material provisions.
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 of 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
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4.0 percent, or (b) at least 3.0 percent if the institution was rated 1 in its
most recent examination, and (iv) does not meet the definition of "well
capitalized". An institution will be classified as "undercapitalized" if it (I)
has a total risk-based capital ratio of less than 8.0 percent, (ii) has a Tier 1
risk-based capital ratio of less than 4.0 percent, or (iii) has a Tier 1
leverage ratio of (a) less than 4.0 percent, or (b) less than 3.0 percent if the
institution was rated 1 in its most recent examination. An institution will be
classified as "significantly undercapitalized" if it (I) has a total risk-based
capital ratio of less than 6.0 percent, (ii) has a Tier 1 risk-based capital
ratio of less than 3.0 percent, or (iii) has a Tier 1 leverage ratio of less
than 3.0 percent. An institution will be classified as "critically
undercapitalized" if it has a tangible equity to total assets ratio that is
equal to or less than 2.0 percent. An insured depository institution may be
deemed to be in a lower capitalization category if it receives an unsatisfactory
examination.
As of December 31, 1998, the Bank's capital ratios exceed the requirements to be
considered well capitalized institutions under the FDIC and 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, 1998, HUBCO's total risk-based capital ratio was 17.0%, consisting
of a Tier 1 ratio of 12.9% and a Tier 2 ratio of 4.1%. 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 1 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, 1998, 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 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 1 capital (as defined in the
<PAGE>
regulations) to risk weighted assets (as defined), of Tier 1 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
BOTH. Management believes, as of December 31, 1998, that HUBCO and its
subsidiary banks meet all capital adequacy requirements to which they are
subject.
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"). BOTH is a
member of the SAIF. Also, Hudson United has approximately $151.3 million of
deposits at December 31, 1998 with respect to which Hudson United pays SAIF
insurance premiums.
For the first three quarters 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. That rate continues for BIF
deposits.
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 BOTH to pay
dividends act as restrictions on the amount of funds available for the payment
of dividends by HUBCO.
<PAGE>
Certain restrictions exist regarding the ability of Hudson United, Lafayette and
BOTH 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 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 years' retained net profits. Office of Thrift Supervision (OTS)
regulations, which apply to BOTH, allow for an 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, 1998, $208.0 million was available
for distribution to HUBCO from Hudson United, $7.3 million was available for
distribution to HUBCO from Lafayette and approximately $8.2 million was
available for distribution to HUBCO from BOTH.
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 FRB 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 BOTH and acquired banks at the time of their conversion to the stock form of
ownership. In the unlikely event of a complete liquidation of BOTH, 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, 1998, 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
<PAGE>
regulation of the activities of banks, including bank subsidiaries of bank
holding companies, generally has been left to the authority of the supervisory
government agency, which for Hudson United is the FDIC and the New Jersey
Department of Banking and Insurance (the "NJDOBI"), and for Lafayette is the
FDIC and the Connecticut Department of Banking (the "CTDOB).
Interstate Banking Authority
The Riegle-Neale Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Banking and Branching Act") significantly changed interstate banking
rules. Pursuant to the Interstate Banking and Branching Act, a bank holding
company is able to acquire banks in states other than its home state regardless
of applicable state law.
The Interstate Banking and Branching Act also authorizes banks to merge across
state lines, thereby creating interstate branches. Under such legislation, each
state had 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. 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.
New Jersey enacted legislation to authorize interstate banking and branching and
the entry into New Jersey of foreign country banks. New Jersey did not
authorize de novo branching into the state. However, under federal law, federal
savings banks which meet certain conditions may branch de novo into a state,
regardless of state law.
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 the default of a commonly controlled FDIC-insured depository
institution in danger of default. "Default" is defined generally as the
appointment of a conservatory or receiver and "in danger of default" is defined
generally as the existence of certain conditions, including a failure to meet
minimum capital requirements, indicative that a "default" is likely to occur in
the absence of regulatory assistance. These provisions have commonly been
referred to as FIRREA's "cross guarantee" provisions. Further, under FIRREA the
failure to meet capital guidelines could subject a banking institution to a
variety of enforcement remedies available to federal regulatory authorities,
including the termination of deposit insurance by the FDIC.
According to Federal Reserve Board policy, bank holding companies are expected
to act as a source of financial strength to each subsidiary bank and to commit
resources to support each such subsidiary. This support may be required at times
when a bank holding company may not be able to provide such support.
Furthermore, in the event of a loss suffered or anticipated by the FDIC - either
as a result of default of a bank subsidiary of the Company or related to FDIC
assistance provided to the subsidiary in danger of default - the other bank
subsidiaries of the Company may be assessed for the FDIC's loss, subject to
certain exceptions.
(b) Industry Segments
The Registrant has one industry segment -- commercial banking.
<PAGE>
(c) Narrative Description of Business
HUBCO exists primarily to hold the stock of its subsidiaries. During most of
1998, HUBCO had four directly-owned subsidiaries--Hudson United, Lafayette, BOTH
and MSB Travel, Inc. In addition, HUBCO, through Hudson United, indirectly owns
five additional subsidiaries, and HUBCO, through Lafayette, indirectly owns
three additional subsidiaries and HUBCO, through BOTH, indirectly owns five
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 BOTH
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.
Hudson United Bank currently maintains its executive offices in Mahwah, New
Jersey. As of December 31, 1998. Hudson had 88 branch offices in New Jersey,
Lafayette had 43 branch offices in Connecticut, and BOTH had 34 branch offices
in New York state. 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, 1998, HUBCO, through its subsidiaries had total deposits of
$5.05 billion, total loans of $3.39 billion and total assets of $6.78 billion.
HUBCO ranked 2nd 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 assistance, 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 Bank primarily engages in consumer lending, commercial
lending, real estate lending, and third party credit card programs.
Hudson United and Lafayette offer a variety of trust services. At December 31,
1998, Hudson's Trust Department had approximately $309.2 million of assets under
management or in its custodial control and Lafayette's Trust Department had
approximately $250.8 million of assets under management or in its custodial
control.
<PAGE>
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.
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 BOTH each has focused on becoming an integral part
of the community it serves. Officers and employees are given incentives to meet
the needs of their customers and to meet the needs of the local communities
served.
HUBCO and its subsidiaries had 1,455 full-time employees and 547 part-time
employees as of December 31, 1998.
(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.
<TABLE>
<CAPTION>
Name, Age and
Position with Officer of Principal Occupation
HUBCO HUBCO Since During Past Five Years
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
A. Roger Bosma, 56 1997 Executive Vice President, Retail Lending
Joseph F. Hurley, 48 1997 Executive Vice President and
Chief Financial Officer
John F. McIlwain, 60 1991 Executive Vice President and
Chief Credit Officer
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Thomas R. Nelson, 54 1994 Executive Vice President;
President of Shoppers Charge Accounts Co.
D. Lynn Van Borkulo-Nuzzo, 49 1988 Executive Vice President and
Corporate Secretary
Thomas J. Shara, 41 1994 Executive Vice President and
Senior Loan Officer
Susan M. Staudmyer, 41 1998 Executive Vice President, Retail Banking
Margaret Warianka, 44 1986 Executive Vice President, Chief Operations Officer
</TABLE>
<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 11 of HUBCO's 1998 Annual
Report):
PAGES(S) OF
ITEM OF GUIDE 3 THIS REPORT
--------------- -----------
II. Investment Portfolio............................................ 15
III. Loan Portfolio.................................................. 16-18
IV. Summary of Loan Loss Experience................................. 19-20
V. Deposits........................................................ 21
VI. Return on Equity and Assets..................................... 22
VII. Borrowings...................................................... 23-24
<PAGE>
HUBCO, Inc. and Subsidiaries
S.E.C. GUIDE 3 - ITEM II
INVESTMENT PORTFOLIO
Book Value at End of Each Reporting Period
December 31
----------------------------------
1998 1997 1996
---- ---- ----
(In Thousands)
U.S. Treasury and Other U.S.
Government Agencies and
Corporations $2,775,893 $2,159,775 $2,266,307
State and Political Subdivisions 26,831 21,633 21,108
Other Debt Securities 4,048 42,148 26,920
Equity Securities 88,824 40,581 32,894
----------------------------------------
TOTAL $2,895,596 $2,264,137 $2,347,229
========================================
<TABLE>
<CAPTION>
Maturities and Weighted Average Yield at End of Latest Reporting Period
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 $ 896,064 6.16% $1,123,858 6.18% $513,631 6.40% $242,340 6.29%
States and Political
Subdivisions 17,738 5.20 6,653 5.86 2,195 6.50 245 6.95
Other Debt Securities 3,210 5.00 838 7.31 -- -- -- --
Equity Securities 88,824 5.40 -- -- -- --
---------- ---------- -------- --------
TOTAL $1,005,836 6.07% $1,131,349 6.18% $515,826 6.40% $242,585 6.29%
========== ========== ======== ========
</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>
<TABLE>
<CAPTION>
HUBCO, Inc. and Subsidiaries
S.E.C. GUIDE 3 - ITEM III
LOAN PORTFOLIO
Types of Loans At End of Each Reporting Period
December 31
---------------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Commercial, Financial,
and Agricultural $ 590,336 $ 542,005 $ 541,332 $ 530,486 $ 498,468
Real Estate -
Construction 78,585 98,925 87,152 65,169 48,319
Real Estate -
Mortgage 2,495,542 2,735,744 2,766,277 2,470,883 2,303,635
Installment 222,347 223,387 214,182 188,334 183,744
---------------------------------------------------------------------------
TOTAL $3,386,810 $3,600,061 $3,608,943 $3,254,872 $3,034,166
===========================================================================
</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, 1998. Also provided are the amounts due after one year
classified according to the sensitivity to changes in interest rates.
Maturities and Sensitivity to Changes in Interest Rates
<TABLE>
<CAPTION>
MATURING
--------------------------------------------------------------
After One After
Within But Within Five
One Year Five Years Years Total
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Commercial, Financial,
and Agricultural $219,250 $149,705 $221,381 $ 590,336
Real Estate Construction 45,172 29,029 4,384 78,585
Real Estate - Mortgage 57,447 179,671 425,880 662,998
--------------------------------------------------------------
TOTAL $321,869 $358,405 $651,645 $1,331,919
==============================================================
</TABLE>
SENSITIVITY
----------------------------
Fixed Variable
Rate Rate
-------- --------
Due After One But Within Five Years $199,413 $158,992
Due After Five Years 222,411 429,234
----------------------------
TOTAL $421,824 $588,226
============================
<PAGE>
HUBCO, Inc. and Subsidiaries
S.E.C. GUIDE 3 - ITEM III
LOAN PORTFOLIO
Nonaccrual, Past Due and Restructured Loans
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Loans accounted for on
a nonaccrual basis $17,629 $50,938 $55,490 $43,177 $63,230
Loans contractually past
due 90 days or more as
to interest or principal
payments 13,483 16,442 15,885 8,560 7,174
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 3,269 16,162 12,278 1,908 37,742
</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. Included in
the above table are loans in the balance sheet category "Assets held for sale."
At December 31, 1998 and 1997, there were no concentrations of loans exceeding
10% of total loans which are not otherwise disclosed as a category of loans
pursuant to Item III.A. of Guide 3.
Recognition of interest on the accrual method is discontinued based on
contractual delinquency and when timely payment is not expected. A nonaccrual
loan is not returned to an accrual status until interest is received on a
current basis and other factors indicate collection ability is no longer
doubtful.
<PAGE>
HUBCO, Inc. and Subsidiaries
S.E.C. GUIDE 3 - ITEM IV
SUMMARY OF LOAN LOSS EXPERIENCE
The following is a summary of the activity in the allowance for possible loan
losses, broken down by loan category:
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Amount of Loans Outstanding at End of Year $3,386,810 $3,600,061 $3,608,943 $3,254,872 $3,074,157
=====================================================================
Daily Average Amount of Loans $3,521,561 $3,579,797 $3,374,580 $3,145,558 $2,849,476
======================================================================
Balance of Allowance for Possible
Loan Losses at Beginning of Year $ 65,858 $ 61,995 $ 56,063 $ 62,358 $ 72,530
Loans Charged Off:
Commercial, Financial and Agricultural (2,498) (4,508) (7,084) (15,738) (10,327)
Real Estate - Construction -- -- -- (75) (474)
Real Estate - Mortgage (8,050) (6,542) (9,210) (13,183) (23,568)
Installment (11,457) (6,120) (3,699) (2,013) (1,249)
Write down of assets held for sale (9,521) -- -- -- --
Other Loans -- (384) (485) (73) (118)
---------------------------------------------------------------------
Total Loans Charged Off (31,526) (17,554) (20,478) (31,082) (35,736)
----------------------------------------------------------------------
Recoveries of Loans Previously Charged Off:
Commercial, Financial and Agricultural 669 2,896 1,749 1,486 2,376
Real Estate-Construction -- -- -- 40 17
Real Estate-Mortgage 651 1,407 1,528 2,201 951
Installment 1,523 1,498 1,316 877 911
Other Loans -- 41 19 22 48
----------------------------------------------------------------------
Total Recoveries 2,843 5,842 4,612 4,626 4,303
----------------------------------------------------------------------
Net Loans Charged Off (28,683) (11,712) (15,866) (26,456) (31,433)
----------------------------------------------------------------------
Provision Charged to Expense 14,374 12,775 17,140 20,072 15,109
Additions Acquired Through Acquisitions 1,950 2,800 4,658 -- 4,717
Other -- -- -- 89 1,435
----------------------------------------------------------------------
Balance at End of Year $ 53,499 $ 65,858 $ 61,995 $56,063 $62,358
======================================================================
Ratios
Net Loans Charged Off to
Average Loans Outstanding .81% .33% .47% .84% 1.10%
Allowance for Possible Loan
Losses to Average Loans
Outstanding 1.52% 1.84% 1.84% 1.78% 2.19%
</TABLE>
Management formally reviews the loan portfolio and evaluates credit risk on at
least a quarterly basis throughout the year. Such review takes into
consideration the financial condition of the borrowers, fair market value of
collateral, level of delinquencies, historical loss experience by loan category,
industry trends, and the impact of local and national economics conditions.
<PAGE>
HUBCO, Inc. and Subsidiaries
S.E.C. GUIDE 3 - ITEM IV
SUMMARY OF LOAN LOSS EXPERIENCE
ALLOWANCE FOR POSSIBLE LOAN LOSSES ALLOCATION
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997 December 31, 1996`
------------------------ ------------------------ ------------------------
% of Loans % of Loans % of Loans
In Each In Each In Each
Category to Amount Category to Category to
Amount Total Loans Total Loans Amount Total Loans
------------------------ ------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at end of period
applicable to domestic loans:
Commercial
Financial and
Agricultural $ 11,203 17.1% $ 17,469 15.1% $ 17,293 15.0%
Real Estate -
Construction 1,491 2.3 482 2.7 212 2.4
Real Estate -
Mortgage 20,271 67.2 26,749 76.0 26,424 76.7
Installment 11,985 13.4 5,177 6.2 4,661 5.9
Unallocated 8,549 15,981 13,405
======== ===== ======== ===== ======== =====
TOTAL $ 53,499 100.0% $ 65,858 100.0% $ 61,995 100.0%
======== ===== ======== ===== ======== =====
<CAPTION>
December 31, 1995 December 31, 1994
------------------------ -----------------------
% of Loans % of Loans
In Each In Each
Category to Category to
Amount Total Loans Amount Total Loans
------------------------ ------------------------
<S> <C> <C> <C> <C>
Balance at end of period
applicable to domestic loans:
Commercial
Financial and
Agricultural $ 19,303 16.3% $ 32,993 16.4%
Real Estate -
Construction 338 2.0 588 1.6
Real Estate -
Mortgage 24,930 75.9 19,588 75.9
Installment 3,910 5.8 3,962 6.1
Unallocated 7,582 5,227
======== ===== ======== =====
TOTAL $ 56,063 100.0% $ 62,358 100.0%
======== ===== ======== =====
</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,
------------------------------------------------------------------------------------------
1998 1997 1996
----------------------- ----------------------- -----------------------
Amount Rate Amount Rate Amount Rate
---------- ---- ---------- ---- ---------- ----
(In Thousands)
<S> <C> <C> <C>
Domestic Bank Offices:
Non-interest-bearing demand
deposits $ 842,575 $ 749,504 $ 669,882
Interest-bearing
demand deposits 968,639 1.90% 904,941 2.82% 1,017,217 2.23%
Savings deposits 1,101,414 2.10% 1,217,070 2.26% 1,078,993 2.74%
Time deposits 2,311,490 5.17% 2,352,867 5.21% 2,308,057 5.25%
---------- ---- ---------- ---- ---------- ----
TOTAL $5,224,118 $5,224,382 $5,074,149
========== ========== ==========
</TABLE>
Maturities of certificates of deposit and other time deposits of $100,000 or
more issued by domestic offices, outstanding at December 31, 1998 are summarized
as follows:
Time Certificates Other Time
of Deposit Deposits Total
---------- -------- -----
(In Thousands)
3 months or less $144,448 $ -- $144,448
Over 3 through 6 months 63,228 -- 63,228
Over 6 through 12 month 60,173 60,173
Over 12 months 47,744 47,744
-------- ----- --------
TOTAL $315,593 $ -- $315,593
======== ===== ========
<PAGE>
HUBCO, Inc. and Subsidiaries
S.E.C. GUIDE 3 - ITEM VI
RETURN ON EQUITY AND ASSETS
Year Ended December 31,
-----------------------------
1998 1997 1996
-----------------------------
Return on Average Assets 0.35% 1.08% 0.60%
Return on Average Equity 4.75 13.56 6.93
Common Dividend Payout Ratio 157.14 45.63 78.05
Average Stockholders' Equity to
Average Assets Ratio 7.34 7.99 8.68
<PAGE>
HUBCO, Inc. and Subsidiaries
S.E.C. GUIDE 3 - ITEM VII
BORROWINGS
The following table shows the distribution of the Company's borrowings and the
weighted average interest rates thereon at the end of each of the last three
years. Also provided are the maximum amount of borrowings and the average
amounts of borrowings as well as weighted average interest rates for the last
three years. The term for each type of borrowing disclosed is one day.
Federal Funds
Purchased and
Securities Sold
Under Agreement Other
to Repurchase Borrowings
---------------------------------
(In Thousands)
At Year end December 31:
1998 $ 382,523 $ 439,070
1997 366,902 259,503
1996 191,586 277,378
Weighted average interest
rate at year end
December 31:
1998 4.90% 5.34%
1997 5.64 5.91
1996 5.27 5.98
Maximum amount outstanding
at any month's end:
1998 $ 404,476 $ 546,048
1997 398,497 355,206
1996 231,406 296,912
Average amount outstanding
during the year:
1998 $ 362,704 $ 318,266
1997 197,707 292,049
1996 166,732 250,077
<PAGE>
Federal Funds
Purchased and
Securities Sold
Under Agreement Other
to Repurchase Borrowings
---------------------------------
(In Thousands)
Weighted average interest
rate during the year:
1998 5.35% 5.98%
1997 5.28 6.08
1996 5.08 5.87
ITEM 2. PROPERTIES
The corporate headquarters of HUBCO is located in a three story facility in
Mahwah, New Jersey. The building is approximately 64,350 square feet and houses
the executive offices of the Company and its subsidiaries. The main office of
Hudson United is located in a leased facility in Union City, New Jersey. Hudson
United occupies 88 branch offices, of which 49 are owned and 39 are leased.
Lafayette's main office is located in a leased facility in Bridgeport,
Connecticut. Lafayette occupies 43 branch offices, of which 15 are owned and 28
are leased. The main office of BOTH is located in an owned facility in
Poughkeepsie, New York. BOTH occupies 34 branch offices of which 15 are owned
and 19 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 1998.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
As of December 31, 1998, HUBCO had approximately 7,963 common shareholders of
record.
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.
1998
------------------------
High Low
------ ------
1st Quarter $37.86 $32.28
2nd Quarter 37.62 31.25
3rd Quarter 35.00 25.38
4th Quarter 30.13 21.63
1997
------------------------
High Low
------ ------
1st Quarter $25.03 $21.44
2nd Quarter 27.57 20.86
3rd Quarter 31.11 26.16
4th Quarter 37.99 30.05
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.
1998 1997
--------------------------- --------------------------
March 1 $0.194 March 1 $0.179
June 1 0.194 June 1 0.179
September 1 0.243 September 1 0.179
December 1 0.250 December 1 0.194
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>
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Interest Income $ 254,194 $ 254,935 $ 241,948 $ 233,296 $ 204,425
Provision for Possible
Loan Losses 14,374 12,775 17,140 20,072 15,109
Net Income 23,151 69,827 36,896 48,327 37,569
Per Share Data(1)
Earnings (Loss) Per Share:
Basic 0.57 1.67 0.85 1.14 1.15
Diluted 0.56 1.60 0.82 1.10 1.06
Cash Dividends - Common 0.88 0.73 0.64 0.55 0.33
Balance Sheet Totals
(at or for the year
ended December 31,):
Total Assets 6,778,661 6,606,140 6,498,856 5,642,977 5,400,971
Long Term Debt 200,000 150,000 100,000 25,000 25,000
Average Equity 487,269 514,779 532,620 493,566 349,691
Average Assets 6,640,615 6,444,210 6,137,434 5,472,407 5,203,884
</TABLE>
(1) Per share data is adjusted retroactively to reflect 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, a 3% stock dividend paid December 1, 1997 to
stockholders of record on November 13, 1997, and a 3% stock dividend paid
September 1, 1998 to stockholders of record on August 14, 1998.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
HUBCO's 1998 Annual Report contains on pages 12 through 26 the information
required by Item 7 and that information is incorporated herein by reference.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
HUBCO's 1998 Annual Report contains on pages 23 through 25 the information
required by Item 7a and that information is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
HUBCO's 1998 Annual Report contains on pages 27 through 50 the information
required by Item 8 and that information is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
HUBCO's Proxy Statement for its 1999 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 1999 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 1999 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 1999 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 1998 Annual Report are
incorporated by reference in Item 8:
Report of Independent Public Accountants
Consolidated Balance Sheets at
December 31, 1998 and 1997
Consolidated Statements of Income and Comprehensive Income
for the Years Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Changes in Stockholders'
Equity for the Years Ended December 31, 1998,
1997 and 1996
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1998, 1997 and 1996
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.)
(4d) Indenture dated as of June 19, 1999 between HUBCO, Inc. and
The Bank of New York as Trustee for $50,000,000 7.65% Junior
Subordinated Debentures due 2028. (Incorporated by reference
from the Company's Current Report on Form 8-K dated June 26,
1999.)
(10a) Agreement and Plan of Merger dated as of January 26, 1999,
among HUBCO, Inc., Hudson United Bank, Little Falls Bancorp,
Inc. and Little Falls Bank. (Incorporated by reference from
the Company's Current Report of Form 8-K dated January 28,
1999.)
(10b) Stock Option Agreement dated as of January 26, 1999, among
HUBCO, Inc., and Little Falls Bancorp, Inc. (Incorporated by
reference from the Company's Current Report on Form 8-K dated
January 28, 1999.)
(10c) Agreement and Plan of Merger dated as of March 31, 1998,
among HUBCO, Inc., IBS Financial Corporation, and Inter-Boro
Savings and Loan Association. (Incorporated by reference from
the Company's Current Report on Form 8-K dated March 31,
1998.)
(10d) Stock Option Agreement dated as of March 31, 1998, among
HUBCO, Inc., and IBS Financial Corporation. (Incorporated by
reference from the Company's Current Report on Form 8-K dated
March 31, 1998.)
(10e) Agreement and Plan of Merger dated as of March 31, 1998,
among HUBCO, Inc., Dime Financial Corp., and Dime Savings
Bank of Wallingford. (Incorporated by reference from the
Company's Current Report on Form 8-K dated March 31, 1998.)
(10f) Stock Option Agreement dated as of March 31, 1998, among
HUBCO, Inc., and Dime Financial Corp. (Incorporated by
reference from the Company's Current Report on Form 8-K dated
March 31, 1998.)
(10g) Change in Control, Severance and Employment Agreement with
Thomas R. Nelson dated March 30, 1998.
(10h) Agreement and Plan of Merger dated March 3, 1998, among
HUBCO, Inc., Community Financial Holding Corporation, and
Community National Bank of New Jersey. (Incorporated by
reference from the Company's Current Report on Form 8-K dated
April 2, 1998.)
<PAGE>
(10i) Stock Option Agreement dated as of March 3, 1998, among
HUBCO, Inc., and Community Financial Holding Corporation.
(Incorporated by reference from the Company's Current Report
on Form 8-K dated April 2, 1998.)
(10j) Change in Control, severance and Employment Agreement with A.
Roger Bosma dated January 20, 1998.
(10k) Change in Control, severance and employment Agreement with
Joseph F. Hurley dated January 2, 1998.
(10l) 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.)
(10m) 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.)
(10n) 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.)
(10o) 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.)
(10p) 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.)
(10q) 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.)
(10r) 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.)
(10s) 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.)
(10t) Stock Option Agreement dated as of December 15, 1997, among
HUBCO, Inc., and MSB Bancorp, Inc. (Incorporated by reference
from the Company's Current Report on Form 8-K dated December
22, 1997.)
<PAGE>
(10u) 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.)
(10v) 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.)
(10w) 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.)
(10x) 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.)
(10y) 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.)
(10z) HUBCO, Inc. Directors Deferred Compensation
Plan. (Incorporated by reference from the Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1994.)
<PAGE>
(13) Those portions of HUBCO's 1998 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 January 28, 1999, HUBCO filed a Form 8-K Item 5 (date of earliest
event - January 26, 1999), to announce the signing of a definitive
agreement with Little Falls Bancorp, Inc., whereby Little Falls Bank,
Little Falls Bancorp's banking subsidiary, will be merged with and into
Hudson United Bank.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
HUBCO, INC.
By: s/ Kenneth T. Neilson
------------------------
Kenneth T. Neilson
Chairman of the Board
Dated: March 15, 1999
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.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
s/ Kenneth T. Neilson Chairman of the Board March 15, 1999
- ----------------------------- President, CEO, Director
Kenneth T. Neilson Principal Executive Officer
s/ Robert J. Burke Director March 15, 1999
- --------------------------------
Robert J. Burke
Director March 15, 1999
- --------------------------------
Bryant D. Malcolm
s/ Charles F. X. Poggi Director March 15, 1999
- --------------------------------
Charles F. X. Poggi
s/ Sister Grace Frances Strauber Director March 15, 1999
- --------------------------------
Sister Grace Frances Strauber
Director March 15, 1999
- --------------------------------
W. Peter McBride
s/ James E. Schierloh Director March 15, 1999
- --------------------------------
James E. Schierloh
Director March 15, 1999
- --------------------------------
John H. Tatigian, Jr.
Director March 15, 1999
- --------------------------------
Donald P. Calcagnini
Director March 15, 1999
- --------------------------------
Joan David
s/ Noel De Cordova, Jr. Director March 15, 1999
- --------------------------------
Noel De Cordova, Jr., Esq.
Director March 15, 1999
- -----------------------------
Thomas R. Farley, Esq.
s/ David A. Rosow Director March 15, 1999
- -----------------------------
David A. Rosow
s/ Joseph F. Hurley Executive Vice President March 15, 1999
- ------------------------------ and Chief Financial Officer
Joseph F. Hurley
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
ACQUISITION SUMMARY
HUBCO, Inc. began its acquisition program in the fall of 1990. Since that time,
the company has completed 25 acquisitions, including eight which were completed
in 1998. Through these acquisitions, the company has grown from a $550 million
asset banking company to a community banking franchise which has assets of
approximately $6.8 billion as of December 31, 1998. The acquisition program has
been utilized to achieve efficiencies and to distribute the cost of new products
and technologies over a larger asset base. It is the Company's philosophy that
acquisitions become accretive to earnings within a short time frame, generally
within one year. The financial results of these acquisitions are difficult to
measure other than on an as-reported basis each quarter because pooling of
interest transactions change historical results from those actually reported by
HUBCO.
On January 12, 1996, the Company acquired Growth Financial Corp. (Growth) and
merged its subsidiary bank, Growth Bank, into Hudson United Bank (Hudson).
Growth was a $128 million asset bank with three 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 Bank & Trust Company was a $317 million asset bank based in Westport,
Connecticut and operated seven 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 two 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 four branch locations. Both of these acquisitions were accounted for
under the purchase method of accounting.
In addition, during 1996 the Company purchased four New Jersey branches with
total deposits of $70.3 million and merged them into Hudson. The Company also
sold one branch during the year with deposits of $9.7 million.
The Company consummated eight acquisitions in 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 two 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, an $880
million asset institution headquartered in Poughkeepsie, New York has been
maintained as a separate New York banking subsidiary of HUBCO. Bank of the
Hudson 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.
On August 14, 1998, the Company acquired IBS Financial Corporation (IBS) and
merged IBS into HUBCO and IBS's subsidiary bank into Hudson. IBS was a $734
million asset institution headquartered in Cherry Hill, New Jersey and operated
ten offices in New Jersey's suburban Philadelphia communities.
On August 14, 1998, the Company acquired Community Financial Holding Corporation
(CFHC) and merged CFHC into HUBCO and CFHC's subsidiary bank into Hudson. CFHC
was a $150 million asset institution headquartered in Westmont, New Jersey and
operated eight offices in Camden, Burlington and Gloucester counties in New
Jersey.
On August 21, 1998, the Company acquired Dime Financial Corporation (DFC) and
merged DFC into HUBCO and DFC's subsidiary bank into Lafayette. DFC was a $961
million asset institution headquartered in Wallingford, Connecticut and operated
11 offices in New Haven county.
The above 1998 acquisitions were all accounted for using the
pooling-of-interests accounting method and, accordingly, the statements for
periods prior to the mergers 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 an $86 million asset
12 HUBCO, INC. ANNUAL REPORT 1998
<PAGE>
bank and trust company headquartered in Newark, New Jersey with four branches.
On June 26, 1998, the Company acquired 21 branches of First Union National Bank
located in New Jersey and Connecticut. The eight 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.
On July 24, 1998, the Company acquired two additional branches of First Union
National Bank located in Hyde Park and Woodstock, New York. The branches,
representing $25.2 million in deposits, were merged into Bank of the Hudson.
The Security National Bank & Trust Company of New Jersey and First Union
National Bank branch 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.
SPECIAL CHARGES SUMMARY
In 1998 and 1996, the Company incurred one-time charges ("special charges") as
detailed below. Further details relative to the special charges are discussed in
the "Noninterest Income" and "Noninterest Expenses" sections that follow.
Special Charges (In Thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
Writedown of assets held
for sale $23,303 $ -- $ --
Merger related and
restructuring charges 66,953 -- 22,081
Special SAIF assessment -- -- 10,074
Special provision for loan
losses -- -- 4,000
----------------------------------
Total special charges pre-tax $90,256 $ -- $36,155
==================================
Total special charges after-tax $61,459 $ -- $23,599
==================================
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
HUBCO, Inc. and Subsidiaries reported net income of $23.2 million for the year
ended December 31, 1998, $84.6 million excluding special charges, compared to
$69.8 million for 1997, $36.8 million for 1996 and $60.5 million for 1996
excluding special charges. Diluted earnings per share was $0.56 for 1998, $2.03
excluding special charges, compared to $1.60 for 1997. Excluding special
charges, diluted earnings per share increased 27% in 1998 compared to 1997. In
1996, diluted earnings per share amounted to $0.82 and $1.34 excluding special
charges. Return on average assets was 0.35% for 1998, 1.27% excluding special
charges, compared to 1.08% for 1997. In 1996, return on average assets was 0.60%
and 0.99% excluding special charges. Return on average equity was 4.75% for
1998, 17.36% excluding special charges, compared to 13.56% for 1997. In 1996,
return on average equity was 6.93% and 11.36% excluding special charges.
13
<PAGE>
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, 1998, 1997 and 1996 (in thousands):
AVERAGE BALANCES, NET INTEREST INCOME, YIELDS, AND RATES
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------------- --------------------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
- ----------------------------------------------------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-Bearing deposits
with banks $ 31,060 $ 1,668 5.37% $ 154 $ 4 2.60%
Federal funds sold 109,255 5,785 5.29% 76,853 4,791 6.23%
Securities-taxable 2,519,652 161,588 6.41% 2,332,863 158,715 6.80%
Securities-tax exempt (1) 29,544 1,838 6.22% 20,812 1,392 6.69%
Loans (2) 3,521,561 298,386 8.47% 3,579,797 306,896 8.57%
--------------------------------------- ------------------------------------
Total Earning Assets 6,211,072 469,265 7.56% 6,010,479 471,798 7.85%
Cash and due from banks 187,061 200,903
Allowance for loan losses (63,860) (62,427)
Premises and equipment 84,270 66,731
Other assets 222,072 228,524
----------- -----------
Total Assets $ 6,640,615 $ 6,444,210
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-Bearing
transaction accounts $ 968,639 $ 18,435 1.90% $ 904,941 $ 25,514 2.82%
Savings accounts 1,101,414 23,119 2.10% 1,217,070 27,501 2.26%
Time deposits 2,311,490 119,523 5.17% 2,352,867 122,630 5.21%
--------------------------------------- ------------------------------------
Total Interest-Bearing Deposits 4,381,543 161,077 3.68% 4,474,878 175,645 3.93%
Borrowings 680,970 38,412 5.64% 489,756 28,202 5.76%
Long-term debt 176,849 14,864 8.40% 145,206 12,433 8.56%
--------------------------------------- ------------------------------------
Total Interest-Bearing Liabilities 5,239,362 214,353 4.09% 5,109,840 216,280 4.23%
Demand deposits 842,575 749,504
Other liabilities 71,409 70,087
Stockholders' equity 487,269 514,779
----------- -----------
Total Liabilities and
Stockholders' Equity $ 6,640,615 $ 6,444,210
=========== ===========
Net Interest Income $ 254,912 $ 255,518
========= =========
Net Interest Margin (3) 4.10% 4.25%
==== ====
<CAPTION>
1996
- ----------------------------------------- ------------------------------------
Average Yield/
Balance Interest Rate
- ----------------------------------------- ------------------------------------
<S> <C> <C> <C>
ASSETS
Interest-Bearing deposits
with banks $ 1,039 $ 53 5.10%
Federal funds sold 74,989 3,934 5.25%
Securities-taxable 2,263,772 149,992 6.63%
Securities-tax exempt (1) 20,594 1,329 6.45%
Loans (2) 3,374,580 287,788 8.53%
------------------------------------
Total Earning Assets 5,734,974 443,096 7.73%
Cash and due from banks 172,987
Allowance for loan losses (55,668)
Premises and equipment 64,774
Other assets 220,367
-----------
Total Assets $ 6,137,434
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-Bearing
transaction accounts $1,017,217 $ 22,648 2.23%
Savings accounts 1,078,993 29,587 2.74%
Time deposits 2,308,057 121,286 5.25%
------------------------------------
Total Interest-Bearing Deposits 4,404,267 173,521 3.94%
Borrowings 416,809 23,140 5.55%
Long-term debt 47,483 3,905 8.22%
------------------------------------
Total Interest-Bearing Liabilities 4,868,559 200,566 4.12%
Demand deposits 669,882
Other liabilities 66,373
Stockholders' equity 532,620
----------
Total Liabilities and
Stockholders' Equity $ 6,137,434
===========
Net Interest Income $242,530
========
Net Interest Margin (3) 4.23%
====
</TABLE>
(1) The tax equivalent adjustments for the years ended December 31, 1998, 1997
and 1996 were $643, $487 and $465, respectively, and are based on a tax
rate of 35%.
(2) The tax equivalent adjustments for the years ended December 31, 1998, 1997
and 1996 were $75, $96 and $117, respectively, and are based on a tax rate
of 35%. Average loan balances include nonaccrual loans.
(3) Represents tax equivalent net interest income divided by interest-earning
assets.
14 HUBCO, INC. ANNUAL REPORT 1998
<PAGE>
The following table presents the relative contribution of changes in volumes and
changes in rates to changes in net interest income for the periods indicated.
The change in interest income and interest expense attributable to the combined
impact of both volume and rate has been allocated proportionately to the change
due to volume and the change due to rate (in thousands):
CHANGES IN TAXABLE EQUIVALENT NET INTEREST INCOME-RATE/
VOLUME ANALYSIS
<TABLE>
<CAPTION>
Increase/(Decrease) Increase/(Decrease)
1998 over 1997 1997 over 1996
------------------------------------------------------------------
Volume Rate Total Volume Rate Total
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans $ (4,958) $ (3,552) $ (8,510) $ 17,586 $ 1,522 $ 19,108
Securities-taxable 12,283 (9,410) 2,873 4,643 4,080 8,723
Securities-tax exempt 549 (103) 446 14 49 63
Federal funds sold 1,796 (802) 994 100 757 857
Interest-bearing deposits 1,655 9 1,664 (31) (18) (49)
-------------------------------------------------------------------
Total interest and fee income 11,325 (13,858) (2,533) 22,312 6,390 28,702
-------------------------------------------------------------------
Interest-bearing transaction accounts 1,692 (8,771) (7,079) (2,695) 5,561 2,866
Savings accounts (2,507) (1,875) (4,382) 3,506 (5,592) (2,086)
Time deposits (2,145) (962) (3,107) 2,341 (997) 1,344
Borrowings 10,797 (587) 10,210 4,174 888 5,062
Long-term debt 2,663 (232) 2,431 8,361 167 8,528
-------------------------------------------------------------------
Total interest expense 10,500 (12,427) (1,927) 15,687 27 15,714
-------------------------------------------------------------------
Net Interest Income $ 825 $ (1,431) $ (606) $ 6,625 $ 6,363 $ 12,988
===================================================================
</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 portfolio is invested primarily in U.S. Treasury or U.S.
Government Agency securities. Given the current rate environment, the weighted
average life of the portfolio is approximately two and one half years. 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%.
Net interest income on an FTE basis was $254.9 million compared to $255.5
million in 1997 and $242.5 million in 1996. The slight decline in net interest
income in 1998 compared to 1997 was due to a 15 basis point decline in the net
interest margin, partially offset by a $201 million increase in interest-earning
assets. The decline in net interest margin reflected the lower U.S. interest
rate environment and a flattening yield curve. The increase in interest-earning
assets from 1997 to 1998 was mainly due to a higher average volume of investment
securities. The improvement in net interest income in 1997 compared to 1996 was
due to an increase in interest-earning assets of $275 million and an improvement
in the net interest margin of two basis points. Increased average loan volume
was the primary factor underlying the increase in interest-earning assets in
1997 compared to 1996.
15
<PAGE>
NET INTEREST MARGIN
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 4.10%, 4.25%,
and 4.23% for 1998, 1997, and 1996, respectively. The decline in net interest
margin from 1997 to 1998 was due to lower rates earned on loans and investment
securities which more than offset lower rates paid on deposits. The loan yield
dropped 10 basis points and the investment security yield declined 39 basis
points. The average rate paid on interest-bearing deposits was 25 basis points
lower in 1998 compared to 1997. The slight increase in the net interest margin
in 1997 from 1996 resulted mainly from a 17 basis point improvement in the yield
on investment securities and a one basis point decline in the rate paid on
interest-bearing deposits.
The Company's average cost of all deposits for 1998 was 3.08% compared to 3.36%
for 1997 and 3.42% for 1996.
Approximately 37% of the Company's deposits are in transaction accounts, 21% in
savings accounts, and 42% in time deposits as of December 31, 1998.
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 that 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 $14.4 million for 1998 compared with $12.8
million and $17.1 million in 1997 and 1996, respectively. The decline in 1997
from 1996 was due to the $4 million special provision which was taken in 1996.
The 1996 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 1.58%,
1.83%, and 1.72%. The allowance for loan losses as a percentage of nonperforming
loans for the last three years was 256%, 98%, and 91%.
16 HUBCO, INC. ANNUAL REPORT 1998
<PAGE>
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,
--------------------------------------
1998 1997 1996
--------------------------------------
<S> <C> <C> <C>
Amount of Loans Outstanding at End of Year $3,386,810 $3,600,061 $3,608,943
======================================
Daily Average Amount of Loans Outstanding $3,521,561 $3,579,797 $3,374,580
======================================
ALLOWANCE FOR POSSIBLE LOAN LOSSES
Balance at beginning of year $ 65,858 $ 61,995 $ 56,063
Loans charged off:
Real estate mortgages 8,050 6,542 9,210
Commercial 2,498 4,508 7,084
Consumer 11,457 6,120 3,699
Other loans -- 384 485
Writedown of assets held for sale (1) 9,521 -- --
--------------------------------------
Total loans charged off 31,526 17,554 20,478
--------------------------------------
Recoveries:
Real estate mortgages 651 1,407 1,528
Commercial 669 2,896 1,749
Consumer 1,523 1,498 1,316
Other recoveries -- 41 19
--------------------------------------
Total recoveries 2,843 5,842 4,612
--------------------------------------
Net loans charged off 28,683 11,712 15,866
--------------------------------------
Allowance of acquired companies 1,950 2,800 4,658
Provision for loan losses 14,374 12,775 17,140
--------------------------------------
Balance at end of year $ 53,499 $ 65,858 $ 61,995
======================================
Allowance for possible loan losses as a percentage of loans
outstanding at year end 1.58% 1.83% 1.72%
Net charge offs as a percentage of average loans outstanding 0.81% 0.33% 0.47%
======================================
</TABLE>
(1) The writedown of assets held for sale pertains to the planned disposal of
$54 million nonaccrual loans discussed further in the "Noninterest Income"
and "Asset Quality" sections that follow.
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>
Year Ended December 31,
----------------------------------------------------------------------------------
1998 1997 1996
----------------------------------------------------------------------------------
Category Category Category
Percent Percent Percent
Allowance of Loans Allowance of Loans Allowance of Loans
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Real estate mortgages $20,271 67.2% $27,231 78.7% $26,636 79.1%
Commercial and industrial 12,694 19.4% 17,469 15.1% 17,293 15.0%
Consumer 11,985 13.4% 5,177 6.2% 4,661 5.9%
Unallocated 8,549 15,981 13,405
----------------------------------------------------------------------------------
Total $53,499 100.0% $65,858 100.0% $61,995 100.0%
==================================================================================
</TABLE>
17
<PAGE>
NONINTEREST INCOME
Noninterest income, excluding securities gains and the loss on assets held for
sale, increased 18% to $53.3 million for 1998 from $45.3 million in 1997. The
amount in 1997 was an increase of 14% over the $39.8 million reported in 1996.
The increase for 1998 compared to 1997 was due to growth in Shoppers Charge fees
(HUBCO's private label credit card division) and other non-deposit related fee
income. The improvement in 1997 from 1996 was the result of growth in Shoppers
Charge fees and service charges on deposits. Shoppers Charge fees increased to
$11.6 million, or 27%, over 1997, which had been an increase of 119% over 1996.
Noninterest income as a percent of total net revenue was 18%, 15%, and 15% in
1998, 1997, and 1996, respectively. The company realized $3.3 million in
securities gains in 1998, $8.9 million in 1997, and $1.4 million in 1996.
Included in noninterest income for 1998 is a $23.3 million pre-tax, $14.9
million after-tax charge, related to the disposal of $64 million of
non-performing loans and OREO. At year-end 1998, the total of assets held for
sale related to this charge was $14.1 million. The Company is actively pursuing
the disposal of the remainder of these assets.
NONINTEREST EXPENSES
Noninterest expense, excluding merger related and restructuring costs, decreased
to $165.7 million in 1998 from $181.0 million in 1997. The primary reason for
the decline in expenses from 1997 to 1998 was a 12%, or $10.8 million, reduction
in salaries and benefits expense that resulted mainly from the consolidation and
realization of efficiencies in acquired institutions. This was partially offset
by higher expenses, including $1.8 million in intangible amortization, that
resulted from the acquisition of 23 First Union branches and Security National
Bank. The $181.0 million in noninterest expenses in 1997 was an increase from
$172.5 million in 1996, excluding merger-related restructuring costs and the
Special SAIF assessment. The increase in 1997 compared to 1996 was largely due
to higher expenses related to acquired institutions. 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 fully realized
in 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 and benefit expense was $76.5 million in 1998, $87.3 million and $84.5
million in 1997 and 1996, respectively. The decline from 1997 to 1998 resulted
mainly from the aforementioned cost savings related to acquired institutions.
The $2.8 million, or 3.3%, increase in 1997 compared with 1996 is primarily
attributable to the aforementioned purchase acquisitions. Employee benefits as a
percentage of salaries were 33% in 1998, 38% in 1997, and 34% in 1996.
Occupancy expense was $16.6 million in 1998, $16.0 million in 1997, and $16.4
million in 1996. The increase in 1998 resulted largely from the acquisition of
the First Union branches. Equipment expense declined to $10.3 million in 1998
compared to $10.7 million in 1997 and amounted to $9.8 million in 1996.
Deposit and other insurance expense has declined over the last three years from
$6.2 million in 1996 to $2.9 million in 1997 and $2.7 million in 1998. The
reductions 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 of its other insurance
coverages. The 1996 amount excludes the aforementioned $10.1 million Special
SAIF assessment.
Outside services expense has increased to $27.0 million in 1998 from $25.9
million in 1997 and $20.7 million in 1996. The increases are primarily
attributable to 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 declined to $1.9 million in 1998 compared
to $4.7 million in both 1997 and 1996. A lower OREO provision and a decline in
properties managed were responsible for the reduction in expense.
Amortization of intangibles expense increased to $11.1 million in 1998 from $9.0
million in 1997 and $7.2 million in 1996. The increases are attributable to the
additional goodwill established for the acquisitions and branch purchases
described previously.
Merger related and restructuring costs were $66.4 million in 1998, $0.3 million
in 1997 and $22.1 million in 1996. The 1998 costs include payout and accruals
for employment contracts, severance and other employee related costs ($28.6
million), branch closing, fixed asset disposition and other occupancy related
costs ($11.7 million), professional services ($13.2 million) and other merger
related expenses ($12.9 million).
18 HUBCO, INC. ANNUAL REPORT 1998
<PAGE>
FEDERAL INCOME TAXES
The income tax provision for Federal and state taxes approximates 43.6% for
1998, 39.3% for 1997 and 38.9% for 1996. The increase in the effective tax rate
from 1997 to 1998 was due primarily to the impact of non-deductible merger
related expenses. The increase in the effective tax rate from 1996 to 1997 was
due to additional non-deductible intangible amortization.
FINANCIAL CONDITION
Total assets at December 31, 1998 were $6.78 billion, an increase from assets of
$6.61 billion at December 31, 1997. This increase in assets resulted primarily
from a $632 million increase in investment securities which amounted to $2.90
billion at December 31, 1998. Partially offsetting this increase was a $260
million reduction in federal funds sold and a decline in total loans of $213
million. Total loans amounted to $3.39 and $3.60 billion at year-end 1998 and
1997, respectively. Total deposits declined to $5.05 billion at December 31,
1998 from $5.25 billion at December 31, 1997. Borrowings amounted to $822 and
$626 million at December 31, 1998 and 1997.
The Company considers its liquidity and capital to be adequate. At the end of
1998, the Company had $2.90 billion in investment securities, $2.26 billion in
its available for sale portfolio, and $635 million in its held to maturity
portfolio. A net decline in total capital of $50.3 million resulted primarily
from the Company's purchase of $69.9 million in treasury shares (2.1 million
shares) along with dividends paid of $34.7 million, which was partially offset
by the $23.2 million of net income and $25.7 million resulting from the effect
of stock option, warrant, and other compensation plans. Of the purchased
treasury shares, $41.4 million was reissued in connection with the 3% stock
dividend paid in September 1998 and for the exercise of stock options. Despite
the decline in total capital, the Company's Tier I Leverage ratio was 7.1% at
December 31, 1998. HUBCO issued $50.0 million in capital securities through
HUBCO Capital Trust II on June 19, 1998. 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, earnings, and a means
of managing 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, 1998 and 1997, the portfolios comprised 43% and 34%, respectively,
of the total assets of the Company.
The Company's strategy with respect to managing the portfolio is to purchase
U.S. government and agency securities as well as U.S. government agency
mortgage-backed and mortgage-related securities.
19
<PAGE>
The following table summarizes the composition of the portfolios as of December
31, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
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 $ 42,373 $ 393 $ -- $ 42,766 $ 45,585 $ 611 $ -- $ 46,196
U.S. Government Agencies 37,360 1,462 -- 38,822 266,066 1,799 (480) 267,385
State and Political subdivisions 15,513 182 (4) 15,691 10,981 89 -- 11,070
Mortgage-backed securities 539,725 2,277 (717) 541,285 442,199 7,827 (1,937) 448,089
----------------------------------------------------------------------------------------------
$ 634,971 $ 4,314 $ (721) $ 638,564 $ 764,831 $10,326 $(2,417) $ 772,740
Available for Sale Portfolio
U.S. Government $ 84,530 $ 1,583 $ -- $ 86,113 $ 110,485 $ 890 $ (340) $ 111,035
U.S. Government Agencies 369,357 3,162 -- 372,519 274,555 1,745 (301) 275,999
Mortgage-backed securities 1,688,464 13,645 (4,306) 1,697,803 1,016,627 5,292 (3,028) 1,018,891
States and Political Subdivisions 11,219 100 (1) 11,318 10,619 59 (26) 10,652
Other debt securities 4,083 5 (40) 4,048 41,850 306 (8) 42,148
Equity securities 87,027 2,471 (674) 88,824 35,718 4,925 (62) 40,581
----------------------------------------------------------------------------------------------
$ 2,244,680 $20,966 $(5,021) $ 2,260,625 $1,489,854 $13,217 $(3,765) $1,499,306
</TABLE>
LOAN PORTFOLIO DISTRIBUTION OF LOANS BY CATEGORY
(Dollars In Thousands) December 31,
- --------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------
Loans secured by real estate:
Residential
mortgage loans $1,601,957 $1,736,559 $1,731,815
Residential home
equity loans 230,587 216,215 230,828
Commercial
mortgage loans 675,366 782,970 803,634
--------------------------------------
2,507,910 2,735,744 2,766,277
--------------------------------------
Commercial and industrial loans:
Secured by
real estate 145,280 198,547 202,406
Other 511,273 442,383 426,078
--------------------------------------
656,553 640,930 628,484
--------------------------------------
Shoppers Charge
credit cards 82,581 91,047 61,759
Other loans to
individuals 139,766 132,340 152,423
--------------------------------------
Total Loan Portfolio $3,386,810 $3,600,061 $3,608,943
======================================
Total loans decreased by $213.3 million from $3.60 billion at December 31, 1997,
to $3.39 billion at December 31, 1998. Contributing to this decline was the
writedown and transfer to assets held for sale of $54 million of nonaccrual
loans. The residential mortgage loan portfolio declined $134.6 million to $1.60
billion at December 31, 1998. The decline was the result of run-off in the
existing portfolio as new originations were sold. Commercial mortgage loans
decreased by $107.6 million to $675.4 million at December 31, 1998. The
reduction resulted primarily from the run-off or sale of non-owner occupied
loans which were originated at acquired institutions and did not fit the
Company's credit criteria. Commercial loans increased by $15.6 million to $656.6
million at December 31, 1998 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 $68.9 million or 16% to $511.3 million at December 31, 1998. Shoppers Charge
Accounts (Shoppers) declined by $8.5 million to $82.6 million at December 31,
1998 primarily due to the loss of one retailer who went out of business. This
decline was partially offset by continued growth in the overall business.
20 HUBCO, INC. ANNUAL REPORT 1998
<PAGE>
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:
(Dollars In Thousands) December 31,
- --------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------
Commercial $ 2,340 $ 2,996 $ 3,852
Real estate 5,547 8,802 9,581
Consumer 2,470 1,895 966
Credit card 3,126 2,749 1,486
-------------------------------------
Total Loans Past-Due
90-Days or More and
Still Accruing $13,483 $16,442 $15,885
=====================================
As a percent of Total
Loans 0.40% 0.46% 0.44%
As a percent of Total
Assets 0.20% 0.25% 0.24%
=====================================
Nonaccruing loans include commercial loans and commercial mortgage loans past
due 90 days or more or deemed uncollectable. Residential real estate loans are
generally placed on nonaccrual status after 180 days of delinquency. Consumer
loans are charged off after 120 days and credit card loans are charged off after
180 days. Any loan may be put on nonaccrual status earlier if the Company has
concern about the future collectability of the loan or its ability to return to
current status.
Nonaccrual real estate loans are principally loans in the foreclosure process
secured by real estate, including single family residential, multifamily, 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 $3.3
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 the lower of cost
or 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 disposing of OREO properties,
including those acquired in acquisitions.
At December 31, 1998, 1997, and 1996, OREO amounted to $0.1 million, $11.5
million, and $18.9 million. The decline from 1997 to 1998 was mainly due to the
writedown and transfer of OREO properties to assets held for sale. At December
31, 1998, nonperforming assets decreased by $54.0 million to $24.6 million from
$78.6 million in 1997. The decline was largely due to the $23.3 million pre-tax
charge and the $10.3 million writedown against the Allowance for Possible Loan
Losses and OREO reserve related to the planned disposal of nonperforming loans
and OREO.
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 $4.1 million, $4.9 million, and $5.7 million for the years 1998,
1997, and 1996, respectively. The amount of interest income recorded on such
loans for each of the years was $0.3 million, $1.4 million, and $2.0 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, 1998, 1997, and 1996 as a
percentage of total loans was 1.58%, 1.83%, and 1.72%, 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.
21
<PAGE>
The following table summarizes the Company's nonperforming assets at the dates
indicated (dollars in thousands):
NONPERFORMING ASSETS
(INCLUDING ASSETS HELD FOR SALE), NET
<TABLE>
<CAPTION>
December 31,
- -----------------------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonaccrual Loans $17,629 $50,938 $55,490
Renegotiated Loans 3,269 16,162 12,278
---------------------------------
Total Nonperforming Loans 20,898 67,100 67,768
Other Real Estate Owned 3,727 11,483 18,907
---------------------------------
Total Nonperforming Assets $24,625 $78,583 $86,675
=================================
Ratios:
Nonaccrual Loans to Total Loans 0.52% 1.41% 1.54%
Nonperforming Assets to Total Assets 0.36% 1.19% 1.33%
Allowance for Loan Losses to Nonaccrual Loans 303% 129% 112%
Allowance for Loan Losses to Nonperforming Loans 256% 98% 91%
- -----------------------------------------------------------------------------------
</TABLE>
DEPOSITS
As of December 31, 1998, Hudson had 88 branch offices in New Jersey. Hudson
manages the branch system by regionalizing into 7 regions with regional
managers. Lafayette had 43 branch offices located in Connecticut. Lafayette has
3 regions. Bank of the Hudson had 34 branch offices located in lower New York
State with 2 regions.
Through business development incentives, the Company strives to generate the
lowest cost deposits. The following table summarizes the deposit base at the
dates indicated (in thousands):
December 31,
- --------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------
Noninterest-
bearing deposits $ 941,253 $ 831,579 $ 793,310
NOW/MMDA deposits 923,046 980,391 956,507
Savings deposits 1,060,985 1,115,438 1,185,450
Time deposits 2,126,106 2,325,548 2,399,406
--------------------------------------------
Total Deposits $5,051,390 $5,252,956 $5,334,673
============================================
The net decrease in deposits from 1997 to 1998 of $201.6 million, or 3.8%, is
primarily attributable to the decline in the higher rate time deposits related
to the Company's acquisitions. It is partially offset by funds transferred to
alternative investments (non-bank products) and to the Trust Department. As
noted earlier, 37% of the deposit base is in low or noninterest bearing core
deposits and another 21% 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 borrow
funds from the Federal Home Loan Bank and Federal Reserve discount window. The
management of balance sheet volumes, mixes, and maturities enables the Company
to maintain adequate levels of liquidity.
The liquidity requirements of the Company, 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.
22 HUBCO, INC. ANNUAL REPORT 1998
<PAGE>
CAPITAL
Capital adequacy is a measure of the amount of capital needed to support asset
growth, absorb unanticipated losses, and provide safety for depositors. The
regulators establish minimum capital ratio guidelines for the banking industry.
The capital ratios impact the performance of the Company in that these ratios
are used with other criteria to 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 After-Tax
Capital Capital
Guidelines Ratios
- -----------------------------------------------------------------
Tier 1 Leverage Ratio 3-5% 7.1%
Tier 1 Risk-Based Capital Ratio 4% 12.9%
Total Risk-Based Capital 8% 17.0%
At December 31, 1998, 1997, and 1996, the Company exceeded all regulatory
capital guidelines including those for a well capitalized institution.
On November 15, 1996, the Company paid a 3% stock dividend and increased its
regular quarterly cash dividend from $0.16 to $0.18 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 $0.18 to $0.19
per common share, effecting an 8% dividend increase. On September 3, 1998, the
Company paid a 3% stock dividend and increased its regular quarterly cash
dividend to $0.25. The dividend payout ratio, based on cash dividends per share
and diluted earnings per share, was 157.1% for 1998 compared to 45.6% for 1997
and 78.0% in 1996. The higher ratios in 1998 and 1996 were due to lower net
income resulting from the special charges in those years. Excluding special
charges, the payout ratio would have been 43.3% in 1998 and 47.8% in 1996.
Pursuant to the November 1993 Board authorization to repurchase up to 10% of the
shares outstanding each year, the Company in 1998, 1997, and 1996 has
repurchased common shares. During 1998, these shares were used for payment of
stock dividends and the exercise of options. During 1997, these shares were used
for stock dividends, the conversion of preferred stock and the exercise of
options. During 1996, these shares were used for stock dividends and
acquisitions.
In September 1996, the Company issued $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 issued $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 in 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. On June 19, 1998 the Company placed $50.0 million in aggregate
liquidation amount of 7.65% Capital Securities due June 2028, using HUBCO
Capital Trust II, a statutory business trust formed under the laws of the State
of Delaware. The trust exists for the sole purpose of issuing the Trust
Securities and investing the proceeds in 7.65% Capital Securities which mature
in 2028. The net proceeds of the offering are being used for general corporate
purposes and to increase capital levels of the Company and its subsidiaries. The
securities qualify as Tier I capital under the capital guidelines of the Federal
Reserve.
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, maintain an
appropriate balance between interest sensitive earning assets and
interest sensitive liabilities and enhance earnings. 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
23
<PAGE>
acceptable levels of net interest income exposure throughout a range of interest
rate environments. The Company seeks to maintain its interest rate risk within a
range that it believes is both manageable and prudent, given its capital and
income generating capacity.
Liquidity risk is the risk to earnings or capital that would arise from a bank's
inability to meet its obligations when they come due, without incurring
unacceptable losses. The Company uses several measurements in monitoring its
liquidity position. In addition, the Company has a number of borrowing
facilities with banks, primary broker dealers, the Federal Home Loan Bank and
Federal Reserve that are or can be used as sources of liquidity without having
to sell assets to raise cash. At December 31, 1998, 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, net income and capital. 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, net income
and capital over specific periods of time and captures the dynamic impact of
interest rate changes on the Company's mix of assets and liabilities.
The table on the following page presents the GAP position of the Company at
December 31, 1998. In preparing this table, management has anticipated
prepayments for mortgage-backed securities and mortgage loans according to
standard industry prepayment assumptions in effect at year-end. Money market
deposits and interest-bearing demand accounts have been included in the due
within 90 days category. Assets with daily floating rates are included in the
due within 90 days category. Assets and liabilities are included in the table
based on their maturities, expected cash repayments 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 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. Theoretically, 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.
24 HUBCO, INC. ANNUAL REPORT 1998
<PAGE>
The following table shows the GAP position of the Company at December 31, 1998
(in thousands):
GAP ANALYSIS
<TABLE>
<CAPTION>
Due
Due Within Between
One Year One and Due Over Noninterest
or Less Five Years Five Years Bearing Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Federal Funds Sold $ 17,697 $ -- $ -- $ -- $ 17,697
Securities 1,111,312 1,392,002 392,282 -- 2,895,596
Total Loans 1,820,460 1,117,536 448,814 -- 3,386,810
Noninterest Bearing Assets -- -- -- 478,558 478,558
-----------------------------------------------------------------------------
Total Assets $ 2,949,469 $ 2,509,538 $ 841,096 $ 478,558 $ 6,778,661
Percent of Total Assets 43.5% 37.0% 12.4% 7.1% 100.0%
===================================================================================================================================
SOURCE OF FUNDS
Interest-Bearing Deposits $ 3,708,173 $ 383,127 $ 18,837 $ -- $ 4,110,137
Borrowings 760,956 53,785 6,852 -- 821,593
Long-Term Debt -- -- 200,000 -- 200,000
Noninterest Bearing Deposits -- -- -- 941,253 941,253
Other Liabilities -- -- -- 248,863 248,863
Stockholders' Equity -- -- -- 456,815 456,815
-----------------------------------------------------------------------------
Total Source of Funds $ 4,469,129 $ 436,912 $ 225,689 $ 1,646,931 $ 6,778,661
Percent of Total Source of Funds 66.0% 6.4% 3.3% 24.3% 100.0%
===================================================================================================================================
Interest Rate Sensitivity GAP $(1,519,660) $ 2,072,626 $ 615,407 $(1,168,373) $ --
- -----------------------------------------------------------------------------------------------------------------------------------
Cumulative Interest Rate Sensitivity GAP $(1,519,660) $ 552,966 $ 1,168,373 $ -- $ --
===================================================================================================================================
</TABLE>
Due in part to the shortcomings of GAP analysis, the Asset/Liability Committee
of HUBCO believes that financial simulation modeling more accurately estimates
the effects and exposure to changes in interest rates. Net interest income
simulation considers the relative sensitivities of the balance sheet including
the effects of interest rate caps on adjustable rate mortgages and the
relatively stable aspects of core deposits. As such, net interest income
simulation is designed to address the likely probability of interest rate
changes and behavioral response of the balance sheet to those changes. Market
Value of Portfolio Equity represents the fair value of the net present value of
assets, liabilities and off-balance sheet items.
Financial modeling is performed under several scenarios including a regulatory
rate shock scenario which measures changes in net interest income over the next
twelve months and market value of portfolio equity given instantaneous and
sustained changes in interest rates.
The following table depicts the Company's sensitivity to interest rate changes
and the effects on market value of portfolio equity as of December 31, 1998
under the regulatory rate shock scenario.
RATE SHOCK MODEL
Effect on:
Market Value
Basis point rate change Net Interest Income of Portfolio Equity
- -------------------------------------------------------------------
+200 bp +3% -14%
+100 bp +2% -5%
- -100 bp -4% -2%
- -200 bp -8% -5%
RECENT ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities," establishing standards for
the accounting and reporting of derivatives. The statement is effective for
fiscal years beginning after June 15, 1999; earlier application is permitted.
The Company has elected not to adopt this statement prior to its effective date.
The company does not expect that adoption of this statement will have a material
effect on its financial position or results of operations.
25
<PAGE>
STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
This document contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements can
be identified by the use of words as "believes," "expects" and similar words or
variations. Such statements are not historical facts and involve certain risks
and uncertainties. Actual results may differ materially from the results
discussed in these forward-looking statements. Factors that might cause a
difference include, but are not limited to, changes in interest rates, economic
conditions, deposit and loan growth, loan loss provisions, customer retention,
failure to realize expected cost savings or revenue enhancements from
acquisitions, or failure of the company's Year 2000 compliance program to
effectively address Year 2000 computer problems. The Company assumes no
obligation for updating any such forward-looking statements at any time.
YEAR 2000 COMPLIANCE
HUBCO has been involved since 1996 in preparing its computer systems and
applications to meet the challenge of the new millennium. The Company, in
conjunction with its data processing subsidiary, has established a "Year 2000
Team" which is responsible for ensuring implementation of the required changes
to avoid business disruption. This process involves analyzing and replacing
existing computer hardware and software as needed. HUBCO is currently
communicating with customers and external providers to determine their status
regarding Year 2000 issues. Additionally, the Company is assessing how problems
with third party computer systems may impact its business operations. To date,
the Company has not identified any material third party problems, but will
continue to assess the situation through 1999.
The review of computer and noninformation technology systems was completed by
December 31, 1998. This will allow 1999 for testing and making adjustments, as
necessary, to fine-tune our systems and deal with any customer or third party
developments.
The estimated total cost to become Year 2000 compliant is $5 million. Through
December 31, 1998, the Company has incurred approximately $4.2 million of the
above costs. The Company anticipates most of the remaining costs will be
incurred by mid-year 1999.
A failure by HUBCO or by third parties on whom HUBCO relies for support to
correct Year 2000 issues may cause disruption in HUBCO's business operations
that could result in reduced revenue, increased operating costs and other
adverse effects. Additionally, to the extent borrowers' financial positions are
weakened as a result of Year 2000 issues, credit quality could be impacted. It
is not possible to forecast with a reasonable degree of certainty all the
negative impacts that could result from a failure of the Company or third
parties to become fully Year 2000-compliant or whether such effect could have a
material impact on HUBCO. The Company has developed contingency plans to
mitigate the disruption to business operations that may occur if Year 2000
compliance is not fully achieved by all parties.
26 HUBCO, INC. ANNUAL REPORT 1998
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, (in thousands, except share data) 1998 1997
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 217,954 $ 240,229
Federal funds sold 17,697 277,930
--------------------------
TOTAL CASH AND CASH EQUIVALENTS 235,651 518,159
Investment securities available for sale, at market value 2,260,625 1,499,306
Investment securities held to maturity, at cost
(market value of $638,564 and $772,740 for 1998 and 1997, respectively) 634,971 764,831
Assets held for sale 14,147 --
Loans:
Residential mortgages 1,601,957 1,736,559
Commercial real estate mortgages 675,366 782,970
Commercial and financial 656,553 640,930
Consumer credit 370,353 348,555
Credit card 82,581 91,047
--------------------------
TOTAL LOANS 3,386,810 3,600,061
Less: Allowance for possible loan losses (53,499) (65,858)
--------------------------
NET LOANS 3,333,311 3,534,203
Premises and equipment, net 83,525 82,511
Other real estate owned 103 11,483
Intangibles, net of amortization 78,990 55,573
Other assets 137,338 140,074
--------------------------
TOTAL ASSETS $ 6,778,661 $ 6,606,140
==========================
<CAPTION>
LIABILITIES AND
STOCKHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 941,253 $ 831,579
Interest bearing 4,110,137 4,421,377
--------------------------
TOTAL DEPOSITS 5,051,390 5,252,956
Borrowings 821,593 626,405
Other liabilities 248,863 69,678
--------------------------
6,121,846 5,949,039
Subordinated debt 100,000 100,000
Company-obligated mandatorily redeemable preferred
series B capital securities of two subsidiary trusts holding
solely junior subordinated debentures of the Company 100,000 50,000
--------------------------
TOTAL LIABILITIES 6,321,846 6,099,039
Stockholders' Equity:
Convertible Preferred Stock--Series B, no par value;
Authorized 10,609,000 shares; 500 shares issued and outstanding in 1998;
1,250 shares issued and outstanding in 1997 50 125
Common stock, no par value; authorized 54,636,350
Shares; 40,633,204 shares issued and 40,411,521 shares outstanding in 1998
and 42,607,964 shares issued and 41,602,118 shares outstanding 1997 72,246 73,269
Additional paid-in capital 269,264 292,198
Retained earnings 113,787 164,612
Treasury stock, at cost, 221,683 shares in 1998 and 1,005,846 shares in 1997 (5,980) (19,133)
Employee stock awards and unallocated shares held in ESOP, at cost (2,368) (9,609)
Accumulated other comprehensive income 9,816 5,639
--------------------------
TOTAL STOCKHOLDERS' EQUITY 456,815 507,101
--------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,778,661 $ 6,606,140
==========================
</TABLE>
See Notes to Consolidated Financial Statements.
27
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended December 31, (in thousands, except per share data) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST AND FEE INCOME:
Loans $ 298,311 $ 306,800 $ 287,671
Investment securities 162,783 159,620 150,856
Other 7,453 4,795 3,987
-----------------------------------
TOTAL INTEREST AND FEE INCOME 468,547 471,215 442,514
-----------------------------------
INTEREST EXPENSE:
Deposits 161,077 175,645 173,521
Borrowings 38,412 28,202 23,140
Subordinated and other debt 14,864 12,433 3,905
-----------------------------------
TOTAL INTEREST EXPENSE 214,353 216,280 200,566
-----------------------------------
NET INTEREST INCOME 254,194 254,935 241,948
PROVISION FOR POSSIBLE LOAN LOSSES 14,374 12,775 17,140
-----------------------------------
NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES 239,820 242,160 224,808
-----------------------------------
NONINTEREST INCOME:
Trust department income 3,638 3,445 3,151
Service charges on deposit accounts 22,039 22,841 21,923
Securities gains 3,319 8,925 1,355
Loss on assets held for sale (23,303) -- (894)
Shoppers Charge fees 11,556 9,072 4,138
Other income 16,050 9,897 10,584
-----------------------------------
TOTAL NONINTEREST INCOME 33,299 54,180 40,257
-----------------------------------
NONINTEREST EXPENSE:
Salaries 57,387 63,397 63,128
Pension and other employee benefits 19,072 23,881 21,350
Occupancy expense 16,578 15,971 16,435
Equipment expense 10,253 10,711 9,826
Deposit and other insurance 2,744 2,881 6,189
Special SAIF assessment -- -- 10,074
Outside services 26,986 25,944 20,699
Other real estate owned expense 1,919 4,675 4,686
Amortization of intangibles 11,050 8,991 7,225
Other 19,711 24,587 22,985
Merger related and restructuring costs 66,396 270 22,082
-----------------------------------
TOTAL NONINTEREST EXPENSE 232,096 181,308 204,679
-----------------------------------
INCOME BEFORE INCOME TAXES 41,023 115,032 60,386
PROVISION FOR INCOME TAXES 17,872 45,205 23,490
-----------------------------------
NET INCOME $ 23,151 $ 69,827 $ 36,896
===================================
EARNINGS PER SHARE:
Basic $ 0.57 $ 1.67 $ 0.85
Diluted 0.56 1.60 0.82
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 40,640 41,362 42,402
Diluted 41,696 43,635 44,990
<CAPTION>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Year Ended December 31, (in thousands) 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INCOME $ 23,151 $ 69,827 $ 36,896
===================================
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Unrealized securities gains arising during period $ 6,284 $ 13,412 $ (3,025)
Less: reclassification for gains included in Net Income (2,107) (5,417) (828)
-----------------------------------
Other Comprehensive Income (Loss) 4,177 7,995 (3,853)
-----------------------------------
COMPREHENSIVE INCOME $ 27,328 $ 77,822 $ 33,043
===================================
</TABLE>
See Notes to Consolidated Financial Statements.
28 HUBCO, INC. ANNUAL REPORT 1998
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock Additional
--------------------- ------------------------ Paid-in Retained
(In thousands, except share data) Shares Amount Shares Amount Capital Earnings
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 41,850 $ 4,185 39,331,359 $ 69,931 $ 311,205 $ 181,904
=====================================================================================
Net income -- -- -- -- -- 36,896
Cash dividends - common -- -- -- -- -- (21,751)
Cash dividends - preferred -- -- -- -- -- (825)
3% Stock Dividend -- -- 47,662 85 1,235 (28,348)
Shares issued for:
Stock options exercised -- -- 389,449 691 277 --
Warrants exercised -- -- 143,835 255 207 --
Dividend reinvestment and
stock reinvestment plan -- -- 7,693 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 -- -- -- -- 1,498 161
Other comprehensive
income (loss) -- -- -- -- -- --
Other transactions -- -- -- -- (513) --
-------------------------------------------------------------------------------------
Balance at December 31, 1996 39,600 $ 3,960 40,837,159 $ 72,609 $ 324,322 $ 168,003
=====================================================================================
Net income -- -- -- -- -- 69,827
Cash dividends-common -- -- -- -- -- (27,508)
Cash dividends-preferred -- -- -- -- -- (650)
3% Stock Dividend -- -- 321,046 570 9,859 (45,066)
Shares issued for:
Stock options exercised -- -- 47,325 84 (6,296) --
Warrants exercised -- -- -- -- (48) --
Dividend reinvestment and
stock reinvestment plan -- -- 3,444 6 77 --
Preferred stock conversion (38,350) (3,835) -- -- (36,513) --
Cash in lieu of fractional shares -- -- -- -- (97) --
Purchase of treasury stock -- -- -- -- -- --
Effect of compensation plans -- -- -- -- 894 6
Other comprehensive
income -- -- -- -- -- --
-------------------------------------------------------------------------------------
Balance at December 31, 1997 1,250 $ 125 41,208,974 $ 73,269 $ 292,198 $ 164,612
=====================================================================================
<CAPTION>
Employee
Stock
Awards and
Unallocated Accumulated
Shares held Other
Treasury in ESOP, at Comprehensive
(In thousands, except share data) Stock cost Income Total
---------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 $ (17,509) $ (15,171) $ 1,497 $ 536,042
=========================================================
Net income -- -- -- 36,896
Cash dividends - common -- -- -- (21,751)
Cash dividends - preferred -- -- -- (825)
3% Stock Dividend 27,028 -- -- --
Shares issued for:
Stock options exercised 908 -- -- 1,876
Warrants exercised 74 -- -- 536
Dividends reinvestment and
stock reinvestment 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 (39,600) -- -- (39,600)
Effect of compensation plans (2) 3,191 -- 4,848
Other comprehensive
income (loss) -- -- (3,853) (3,853)
Other transactions -- -- -- (513)
---------------------------------------------------------
Balance at December 31, 1996 $ (21,195) $ (11,980) $ (2,356) $ 533,363
=========================================================
Net income -- -- -- 69,827
Cash dividends-common -- -- -- (27,508)
Cash dividends-preferred -- -- -- (650)
3% Stock Dividend 34,723 -- -- 86
Shares issued for:
Stock options exercised 10,074 -- -- 3,862
Warrants exercised 65 -- -- 17
Dividends reinvestment and
stock reinvestment plan -- -- -- 83
Preferred stock conversion 40,348 -- -- --
Cash in lieu of fractional shares -- -- -- (97)
Purchase of treasury stock (83,448) -- -- (83,448)
Effect of compensation plans 300 2,371 -- 3,571
Other comprehensive
income -- -- 7,995 7,995
---------------------------------------------------------
Balance at December 31, 1997 $ (19,133) $ (9,609) $ 5,639 $ 507,101
=========================================================
</TABLE>
See Notes to Consolidated Financial Statements.
29
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1998, 1997, and 1996 (Continued)
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock Additional
--------------- -------------------- Paid-in Retained Treasury
(In thousands, except share data) Shares Amount Shares Amount Capital Earnings Stock
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income -- $ -- -- $ -- $ -- $ 23,151 $ --
Cash dividends-common -- -- -- -- -- (34,718) --
3% Stock Dividend -- -- 40,213 72 (709) (40,797) 41,434
Shares issued for:
Stock options exercised -- -- 330,684 588 (8,410) -- 18,373
Warrants exercised -- -- 7,158 13 (97) -- 173
Preferred stock conversion (750) (75) 16,608 30 (130) -- 175
Cash in lieu of fractional shares -- -- -- -- (212) -- --
Other transactions -- -- 3,750 7 (7) -- --
IBS fiscal year adjustment -- -- -- -- -- 1,539 --
Purchase of treasury stock -- -- -- -- -- -- (69,880)
Issuance and retirement
of treasury stock -- -- (989,058) (1,759) (18,930) -- 20,689
Effect of compensation plans -- -- 14,875 26 5,561 -- 2,189
Other comprehensive
income -- -- -- -- -- -- --
------------------------------------------------------------------------------
Balance at December 31, 1998 500 $ 50 40,633,204 $ 72,246 $ 269,264 $ 113,787 $ (5,980)
==============================================================================
<CAPTION>
Employee
Stock
Awards and
Unallocated Accumulated
Shares held Other
in ESOP, at Comprehensive
(In thousands, except share data) cost Income Total
----------------------------------
<S> <C> <C> <C>
Net income -- -- 23,151
Cash dividends-common -- -- (34,718)
3% Stock Dividend -- -- --
Shares issued for:
Stock options exercised -- -- 10,551
Warrants exercised -- -- 89
Preferred stock conversion -- -- --
Cash in lieu of fractional shares -- -- (212)
Other transactions -- -- --
IBS fiscal year adjustment -- -- 1,539
Purchase of treasury stock -- -- (69,880)
Issuance and retirement
of treasury stock -- -- --
Effect of compensation plans 7,241 -- 15,017
Other comprehensive
income -- 4,177 4,177
----------------------------------
Balance at December 31, 1998 $(2,368) $9,816 $ 456,815
==================================
</TABLE>
See Notes to Consolidated Financial Statements.
30 HUBCO, INC. ANNUAL REPORT 1998
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended December 31, 1998, 1997, and 1996 (in thousands) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 23,151 $ 69,827 $ 36,896
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Provision for possible loan losses 14,374 12,775 17,140
Provision for depreciation and amortization 19,893 18,086 17,985
Amortization of security premiums, net 1,436 1,806 3,102
Securities gains (3,319) (8,925) (1,355)
Loss/(gain) on sale of premises and equipment 1,965 111 (182)
Gain on Sale of Loans (3,029) (1,289) (304)
Loss on assets held for sale 23,303 -- 894
Market adjustment on ESOP 728 894 388
MRP earned 2,809 1,210 1,194
IBS Fiscal Year Adjustment 1,539 -- --
Deferred income tax provision (benefit) 2,784 9,629 (88)
Net (increase) decrease in assets held for sale (14,147) 456 (263)
Decrease (increase) in other assets (395) 9,111 23,324
Increase (decrease) in other liabilities 176,267 7,742 (2,058)
-------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 247,359 121,433 96,673
-------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investment securities available for sale 322,511 335,660 429,587
Proceeds from repayments and maturities of investment securities:
Available for sale 850,749 378,752 253,228
Held to maturity 520,278 229,311 593,030
Purchases of investment securities:
Available for sale (1,620,110) (615,357) (1,071,970)
Held to maturity (670,848) (226,567) (674,675)
Net cash acquired through acquisitions 231,417 -- 459,046
Net decrease (increase) in loans other than purchases and sales 87,536 (97,405) (291,821)
Loans purchased -- (29,704) --
Loans sold 129,842 127,204 91,184
Proceeds from sales of premises and equipment 112 107 1,480
Purchases of premises and equipment (6,352) (10,226) (12,835)
Decrease in other real estate owned 8,244 8,869 11,885
-------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (146,621) 100,644 (211,861)
-------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits 57,214 38,269 13,357
Net decrease in NOW and savings accounts (247,259) (46,129) (95,750)
Net decrease in certificates of deposit (353,898) (73,858) (147)
Net increase in borrowings 194,845 157,497 119,733
Reduction of ESOP loan 853 696 837
Net proceeds from issuance of debt 48,737 49,250 73,738
Proceeds from the issuance of common stock 10,640 3,936 21,527
Termination of ESOP Plan 10,220 -- --
Cash dividends paid (34,718) (28,158) (22,576)
Acquisition of treasury stock (69,880) (83,448) (39,600)
-------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (383,246) 18,055 71,119
-------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (282,508) 240,132 (44,069)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 518,159 278,027 322,096
-------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 235,651 $ 518,159 $ 278,027
===========================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest $ 211,627 $ 217,973 $ 199,604
Income taxes 26,167 31,087 22,394
===========================================
Liabilities assumed in purchase business combinations and branch acquisitions $ 342,720 $ -- $ 763,580
===========================================
</TABLE>
See Notes to Consolidated Financial Statements.
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 (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), Lafayette American Bank (Lafayette) and Bank of the
Hudson (BOTH), 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.
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 had no securities
held for trading purposes at December 31, 1998 and 1997. Security purchases and
sales are recorded on the trade date.
ASSETS HELD FOR SALE
Assets held for sale are carried at the lower of cost or market, net of
applicable reserves.
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.
32 HUBCO, INC. ANNUAL REPORT 1998
<PAGE>
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 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, and all of the
outstanding shares of Dime Financial Corporation (DFC) on August 21, 1998.
Lafayette, Westport, PFC, and DFC 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.
33
<PAGE>
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
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income," which establishes standards for the reporting of
comprehensive income and its components in a full set of general purpose
financial statements. The Company has elected to display Consolidated Statements
of Income and Consolidated Statements of Comprehensive Income separately for the
disclosed periods.
Effective January 1, 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which requires that a public
business enterprise report financial and descriptive information about its
reportable operating segments. The Company's three banking subsidiaries, Hudson,
Lafayette, and BOTH, which meet the criteria of SFAS No. 131 to be considered in
the aggregate, have been aggregated for purposes of segment reporting. HUBCO,
Inc., the banks' holding company, is not a reportable segment because it does
not exceed any of the quantitative thresholds.
Effective for the fiscal year ended December 31, 1998, the Company adopted SFAS
No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits," which standardizes the disclosure requirements for pension and other
postretirement benefits to the extent practicable and requires additional
information on changes in the benefit obligations and fair values of plan
assets.
The Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting
for Derivative Instruments and Hedging Activities," establishing standards for
the accounting and reporting of derivatives. The statement is effective for
fiscal years beginning after June 15, 1999; earlier application is permitted.
The Company has elected not to adopt this statement prior to its effective date.
The Company does not expect that application of this statement will have a
material effect on its financial position or results of operations.
CASH EQUIVALENTS
Cash equivalents include amounts due from banks and Federal funds sold.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 and 1996 amounts in order
to conform to 1998's presentation.
34 HUBCO, INC. ANNUAL REPORT 1998
<PAGE>
(2) BUSINESS COMBINATIONS
The following business combinations have been accounted for using the pooling of
interests method:
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 .754 shares of the
Company's common stock, for a total of 1,348,995 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 .643 shares
of the Company's common stock, for a total of 6,248,756 shares. At the time of
the acquisition, Lafayette had approximately $741 million in assets.
On December 13, 1996, the Company acquired all the outstanding shares of
Westport Bancorp, Inc., (Westport) based in Westport, Connecticut. Each share of
Westport common stock outstanding was converted into .352 shares of the
Company's common stock for a total of 1,979,730 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 .637 shares of the Company's common stock
for a total of 755,133 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 .309 shares of the
Company's common stock for a total of 3,586,360 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 1.052 shares of the Company's common stock for a total of
2,933,710 shares. At the time of the acquisition MSB had approximately $745
million in assets.
On August 14, 1998, the Company acquired all the outstanding shares of IBS
Financial (IBS) based in Cherry Hill, New Jersey. Each share of IBS common stock
outstanding was converted into .550 shares of the Company's common stock for a
total of 5,946,880 shares. At the time of the acquisition, IBS had approximately
$743 million in assets.
On August 14, 1998, the Company acquired all the outstanding shares of Community
Financial Holding Corporation (CFHC) based in Westmont, New Jersey. Each share
of CFHC common stock was converted into .716 shares of the Company's common
stock for a total of 766,144 shares. At the time of the acquisition, CFHC had
approximately $150 million in assets.
On August 21, 1998, the Company acquired all the outstanding shares of Dime
Financial Corporation (DFC), based in Wallingford, Connecticut. Each share of
DFC common stock was converted into 1.0815 shares of the Company's common stock
for a total of 5,221,614 shares. At the time of the acquisition, DFC had
approximately $961 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
- --------------------------------------------------------------------------------
Net interest income-
The Company, as previously
reported (1) $139,110 $130,252
BOS 6,733 5,984
PFC 27,448 25,763
MSB 24,484 23,557
CFHC 6,316 5,763
IBS 22,623 24,733
DFC 28,221 25,896
-------------------------
$254,935 $241,948
=========================
Net income-
The Company, as previously
reported (1) $ 48,180 $ 20,395
BOS 327 1,138
PFC (2) 2,429 1,436
MSB 2,281 1,711
CFHC 630 1,006
IBS 5,806 4,537
DFC(2) 10,174 6,673
-------------------------
$ 69,827 $ 36,896
=========================
(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 PFC and DFC 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.
35
<PAGE>
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) for a cash purchase price of $9.8 million which was $5.5
million in excess of the fair value of the net assets acquired. 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.
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.
On July 24, 1998, the Company acquired 2 additional branches of First Union
National Bank located in Hyde Park and Woodstock, New York. The branches,
representing $25.2 million in deposits, were merged into BOTH.
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 costs were $66.4 million in 1998, $0.3 million
in 1997 and $22.1 million in 1996. The 1998 costs include payout and accruals
for employment contracts, severance and other employee related costs ($28.6
million), branch closings, fixed asset disposition, and other occupancy related
costs ($11.7 million), professional services ($13.2 million), and other merger
related expenses ($12.9 million).
(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, 1998
was approximately $5.7 million.
(4) INVESTMENT SECURITIES
The amortized cost and estimated market value of Investment Securities as of
December 31, are summarized as follows (in thousands):
1998
-------------------------------------------------
Gross Unrealized Estimated
Amortized ----------------------- Market
Cost Gains (Losses) Value
- --------------------------------------------------------------------------------
Available for Sale
U.S. Government $ 84,530 $ 1,583 $ -- $ 86,113
U.S. Government
agencies 369,357 3,162 -- 372,519
Mortgage-backed
securities 1,688,464 13,645 (4,306) 1,697,803
States and political
subdivisions 11,219 100 (1) 11,318
Other debt
securities 4,083 5 (40) 4,048
Equity securities 87,027 2,471 (674) 88,824
--------------------------------------------------
$2,244,680 $ 20,966 $ (5,021) $2,260,625
==================================================
Held to Maturity
U.S. Government $ 42,373 $ 39 $ -- $ 42,766
U.S. Government
agencies 37,360 1,462 -- 38,822
States and political
subdivisions 15,513 182 (4) 15,691
Mortgage-backed
securities 539,725 2,277 (717) 541,285
-----------------------------------------------
$634,971 $ 4,314 $ (721) $638,564
===============================================
36 HUBCO, INC. ANNUAL REPORT 1998
<PAGE>
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 274,555 1,745 (301) 275,999
Mortgage-backed
securities 1,016,627 5,292 (3,028) 1,018,891
States and political
subdivisions 10,619 59 (26) 10,652
Other debt
securities 41,850 306 (8) 42,148
Equity securities 35,718 4,925 (62) 40,581
--------------------------------------------------
$1,489,854 $ 13,217 $ (3,765) $1,499,306
==================================================
Held to Maturity
U.S. Government $ 45,585 $ 611 $ -- $ 46,196
U.S. Government
agencies 266,066 1,799 (480) 267,385
States and political
subdivisions 10,981 89 -- 11,070
Mortgage-backed
securities 442,199 7,827 (1,937) 448,089
--------------------------------------------------
$ 764,831 $ 10,326 $ (2,417) $ 772,740
==================================================
The amortized cost and estimated market value of debt securities at December 31,
1998, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
Estimated
Amortized Market
(in thousands) Cost Value
- --------------------------------------------------------------------------------
Available for Sale
Due in one year or less $ 68,400 $ 68,608
Due after one year through five years 295,672 299,360
Due after five years through ten years 61,356 62,135
Due after ten years 43,761 43,895
--------------------------
469,189 473,998
Mortgage-backed securities 1,688,464 1,697,803
Equity securities 87,027 88,824
--------------------------
$2,244,680 $2,260,625
--------------------------
Held to Maturity
Due in one year or less $ 51,146 $ 51,549
Due after one year through five years 12,533 12,742
Due after five years through ten years 31,322 32,725
Due after ten years 245 263
--------------------------
95,246 97,279
Mortgage-backed securities 539,725 541,285
--------------------------
$ 634,971 $ 638,564
==========================
Sales of securities for the year ended December 31 are summarized as follows (in
thousands):
1998 1997 1996
- --------------------------------------------------------------------------------
Proceeds from sales $ 322,511 $ 335,660 $ 429,587
=========================================
Gross gains from sales 4,136 9,371 2,742
=========================================
Gross losses from sales (817) (446) (1,387)
=========================================
Securities with a book value of $414.3 million and $433.8 million at December
31, 1998 and 1997, 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):
1998 1997 1996
- -------------------------------------------------------------------------------
Balance at January 1 $ 65,858 $ 61,995 $ 56,063
Additions (deductions):
Provision charged to expense 14,374 12,775 17,140
Allowance acquired
through mergers
or acquisitions 1,950 2,800 4,658
Recoveries on loans
previously charged off 2,843 5,842 4,612
Loans charged off (1) (31,526) (17,554) (20,478)
------------------------------------
Balance at December 31 $ 53,499 $ 65,858 $ 61,995
====================================
(1) Includes $9,521 write-down on assets held for sale.
(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.
37
<PAGE>
December 31,
(in thousands) 1998 1997
- --------------------------------------------------------------------------------
Nonaccrual loans $17,629 $50,938
Renegotiated loans 3,269 16,162
----------------------
Total nonperforming loans $20,898 $67,100
======================
90 days or more past due and still
accruing $13,483 $16,442
======================
Year ended December 31,
1998 1997 1996
- --------------------------------------------------------------------------------
Gross interest income which would
have been recorded under
original terms $4,060 $4,940 $5,704
------------------------------
Gross interest income recorded
during the year $ 265 $1,416 $1,952
------------------------------
At December 31, 1998 and 1997 impaired loans totaled $5.0 million and $30.5
million, respectively. The allowance for possible loan losses related to such
impaired loans was $0.5 million and $1.8 million at December 31, 1998 and 1997,
respectively. The average balance of impaired loans for 1998 and 1997 was $18.0
million and $25.9 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, 1998 (in thousands):
Balance at January 1 $13,975
New loans issued 3,865
Repayment of loans (1,875)
Loans to former directors (2,576)
-------
Balance at December 31 $13,389
=======
(8) PREMISES AND EQUIPMENT
The following is a summary of premises and equipment at December 31 (in
thousands):
1998 1997
- -------------------------------------------------------------------------------
Land $ 16,917 $ 16,004
Premises 85,654 83,131
Furniture, fixtures and equipment 59,247 62,123
--------------------------
161,818 161,258
Less-Accumulated depreciation (78,293) (78,747)
--------------------------
$ 83,525 $ 82,511
===========================
Depreciation and amortization expense for premises and equipment for 1998, 1997
and 1996 amounted to $8.6 million, $9.2 million and $9.0 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):
1998 1997 1996
- --------------------------------------------------------------------------------
Federal-
Current $ 15,468 $28,060 $ 19,933
Deferred 2,784 9,629 (88)
State (380) 7,516 3,645
------------------------------------
Total provision for
income taxes $ 17,872 $45,205 $ 23,490
=====================================
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):
1998 1997 1996
- --------------------------------------------------------------------------------
Tax at statutory rate $ 14,358 $ 40,261 $ 21,135
Increase (decrease)
in taxes resulting from
Tax-exempt income (1,489) (411) (594)
Non-deductible merger
related expenses 5,232 -- 3,765
State income taxes, net
of Federal income
tax benefit (247) 4,969 2,379
Change in valuation
allowance -- -- (1,250)
Other, net 18 386 (1,945)
--------------------------------------
Provision for income taxes $ 17,872 $ 45,205 $ 23,490
======================================
Significant components of deferred tax assets and liabilities are as follows (in
thousands):
December 31,
1998 1997 1996
- --------------------------------------------------------------------------------
Deferred Tax Assets (Liabilities):
Allowance for possible
loan losses $ 19,260 $ 21,836 $ 24,399
Fed/State Operating Loss
Carry Forwards -- 10,650 18,826
Director & Officer
Compensation Plans 1,065 1,743 1,882
Purchased Mortgage
Servicing Rights 968 1,046 1,067
Allowance for losses
on OREO 1,275 804 1,189
Depreciation (1,850) (215) (339)
Unrealized Gain (Loss)
on available for sale
securities (5,581) (7,211) 1,027
Acquisition Related Expenses 4,710 3,081 3,278
Other 16,653 9,862 10,839
----------------------------------
Net Deferred Tax Asset $ 36,500 $ 41,596 $ 62,168
==================================
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
38 HUBCO, INC. ANNUAL REPORT 1998
<PAGE>
portion of the asset is realizable. There was no valuation allowance as of
December 31, 1998.
The following represents the tax impact of unrealized securities gains (losses):
For the twelve months ended
December 31, 1998
- -----------------------------------------------------------------------------
Before Net of
tax Tax Tax
Amount Expense Amount
- -----------------------------------------------------------------------------
Unrealized holding gains
arising during the period $9,812 $(3,528) $6,284
Less: reclassification for gains
realized in Net Income 3,319 (1,212) 2,107
--------------------------------
Net change during period $6,493 $(2,316) $4,177
================================
For the twelve months ended
December 31, 1997
- -----------------------------------------------------------------------------
Before Net of
tax Tax Tax
Amount Expense Amount
- -----------------------------------------------------------------------------
Unrealized holding gains
arising during the period $21,935 $(8,523) $13,412
Less: reclassification for gains
realized in Net Income 8,925 (3,508) 5,417
--------------------------------
Net change during period $13,010 $(5,015) $7,995
================================
For the twelve months ended
December 31, 1996
- -----------------------------------------------------------------------------
Before Tax Net of
tax (Expense) Tax
Amount Benefit Amount
- -----------------------------------------------------------------------------
Unrealized holding gains (losses)
arising during the period $(4,487) $1,462 $(3,025)
Less: reclassification for gains
realized in Net Income 1,355 (527) 828
--------------------------------
Net change during period $(5,842) $1,989 $(3,853)
================================
(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.
Information regarding the benefit obligation resulting from the actuarial
valuations prepared as of January 1, 1998 and 1997 is as follows (in thousands):
1998 1997
- --------------------------------------------------------------------------------
Change in benefit obligation:
Benefit obligation at beginning of year $ 31,617 $ 25,310
Service cost 1,216 1,375
Interest cost 2,075 1,785
Actuarial gain 492 2,022
Benefits paid (2,107) (2,051)
------------------------
Benefit obligation at end of year $ 33,293 $ 28,441
========================
1998 1997
- --------------------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets at
beginning of year $ 34,898 $ 32,112
Actual return on plan assets 3,557 4,597
Employer contribution -- 240
Benefits paid (2,107) (2,051)
------------------------
Fair value of plan assets at end of year $ 36,348 $ 34,898
========================
Prepaid pension cost consists of the following as of December 31 (in thousands):
1998 1997
- --------------------------------------------------------------------------------
Funding status $ 3,055 $ 6,457
Unrecognized net transition obligation (408) (525)
Unrecognized net actuarial loss 732 393
Unrecognized prior service cost (298) (3,413)
------------------------
Prepaid pension cost $ 3,081 $ 2,912
========================
Assumptions used by the Company in the accounting for its plans in 1998 and 1997
were:
1998 1997
- --------------------------------------------------------------------------------
Discount rate 6.5-7.5% 6.5-8.0%
Expected return on plan assets 8.0-8.5% 8.0-8.5%
Rate of compensation increase 3.5-4.3% 3.5-4.3%
Components of net periodic
pension cost (in thousands) 1998 1997 1996
- --------------------------------------------------------------------------------
Service cost $ 1,216 $ 1,375 $ 1,226
Interest cost 2,075 1,785 1,957
Expected return on plan assets (2,740) (2,540) (3,528)
Net amortization and deferral (39) (48) 1,232
--------------------------------
Net periodic pension cost $ 512 $ 572 $ 887
================================
The Company has 401(k) savings plans covering substantially all of its
employees. Under these plans, the Company matches varying percentages of the
employee's contribution. The Company's contributions under these plans were
approximately $1,145, $956 and $817 in 1998, 1997 and 1996, respectively.
39
<PAGE>
Except for the pension plans, the Company does not provide any significant
postretirement benefits.
(11) DEPOSITS
The aggregate amount of short-term jumbo certificates of deposit, each with a
minimum denomination of $100,000, was approximately $315.6 million and $344.7
million at December 31, 1998 and 1997, respectively.
The scheduled maturities of certificates of deposit are as follows at December
31, 1998 (in thousands):
3 months or less $ 615,210
Greater than 3 months to 1 year 1,081,981
Greater than 1 year to 3 years 335,644
Greater than 3 years 93,271
----------
$2,126,106
==========
(12) BORROWINGS
The following is a summary of borrowings at December 31 (in thousands):
1998 1997
- --------------------------------------------------------------------------------
Federal Home Loan Bank (FHLB) advances $415,262 $251,819
Securities sold under agreements
to repurchase 231,923 366,902
Federal funds purchased 150,600 --
Treasury, Tax and Loan note 16,394 2,574
Other borrowings 7,414 5,110
-----------------------
Total borrowings $821,593 $626,405
=======================
Maturity distribution of borrowings at December 31, 1998 (in thousands):
1999 $707,795
2000 54,000
2001 28,759
2003 24,187
2008 6,852
--------
$821,593
========
Information concerning securities sold under agreements to repurchase and FHLB
advances is summarized as follows (in thousands):
1998 1997
- --------------------------------------------------------------------------------
Average daily balance during the year $553,786 $466,146
Average interest rate during the year 5.65% 5.73%
Maximum month-end balance during
the year $847,513 $758,134
Investment securities underlying the repurchase agreements at December 31 (in
thousands):
1998 1997
- --------------------------------------------------------------------------------
Carrying value $280,493 $386,446
Estimated fair value 281,553 387,894
(13) SUBORDINATED DEBT
In September 1996, the Company sold $75.0 million aggregate principal amount of
subordinated debentures. The debentures, which mature in 2006, bear interest at
8.20% per annum payable semiannually. In January, 1994, the Company sold $25.0
million aggregate principal amount of subordinated debentures. The debentures,
which mature in 2004, bear interest at 7.75% per annum payable semiannually.
(14) CAPITAL TRUST SECURITIES
On January 31, 1997, the Company placed $50.0 million in aggregate liquidation
amount of 8.98% Capital Securities due February 2027, using HUBCO Capital Trust
I, a statutory business trust formed under the laws of the State of Delaware.
The sole asset of the trust, which is the obligor on the series B Capital
Securities, is $51.5 million principal amount of 8.98% Junior Subordinated
Debentures due 2027 of HUBCO.
On June 19, 1998, the Company placed $50.0 million in aggregate liquidation
amount of 7.65% Capital Securities due June 2028, using HUBCO Capital Trust II,
a statutory business trust formed under the laws of the State of Delaware. The
sole asset of the trust, which is the obligor on the Series B Capital
Securities, is $51.5 million principal amount of 7.65% Junior Subordinated
Debentures due 2028 of HUBCO.
The net proceeds of these offerings are being used for general corporate
purposes and to increase capital levels of the Company and its subsidiaries. The
securities qualify as Tier I capital under the capital guidelines of the Federal
Reserve.
(15) STOCKHOLDERS' EQUITY
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. On September 1, 1998,
the Company paid a 3% stock dividend to stockholders of record on August 14,
1998. 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
40 HUBCO, INC. ANNUAL REPORT 1998
<PAGE>
declared by the Company's Board of Directors. Each share of the preferred stock
is convertible at any time at the option of the holder thereof into 33.2175
shares of common stock, subject to certain adjustments. Each share is entitled
to 33.2175 votes.
In July, 1996, as part of the Lafayette acquisition, the Company converted all
outstanding Lafayette warrants into HUBCO warrants. Each HUBCO warrant is
exercisable at $6.85 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 1998, 11,997 warrants were exercised resulting in 21,288
outstanding warrants as of December 31, 1998.
In December 1994, the Board of Directors adopted the 1995 Stock Option Plan,
which provides for the issuance of up to 1,545,000 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, MSB, DFC and IBS acquisitions, all of the
outstanding PFC, MSB, DFC and IBS 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, 1996 2,663,236 $ 3.44-$21.98
Granted 396,698 $23.10-$32.82
Exercised (486,986) $ 5.67-$17.02
Forfeited/Cancelled (26,933) $14.29-$22.28
----------------------------------
Outstanding,
December 31, 1997 2,546,015 $ 3.44-$32.82
----------------------------------
Granted 69,920 $26.88-$34.89
Exercised (1,062,460) $ 3.44-$28.66
Forfeited/Cancelled (18,990) $11.74-$32.83
----------------------------------
Outstanding,
December 31, 1998 1,534,485 $ 4.86-$34.89
==================================
As of December 31, 1998, 1,360,841 shares are exercisable. In connection with
the BOS and CNB acquisitions, the Company issued HUBCO common shares to the
holders of options to purchase BOS and CNB 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 pro
forma amounts indicated below (in thousands, except share data):
1998 1997 1996
- --------------------------------------------------------------------------------
Net income As reported $23,151 $69,827 $36,896
Pro forma 22,858 68,565 35,496
Basic earnings
per share As reported $0.57 $1.67 $0.85
Pro forma 0.56 1.64 0.82
Diluted earnings
per share As reported $0.56 $1.60 $0.82
Pro forma 0.55 $1.57 0.79
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 1998
and 1997: dividend yield of 3.35% to 4.35% for 1998 and 1.80% to 3.36% for 1997;
risk-free interest rates of 5.00% for 1998 and 5.50% to 7.50% for 1997;
volatility factors of the expected market price of the Company's common stock of
approximately 29% in 1998 and 23% to 37% in 1997 and an expected life of 7 years
in 1998 and 5 to 10 years in 1997.
The Company has a restricted stock plan in which 566,500 shares of the Company's
common stock may be granted to officers and key employees. During 1998 and 1997,
84,495 and 16,686 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
vested, ($2,277) and ($444), has been recorded as a reduction of stockholders'
equity for 1998 and 1997, respectively. Amortization of restricted stock awards
charged to expense amounted to $275, $135 and $424 in 1998, 1997 and 1996,
respectively.
The Company maintained two Employee Stock Ownership Plans (ESOP) which were
originally established by MSB and IBS. The ESOP established by IBS was
terminated during 1998. Loan payments are funded principally from the Company's
contributions to the ESOP on behalf of eligible employees, which are expensed as
incurred. Shares purchased by the ESOP were held in a suspense account until
allocated to individual participants and are reflected as a reduction of
stockholders' equity.
The Company maintained two Bank Recognition and Retention Plan and Trusts (BRP)
in which shares of the Company's common stock were granted to plan participants.
These plans were originally established by MSB and IBS but the shares have been
fully vested and allocated in 1998. The expense recognized for the BRP and ESOP
amounted to $9,953, $4,719, and $3,536 for the years ended December 31, 1998,
1997 and 1996, respectively.
41
<PAGE>
(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):
Year Ended December 31,
- --------------------------------------------------------------------------------
1998 1997 1996
- --------------------------------------------------------------------------------
Basic Earnings Per Share
Net income $23,151 $69,827 $36,896
Less: Preferred stock dividends -- 650 825
---------------------------------
Net income available to
common stockholders 23,151 69,177 36,071
Weighted average common
shares outstanding 40,640 41,362 42,402
Basic Earnings Per Share $ 0.57 $ 1.67 $ 0.85
Diluted Earnings Per Share
Net income $23,151 $69,827 $36,896
Weighted average common
shares outstanding 40,640 41,362 42,402
Effect of Dilutive Securities:
Convertible Preferred Stock 22 1,008 1,354
Warrants 22 36 43
Unearned MRP -- 175 245
Stock Options 1,012 1,054 946
---------------------------------
41,696 43,635 44,990
Diluted Earnings Per Share $ 0.56 $ 1.60 $ 0.82
(17) RESTRICTIONS ON BANK DIVIDENDS, LOANS OR ADVANCES
Certain restrictions exist regarding the ability of Hudson, Lafayette, and BOTH
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% 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 years' retained net profits. Office of Thrift Supervision (OTS)
regulations, which apply to BOTH, allow for an 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, 1998, $208.0 million was available
for distribution to the Company from Hudson, $7.3 million was available for
distribution to the Company from Lafayette and approximately $8.2 million was
available for distribution to the Company from BOTH.
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 for $4 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 BOTH and acquired banks at the time of their conversion to the stock form of
ownership. In the unlikely event of a complete liquidation of BOTH, 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, 1998, for BOTH. 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 $9.8 million, $6.0
million and, $6.8 million in 1998, 1997 and 1996, respectively.
At December 31, 1998, 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):
1999 $ 5,001
2000 4,451
2001 3,833
2002 3,177
2003 and Thereafter 12,167
It is expected that in the normal course of business, leases that expire will be
renewed or replaced by leases of other properties.
42 HUBCO, INC. ANNUAL REPORT 1998
<PAGE>
(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, 1998 was $778.4 million and $25.8 million,
respectively. Commitments under commercial letters of credit used to facilitate
customers trade transactions were $1.0 million at December 31, 1998.
43
<PAGE>
(20) HUBCO, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION
December 31,
(in thousands) -------------------
BALANCE SHEETS 1998 1997
- --------------------------------------------------------------------------------
ASSETS:
Cash $ 42,634 $ 13,423
Federal Funds 600 --
Securities:
Available for sale 32,608 7,695
Held to maturity 802 903
Investment in subsidiaries 544,879 626,808
Accounts receivable 13,041 8,736
Premises and equipment, net 7,302 5,955
Other assets 41,537 11,349
-------------------
TOTAL ASSETS $683,403 $674,869
===================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable 15,601 5,293
Notes payable-subsidiaries 2,449 2,822
ESOP obligation -- 182
Dividends payable -- 710
Accrued taxes and other liabilities 8,538 8,761
-------------------
26,588 17,768
Subordinated Debt 100,000 100,000
Company-obligated mandatorily redeemable
preferred series B capital securities of two subsidiary
trusts holding solely junior subordinated debentures
of the Company 100,000 50,000
-------------------
TOTAL LIABILITIES 226,588 167,768
Stockholders' equity 456,815 507,101
-------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $683,403 $674,869
===================
Year Ended December 31,
(in thousands) ---------------------------------
STATEMENTS OF INCOME 1998 1997 1996
- --------------------------------------------------------------------------------
Income:
Cash dividends from bank subsidiaries $ 26,244 $ 44,797 $ 50,094
Interest 2,441 5,881 1,948
Securities gains 3,631 8,601 1,063
Rental income 1,166 1,165 1,093
Other 21,536 9,956 2
---------------------------------
55,018 70,400 54,200
Expenses:
General and administrative 27,655 19,082 5,634
Interest 15,126 13,483 4,147
---------------------------------
42,781 32,565 9,781
---------------------------------
Income before income taxes and equity in
undistributed net income of subsidiaries 12,237 37,835 44,419
Income taxes (6,484) (2,214) (1,550)
---------------------------------
18,721 40,049 45,969
Equity in undistributed net income
of subsidiaries 4,430 29,778 (9,073)
---------------------------------
NET INCOME $ 23,151 $ 69,827 $ 36,896
=================================
44
<PAGE>
(20) HUBCO, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
Year Ended December 31
(in thousands) ---------------------------------------------
STATEMENTS OF CASH FLOWS 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $ 23,151 $ 69,827 $ 36,896
Adjustments to reconcile net income to net cash
provided by (used in) operating activities-
Amortization and depreciation 659 475 331
Amortization of restricted stock 275 135 424
Securities gains (3,631) (8,601) (1,063)
Decrease (increase) in investment in subsidiaries 81,929 (36,352) (52,070)
IBSF fiscal year adjustment 1,539 -- --
(Increase) decrease in accounts receivable (4,305) (1,764) 7,238
Decrease in other assets 7,784 3,495 1,254
Decrease in notes payable (373) (372) (372)
Increase (decrease) in accounts payable 10,308 4,435 (517)
(Decrease) increase in accrued taxes and other liabilities (29,337) (6,967) 2,910
---------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 87,999 24,311 (4,969)
---------------------------------------------
Investing activities:
Proceeds from sale of securities 13,089 78,174 11,742
Proceeds from maturities of securities 4,895 20,142 20,437
Purchase of securities (39,186) (90,887) (29,349)
Net decrease in loans -- -- 426
Capital expenditures (1,985) (414) (302)
---------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (23,187) 7,015 2,954
---------------------------------------------
Financing activities:
Proceeds from issuance of common stock 10,640 3,962 22,154
Net proceeds from issuance of capital trust securities 48,737 49,250 --
Net proceeds from issuance of subordinated debt -- -- 73,738
Dividends paid (34,718) (28,158) (22,576)
Purchase of treasury stock (69,880) (83,448) (39,600)
Termination of ESOP 10,220 -- --
Infusion of capital into subsidiary -- 24,018 (33,513)
Other -- 3,731 5,719
---------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (35,001) (30,645) 5,922
---------------------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS 29,811 681 3,907
---------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 13,423 12,742 8,835
---------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 43,234 $ 13,423 $ 12,742
=============================================
</TABLE>
45 HUBCO, INC. ANNUAL REPORT 1998
<PAGE>
(21) SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following quarterly financial information for the two years ended December
31, 1998 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(a) June 30(a) September 30(a) December 31
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998
Net interest income $62,540 $63,863 $ 64,441 $63,350
Provision for possible loan losses 6,278 2,821 2,791 2,484
Income (loss) before income taxes 23,290 8,971 (26,522) 35,284
Net income (loss) 14,934 4,550 (20,133) 23,800
Earnings (loss) per share-basic 0.36 0.11 (0.50) 0.59
Earnings (loss) per share-diluted 0.35 0.11 (0.50) 0.58
1997
Net interest income $62,436 $64,910 $ 65,021 $62,567
Provision for possible loan losses 2,469 2,496 3,000 4,810
Income before income taxes 28,359 30,531 32,269 23,873
Net income 17,291 18,272 19,409 14,855
Earnings per share-basic 0.41 0.44 0.46 0.36
Earnings per share-diluted 0.39 0.42 0.44 0.35
</TABLE>
(a) Net income and related per share amounts for these periods in 1998 were
significantly impacted by merger related and restructuring costs resulting from
the 1998 acquisitions of BOS, PFC, MSB, CFHC, IBS, and DFC (see Note 2) and the
writedown of assets held for sale.
(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,
1998 and 1997 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.
46
<PAGE>
<TABLE>
<CAPTION>
1998 1997
Estimated Recorded Estimated Recorded
Fair Value Book Value Fair Value Book Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 235,651 $ 235,651 $ 518,159 $ 518,159
Investment and mortgage-backed securities available for sale 2,260,625 2,260,625 1,499,306 1,499,306
Investment and mortgage-backed securities held to maturity 638,564 634,971 772,740 764,831
</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.
<TABLE>
<CAPTION>
1998 1997
Estimated Recorded Estimated Recorded
Fair Value Book Value Fair Value Book Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loans, net of allowance, and Assets held for sale $3,387,502 $3,347,458 $3,569,353 $3,534,203
</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>
1998 1997
Estimated Recorded Estimated Recorded
Fair Value Book Value Fair Value Book Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deposits $4,878,012 $5,051,390 $5,253,687 $5,252,956
</TABLE>
The fair value for accrued interest receivable and the cash surrender value of
life insurance policies approximates their respective recorded book balance. The
fair value of borrowed funds is estimated using the present value of discounted
cash flows based on interest rates currently offered for debt instruments of
similar remaining maturities.
<TABLE>
<CAPTION>
1998 1997
Estimated Recorded Estimated Recorded
Fair Value Book Value Fair Value Book Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Accrued interest receivable $44,365 $44,365 $44,265 $44,265
Cash surrender value of life insurance 11,451 11,451 10,968 10,968
Borrowings 820,398 821,593 626,672 626,405
</TABLE>
The fair value of the subordinated debt and capital trust securities was
determined by reference to quoted market prices.
<TABLE>
<CAPTION>
1998 1997
Estimated Recorded Estimated Recorded
Fair Value Book Value Fair Value Book Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Subordinated Debt $107,419 $100,000 $106,733 $100,000
Capital Trust Securities 102,096 100,000 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.
47 HUBCO, INC. ANNUAL REPORT 1998
<PAGE>
(23) REGULATORY MATTERS
The Company and its subsidiary banks are subject to various regulatory capital
requirements administered by federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company and its subsidiary banks must meet specific capital guidelines that
involve quantitative measures of assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices.
Capital amounts and classification are also subject to qualitative judgements by
the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require each of the Banks to maintain minimum amounts and ratios of total and
Tier I capital (as defined in the regulations) to risk-weighted assets (as
defined), of Tier I capital (as defined) to average assets (as defined) for
Hudson 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, 1998, that the Company and its subsidiary banks meet all capital
adequacy requirements to which they are subject.
The Bank's actual capital amounts and ratios at December 31 are presented in the
following tables:
<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, 1998:
Total Capital to Risk Weighted Assets:
HUBCO $613,806 17.0% $289,369 >8.0% $361,711 >10.0%
Hudson United Bank 205,688 13.1% 126,130 >8.0% 157,663 >10.0%
Lafayette American Bank 166,744 13.7% 97,751 >8.0% 122,188 >10.0%
Bank of the Hudson 103,042 12.9% 63,770 >8.0% 79,713 >10.0%
Tier I Capital to Risk Weighted Assets:
HUBCO 467,682 12.9% 144,685 >4.0% 217,027 >6.0%
Hudson United Bank 192,817 12.2% 63,065 >4.0% 94,598 >6.0%
Lafayette American Bank 151,316 12.3% 48,875 >4.0% 73,313 >6.0%
Bank of the Hudson 93,042 11.7% 31,885 >4.0% 47,828 >6.0%
Tier I Capital to Average Assets:
HUBCO 467,682 7.1% 264,224 >4.0% 330,280 >5.0%
Hudson United Bank 192,817 7.1% 108,929 >4.0% 136,162 >5.0%
Lafayette American Bank 151,316 5.9% 101,890 >4.0% 127,362 >5.0%
Bank of the Hudson 93,042 6.9% 53,829 >4.0% 67,287 >5.0%
Tangible Capital to Adjusted Total Assets:
Bank of the Hudson 93,134 7.2% 19,309 1.5% -- --
Core Capital to Adjusted Total Assets:
Bank of the Hudson 93,134 7.2% 38,617 3.0% 64,362 5.0%
</TABLE>
48
<PAGE>
<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 $640,300 18.1% $283,838 >8.0% $354,797 >10.0%
Hudson United Bank 282,120 19.6% 115,038 >8.0% 143,797 >10.0%
Lafayette American Bank 198,938 15.8% 100,951 >8.0% 126,188 >10.0%
Bank of the Hudson 116,726 12.6% 74,038 >8.0% 92,547 >10.0%
Tier I Capital to Risk Weighted Assets:
HUBCO 495,685 14.0% 141,919 >4.0% 212,878 >6.0%
Hudson United Bank 264,116 18.4% 57,519 >4.0% 86,278 >6.0%
Lafayette American Bank 182,948 14.5% 50,475 >4.0% 75,713 >6.0%
Bank of the Hudson 105,149 11.4% 37,019 >4.0% 55,528 >6.0%
Tier I Capital to Average Assets:
HUBCO 495,685 7.8% 254,488 >4.0% 318,110 >5.0%
Hudson United Bank 264,116 10.5% 100,425 >4.0% 125,532 >5.0%
Lafayette American Bank 182,948 8.2% 89,169 >4.0% 111,461 >5.0%
Bank of the Hudson 105,149 6.5% 64,893 >4.0% 81,117 >5.0%
Tangible Capital to Adjusted Total Assets:
Bank of the Hudson 105,274 6.6% 23,991 1.5% -- --
Core Capital to Adjusted Total Assets:
Bank of the Hudson 105,274 6.6% 47,983 3.0% 79,971 5.0%
</TABLE>
49 HUBCO, INC. ANNUAL REPORT 1998
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of HUBCO, Inc.:
We have audited the accompanying consolidated balance sheets of HUBCO, Inc. (a
New Jersey corporation) and subsidiaries as of December 31, 1998 and 1997, and
the related consolidated statements of income, comprehensive income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of HUBCO, Inc. and subsidiaries as
of December 31, 1998 and 1997, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
Roseland, New Jersey
January 12, 1999
50
<PAGE>
MARKET AND DIVIDEND INFORMATION
HUBCO, Inc. is traded on the Nasdaq National Market under the symbol of HUBC. At
year end, there were approximately 7,963 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>
1998 1997
-----------------------------------------------------------------------
Cash Cash
Quarter Ending High Low Dividends High Low Dividends
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
March 31 $37.86 $32.28 $0.194 $25.03 $21.44 $0.179
June 30 37.62 31.25 0.194 27.57 20.86 0.179
September 30 35.00 25.38 0.243 31.11 26.16 0.179
December 31 30.13 21.63 0.250 37.99 30.05 0.194
</TABLE>
HUBCO, Inc. will provide, free of charge, to any stockholders, upon written
request, a copy of the Corporation's Annual Report on Form 1O-K, including the
financial statements and schedules which have been filed with the Securities &
Exchange Commission. Requests should be addressed to D. Lynn Van Borkulo-Nuzzo,
Corporate Secretary, HUBCO, Inc., 1000 MacArthur Blvd., Mahwah, New Jersey,
07430.
Duplicate accounts and mailings are costly and often unnecessary. We can
consolidate such accounts upon written request if you will notify either the
Corporate Secretary at the above address or Carolyn B. O'Neill, American Stock
Transfer and Trust Company, 40 Wall Street, New York, NY 10269.
DIVIDEND REINVESTMENT PLAN
If you are not enrolled in the Corporation's Dividend Reinvestment Plan and
would like to join the plan, you may obtain information by writing to the
Corporate Secretary at the above address.
51 HUBCO, INC. ANNUAL REPORT 1998
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.
HUB Financial Services, Inc., organized under the New Jersey Business
Corporation Act.
HUB Mortgage Investments, Inc., organized under the New Jersey Business
Corporation Act.
NJ Investments of Delaware, Inc., organized under Delaware Business Laws.
SUBSIDIARIES OF LAFAYETTE AMERICAN BANK AND TRUST:
AMBA Realty Corporation, organized under the Connecticut Business Laws.
LAI Company, organized under the Connecticut Business Laws.
LAB Investment Corp. of Delaware, Inc., organized under Delaware Business Laws.
SUBSIDIARIES OF THE 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 Inc., organized under the New York Business
Laws.
BOTH Investments of Delaware, Inc., organized under Delaware Business Laws.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER>1,000
<S><C>
<PERIOD-TYPE>12-MOS
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0
50
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</TABLE>
