=============================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) November 30, 1999
HUDSON UNITED BANCORP
(Exact name of Registrant as Specified in its Charter)
New Jersey
(State or Other Jurisdiction of Incorporation)
001-08660 22-2405746
(Commission File Number) (IRS Employer Identification No.)
1000 MacArthur Boulevard, Mahwah, New Jersey, 07430
(Address of principal executive offices)
(201) 236-2600
(Registrant's telephone number, including area code)
=============================================================
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On November 30, 1999, subject to the terms and conditions of the
Amended and Restated Agreement and Plan of Merger (the "JeffBanks Merger
Agreement") dated as of June 28, 1999, among Hudson United Bancorp ("Hudson"),
Hudson United Bank, JeffBanks, Inc. ("JeffBanks"), Jefferson Bank and Jefferson
Bank of New Jersey, JeffBanks was merged with and into Hudson, with Hudson being
the surviving corporation (the "JeffBanks Merger").
Hudson is a New Jersey corporation and bank holding company. Hudson's
principal operating subsidiary is Hudson United Bank. Hudson United Bank is a
full service commercial bank that serves small and mid-sized businesses and
customers through more than 85 branches in northern New Jersey, more than 45
offices in Connecticut, and more than 30 branches in New York.
Prior to the JeffBanks Merger, JeffBanks was a Pennsylvania corporation
and bank holding company with two bank subsidiaries, Jefferson Bank and
Jefferson Bank of New Jersey. Through its bank subsidiaries, JeffBanks provided
a wide range of commercial and retail banking services in Philadelphia,
Pennsylvania and its immediately adjacent Pennsylvania and New Jersey suburbs.
In accordance with the JeffBanks Merger Agreement, each share of the
common stock, $1.00 par value per share, of JeffBanks ("JeffBanks Common Stock")
outstanding immediately prior to the effective time of the Merger was converted
into the right to receive .9785 shares of the common stock, no par value, of
Hudson ("Hudson Common Stock"). The .9785 exchange ratio represents an
anti-dilution adjustment resulting from Hudson's 3% common stock dividend
declared as of December 1, 1999. The JeffBanks Merger was accounted for as a
"pooling of interests" under generally accepted accounting principles. As a
result of the JeffBanks Merger, approximately 9.4 million shares of Hudson
Common Stock were issued in exchange for JeffBanks Common Stock.
In addition, each outstanding option or warrant to purchase shares of
JeffBanks Common Stock granted under JeffBanks' stock plans was converted into
an option or warrant to purchase Hudson Common Stock, wherein, (i) the right to
purchase shares of JeffBanks Common Stock was converted into the right to
purchase that same number of shares of Hudson Common Stock multiplied by the
.9785 exchange ratio and (ii) the option or warrant exercise price per share of
Hudson Common Stock was the previous option or warrant exercise price per share
of JeffBanks Common Stock divided by the Exchange Ratio. In all other respects,
JeffBanks options and warrants converted into Hudson options or warrants remain
subject to the same terms and conditions as the original grant.
The amount and type of consideration paid involved in the JeffBanks
Merger was a result of negotiations between Hudson and JeffBanks.
Hudson filed a registration statement with the Securities and Exchange
Commission on Form S-4 (File No. 333-84829), as amended by Post-Effective
Amendment No. 1 filed on October 5, 1999, to register under the Securities Act
of 1933 the securities issued by Hudson in connection with the JeffBanks Merger.
ITEM 5. OTHER EVENTS
Southern Merger.
On November 30, 1999, subject to the terms and conditions of the
Amended and Restated Agreement and Plan of Merger (the "Southern Merger
Agreement") dated as of June 28, 1999, among Hudson, Hudson United Bank,
Southern Jersey Bancorp of Delaware, Inc. ("Southern"), and The Farmers and
Merchants National Bank of Bridgeton, Southern was merged with and into Hudson,
with Hudson being the surviving corporation (the "Southern Merger"). In
accordance with the Southern Merger Agreement, each share of the common stock,
$1.67 par value per share, of Southern ("Southern Common Stock") outstanding
immediately prior to the effective time of the Southern Merger was converted
into the right to receive 1.2978 shares of the Hudson Common Stock. The 1.2978
exchange ratio represents an anti-dilution adjustment resulting from Hudson's 3%
common stock dividend declared as of December 1, 1999. In addition outstanding
options to acquire Southern Common Stock were converted into Hudson Common
Stock. The Southern Merger was accounted for as a "pooling of interests" under
generally accepted accounting principles. As a result of the Southern Merger,
approximately 1.3 million shares of Hudson Common Stock were issued in exchange
for Southern Common Stock and options to acquire Southern Common Stock.
<PAGE>
Supplemental Financial Statements.
The following supplemental combined consolidated financial statements
of Hudson, restating Hudson's historical consolidated financial statements as of
and for the three years ended December 31, 1998, and for the nine months ended
September 30, 1999 to reflect the JeffBanks Merger and the Southern Merger, are
incorporated herein by reference to Exhibit 99.2 filed herewith:
1. Supplemental Consolidated Financial Statements for September 30,
1999 and 1998 (unaudited).
2. Notes to Supplemental Consolidated Financial Statements for
September 30, 1999 and 1998 (unaudited).
3. Supplemental Management's Discussion and Analysis for the three
years ended December 31, 1998, 1997 and 1996.
4. Supplemental Consolidated Balance Sheets as of December 31, 1998 and
1997.
5. Supplemental Consolidated Statements of Income for the three years
ended December 31, 1998, 1997 and 1996.
6. Supplemental Consolidated Statements of Changes in Stockholders'
Equity for the three years ended December 31, 1998, 1997 and 1996.
7. Supplemental Consolidated Statements of Cash Flows for the three
years ended December 31, 1998, 1997 and 1996.
8. Notes to the Supplemental Consolidated Financial Statements as of
December 31, 1999 and 1998 and for the three years ended December 31, 1998, 1997
and 1996.
9. Report of Arthur Andersen LLP.
The report of Arthur Andersen LLP, independent accountants, on the
supplemental combined consolidated financial statements of Hudson as of December
31, 1998 and 1997 and for the three years ended December 31, 1998 is
incorporated by reference to Exhibit 99.2.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Businesses Acquired.
The historical financial statements of JeffBanks as filed in
its Annual Report for the fiscal year ended December 31, 1998,
and in its Quarterly Report for the nine months ended
September 30, 1999 are incorporated herein by reference to
Exhibits 99.3 and 99.4 respectively, filed herewith.
The report of Grant Thornton LLP, independent accountants, on
the historical financial statements of JeffBanks as of
December 31, 1998 and 1997 is incorporated by reference to
Exhibit 99.3.
(b) Unaudited Pro Forma Combined Condensed Financial Information.
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The pro forma combined condensed financial information related
to the JeffBanks Merger is attached hereto. It is derived from
pages 57-62 of the Joint Proxy-Statement Prospectus dated
August 13, 1999 and has been adjusted to account for the 3%
stock dividend effective December 1, 1999.
Hudson's pro forma combined condensed financial information
for the nine month period ended September 30, 1999 is
incorporated herein by reference to Exhibit 99.5.
(c) Exhibits:
2.1 Agreement and Plan of Merger dated June 28, 1999,
among Hudson United Bancorp, Hudson United Bank,
JeffBanks, Inc., Jefferson Bank and Jefferson Bank of
New Jersey (incorporated by reference from Exhibit
99.1 to Hudson's Form 8-K/A filed June 30, 1999).
23.1 Consent of Independent Public Accountants of Hudson.
99.1 Certain pro forma financial information relating to
the JeffBanks Merger derived from pages 57-62 of
Hudson's Joint Proxy Statement-Prospectus dated
August 13, 1999.
99.2 Supplemental Combined Consolidated Financial
Information of Hudson.
99.3 JeffBanks Financial Information for year ended
December 31, 1998, previously filed as part of
JeffBanks' Annual Report on Form 10-K for year ended
December 31, 1998.
99.4 JeffBanks Financial Information for the nine months
ended September 30, 1999, previously filed with
JeffBanks' Quarterly Report on Form 10-Q for the
period ended September 30, 1999.
99.5 Hudson's pro forma combined condensed financial
information for the nine month period ended September
30, 1999
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
HUDSON UNITED BANCORP
Dated: December 15, 1999 By: /s/ D. LYNN VAN BORKULO-NUZZO
-------------------------------
D. Lynn Van Borkulo-Nuzzo
Executive Vice President and
Corporate Secretary
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description
---------- -----------
2.1 Agreement and Plan of Merger dated June 28, 1999,
among Hudson United Bancorp, Hudson United Bank,
JeffBanks, Inc., Jefferson Bank and Jefferson Bank of
New Jersey (incorporated by reference from Exhibit
99.1 to Hudson's Form 8-K/A filed June 30, 1999).
23.1 Consent of Independent Public Accountants of Hudson.
99.1 Certain pro forma financial information relating to
the JeffBanks Merger derived from pages 57-62 of
Hudson's Joint Proxy Statement-Prospectus dated
August 13, 1999.
99.2 Supplemental Combined Consolidated Financial
Information of Hudson.
99.3 JeffBanks Financial Information for year ended
December 31, 1998, previously filed as part of
JeffBanks' Annual Report on Form 10-K for year ended
December 31, 1998.
99.4 JeffBanks Financial Information for the nine months
ended September 30, 1999, previously filed with
JeffBanks' Quarterly Report on Form 10-Q for the
period ended September 30, 1999.
99.5 Hudson's pro forma combined condensed financial
information for the nine month period ended September
30, 1999
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated December 15, 1999 included in Hudson United Bancorp's Current
Report on Form 8-K for the year ended December 31, 1998 into Hudson United's
previously filed Registration Statements on Form S-8.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
December 15, 1999
PRO FORMA FINANCIAL INFORMATION
Presented on the following page is a pro forma combined condensed
balance sheet of Hudson United and JeffBanks at March 31, 1999, giving effect to
the Hudson United-JeffBanks merger as if it had been consummated at such date.
Also presented are the pro forma combined condensed statements of income for the
three-month period ended March 31, 1999 and for the years ended December 31,
1998, 1997 and 1996. The unaudited pro forma financial information is based on
the historical financial statements of Hudson United and JeffBanks after giving
effect to the merger under the pooling-of-interests method of accounting, based
upon the assumptions and adjustments contained in the accompanying notes to pro
forma combined condensed financial statements and including the 3% stock
dividend declared by Hudson United effective December 1, 1999.
The unaudited pro forma financial information has been prepared by
Hudson United's management based upon the historical financial statements and
related notes thereto of Hudson United and JeffBanks. The unaudited pro forma
financial information should be read in conjunction with those historical
financial statements and notes. The pro forma combined information does not
include the effect of the recently completed merger of Hudson United with
Southern Jersey Bancorp, or the recently completed acquisition of loans and
deposits from Advest Bank or the recently completed acquisition of Little Falls
Bancorp. The historical amounts presented in future financial statements of
Hudson United for periods reported in this joint proxy statement-prospectus will
differ and in certain cases will differ materially as a result of the effects of
accounting for the Hudson United-JeffBanks merger and the recently completed
acquisition of Southern Jersey, as pooling-of-interests.
The pro forma financial data is not necessarily indicative of the
actual financial results that would have occurred had the merger been
consummated as of the beginning of the periods for which the data is presented
and should not be construed as being representative of future periods.
<PAGE>
<TABLE>
<CAPTION>
Pro forma Unaudited Combined Condensed Balance Sheet As of March 31, 1999 ($ in
thousands, except per share data)
Hudson United
Bancorp Pro forma Pro forma
Assets JeffBanks Adjustments Combined
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Cash and due from banks $ 242,368 $ 59,662 $ -- $ 302,030
Federal funds sold 8,819 23,000 -- 31,819
Securities 3,064,880 286,568 -- 3,351,448
Assets held for sale -- 16,226 -- 16,226
Loans 3,424,314 1,248,535 -- 4,672,849
Less: Allowance for loan losses (54,504) (11,930) -- (66,434)
--------------- -------------- -------------- --------------
Total Loans 3,369,810 1,236,605 -- 4,606,415
--------------- -------------- -------------- --------------
Other assets 275,253 57,125 -- 332,378
Intangibles, net of amortization 84,937 5,281 -- 90,218
--------------- -------------- -------------- --------------
Total Assets $ 7,046,067 $ 1,684,467 $ -- $ 8,730,534
=============== ============== ============== ==============
Liabilities and Stockholders' Equity
Deposits:
Non-interest bearing $ 870,506 $ 205,528 $ -- $ 1,076,034
Interest bearing 4,061,461 1,039,084 -- 5,100,545
--------------- -------------- -------------- --------------
Total deposits 4,931,967 1,244,612 6,176,579
--------------- -------------- -------------- --------------
Borrowings 1,292,644 228,648 -- 1,521,292
Other liabilities 194,287 20,998 -- 215,285
--------------- -------------- -------------- --------------
6,418,898 1,494,258 -- 7,913,156
Subordinated debt 100,000 31,920 -- 131,920
Company-obligated mandatorily redeemable
preferred securities 100,000 25,300 -- 125,300
=============== ============== ============== ==============
Total Liabilities 6,618,898 1,551,478 -- 8,170,376
=============== ============== ============== ==============
Stockholders' Equity:
Preferred stock -- -- -- --
Common stock 72,246 10,512 7,776 90,534
Additional paid in capital 262,855 97,563 (7,776) 352,642
Retained earnings 128,030 24,359 -- 152,389
Treasury Stock (34,484) -- -- (34,484)
Employee stock awards & ESOP shares (2,243) -- -- (2,243)
Accumulated other comprehensive income 765 555 -- 1,320
--------------- -------------- -------------- --------------
Total Stockholders' Equity 427,169 132,989 -- 560,158
--------------- -------------- -------------- --------------
Total Liabilities and Stockholders' Equity $ 7,046,067 $ 1,684,467 $ -- $ 8,730,534
=============== ============== ============== ==============
Common shares outstanding (in thousands) 40,761 10,512 51,047
Book value per common share $ 10.48 $ 12.65 $ 10.97
</TABLE>
See notes to pro forma financial information.
<PAGE>
<TABLE>
<CAPTION>
Pro forma Unaudited Combined Condensed Statements of Income For the Three Months
Ended March 31, 1999 ($ in thousands, except per share data)
Hudson
United Pro forma
Bancorp JeffBanks Combined
-------------- -------------- -------------
<S> <C> <C> <C>
Interest on loans $ 68,862 $ 25,655 $ 94,517
Interest on securities 41,956 4,425 46,381
Other interest income 324 238 562
-------------- -------------- -------------
Total Interest Income 111,142 30,318 141,460
-------------- -------------- -------------
Interest on deposits 31,984 11,476 43,460
Interest on borrowings 16,611 3,766 20,377
-------------- -------------- -------------
Total Interest Expense 48,595 15,242 63,837
-------------- -------------- -------------
Net Interest Income before
provision for loan loss 62,547 15,076 77,623
Provision for loan loss 2,500 1,455 3,955
-------------- -------------- -------------
Net Interest Income after
provision for loan loss 60,047 13,621 73,668
Non-interest income 17,479 4,094 21,573
Non-interest expense 39,679 12,824 52,503
-------------- -------------- -------------
Income before income taxes 37,847 4,891 42,738
Income tax provision 13,246 997 14,243
-------------- -------------- -------------
Net income $ 24,601 $ 3,894 $ 28,495
============== ============== =============
Earnings per share:
Basic $ 0.60 $ 0.37 $ 0.55
Diluted $ 0.59 $ 0.36 $ 0.54
Weighted Average Common Shares:
(in thousands)
Basic 41,182 10,482 51,439
Diluted 41,814 10,953 52,531
</TABLE>
See notes to pro forma financial information.
<PAGE>
<TABLE>
<CAPTION>
Pro forma Unaudited Combined Condensed Statements of Income For the Year Ended
December 31, 1998 ($ in thousands, except per share data)
Hudson
United Pro forma
Bancorp JeffBanks Combined
-------------- -------------- -------------
<S> <C> <C> <C>
Interest on loans $ 298,311 $ 99,924 $ 398,235
Interest on securities 162,783 21,025 183,808
Other interest income 7,453 2,544 9,997
-------------- -------------- -------------
Total Interest Income 468,547 123,493 592,040
-------------- -------------- -------------
Interest on deposits 161,077 48,858 209,935
Interest on borrowings 53,276 14,862 68,138
-------------- -------------- -------------
Total Interest Expense 214,353 63,720 278,073
-------------- -------------- -------------
Net Interest Income before
provision for loan loss 254,194 59,773 313,967
Provision for loan loss 14,374 5,963 20,337
-------------- -------------- -------------
Net Interest Income after
provision for loan loss 239,820 52,810 293,630
Non-interest income 33,299 15,215 48,514
Non-interest expense 232,096 53,593 285,689
-------------- -------------- -------------
Income before income taxes 41,023 15,432 56,455
Income tax provision 17,872 4,000 21,872
-------------- -------------- -------------
Net income $ 23,151 $ 11,432 $ 34,583
============== ============== =============
Earnings per share:
Basic $ 0.55 $ 1.11 $ 0.67
Diluted $ 0.54 $ 1.04 $ 0.64
Weighted Average Common Shares:
(in thousands)
Basic 41,859 10,301 51,939
Diluted 42,947 10,956 53,667
</TABLE>
See notes to pro forma financial information.
<PAGE>
<TABLE>
<CAPTION>
Pro forma Unaudited Combined Condensed Statements of Income For the Year Ended
December 31, 1997 ($ in thousands, except per share data)
Hudson
United Pro forma
Bancorp JeffBanks Combined
-------------- -------------- -------------
<S> <C> <C> <C>
Interest on loans $ 306,800 $ 87,794 $ 394,594
Interest on securities 159,620 18,895 178,515
Other interest income 4,795 3,931 8,726
-------------- -------------- -------------
Total Interest Income 471,215 110,620 581,835
-------------- -------------- -------------
Interest on deposits 175,645 40,776 216,421
Interest on borrowings 40,635 14,876 55,511
-------------- -------------- -------------
Total Interest Expense 216,280 55,652 271,932
-------------- -------------- -------------
Net Interest Income before
provision for loan loss 254,935 54,968 309,903
Provision for loan loss 12,775 3,700 16,475
-------------- -------------- -------------
Net Interest Income after
provision for loan loss 242,160 51,268 293,428
Non-interest income 54,180 13,203 67,383
Non-interest expense 181,308 46,570 227,878
-------------- -------------- -------------
Income before income taxes 115,032 17,901 132,933
Income tax provision 45,205 4,570 49,775
-------------- -------------- -------------
Net income $ 69,827 $ 13,331 $ 83,158
============== ============== =============
Earnings per share:
Basic $ 1.62 $ 1.33 $ 1.58
Diluted $ 1.55 $ 1.25 $ 1.50
Weighted Average Common Shares:
(in thousands)
Basic 42,603 9,660 52,055
Diluted 44,944 10,317 55,039
</TABLE>
See notes to pro forma financial information.
<PAGE>
<TABLE>
<CAPTION>
Pro forma Unaudited Combined Condensed Statements of Income For the Year Ended
December 31, 1996 ($ in thousands, except per share data)
Hudson
United Pro forma
Bancorp JeffBanks Combined
-------------- -------------- -------------
<S> <C> <C> <C>
Interest on loans $ 287,671 $ 86,145 $ 373,816
Interest on securities 150,856 18,548 169,404
Other interest income 3,987 2,407 6,394
-------------- -------------- -------------
Total Interest Income 442,514 107,100 549,614
-------------- -------------- -------------
Interest on deposits 173,521 40,248 213,769
Interest on borrowings 27,045 11,693 38,738
-------------- -------------- -------------
Total Interest Expense 200,566 51,941 252,507
-------------- -------------- -------------
Net Interest Income before
provision for loan loss 241,948 55,159 297,107
Provision for loan losses 17,140 10,115 27,255
-------------- -------------- -------------
Net Interest Income after
provision for loan loss 224,808 45,044 269,852
Non-interest income 40,257 10,496 50,753
Non-interest expense 204,679 46,222 250,901
-------------- -------------- -------------
Income before income taxes 60,386 9,318 69,704
Income tax provision 23,490 4,238 27,728
-------------- -------------- -------------
Net income $ 36,896 $ 5,080 $ 41,976
============== ============== =============
Earnings per share:
Basic $ 0.83 $ 0.56 $ 0.78
Diluted $ 0.80 $ 0.53 $ 0.76
Weighted Average Common Shares:
(in thousands)
Basic 43,674 8,775 52,260
Diluted 46,340 9,247 55,288
</TABLE>
See notes to pro forma financial information.
Notes to Pro Forma Financial Information
(1) Pro forma information assumes the merger was consummated as of
March 31, 1999 for the pro forma unaudited combined condensed
balance sheet and as for the beginning of each of the periods
indicated for the pro forma unaudited combined condensed
statements of income. The pro forma information presented is not
necessarily indicative of the results of operations or the
combined financial position that would have resulted had the
merger been consummated at the beginning of the periods
indicated, nor is it necessarily indicative of the results of
operations in future periods or the future financial position of
the combined entities.
(2) It is assumed that the merger will be accounted for on a
pooling-of-interests accounting basis, and accordingly, the
related pro forma adjustments herein reflect, where applicable,
an exchange ratio of 0.9785 shares of Hudson United common stock
for each of the 11,101,757 shares of JeffBanks common stock which
were outstanding at November 30, 1999.
(3) Anticipated cost savings net of expected merger-related expense
and restructuring charges are not expected to be material and
therefore the pro form financial information does not give effect
to those items.
(4) In summary, the pro forma financial information was adjusted for
the merger by the (i) addition of 10,285,928 shares of Hudson
United Common Stock with a stated value of $1.778 per share
amounting to $18,288,381 and (ii) elimination of 10,511,935
shares of JeffBanks common stock with a par value of $1.00 per
share amounting to $10,511,935.
(5) Earnings per share data has been computed based on the combined
historical net income applicable to common shareholders of Hudson
United using historical weighted average shares outstanding of
Hudson United common stock for the given period and the common
stock to be issued in connection with the merger.
(6) The pro forma information presented above does not reflect Hudson
United's recently completed acquisitions of Southern Jersey
Bancorp, Little Falls Bancorp and retained assets and liabilities
of Advest Bank.
HUDSON UNITED BANCORP AND SUBSIDIARIES
================================================================================
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS (Unaudited)
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31,
(IN THOUSANDS, EXCEPT SHARE DATA) 1999 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 296,962 $ 293,882
Federal funds sold 142,306 85,397
----------- -----------
TOTAL CASH AND CASH EQUIVALENTS 439,268 379,279
Investment securities available for sale, at market value 2,919,269 2,660,308
Investment securities held to maturity, at cost (market value of $597,222 and
$639,263 at 1999 and 1998, respectively) 614,727 635,648
Mortgage Loans and other assets held for sale 24,135 28,747
Loans:
Residential mortgages 1,644,824 1,739,054
Commercial real estate mortgages 991,627 978,040
Commercial and financial 1,429,155 1,237,685
Consumer credit 852,844 808,933
Credit card 223,353 107,331
----------- -----------
TOTAL LOANS 5,141,803 4,871,043
Less: Allowance for possible loan losses (73,815) (76,043)
----------- -----------
NET LOANS 5,067,988 4,795,000
Premises and equipment, net 117,276 114,604
Other real estate owned 4,610 4,527
Intangibles, net of amortization 106,478 83,049
Other assets 208,129 196,613
----------- -----------
TOTAL ASSETS $ 9,501,880 $ 8,897,775
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 1,202,003 $ 1,214,521
Interest bearing 5,396,690 5,558,715
----------- -----------
TOTAL DEPOSITS 6,598,693 6,773,236
Borrowings 2,025,074 970,410
Other liabilities 55,555 276,904
----------- -----------
8,679,322 8,020,550
Subordinated debt 132,000 132,000
Company-obligated mandatorily redeemable preferred capital securities of
three subsidiary trusts holding solely junior subordinated debentures of the
Company 125,300 125,300
----------- -----------
TOTAL LIABILITIES 8,936,622 8,277,850
Stockholders' Equity:
Convertible preferred stock - Series B, no par value;
authorized 25,000,000 shares; 500 shares issued and outstanding in 1998 -- 50
Common stock, no par value; authorized 103,000,000 shares;
53,985,704 shares issued and 51,923,115 shares outstanding in
1999 and 53,789,444 shares issued and 53,327,244 shares
outstanding in 1998 93,819 93,470
Additional paid-in capital 353,438 360,621
Retained earnings 218,281 165,269
Treasury stock, at cost, 2,062,589 shares in 1999 and 462,200 shares in 1998 (63,486) (9,819)
Employee stock awards and unallocated shares held in ESOP, at cost (3,102) (2,368)
Accumulated other comprehensive income/(loss) (33,692) 12,702
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 565,258 619,925
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,501,880 $ 8,897,775
=========== ===========
</TABLE>
See notes to supplemental consolidated financial statements.
<PAGE>
HUDSON UNITED BANCORP AND SUBSIDIARIES
================================================================================
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE-MONTHS ENDED SEPTEMBER 30,
(IN THOUSANDS, EXCEPT SHARE DATA) 1999 1998
- ------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST AND FEE INCOME:
Loans $ 108,029 $ 107,674
Investment securities 54,847 49,102
Other 1,721 4,936
--------- ---------
TOTAL INTEREST AND FEE INCOME 164,597 161,712
--------- ---------
INTEREST EXPENSE:
Deposits 47,881 59,238
Borrowings 23,322 13,017
Subordinated and other debt 5,469 5,517
--------- ---------
TOTAL INTEREST EXPENSE 76,672 77,772
--------- ---------
NET INTEREST INCOME 87,925 83,940
PROVISION FOR POSSIBLE LOAN LOSSES 5,245 8,905
--------- ---------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 82,680 75,035
--------- ---------
NONINTEREST INCOME:
Trust department income 1,144 978
Service charges on deposit accounts 6,844 6,810
Securities gains 848 278
Loss on assets held for sale -- (23,303)
Credit card fees 6,824 3,688
Other income 8,286 6,129
--------- ---------
TOTAL NONINTEREST INCOME (LOSS) 23,946 (5,420)
--------- ---------
NONINTEREST EXPENSE:
Salaries 20,178 20,721
Pension and other employee benefits 6,134 4,592
Occupancy expense 6,477 5,757
Equipment expense 3,857 3,236
Deposit and other insurance 739 810
Outside services 12,045 8,431
Other real estate owned expense 84 772
Amortization of intangibles 3,795 3,414
Other expense 8,016 8,556
Merger related and restructuring costs -- 38,529
--------- ---------
TOTAL NONINTEREST EXPENSE 61,325 94,818
--------- ---------
INCOME (LOSS) BEFORE INCOME TAXES 45,301 (25,203)
PROVISION (BENEFIT) FOR INCOME TAXES 16,152 (5,279)
--------- ---------
NET INCOME (LOSS) $ 29,149 $ (19,924)
========= =========
EARNINGS (LOSS) PER SHARE:
Basic $ 0.56 $ (0.38)
Diluted 0.55 (0.38)
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 51,942 53,130
Diluted 52,962 53,130
</TABLE>
See notes to supplemental consolidated financial statements.
<PAGE>
HUDSON UNITED BANCORP AND SUBSIDIARIES
================================================================================
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
<TABLE>
<CAPTION>
FOR THE NINE-MONTHS ENDED SEPTEMBER 30,
(IN THOUSANDS, EXCEPT SHARE DATA) 1999 1998
- ------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST AND FEE INCOME:
Loans $ 313,116 $ 319,520
Investment securities 156,229 140,942
Other 4,575 11,561
--------- ---------
TOTAL INTEREST AND FEE INCOME 473,920 472,023
--------- ---------
INTEREST EXPENSE:
Deposits 143,715 174,695
Borrowings 58,142 35,005
Subordinated and other debt 16,406 14,754
--------- ---------
TOTAL INTEREST EXPENSE 218,263 224,454
--------- ---------
NET INTEREST INCOME 255,657 247,569
PROVISION FOR POSSIBLE LOAN LOSSES 14,290 24,417
--------- ---------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 241,367 223,152
--------- ---------
NONINTEREST INCOME:
Trust department income 3,435 3,106
Service charges on deposit accounts 20,175 19,877
Securities gains 4,096 3,756
Loss on assets held for sale -- (23,303)
Credit card fees 17,575 10,623
Other income 23,543 18,614
--------- ---------
TOTAL NONINTEREST INCOME 68,824 32,673
--------- ---------
NONINTEREST EXPENSE:
Salaries 61,778 64,260
Pension and other employee benefits 14,634 18,160
Occupancy expense 18,458 16,862
Equipment expense 10,934 10,358
Deposit and other insurance 1,857 2,186
Outside services 34,162 25,897
Other real estate owned expense 480 2,054
Amortization of intangibles 11,070 8,659
Other expense 24,675 26,577
Merger related and restructuring costs -- 69,172
--------- ---------
TOTAL NONINTEREST EXPENSE 178,048 244,185
--------- ---------
INCOME BEFORE INCOME TAXES 132,143 11,640
PROVISION FOR INCOME TAXES 45,254 9,297
========= =========
NET INCOME $ 86,889 $ 2,343
========= =========
EARNINGS PER SHARE:
Basic $ 1.66 $ 0.04
Diluted 1.62 0.04
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 52,493 53,440
Diluted 53,534 55,267
</TABLE>
See notes to supplemental consolidated financial statements.
<PAGE>
HUDSON UNITED BANCORP AND SUBSIDIARIES
================================================================================
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------
SEPTEMBER 30,
--------------------
(IN THOUSANDS) 1999 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C>
NET INCOME (LOSS) $ 29,149 $(19,924)
======== ========
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Unrealized holding gains (losses) arising during period $ (8,775) $ 13,724
Less: reclassification adjustment for gains included in
net income (551) (86)
-------- --------
Other comprehensive income (loss) (9,326) 13,638
-------- --------
COMPREHENSIVE INCOME (LOSS) $ 19,823 $ (6,286)
======== ========
<CAPTION>
NINE MONTHS ENDED
--------------------
SEPTEMBER 30,
--------------------
(IN THOUSANDS) 1999 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C>
NET INCOME $ 86,889 $ 2,343
======== ========
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Unrealized holding gains (losses) arising during period $(43,732) $ 14,607
Less: reclassification adjustment for gains included in
net income (2,662) (2,338)
-------- --------
Other comprehensive income (loss) (46,394) 12,269
-------- --------
COMPREHENSIVE INCOME $ 40,495 $ 14,612
======== ========
</TABLE>
See notes to supplemental consolidated financial statements.
<PAGE>
HUDSON UNITED BANCORP AND SUBSIDIARIES
================================================================================
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Convertible
Preferred Stock Common Stock Additional
----------------------------------------- Paid-in-
Shares Amount Shares Amount Capital
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 1,250 $ 125 48,805,624 $86,776 $383,667
- -------------------------------------------------------------------------------------------
Net income -- -- -- -- --
IBSF Fiscal Year Adjustment -- -- -- -- --
Cash dividends - common -- -- --
3% Stock dividend -- -- 82,629 147 270
Stock split -- -- 4,057,468 7,214 (3,067)
Shares issued for:
Stock options exercised -- -- 582,159 1,035 (6,282)
Warrants exercised -- -- 7,158 13 (97)
Dividend reinvestment and stock
reinvestment plan -- -- 4,893 9 161
Preferred stock conversion (750) (75) 16,608 30 (130)
Cash in lieu of fractional shares -- -- -- -- (212)
Other transactions -- -- 3,750 7 (7)
Purchase of treasury stock -- -- -- -- --
Issuance and retirement of treasury
stock -- -- (989,058) (1,759) (18,930)
Effect of compensation plans -- -- (783) (2) 5,248
Other comprehensive income -- -- -- -- --
- -------------------------------------------------------------------------------------------
Balance at December 31, 1998 500 50 52,570,448 93,470 360,621
- -------------------------------------------------------------------------------------------
Net income -- -- -- -- --
Cash dividends - common -- -- -- -- --
Shares issued for:
Stock options exercised -- -- 186,687 332 (11,105)
Warrants exercised -- -- -- -- (182)
Dividend reinvestment and stock
reinvestment plan -- -- 11,742 21 276
Preferred stock conversion (500) (50) -- -- (478)
Cash in lieu of fractional shares -- -- -- -- (16)
Other transactions -- -- (2,106) (4) 4
Purchase of treasury stock -- -- -- -- --
Treasury stock issued in acquisition
of Little Falls Bancorp -- -- -- -- --
Effect of compensation plans -- -- -- -- 4,318
Other comprehensive loss -- -- -- -- --
- -------------------------------------------------------------------------------------------
Balance at September 30, 1999 -- $ -- 52,766,771 $93,819 $353,438
- -------------------------------------------------------------------------------------------
<CAPTION>
Employee
Stock
Awards and Accumulated
Unallocated Other
Shares Held Comprehen-
Retained Treasury in ESOP, at Sive income
Earnings Stock Cost (loss) Total
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1997 $222,687 $(22,889) $(9,609) $ 7,052 $ 667,809
- -----------------------------------------------------------------------------------------------
Net income 26,751 -- -- -- 26,751
IBSF Fiscal Year Adjust 1,539 -- -- -- 1,539
Cash dividends - common (39,706) -- -- -- (39,706)
3% Stock dividend (41,851) 41,434 -- -- --
Stock split (4,147) -- -- -- --
Shares issued for:
Stock options exercised -- 18,548 -- -- 13,301
Warrants exercised -- 173 -- -- 89
Dividend reinvestment and stock
reinvestment plan -- -- -- -- 170
Preferred stock conversion -- 175 -- -- --
Cash in lieu of fractional shares (4) -- -- -- (216)
Other transactions -- -- -- -- --
Purchase of treasury stock -- (70,138) -- -- (70,138)
Issuance and retirement of treasury
stock -- 20,689 -- -- --
Effect of compensation plans -- 2,189 7,241 -- 14,676
Other comprehensive income -- -- -- 5,650 5,650
- -----------------------------------------------------------------------------------------------
Balance at December 31, 1998 165,269 (9,819) (2,368) 12,702 619,925
- -----------------------------------------------------------------------------------------------
Net income 86,889 -- -- -- 86,889
Cash dividends - common (33,877) -- -- -- (33,877)
Shares issued for:
Stock options exercised -- 24,273 -- -- 13,500
Warrants exercised -- 236 -- -- 54
Dividend reinvestment and stock
reinvestment plan -- -- -- -- 297
Preferred stock conversion -- 528 -- -- --
Cash in lieu of fractional shares -- -- -- -- (16)
Other transactions -- -- -- -- --
Purchase of treasury stock -- (106,531) -- (106,531)
Treasury stock issued in acquisition
of Little Falls Bancorp -- 26,563 -- -- 26,563
Effect of compensation plans -- 1,264 (734) -- 4,848
Other comprehensive loss -- -- -- (46,394) (46,394)
- -----------------------------------------------------------------------------------------------
Balance at September 30, 1999 $218,281 $(63,486) $(3,102) $(33,692) $ 565,258
- -----------------------------------------------------------------------------------------------
</TABLE>
See notes to supplemental consolidated financial statements.
<PAGE>
HUDSON UNITED BANCORP AND SUBSIDIARIES
================================================================================
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 86,889 $ 2,343
Adjustments to reconcile net income to net
Cash provided by operating activities:
Provision for possible loan losses 14,290 24,417
Provision for depreciation and amortization 21,454 17,824
Amortization of security premiums, net 709 1,130
Securities gains (4,096) (3,756)
(Gain) loss on sale of premises and equipment (891) 540
Gain on sale of loans (4,948) (2,115)
Loss on assets held for sale -- 23,303
Market adjustment on ESOP -- 728
MRP earned -- 2,809
IBSF fiscal year adjustment -- 1,539
Mortgage loans originated for sale (143,832) (137,554)
Mortgage loan sales 134,297 137,535
Net decrease (increase) in assets held for sale 14,147 (31,036)
Decrease in other assets 10,796 5,847
Decrease in other liabilities (34,208) (21,190)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 94,607 22,364
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investment securities:
Available for sale 244,073 419,400
Proceeds from repayments and maturities of investment securities:
Available for sale 795,981 784,716
Held to maturity 95,662 421,233
Purchases of investment securities:
Available for sale (1,389,484) (1,677,160)
Held to maturity (75,061) (305,435)
Net cash acquired through acquisitions 132,210 231,661
Net increase in loans other than purchases and sales (105,605) (89,787)
Purchase of loans (114,273) --
Loans sold 87,172 89,147
Proceeds from sales of premises and equipment 7,928 25
Purchases of premises and equipment (16,770) (11,585)
Decrease in other real estate 2,321 10,073
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (335,846) (127,712)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in demand deposits, NOW accounts, and savings accounts (358,240) (198,448)
Net decrease in certificates of deposit (211,916) (10,082)
Net increase in borrowed funds 995,850 95,561
Reduction of ESOP loan 2,091 853
Net proceeds from issuance of debt securities -- 45,987
Proceeds from issuance of common stock 13,851 7,842
Termination of ESOP plan -- 4,941
Cash dividends paid (33,877) (27,974)
Purchase of treasury stock (106,531) (57,112)
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 301,228 (138,432)
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 59,989 (243,780)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 379,279 729,511
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 439,268 $ 485,731
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest $ 218,955 $ 221,560
Income Taxes 43,630 29,253
=========== ===========
</TABLE>
See notes to supplemental consolidated financial statements.
<PAGE>
================================================================================
HUDSON UNITED BANCORP
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A -- BASIS OF PRESENTATION
The accompanying financial statements of Hudson United Bancorp and Subsidiaries
("the Company") include the accounts of the parent company, Hudson United
Bancorp, and its wholly-owned subsidiaries: Hudson United Bank ("Hudson
United"), HUBCO Capital Trust I, HUBCO Capital Trust II, and JBI Capital Trust
I. All material intercompany balances and transactions have been eliminated in
consolidation. In March 1999, the former Lafayette American Bank and Bank of the
Hudson were merged into Hudson United. In addition, the shareholders of the
Company on April 21, 1999 approved an amendment to the certificate of
incorporation to change the name of the company from HUBCO, Inc. to Hudson
United Bancorp. These unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the information presented
includes all adjustments, consisting of normal recurring accruals, considered
necessary for a fair presentation, in all material respects, of the interim
period results. The results of operations for periods of less than one year are
not necessarily indicative of results for the full year. The consolidated
financial statements should be read in conjunction with the Company's Annual
Report on Form 10-K-A filed with the Commission on October 12, 1999, for the
year ended December 31, 1998.
<PAGE>
NOTE B -- EARNINGS PER SHARE
In the fourth quarter of 1997, the Company adopted SFAS No. 128, "Earnings Per
Share." This statement establishes standards for computing and presenting
earnings per share and requires dual presentation of basic and diluted earnings
per share. Basic earnings per share is computed by dividing net income, less
dividends on the convertible preferred stock, by the weighted average number of
common shares outstanding during the period. Diluted earnings per share is
computed by dividing net income by the weighted average number of common shares
plus the number of shares issuable upon conversion of the preferred stock (when
outstanding) and the incremental number of shares issuable from the exercise of
stock options, and stock warrants, calculated using the treasury stock method.
All per share amounts have been retroactively restated to reflect all stock
splits and stock dividends.
A reconciliation of net income to net income available to common stockholders
and of weighted average common shares outstanding to weighted average shares
outstanding assuming dilution follows (in thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
- ----------------------------------------------------------------------------------
1999 1998
- ----------------------------------------------------------------------------------
<S> <C> <C>
BASIC EARNINGS (LOSS) PER SHARE
Net Income (Loss) Available To Common Stockholders $ 29,149 $(19,924)
Weighted Average Common Shares Outstanding 51,942 53,130
Basic Earnings (Loss) Per Share $ 0.56 $ (0.38)
======== ========
DILUTED EARNINGS (LOSS) PER SHARE
Net Income (Loss) $ 29,149 $(19,924)
Weighted Average Common Shares Outstanding 51,942 53,130
Effect of Dilutive Securities:
Stock Options 1,020 --
-------- --------
Weighted Average Common Shares Outstanding Assuming Dilution 52,962 53,130
Diluted Earnings (Loss) Per Share $ 0.55 $ (0.38)
======== ========
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
- ----------------------------------------------------------------------------------
1999 1998
- ----------------------------------------------------------------------------------
<S> <C> <C>
BASIC EARNINGS PER SHARE
Net Income Available To Common Stockholders $ 86,889 $ 2,343
Weighted Average Common Shares Outstanding 52,493 53,440
Basic Earnings Per Share $ 1.66 $ 0.04
======== ========
DILUTED EARNINGS PER SHARE
Net Income $ 86,889 $ 2,343
Weighted Average Common Shares Outstanding 52,493 53,440
Effect of Dilutive Securities:
Convertible Preferred Stock 1 25
Warrants 2 24
Stock Options 1,038 1,778
-------- --------
Weighted Average Common Shares Outstanding Assuming Dilution 53,534 55,267
Diluted Earnings Per Share $ 1.62 $ 0.04
======== ========
</TABLE>
<PAGE>
NOTE C -- ACQUISITIONS
On March 20, 1999, the Company acquired Little Falls Bancorp, Inc. in a
combination stock and cash transaction. Little Falls Bancorp, Inc. had assets of
approximately $341 million and operated six offices in the New Jersey counties
of Hunterdon and Passaic. The merger was accounted for under the purchase method
of accounting.
On March 26, 1999, the Company completed its purchase of $151 million in
deposits and a retail branch office in Hartford, Connecticut from First
International Bank.
On September 10, 1999, the Company announced an agreement to acquire Lyon Credit
Corporation, a $350 million asset finance company and subsidiary of Credit
Lyonnais Americas. This acquisition closed on October 22, 1999 and was accounted
for under the purchase method of accounting.
On November 30, 1999, the Company completed its acquisition of Jeffbanks, Inc.
("Jeff"). Jeff was merged into the Company and its wholly-owned subsidiaries
were merged into Hudson United. In the merger, each share of Jeff common stock
was converted into .9785 shares of the Company. Jeff had $1.8 billion of assets
and the combination was treated as a pooling of interests for accounting
purposes. The financial statements have been restated to include Jeff for all
periods presented.
On December 1, 1999, the Company completed its acquisition of Southern Jersey
Bancorp ("SJB"). SJB was merged into the Company and its wholly-owned subsidiary
was merged into Hudson United. In the merger, each share of SJB common stock was
converted into 1.2978 shares of the Company. SJB had $425 million of assets and
the combination was treated as a pooling of interests for accounting purposes.
The financial statements have been restated to include SJB for all periods
presented.
On December 1, 1999, the Company completed a purchase and sale transaction in
which Hudson United Bank acquired the loans (approximately $148 million) and
other financial assets, as well as assumed the deposit liabilities
(approximately $112 million) of Advest Bank and Trust. In addition, a strategic
partnership with Advest, Inc. was consummated on October 1, 1999, in which
Hudson United Bank will become the exclusive provider of banking products and
services to the clients of Advest, Inc.
<PAGE>
NOTE D -- SECURITIES
The following table presents the amortized cost and estimated market value of
investment securities available for sale and held to maturity at the dates
indicated:
<TABLE>
<CAPTION>
September 30, 1999
-------------------------------------------------------
Gross Unrealized Estimated
Amortized -------------------------- Market
Cost Gains (Losses) Value
----------- -------------------------- -----------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Government $ 88,341 $ 425 $ (206) $ 88,560
U.S. Government agencies 341,696 179 (6,545) 335,330
Mortgage-backed securities 2,249,472 1,437 (43,691) 2,207,218
States and political subdivisions 64,522 167 (3,829) 60,860
Other debt securities 48,571 97 (1,360) 47,308
Equity securities 179,410 3,306 (2,723) 179,993
----------- ----------- ----------- -----------
$ 2,972,012 $ 5,611 $ (58,354) $ 2,919,269
=========== =========== =========== ===========
<CAPTION>
September 30, 1999
-------------------------------------------------------
Gross Unrealized Estimated
Amortized -------------------------- Market
Cost Gains (Losses) Value
----------- -------------------------- -----------
<S> <C> <C> <C> <C>
HELD TO MATURITY
U.S. Government $ 39,190 $ 17 $ (199) $ 39,008
U.S. Government agencies 65,921 257 (616) 65,562
Mortgage-backed securities 485,901 250 (17,069) 469,082
States and political subdivisions 23,686 60 (205) 23,541
Other debt securities 29 -- -- 29
----------- ----------- ----------- -----------
$ 614,727 $ 584 $ (18,089) $ 597,222
=========== =========== =========== ===========
<CAPTION>
December 31, 1998
-------------------------------------------------------
Gross Unrealized Estimated
Amortized -------------------------- Market
Cost Gains (Losses) Value
----------- -------------------------- -----------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Government $ 108,036 $ 1,940 $ -- $ 109,976
U.S. Government agencies 425,610 3,555 (59) 429,106
Mortgage-backed securities 1,888,149 14,984 (4,956) 1,898,177
States and political subdivisions 87,132 3,047 (114) 90,065
Other debt securities 20,818 152 (58) 20,912
Equity securities 110,275 2,471 (674) 112,072
----------- ----------- ----------- -----------
$ 2,640,020 $ 26,149 $ (5,861) $ 2,660,308
=========== =========== =========== ===========
<CAPTION>
December 31, 1998
-------------------------------------------------------
Gross Unrealized Estimated
Amortized -------------------------- Market
Cost Gains (Losses) Value
----------- -------------------------- -----------
<S> <C> <C> <C> <C>
HELD TO MATURITY
U.S. Government $ 42,373 $ 393 $ -- $ 42,766
U.S. Government agencies 37,360 1,462 -- 38,822
States and political subdivisions 16,190 204 (4) 16,390
Mortgage-backed securities 539,725 2,277 (717) 541,285
----------- ----------- ----------- -----------
$ 635,648 $ 4,336 $ (721) $ 639,263
=========== =========== =========== ===========
</TABLE>
<PAGE>
NOTE E -- COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED CAPITAL SECURITIES
OF THREE SUBSIDIARY TRUSTS HOLDING SOLELY JUNIOR SUBORDINATED DEBENTURES OF THE
COMPANY
On January 31, 1997, the Company placed $50.0 million in aggregate liquidation
amount of 8.98% Capital Securities due February 2027, using HUBCO Capital Trust
I, a statutory business trust formed under the laws of the State of Delaware.
The sole asset of the trust, 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 Hudson United Bancorp. 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.
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 Hudson United Bancorp. 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.
On February 5, 1997, the Company placed $25.0 million aggregate liquidation
amount of 9.25% Capital Securities due March 2027, using JBI 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 capital securities, is
$25.3 million principal amount of 9.25% Junior Subordinated Deferrable
Debentures due 2027 of Hudson United Bancorp. The net proceeds of the offering
are being used for general corporate purposes and to increases capital levels of
the Company and its subsidiaries. The securities qualify as Tier I capital under
the capital guidelines of the Federal Reserve. The securities are callable by
the Company on or after March 31, 2002, or earlier in the event the deduction of
related interest for federal income taxes is prohibited, treatment as Tier I
capital is no longer permitted or certain other contingencies arise.
<PAGE>
NOTE F -- RECENT ACCOUNTING STANDARDS
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income", which establishes standards for the reporting of
comprehensive income and its components in a full set of general purpose
financial statements. The Company has elected to display Consolidated Statements
of Income and Consolidated Statements of Comprehensive Income separately for the
disclosed periods. Comprehensive income is displayed on the Consolidated Balance
Sheets and Consolidated Statements of Changes in Stockholders' Equity as a
separate item entitled Accumulated Other Comprehensive Income (Loss). The
following is a reconciliation of the tax effect allocated to each component of
comprehensive income for the periods presented (in thousands):
<TABLE>
<CAPTION>
For the three-months ended
September 30, 1999
--------------------------------------
Before tax Tax Benefit Net of Tax
amount (Expense) Amount
--------------------------------------
<S> <C> <C> <C>
Unrealized security gains (losses) arising during the period $ (13,991) $ 5,216 $ (8,775)
Less: reclassification adjustment for gains realized in net income 848 (297) 551
--------------------------------------
Net change during period $ (14,839) $ 5,513 $ (9,326)
--------------------------------------
<CAPTION>
For the three-months ended
September 30, 1998
--------------------------------------
Before tax Tax Benefit Net of Tax
amount (Expense) Amount
--------------------------------------
<S> <C> <C> <C>
Unrealized security gains (losses) arising during the period $ 20,484 $ (6,760) $ 13,724
Less: reclassification adjustment for gains realized in net income 278 (192) 86
--------------------------------------
Net change during period $ 20,206 $ (6,568) $ 13,638
--------------------------------------
<CAPTION>
For the nine-months ended
September 30, 1999
--------------------------------------
Before tax Tax Benefit Net of Tax
amount (Expense) Amount
--------------------------------------
<S> <C> <C> <C>
Unrealized security gains (losses) arising during the period $ (68,635) $ 24,903 $ (43,732)
Less: reclassification adjustment for gains realized in net income 4,096 (1,434) 2,662
--------------------------------------
Net change during period $ (72,731) $ 26,337 $ (46,394)
--------------------------------------
<CAPTION>
For the nine-months ended
September 30, 1998
--------------------------------------
Before tax Tax Benefit Net of Tax
amount (Expense) Amount
--------------------------------------
<S> <C> <C> <C>
Unrealized security gains (losses) arising during the period $ 22,716 $ (8,109) $ 14,607
Less: reclassification adjustment for gains realized in net income 3,756 (1,418) 2,338
--------------------------------------
Net change during period $ 18,960 $ (6,691) $ 12,269
--------------------------------------
</TABLE>
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, 2000; 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.
<PAGE>
SUPPLEMENTAL MANAGEMENT'S DISCUSSION AND ANALYSIS
Acquisition Summary
Hudson United Bancorp ("the Company") began its acquisition program in the fall
of 1990. Since that time, the company has completed 27 acquisitions, including
10 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 $8.9 billion at 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 the Company.
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 3 branch locations, headquartered in
Basking Ridge, New Jersey.
On July 1, 1996, the Company acquired Lafayette American Bank and Trust Company
(Lafayette) and continued to operate it as an independent commercial bank
headquartered in Connecticut. Lafayette was a $700 million asset bank which
operated 19 branches, primarily in Fairfield County, Connecticut.
On December 13, 1996, the Company acquired Westport Bancorp, Inc. (Westport) and
merged its subsidiary bank, Westport Bank & Trust Company into Lafayette.
Westport Bank & Trust Company was a $317 million asset bank based in Westport,
Connecticut and operated 7 branch locations.
All three of these acquisitions were accounted for under the
pooling-of-interests accounting method, and, accordingly, the consolidated
financial statements prior to the mergers have been restated to include these
institutions and their results of operations.
On August 30, 1996, the Company acquired Hometown Bancorporation (Hometown), a
$194 million asset bank holding company headquartered in Darien, Connecticut.
Hometown's 2 branch banking subsidiary, The Bank of Darien, was merged into
Lafayette.
On November 29, 1996, Lafayette acquired UST Bank/Connecticut and merged it into
the Connecticut franchise. UST Bank was a $111 million asset commercial bank
with 4 branch locations. Both of these acquisitions were accounted for under the
purchase method of accounting.
In addition, during 1996 the Company purchased 4 New Jersey branches with total
deposits of $70.3 million and merged them into Hudson. The Company also sold 1
branch during the year with deposits of $9.7 million.
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 2 branch locations, headquartered in
Southington, Connecticut.
On April 24, 1998, the Company acquired Poughkeepsie Financial Corp. (PFC) and
merged PFC into HUBCO. PFC's subsidiary bank, Bank of the Hudson, 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
10 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 8 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 interest
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
bank and trust company headquartered in Newark, New Jersey with 4 branches.
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 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 and thereafter.
On November 30, 1999, the Company completed its acquisition of JeffBanks, Inc.
("Jeff"), a $1.8 billion bank holding company with 32 branches located
throughout the greater Philadelphia area of Pennsylvania and South Jersey.
On December 1, 1999, the Company completed its acquisition of Southern Jersey
Bancorp ("SJB"), a $425 million asset institution with 17 branches in South
Jersey.
The above 1999 acquisitions were 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.
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.
<PAGE>
SPECIAL CHARGES
(IN THOUSANDS) 1998 1997 1996
- --------------------------------------------------------------------------------
Writedown of assets held
for sale $23,303 $ -- $ --
Merger related and
restructuring charges 69,749 -- 22,081
Special SAIF assessment -- -- 10,074
Special provision for loan
losses -- -- 4,000
-------------------------------
Total special charges pre-tax $93,052 $ -- $36,155
======= ======= =======
Total special charges after-tax $63,634 $ -- $23,599
======= ======= =======
Results of Operations for the Years
Ended December 31, 1998, 1997 and 1996
Hudson United Bancorp reported net income of $26.8 million for the year ended
December 31, 1998, $90.4 million excluding special charges, compared to $84.0
million for 1997, $47.3 million for 1996 and $71.0 million for 1996 excluding
special charges. Diluted earnings per share was $0.49 for 1998, $1.64 excluding
special charges, compared to $1.48 for 1997. Excluding special charges, diluted
earnings per share increased 11% in 1998 compared to 1997. In 1996, diluted
earnings per share amounted to $0.83 and $1.25 excluding special charges.
Return on average assets was 0.31% for 1998, 1.04% excluding special charges,
compared to 1.01% for 1997. In 1996, return on average assets was 0.60% and
0.90% excluding special charges. Return on average equity was 4.14% for 1998,
13.97% excluding special charges, compared to 12.54% for 1997. In 1996, return
on average equity was 7.05% and 10.58% excluding special charges.
The following table presents a summary of the Company's average balances, the
yields earned on average assets and the cost of average liabilities and
stockholders' equity for the years ended December 31, 1998, 1997 and 1996 (in
thousands):
<TABLE>
<CAPTION>
AVERAGE BALANCES, NET INTEREST INCOME, YIELDS, AND RATES
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997 1996
----------------------------- ----------------------------- -----------------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
----------------------------- ----------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-bearing
deposits with banks $ 34,475 $ 1,864 5.41% $ 373 $ 17 4.56% $ 1,039 $ 53 5.10%
Federal funds sold 202,794 10,809 5.33% 183,086 10,552 5.76% 140,956 7,488 5.31%
Securities-taxable 2,873,677 183,632 6.39% 2,658,129 179,637 6.76% 2,629,601 173,210 6.59%
Securities-tax exempt (1) 112,716 9,448 8.38% 90,084 7,695 8.54% 66,590 4,597 6.90%
Loans (2) 4,923,410 424,359 8.62% 4,824,845 420,650 8.72% 4,547,221 396,514 8.72%
----------------------------- ----------------------------- -----------------------------
Total Earning Assets 8,147,072 630,112 7.73% 7,756,517 618,551 7.97% 7,385,407 581,862 7.88%
Cash and due from banks 251,799 259,907 227,450
Allowance for loan losses (84,605) (81,510) (76,310)
Premises and equipment 112,609 90,081 85,373
Other assets 294,697 289,186 265,235
---------- ---------- ----------
TOTAL ASSETS $8,721,572 $8,314,181 $7,887,155
================================================= ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing
transaction accounts $1,365,426 $ 32,070 2.35% $1,267,143 $ 37,135 2.93% $1,355,934 $ 32,518 2.40%
Savings accounts 1,328,052 31,121 2.34% 1,403,988 33,839 2.41% 1,271,063 37,400 2.94%
Time deposits 3,106,134 165,144 5.32% 3,049,175 162,606 5.33% 2,954,123 158,721 5.37%
----------------------------- ----------------------------- -----------------------------
Total Interest-Bearing
Deposits 5,799,612 228,335 3.94% 5,720,306 233,580 4.08% 5,581,120 228,639 4.10%
Borrowings 859,372 47,907 5.57% 672,002 37,864 5.63% 592,740 32,212 5.43%
Long-term debt 235,886 20,231 8.58% 202,824 17,647 8.70% 76,798 6,526 8.50%
----------------------------- ----------------------------- -----------------------------
Total Interest-Bearing
Liabilities 6,894,870 296,473 4.30% 6,595,132 289,091 4.38% 6,250,658 267,377 4.28%
Demand deposits 1,079,508 949,534 871,749
Other liabilities 100,343 99,759 94,234
Stockholders' equity 646,851 669,756 670,514
---------- ---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $8,721,572 $8,314,181 $7,887,155
========== ========== ==========
NET INTEREST INCOME $333,639 $329,460 $314,485
======== ======== ========
NET INTEREST MARGIN (3) 4.10% 4.25% 4.26%
==== ==== ====
</TABLE>
<PAGE>
(1) The tax equivalent adjustments for the years ended December 31, 1998, 1997
and 1996 were $3,289, $2,694 and $1,601, 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 $1,500, $222 and $257, respectively, and are based on a tax
rate of 35%. Average loan balances include nonaccrual loans and loans held
for resale.
(3) Represents tax equivalent net interest income divided by interest-earning
assets.
THE FOLLOWING TABLE PRESENTS THE RELATIVE CONTRIBUTION OF CHANGES IN VOLUMES AND
CHANGES IN RATES TO CHANGES IN NET INTEREST INCOME FOR THE PERIODS INDICATED.
THE CHANGE IN INTEREST INCOME AND INTEREST EXPENSE ATTRIBUTABLE TO THE COMBINED
IMPACT OF BOTH VOLUME AND RATE HAS BEEN ALLOCATED PROPORTIONATELY TO THE CHANGE
DUE TO VOLUME AND THE CHANGE DUE TO RATE (IN THOUSANDS):
CHANGES IN TAXABLE EQUIVALENT NET INTEREST INCOME-RATE/VOLUME ANALYSIS
<TABLE>
<CAPTION>
INCREASE/(DECREASE) INCREASE/(DECREASE)
-------------------------------- --------------------------------
1998 OVER 1997 1997 OVER 1996
-------------------------------- --------------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
- ---------------------------------------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans $ 8,530 $ (4,821) $ 3,709 $ 24,204 $ (68) $ 24,136
Securities-taxable 14,123 (10,128) 3,995 1,864 4,563 6,427
Securities-tax exempt 1,861 (108) 1,753 1,886 1,212 3,098
Federal funds sold 1,086 (829) 257 2,386 678 3,064
Interest bearing deposits 1,843 4 1,847 (31) (5) (36)
-------------------------------- --------------------------------
Total interest and fee income 27,443 (15,882) 11,561 30,309 6,380 36,689
-------------------------------- --------------------------------
Interest bearing transaction
accounts 2,720 (7,785) (5,065) (2,236) 6,853 4,617
Savings (1,797) (921) (2,718) 3,652 (7,213) (3,561)
Time deposits 3,030 (492) 2,538 5,076 (1,191) 3,885
Short-term borrowings 10,449 (406) 10,043 4,432 1,220 5,652
Long-term debt 2,839 (255) 2,584 10,961 160 11,121
-------------------------------- --------------------------------
Total interest expense 17,241 (9,859) 7,382 21,885 (171) 21,714
-------------------------------- --------------------------------
Net Interest Income $ 10,202 $ (6,023) $ 4,179 $ 8,424 $ 6,551 $ 14,975
================================ ================================
</TABLE>
<PAGE>
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 2.5 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 in 1998 was $333.6 million compared to
$329.5 million in 1997 and $314.5 million in 1996. The increase in net interest
income in 1998 compared to 1997 was due to a $391 million increase in
interest-earning assets, partially offset by a decline in the net interest
margin of 15 basis points. The increase in interest-earning assets was mainly
due to a higher average volume of investment securities. The decline in net
interest margin reflected the lower U.S. interest rate environment and a
flattening of the yield curve. The improvement in net interest income in 1997
compared to 1996 was due to a $371 million increase in interest-earning assets,
partially offset by a 1 basis point decline in the net interest margin. Higher
average loan volume was the primary factor underlying the increase in
interest-earning assets for the 1997 period compared to 1996.
Net Interest Margin
Net interest margin is computed by dividing net interest income on a FTE basis
by average interest-earning assets. The Company's net interest margin was 4.10%,
4.25%, and 4.26% 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 35
basis points. The average rate paid on interest-bearing deposits was 14 basis
points lower in 1998 compared to 1997. The slight decline in net interest margin
in 1997 compared to 1996 was due to higher rates paid on borrowings and long
term debt. This was partially offset by higher yields on investment securities.
The Company's average cost of all deposits for 1998 was 3.43% compared to 3.50%
for 1997 and 3.54% for 1996.
Approximately 37% of the Company's deposits are in transaction accounts, 20% in
savings accounts, and 43% 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 $35.6 million for 1998 compared with $24.4
million and $29.1 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 at year-end for the last three years
was 1.56%, 1.74%, and 1.70%. The allowance for loan losses as a percentage of
nonperforming loans for the last three-years was 147%, 102% and 95%.
<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 $4,885,643 $4,911,761 $4,817,211
======================================
Daily Average Amount of Loans Outstanding $4,923,410 $4,824,845 $4,547,221
======================================
ALLOWANCE FOR LOAN LOSSES
Balance at beginning of year $ 85,230 $ 81,979 $ 79,968
Loans charged off:
Real estate mortgages 11,207 10,861 14,453
Commercial 10,034 7,489 10,493
Consumer 22,083 15,364 4,647
Other -- 384 9,452
Writedown of assets held for sale (1) 9,521 -- --
--------------------------------------
Total loans charged off 52,845 34,098 39,045
--------------------------------------
Recoveries:
Real estate mortgages 988 2,684 2,429
Commercial 1,629 3,113 1,874
Consumer 3,437 3,512 1,534
Other recoveries 47 798 1,501
--------------------------------------
Total recoveries 6,101 10,107 7,338
--------------------------------------
Net loans charged off 46,744 23,991 31,707
--------------------------------------
Provision for loan losses 35,607 24,442 29,060
Additions Acquired Through Acquisitions 1,950 2,800 4,658
--------------------------------------
Balance at end of year $ 76,043 $ 85,230 $ 81,979
======================================
Net charge offs as a percentage of average
loans outstanding 0.95% 0.50% 0.70%
Allowance for loan losses as a percentage of
loans outstanding at year end 1.56% 1.74% 1.70%
</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 $ 23,868 60.6% $ 30,273 65.2% $ 30,541 67.0%
Commercial and industrial 18,493 25.3% 20,233 22.5% 21,013 22.6%
Consumer 20,650 14.1% 11,650 12.3% 12,876 10.4%
Unallocated 13,032 23,074 17,549
------------------------------------------------------------------
Total $ 76,043 100.0% $ 85,230 100.0% $ 81,979 100.0%
==================================================================
</TABLE>
<PAGE>
Noninterest Income
Noninterest income, excluding securities gains and loss on assets held for sale,
increased 16% to $70.9 million for 1998 from $61.0 million in 1997. The amount
in 1997 was an increase of 15% over the $52.9 million reported in 1996. The
increase for 1998 compared to 1997 was due to growth in Shoppers Charge fees
(the Company's private label credit card division) and other non-deposit related
fee income. The improvement in 1997 from 1996 was mainly the result of growth in
Shoppers Charge fees and service charges on deposits. Shoppers Charge fee income
increased to $11.6 million in 1998, or 27%, over 1997 which had been an increase
of 119% over 1996. Noninterest income, excluding security gains and loss on
assets held for sale, as a percentage of total net revenue was 18%, 16%, and 14%
in 1998, 1997, and 1996, respectively. The company realized $4.5 million in
securities gains in 1998, $9.4 million in 1997, and $2.0 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 $232.3 million in 1998 from $239.2 million in 1997. The primary reason for
the decline in expenses from 1997 to 1998 was a 7%, or $8.0 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 the 23 First Union branches and Security
National Bank. The $239.2 million in non-interest expenses in 1997 was an
increase from $229.1 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 $107.2 million in 1998, $115.2 million and $110.8
million in 1997 and 1996, respectively. The decline from 1997 to 1998 resulted
mainly from the aforementioned cost savings related to acquired institutions.
The $4.4 million increase in 1997 compared with 1996 is primarily attributable
to the aforementioned purchase acquisitions. Employee benefits as a percentage
of salaries were 28% in 1998, 32% in 1997, and 30% in 1996.
Occupancy expense was $24.8 million in 1998, $23.3 million in 1997, and $23.6
million in 1996. The increase in 1998 resulted largely from the acquisition of
the First Union branches. Equipment expense declined to $11.3 million in 1998
compared to $11.6 million in 1997 and amounted to $10.7 million in 1996.
Deposit and other insurance expense has declined over the last three years from
$6.4 million in 1996 to $3.5 million in 1997 and $3.1 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 on its other insurance
coverages. The 1996 amount excludes the aforementioned $10.1 million Special
SAIF assessment.
Outside services expense has increased to $34.8 million in 1998 from $33.4
million in 1997 and $28.4 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 Real Estate Owned (OREO) expense declined to $3.3 million in 1998 compared
to $5.6 million in 1997 and $5.7 million in 1996. A lower OREO provision and a
decline in properties managed were responsible for the reduction in expense.
Amortization of intangibles expense increased to $12.0 million in 1998 from
$10.4 million in 1997 and $8.6 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 $69.2 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 ($29.5
million), branch closing, fixed asset disposition and other occupancy related
costs ($13.2 million), professional services ($13.6 million) and other merger
related expenses ($12.9 million).
Federal Income Taxes
The income tax provision for Federal and state taxes approximates 38.8% for
1998, 36.9% for 1997 and 38.0% 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 decrease in the tax rate in 1997 as compared to 1996
reflected the impact of a significant loss for Regent (acquired by Jeff) where
the related tax benefits were not recognized until 1997.
Financial Condition
Total assets at December 31, 1998 were $8.9 billion, an increase from assets of
$8.7 billion at December 31, 1997. This increase in assets resulted primarily
from a $575 million increase in investment securities which amounted to $3.3
billion at December 31, 1998. Partially offsetting this increase was a $329
million reduction in fed funds sold. Total loans and total deposits amounted to
$4.9 billion and $6.8 billion, respectively, at both year-end 1998 and 1997.
Borrowings amounted to $970 and $901 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 $3.3 billion in investment securities, $2.7 billion in its
available for sale portfolio and $636 million in its held to maturity portfolio.
Total Stockholders' Equity was $619.9 million at December 31, 1998 and $667.8
million at December 31, 1997. The net decline of $47.9 million resulted from the
Company's purchase of $70.1 million in treasury shares ($2.1 million shares)
along with dividends paid of $39.7 million, which was partially offset by the
$26.8 million of net income and $28.2 million resulting from the effect of stock
option, warrant, and other compensation plans. Of the purchased treasury shares,
$60.2 million was reissued in connection with the 3% stock dividend paid in
September 1998 and for the exercise of stock options and warrants. Despite the
decline in total capital, the Company's Tier I Leverage ratio was 7.4%
at December 31, 1998. The Company issued $50.0 million in capital securities
through HUBCO Capital Trust II on June 19,
<PAGE>
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 37% and 31%, respectively,
of the total assets of the Company.
The Company's philosophy (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.
The following tables summarize the composition of the portfolios as of
December 31, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
1998 1997
------------------------------------------------- -------------------------------------------------
GROSS UNREALIZED ESTIMATED GROSS UNREALIZED ESTIMATED
AMORTIZED -------------------- MARKET AMORTIZED --------------------- 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 $ 54,093 $ 611 $ (22) $ 54,682
U.S. Government
Agencies 37,360 1,462 -- 38,822 269,566 1,799 (515) 270,850
State and Political
subdivisions 16,190 204 (4) 16,390 42,200 694 (1) 42,893
Mortgage-backed
securities 539,725 2,277 (717) 541,285 442,199 7,827 (1,937) 448,089
Other debt securities -- -- -- -- 12,870 48 (37) 12,881
------------------------------------------------- -------------------------------------------------
$ 635,648 $ 4,336 $ (721) $ 639,263 $ 820,928 $ 10,979 $ (2,512) $ 829,395
================================================= =================================================
<CAPTION>
1998 1997
------------------------------------------------- -------------------------------------------------
GROSS UNREALIZED ESTIMATED GROSS UNREALIZED ESTIMATED
AMORTIZED -------------------- MARKET AMORTIZED --------------------- MARKET
COST GAINS (LOSSES) VALUE COST GAINS (LOSSES) VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AVAILABLE FOR SALE
PORTFOLIO
U. S. Government $ 108,036 $ 1,940 $ -- $ 109,976 $ 156,977 $ 1,155 $ (342) $ 157,790
U.S. Government
Agencies 425,610 3,555 (59) 429,106 345,495 1,987 (335) 347,147
Mortgage-backed
securities 1,888,149 14,984 (4,956) 1,898,177 1,221,415 5,997 (4,106) 1,223,306
States and Political
Subdivisions 87,132 3,047 (114) 90,065 61,834 1,998 (27) 63,805
Other debt securities 20,690 152 (58) 20,784 44,592 374 (8) 44,958
Equity securities 110,403 2,471 (674) 112,200 58,559 4,925 (62) 63,422
------------------------------------------------- -------------------------------------------------
$ 2,640,020 $ 26,149 $ (5,861) $ 2,660,308 $ 1,888,872 $ 16,436 $ (4,880) $ 1,900,428
================================================= =================================================
</TABLE>
<PAGE>
Loan Portfolio Distribution of Loans by Category
DECEMBER 31,
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1998 1997 1996
------------------------------------------
Loans secured by
real estate:
Residential
mortgage loans $1,739,054 $1,877,888 $1,870,954
Mortgages held
for sales 14,600 4,327 3,452
Residential home
equity loans 230,587 216,215 230,828
Commercial
mortgage loans 978,040 1,105,440 1,120,357
------------------------------------------
2,962,281 3,203,870 3,225,591
------------------------------------------
Commercial and
industrial loans:
Secured by
real estate 233,536 285,057 278,641
Other 1,004,149 818,484 808,126
------------------------------------------
1,237,685 1,103,541 1,086,767
------------------------------------------
Credit cards 107,331 114,550 69,637
Other loans to
individuals 578,346 489,800 435,216
------------------------------------------
Total Loan Portfolio $4,885,643 $4,911,761 $4,817,211
==========================================
Total loans decreased by $26.1 million from $4.91 billion at December 31, 1997,
to $4.89 billion at December 31, 1998. Contributing to the decline was the
writedown and transfer to assets held for sale of $54 million of nonaccrual
loans. The residential mortgage loan portfolio declined $138.8 million to $1.74
billion at December 31, 1998. The decline was the result of run-off in the
existing portfolio as a significant portion of new originations were sold.
Commercial mortgage loans decreased by $127.4 million to $978.0 million at
December 31, 1998. The reduction resulted primarily from the runoff or sale of
non-owner occupied loans which were originated at acquired institutions and did
not fit the Company's credit criteria. Commercial loans increased by $134.1
million to $1.24 billion 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 $185.7 million to $1.0 billion at December 31, 1998. Credit card loans
declined by $7.2 million to $107.3 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.
Asset Quality
The Company's principal earning assets are its loans, which are primarily to
businesses and individuals located in New Jersey, New York, Connecticut and
Pennsylvania with the exception of the credit card loans which are originated in
44 states. Inherent in the lending business is the risk of deterioration in a
borrower's ability to repay loans under existing loan agreements. Other risk
elements include the amount of nonaccrual and past-due loans, the amount of
potential problem loans, industry or geographic loan concentrations, and the
level of other real estate owned (OREO) that must be managed and disposed of.
The following table shows the loans past due 90 days or more and still accruing
and applicable asset quality ratios:
DECEMBER 31,
-------------------------------------
(DOLLARS IN THOUSANDS) 1998 1997 1996
- -------------------------------------------------------------------------------
Commercial $ 3,048 $ 3,578 $ 4,870
Real estate 9,739 13,938 14,233
Consumer 4,263 3,224 1,781
Credit card 4,211 3,609 1,744
-------------------------------------
Total Loans Past-Due
90-Days or More and
Still Accruing $21,261 $24,349 $22,628
=====================================
As a percent of
Total Loans 0.44% 0.50% 0.47%
As a percent of
Total Assets 0.24% 0.28% 0.27%
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, multi-family, and
commercial properties.
Nonaccruing consumer loans are loans to individuals. Excluding the credit card
receivables, these loans are principally secured by automobiles or real estate.
Renegotiated loans are loans which were renegotiated as to the term or rate or
both to assist the borrower after the borrower has suffered adverse effects in
financial condition. Terms are designed to fit the ability of the borrower to
repay and the Company's objective of obtaining repayment. The Company has $5.6
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 successful in disposing of
OREO properties, including those acquired in acquisitions. At December 31, 1998,
1997, and 1996, OREO amounted to $8.2 million, $15.6 million, and $25.2 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 $39.4 million to $60.0
million from $99.4 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
non-performing 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 $8.0 million, $6.3 million, and $6.8 million for the years 1998,
1997, and 1996, respectively. The amount of interest income recorded on such
loans for each of the
<PAGE>
years was $0.7 million, $1.5 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 1.56%, 1.74%, and 1.70%, respectively. Management
formally reviews the loan portfolio and evaluates credit risk on at least a
quarterly basis throughout the year. Such review takes into consideration the
financial condition of the borrowers, fair market value of collateral, level of
delinquencies, historical loss experience by loan category, industry trends, and
the impact of local and national economic conditions.
The following table summarizes the Company's nonperforming assets at the dates
indicated (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
NONPERFORMING ASSETS (INCLUDING ASSETS HELD FOR SALE) 1998 1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Nonaccrual Loans $ 46,178 $ 64,766 $ 72,883
Renegotiated Loans 5,632 19,054 13,261
-------------------------------------
Total Nonperforming Loans 51,810 83,820 86,144
Other Real Estate Owned 8,151 15,568 25,160
-------------------------------------
Total Nonperforming Assets $ 59,961 $ 99,388 $ 111,304
=====================================
Ratios:
Nonaccrual Loans to Total Loans 0.95% 1.32% 1.51%
Nonperforming Assets to Total Assets 0.67% 1.15% 1.35%
Allowance for Loan Losses to Nonaccrual Loans 165% 132% 112%
Allowance for Loan Losses to Nonperforming Loans 147% 102% 95%
</TABLE>
<PAGE>
Deposits
As of December 31, 1998, Hudson had 136 branch offices in New Jersey and
Pennsylvania, Lafayette had 43 branch offices located in Connecticut, and Bank
of the Hudson has 34 branch offices located in lower New York State.
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 $ 1,214,521 $ 1,048,846 $ 996,014
NOW/MMDA
deposits 1,249,772 1,312,082 1,296,602
Savings deposits 1,367,117 1,366,225 1,370,536
Time deposits 2,941,826 3,049,894 3,029,170
-------------------------------------
Total Deposits $ 6,773,236 $ 6,777,047 $ 6,692,322
=====================================
Total deposits were basically unchanged at year-end 1998 compared to year-end
1997. However, there was a favorable change in the mix, as non-interest bearing
deposits increased and higher rate time deposits declined. As noted earlier, 36%
of the deposit base is in low or noninterest bearing core deposits and another
20% 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.
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.
<PAGE>
The following table sets forth the regulatory minimum capital ratio guidelines
and the current capital ratios of the Company.
REGULATORY COMPANY
CAPITAL CAPITAL
GUIDELINES RATIOS
Tier 1 Leverage Ratio 3-5% 7.4%
Tier 1 Risk-Based
Capital Ratio 4% 12.5%
Total Risk-Based
Capital 8% 16.3%
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. 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. On September 3,
1998, the Company paid a 3% stock dividend and increased its regular quarterly
cash dividend to $0.25 per common share. On December 1, 1999, the Company paid a
3% stock dividend and maintained its regular quarterly cash dividend at $0.25
per common share. The dividend payout ratio, based on cash dividends per share
and diluted earnings per share, was 173.5% for 1998 compared to 48.0% for 1997
and 74.7% 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 51.8% in 1998 and 49.6% in 1996.
In September 1996, the Company issued $75.0 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. In March 1996, the Company
issued $23.0 million aggregate principal amount of subordinated debentures which
mature in 2006 and bear interest at 8.75% per annum payable semi-annually. These
notes are redeemable at the option of the Company, in whole or in part, at any
time after April 1, 2001, at their stated principal amount plus accrued
interest, if any. In February 1993, the Company issued $9.0 million aggregate
principal amount of subordinated debentures which mature in 2003 and bear
interest at 9.5% per annum payable semi-annually. These notes are redeemable at
the option of the Company, in whole or in part, at any time after February 15,
2000, at their stated principal amount plus accrued interest, if any. Proceeds
of the above issuances were used for general corporate purposes including
providing Tier I capital to the subsidiary banks. The debt has been structured
to comply with the Federal Reserve Bank rules regarding debt qualifying as Tier
2 capital at the Company.
In January 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 the Company. In June 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 assets 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 the Company. In February 1997,
the Company placed $25.0 million in aggregate liquidation amount of 9.25%
Capital Securities due March 2027, using JBI 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 $25.3
million principal amount of 8.98% Junior Subordinated Debentures due 2027 of the
Company. The 8.98% Trust preferred securities are callable by the Company on or
after March 31, 2002, or earlier in the event the deduction of related interest
for federal income taxes is prohibited, treatment as Tier I capital is no longer
permitted or certain other contingencies arise. The three issues of 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 net proceeds of the 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.
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 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
<PAGE>
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, the
Company 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.
The following table shows the gap position of the Company at December 31,
1998 (in thousands):
<TABLE>
<CAPTION>
GAP ANALYSIS DUE
DUE WITHIN BETWEEN
ONE YEAR ONE AND DUE OVER NONINTEREST
OR LESS FIVE YEARS FIVE YEARS BEARING TOTAL
- --------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C> <C> <C>
Federal Funds Sold $ 85,397 $ - $ - $ - $ 85,397
Securities 1,208,605 1,540,344 547,007 - 3,295,956
Total Loans 2,542,062 1,678,995 664,586 - 4,885,643
Noninterest Bearing Assets - - - 630,779 630,779
---------------------------------------------------------------------
Total Assets $ 3,836,064 $ 3,219,339 $ 1,211,593 $ 630,779 $ 8,897,775
Percent of Total Assets 43.1% 36.2% 13.6% 7.1% 100.0%
SOURCE OF FUNDS
Interest-Bearing Deposits $ 5,008,708 $ 530,470 $ 19,537 $ - $ 5,558,715
Borrowings 909,773 53,785 6,852 - 970,410
Long-Term Debt - 9,000 248,300 - 257,300
Non-Interest Bearing Deposits - - - 1,214,521 1,214,521
Other Liabilities - - - 276,904 276,904
Stockholders' Equity - - - 619,925 619,925
---------------------------------------------------------------------
Total Source of Funds $ 5,918,481 $ 593,255 $ 274,689 $ 2,111,350 $ 8,897,775
Percent of Total Source of Funds 66.5% 6.7% 3.1% 23.7% 100.0%
==============================================================================================================
Interest Rate Sensitivity Gap $(2,082,417) $ 2,626,084 $ 936,904 $(1,480,571) $ -
- --------------------------------------------------------------------------------------------------------------
Cumulative Interest Rate Sensitivity Gap $(2,082,417) $ 543,667 $ 1,480,571
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Due in part to the shortcomings of GAP analysis, the Asset/Liability Committee
of Hudson United Bancorp 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
<PAGE>
rate changes and behavioral response of the balance sheet to those changes.
Market Value of Portfolio Equity represents the fair values 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 several scenarios including the regulatory rate shock scenario.
RATE SHOCK MODEL
EFFECT ON:
Basis point rate change Net Interest Income Market Value of Portfolio Equity
+200 bp +2% -15%
+100 bp +2% - 5%
- -100 bp -3% 0%
- -200 bp -7% - 1%
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 the statement will have a material
effect on its financial position or results of operations
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 such as "believes", "expects" and similar
words or variations. Such statements are not historical facts and involve
certain risk 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
Hudson United Bancorp has been planning since 1996 to prepare 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 and that business disruption is minimal. This process involves
analyzing and replacing existing computer hardware and software as needed.
Hudson United Bancorp 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 modification and review of computer and non-information technology systems
was completed by December 31, 1998. This will allow for testing and making
adjustments, as necessary, to fine tune our systems and deal with any customer
or third party developments during 1999.
The estimated total cost to become Year 2000 compliant is $7 million. Through
December 31, 1998, the Company has incurred approximately $5.7 million of the
above costs. The Company anticipates most of the remaining costs will be
incurred by mid-year 1999.
A failure by the Company or by third parties on whom the Company relies for
support to correct Year
<PAGE>
2000 issues may cause disruption in the Company'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
may 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 the
Company. 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.
<PAGE>
Hudson United Bancorp and Subsidiaries
S.E.C. GUIDE 3 - ITEM II
INVESTMENT PORTFOLIO
Book Value at End of Each Reporting Period
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------
1998 1997 1996
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
U.S. Treasury and other U.S.
Government Agencies and
Corporations $ 3,056,717 $ 2,494,101 $ 2,561,591
State and Political Subdivisions 106,255 106,005 66,534
Other Debt Securities 20,784 57,828 61,652
Common Stock 112,200 63,422 34,285
-----------------------------------------------------------------
TOTAL $ 3,295,956 $ 2,721,356 $ 2,724,062
=================================================================
</TABLE>
Maturities and Weighted Average Yield at End of Latest Reporting Period
<TABLE>
<CAPTION>
Maturing
--------------------------------------------------------------------------------------
After One But After Five But
Within One Year Within Five Years Within Ten Years After Ten Years
--------------- ----------------- ---------------- ---------------
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and other
U.S. Government
Agencies and
Corporations $ 915,453 6.16% $1,151,574 6.18% $ 573,348 6.40% $416,342 6.25%
States and Political
Subdivisions 20,309 5.21 23,529 5.08 13,717 4.97 48,700 7.91
Other Debt Securities 5,942 5.53 5,949 6.21 8,293 4.80 600 6.10
Common Stock 88,167 5.40 - - 24,033 6.07
---------- ---------- --------- --------
TOTAL $1,029,871 6.07% $1,181,052 6.15% $ 595,358 6.34% $489,675 6.41%
========== ========== ========= ========
</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>
Hudson United Bancorp and Subsidiaries
S.E.C. GUIDE 3 - ITEM III
LOAN PORTFOLIO
Types of Loans At End of Each Reporting Period
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Commercial, Financial,
and Agricultural $ 1,070,844 $ 918,106 $ 923,380 $ 935,550 $ 839,887
Real Estate -
Construction 166,841 185,435 163,387 132,610 99,956
Real Estate -
Mortgage 2,962,281 3,203,870 3,225,591 2,908,022 2,706,911
Installment 685,677 604,350 504,853 408,743 338,423
----------------------------------------------------------------------------
TOTAL $ 4,885,643 $ 4,911,761 $ 4,817,211 $ 4,384,925 $ 3,985,177
============================================================================
</TABLE>
<PAGE>
Hudson United Bancorp 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 $ 330,330 $ 290,343 $ 450,171 $ 1,070,844
Real Estate Construction 95,601 64,038 6,728 166,367
Real Estate - Mortgage 155,720 302,740 519,580 978,040
---------------------------------------------------------------
TOTAL $ 581,651 $ 657,121 $ 976,479 $ 2,215,251
===============================================================
</TABLE>
SENSITIVITY
-----------------------------
Fixed Variable
Rate Rate
-----------------------------
Due After One But Within Five Years $ 398,468 $ 258,653
Due After Five Years 452,927 523,551
-----------------------------
TOTAL $ 851,395 $ 782,204
=============================
<PAGE>
Hudson United Bancorp and Subsidiaries
S.E.C. GUIDE 3 - ITEM III
LOAN PORTFOLIO
Nonaccrual, Past Due and Restructured Loans
<TABLE>
<CAPTION>
(In Thousands) December 31,
---------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Loans accounted for on
a nonaccrual basis $ 46,178 $ 64,766 $ 72,883 $ 63,005 $ 79,453
Loans contractually past
due 90 days or more as
to interest or principal
payments 21,261 24,349 22,628 18,595 14,874
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 5,632 19,054 13,261 3,134 40,256
</TABLE>
At the end of the reporting period, there were no loans not disclosed in the
above table where known information about possible credit problems of borrowers
causes management of the Company to have serious doubts as to the ability of
such borrowers to comply with the present loan repayment terms and which may
result in disclosure of such loans in the above table in the future.
At December 31, 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>
Hudson United Bancorp 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 $4,885,643 $4,911,761 $4,817,211 $4,384,925 $3,985,177
=====================================================================
Daily Average Amount of Loans $4,923,410 $4,824,845 $4,547,221 $4,152,111 $3,666,344
=====================================================================
Balance of Allowance for Possible
Loan Losses at Beginning of Year $85,230 $81,979 $79,968 $75,204 $82,854
Loans Charged Off:
Commercial, Financial and Agricultural (10,034) (7,489) (10,493) (19,090) (11,949)
Real Estate - Construction (213) -- (473) (75) (664)
Real Estate - Mortgage (10,994) (10,861) (13,980) (14,901) (25,789)
Installment (22,083) (15,364) (4,647) (2,996) (1,936)
Write down of assets held for sale (9,521) -- -- -- --
Other Loans -- (384) (9,452) (73) (118)
---------------------------------------------------------------------
Total Loans Charged Off (52,845) (34,098) (39,045) (37,135) (40,456)
-----------------------------------------------------------------------
Recoveries of Loans Previously Charged Off:
Commercial, Financial and Agricultural 1,629 3,113 1,874 1,765 2,803
Real Estate-Construction -- -- -- 40 17
Real Estate-Mortgage 988 2,684 2,429 2,643 1,149
Installment 3,437 3,512 1,534 990 988
Other Loans 47 798 1,501 22 48
-----------------------------------------------------------------------
Total Recoveries 6,101 10,107 7,338 5,460 5,005
-----------------------------------------------------------------------
Net Loans Charged Off (46,744) (23,991) (31,707) (31,675) (35,451)
-----------------------------------------------------------------------
Provision Charged to Expense 35,607 24,442 29,060 30,229 18,551
Additions Acquired Through Acquisitions 1,950 2,800 4,658 6,121 7,815
Other -- -- -- 89 1,435
-----------------------------------------------------------------------
Balance at end of year $76,043 $85,230 $81,979 $79,968 $75,204
=======================================================================
Ratios
Net Loans Charged Off to
Average Loans Outstanding 0.95% 0.50% 0.70% 0.76% 0.97%
Allowance for Possible Loan
Losses to Average Loans
Outstanding 1.54% 1.77% 1.80% 1.93% 2.05%
</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>
Hudson United Bancorp 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 Category to Category to
Amount Total Loans Amount 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 $ 16,789 21.9 $ 19,751 18.7 $ 20,328 19.2
Real Estate -
Construction 1,704 3.4 482 3.8 685 3.3
Real Estate -
Mortgage 23,868 60.6 30,273 65.2 30,541 67.0
Installment 20,650 14.1 11,650 12.3 12,876 10.5
Unallocated 13,032 23,074 17,549
-------------------------------------------------------------------------------
TOTAL $ 76,043 100.0% $ 85,230 100.0% $ 81,979 100.0%
===============================================================================
</TABLE>
December 31, 1995 December 31, 1994
---------------------------------------------------
% of Loans % of Loans
In Each In Each
Category to Category to
Amount Total Loans Amount Total Loans
---------------------------------------------------
Commercial $ 22,359 21.3 $ 34,135 21.3
Financial and
Agricultural
338 3.0 778 2.5
Real Estate -
Construction
26,223 66.3 21,664 67.5
Real Estate -
Mortgage 4,780 9.4 4,572 8.7
Installment 26,268 14,055
---------------------------------------------------
Unallocated
$ 79,968 100.0% $ 75,204 100.0%
===================================================
TOTAL
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>
Hudson United Bancorp 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)
Domestic Bank Offices:
<S> <C> <C> <C>
Noninterest bearing demand
deposits $ 1,079,508 $ 949,534 $ 871,749
Interest-bearing
demand deposits 1,365,426 2.35% 1,267,143 2.93% 1,355,934 2.40%
Savings deposits 1,328,052 2.34% 1,403,988 2.41% 1,271,063 2.94%
Time deposits 3,106,134 5.32% 3,049,175 5.33% 2,954,123 5.37%
--------- --------- ---------
TOTAL $ 6,879,120 $ 6,669,840 $ 6,452,869
========= ========= =========
</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 $ 216,674 $ -- $ 216,674
Over 3 through 6 months 130,514 -- 130,514
Over 6 through 12 months 87,866 -- 87,866
12 months 72,003 72,003
-----------------------------------------------
TOTAL $ 507,057 $ -- $ 507,057
===============================================
<PAGE>
Hudson United Bancorp 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 0.31% 1.01% 0.60%
Return on Average Equity 4.14% 12.54% 7.05%
Common Dividend Payout Ratio 173.47% 47.97% 74.70%
Average Stockholders' Equity to
Average Assets Ratio 7.42% 8.06% 8.50%
<PAGE>
Hudson United Bancorp 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 amounts 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 $ 422,158 $ 548,252
1997 437,813 463,014
1996 265,350 405,331
Weighted average interest
rate at year end:
1998 4.83% 5.09%
1997 5.44 5.80
1996 5.00 5.85
Maximum amount outstanding
at any month's end:
1998 $ 470,382 $ 696,048
1997 470,723 482,956
1996 326,214 472,855
Average amount outstanding
during the year:
1998 $ 414,793 $ 444,579
1997 268,417 403,585
1996 238,537 354,203
<PAGE>
Federal Funds
Purchased and
Securities Sold
Under Agreement Other
to Repurchase Borrowings
--------------------------------------
(In Thousands)
Weighted average interest
rate during the year:
1998 5.21% 5.92%
1997 5.04 6.03
1996 4.74 5.91
<PAGE>
Hudson United Bancorp and Subsidiaries
----------------------------------------
Supplemental Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, (in thousands, except share data) 1998 1997
- ------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Cash and due from banks $ 293,882 $ 315,395
Federal funds sold 85,397 414,116
------------------------
TOTAL CASH AND CASH EQUIVALENTS 379,279 729,511
Investment securities available for sale, at market value 2,660,308 1,900,428
Investment securities held to maturity, at cost (market value of $639,263 and
$829,395 at 1998 and 1997, respectively) 635,648 820,928
Mortgage loans and assets held for sale 28,747 4,327
Loans:
Residential mortgages 1,739,054 1,877,888
Commercial real estate mortgages 978,040 1,105,440
Commercial and financial 1,237,685 1,103,541
Consumer credit 808,933 706,015
Credit card 107,331 114,550
------------------------
TOTAL LOANS 4,871,043 4,907,434
Less: Allowance for possible loan losses (76,043) (85,230)
------------------------
NET LOANS 4,795,000 4,822,204
Premises and equipment, net 114,604 108,382
Other real estate owned 4,527 15,568
Intangibles, net of amortization 84,471 61,777
Other assets 195,191 186,722
-----------------------
TOTAL ASSETS $8,897,775 $8,649,847
========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest bearing $1,214,521 $1,048,846
Interest bearing 5,558,715 5,728,201
------------------------
TOTAL DEPOSITS 6,773,236 6,777,047
Borrowings 970,410 900,827
Other liabilities 276,904 94,114
------------------------
8,020,550 7,771,988
Subordinated debt 132,000 134,750
Company-obligated mandatorily redeemable preferred capital securities of three
subsidiary trusts holding solely junior subordinated debentures of the
Company 125,300 75,300
------------------------
TOTAL LIABILITIES 8,277,850 7,982,038
Stockholders' Equity:
Convertible Preferred stock-Series B, no par value;
Authorized 25,000,000 shares; 500 shares issued and
outstanding in 1998; 1,250 shares issued and outstanding in 1997 50 125
Common stock, no par value; authorized 103,000,000
shares; 53,789,444 shares issued and 53,327,244 shares outstanding in 1998
and 55,500,588 shares issued and 54,225,866 shares outstanding in 1997 93,470 86,776
Additional paid-in capital 360,621 383,667
Retained earnings 165,269 222,687
Treasury stock, at cost, 462,200 shares in 1998 and 1,274,722 shares in 1997 (9,819) (22,889)
Employee stock awards and unallocated shares held in ESOP, at cost (2,368) (9,609)
Accumulated other comprehensive income 12,702 7,052
------------------------
TOTAL STOCKHOLDERS' EQUITY 619,925 667,809
------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $8,897,775 $8,649,847
========================
</TABLE>
See Notes to Supplemental Consolidated Financial Statements.
<PAGE>
Hudson United Bancorp and Subsidiaries
----------------------------------------------
Supplemental Consolidated Statements of Income
<TABLE>
<CAPTION>
Year ended December 31, (in thousands, except per share data) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------
INTEREST AND FEE INCOME:
<S> <C> <C> <C>
Loans $422,859 $420,428 $396,257
Investment securities 189,791 184,638 176,206
Other 12,673 10,569 7,541
-------------------------------
TOTAL INTEREST AND FEE INCOME 625,323 615,635 580,004
-------------------------------
INTEREST EXPENSE:
Deposits 228,335 233,580 228,639
Borrowings 47,907 37,864 32,212
Subordinated and other debt 20,231 17,647 6,526
-------------------------------
TOTAL INTEREST EXPENSE 296,473 289,091 267,377
-------------------------------
NET INTEREST INCOME 328,850 326,544 312,627
PROVISION FOR POSSIBLE LOAN LOSSES 35,607 24,442 29,060
-------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 293,243 302,102 283,567
-------------------------------
NONINTEREST INCOME:
Trust department income 4,472 4,190 3,845
Service charges on deposit accounts 27,314 28,031 26,884
Securities gains 4,474 9,445 2,015
Loss on assets held for sale (23,303) - (894)
Credit card fees 14,773 11,472 5,876
Other income 24,293 17,288 16,273
-------------------------------
TOTAL NONINTEREST INCOME 52,023 70,426 53,999
-------------------------------
NONINTEREST EXPENSE:
Salaries 84,005 87,024 85,314
Pension and other employee benefits 23,239 28,201 25,527
Occupancy expense 24,784 23,292 23,585
Equipment expense 11,317 11,620 10,681
Deposit and other insurance 3,118 3,520 6,374
Special SAIF assessment - - 10,074
Outside services 34,819 33,365 28,364
Other real estate owned expense 3,337 5,590 5,675
Amortization of intangibles 12,105 10,446 8,708
Other 35,615 36,140 34,874
Merger related and restructuring costs 69,192 270 22,082
-------------------------------
TOTAL NONINTEREST EXPENSE 301,531 239,468 261,258
-------------------------------
INCOME BEFORE INCOME TAXES 43,735 133,060 76,308
PROVISION FOR INCOME TAXES 16,984 49,065 29,004
-------------------------------
NET INCOME $ 26,751 $83,995 $47,304
===============================
EARNINGS PER SHARE:
Basic $0.50 $1.55 $0.86
Diluted $0.49 $1.48 $0.83
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 53,380 53,488 53,690
Diluted 55,153 56,508 56,848
</TABLE>
See Notes to Supplemental Consolidated Financial Statements.
<PAGE>
Hudson United Bancorp and Subsidiaries
------------------------------------------------------------
Supplemental Consolidated Statements of Comprehensive Income
<TABLE>
<CAPTION>
Year Ended December 31, (in thousands) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INCOME $26,751 $83,995 $47,304
======= ======= =======
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Unrealized securities gains (losses)arising during period $8,508 $15,635 $(4,329)
Less: reclassification for gains included in net income (2,858) (5,755) (1,261)
------- ------- -------
Other comprehensive income (loss) 5,650 9,880 (5,590)
------- ------- -------
COMPREHENSIVE INCOME $32,401 $93,875 $41,714
======= ======= =======
</TABLE>
See Notes to Supplemental Consolidated Financial Statements.
<PAGE>
Hudson United Bancorp and Subsidiaries
------------------------------------------------------------
SUPPLEMENTAL 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
(IN THOUSANDS, EXCEPT SHARE DATA) PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 520,503 $ 4,362 45,868,293 $ 81,554 $ 385,051 $ 230,828
=====================================================================================
Net income -- -- -- -- -- 47,304
Cash dividends - common -- -- -- -- -- (25,278)
Cash dividends - preferred -- -- -- -- -- (825)
3% Stock Dividend -- -- 47,662 85 1,235 (28,348)
Preferred Stock Dividend 39,650 14 -- -- 383 (397)
Shares issued for:
Stock options exercised -- -- 389,449 691 278 --
Warrants exercised -- -- 192,760 342 996 --
Dividend reinvestment and stock
reinvestment plan -- -- 14,543 26 297 --
Common stock offering -- -- 1,274,218 2,265 18,300 --
Preferred stock conversion (70,018) (250) 99,202 176 74 --
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 -- -- 9,784 18 1,745 161
Other transactions -- -- -- -- (513) --
Other comprehensive loss -- -- -- -- -- --
-------------------------------------------------------------------------------------
Balance at December 31, 1996 490,135 $ 4,126 47,508,148 $ 84,470 $ 400,627 $ 223,411
=====================================================================================
Net income -- -- -- -- -- 83,995
Cash dividends - common -- -- -- -- -- (32,199)
Cash dividends - preferred -- -- -- -- -- (650)
3% Stock Dividend -- -- 321,046 570 9,859 (45,066)
5% Stock Dividend -- -- 231,905 412 5,931 (6,343)
Preferred Stock Dividend 36,048 13 -- -- 454 (467)
Preferred Stock Offering 13,477 5 -- -- 101 --
Shares issued for:
Stock options exercised -- -- 68,852 122 (5,956) --
Warrants exercised -- -- -- -- (48) --
Dividend reinvestment and stock
reinvestment plan -- -- 10,294 18 292 --
Preferred stock conversion (524,792) (4,014) 175,152 311 (36,645) --
Redemption of Preferred Stock (13,618) (5) 979 2 (140) --
Acquire minority interest -- -- 470,659 837 7,917 --
Cash in lieu of fractional shares -- -- -- -- (97) --
Purchase of treasury stock -- -- -- -- -- --
Effect of compensation plans -- -- 18,589 34 1,372 6
Other comprehensive income -- -- -- -- -- --
-------------------------------------------------------------------------------------
Balance at December 31, 1997 1,250 $ 125 48,805,624 $ 86,776 $ 383,667 $ 222,687
=====================================================================================
Net income -- -- -- -- -- 26,751
IBSF Fiscal Year Adjustment -- -- -- -- -- 1,539
Cash dividends - common -- -- -- -- -- (39,706)
3% Stock Dividend -- -- 82,629 147 270 (41,851)
Stock Split -- -- 4,057,468 7,214 (3,067) (4,147)
Shares Issued for:
Stock options exercised -- -- 582,159 1,035 (6,282) --
Warrants exercised -- -- 7,158 13 (97) --
Dividend reinvestment and stock
reinvestment plan -- -- 4,893 9 161 --
Preferred stock conversion (750) (75) 16,608 30 (130) --
Cash in lieu of fractional shares -- -- -- -- (212) (4)
Other transactions -- -- 3,750 7 (7) --
Purchase of treasury stock -- -- -- -- -- --
Issuance and retirement of
treasury stock -- -- (989,058) (1,759) (18,930) --
Effect of compensation plans -- -- (783) (2) 5,248 --
Other comprehensive income -- -- -- -- -- --
-------------------------------------------------------------------------------------
Balance at December 31, 1998 500 $ 50 52,570,448 $ 93,470 $ 360,621 $ 165,269
=====================================================================================
<CAPTION>
EMPLOYEE
STOCK AWARDS
AND
UNALLOCATED ACCUMULATED
SHARES HELD OTHER
(IN THOUSANDS, EXCEPT SHARE DATA) TREASURY IN ESOP, AT COMPREHENSIVE
STOCK COST INCOME TOTAL
--------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 $ (21,287) $ (15,171) $ 2,762 $ 668,099
========================================================
Net income -- -- -- 47,304
Cash dividends - common -- -- -- (25,278)
Cash dividends - preferred -- -- -- (825)
3% Stock Dividend 27,028 -- -- --
Preferred Stock Dividend -- -- -- --
Shares issued for:
Stock options exercised 1,194 -- -- 2,163
Warrants exercised 74 -- -- 1,412
Dividend reinvestment and stock
reinvestment plan -- -- -- 323
Common stock offering -- -- -- 20,565
Preferred stock conversion -- -- -- --
Cash in lieu of fractional shares -- -- -- (34)
Issuance and retirement of
treasury stock 7,906 -- -- --
Purchase of treasury stock (40,004) -- -- (40,004)
Effect of compensation plans (2) 3,191 -- 5,113
Other transactions -- -- (513) (513)
Other comprehensive loss -- -- (5,590) (5,590)
--------------------------------------------------------
Balance at December 31, 1996 $ (25,091) $ (11,980) $ (2,828) $ 672,735
========================================================
Net income -- -- -- 83,995
Cash dividends - common -- -- -- (32,199)
Cash dividends - preferred -- -- -- (650)
3% Stock Dividend 34,723 -- -- 86
5% Stock Dividend -- -- -- --
Preferred Stock Dividend -- -- -- --
Preferred Stock Offering -- -- -- 106
Shares issued for:
Stock options exercised 10,380 -- -- 4,546
Warrants exercised 65 -- -- 17
Dividend reinvestment and stock
reinvestment plan -- -- -- 310
Preferred stock conversion 40,348 -- -- --
Redemption of Preferred Stock -- -- -- (143)
Acquire minority interest -- -- -- 8,754
Cash in lieu of fractional shares -- -- -- (97)
Purchase of treasury stock (83,614) -- -- (83,614)
Effect of compensation plans 300 2,371 -- 4,083
Other comprehensive income -- -- 9,880 9,880
--------------------------------------------------------
Balance at December 31, 1997 $ (22,889) $ (9,609) $ 7,052 $ 667,809
========================================================
Net income -- -- -- 26,751
IBSF Fiscal Year Adjustment -- -- -- 1,539
Cash dividends - common -- -- -- (39,706)
3% Stock Dividend 41,434 -- -- --
Stock Split -- -- -- --
Shares Issued for:
Stock options exercised 18,548 -- -- 13,301
Warrants exercised 173 -- -- 89
Dividend reinvestment and stock
reinvestment plan -- -- -- 170
Preferred stock conversion 175 -- -- --
Cash in lieu of fractional shares -- -- -- (216)
Other transactions -- -- -- --
Purchase of treasury stock (70,138) -- -- (70,138)
Issuance and retirement of
treasury stock 20,689 -- -- --
Effect of compensation plans 2,189 7,241 -- 14,676
Other comprehensive income -- -- 5,650 5,650
--------------------------------------------------------
Balance at December 31, 1998 $ (9,819) $ (2,368) $ 12,702 $ 619,925
========================================================
</TABLE>
See Notes to Supplemental Consolidated Financial Statements.
<PAGE>
HUDSON UNITED BANCORP AND SUBSIDIARIES
SUPPLEMENTAL 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 $ 26,751 $ 83,995 $ 47,304
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for possible loan losses 35,607 24,442 29,060
Provision for depreciation and amortization 23,887 22,341 21,959
Amortization of security premiums, net 2,344 2,799 5,507
Securities gains (4,474) (9,445) (2,015)
Loss (gain) on sale of premises and equipment 1,964 113 (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
IBSF Fiscal Year Adjustment 1,539 -- --
Mortgage Loans Originated For Sale (203,172) (118,022) (159,027)
Mortgage Loan Sales 192,899 113,945 173,864
Deferred income tax provision (benefit) 1,750 9,675 1,126
Net (increase) decrease in assets held for sale (14,147) 456 (263)
(Increase) decrease in other assets (14,036) (7,647) 15,450
Increase (decrease) in other liabilities 179,872 11,913 (38)
-----------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 254,595 135,380 134,917
-----------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investment securities available for sale 479,997 464,288 460,776
Proceeds from repayments and maturities of investment securities:
Available for sale 996,197 456,502 348,634
Held to maturity 532,366 257,875 631,383
Purchases of investment securities:
Available for sale (1,861,926) (920,556) (1,200,149)
Held to maturity (684,718) (235,873) (676,661)
Net cash acquired through acquisitions 231,417 -- 459,046
Increase in loans other than purchases and sales (108,014) (212,042) (404,710)
Loans purchased -- (29,704) --
Loans sold 129,842 127,204 91,184
Proceeds from sales of premises and equipment 124 702 1,480
Purchases of premises and equipment (14,646) (16,830) (17,491)
Decrease in other real estate owned 11,047 11,910 16,750
-----------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (288,314) (96,524) (289,758)
-----------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand deposits 113,215 52,832 (35,685)
Net decrease in NOW and savings accounts (196,879) 10,860 (67,047)
Net (decrease) increase in certificates of deposit (262,524) 21,084 (22,242)
Net increase in borrowings 69,240 226,269 152,780
Reduction of ESOP loan 853 696 837
Net Proceeds from issuance of debt 45,987 74,513 96,738
Net Proceeds from the issuance of common stock 13,560 14,114 24,100
Termination of ESOP Plan 10,220 -- --
Cash dividends paid (39,706) (32,849) (26,103)
Purchase of stock for pension plan (341) -- --
Acquisition of treasury stock (70,138) (83,614) (40,004)
-----------------------------------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (316,513) 283,905 83,374
-----------------------------------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (350,232) 322,761 (71,467)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 729,511 406,750 478,217
-----------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 379,279 $ 729,511 $ 406,750
=========================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest $ 292,807 $ 287,881 $ 266,064
Income taxes 27,684 35,874 27,444
Liabilities assumed in purchase business combinations and branch acquisitions 342,720 -- 763,580
=========================================
</TABLE>
See Notes to Supplemental Consolidated Financial Statements.
<PAGE>
NOTES TO SUPPLEMENTAL CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 1998 (IN THOUSANDS, EXCEPT SHARE DATA)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Hudson United Bancorp (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, New York and
Pennsylvania. 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 Hudson United
Bancorp and its subsidiaries, all of which are wholly owned. The financial
statements of institutions acquired which have been accounted for by the pooling
of interests method are included herein for all periods presented.
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent liabilities, as of the date of the
financial statements and revenues and expenses for the period. Actual results
could differ significantly from those estimates.
All significant intercompany accounts and transactions are eliminated in
consolidation.
SECURITIES
The Company classifies its securities as held to maturity, available for sale
and held for trading purposes. Securities for which the Company has the ability
and intent to hold until maturity are classified as held to maturity. These
securities are carried at cost adjusted for amortization of premiums and
accretion of discounts on a straight-line basis which is not materially
different from the interest method. Management reviews its intent to hold
securities to maturity as a result of changes in circumstances, including major
business combinations. Sales or transfers of held to maturity securities may be
necessary to maintain the Company's existing interest rate risk position or
credit risk policy.
Securities which are held for indefinite periods of time which management
intends to use as part of its asset/liability management strategy, or that may
be sold in response to changes in interest rates, changes in prepayment risk,
increases in capital requirements or other similar factors, are classified as
available for sale and are carried at fair value. Differences between available
for sale securities' amortized cost and fair value are charged/credited directly
to stockholders' equity, net of income taxes. The cost of securities sold is
determined on a specific identification basis. The Company had no securities
held for trading purposes at December 31, 1998 and 1997.
Security purchases and sales are recorded on the trade date.
MORTGAGE LOANS AND ASSETS HELD FOR SALE
Mortgages held for sale are recorded at cost, which approximates market. These
mortgages are typically sold within three months of origination without
recourse. Assets held for sale are carried at lower of cost or market.
LOANS
Loans are recorded at their principal amounts outstanding. Interest income on
loans not made on a discounted basis is credited to income based on principal
amounts outstanding at applicable interest rates. Interest income on consumer
credit loans is recorded primarily using the simple interest method.
Recognition of interest on the accrual method is discontinued when, based on
contractual delinquency, timely payment is not expected. A nonaccrual loan is
not returned to an accrual status until interest is received on a current basis
and other factors indicate that collection of principal and interest is no
longer doubtful.
The net amount of all loan origination fees, direct loan origination costs and
loan commitment fees are deferred and recognized over the estimated life of the
related loans as an adjustment of yield.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance is maintained at a level believed adequate by management to absorb
potential losses in the loan portfolio. Management's determination of the
adequacy of the allowance is based on an evaluation of the portfolio, past loan
loss experience, current economic conditions, volume, growth and composition of
the loan portfolio and other relevant factors. The allowance is increased by
provisions charged to expense and reduced by net charge-offs.
In accordance with SFAS 114, "Accounting by Creditors for Impairment of a Loan"
and SFAS 118," Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosure," a loan is deemed impaired when, based on current
information and events, it is probable that the Company will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. These accounting standards require that the measurement of impairment
of a loan be based on either: the present value of expected future cash flows,
net of estimated costs to sell, discounted at the loan's effective interest
rate; a loan's observable market price; or the fair value of collateral, if the
loan is collateral dependent. If the measure of the impaired loan is less than
the recorded investment in the loan, the Company will be required to establish a
valuation allowance, or adjust existing valuation allowances, with a
corresponding charge or credit to the provision for possible loan losses. The
valuation allowance, if any, is maintained as part of the allowance for possible
loan losses. The Company's process of identifying impaired loans is conducted as
part of its review for the adequacy of the allowance for possible loan losses.
While management uses available information to recognize potential losses on
loans, future additions to the allowance may be necessary based on changes in
economic conditions, particularly in its market areas. In addition, various
regulatory agencies, as an integral part of their examination processes,
periodically review the allowance for possible loan losses of subsidiary banks.
Such agencies may require additions to the allowance based on their judgments of
information available to them at the time of their examinations.
PREMISES AND EQUIPMENT
Land, buildings and furniture, fixtures and equipment are carried at cost.
Depreciation on substantially all buildings and furniture, fixtures and
equipment is provided using the straight-line method based on estimated useful
lives ranging from 3-25 years. Maintenance and repairs are expensed as incurred
and additions and improvements are capitalized.
OTHER REAL ESTATE OWNED
Other real estate owned (OREO) includes loan collateral that has been formally
repossessed. These assets are transferred to OREO and recorded at the lower of
carrying cost or fair value of the properties. Subsequent provisions that result
from ongoing periodic evaluations of these OREO properties are charged to
expense in the period in which they are identified. OREO is carried at the lower
of cost or fair value, less estimated costs to sell. Carrying costs, such as
maintenance and property taxes, are charged to expense as incurred.
INVESTMENT IN JOINT VENTURE
The Company owns 50% of the common stock of United Financial Services, a
third-party data processing service provider.
The investment is being accounted for by the equity method.
<PAGE>
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 (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 the Company, it is unlikely that the Company would
have established these valuation allowances with respect to its deferred tax
assets had the companies previously been combined. Accordingly, the accompanying
financial statements (including quarterly financial information in Note 21) have
been restated to reflect what the changes to the valuation allowance would have
been had the companies always been combined.
TREASURY STOCK
The Company determines the cost of treasury shares under the weighted-average
cost method.
STOCK-BASED COMPENSATION
Effective January 1, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation." This statement establishes financial accounting and
reporting standards for stock-based employee compensation plans and allows
companies to choose either: 1 ) a fair value method of valuing stock-based
compensation plans which will affect reported net income; or 2) to continue
following the existing accounting rules for stock option accounting but disclose
what the impact would have been had the new standard been adopted. The Company
elected the disclosure option of this standard. See Note 15.
TRANSFERS & SERVICING OF FINANCIAL ASSETS
Effective January 1, 1997, the Company adopted SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities."
This statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. Such standards
are based on consistent application of a financial-components approach that
focuses on control. Under that approach, after a transfer of financial assets,
an entity recognizes the financial and servicing assets it controls and the
liabilities it has incurred, derecognizes financial assets when control has been
surrendered, and derecognizes liabilities when extinguished. This statement
provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are secured borrowings. The adoption of the
standard did not have a material impact on the Company's financial position or
results of operations.
PER SHARE AMOUNTS
In the fourth quarter of 1997, the Company adopted SFAS No. 128, "Earnings per
Share." This statement establishes standards for computing and presenting
earnings per share and requires dual presentation of basic and diluted earnings
per share.
Basic earnings per common share is computed by dividing net income, less
dividends on the convertible preferred stock, by the weighted average number of
common shares outstanding during the year. Diluted earnings per share is
computed by dividing net income by the weighted average number of common shares
plus the number of shares issuable upon conversion of the preferred stock and
the incremental number of shares issuable from the exercise of stock options and
warrants calculated using the treasury stock method. All per share amounts have
been retroactively adjusted for the three-for-two common stock split on January
14, 1995 and for all stock dividends. All prior annual and interim periods
presented have been restated in the new format.
RECENT ACCOUNTING STANDARDS
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
United Bank, 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 adoption of the 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.
(2) BUSINESS COMBINATIONS
The following business combinations have been accounted for using the pooling of
interests method-
<PAGE>
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.
On November 30, 1999, the Company acquired all the outstanding shares of
JeffBanks, Inc. ("Jeff") based in Philadelphia, Pennsylvania. Each share of Jeff
common stock was converted into .9785 shares of the Company's common stock for a
total of 10,863,069 shares. At the time of the acquisition, Jeff had
approximately $1.8 billion in assets.
On December 1, 1999, the Company acquired all the outstanding shares of Southern
Jersey Bancorp ("SJB") based in Bridgeton, New Jersey. Each share of SJB common
stock was converted into 1.2978 shares of the Company's common stock for a total
of 1,467,405 shares.
At the time of the acquisition, SJB had approximately $425 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-
1998 1997
------------------------
Net interest income-
The Company, as previously
reported (1) $ 254,194 $ 139,110
BOS -- 6,733
PFC -- 27,448
MSB -- 24,484
CFHC -- 6,316
IBS -- 22,623
DFC -- 28,221
JEFF 59,773 54,968
SJB 14,883 16,641
------------------------
$ 328,850 $ 326,544
========================
Net income
The Company, as previously
reported (1) $ 23,151 $ 48,180
BOS -- 327
PFC(2) -- 2,429
MSB -- 2,281
CFHC -- 630
IBS -- 5,806
DFC(2) -- 10,174
JEFF 11,432 13,331
SJB (7,832) 837
------------------------
$ 26,751 $83,995
========================
(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.
(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.
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
<PAGE>
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 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.
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 $69.2 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 ($29.5
million), branch closing, fixed assets disposition and other occupancy related
costs ($13.2 million), professional services ($13.6 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 $26.6 million.
(4) INVESTMENT SECURITIES
The amortized cost and estimated market value of Investment Securities as of
December 31, are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1998
-------------------------------------------------------
GROSS UNREALIZED ESTIMATED
AMORTIZED --------------------------- MARKET
COST GAINS (LOSSES) VALUE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Government $ 108,036 $ 1,940 $ -- $ 109,976
U.S. Government agencies 425,610 3,555 (59) 429,106
Mortgage-backed
securities 1,888,149 14,984 (4,956) 1,898,177
States and political
subdivisions 87,132 3,047 (114) 90,065
Other debt securities 20,690 152 (58) 20,784
Equity securities 110,403 2,471 (674) 112,200
-------------------------------------------------------
$ 2,640,020 $ 26,149 $ (5,861) $ 2,660,308
=======================================================
HELD TO MATURITY
U. S. Government $ 42,373 $ 393 $ -- $ 42,766
U. S. Government agencies 37,360 1,462 -- 38,822
States and political
subdivisions 16,190 204 (4) 16,390
Mortgage-backed
securities 539,725 2,277 (717) 541,285
-------------------------------------------------------
$ 635,648 $ 4,336 $ (721) $ 639,263
=======================================================
<CAPTION>
1997
-------------------------------------------------------
GROSS UNREALIZED ESTIMATED
AMORTIZED --------------------------- MARKET
COST GAINS (LOSSES) VALUE
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
U. S. Government $ 156,977 $ 1,155 $ (342) $ 157,790
U. S. Government agencies 345,495 1,987 (335) 347,147
Mortgage-backed
securities 1,221,415 5,997 (4,106) 1,223,306
States and political
subdivisions 61,834 1,998 (27) 63,805
Other debt securities 44,592 374 (8) 44,958
Equity securities 58,559 4,925 (62) 63,422
-------------------------------------------------------
$ 1,888,872 $ 16,436 $ (4,880) $ 1,900,428
=======================================================
HELD TO MATURITY
U. S. Government $ 54,093 $ 611 $ (22) $ 54,682
U. S. Government agencies 269,566 1,799 (515) 270,850
State and political
subdivisions 42,200 694 (1) 42,893
Mortgage-backed
securities 442,199 7,827 (1,937) 448,089
Other debt securities 12,870 48 (37) 12,881
-------------------------------------------------------
$ 820,928 $ 10,979 $ (2,512) $ 829,395
=======================================================
</TABLE>
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 $ 92,983 $ 93,300
Due after one year through five years 341,436 345,921
Due after five years through ten years 116,254 117,759
Due after ten years 90,795 92,951
--------------------------
641,468 649,931
Mortgage-backed securities 1,888,149 1,898,177
Equity securities 110,403 112,200
--------------------------
$2,640,020 $2,660,308
==========================
HELD TO MATURITY
Due in one year or less $ 51,146 $ 51,549
Due after one year through five years 12,985 13,206
Due after five years through ten years 31,547 32,960
Due after ten years 245 263
--------------------------
95,923 97,978
Mortgage-backed securities 539,725 541,285
--------------------------
$ 635,648 $ 639,263
==========================
Sales of securities for the years ended December 31, are summarized as follows
(in thousands):
1998 1997 1996
-----------------------------------------
Proceeds from sales $ 479,997 $ 464,288 $ 460,776
Gross gains from sales 5,342 9,939 3,417
Gross losses from sales (868) (494) (1,402)
Securities with a book value of $496.2 million and $621.5 million at December
31, 1998 and 1997, respectively, were pledged to secure public funds, repurchase
agreements and for other purposes as required by law.
<PAGE>
(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 $ 85,230 $ 81,979 $ 79,968
Additions (deductions):
Provision charged to expense 35,607 24,442 29,060
Allowance acquired through
mergers or acquisitions 1,950 2,800 4,658
Recoveries on loans previously
charged off 6,101 10,107 7,338
Loans charged off (1) (52,845) (34,098) (39,045)
----------------------------------
Balance at December 31 $ 76,043 $ 85,230 $ 81,979
==================================
1) INCLUDES $9,521 WRITEDOWN ON ASSETS HELD FOR SALE IN 1998.
<PAGE>
The following table presents information related to loans which are on
nonaccrual, contractually past due ninety days or more as to interest or
principal payments and loans which have been restructured to provide a reduction
or deferral of interest or principal for reasons related to the debtors'
financial difficulties.
(in thousands) DECEMBER 31,
------------------------------
1998 1997
- -------------------------------------------------------------------------------
Nonaccrual loans $46,178 $64,766
Renegotiated loans 5,632 19,054
------------------------------
Total nonperforming loans $51,810 $83,820
==============================
90 days or more past due and still
accruing $21,261 $24,349
==============================
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
-------------------------------
Gross interest income which would have
been recorded under original terms $ 8,012 $ 6,341 $ 6,815
===============================
Gross interest income recorded during
the year $ 685 $ 1,454 $ 1,969
===============================
At December 31, 1998 and 1997 impaired loans, comprised principally of
nonaccruing loans, totaled $38.4 million and $42.9 million, respectively. The
allowance for possible loan losses related to such impaired loans was $9.9
million and $4.9 million at December 31, 1998 and 1997, respectively. The
average balance of impaired loans for 1998 and 1997 was $41.3 million and $38.5
million, respectively.
(7) LOANS TO RELATED PARTIES
In the ordinary course of business, subsidiary banks have extended credit to
various directors, officers and their associates.
The aggregate loans outstanding to related parties are summarized below for the
year ended December 31, 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 $ 20,175 $ 19,262
Premises 106,698 102,144
Furniture, fixtures and equipment 90,108 88,124
--------------------------
216,981 209,530
Less- Accumulated depreciation (102,377) (101,148)
--------------------------
$ 114,604 $ 108,382
==========================
Depreciation and amortization expense for premises and equipment for 1998, 1997
and 1996 amounted to $11.6 million, $11.8 million and $11.5 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 $ 15,614 $ 31,874 $ 24,233
Deferred 1,750 9,675 1,126
State (380) 7,516 3,645
-------------------------------------
Total provision for income
taxes $ 16,984 $ 49,065 $ 29,004
=====================================
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 $ 15,281 $ 46,390 $ 26,548
Increase (decrease) in taxes
resulting from-
Tax-exempt income (4,180) (1,740) (1,370)
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 898 (554) (1,068)
----------------------------------
Provision for income taxes $ 16,984 $ 49,065 $ 29,004
==================================
Significant components of deferred tax assets and liabilities are as follows (in
thousands):
DECEMBER 31,
1998 1997
- -------------------------------------------------------------------------------
Deferred Tax Assets (Liabilities):
Allowance for possible loan losses $ 25,159 $ 26,729
Federal and state tax operating loss carry
forwards 5,847 15,315
Director/Officer Compensation Plans 1,340 2,026
Allowance for Losses on OREO 2,152 1,459
Depreciation (5,432) (2,576)
Accumulated Other Comprehensive
Income (7,038) (7,904)
Acquisition Related Expenses 4,710 3,081
Other 14,367 7,783
----------------------
Net Deferred Tax Asset $ 41,105 $ 45,913
======================
<PAGE>
Management periodically evaluates the realizability of its deferred tax asset
and will adjust the level of the valuation allowance if it is deemed more likely
than not that all or a portion of the asset is realizable. There was no
valuation allowance as of December 31, 1998.
The following represents the tax impact of unrealized securities gains (losses):
For the year ended
December 31, 1998
----------------------------------
Before Net of
tax Tax Tax
Amount Expense Amount
----------------------------------
Unrealized holding gains
arising during period $13,224 $(4,716) $ 8,508
Less: reclassification for
gains realized in Net Income 4,474 (1,616) 2,858
---------------------------------
Net change during period $ 8,750 $(3,100) $ 5,650
---------------------------------
For the year ended
December 31, 1997
----------------------------------
Before Net of
tax Tax Tax
Amount Expense Amount
----------------------------------
Unrealized holding gains
arising during period $25,350 $(9,715) $15,635
Less: reclassification for
gains realized in Net Income 9,445 (3,690) 5,755
---------------------------------
Net change during period $15,905 $(6,025) $ 9,880
=================================
For the year ended
December 31, 1996
----------------------------------
Before Net of
tax Tax Tax
Amount Expense Amount
----------------------------------
Unrealized holding gains
(losses) arising during
period $(4,140) $ (189) $(4,329)
Less: reclassification for
gains realized in Net Income 2,015 (754) 1,261
---------------------------------
Net change during period $(6,155) $ 565 $(5,590)
=================================
(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 $ 35,575 $ 28,967
Service cost 1,437 1,583
Interest cost 2,364 2,050
Actuarial gain 291 2,078
Benefits paid (2,297) (2,279)
-------- --------
Benefit obligation at end of year $ 37,370 $ 32,399
======== ========
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of
year $ 39,965 $ 36,195
Actual return on plan assets 3,764 5,809
Employer contribution -- 240
Benefits paid (2,297) (2,279)
-------- --------
Fair value of plan assets at end of year $ 41,432 $ 39,965
======== ========
PREPAID PENSION COST CONSISTS OF THE
FOLLOWING AS OF DECEMBER 31 (in thousands):
Funded status $ 4,061 $ 7,566
Unrecognized net transition obligation (486) (647)
Unrecognized net actuarial loss (247) (611)
Unrecognized prior service cost (298) (3,413)
-------- --------
Prepaid pension cost $ 3,030 $ 2,895
======== ========
Assumptions used by the Company in the accounting for its plans in 1998 and 1997
were:
WEIGHTED AVERAGE ASSUMPTIONS AS OF
DECEMBER 31 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 3.5-4.5% 3.5-4.5%
COMPONENTS OF NET PERIODIC
BENEFIT COST (in thousands): 1998 1997 1996
- -------------------------------------------------------------------------------
Service cost $ 1,437 $ 1,583 $ 1,445
Interest cost 2,364 2,050 2,208
Expected return on plan assets (3,137) (2,857) (3,825)
Net Amortization and deferral (118) (92) 1,188
-----------------------------------
Net periodic benefit cost $ 546 $ 684 $ 1,016
===================================
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 $1.4, $1.1 and $1.0 million in 1998, 1997 and 1996, respectively.
Except for the pension plans, the Company does not provide any significant
post-retirement benefits.
(11) DEPOSITS
The aggregate amount of short-term jumbo certificates of deposit, each with a
minimum denomination of $100,000, was approximately $483.8 million and $495.6
million at December 31, 1998 and 1997, respectively.
<PAGE>
The scheduled maturities of certificates of deposit are as follows at December
31, 1998 (in thousands):
3 months or less $ 835,558
Greater than 3 months to 1 year 1,529,313
Greater than 1 year to 3 years 428,956
Greater than 3 years 147,999
----------
$2,941,826
==========
(12) BORROWINGS
The following is a summary of borrowings at December 31 (in thousands):
1998 1997
Federal Home Loan Bank advances $524,444 $455,330
Securities sold under agreements to repurchase 271,558 437,813
Federal funds purchased 150,600 --
Treasury, Tax and Loan note 16,394 2,574
Other borrowings 7,414 5,110
---------------------
Total borrowings $970,410 $900,827
=====================
Maturity distribution of borrowings at December 31, 1998 (in thousands):
1999 $802,430
2000 54,000
2001 28,759
2002 29,000
2003 39,187
2004 10,182
2008 6,852
--------
Total $970,410
========
Information concerning securities sold under 1998 1997
agreements to repurchase and FHLB advances
is summarized as follows (in thousands):
- -------------------------------------------------------------------------------
Average daily balance during the year $ 732,188 $ 648,392
Average interest rate during the year 5.57% 5.61%
Maximum month-end balance during the year 1,063,419 958,110
Investment securities underlying the repurchase agreements at December 31 (in
thousands):
1998 1997
- --------------------------------------------------------------------------------
Carrying value $351,404 $460,210
Estimated fair value 352,657 $461,676
(13) SUBORDINATED DEBT
In September 1996, the Company sold $75.0 million aggregate principal amount of
subordinated debentures. The debentures, which mature in 2006, bear interest at
8.20% per annum payable semiannually. In January, 1994, the Company sold $25.0
million aggregate principal amount of subordinated debentures. The debentures,
which mature in 2004, bear interest at 7.75% per annum payable semi-annually. In
March 1996, the Company issued $23.0 million aggregate principal amount of
subordinated debentures which mature in 2006 and bear interest at 8.75% per
annum payable semi-annually. These notes are redeemable at the option of the
Company, in whole or in part, at any time after April 1, 2001, at their stated
principal amount plus accrued interest, if any. In February 1993, the Company
issued $9.0 million aggregate principal amount of subordinated debentures which
mature in 2003 and bear interest at 9.5% per annum payable semi-annually. These
notes are redeemable at the option of the Company, in whole or in part, at any
time after February 15, 2000, at their stated principal amount plus accrued
interest, if any. Proceeds of the above issuances were used for general
corporate purposes including providing Tier I capital to the subsidiary banks.
The debt has been structured to comply with the Federal Reserve Bank rules
regarding debt qualifying as Tier 2 capital at the Company.
(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 the Company.
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
<PAGE>
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 the Company.
On February 5, 1997, the Company placed $25.0 million in aggregate liquidation
amount of 9.25% Capital Securities due March 2027, using JBI 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 $25.3 million principal amount of 8.98% Junior Subordinated
Debentures due 2027 of the Company. The 8.98% Trust preferred securities are
callable by the Company on or after March 31, 2002, or earlier in the event the
deduction of related interest for federal income taxes is prohibited, treatment
as Tier I capital is no longer permitted or certain other contingencies arise.
The net proceeds of the 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. On December 1, 1999, the Company paid a 3% stock dividend to stockholders
of record on November 26, 1999. As a result, all share data has been
retroactively restated.
In December 1996, as part of the Westport acquisition, the Company converted all
outstanding preferred shares of Westport into a new class of preferred stock.
Holders of the preferred stock are entitled to dividends when and if declared by
the Company's Board of Directors. Each share of the preferred stock is
convertible at any time at the option of the holder thereof into 33,217 shares
of common stock, subject to certain adjustments. Each share is entitled to
33.2175 votes.
In July 1996, as part of the Lafayette acquisition, the Company converted all
outstanding Lafayette warrants in Hudson United Bancorp warrants. Each Hudson
United Bancorp warrant is exercisable at $6.85 for one share of Hudson United
Bancorp 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, IBS, and JEFF acquisitions, all of the
outstanding PFC, MSB, DFC, IBS, and JEFF options were converted into options to
purchase common stock of the Company. Transactions under these plans are
summarized as follows:
<PAGE>
NUMBER OF OPTION PRICE
SHARES PER SHARE
- --------------------------------------------------------------------------------
Outstanding, December 31, 1996 3,743,811 $ 3.44-$21.98
Granted 824,965 $15.37-$32.82
Exercised (525,162) $ 5.67-$17.02
Forfeited/Cancelled (32,369) $13.08-$22.28
----------------------------------
Outstanding, December 31, 1997 4,011,245 $ 3.44-$32.82
----------------------------------
Granted 418,702 $26.88-$34.89
Exercised (1,417,411) $ 3.44-$28.66
Forfeited/Cancelled (36,118) $11.74-$32.83
----------------------------------
Outstanding, December 31, 1998 2,976,419 $ 4.86-$34.89
----------------------------------
As of December 31, 1998, 2,695,629 shares are exercisable. In connection with
the BOS, CNB, and SJB acquisitions, the Company issued Hudson United Bancorp
common shares to the holders of options to purchase BOS, CNB, and SJB common
stock, the value of which was based on the value of the options on the date of
acquisition.
The Company applies APB Opinion 25 and related Interpretations in accounting for
its plan. Accordingly, no compensation cost has been recognized. Had
compensation cost been determined based on the fair value at the grant dates for
awards under those plans consistent with the method of SFAS No. 123, the
Company's net income and income per share would have been reduced to the
proforma amounts indicated below (in thousands, except share data):
1998 1997 1996
- --------------------------------------------------------------------------------
Net income As reported $ 26,751 $ 83,995 $ 47,304
Pro forma 24,730 81,122 45,819
Basic earnings per share As reported $ 0.50 $ 1.55 $ 0.86
Pro forma 0.46 1.50 0.84
Diluted earnings per As reported $ 0.49 $ 1.48 $ 0.83
share
Pro forma 0.45 1.43 0.80
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 2.59% to 4.35% for 1998 and 1.80% to 3.36% for 1997;
risk-free interest rates of 5.00% to 5.37% 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 22% to 29% in 1998 and 15% to 37% in 1997 and an expected life of
7 to 10 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) thousand and ($444) thousand 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 three Employee Stock Ownership Plans (ESOP) which were
originally established by MSB and IBS, and Jeff. 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 are 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 may be 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.
On November 8, 1993, the Company's Board of Directors authorized management to
repurchase up to 10 percent of its outstanding common stock each year. The
program may be discontinued or suspended at any time, and there is no assurance
that the Company will purchase the full amount authorized. The acquired shares
are to be held in treasury to be used for stock option and other employee
benefit plans, stock dividends, 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 $70.1 million. Most of these shares were reissued during 1998,
primarily in connection with the 3% stock dividend and the exercise of stock
options.
(16) EARNINGS PER SHARE
In the fourth quarter of 1997, the Company adopted SFAS No. 128, "Earnings Per
Share." This statement established standards for computing and presenting
earnings per share and requires dual presentation of basic and diluted earnings
per share. A reconciliation of net income to net income available to common
stockholders and of weighted average common shares outstanding to weighted
average common shares outstanding assuming dilution follows (in thousands,
except share data):
Year Ended
December 31,
-------------------------------
1998 1997 1996
-------------------------------
Basic Earnings Per Share
Net income $26,751 $83,995 $47,304
Less: Preferred stock dividends 0 1,117 967
-------------------------------
Net income available to common
stockholders $26,751 $82,878 $46,337
Weighted average common shares
outstanding 53,380 53,488 53,690
Basic Earnings Per Share $ 0.50 $ 1.55 $ 0.86
===============================
Diluted Earnings Per Share
Net income $26,751 $83,995 $47,304
Less: Preferred stock dividends 0 467 142
-------------------------------
Net income available to shareholders $26,751 $83,528 $47,162
Weighted average common shares
outstanding 53,380 53,488 53,690
Effect of Dilutive Securities:
Convertible Preferred Stock 23 1,038 1,395
Warrants 23 38 44
Unearned MRP -- 180 252
Stock Options 1,727 1,764 1,467
-------------------------------
55,153 56,508 56,848
Diluted Earnings Per Share $ 0.49 $ 1.48 $ 0.83
===============================
(17) RESTRICTIONS ON BANK DIVIDENDS, LOANS OR ADVANCES
Certain restrictions exist regarding the ability of Hudson, Lafayette, and Bank
of the Hudson to transfer funds to the Company in the form of cash dividends,
loans or advances. New Jersey state banking regulations allow for the payment of
dividends in any amount
<PAGE>
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 Bank of the Hudson, 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, $368.1 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 was available
for distribution to the Company from Bank of the Hudson.
Under Federal Reserve regulations, each of the Banks is limited as to the
amounts it may loan to its affiliates, including the Company. All such loans are
required to be collateralized by specific obligations. During 1994, the Company
obtained a loan from Hudson United Bank for $4 million in order to finance the
purchase of its administrative facility. The loan has been collateralized by the
property.
In conformity with the OTS regulations, a "liquidation account" was established
for Bank of the Hudson and acquired banks at the time of their conversion to the
stock form of ownership. In the unlikely event of a complete liquidation of Bank
of the Hudson, holders of savings accounts with qualifying deposits, who
continue to maintain their savings accounts, would be entitled to a distribution
from the "liquidation account" in an amount equal to their then current adjusted
savings account balance before any liquidation distribution could be made with
respect to capital stock. The balance in the "liquidation account" was $12.3
million at December 31, 1998, for Bank of the Hudson. This amount may not be
utilized for the payment of cash dividends to the Company.
(18) LEASES
Total rental expense for all leases amounted to approximately $12.7 million,
$8.3 million and, $8.8 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 $ 7,706
2000 6,830
2001 6,125
2002 5,269
2003 and Thereafter 19,182
It is expected that in the normal course of business, leases that expire will be
renewed or replaced by leases of other properties.
(19) COMMITMENTS AND CONTINGENT LIABILITIES
The Company and its subsidiaries, from time to time, may be defendants in legal
proceedings. In the opinion of management, based upon consultation with legal
counsel, the ultimate resolution of these legal proceedings will not have a
material effect on the consolidated financial statements. In the normal course
of business, the Company and its subsidiaries have various commitments and
contingent liabilities such as commitments to extend credit, letters of credit
and liability for assets held in trust which are not reflected in the
accompanying financial statements. Loan commitments, commitments to extend lines
of credit and standby letters of credit are made to customers in the ordinary
course of business. Both arrangements have credit risk essentially the same as
that involved in extending loans to customers and are subject to the Company's
normal credit policies. The Company's maximum exposure to credit loss for loan
commitments, primarily unused lines of credit and standby letters of credit
outstanding at December 31, 1998 was $1.2 billion and $60.6 million,
respectively. Commitments under commercial letters of credit used to facilitate
customers trade transactions were $1.0 million at December 31, 1998.
<PAGE>
(20) HUDSON UNITED BANCORP (PARENT COMPANY ONLY) FINANCIAL INFORMATION
<TABLE>
<CAPTION>
(in thousands) DECEMBER 31,
-------------------
BALANCE SHEETS 1998 1997
-------------------
<S> <C> <C>
ASSETS:
Cash $ 43,670 $ 15,028
Federal Funds 600 --
Securities:
Available for sale 32,551 7,942
Held to maturity 802 903
Investment in subsidiaries 732,434 814,113
Investments in Banks' subordinated notes 23,000 23,000
Accounts receivable 13,526 9,246
Premises and equipment, net 7,387 6,084
Other assets 41,537 11,723
-------------------
TOTAL ASSETS $895,507 $888,039
===================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable $ 15,601 $ 5,293
Notes payable-subsidiaries 2,449 2,822
ESOP obligation -- 182
Dividends payable 4 1,365
Accrued taxes and other liabilities 9,228 9,518
-------------------
27,282 19,180
Subordinated Debt 123,000 125,750
Company-obligated mandatorily redeemable preferred capital
securities of three subsidiary trusts holding solely junior
subordinated debentures of the Company 125,300 75,300
-------------------
TOTAL LIABILITIES 275,582 220,230
Stockholders' equity 619,925 667,809
-------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $895,507 $888,039
===================
</TABLE>
<TABLE>
<CAPTION>
(in thousands) YEAR ENDED DECEMBER 31,
--------------------------------
STATEMENTS OF INCOME 1998 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME:
Cash dividends from bank subsidiaries $ 33,244 $ 54,824 $ 54,045
Interest 4,687 7,934 3,499
Securities gains 3,698 8,601 1,063
Rental income 1,166 1,165 1,093
Other 24,489 12,708 3,063
--------------------------------
67,284 85,232 62,763
EXPENSES:
General and administrative 30,836 21,966 8,829
Interest 19,585 17,829 5,909
--------------------------------
50,421 39,795 14,738
--------------------------------
Income before income taxes and equity in
undistributed net income of subsidiaries 16,863 45,437 48,025
Income taxes (6,529) (2,135) (1,550)
--------------------------------
23,392 47,572 49,575
Equity in undistributed net income of subsidiaries 3,359 36,423 (2,271)
-------- -------- --------
NET INCOME $ 26,751 $ 83,995 $ 47,304
================================
</TABLE>
<PAGE>
HUDSON UNITED BANCORP (PARENT COMPANY ONLY) FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
(in thousands) YEAR ENDED DECEMBER 31,
STATEMENTS OF CASH FLOWS 1998 1997 1996
--------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $ 26,751 $ 83,995 $ 47,304
Adjustments to reconcile net income to net cash provided by (used in) operating
activities-
Amortization and depreciation 701 523 380
Amortization of restricted stock 275 135 424
Securities gains (3,698) (8,601) (1,063)
Equity in undistributed net income 1,071 (6,645) (6,802)
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
(Increase) decrease in other assets (29,789) 3,663 1,076
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 8,066 (6,990) 3,125
--------------------------------
NET CASH PROVIDED (USED IN) OPERATING ACTIVITIES 92,475 32,027 (1,277)
--------------------------------
Investing activities:
Proceeds from sale of securities 13,961 78,174 11,742
Proceeds from maturities of securities 4,895 20,142 20,437
Purchase of securities (39,686) (91,586) (29,253)
Investments in subsidiaries -- (25,300) (23,000)
Net decrease in loans -- -- 426
Capital expenditures (1,985) (3,414) (302)
--------------------------------
NET CASH USED IN INVESTING ACTIVITIES (22,815) (21,984) (19,950)
--------------------------------
Financing activities:
Proceeds from issuance of common stock 13,385 4,756 22,592
Proceeds from issuance of preferred stock -- 106 --
Net proceeds from issuance of capital trust securities 48,737 74,550 --
Net proceeds from issuance of subordinated debt (2,750) -- 96,738
Redemption of preferred stock -- (143) --
Dividends paid (39,706) (32,847) (26,212)
Purchase of treasury stock (70,138) (83,614) (40,004)
Sale of treasury stock 175 306 286
Termination of ESOP 10,220 -- --
Infusion of capital into subsidiary -- 24,018 (33,513)
Other (341) 3,731 5,719
--------------------------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (40,418) (9,137) 25,606
--------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS 29,242 906 4,379
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 15,028 14,122 9,743
--------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 44,270 $ 15,028 $ 14,122
================================
</TABLE>
<PAGE>
(21) SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following quarterly financial information for the two years ended December
31, 1998 and 1997 is unaudited. However, in the opinion of management, all
adjustments, which include only normal recurring adjustments necessary to
present fairly the results of operations for the periods are reflected. Results
of operations for the periods are not necessarily indicative of the results of
the entire year or any other interim period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
(Dollars in thousands) March 31(a) June 30(a) September 30(a) December 31
--------------------------------------------------------
<S> <C> <C> <C> <C>
1998
Net interest income $ 80,917 $ 82,712 $ 83,940 $ 81,281
Provision for possible loan losses 8,444 7,068 8,905 11,190
Income (loss) before income taxes 28,269 8,574 (25,203) 32,095
Net income (loss) 18,205 4,062 (19,924) 24,408
Earnings (loss) per share-basic 0.34 0.08 (0.38) 0.46
Earnings (loss) per share-diluted 0.33 0.07 (0.38) 0.45
1997
Net interest income $ 79,862 $ 82,702 $ 83,147 $ 80,833
Provision for possible loan losses 3,439 3,981 5,693 11,329
Income before income taxes 34,062 35,991 37,776 25,231
Net income 20,953 22,935 23,040 17,067
Earnings per share-basic 0.39 0.42 0.43 0.31
Earnings per share-diluted 0.37 0.40 0.41 0.30
</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.
<PAGE>
(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.
<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 $ 379,279 $ 379,279 $ 729,511 $ 729,511
Investment securities available for sale 2,660,308 2,660,308 1,900,428 1,900,428
Investment securities held to maturity 639,263 635,648 829,395 820,928
</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 4,869,509 $ 4,823,747 $ 4,876,805 $ 4,826,531
</TABLE>
The fair value of demand deposits, savings deposits and certain money market
accounts approximates 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 $6,592,419 $ 6,773,236 $ 6,779,252 $ 6,777,047
</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 the 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 $ 64,370 $ 64,370 $ 56,984 $ 56,984
Cash surrender value of life insurance 22,282 22,282 19,132 19,132
Borrowings 969,215 970,410 901,094 900,827
</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 $ 139,481 132,000 $ 140,358 134,750
Capital Trust Securities 127,512 125,300 78,716 75,300
</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.
<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.
<PAGE>
The Bank's actual capital amounts and ratios at December 31 are presented in the
following table:
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action 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:
Hudson United Bancorp $845,449 16.3% $416,043 >8.0% $520,053 >10.0%
Hudson United Bank 440,666 14.0% 252,749 >8.0% 315,936 >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:
Hudson United Bancorp 647,498 12.5% 208,021 >4.0% 312,032 >6.0%
Hudson United Bank 373,251 11.8% 126,374 >4.0% 189,561 >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:
Hudson United Bancorp 647,498 7.4% 349,028 >4.0% 436,285 >5.0%
Hudson United Bank 373,251 7.7% 193,733 >4.0% 242,167 >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% N/A N/A
Core Capital to Adjusted Total Assets
Bank of the Hudson 93,134 7.2% 38,617 >3.0% 64,362 >5.0%
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
--------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1997:
Total Capital to Risk Weighted Assets:
Hudson United Bancorp $870,825 17.6% $395,885 >8.0% $494,856 >10.0%
Hudson United Bank 513,309 18.1% 227,138 >8.0% 283,923 >10.0%
Lafayette American Bank 198,938 15.8% 100,950 >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:
Hudson United Bancorp 673,929 13.6% 197,942 >4.0% 296,914 >6.0%
Hudson United Bank 443,017 15.6% 113,569 >4.0% 170,354 >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:
Hudson United Bancorp 673,929 8.1% 332,445 >4.0% 415,557 >5.0%
Hudson United Bank 443,017 9.9% 178,410 >4.0% 223,012 >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% N/A N/A
Core Capital to Adjusted Total Assets :
Bank of the Hudson 105,274 6.6% 47,983 >3.0% 79,971 >5.0%
</TABLE>
<PAGE>
(24) SUBSEQUENT EVENTS
On March 20, 1999, the Company acquired Little Falls Bancorp, Inc. in a
combination stock and cash transaction. Little Falls Bancorp, Inc. had assets of
approximately $341 million and operated six offices in the New Jersey counties
of Hunterdon and Passaic. The merger was accounted for under the purchase method
of accounting.
On March 26, 1999, the Company completed its purchase of $151 million in
deposits and a retail branch office in Hartford, Connecticut from First
International Bank.
On September 10, 1999, the Company announced an agreement to acquire Lyon Credit
Corporation, a $350 million asset finance company and subsidiary of Credit
Lyonnais Americas. This acquisition closed on October 22, 1999 and was accounted
for under the purchase method of accounting.
On November 30, 1999, the Company completed its acquisition of Jeffbanks, Inc.
("Jeff"). Jeff was merged into the Company and its wholly-owned subsidiaries
were merged into Hudson United. In the merger, each share of Jeff common stock
was converted into .9785 shares of the Company. Jeff had $1.8 billion of assets
and the combination was treated as a pooling of interests for accounting
purposes. The financial statements have been restated to include Jeff for all
periods presented.
On December 1, 1999, the Company completed its acquisition of Southern Jersey
Bancorp ("SJB"). SJB was merged into the Company and its wholly-owned subsidiary
was merged into Hudson United. In the merger, each share of SJB common stock was
converted into 1.2978 shares of the Company. SJB had $425 million of assets and
the combination was treated as a pooling of interests for accounting purposes.
The financial statements have been restated to include SJB for all periods
presented.
On December 1, 1999, the Company completed a purchase and sale transaction in
which Hudson United Bank acquired the loans (approximately $148 million) and
other financial assets, as well as assumed the deposit liabilities
(approximately $112 million) of Advest Bank and Trust. In addition, a strategic
partnership with Advest, Inc. was consummated on October 1, 1999, in which
Hudson United Bank will become the exclusive provider of banking products and
services to the clients of Advest, Inc.
<PAGE>
REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
To the Stockholders of Hudson United Bancorp:
We have audited the accompanying supplemental consolidated balance sheets of
Hudson United Bancorp (a New Jersey corporation) and subsidiaries as of December
31, 1998 and 1997, and the related supplemental consolidated statements of
income and 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 supplemental financial statements referred to above present
fairly, in all material respects, the financial position of Hudson United
Bancorp 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.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
December 15, 1999
<TABLE>
<CAPTION>
JeffBanks, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31,
----------------------------
1998 1997
------------ -------------
(in thousands)
<S> <C> <C>
ASSETS
Cash and cash equivalents
Cash and due from banks .................................................... $ 54,599 $ 52,601
Federal funds sold ......................................................... -- 95,236
---------- ----------
54,599 147,837
Investment securities available for sale ...................................... 301,366 364,501
Investment securities held to maturity ........................................ 677 682
Mortgages held for sale ....................................................... 14,600 4,327
Loans, net .................................................................... 1,202,932 987,681
Premises and equipment, net ................................................... 24,085 19,518
Accrued interest receivable ................................................... 15,929 9,094
Other real estate owned ....................................................... 3,114 2,265
Goodwill ...................................................................... 4,059 4,435
Other assets .................................................................. 15,745 20,670
---------- ----------
Total assets .............................................................. $1,637,106 $1,561,010
========== ==========
LIABILITIES
Deposits
Demand (non-interest bearing) .............................................. $ 207,881 $ 156,167
Savings and money market ................................................... 465,984 421,321
Time deposits .............................................................. 477,057 398,476
Time deposits, $100,000 and over ........................................... 125,358 109,663
---------- ----------
1,276,280 1,085,627
Securities sold under repurchase agreements ................................... 39,635 70,911
FHLB advances - short term .................................................... 55,000 148,000
FHLB advances - long term ..................................................... 54,182 55,511
Subordinated notes and debentures ............................................. 32,000 34,750
Guaranteed preferred beneficial interest in the Company's subordinated debt ... 25,300 25,300
Accrued interest payable ...................................................... 15,444 15,734
Other liabilities ............................................................. 7,587 3,371
---------- ----------
Total liabilities ......................................................... 1,505,428 1,439,204
SHAREHOLDERS' EQUITY
Common stock - authorized, 20,000,000 shares of $1.00 par value; issued and
outstanding, 10,486,620 and 6,094,000 shares, respectively ................... 10,487 6,094
Additional paid-in capital .................................................... 97,308 95,150
Retained earnings ............................................................. 21,933 19,308
Accumulated other comprehensive income ........................................ 1,950 1,254
---------- ----------
Total shareholders' equity ................................................ 131,678 121,806
---------- ----------
Total liabilities and shareholders' equity ................................ $1,637,106 $1,561,010
========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
JeffBanks, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
Year ended December 31,
--------------------------------------
1998 1997 1996
------------ ---------- ----------
(in thousands, except per share data)
<S> <C> <C> <C>
Interest income
Loans, including fees ........................................... $ 99,924 $ 87,794 $ 86,145
Investment securities ........................................... 21,025 18,895 18,548
Federal funds sold .............................................. 2,544 3,931 2,407
--------- -------- --------
123,493 110,620 107,100
--------- -------- --------
Interest expense
Time deposits, $100,000 and over ................................ 6,560 5,482 5,362
Other deposits .................................................. 42,298 35,294 34,886
FHLB advances ................................................... 7,303 6,586 6,238
Subordinated notes and debentures ............................... 3,026 3,095 2,621
Preferred securities ............................................ 2,341 2,119 --
Securities sold under repurchase agreements ..................... 2,192 3,076 2,834
--------- -------- --------
63,720 55,652 51,941
--------- -------- --------
Net interest income ........................................... 59,773 54,968 55,159
Provision for credit losses ...................................... 5,963 3,700 10,115
--------- -------- --------
Net interest income after provision for credit losses ......... 53,810 51,268 45,044
--------- -------- --------
Non-interest income
Service fees on deposit accounts ................................ 3,568 3,497 3,284
Mortgage servicing fees ......................................... 1,211 1,103 1,262
Gain on sales of residential mortgages and capitalized mortgage
servicing rights .............................................. 3,388 3,105 2,646
Gain on sales of investment securities .......................... 1,152 515 245
Merchant credit card deposit fees ............................... 2,420 1,968 1,593
Credit card fee income .......................................... 797 432 145
Other ........................................................... 2,679 2,583 1,321
--------- -------- --------
15,215 13,203 10,496
--------- -------- --------
Non-interest expense
Salaries and employee benefits .................................. 24,210 21,693 20,765
Occupancy expense ............................................... 4,623 4,187 4,205
Depreciation .................................................... 2,451 2,070 2,023
FDIC expense .................................................... 124 496 87
Data processing expense ......................................... 1,240 979 1,447
Legal ........................................................... 1,907 2,234 1,477
Stationery, printing and supplies ............................... 1,303 957 941
Shares tax ...................................................... 1,010 951 904
Advertising ..................................................... 1,445 1,227 1,225
Other real estate owned maintenance expense ..................... 345 201 230
Loss on sale and write-downs of other real estate owned ......... 170 454 500
Amortization of intangibles ..................................... 919 1,360 1,371
Merchant credit card deposit expense ............................ 1,954 1,597 1,218
Credit card origination expense ................................. 838 490 235
Credit card processing expense .................................. 874 577 318
IPF servicing ................................................... -- 567 2,323
Other ........................................................... 10,180 6,530 6,953
--------- -------- --------
53,593 46,570 46,222
--------- -------- --------
Income before income taxes .................................... 15,432 17,901 9,318
Income taxes ..................................................... 4,000 4,570 4,238
--------- -------- --------
Net income .................................................... 11,432 13,331 5,080
Preferred stock dividends ........................................ -- (467) (142)
--------- -------- --------
Net income available to common shareholders ................... $ 11,432 $ 12,864 $ 4,938
========= ======== ========
Per share data
Net income per common share - basic ............................. $ 1.11 $ 1.33 $ 0.56
Net income per common share - diluted ........................... $ 1.04 $ 1.25 $ 0.53
</TABLE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
JeffBanks, Inc.
We have audited the accompanying consolidated balance sheets of
JeffBanks, Inc. and Subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income, changes in shareholders' equity and
comprehensive income, 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 consolidated financial position of
JeffBanks, Inc. and Subsidiaries as of December 31, 1998 and 1997, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles.
GRANT THORNTON LLP
Philadelphia, Pennsylvania
January 19, 1999
<TABLE>
<CAPTION>
JeffBanks, Inc.
Consolidated Balance Sheet
UNAUDITED
September 30, December 31,
1999 1998
---- ----
(in thousands)
<S> <C> <C>
Assets:
Cash and cash equivalents:
Cash and due from banks ..................................... $ 44,814 $ 54,599
Federal funds sold .......................................... 33,500 0
----------- -----------
78,314 54,599
Investment securities available for sale ......................... 294,752 301,366
Investment securities held to maturity ........................... 673 677
Mortgages held for sale .......................................... 24,135 14,600
Loans, net ....................................................... 1,369,487 1,202,932
Premises and equipment, net ...................................... 23,917 24,085
Accrued interest receivable ...................................... 18,024 15,929
Other real estate owned .......................................... 1,204 3,114
Goodwill ......................................................... 3,776 4,059
Other assets ..................................................... 22,283 15,745
=========== ===========
Total assets ................................................ $ 1,836,565 $ 1,637,106
=========== ===========
Liabilities and shareholders' equity:
Deposits:
Demand (non-interest bearing) ............................... $ 238,626 $ 207,881
Savings and money market .................................... 503,756 465,984
Time deposits ............................................... 467,905 477,057
Time deposits, $100,000 and over ............................ 164,723 125,358
----------- -----------
1,375,010 1,276,280
Securities sold under repurchase agreements ...................... 54,139 39,635
Federal funds purchased .......................................... 40,000
FHLB advances .................................................... 158,825 109,182
Subordinated notes and debentures ................................ 31,920 32,000
Trust preferred securities ....................................... 25,300 25,300
Accrued interest payable ......................................... 14,198 15,444
Other liabilities ................................................ 3,342 7,587
----------- -----------
Total liabilities ........................................... 1,702,734 1,505,428
----------- -----------
Shareholders' equity:
Common Stock - authorized, 20,000,000 shares of $1 par value;
issued and outstanding 10,689,409 and 10,486,620 shares,
respectively .............................................. 10,689 10,487
Additional paid-in capital .................................. 99,636 97,308
Retained earnings ........................................... 29,531 21,933
Accumulated other comprehensive (loss) income ............... (6,025) 1,950
----------- -----------
Total shareholders' equity .................................. 133,831 131,678
=========== ===========
Total liabilities and shareholders' equity .................. $ 1,836,565 $ 1,637,106
=========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
JeffBanks, Inc.
Consolidated Statements of Income
UNAUDITED
Nine Months Three Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income:
Loans including fees ...................... $ 81,499 $ 73,891 $ 28,683 $ 26,736
Investment securities ..................... 13,984 16,409 4,889 5,185
Federal funds sold ........................ 887 2,165 343 855
-------- -------- -------- --------
96,370 92,465 33,915 32,776
-------- -------- -------- --------
Interest expense:
Time deposits, $100,000 and over .......... 5,437 4,860 2,130 1,854
Other deposits ............................ 30,316 30,867 10,410 12,041
FHLB advances ............................. 6,243 5,893 2,129 1,224
Subordinated notes and debentures ......... 2,147 2,310 716 770
Trust preferred securities ................ 1,755 1,755 585 585
Securities sold under repurchase agreements 1,720 1,837 561 495
-------- -------- -------- --------
47,618 47,522 16,531 16,969
-------- -------- -------- --------
Net interest income ................... 48,752 44,943 17,384 15,807
Provision for credit losses .................... 4,590 4,653 1,605 1,140
-------- -------- -------- --------
Net interest income after provision
for credit losses .................... 44,162 40,290 15,779 14,667
-------- -------- -------- --------
Non-interest income:
Service fees on deposit accounts .......... 3,202 2,609 1,140 912
Gain on sales of residential mortgages and
capitalized mortgage servicing rights ... 1,946 2,360 371 671
Gain on sale of mortgage servicing ........ 625
Gain on sales of investment securities .... 712 569 262
Mortgage servicing fees ................... 893 891 299 309
Merchant credit card deposit fees ......... 2,486 1,660 916 598
Credit card fee income .................... 408 442 121 131
Other ..................................... 1,874 1,670 590 568
-------- -------- -------- --------
11,521 10,826 3,437 3,451
-------- -------- -------- --------
Non-interest expense:
Salaries and employee benefits ............ 18,825 18,343 6,414 5,677
Occupancy expense ......................... 3,457 3,537 1,199 1,315
Depreciation .............................. 2,179 1,826 764 590
FDIC expense .............................. 107 101 36 33
Data processing expense ................... 1,096 926 402 324
Legal ..................................... 955 1,633 436 512
Stationery, printing and supplies ......... 877 943 287 344
Shares tax ................................ 847 797 287 214
Advertising ............................... 984 1,040 413 257
Other real estate owned maintenance expense 161 307 31 278
Loss on sale and write-downs of other
real estate owned ........................ 9 51 4 22
Amortization of intangibles ............... 992 731 333 298
Credit card origination expense ........... 411 661 135 236
Credit card processing expense ............ 546 643 94 218
Merchant card expense ..................... 2,206 1,318 807 484
Other ..................................... 6,381 8,037 2,207 2,528
-------- -------- -------- --------
40,033 40,894 13,849 13,330
-------- -------- -------- --------
Income before income taxes ..................... 15,650 10,222 5,367 4,788
Income taxes ................................... 3,309 2,909 1,157 1,110
-------- -------- -------- --------
Net income ............................ $ 12,341 $ 7,313 $ 4,210 $ 3,678
======== ======== ======== ========
Per share data:
Average number of common shares (basic) ........ 10,568 10,273 10,636 10,342
Average number of common shares (diluted) ...... 11,071 11,051 11,223 11,077
Net income per common share (basic) ............ $ 1.17 $ 0.71 $ 0.40 $ 0.36
Net income per common share (diluted) .......... $ 1.12 $ 0.66 $ 0.38 $ 0.33
</TABLE>
<TABLE>
<CAPTION>
Pro forma Unaudited Combined Condensed Balance Sheets
As of September 30, 1999
(Dollars in thousands, except per share data)
Hudson Southern Pro forma Pro forma Pro forma Pro forma
United Jersey Adjustments Combined JeffBanks Adjustments Combined
---------------------------------------------------------------------------------------------
<S> <C> <C> <C>> <C> <C> <C> <C>>
Assets
Cash and due from banks $ 231,887 $ 20,261 $ - $ 252,148 $ 44,814 $ - $ 296,962
Federal funds sold and other investments 66,556 42,250 108,806 33,500 142,306
Total Cash and Equivalents 298,443 62,511 - 360,954 78,314 - 439,268
---------------------------------------------------------------------------------------------
Securities 3,127,879 111,349 (657) 3,238,571 295,425 - 3,533,996
Loans 3,533,896 227,343 - 3,238,571 1,404,699 - 4,643,270
Less: Allowance for loan losses (54,788) (7,950) (62,738) (11,077) (73,815)
---------------------------------------------------------------------------------------------
Total Loans 3,479,108 219,393 - 3,698,501 1,393,622 - 5,092,123
---------------------------------------------------------------------------------------------
Intangibles, net of amortization 102,702 - 102,702 4,883 107,585
Other assets 232,225 32,362 - 264,587 64,321 - 328,908
---------------------------------------------------------------------------------------------
Total Assets $7,240,357 $425,615 $ (657) $7,665,315 $1,836,565 $ - $9,501,880
=============================================================================================
Liabilities & Stockholders' Equity
Interest bearing deposits $3,928,280 $332,026 $ - $4,260,306 $1,136,384 $ - $5,396,690
Non-interest bearing deposits 900,444 62,933 963,377 238,626 1,202,003
---------------------------------------------------------------------------------------------
Total Deposits 4,828,724 394,959 - 5,223,683 1,375,010 - 6,598,693
---------------------------------------------------------------------------------------------
Borrowings 1,772,110 - 1,772,110 252,964 2,025,074
Other liabilities 34,510 3,585 38,095 17,540 55,635
---------------------------------------------------------------------------------------------
6,635,344 398,544 - 7,033,888 1,645,514 - 8,679,402
---------------------------------------------------------------------------------------------
Subordinated debt 100,000 - 100,000 31,920 131,920
Capital trust securities 100,000 - 100,000 25,300 125,300
---------------------------------------------------------------------------------------------
Total Liabilities 6,835,344 398,544 - 7,233,888 1,702,734 - 8,936,622
---------------------------------------------------------------------------------------------
Stockholders' Equity:
Common stock 72,242 2,184 796 75,222 10,689 7,908 93,819
Additional paid in capital 259,904 3,259 (1,453) 261,710 99,636 (353,438
Retained earnings 160,389 28,361 188,750 29,531 218,281
Treasury stock (59,662) (3,824) (63,486) - (63,486)
Employee stock awards & ESOP shares (3,102) - (3,102) - (3,102)
Accumulated other comprehensive loss (24,758) (2,909) - (27,667) (6,025) - (33,692)
---------------------------------------------------------------------------------------------
Total Stockholders' Equity 405,013 27,071 (657) 431,427 133,831 - 565,258
---------------------------------------------------------------------------------------------
Total Liabilities & Stockholders'
Equtiy $7,240,357 $425,615 $ (657) $7,665,315 $1,836,565 $ - $9,501,880
=============================================================================================
Common shares outstanding 40,017 1,130 41,463 10,689 51,923
(in thousands)
Book value per common share $ 10.12 $ 23.95 $ 10.41 $ 12.52 $ 10.89
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<CAPTION>
Pro forma Unaudited Combined Condensed
Statements of Income
For the Nine Months Ended September 30, 1999
(Dollars in thousands, except per share data)
Hudson Southern Pro forma Pro forma
United Jersey Combined JeffBanks Combined
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<S> <C> <C> <C> <C> <C>
Interest on loans $ 217,548 $ 14,069 $ 231,617 $ 81,499 $ 313,116
Interest on securities 137,187 5,058 142,245 13,984 156,229
Other interest income 1,204 2,484 3,688 887 4,575
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Total Interest Income 355,939 21,611 377,550 96,370 473,920
Interest on deposits 95,811 12,151 107,962 35,753 143,715
Interest on borrowings 62,683 - 62,683 11,865 74,548
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Total Interest Expense 158,494 12,151 170,645 47,618 218,263
Net Interest Income before
Provision for Loan Losses 197,445 9,460 206,905 48,752 255,657
Provision for Loan Losses 8,300 1,400 9,700 4,590 14,290
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Net Interest Income after
Provision for Loan Losses 189,145 8,060 197,205 44,162 241,367
Noninterest income 54,216 3,087 57,303 11,521 68,824
Noninterest expense 125,680 12,335 138,015 40,033 178,048
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Income (loss) before income taxes 117,681 (1,188) 116,493 15,650 132,143
Income tax provision 41,945 - 41,945 3,309 45,254
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NET INCOME (LOSS) $ 75,736 $ (1,188) $ 158,438 $ 12,341 $ 86,889
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Income (loss) per share:
Basic $ 1.86 $ (1.05) $ 3.76 $ 1.17 $ 1.66
Diluted $ 1.84 $ (1.04) $ 3.71 $ 1.11 $ 1.62
Weighted Average Common Shares:
(in thousands)
Basic 40,710 1,128 42,153 10,568 52,493
Diluted 41,239 1,143 42,702 11,071 53,534
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