================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 0-010699
HUDSON UNITED BANCORP
------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-2405746
-------------------------------- ---------------------------------------
(State of other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
1000 MACARTHUR BLVD, MAHWAH, NJ 07430
- --------------------------------------- ----------
(Address of principal executive office) (Zip Code)
(201)-236-2600
----------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
----------------------------------------------------
Former name, former address, and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days Yes [X] No [_].
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each, of the issuer's classes of
common stock, as of the last practicable date: 38,924,413 shares, no par value,
outstanding as of August 13, 1999.
================================================================================
<PAGE>
HUDSON UNITED BANCORP
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Consolidated Balance Sheets
At June 30, 1999 and December 31, 1998......................... 1
Consolidated Statements of Income
For the three-months and six-months ended
June 30, 1999 and 1998......................................... 2-3
Consolidated Statements of Comprehensive Income
For the three-months and six-months ended
June 30, 1999 and 1998......................................... 4
Consolidated Statements of Changes in Stockholders' Equity
For the six-months ended
June 30, 1999 and for the Year ended December 31, 1998......... 5
Consolidated Statements of Cash Flows
For the six-months ended
June 30, 1999 and 1998......................................... 6
Notes to Consolidated Financial Statements..................... 7-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................. 12-17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................... 18
Signatures..................................................... 19
FINANCIAL DATA SCHEDULE ................................................ 20
<PAGE>
<TABLE>
<CAPTION>
HUDSON UNITED BANCORP
- -------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS (Unaudited)
JUNE 30, December 31,
(in thousands, except share data) 1999 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks ........................................................ $ 192,918 $ 217,954
Federal funds sold ............................................................. 8,201 17,697
---------- ----------
TOTAL CASH AND CASH EQUIVALENTS ................................ 201,119 235,651
Investment securities available for sale, at market value ...................... 2,580,667 2,260,625
Investment securities held to maturity, at cost (market value of $613,543 and
$638,564 for 1999 and 1998, respectively) .................................. 629,133 634,971
Assets held for sale ........................................................... -- 14,147
Loans:
Residential mortgages ..................................................... 1,594,005 1,601,957
Commercial real estate mortgages .......................................... 664,591 675,366
Commercial and financial .................................................. 713,284 656,553
Consumer credit ........................................................... 395,616 370,353
Credit card ............................................................... 170,296 82,581
---------- ----------
TOTAL LOANS .................................................... 3,537,792 3,386,810
Less: Allowance for possible loan losses .................................. (55,680) (53,499)
---------- ----------
NET LOANS ...................................................... 3,482,112 3,333,311
Premises and equipment, net .................................................... 82,994 83,525
Other real estate owned ........................................................ 1,629 103
Intangibles, net of amortization ............................................... 105,904 78,990
Other assets ................................................................... 142,530 137,338
---------- ----------
TOTAL ASSETS ................................................... $7,226,088 $6,778,661
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest bearing ....................................................... $ 918,210 $ 941,253
Interest bearing .......................................................... 4,079,626 4,110,137
---------- ----------
TOTAL DEPOSITS ................................................. 4,997,836 5,051,390
Borrowings ..................................................................... 1,504,399 821,593
Other liabilities .............................................................. 100,864 248,863
---------- ----------
6,603,099 6,121,846
Subordinated debt .............................................................. 100,000 100,000
Company-obligated mandatorily redeemable preferred series B capital securities
of two subsidiary trusts holding solely junior subordinated debentures of
the Company ................................................................ 100,000 100,000
---------- ----------
TOTAL LIABILITIES .............................................. 6,803,099 6,321,846
Stockholders' Equity:
Convertible preferred stock - Series B, no par value;
authorized 10,609,000 shares; 500 shares issued and outstanding in 1998 ... -- 50
Common stock, no par value; authorized 54,636,350 shares;
40,633,204 shares issued and 39,531,898 shares outstanding in 1999 and
40,633,204 shares issued and 40,411,521 shares
Outstanding in 1998 ....................................................... 72,246 72,246
Additional paid-in capital ................................................... 264,468 269,264
Retained earnings ............................................................ 144,176 113,787
Treasury stock, at cost, 1,101,306 shares in 1999 and 221,683 shares in 1998 . (36,504) (5,980)
Employee stock awards and unallocated shares held in ESOP, at cost ........... (3,387) (2,368)
Accumulated other comprehensive income/(loss)................................. (18,010) 9,816
---------- ----------
TOTAL STOCKHOLDERS' EQUITY ..................................... 422,989 456,815
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..................... $7,226,088 $6,778,661
========== ==========
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
HUDSON UNITED BANCORP
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
For the Three-Months Ended June 30,
(in thousands, except share data) 1999 1998
- --------------------------------------------------------------------------------
INTEREST AND FEE INCOME:
Loans .................................................. $ 73,946 $ 75,257
Investment securities .................................. 47,079 41,289
Other .................................................. 202 1,849
-------- --------
TOTAL INTEREST AND FEE INCOME .......... 121,227 118,395
-------- --------
INTEREST EXPENSE:
Deposits ............................................... 32,202 41,227
Borrowings ............................................. 17,104 9,978
Subordinated and other debt ............................ 4,168 3,327
-------- --------
TOTAL INTEREST EXPENSE ................. 53,474 54,532
-------- --------
NET INTEREST INCOME .................... 67,753 63,863
PROVISION FOR POSSIBLE LOAN LOSSES ..................... 2,500 2,821
-------- --------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES ............. 65,253 61,042
-------- --------
NONINTEREST INCOME:
Trust department income ................................ 894 865
Service charges on deposit accounts .................... 4,980 5,298
Securities gains ....................................... 1,070 784
Shoppers Charge fees ................................... 4,931 3,291
Other income ........................................... 5,166 4,843
-------- --------
TOTAL NONINTEREST INCOME ............... 17,041 15,081
-------- --------
NONINTEREST EXPENSE:
Salaries ............................................... 14,504 14,409
Pension and other employee benefits .................... 3,569 5,343
Occupancy expense ...................................... 4,481 4,250
Equipment expense ...................................... 2,775 2,637
Deposit and other insurance ............................ 431 437
Outside services ....................................... 10,084 6,520
Amortization of intangibles ............................ 3,470 2,413
Other expense .......................................... 3,814 5,926
Merger related and restructuring costs ................. -- 25,217
-------- --------
TOTAL NONINTEREST EXPENSE .............. 43,128 67,152
-------- --------
INCOME BEFORE INCOME TAXES ............. 39,166 8,971
PROVISION FOR INCOME TAXES ............................. 13,704 4,421
-------- --------
NET INCOME ............................. $ 25,462 $ 4,550
======== ========
EARNINGS PER SHARE:
Basic .................................................. $ 0.64 $ 0.11
Diluted ................................................ $ 0.63 $ 0.11
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic .................................................. 39,677 40,808
Diluted ................................................ 40,192 42,112
See notes to consolidated financial statements.
2
<PAGE>
HUDSON UNITED BANCORP
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
For the Six-Months Ended June 30,
(in thousands, except share data) 1999 1998
- --------------------------------------------------------------------------------
INTEREST AND FEE INCOME:
Loans .................................................. $142,808 $151,565
Investment securities .................................. 89,035 77,795
Other .................................................. 526 4,017
-------- --------
TOTAL INTEREST AND FEE INCOME .......... 232,369 233,377
-------- --------
INTEREST EXPENSE:
Deposits ............................................... 64,185 84,470
Borrowings ............................................. 29,547 15,977
Subordinated and other debt ............................ 8,337 6,527
-------- --------
TOTAL INTEREST EXPENSE ................. 102,069 106,974
-------- --------
NET INTEREST INCOME .................... 130,300 126,403
PROVISION FOR POSSIBLE LOAN LOSSES ..................... 5,000 9,099
-------- --------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES ............. 125,300 117,304
-------- --------
NONINTEREST INCOME:
Trust department income ................................ 1,839 1,729
Service charges on deposit accounts .................... 10,403 10,536
Securities gains ....................................... 1,984 3,171
Shoppers Charge fees ................................... 8,894 5,562
Other income ........................................... 11,400 7,963
-------- --------
TOTAL NONINTEREST INCOME ............... 34,520 28,961
-------- --------
NONINTEREST EXPENSE:
Salaries ............................................... 27,859 29,870
Pension and other employee benefits .................... 6,338 11,418
Occupancy expense ...................................... 9,170 8,346
Equipment expense ...................................... 5,212 5,454
Deposit and other insurance ............................ 958 1,214
Outside services ....................................... 17,841 13,302
Amortization of intangibles ............................ 6,615 4,834
Other expense .......................................... 8,814 11,719
Merger related and restructuring costs ................. -- 27,847
-------- --------
TOTAL NONINTEREST EXPENSE .............. 82,807 114,004
-------- --------
INCOME BEFORE INCOME TAXES ............. 77,013 32,261
PROVISION FOR INCOME TAXES ............................. 26,950 12,777
======== ========
NET INCOME ............................. $ 50,063 $ 19,484
======== ========
EARNINGS PER SHARE:
Basic .................................................. $ 1.26 $ 0.48
Diluted ................................................ $ 1.24 $ 0.46
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic .................................................. 39,829 40,912
Diluted ................................................ 40,380 42,234
See notes to consolidated financial statements.
3
<PAGE>
HUDSON UNITED BANCORP
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
THREE MONTHS ENDED
JUNE 30,
-----------------------
(In thousands) 1999 1998
- --------------------------------------------------------------------------------
NET INCOME ......................... $ 25,462 $ 4,550
======== ========
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Unrealized holding gains/(losses) arising
during period .................................... $(18,080) $ 1,166
Less: reclassification adjustment for gains
included in net income ........................... (695) (482)
-------- --------
Other comprehensive income (loss) .................. (18,775) 684
======== ========
COMPREHENSIVE INCOME ............... $ 6,687 $ 5,234
======== ========
SIX MONTHS ENDED
JUNE 30,
-----------------------
(In thousands) 1999 1998
- --------------------------------------------------------------------------------
NET INCOME ......................... $ 50,063 $ 19,484
======== ========
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Unrealized holding gains/(losses) arising
during period .................................... $(26,537) $ 975
Less: reclassification adjustment for gains
included in net income ........................... (1,289) (1,915)
-------- --------
Other comprehensive income (loss) .................. (27,826) (940)
======== ========
COMPREHENSIVE INCOME ............... $ 22,237 $ 18,544
======== ========
See notes to consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
HUDSON UNITED BANCORP
- --------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
(in thousands)
Convertible
Preferred Stock Common Stock Additional
-------------------- ------------------------ Paid-in- Retained
Shares Amount Shares Amount Capital Earnings
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997.... 1,250 $ 125 41,208,974 $73,269 $292,198 $164,612
==============================================================================================================
Net income ..................... -- -- -- -- -- 23,151
Cash dividends -- common ....... -- -- -- -- -- (34,718)
3% Stock dividend .............. -- -- 40,213 72 (709) (40,797)
Shares issued for:
Stock options exercised ...... -- -- 330,684 588 (8,410) --
Warrants exercised ........... -- -- 7,158 13 (97) --
Preferred stock conversion (750) (75) 16,608 30 (130) --
Cash in lieu of fractional
shares ....................... -- -- -- -- (212) --
Other transactions ............. -- -- 3,750 7 (7) --
IBS fiscal year adjustment ..... -- -- -- -- -- 1,539
Purchase of treasury stock ..... -- -- -- -- -- --
Issuance and retirement of
treasury stock ............... -- -- (989,058) (1,759) (18,930) --
Effect of compensation plans.... -- -- 14,875 26 5,561 --
Other comprehensive income ..... -- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998.... 500 50 40,633,204 72,246 269,264 113,787
==============================================================================================================
Net income ..................... -- -- -- -- -- 50,063
Cash dividends -- common ....... -- -- -- -- -- (19,674)
Shares issued for:
Stock options exercised ...... -- -- -- -- (8,443) --
Warrants exercised ........... -- -- -- -- (182) --
Preferred stock conversion (500) (50) -- -- (478) --
Acquisition of Little
Falls Bancorp .............. -- -- -- -- -- --
Cash in lieu of fractional
shares ....................... -- -- -- -- (12) --
Purchase of treasury stock ..... -- -- -- -- -- --
Effect of compensation plans.... -- -- -- -- 4,319 --
Other comprehensive income
(loss) ....................... -- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------
Balance at June 30, 1999 ....... -- $ -- 40,633,204 $72,246 $264,468 $144,176
==============================================================================================================
<CAPTION>
Employee
Stock
Awards and
Unallocated Accumulated
Shares Held Other
Treasury in ESOP, at Comprehensive
Stock Cost Income Total
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1997.... $(19,133) $(9,609) $ 5,639 $507,101
=====================================================================================
Net income ..................... -- -- -- 23,151
Cash dividends -- common ....... -- -- -- (34,718)
3% Stock dividend .............. 41,434 -- -- --
Shares issued for:
Stock options exercised ...... 18,373 -- -- 10,551
Warrants exercised ........... 173 -- -- 89
Preferred stock conversion 175 -- -- --
Cash in lieu of fractional
shares ....................... -- -- -- (212)
Other transactions ............. -- -- -- --
IBS fiscal year adjustment ..... -- -- -- 1,539
Purchase of treasury stock ..... (69,880) -- -- (69,880)
Issuance and retirement of
treasury stock ............... 20,689 -- -- --
Effect of compensation plans.... 2,189 7,241 -- 15,017
Other comprehensive
income (loss) ................ -- -- 4,177 4,177
- -------------------------------------------------------------------------------------
Balance at December 31, 1998.... (5,980) (2,368) 9,816 456,815
=====================================================================================
Net income ..................... -- -- -- 50,063
Cash dividends -- common ....... -- -- -- (19,674)
Shares issued for:
Stock options exercised ...... 15,837 -- -- 7,394
Warrants exercised ........... 236 -- -- 54
Preferred stock conversion 528 -- -- --
Acquisition of Little
Falls Bancorp .............. 26,563 -- -- 26,563
Cash in lieu of fractional
shares ....................... -- -- -- (12)
Purchase of treasury stock ..... (74,949) -- -- (74,949)
Effect of compensation plans.... 1,261 (1,019) -- 4,561
Other comprehensive loss ....... -- -- (27,826) (27,826)
- -------------------------------------------------------------------------------------
Balance at June 30, 1999 ....... $(36,504) $(3,387) $(18,010) $422,989
=====================================================================================
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
HUDSON UNITED BANCORP
- ----------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands) SIX MONTHS ENDED
JUNE 30,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income .......................................................... 50,063 19,484
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible loan losses ........................... 5,000 9,099
Provision for depreciation and amortization .................. 10,980 9,227
Amortization of security premiums, net ....................... 687 413
Securities gains ............................................. (1,984) (3,171)
(Gain) loss on sale of premises and equipment ................ (114) 510
Gain on sale of loans ........................................ (3,164) (974)
Market adjustment on ESOP .................................... -- 728
MRP earned ................................................... -- 909
IBS fiscal year adjustment ................................... -- 1,539
Net change in assets held for sale ........................... 14,147 --
Decrease (increase) in other assets .......................... 7,599 (24,474)
Increase in other liabilities ................................ 2,103 14,157
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES ................................ 85,317 27,447
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investment securities:
Available for sale ................................................ 220,096 180,589
Proceeds from repayments and maturities of investment securities:
Available for sale ................................................ 592,482 395,914
Held to maturity .................................................. 65,228 217,951
Purchase of investment securities:
Available for sale ................................................ (1,163,673) (1,086,331)
Held to maturity .................................................. (59,704) (281,759)
Net cash acquired through acquisitions .............................. 132,446 209,498
Net decrease in loans other than purchases and sales ................ 47,594 42,755
Proceeds from sales of loans ........................................ 71,576 73,838
Purchase of loans ................................................... (114,273) --
Proceeds from sales of premises and equipment ....................... 5,351 25
Purchases of premises and equipment ................................. (6,177) (3,586)
(Increase) decrease in other real estate ............................ (1,229) 1,685
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES .................................... (210,283) (249,421)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in demand deposits, NOW accounts, and savings accounts . (190,703) (45,153)
Net decrease in certificates of deposit ............................. (257,664) (85,419)
Net increase in borrowed funds ...................................... 623,992 185,394
Reduction of ESOP loan .............................................. 1,983 709
Net proceeds from issuance of debt securities ....................... -- 48,737
Proceeds from issuance of common stock .............................. 7,448 3,472
Cash dividends ...................................................... (19,673) (15,418)
Acquisition of treasury stock ....................................... (74,949) (38,530)
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES ................................ 90,434 53,792
---------- ----------
DECREASE IN CASH AND CASH EQUIVALENTS .................................... (34,532) (168,182)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ......................... 235,651 518,159
========== ==========
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................... 201,119 349,977
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest ............................................................ 93,663 111,618
Income Taxes ........................................................ 21,108 16,828
========== ==========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
HUDSON UNITED BANCORP
- --------------------------------------------------------------------------------
HUDSON UNITED BANCORP
NOTES TO 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 and HUBCO Capital Trust II. 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
filed with the Commission on March 15, 1999, for the year ended December 31,
1998.
7
<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, stock warrants, and includes the impact of the Management
Recognition Plan ("MRP"), 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):
QUARTER ENDED JUNE 30,
-------------------------
1999 1998
------- -------
BASIC EARNINGS PER SHARE
Net Income .......................................... $25,462 $ 4,550
Less Preferred Stock Dividends ...................... -- --
------- -------
Net Income Available To Common Stockholders ......... 25,462 4,550
Weighted Average Common Shares Outstanding .......... 39,677 40,808
Basic Earnings Per Share ............................ $ 0.64 $ 0.11
======= =======
DILUTED EARNINGS PER SHARE
Net Income .......................................... $25,462 $ 4,550
Weighted Average Common Shares Outstanding .......... 39,677 40,808
Effect Of Dilutive Securities:
Convertible Preferred Stock ...................... -- 23
Warrants ......................................... -- 24
Unearned MRP ..................................... -- 108
Stock Options .................................... 515 1,149
------- -------
Weighted Average Common Shares Outstanding
Assuming Dilution ................................. 40,192 42,112
Diluted Earnings Per Share .......................... $ 0.63 $ 0.11
======= =======
SIX MONTHS ENDED JUNE 30,
-------------------------
1999 1998
------- -------
BASIC EARNINGS PER SHARE
Net Income .......................................... $50,063 $19,484
Less Preferred Stock Dividends ...................... -- --
------- -------
Net Income Available To Common Stockholders ......... 50,063 19,484
Weighted Average Common Shares Outstanding .......... 39,829 40,912
Basic Earnings Per Share ............................ $ 1.26 $ 0.48
======= =======
DILUTED EARNINGS PER SHARE
Net Income .......................................... $50,063 $19,484
Weighted Average Common Shares Outstanding .......... 39,829 40,912
Effect Of Dilutive Securities:
Convertible Preferred Stock ...................... 1 28
Warrants ......................................... 2 25
Unearned MRP ..................................... -- 117
Stock Options .................................... 548 1,152
------- -------
Weighted Average Common Shares Outstanding
Assuming Dilution ................................. 40,380 42,234
Diluted Earnings Per Share .......................... $ 1.24 $ 0.46
======= =======
8
<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 May 11, 1999, the Company announced a purchase and sale agreement in which
Hudson United Bank will acquire the loans (approximately $159 million) and other
financial assets, as well as assume the deposit liabilities (approximately $154
million) of Advest Bank and Trust. In addition, the Company simultaneously
announced it had entered into a strategic alliance agreement in which Hudson
United Bank will become the exclusive provider of banking products and services
to the clients of Advest, Inc. The purchase and sale transaction is subject to
regulatory approval and is expected to close in the fourth quarter.
On June 29, 1999, the Company announced that it had signed a definitive
agreement to merge with JeffBanks, Inc., a $1.7 billion bank holding company
with 32 branches located throughout the greater Philadelphia area of
Pennsylvania and South Jersey. Pending appropriate corporate, shareholder and
regulatory approvals, the agreement is expected to be completed by the fourth
quarter of 1999 and to be accounted for as a pooling of interests.
On June 29, 1999, the Company announced that it had signed a definitive
agreement to merge with Southern Jersey Bancorp, a $470 million asset bank
holding company with 17 branches in Southern New Jersey. Pending appropriate
corporate, shareholder and regulatory approvals, the agreement is expected to be
completed by the fourth quarter of 1999 and to be accounted as a pooling of
interests.
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>
June 30, 1999
----------------------------------------------
Gross Unrealized Estimated
Amortized ------------------- Market
Cost Gains (Losses) Value
---------- ------- -------- ----------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Government .......................... $ 81,429 $ 458 $ (264) $ 81,623
U.S. Government agencies ................. 256,140 466 (1,706) 254,900
Mortgage-backed securities ............... 2,166,044 2,920 (31,750) 2,137,214
States and political subdivisions ........ 3,384 55 -- 3,439
Other debt securities .................... 15,537 -- (151) 15,386
Equity securities ........................ 86,319 2,533 (747) 88,105
---------- ------- -------- ----------
$2,608,853 $ 6,432 $(34,618) $2,580,667
========== ======= ======== ==========
<CAPTION>
June 30, 1999
----------------------------------------------
Gross Unrealized Estimated
Amortized ------------------- Market
Cost Gains (Losses) Value
---------- ------- -------- ----------
<S> <C> <C> <C> <C>
HELD TO MATURITY
U.S. Government .......................... $ 39,163 $ 84 $ (247) $ 39,000
U.S. Government agencies ................. 65,901 394 (426) 65,869
Mortgage-backed securities ............... 508,503 369 (15,816) 493,056
States and political subdivisions ........ 15,494 90 (38) 15,546
Other debt securities .................... 72 -- -- 72
---------- ------- -------- ----------
$ 629,133 $ 937 $(16,527) $ 613,543
========== ======= ======== ==========
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
December 31, 1998
----------------------------------------------
Gross Unrealized Estimated
Amortized ------------------- Market
Cost Gains (Losses) Value
---------- ------- -------- ----------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Government .......................... $ 84,530 $ 1,583 $ -- $ 86,113
U.S. Government agencies ................. 369,357 3,162 -- 372,519
Mortgage-backed securities ............... 1,688,464 13,645 (4,306) 1,697,803
States and political subdivisions ........ 11,219 100 (1) 11,318
Other debt securities .................... 4,083 5 (40) 4,048
Equity securities ........................ 87,027 2,471 (674) 88,824
---------- ------- -------- ----------
$2,244,680 $20,966 $ (5,021) $2,260,625
========== ======= ======== ==========
<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 ........ 15,513 182 (4) 15,691
Mortgage-backed securities ............... 539,725 2,277 (717) 541,285
---------- ------- -------- ----------
$ 634,971 $ 4,314 $ (721) $ 638,564
========== ======= ======== ==========
</TABLE>
NOTE E -- COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SERIES B CAPITAL
SECURITIES OF TWO 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.
10
<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):
For the three-months ended
June 30, 1999
-------------------------------------
Before tax Tax Benefit Net of Tax
Amount (Expense) Amount
------------ ----------- ----------
Unrealized security gains (losses)
arising during the period ............. $(28,909) $ 10,829 $(18,080)
Less: reclassification adjustment
for gains realized in net income ...... 1,070 (375) 695
-------- -------- --------
Net change during period ................ $(29,979) $ 11,204 $(18,775)
======== ======== ========
For the three-months ended
June 30, 1998
-------------------------------------
Before tax Tax Benefit Net of Tax
Amount (Expense) Amount
------------ ----------- ----------
Unrealized security gains (losses)
arising during the period ............. $ 1,852 $ (686) $ 1,166
Less: reclassification adjustment
for gains realized in net income ...... 784 (302) 482
-------- -------- --------
Net change during period ................ $ 1,068 $ (384) $ 684
======== ======== ========
For the six-months ended
June 30, 1999
-------------------------------------
Before tax Tax Benefit Net of Tax
Amount (Expense) Amount
------------ ----------- ----------
Unrealized security gains (losses)
arising during the period ............. $(42,148) $ 15,611 $(26,537)
Less: reclassification adjustment
for gains realized in net income ...... 1,983 (694) 1,289
-------- -------- --------
Net change during period ................ $(44,131) $ 16,305 $(27,826)
======== ======== ========
For the six-months ended
June 30, 1998
-------------------------------------
Before tax Tax Benefit Net of Tax
Amount (Expense) Amount
------------ ----------- ----------
Unrealized security gains (losses)
arising during the period ............. $ 1,532 $ (557) $ 975
Less: reclassification adjustment
for gains realized in net income ...... 3,171 (1,256) 1,915
-------- -------- --------
Net change during period ................ $ (1,639) $ 699 $ (940)
======== ======== ========
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.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This financial review presents management's discussion and analysis of financial
condition and results of operations. It should be read in conjunction with the
Company's Consolidated Financial Statements and the accompanying notes. All
dollar amounts, other than per share information, are presented in thousands
unless otherwise noted.
The financial statements for the comparative periods presented herein have been
restated to reflect the acquisitions that have been accounted for on the pooling
of interests accounting method during the periods presented herein. The Bank of
Southington was acquired on January 8, 1998, Poughkeepsie Financial Corporation
was acquired on April 24, 1998, MSB Bancorp was acquired on May 29, 1998, IBS
Financial Corporation was acquired on August 14, 1998, Community Financial
Holding Corporation was acquired on August 14, 1998, and Dime Financial
Corporation was acquired on August 21, 1998. These acquisitions were accounted
for on the pooling of interests method, and accordingly, the consolidated
financial statements have been restated to include these institutions for all
periods presented. All share data has been retroactively restated to reflect the
shares issued in the aforementioned transactions including restatement of all
prior periods. In addition, the Company acquired Security National Bank on
February 5, 1998, 21 branches of First Union National Bank on June 26, 1998, two
branches of First Union National Bank on July 24, 1998, one branch from First
International Bank on March 26, 1999, and Little Falls Bancorp, Inc. on May 20,
1999, all of which were accounted for under the purchase method and thus
operations and earnings are reflected in the Company's results subsequent to the
date of acquisition. The balance sheet and income statement comparisons are
influenced by these purchase transactions.
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 risks and uncertainties. Actual results may differ materially from the
results discussed in these forward-looking statements. Factors that might cause
a difference include, but are not limited to, changes in interest rates,
economic conditions, deposit and loan growth, loan loss provisions, customer
retention, failure to realize expected cost savings or revenue enhancements from
acquisitions, or failure of the Company's Year 2000 compliance program to
effectively address year 2000 computer problems. The Company assumes no
obligation for updating any such forward-looking statements at any time.
YEAR 2000 COMPLIANCE
Hudson United Bancorp has been involved since 1996 in preparing its computer
systems and applications to meet the challenge of the new millennium. The
Company has established a "Year 2000 Team" which is responsible for ensuring
implementation of the required changes to avoid business disruption. The process
involves analyzing and replacing existing computer hardware and software as
needed. The Company is in compliance with Y2K readiness through phases I, II,
and III. 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 Company's review of computer and noninformation technology systems was
completed by December 31, 1998. The Company is using 1999 for testing and
implementation of system changes. Testing has been satisfactory and the Company
has met all required dates for completion of system changes on its internal
timetable.
The Company's joint venture partner has decided to terminate their interest in a
computer processing joint venture. The termination is expected to occur in the
fourth quarter of 1999. In addition, the Company has signed a contract with a
third-party provider to outsource the Company's internal processing systems.
This provider's Y2K implementation and testing continues to proceed
satisfactorily and is on schedule.
12
<PAGE>
The estimated total cost to become Year 2000 compliant is $5 million.
Substantially all of the costs have been incurred. The total cost has been
within budget.
A failure by Hudson United Bancorp or by third parties on whom the Company
relies for support to correct Year 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 could result from a
failure of the Company or third parties to become fully Year 2000-compliant or
whether such effect could have a material impact on Hudson United Bancorp. 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.
RESULTS OF OPERATIONS
OVERVIEW
Net income for the three-month period ended June 30, 1999 was $25.5 million
compared to net income of $4.6 million for the same period in 1998. Fully
diluted earnings per share amounted to $0.63 for the 1999 second quarter and
$0.11 for the 1998 second quarter. The 1998 quarter included merger-related and
restructuring charges that amounted to $16.5 million after-tax. Excluding the
charges, net income for the 1998 period was $21.0 million and fully diluted
earnings per share was $0.50. The increase in operating earnings was primarly
due to higher net interest and noninterest income. Partially offsetting the net
revenue increases was an unfavorable variance in noninterest expenses. Growth in
commercial lending, consumer lending, and higher sales of investment products,
were major factors underlying the 7% increase in net revenue for the second
quarter of 1999 compared to the same period in 1998. For the three months ended
June 30, 1999, return on average assets was 1.45% and return on average equity
was 23.29%. Excluding the merger-related and restructuring charges in the same
1998 period, return on average assets was 1.27% and return on average equity was
16.76%.
Net income for the six-months ended June 30, 1999 was $50.1 million compared to
net income of $19.5 million for the same period in 1998. Fully diluted earnings
per share amounted to $1.24 and $0.46 for the first half of 1999 and 1998,
respectively. The 1998 period included merger-related and restructuring charges
that amounted to $18.8 million after-tax. Excluding the charges, operating
earnings for the 1998 period were $38.3 million and fully diluted earnings per
share amounted to $0.91. The higher operating earnings resulted from improved
net revenue, lower noninterest expenses, and a decline in the provision for
possible loan losses. As in the second quarter, growth in commercial lending,
consumer lending, and strong sales of investment products were main contributors
to the higher net revenue. The lower noninterest expenses reflected cost savings
achieved from the Company's 1998 acquisitions. Return on average assets was
1.49% and return on average equity was 23.19% for the first half of 1999.
Excluding the merger-related and restructuring charges in the corresponding 1998
period, return on average assets was 1.18% and return on average equity was
15.22%.
NET INTEREST INCOME
Net interest income amounted to $67.8 million for three-month period ended June
30, 1999 and $63.9 million for the three-month period ended June 30, 1998.
Average interest-earning assets were $338 million higher in the second quarter
of 1999 compared to the same period in 1998. The net interest margin was 4.15%
and 4.12% for the second quarter of 1999 and 1998, respectively. Interest income
increased by $2.8 million in the second quarter of 1999 compared to the second
quarter of 1998 due to higher income from investment securities. Interest
expense for the three-months ended June 30, 1999 was $1.1 million below the same
1998 period due to a more favorable deposit mix and lower average deposits in
1999 and the impact of the lower rate environment in that period. The average
cost of deposits was 2.62% in the second quarter of 1999 compared to 3.20% in
the second quarter of 1998. Increased borrowing expense, due to higher average
volumes, partially offset the decline in interest expense on deposits.
For six-month period ended June 30, 1999 and 1998, net interest income was
$130.3 million and $126.4 million, respectively. Average interest-earning assets
were $256 million higher in the 1999 period compared to the same period in 1998.
The net interest margin was 4.15% and 4.19% for the first half of 1999 and 1998,
respectively. Interest income decreased by $1.0 million for the first half of
1999 compared to the first half of 1998 due to mainly to lower income from loans
and short term
13
<PAGE>
money market investments, partially offset by higher income from investment
securities. Interest expense for the six-months ended June 30, 1999 was $4.9
million below the same 1998 period due, as in the second quarter, to a more
favorable deposit mix and lower average deposits in 1999 and the impact of the
lower rate environment in that period. For the first six months ended June 30,
1999 and 1998, the average cost of deposits was 2.64% and 3.25%, respectively.
Increased borrowing expense, due to higher average volumes, partially offset the
decline in interest expense on deposits.
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses was $2.5 million and $2.8 million for the
three-month periods ended June 30, 1999 and 1998, respectively. For the
six-month periods ended June 30, 1999 and 1998, the provision for possible loan
losses was $5.0 million and $9.1 million, respectively. The decline in the
provision for the six-month period was primarily due to the inclusion in the
1998 period of a $3.5 million provision taken by the former Poughkeepsie
Financial Corporation to bring its reserve policy in line with that of Hudson
United Bancorp. The allowance for possible loan losses amounted to $55.7 million
at June 30, 1999 compared to $53.5 million at year-end 1998. The allowance
represented 1.57% and 1.58% of total loans at June 30, 1999 and December 31,
1998, respectively. The allowance was 289% of non-performing loans at June 30,
1999 and 256% of non-performing loans at December 31, 1998.
The determination of the adequacy of the Allowance for Loan Losses and the
periodic provisioning for estimated losses included in the consolidated
financial statements is the responsibility of management. The evaluation process
is undertaken on a monthly basis, with a fully supported written analysis
prepared on a quarterly basis.
Methodology employed for assessing the adequacy of the Allowance consists of the
following criteria:
o The establishment of reserve amounts for all specifically identified
criticized loans, including those arising from business combinations,
that have been designated as requiring attention by management's
internal loan review program.
o The establishment of reserves for pools of homogenous types of loans
not subject to specific review, including 1-4 family residential
mortgages, consumer loans, and credit card accounts, based upon
historical loss rates.
o An allocation for the non-criticized loans in each portfolio, and for
all Off-Balance Sheet exposures, based upon the historical average
loss experience of those portfolios.
Consideration is also given to the changed risk profile brought about by the
aforementioned business combinations, customer knowledge, the results of ongoing
credit quality monitoring processes, the adequacy and expertise of the Company's
lending staff, underwriting policies, loss histories, delinquency trends, and
the cyclical nature of economic and business conditions. A further consideration
is the concentration of real estate related loans located in the Northeast part
of the United States. Since many of the loans depend upon the sufficiency of
collateral as a secondary source of repayment, any adverse trend in the real
estate markets could affect underlying values available to protect the Company
from loss.
Other evidence used to support the amount of the Allowance and its components
are as follows:
o Regulatory and other examinations
o The amount and trend of criticized loans
o Actual losses
o Peer comparisons with other financial institutions
o Economic Data associated with the real estate market in the Company's
area of operations
o Opportunities to dispose of marginally performing loans for cash
consideration
14
<PAGE>
Based upon the process employed and giving recognition to all attendant factors
associated with the loan portfolio, management considers the Allowance for Loan
Losses to be adequate at June 30, 1999.
The following table presents the composition of non-performing assets and loans
past due 90 days or more and accruing and selected asset quality ratios at the
dates indicated:
ASSET QUALITY SCHEDULE
----------------------
(In Thousands)
6/30/99 12/31/98
------- --------
Nonaccrual Loans:
Commercial ........................................ $ 4,407 $ 4,852
Real Estate ....................................... 11,474 10,683
Consumer .......................................... 1,622 2,094
------- -------
Total Nonaccrual Loans ......................... 17,503 17,629
Renegotiated Loans ................................... 1,757 3,269
------- -------
Total Nonperforming Loans ...................... 19,260 20,898
Other Real Estate Owned .............................. 1,629 3,727
------- -------
Total Nonperforming Assets ..................... $20,889 24,625
======= =======
Nonaccrual Loans to Total Loans ..................... 0.49% 0.52%
Nonperforming Assets to Total Assets ................. 0.29% 0.36%
Allowance for Loan Losses to Nonaccrual Loans ........ 318% 303%
Allowance for Loan Losses to Nonperforming Loans ..... 289% 256%
Loans Past Due 90 Days or More and Accruing
Commercial ..................................... $ 1,876 $ 2,340
Real Estate .................................... 10,164 5,547
Consumer ....................................... 2,007 2,470
Credit card .................................... 9,666 3,126
------- -------
Total Past Due Loans ........................ $23,713 $13,483
======= =======
15
<PAGE>
The following table presents the activity in the allowance for possible loan
losses for the periods indicated:
Summary of Activity
in the Allowance
Broken Down by Loan Category
------------------------------
Six Months Ended Year Ended
6/30/99 12/31/98
---------------- -----------
(Dollars in thousands)
Amount of Loans Outstanding at Period End ...... $3,537,792 $3,386,810
========== ==========
Daily Average Amount of Loans Outstanding ...... $3,436,973 $3,521,561
========== ==========
ALLOWANCE FOR LOAN LOSSES
Balance at beginning of year ................... $ 53,499 $ 65,858
Loans charged off:
Real estate mortgages ........................ (1,367) (8,050)
Commercial ................................... (1,382) (2,498)
Consumer ..................................... (4,498) (11,457)
Write down of Assets held for sale (1) ....... -- (9,521)
---------- ----------
Total loans charged off ................. (7,247) (31,526)
---------- ----------
Recoveries:
Real estate mortgages ........................ 790 651
Commercial ................................... 676 669
Consumer ..................................... 1,612 1,523
---------- ----------
Total recoveries ........................ 3,078 2,843
---------- ----------
Net loans charged off .......................... (4,169) (28,683)
Allowance of acquired companies ................ 1,350 1,950
Provision for loan losses ...................... 5,000 14,374
---------- ----------
Balance at end of period ....................... $ 55,680 $ 53,499
========== ==========
Ratio of Annualized Net Loans Charged Off
During Period to Average Loans Outstanding ... 0.24% 0.81%
========== ==========
- ----------
(1) The writedown of assets held for sale pertained to the planned disposal of
$54 million nonaccrual loans.
NONINTEREST INCOME
Noninterest income, excluding security gains, increased to $16.0 million for the
second quarter of 1999 compared to $14.3 million in the second quarter of 1998.
For the six-months ended June 30, 1999 and 1998, non-interest income, excluding
security gains was $32.5 million and $25.8 million, respectively. These
increases reflect higher income from the Shoppers Charge and mortgage divisions
and increased sales of investment products. Security gains for the three and six
month periods ended June 30, 1999 amounted to $1.1 and $2.0 million,
respectively. Security gains amounted to $0.8 million for the second quarter of
1998 and $3.2 million for the first six months on 1998.
NONINTEREST EXPENSE
Noninterest expense for the second quarter of 1999 was $43.1 million compared to
$67.2 million in the second quarter of 1998. The amount for 1998 includes $25.2
million of merger-related restructuring costs that were recorded in that period.
Excluding the 1998 charges, the year to year increase in expenses of $1.1
million reflects several initiatives including the higher cost of supporting our
expanding business lines, the successful merger of the 1998 acquisitions, the
consolidation of the Company's three banking subsidiaries into a single bank
charter and the establishment of a single brand name. These initiatives also
include the decision to terminate the Company's interest in a computer
processing joint venture and to outsource internal processing systems. The net
effect of these initiatives was immaterial and has been provided for within the
reserves established for such programs. For the six-months ended June 30, 1999
and 1998, non-interest expenses were $82.8 million and $114.0 million,
respectively. Non-interest expenses for the 1998 period included merger-related
restructuring costs of $27.8 million. The decline in expenses in the 1999 period
compared to 1998 is primarily due to cost savings achieved from the 1998
acquisitions. The
16
<PAGE>
efficiency ratio in the second quarter of 1999 was 47.3%, down from 49.8% in the
second quarter of 1998. The efficiency ratio for the first six months of 1999
was 46.7% compared to 52.6% for the same 1998 period.
FINANCIAL CONDITION
Total assets amounted to $7.2 billion at June 30, 1999, an increase of $447
million or 7% from $6.8 billion at December 31, 1998. At June 30, 1999, total
loans were $3.5 billion and total investment securities were $3.2 billion. These
balances represented increases of $151 million for loans and $314 million for
investment securities when compared to year-end 1998. The increase in credit
card loans of $88 million and the increase in credit card loans past due 90 days
or more and still accruing of $7 million, at June 30, 1999 compared to December
31, 1998, was primarily the result of the purchase of two credit card
portfolios. The increase in the investment securities portfolio was due
primarily to leveraging employed to utilize the Company's capital position.
Intangibles, net of amortization, increased from $79.0 million at December 31,
1998 to $105.9 million at June 30, 1999, due primarily to the addition of the
goodwill created from the First International Bank branch and Little Falls
Bancorp, Inc. acquisitions.
Deposits were $5.0 billion at June 30, 1999, basically flat with year-end 1998.
At June 30, 1999, borrowings amounted to $1.5 billion compared to $822 million
at December 31, 1998. The increase in borrowings was mainly the result of the
higher asset level at the June 1999 period end. Total stockholders' equity at
June 30, 1999 was $423 million compared to $457 million at December 31, 1998.
The change in stockholders' equity is primarily attributable to the purchase of
$48 million of treasury shares.
The Company is not aware of any current recommendations by the regulatory
authorities which would have a material adverse effect on the Company's capital
resources or operations. The capital ratios for the Company at June 30, 1999,
and the minimum regulatory guidelines for such capital ratios for qualification
as a well-capitalized institution are as follows:
Ratios at Regulatory
June 30, 1999 Guidelines
------------- ----------
Tier I Risk-Based Capital ............ 10.95% 6.0%
Total Risk-Based Capital ............. 14.76% 10.0%
Tier 1 Leverage Ratio ................ 6.10% 4.0%
17
<PAGE>
PART II. OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
(3)(A) The Certificate of Incorporation of the Company in effect on May 11,
1999.
(3)(B) The By-Laws of the Company. (Incorporated by reference from the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, Exhibit (3b)).
(b) Reports on From 8-K
(1) On May 25, 1999, the Company filed a Form 8-K Item 5 (date of earliest
event-May 20, 1999), containing the Company's press release announcing
the completion of its purchase of Little Falls Bancorp, Inc. and
Little Falls wholly owned banking subsidiary, Little Falls Bank.
(2) On June 29, 1999, Hudson United Bancorp filed a Form 8-K Item 5 (date
of earliest event-June 29, 1999), to announce the signing of a
definitive agreement to acquire JeffBanks, Inc.
(3) On June 29, 1999, Hudson United Bancorp filed a Form 8-K Item 5 (date
of earliest event-June 29, 1999), to announce the signing of a
definitive agreement to acquire Southern Jersey Bancorp of Delaware,
Inc.
(4) On June 30, 1999, Hudson United Bancorp filed a Form 8-K/A Item 5
(date of earliest event-June 28, 1999), amending Form 8-K filed June
29, 1999 to provide the agreement and plan of merger for the announced
acquisitions of JeffBanks, Inc. and Southern Jersey Bancorp of
Delaware, Inc.
(5) On July 26, 1999, the Company filed a Form 8-K Item 5 (date of
earliest event-July 15, 1999), containing the Company's press release
reporting earnings for the second quarter of 1999.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Hudson United Bancorp
August 16, 1999 /s/ KENNETH T. NEILSON
- ---------------------------- -------------------------------------------------
Date Kenneth T. Neilson
Chairman, President & Chief Executive Officer
August 16, 1999 /s/ JOSEPH F. HURLEY
- ---------------------------- -------------------------------------------------
Date Joseph F. Hurley
Executive Vice President &
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 192,918
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 8,201
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,580,667
<INVESTMENTS-CARRYING> 629,133
<INVESTMENTS-MARKET> 613,543
<LOANS> 3,537,792
<ALLOWANCE> 55,680
<TOTAL-ASSETS> 7,226,088
<DEPOSITS> 4,997,626
<SHORT-TERM> 1,504,399
<LIABILITIES-OTHER> 100,864
<LONG-TERM> 200,000
<COMMON> 72,246
0
0
<OTHER-SE> 350,743
<TOTAL-LIABILITIES-AND-EQUITY> 7,226,088
<INTEREST-LOAN> 142,808
<INTEREST-INVEST> 89,035
<INTEREST-OTHER> 526
<INTEREST-TOTAL> 232,369
<INTEREST-DEPOSIT> 64,185
<INTEREST-EXPENSE> 102,069
<INTEREST-INCOME-NET> 130,300
<LOAN-LOSSES> 5,000
<SECURITIES-GAINS> 1,983
<EXPENSE-OTHER> 82,807
<INCOME-PRETAX> 77,014
<INCOME-PRE-EXTRAORDINARY> 77,014
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 50,063
<EPS-BASIC> 1.26
<EPS-DILUTED> 1.24
<YIELD-ACTUAL> 4.15
<LOANS-NON> 17,503
<LOANS-PAST> 23,713
<LOANS-TROUBLED> 1,757
<LOANS-PROBLEM> 42,973
<ALLOWANCE-OPEN> 53,499
<CHARGE-OFFS> 7,247
<RECOVERIES> 3,078
<ALLOWANCE-CLOSE> 55,680
<ALLOWANCE-DOMESTIC> 55,680
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
