================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------
FORM 10-Q-A
(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 25,000,000 shares; 500 shares issued and outstanding in 1998 ... -- 50
Common stock, no par value; authorized 100,000,000 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
CERTIFICATE OF INCORPORATION
OF
HUDSON UNITED BANCORP
(Restated to Show All Amendments)
ARTICLE I
CORPORATE NAME
The name of the Corporation shall be Hudson United Bancorp (hereinafter the
"Corporation").
ARTICLE II
CURRENT REGISTERED OFFICE
AND CURRENT REGISTERED AGENT
The address of the Corporation's initial registered office is 80 Park
Plaza, 23rd Floor, Newark, New Jersey 07102. The name of the registered agent at
that address is Ronald H. Janis.
ARTICLE III
INITIAL BOARD OF DIRECTORS
AND NUMBER OF DIRECTORS
The number of directors shall be governed by the by-laws of the
Corporation. The number of directors constituting the initial Board of Directors
shall be twelve. The names and addresses of the initial Board of Directors are
as follows:
Name Address
- ---- -------
John T. Clark 3100 Bergenline Avenue
Union City, New Jersey 07087
James C. McClave 3100 Bergenline Avenue
Union City, New Jersey 07087
Ronald David 2 Broadway
New York, New York 10004
<PAGE>
Arthur L. Dickson 51 Newark Street
Hoboken, New Jersey 07030
Henry Hugelheim 752 Greeley Avenue
Fairview, New Jersey 07022
Harry J. Leber 2000 Kennedy Boulevard
Union City, New Jersey 07087
George P. Moser, Sr. 415 32nd Street
Union City, New Jersey 07087
Harold J. Olsen 638 Anderson Avenue
Cliffside Park, New Jersey 07010
Charles F.X. Poggi 15th and Adams Street
Hoboken, New Jersey 07030
James E. Schierloh East 210 Route 4
Paramus, New Jersey 07652
Sister Grace 308 Willow Avenue
Frances Strauber Hoboken, New Jersey 07030
Robert J. Burke Foot of Pershing Road
Weehawken, New Jersey 07087
Shareholders shall have no right to increase or decrease the number of
directors constituting the Board, except by the affirmative vote of at least
three-quarters of all of the outstanding shares of common stock entitled to vote
thereon, said vote to take place at an annual or special meeting of the
Corporation's stockholders called for the purpose of considering such matter.
Any director may be removed from office by the stockholders of the Corporation,
but only for cause.
Notwithstanding anything else in this Certificate of Incorporation to the
contrary (and notwithstanding the fact that a lesser percentage may be permitted
by law, this Certificate of Incorporation or the by-laws of the Corporation),
the provisions of this Article III may not be amended, altered, changed or
repealed in any respect, nor may any provision inconsistent herewith be adopted,
unless such action is approved by the affirmative vote of at least
three-quarters of all of the outstanding shares of common stock entitled to vote
thereon, said vote to take place at an annual or special meeting of the
Corporation's stockholders called for the purpose of considering such matter.
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ARTICLE IV
CORPORATE PURPOSE
The purpose for which the Corporation is organized is to engage in any
activities for which corporations may be organized under the New Jersey Business
Corporation Act, subject to any restrictions which may be imposed from time to
time by the laws of the United States or the State of New Jersey with regard to
the activities of a bank holding company.
ARTICLE V
CAPITAL STOCK
A. The total authorized capital stock of the Corporation shall be
125,000,000 shares, consisting of 100,000,000 shares of common stock and
25,000,000 shares of preferred stock which may be issued in one or more classes
or series. The shares of common stock shall constitute a single class and shall
be without nominal or par value. The shares of preferred stock of each class or
series shall be without nominal or par value, except that the amendment
authorizing the initial issuance of any class or series adopted by the Board of
Directors as provided herein, may provide that shares of any class or series
shall have a specified par value per share, in which event all of the shares of
such class or series shall have the par value per share so specified.
B. The Board of Directors of the Corporation is expressly authorized from
time to time to adopt and to cause to be executed and filed without further
approval of the shareholders amendments to this Certificate of Incorporation
authorizing the issuance of one or more classes or series of Preferred Stock for
such consideration as the Board of Directors may fix. In an amendment
authorizing any class or series of Preferred Stock, the Board of Directors is
expressly authorized to determine:
(a) The distinctive designation of the class or series and the number
of shares which will constitute the class or series, which number may be
increased or decreased (but not below the number of shares then outstanding
in that class or above the total shares authorized herein) from time to
time by action of the Board of Directors.
(b) The dividend rate of the shares of the class or series, whether
dividends will be cumulative, and, if so, from what date or dates;
(c) The price or prices at which, and the terms and conditions on
which, the shares of the class or series may be redeemed at the option of
the Corporation;
(d) Whether or not the shares of the class or series will be entitled
to the benefit of a retirement of sinking fund to be applied to the
purchase or redemption of such shares and, if so entitled, the amount of
such fund and the terms and provisions relative to the operation thereof;
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(e) Whether or not the shares of the class or series will be
convertible into, or exchangeable for, any other shares of stock of the
Corporation or other securities, and if so convertible or exchangeable, the
conversion price or prices, or the rates of exchange, and any adjustments
thereof, at which such conversion or exchange may be made, and any other
terms and conditions of such conversion or exchange;
(f) The rights of the shares of the class or series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation;
(g) Whether or not the shares of the class or series will have
priority over, parity with, or be junior to the shares of any other class
or series in any respect, whether or not the shares of the class or series
will be entitled to the benefit of limitations restricting the issuance of
shares of any other class or series having priority over or on parity with
the shares of such class or series and whether or not the shares of the
class or series are entitled to restrictions on the payment of dividends
on, the making of other distributions in respect of, and the purchase or
redemption of shares of any other class or series of Preferred Stock or
Common Stock ranking junior to the shares of the class or series;
(h) Whether the class or series will have voting rights,, in addition
to any voting rights provided by law, and if so, the terms of such voting
rights; and
(i) Any other preferences, qualifications, privileges, options and
other relative or special rights and limitations of that class or series.
C. The Series A Preferred Stock shall have a stated value of $24.00 per
share, and the shares therefore, when issued for such amount, shall be fully
paid and non-assessable. The Series A Preferred Stock shall consist of 938,690
shares, which number may be increased (but only in connection with a stock split
or stock dividend) or decreased from time to time (but not below the number
thereof then outstanding) by the Board of Directors. Upon the reacquisition of
any of the Series A Preferred Stock, through redemption, conversion or
otherwise, such reacquired Shares shall be canceled and shall become part of the
authorized and unissued Preferred Stock, but shall not be authorized and
unissued Series A Preferred Stock. The rights, preferences and limitations of
the Series A Preferred Stock are as follows:
(a) RANK. The Series A Preferred Stock shall be senior to any other
class or series of Preferred Stock in respect of (1) payment of dividends,
(2) payment upon dissolution, liquidation or winding up and (3) redemption.
(b) DIVIDENDS. The holders of Series A Preferred Stock, in preference
to the holders of the Common Stock and any other class or series of
Preferred Stock, shall be entitled to receive, when, as and if declared by
the Board of Directors, out of funds legally available therefore,
cumulative cash dividends at the annual rate per share of $1.44, and no
more, payable in quarter-annual installments on the 15th day of February,
May, August and November in each year, from the date of issuance. If the
dividends on the Series A Preferred Stock for any quarter-annual dividend
period shall not have been paid or declared for payment to the holders of
Series A Preferred Stock by the last day of such quarter annual dividend
period, the aggregate
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deficiency shall be cumulative and shall be fully paid or declared and set
apart for payment before any cash dividends or other distribution shall be
paid or set apart for payment to the holders of the Common Stock or any
other class or series of Preferred Stock of the Corporation. Accumulations
of dividends on the Series A Preferred Stock shall not bear interest.
(c) LIQUIDATION PREFERENCE. Upon the voluntary or involuntary
liquidation, dissolution, or winding up of the affairs of the Corporation,
the holders of Series A Preferred Stock shall be entitled to receive out of
the assets of the Corporation $24.00 per share, together with cumulative
dividends accrued and unpaid to the date of payment of such $24.00
distribution preference, and no more, before any amount shall be paid to,
or distributed among the holders of Common Stock or any other class or
series of Preferred Stock. For the purpose of this paragraph (c), dividends
shall be deemed to accrue on a daily basis. The merger or consolidation of
the Corporation into or with any other corporation, or the merger of any
other corporation into the Corporation, or the sale, lease or conveyance of
all or substantially all of the property or business of the Corporation,
shall not be deemed to be a dissolution, liquidation or winding up for
purposes of this paragraph (c).
(d) REDEMPTION.
(i) OPTION TO REDEEM. The Corporation shall not redeem any other
class or series of Preferred Stock unless and until all shares of the
Series A Preferred Stock have been redeemed. The Corporation shall not
redeem the Series A Preferred Stock without the prior approval of the
Board of Governors of the Federal Reserve System. Outstanding shares
of Series A Preferred Stock may be redeemed, as a whole (or in part
but only with the consent of the holder of the Shares to be redeemed)
at the option of the Corporation by vote of its Board of Directors at
any time from and after one year from the date of original issuance
and after the date on which the market price (as defined in
subparagraph (e)(iii)) for the Corporation's Common Stock is $24.00 or
more for 20 consecutive business days, or pursuant to paragraph (e)(v)
hereof. The $24.00 market price referred to in the previous sentence
shall be adjusted appropriately each time the Conversion Ratio is
required to be adjusted under subparagraph (e)(iv) and in the same
proportion as the Conversion Ratio is adjusted. Without limiting the
foregoing, the $24.00 market price of the Common Stock referred to
herein will be reduced to reflect stock splits and stock dividends
effected with respect to the Common Stock. If less than all the
outstanding shares of the Series A Preferred Stock are to be redeemed,
the shares to be redeemed shall be determined in such manner as the
Board of Directors may prescribe. The redemption price for shares of
the Series A Preferred Stock shall be $24.00 per share, plus all
accrued and unpaid dividends through the date fixed for redemption.
For the purpose of this paragraph (d), dividends shall be deemed to
accrue on a daily basis.
(ii) NOTICE. Written notice of redemption shall be given to each
holder of record of the shares of Series A Preferred Stock to be
redeemed, by mailing a notice of redemption to such holder by first
class mail, at such holder's address as it shall appear on the stock
books of the Corporation, in each case at least 15 days and not more
than 45 days prior to the date fixed for redemption; provided however,
if fewer than 25 days prior notice is given to holders, then at least
one follow-up written notice must be sent to holders who have not
converted by 7 days prior to the redemption date. Each such notice
shall specify the shares of
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stock to be redeemed, the redemption price, the date fixed for
redemption, the place for payment of the redemption price and for
surrender of the certificate or certificates representing the shares
to be redeemed, and if less than the total number of shares held by
such holder are to be redeemed, the number of shares of such holder to
be redeemed. No defect in such notice nor any defect in the mailing
thereof shall in and of itself affect the validity of the proceedings
for redemption, except as to any holder to whom the Corporation has
failed to mail such notice, or as to whom the notice was defective.
(iii) DEPOSIT OF REDEMPTION FUNDS. If notice of redemption shall
have been given as herein provided and if, on or before the date fixed
for redemption, the redemption price shall have been provided and set
aside by the Corporation with a bank with trust powers for the pro
rata benefit of the holders of the shares so called for redemption,
then, from and after the date fixed for redemption, the shares of
Series A Preferred Stock called for redemption shall no longer be
deemed outstanding, the dividends thereon shall cease to accumulate,
and all rights with respect to such shares shall forthwith cease. The
only right of the holders of the redeemed shares after such date shall
be the right to receive the redemption price for the shares called for
redemption, without interest. If the Board of Directors designates a
bank with trust powers as a depository of the funds to be used for
redemption and as agent of the Corporation for the giving of the
notices of redemption, the receipt of the shares and the payment of
the redemption price, the acts of such designated agent on behalf of
the Corporation shall have the same effect as if all such acts were
done by the Corporation.
Any monies deposited by the Corporation with such designated bank
which shall not be required for the redemption of shares because of
the conversion of such shares subsequent to the date of deposit, shall
be promptly repaid to the Corporation. Any other monies so deposited
by the Corporation with a designated bank and unclaimed at the end of
one year from the date fixed for redemption shall be repaid to the
Corporation upon its request, after which the holders of the shares
called for redemption shall look only to the Corporation for payment
of the redemption price.
The Corporation may use one of its subsidiary banks with trust
powers as the depository and agent for such redemption.
(iv) NO SINKING FUND. The Corporation shall not be obligated to
make payments into or to maintain any sinking fund for the Series A
Preferred Stock.
(e) CONVERSION.
(i) CONVERSION PRIVILEGES. The holder of any shares of Series A
Preferred Stock at any time prior to the date fixed for redemption as
provided in paragraph (d), shall have the right to surrender the
certificates evidencing such shares and receive, in conversion of each
share of Series A Preferred Stock, one share (the "Conversion Ratio")
of the Common Stock, no par value of the Corporation.
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(ii) MANNER OF EXERCISING CONVERSION PRIVILEGE. The conversion
privilege may be exercised at any time including from and after the
date on which a notice of redemption was given and prior to the close
of business on the last day before the date of redemption stated in
the notice. To exercise the conversion privilege, the holder of Series
A Preferred Stock shall surrender the certificates representing the
shares to be converted at the office of the Transfer Agent of the
Corporation and shall give written notice to the Corporation at such
office that the holder elects to convert such shares. Such
certificates shall be duly endorsed or assigned to the Corporation, or
in blank. Conversion shall be deemed to have been effected immediately
prior to the close of business on the date upon which such surrender
is made, and such date is referred to in this paragraph (e) as the
"Conversion Date." On the Conversion Date or as promptly thereafter as
practicable, the Corporation shall deliver to the holder of the stock
surrendered for conversion, or as otherwise directed by him in
writing, a certificate for the number of full shares of Common Stock
deliverable upon conversion of such Series A Preferred Stock and, if
applicable, a check in respect to any fraction of a share as provided
in subparagraph (e)(iii).
(iii) CASH ADJUSTMENT FOR FRACTIONAL SHARE UPON CONVERSION. The
Corporation shall not deliver fractional shares of Common Stock upon
conversation of shares of Series A Preferred Stock. In lieu of any
fractional share of Common Stock that would otherwise be deliverable
upon conversion, the Corporation shall pay an amount in cash equal to
the current market value of the fractional share, computed on the
basis of the market price on the last business day before the
Conversion Date. For purposes of this section, the "market price" on
any business day shall be the closing price per share of Common Stock
in the NASDAQ National Market System or, if the shares of Common Stock
are listed or admitted to trading on any national securities exchange,
the reported closing price per share of Common Stock on such exchange
on such day.
(iv) ADJUSTMENT OF CONVERSION RATIO. The Conversion Ratio of the
Series A Preferred Stock shall be adjusted from time to time as
follows:
(A) If at any time while any of the Series A Preferred Stock
is outstanding the Corporation shall (i) pay a dividend on its
Common Stock in shares of its capital stock, including Common
Stock and Preferred Stock, (ii) subdivide its outstanding shares
of Common Stock into a greater number of shares, (iii) combine
the outstanding shares of Common Stock into a smaller number of
shares, or (iv) issue by reclassification of its shares of Common
Stock any shares of stock of the Corporation, the Conversion
Ratio in effect immediately prior thereto shall be adjusted so
that the holder of any share of Series A Preferred Stock
thereafter surrendered for conversion shall be entitled to
receive the number of shares of Common Stock or other securities
of the Corporation which he would have owned or have been
entitled to receive after the happening of any of the events
described above had such share of Series A Preferred Stock been
converted immediately prior to the happening of such event. An
adjustment made pursuant to this subparagraph (e)(iv)(A) shall
become effective in the case of a dividend immediately after the
opening of business on the day following the record date for the
determination of shareholders entitled to receive such dividend,
and shall become effective in the case of a subdivision,
combination or reclassification immediately after the opening of
business
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on the day following the day when such subdivision,
combination, or reclassification becomes effective.
(B) If while any of the Series A Preferred Stock is
outstanding, the Corporation shall issue rights or warrants
ratably to the holders of shares of its Common Stock entitling
them to subscribe for or purchase shares of Common Stock at a
price per share less than the market price per share of Common
Stock on the record date for the determination of shareholders
entitled to receive such rights and warrants, the Conversion
Ratio in effect immediately before that record date shall be
adjusted as of the day following that record date so that it
shall equal the ratio determined by multiplying the Conversion
Ratio in effect immediately before that record date by a
fraction, of which the numerator shall be the number of shares of
Common Stock outstanding on that record date plus the number of
shares of Common Stock offered for subscription or purchase and
the denominator shall be the number of shares of Common Stock
outstanding on that record date plus the number of shares of
Common Stock that the aggregate offering price of the total
number of shares so offered would purchase at such current market
price per share of Common Stock. To the extent that such rights
or warrants are not exercised before the expiration thereof, the
Conversion Ratio shall be readjusted as of the close of business
on the expiration date to the Conversion Ratio that would then be
in effect based upon the number of shares of Common Stock
actually delivered upon the exercise of such rights or warrants.
(C) If the Corporation shall distribute, to all holders of
shares of its Common Stock, evidences of its indebtedness or of
its assets (excluding cash distributions made out of current or
retained earnings) the Conversion Ratio in effect immediately
before the record date for the determination of shareholders
entitled to receive such distribution shall be adjusted
immediately after the opening of business on the day following
that record date so that it shall equal the ratio determined by
multiplying the Conversion Ratio in effect immediately thereto by
a fraction, of which the numerator shall be the total number of
shares of Common Stock outstanding on that record date multiplied
by such current market price per share on that record date, and
of which one denominator shall be determined by subtracting the
aggregate face value of evidences of indebtedness or the
aggregate fair market value of evidences of its assets from an
amount equal to the total number of shares of Common Stock
outstanding on such record date multiplied by the current market
price per share of Common Stock on that record date.
(D) For the purpose of any computation under subparagraphs
(e)(iv)(B) and (C) above, the current market price per share of
Common Stock at any date shall be deemed to be the average of the
market prices for the thirty consecutive business days
terminating fifteen calendar days before the day in question. The
market price for each day shall be determined as provided in
subparagraph (e)(iii) hereof.
(E) No adjustment in the Conversion Ratio for the Series A
Preferred Stock shall be made if, at the same time that the
Corporation takes an action with respect to the Common Stock that
would otherwise require adjustment under subparagraphs (A)
through (C) above, the Corporation shall take the same action
with respect to the Series A Preferred Stock in the same
proportion as if each share of Series A Preferred Stock had been
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converted into shares of Common Stock at the then applicable
conversion Ratio immediately before the record date for the
determination of holders of Common Stock entitled to receive the
dividends, rights, warrants or distributions.
(F) Except as herein otherwise provided, no adjustment in
the Conversion Ratio shall be made by reason of the issuance of
shares of Common Stock, or any securities convertible into or
exchangeable for shares of Common Stock, or any securities
carrying the right to purchase any of the foregoing or for any
other reason whatsoever.
(G) No adjustment in the Conversion Ratio shall be required
unless such adjustment would require an increase or decrease of
at least one percent (1%) of such Ratio; provided, however, that
any adjustments which by reason of this subparagraph (e)(iv)(G)
are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under
this subparagraph (e)(iv) shall be made to the nearest hundredth
of a share.
(H) Whenever the Conversion Ratio is adjusted as provided in
this subparagraph (e)(iv), the Corporation shall promptly file
with the Transfer Agent for the Series A Preferred Stock a
statement signed by the Chairman of the Board, President or Vice
President of the Corporation and by its Treasurer or its
Secretary showing in detail the facts requiring such adjustment
and shall exhibit the statement to any holder of Series A
Preferred Stock desiring to inspect the statement. In addition,
with respect to adjustments made while any Series A Preferred
Stock is outstanding, the Corporation shall state to the Transfer
Agent and in the next quarterly and annual report that an
adjustment has been effected and give the adjusted Conversion
Ratio in the Corporation's next quarterly and annual report to
shareholders. Such quarterly and annual report shall be mailed to
all holders of record of the Series A Preferred Stock on the
record date used for mailing such quarterly and annual report to
holders of Common Stock.
(v) EFFECT OF CONSOLIDATIONS, Mergers or Sales on Conversion
Privilege. If at any time while any shares of the Series A Preferred Stock
are outstanding, the Corporation is consolidated or merged with or into any
other corporation or sells or conveys all or substantially all of its
assets, and pursuant to the provisions of the New Jersey Business
Corporation Act or the Corporation's certificate of incorporation the
approval of the holders of the Common Stock of the Corporation is required
for such transaction, then such transaction shall also require for approval
the affirmative vote of a majority of the outstanding Series A Preferred
Stock, voting as a separate class. Notwithstanding the foregoing, the
Corporation shall be entitled to redeem the Series A Preferred Stock
pursuant to the provisions of paragraph (d) prior to or simultaneously with
the consummation of any such transaction and if such redemption does take
place, the consent of the holders of the Series A Preferred Stock shall not
be required and if any vote upon such a transaction by the holders of
Series A Preferred Stock has been taken, such vote shall be disregarded.
(vi) NOTICE OF CERTAIN TRANSACTIONS REQUIRED. In addition to any other
notice required by this Article V, if at any time while Series A Preferred
Shares are outstanding the Corporation shall (i) declare a dividend (or any
other distribution) on its
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Common Stock other than a cash dividend out of current retained earnings or
surplus; or (ii) authorize the issuance to all holders of its Common Stock
of rights or warrants to subscribe for or purchase shares of its Common
Stock or of any other subscription rights or warrants; or (iii) reclassify
its Common Stock (other than through a subdivision or combination or by
changing the par value); or (iv) take any other action which requires the
Conversion Ratio to be adjusted under paragraph (e)(iv); or (v) become a
party to any consolidation or merger or sell or transfer all or
substantially all of the assets of the Corporation, then the Corporation
shall notify by regular mail the holders of record of the Series A
Preferred Shares at least 15 days prior to the appropriate record date. The
notice shall briefly describe the transaction and state (i) the record date
which will be used for the purpose of determining which holders will
receive such dividend or distribution, or rights or warrants, or (ii) the
date on which any such reclassification, consolidation, merger, sale or
transfer is expected to become effective, and the record date as of which
it will be determined which holders shall be entitled to exchange their
Common Stock for securities or other property delivered upon such
reclassification, consolidation, merger, sale or transfer. The Corporation
shall mail a notice of all meetings of shareholders (and any accompanying
proxy statement) to the holders of Series A Preferred Stock at the time the
notice (and proxy statement) is mailed to holders of Common Stock and shall
mail all other notices and financial statements to the holders of Preferred
Stock at the same time such notices and financial statements are mailed to
holders of Common Stock. If any action is taken by means of consent, notice
of such action by consent shall be sent to the holders of Series A
Preferred Stock at least 20 days prior to the effective date of such
consent. Failure to give or receive the notice required by this
subparagraph (e)(vi) or any defect therein shall not affect the legality or
validity or any such dividend, distribution, right or warrant or other
action but such failure shall not affect the rights of the holders of
Series A Preferred Stock to obtain an appropriate remedy on account of such
failure.
(vii) CORPORATION TO RESERVE STOCK FOR CONVERSION. As long as any
Series A Preferred Shares remains outstanding, the Corporation shall
reserve out of its authorized but unissued Common Stock the full number of
shares of Common Stock deliverable upon the conversion of all outstanding
Series A Preferred Stock.
(f) VOTING RIGHTS.
(i) Except as otherwise required by the New Jersey Business
Corporation Act and as otherwise provided in subparagraph (e)(v) and in
this paragraph (f), the holders of Series A Preferred Stocks shall have no
voting rights.
(ii) Any other provisions herein notwithstanding, if at any time the
Corporation shall have failed to pay for 2 quarters, whether or not
consecutive, the full quarter-annual dividends payable on the Series A
Preferred Stock, the holders of the Series A Preferred Stock shall have the
right, voting as a separate class, to elect a total of two directors to the
class of directors elected at the next annual meeting of shareholders (the
"Preferred Directors"). A dividend default with respect to the Series A
Preferred Stock, giving rise to the right to elect the Preferred Directors,
shall be deemed to continue to exist until all accrued dividends on all
outstanding shares of the Series A Preferred Stock shall have been paid to
the end of the past preceding quarterly dividend period.
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(A) Subject to the limitations set forth in subparagraph (B)
below, the Preferred Directors shall be elected to a term of office
the same as the term of office of the other directors in the class to
which they are elected. At each subsequent annual meeting of
shareholders at which directors of such class are elected, until all
dividends in default on the Series A Preferred Stock shall have been
paid or declared and set apart for payment, the holders of Series A
Preferred Stock shall have the right to vote for the election of
Preferred Directors in the manner described in this subparagraph (ii).
(B) The Preferred Directors shall hold office only until the
first meeting of shareholders following the payment, or the
declaration and setting apart for payment, of all dividends in default
on the Series A Preferred Stock, notwithstanding that the term of the
other directors in the class to which they are a member does not
expire at the time of such meeting. The successors to the Preferred
Directors shall be elected by the shareholders at such meeting to a
term of office which shall expire at the same time as the term of
office of the other directors in the class to which they are elected.
(C) At any meeting of shareholders held while holders of Series A
Preferred Stock have the voting power to elect Preferred Directors,
the holders of a majority of the then outstanding Series A Preferred
Stock who are present in person or by proxy shall be sufficient to
constitute a quorum for the election of the Preferred Directors as
herein provided.
(D) Any vacancy caused by the death, resignation, or removal of a
Preferred Director may be filled by the remaining Preferred Director,
or if there is no remaining Preferred Director, by a majority of the
holders of Series A Preferred Stock. In the event there is no
remaining Preferred Director to fill a vacancy, a holder(s) of 10% or
more of the outstanding Series A Preferred Stock shall have the right
to require the Corporation to hold a meeting of shareholders within 20
days (or such greater time as shall be required by law) to fill the
vacancy, unless when so requested a shareholders' meeting is scheduled
to occur in 60 days or less. Any Preferred Director so elected shall
hold office until the next annual meeting of shareholders, at which
time the holders of the Series A Preferred Stock shall elect a
Preferred Director to fill the vacancy if the term of office of the
Preferred Director who was replaced does not expire at the time of
such meeting.
(iii) While any Series A Preferred Stock is outstanding, the amendment
of any provision of this Section C of Article V of the Certificate of
Incorporation (except amendments relating to a stock split or reduction in
the authorized shares of the series that the New Jersey Business
Corporation Act authorizes the Board of Directors to adopt without
shareholder approval) shall require the affirmative vote of a majority of
the outstanding Series A Preferred Stock.
(iv) On any matter on which the holders of Series A Preferred Stock
shall be entitled to vote, they shall be entitled to one vote for each
share held. The holders of Series A Preferred Stock shall vote only as a
separate class; their votes shall not be counted together with the holders
of the Common Stock or any other class or series of Preferred Stock as a
single class.
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ARTICLE VI
INDEMNIFICATION
The Corporation shall indemnify its officers, directors, employees, and
agents and former officers, directors, employees and agents, and any other
persons serving at the request of the Corporation as an officer, director,
employee or agent of another corporation, association, partnership, joint
venture, trust, or other enterprise, against expenses (including attorneys'
fees, judgments, fines, and amounts paid in settlement) incurred in connection
with any pending or threatened action, suit, or proceeding, whether civil,
criminal, administrative or investigative, with respect to which such officer,
director, employee, agent or other person is a party, or is threatened to be
made a party, to the full extent permitted by the New Jersey Business
Corporation Act. The indemnification provided herein shall not be deemed
exclusive of any other right to which any person seeking indemnification may be
entitled under any by-law, agreement, or vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity, and shall inure to the benefit of the heirs,
executors, and the administrators of any such person. The Corporation shall have
this power to purchase and maintain insurance on behalf of any persons
enumerated above against any liability asserted against him and incurred by him
in any such capacity, arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of this Article.
ARTICLE VII
NAME AND ADDRESS OF INCORPORATOR
The name and address of the incorporator is: Ronald H. Janis, c/o Clapp &
Eisenberg, 80 Park Plaza, 23rd Floor, Newark, New Jersey 07102.
ARTICLE VIII
CLASSIFICATION OF DIRECTORS
The directors shall be divided into three classes, as nearly equal in
number as possible, with the term of office of the first class to expire at the
first annual meeting of stockholders following the meeting at which this Article
VIII is adopted, the term of office of the second class to expire at the second
annual meeting of stockholders following the meeting at which this Article VIII
is adopted and the term of office of the third class to expire at the third
annual meeting of stockholders following the meeting at which this Article VIII
is adopted.
If this Article VIII is adopted at a special meeting of stockholders,
directors of the second and third classes shall be elected to their terms at
such special meeting, and directors of the first class shall be designated in
advance of such special meeting by the Board of Directors from among the
directors elected at the preceding annual meeting of stockholders and shall not
be
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required to stand for election at such special meetings of stockholders. If
this Article VIII is adopted at an annual meeting of stockholders, all three
classes of directors shall be elected to their terms at such annual meeting. At
each annual meeting of stockholders following the initial classification and
election, directors elected to succeed those directors whose terms expire shall
be elected for a term of office to expire at the third succeeding annual meeting
of stockholders after their election or as soon thereafter as their successors
have been elected and qualified.
Notwithstanding anything else in this Certificate of Incorporation to the
contrary (and notwithstanding the fact that a lesser percentage may be permitted
by law, this Certificate of Incorporation or the by-laws of the Corporation),
the provisions of this Article VIII may not be amended, altered, changed or
repealed in any respect, nor may any provision inconsistent herewith be adopted,
unless such action is approved by the affirmative vote of at least
three-quarters of all of the outstanding shares of common stock entitled to vote
thereon, said vote to take place at an annual or special meeting of the
Corporation's stockholders called for the purpose of considering such matter.
ARTICLE IX
MINIMUM PRICE
The stockholder vote required to approve a Business Combination (as
hereinafter defined) shall be as set forth in this section.
A. (1) Except as otherwise expressly provided in this section, the
affirmative vote of at least three-quarters of all of the outstanding shares of
common stock entitled to vote thereon shall be required in order to authorize
any of the following:
(a) any merger or consolidation of the Corporation or any subsidiary
thereof with a Related Person (as hereinafter defined) or any other
corporation which after such merger or consolidation would be a Related
Person;
(b) any sale, lease, exchange, transfer or other disposition,
including without limitation, a mortgage, or any other security device, of
all or any Substantial Part (as hereinafter defined) of the assets of the
Corporation (including without limitation any voting securities of
subsidiary) or of a subsidiary, to a Related Person;
(c) the issuance or transfer by the Corporation or any subsidiary
thereof of any securities of the Corporation or a subsidiary of the
Corporation to a Related Person;
(d) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of a Related
Person;
(e) any reclassification of securities (including any reverse stock
split) or recapitalization of the Corporation, or any merger or
consolidation of the Corporation, with any of its Subsidiaries or any other
transaction (whether or not with or otherwise involving Related
13
<PAGE>
Person) which has the effect, directly or indirectly, of increasing the
proportionate share of any class of equity or convertible securities of the
Corporation or any Subsidiary which is directly or indirectly beneficially
owned by any Related Person;
(f) any agreement, contract or other arrangement providing for any of
the transactions described in this section of the Certificate of
Incorporation.
(2) Such affirmative vote shall be required notwithstanding any other
provision of this Certificate of Incorporation, any provision of law or any
agreement with any national securities exchange which might otherwise permit a
lesser vote or no vote.
(3) The term "Business Combination" as used in this section shall mean any
transaction which is referred to in any one or more of subparagraphs (a) through
(f) above.
B. The provisions of Part A of this section shall not be applicable to any
particular Business Combination, and such Business Combination shall require
only such affirmative shareholder vote and such approval by the Board of
Directors as is required by any other provision of this Certificate of
Incorporation, any provision of law or any agreement with any national
securities exchange, if all of the conditions specified in either of the
following subparagraphs (1) or (2) are met:
(1) The Business Combination shall have been approved by a majority of the
directors of the Corporation then in office.
(2) All the following conditions have been met:
(a) The aggregate amount of (x) cash and (y) Fair Market Value (as
hereinafter defined), as of the date of the consummation of the Business
Combination, of consideration other than cash to be received per share by
holders of common stock in such Business Combination shall be at least
equal to the amount determined under sub-clauses (i) and (ii) below:
(i) if the Related Person has acquired shares of the
Corporation's common stock in a tender offer for or has requested or
invited the tender of the Corporation's common stock in a transaction
subject to the provisions of Section 14(d) of the Securities Exchange
Act of 1934, the highest per share price (including any brokerage
commissions, transfer taxes and soliciting dealers' fees) paid by the
Related Person for any share of common stock acquired by it (a) within
the one-year period immediately prior to the first public announcement
of the proposal of the Business Combination (the "Announcement Date")
or (b) in connection with the tender offer or request or invitation of
tenders, whichever is higher;
(ii) if the Related Person has not made such a tender offer for
or invited or requested the tender of the Corporation's common stock,
two time the highest Fair Market Value per share of the Corporation's
common stock during the one-year period ending with the Announcement
Date.
14
<PAGE>
(b) The consideration to be received by holders of a particular class
of outstanding voting stock shall be in cash or in the same form as the
Related Person has previously paid for shares of such class of voting
stock. If the Related Person has paid for shares of any class of voting
stock with varying forms of consideration, the form of consideration such
class of voting stock shall be either cash or the form used to acquire the
largest number of shares of such class of voting stock previously acquired
by it.
C. For the purpose of this section the following definitions apply:
(1) The term "Related Person" shall mean and include (a) any
individual, corporation, partnership or other person or entity which
together with its "affiliates" (as that term is defined in Rule 12b-2
of the General Rules and Regulations under the Securities Exchange Act
of 1934), is the "beneficial owner" (as that term is defined in Rule
13d-3 of the General Rules and Regulations under the Securities
Exchange Act of 1934) in the aggregate of 10 percent or more of the
outstanding shares of the common stock of the Corporation; and (b) any
"affiliate" (as that term is defined in Rule 12b-2 under the
Securities Exchange Act of 1934) of any such individual, corporation,
partnership or other person or entity. Without limitation, any shares
of the common stock of the Corporation which any Related Person has
the right to acquire pursuant to any agreement, or upon exercise of
conversion rights, warrants or options or otherwise, shall be deemed
"beneficially owned" by such Related Person.
(2) The term "Substantial Part" shall mean more than 25 percent
of the total assets of the Corporation, as of the end of its most
recent fiscal year ending prior to the time the determination is made.
(3) The term "Fair Market Value" shall mean: (a) in the case of
stock, the highest closing sale price during the 30-day period
immediately preceding the date in question if a specific date for
valuation thereof is specified or during the period in question if a
period for valuation thereof is specified of a share of such stock on
the Composite Tape for American Stock Exchange-Listed Stocks, or, if
such stock is not quoted on the Composite Tape, on the America Stock
Exchange, or, if such stock is not listed on such Exchange, on the
principal United States securities exchange registered under the
Securities Exchange Act of 1934 on which such stock is listed, or, if
such stock is not listed on any such exchange, the highest closing
price or closing bid quotation with respect to a share of such stock
during the 30-day period preceding such date in question or during
such period in question on the National Association of Securities
Dealers, Inc. Automated Quotation System or any system then in use, or
if no such quotations are available, the fair market value on the date
in question of a share of such stock as determined by the Board of
Directors, in good faith; and (b) in the case of property other than
cash or stock, the fair market value of such property on the date in
question as determined by the Board of Directors in good faith.
(4) In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than cash to be
received" as used in paragraph (2)(a) of Part B of this Article shall
include the shares of common stock and/or the shares of any other
class of outstanding voting stock retained by the holders of such
shares.
15
<PAGE>
D. Nothing contained in this section shall be construed to relieve any
related Party from any fiduciary obligation imposed by law.
E. If any question shall arise as to the applicability of this Article IX
or as to the interpretation of any of its provisions, such question shall be
resolved by the Board of Directors, and the Board's resolution shall be final
and binding.
F. Notwithstanding any other provision of this Certificate of Incorporation
(and notwithstanding the fact that a lesser percentage may be permitted by law,
this Certificate of Incorporation or the by-laws of the Corporation), the
provisions of this Article IX may not be amended, altered, changed or repealed
in any respect, nor may any provision inconsistent herewith be adopted, unless
such action is approved by the affirmative vote of the holders of at least
three-quarters of all of the outstanding shares of common stock entitled to vote
thereon, said vote to take place at an annual or special meeting of the
Corporation's stockholders called for the purpose of considering such matter.
ARTICLE X
LIMITATION ON LIABILITY OF DIRECTORS AND OFFICERS
A director or officer of the Corporation shall not be personally liable to
the Corporation or its shareholders for damages for breach of any duty owed to
the Corporation or its shareholders, except that such provision shall not
relieve a director or officer from liability for ant breach of duty based upon
an act or omission (i) in breach of such person's duty of loyalty to the
Corporation or its shareholders, (ii) not in good faith or involving a knowing
violation of law, or (iii) resulting in receipt by such person of an improper
personal benefit. If the New Jersey Business Corporation Act is amended after
approval by the shareholders of this provision to authorize corporate action
further eliminating or limiting the personal liability of directors officers,
then the liability of a director and/or officer of the Corporation shall be
eliminated or limited to the fullest extent permitted by the New Jersey Business
Corporation Act as so amended.
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