The grit of the inner city is all over Hubco Inc.

Its main office, in Union City, N.J., needs a paint job. The facade looks dirty and worn. Discarded newspapers collect outside the front door.

In fact, with its back facing an entrance to the Lincoln Tunnel to New York City, one could mistake its headquarters, with its drive-through teller bays, for a bus terminal.

But don't let the grime fool you. Hubco is one of the few success stories in New Jersey banking these days.

A Spree of Takeovers

Through acquisitions, its assets have nearly doubled to $956 million in two and a half years. The holding company's two banks, Hudson United Bank -and Hub National Bank, have 31 branches in northern New Jersey.

Profits, meanwhile, have remained respectable. While many of its competitors posted losses, Hubco earned $5 million in 1991, or 0.82% on assets. One analyst estimates it could earn 0.93% on assets this year, or $ 10 million.

In fact, Hubco's prospects are appealing enough that Fidelity Investments recently bought 26% of Hubco's 1.725 million-share offering of common stock this summer and 100,000 additional shares on the open market. It owns 8.7% of the company's stock.

"The stock seemed inexpensive," said Brian Opsahl, a Fidelity analyst. He said the market hadn't given the company credit for its acquisitions, and surmised that it was because the company isn't widely followed.

Hubco was trading at $13.875 Wednesday, up 13.2% since the offering at $12.25. Its book value is $10 a share.

Hubco's success stems for its refusal to jump on the real estate lending bandwagon that rolled through New Jersey in the 1980S.

Indeed, the bank's credit standards are so conservative that 45% of its assets are invested in treasury securities and other liquid assets.

Conservative Standards

The bank steered clear of construction loans and ensured that loans on properties went to only the most creditworthy borrowers.

"We just didn't think we could do it profitably," said Kenneth T. Neilson, Hubco's president and chief executive.

One reason was that Hubco was slow to put together a construction lending staff. The company believed that once it developed one, its competitors would already have snapped up the very best credits.

Mr. Neilson, 44, said the bank also believed that developers would not want to adhere to Hubco's strict lending standards.

Hubco's real estate loans were made on only 67% of a property's appraised value, instead of the usual 70% to 80%; the property's projected cash flow had to cover 125% of the expected payments, and each payment had to be of equal amount.

Nonperformers Held Down

Many lenders in New Jersey and elsewhere, by comparison, lent on projected asset value instead of cash flow and allowed a borrower to pay less in the early years of the loan.

As a result, Hubco's nonperforming assets as a percentage of loans and foreclosed real estate were a comfortably low 2.4% at June 30.

In fact, Mr. Neilson says he has so much confidence in the standards that while most banks are shunning real estate loans, Hubco is looking to make more. Indeed, Hubco has been using this as a marketing tool to steal customers from other banks.

While loans are running off because loan demand remains weak, this technique has helped win it 50 new customers this year.

A Veteran Loan Officer

A tireless executive who logs 12-hour days, Mr. Neilson joined Hubco as a loan officer and oversaw its commercial lending operations from 1983 until he was named chief in 1989.

In his three years at the helm, he has shown a ravenous appetite for acquisitions, having acquired five banks and thrifts totaling $685 million in deposits.

All but one of the acquired banks had failed, and Mr. Neilson snapped them up from the government for an average deposit premium of 0.6% percent - decidedly bargain-basement prices.

It's unusual for a bank to have the winning bid five times in a row, but Mr. Neilson had two things working for him, analysts say.

The banks had less than $400 million in assets and in some cases were in depressed cities, so the bidding from larger banks was less intense.

More important, Hubco made bids for loans. particularly commercial real estate loans, as well as deposits. Other banks were less willing to take this risk, which meant their bids were less attractive to the government.

Some Good Bargains

The bank's experience with commercial real estate loans had been good relative to its peers. That gave Mr. Neilson confidence he and his officers could accurately assess the risk.

While they rejected most, Mr. Neilson said some, such as those with 10 years of timely payments, proved to be great finds.

"We weren't sure going in but as we looked at the loans, we liked some of what we looked at," he said, pointing out that Hubco didn't accept any loans it wouldn't have made itself.

"On a couple of the banks we bid on, they failed because they left the area, but they did a very good job underwriting [loans] locally," he said.

Mr. Neilson must continue to show restraint if his growth plans are to succeed.

With only 55% of its assets in loans, it is among the most liquid banks in the country. That puts Mr. Neilson under tremendous pressure to lower the bank's lending standards to make more loans.

But most think he is equal to the task,

Mr. Neilson, who earned $262,500 in 1991, has proven an aggressive cost-cutter, slashing expenses as a percentage of revenues to about 63%, from 71% since he took over.

He cut staff by about 15% and eliminated company cars for all but the top four executives. Under his predecessor, the top 20 managers had company cars.

Those that get a car don't get a new one, either. All are repossessed from customers who haven't paid their bills, including the 1987 Mercedes 450SEL that Mr. Neilson drives.

In Thick of the Action

Mr. Neilson's management style isn't likely to let things get out of hand, either. With an office off the bank's lobby, he is in touch with senior managers and the rank-and-file daily.

He can count on their telling him what is happening, too. If he learns that an employee is trying to hide bad news from him, he fires that person immediately.

He is not above getting his hands dirty. Once, on the night before a bank acquisition bid was due. he stayed up with his staff until - 2 a.m. collating documents.

Although Mr. Neilson is not known for taking unusually big, risks, it is unlikely that his board members would allow him to do anything rash. That's because they own 14% of the company's stock.

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