================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
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: 48,449,809 shares, no par value,
outstanding as of August 11, 2000.
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<PAGE>
HUDSON UNITED BANCORP
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Consolidated Balance Sheets
At June 30, 2000 and December 31, 1999........................... 1
Consolidated Statements of Income
For the three-months and six-months ended
June 30, 2000 and 1999........................................... 2-3
Consolidated Statements of Comprehensive Income
For the three-months and six-months ended
June 30, 2000 and 1999........................................... 4
Consolidated Statements of Changes in Stockholders' Equity
For the six-months ended
June 30, 2000 and for the Year ended December 31, 1999........... 5
Consolidated Statements of Cash Flows
For the six-months ended
June 30, 2000 and 1999........................................... 6
Notes to Consolidated Financial Statements....................... 7-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................... 13-19
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................. 20
Signatures....................................................... 21
FINANCIAL DATA SCHEDULE ............................................... 22
<PAGE>
HUDSON UNITED BANCORP
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS (Unaudited)
June 30, December 31,
(in thousands, except share data) 2000 1999
--------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 319,631 $ 277,558
Federal funds sold and other 470 --
----------- -----------
TOTAL CASH AND CASH EQUIVALENTS 320,101 277,558
Investment securities available for sale,
at market value 447,756 2,804,302
Investment securities held to maturity,
at cost (market value of $517,466 and
$541,240 for 2000 and 1999, respectively) 540,923 562,224
Assets held for sale 1,965,871 9,073
Loans:
Residential mortgages 1,545,265 1,639,578
Commercial real estate mortgages 987,039 1,024,844
Commercial and financial 1,850,537 1,766,248
Consumer credit 942,464 1,029,975
Credit card 171,206 209,863
----------- -----------
TOTAL LOANS 5,496,511 5,670,508
Less: Allowance for possible loan losses (98,165) (98,749)
----------- -----------
NET LOANS 5,398,346 5,571,759
Premises and equipment, net 131,500 129,720
Other real estate owned 3,903 3,948
Intangibles, net of amortization 108,842 115,841
Other assets 192,707 211,861
----------- -----------
TOTAL ASSETS $ 9,109,949 $ 9,686,286
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 1,205,951 $ 1,231,478
Interest bearing 4,635,256 5,223,867
----------- -----------
TOTAL DEPOSITS 5,841,207 6,455,345
Borrowings 2,486,490 2,383,666
Other liabilities 21,166 70,809
----------- -----------
8,348,863 8,909,820
Subordinated debt 132,000 132,000
Company-obligated mandatorily redeemable
preferred capital securities of three
subsidiary trusts holding solely junior
subordinated debentures of the Company 125,300 125,300
----------- -----------
TOTAL LIABILITIES 8,606,163 9,167,120
Stockholders' Equity:
Common stock, no par value; authorized
103,000,000 shares; 52,171,776 shares
issued and 50,403,991 shares outstanding
in 2000 and 52,189,803 shares issued and
51,896,258 shares outstanding in 1999 92,762 92,794
Additional paid-in capital 322,280 326,673
Retained earnings 144,638 152,591
Treasury stock, at cost, 1,767,785 shares in
2000 and 293,545 shares in 1999 (40,500) (8,438)
Employee stock awards and unallocated
shares held in ESOP, at cost (7,364) (3,549)
Accumulated other comprehensive loss (8,030) (40,905)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 503,786 519,166
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,109,949 $ 9,686,286
=========== ===========
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) 2000 1999
--------------------------------------------------------------------------------
INTEREST AND FEE INCOME:
Loans $ 121,098 $105,713
Investment securities 48,351 53,487
Other 104 1,325
--------- --------
TOTAL INTEREST AND FEE INCOME 169,553 160,525
--------- --------
INTEREST EXPENSE:
Deposits 40,582 48,183
Borrowings 38,986 19,913
Subordinated and other debt 5,320 5,467
--------- --------
TOTAL INTEREST EXPENSE 84,888 73,563
--------- --------
NET INTEREST INCOME 84,665 86,962
PROVISION FOR POSSIBLE LOAN LOSSES 6,000 4,524
--------- --------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 78,665 82,438
--------- --------
NONINTEREST INCOME:
Service charges on deposit accounts 7,159 6,537
Securities gains 2,807 1,069
Loss on assets held for sale (63,619) --
Credit card fee income 5,565 5,063
Other income 7,391 9,210
--------- --------
TOTAL NONINTEREST (LOSS) INCOME (40,697) 21,879
--------- --------
NONINTEREST EXPENSE:
Salaries 16,810 21,341
Pension and other employee benefits 4,878 4,668
Occupancy expense 6,358 5,946
Equipment expense 5,548 3,708
Deposit and other insurance 646 496
Outside services 10,022 12,368
Amortization of intangibles 3,884 3,819
Other expense 5,584 8,222
Merger related and restructuring costs 4 --
--------- --------
TOTAL NONINTEREST EXPENSE 53,734 60,568
--------- --------
(LOSS)/INCOME BEFORE INCOME TAXES (15,766) 43,749
(BENEFIT)/PROVISION FOR INCOME TAXES (3,199) 14,760
--------- --------
NET(LOSS)/INCOME $ (12,567) $ 28,989
========= ========
(LOSS)/EARNINGS PER SHARE:
Basic $ (0.25) $ 0.55
Diluted $ (0.25) $ 0.54
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 50,933 52,637
Diluted 50,933 53,726
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) 2000 1999
--------------------------------------------------------------------------------
INTEREST AND FEE INCOME:
Loans $241,270 $205,087
Investment securities 98,300 101,382
Other 411 2,854
-------- ---------
TOTAL INTEREST AND FEE INCOME 339,981 309,323
-------- ---------
INTEREST EXPENSE:
Deposits 84,327 95,834
Borrowings 72,659 34,820
Subordinated and other debt 10,643 10,937
-------- ---------
TOTAL INTEREST EXPENSE 167,629 141,591
------- ---------
NET INTEREST INCOME 172,352 167,732
PROVISION FOR POSSIBLE LOAN LOSSES 12,000 9,045
-------- ---------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 160,352 158,687
-------- ---------
NONINTEREST INCOME:
Service charges on deposit accounts 13,869 13,331
Securities gains 2,758 3,248
Loss on assets held for sale (63,619) --
Credit card fee income 11,261 9,181
18,699 19,118
Other income -------- --------
TOTAL NONINTEREST (LOSS) INCOME (17,032) 44,878
-------- --------
NONINTEREST EXPENSE:
Salaries 35,884 41,600
Pension and other employee benefits 10,821 8,500
Occupancy expense 12,370 11,981
Equipment expense 10,596 7,077
Deposit and other insurance 1,327 1,118
Outside services 20,219 22,117
Amortization of intangibles 7,766 7,275
Other expense 15,046 17,055
Merger related and restructuring costs 4 --
-------- ---------
TOTAL NONINTEREST EXPENSE 114,033 116,723
-------- ---------
INCOME BEFORE INCOME TAXES 29,287 86,842
PROVISION FOR INCOME TAXES 11,981 29,102
-------- ---------
NET INCOME $ 17,306 $ 57,740
======== =========
EARNINGS PER SHARE:
Basic $ 0.34 $ 1.09
Diluted $ 0.34 $ 1.07
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 51,280 52,759
Diluted 51,608 53,860
See notes to consolidated financial statements.
3
<PAGE>
HUDSON UNITED BANCORP
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
THREE MONTHS ENDED
JUNE 30,
-----------------------
(In thousands) 2000 1999
--------------------------------------------------------------------------------
NET (LOSS) INCOME $(12,567) $ 28,989
======== ========
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Unrealized holding losses arising during period $ (7,692) $(24,587)
Less: reclassification adjustment for losses (gains)
included in net income 42,522 (695)
-------- --------
Other comprehensive income (loss) 34,830 (25,282)
-------- --------
COMPREHENSIVE INCOME $ 22,263 $ 3,707
======== ========
SIX MONTHS ENDED
JUNE 30,
----------------------
(In thousands) 2000 1999
--------------------------------------------------------------------------------
NET INCOME $ 17,306 $ 57,740
======== ========
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Unrealized holding losses arising during period $ (9,680) $(34,953)
Less: reclassification adjustment for losses (gains)
included in net income 42,555 (2,135)
-------- --------
Other comprehensive income (loss) 32,875 (37,088)
-------- --------
COMPREHENSIVE INCOME $ 50,181 $ 20,652
======== ========
See notes to consolidated financial statements.
4
<PAGE>
HUDSON UNITED BANCORP
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited)
(in thousands, except shares)
<TABLE>
<CAPTION>
Employee
Stock
Awards and
Convertible Unallocated
Preferred Stock Common Stock Additional Shares Held
--------------- --------------------- Paid-in- Retained Treasury in ESOP, at
Shares Amount Shares Amount Capital Earnings Stock Cost
<S> <C> <C> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 500 $ 50 52,570,448 $93,470 $ 360,621 $165,269 $ (9,819) $(2,368)
----------------------------------------------------------------------------------------------------------------------------
Net income - - - - - 69,338 - -
Cash dividends-common - - - (45,257) - -
3% Stock dividend - - 159,131 283 2,890 (36,759) 33,586 -
Shares issued for:
Stock options exercised - - 590,164 1,050 (7,868) - 24,986 -
Warrants exercised - - - - (182) - 236 -
Dividend reinvestment and
stock reinvestment plan - - 11,742 21 276 - - -
Preferred stock conversion (500) (50) - - (478) - 528 -
Cash in lieu of fractional shares - - - - (22) - - -
Other transactions - - (2,106) (4) 4 - - -
Purchase of treasury stock - - - - - - (121,367) -
LFB acquisition - - - - - - 26,563 -
Issuance and retirement of
treasury stock - - (1,139,576) (2,026) (32,853) - 34,879 -
Effect of compensation plans - - - - 4,285 - 1,970 (1,181)
Other comprehensive loss - - - - - - - -
----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 - - 52,189,803 92,794 326,673 152,591 (8,438) (3,549)
----------------------------------------------------------------------------------------------------------------------------
Net income - - - - - 17,306 - -
Cash dividends-common - - - - - (25,259) - -
Shares issued for stock options
exercised - - - - (3,644) - 6,847 -
Cash in lieu of fractional shares - - - - (134) - - -
Other transactions - - (18,027) (32) 67 - (35) -
Purchase of treasury stock - - - - - - (44,045) -
Effect of compensation plans - - - - (682) - 5,171 (3,815)
Other comprehensive income - - - - - - - -
----------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 2000 - $ - 52,171,776 $92,762 $ 322,280 $144,638 $(40,500) $(7,364)
----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Accumulated
Other
Comprehensive
Income (loss) Total
<S> <C> <C>
--------------------------------------------------------------
Balance at December 31, 1998 $ 12,702 $ 619,925
--------------------------------------------------------------
Net income - 69,338
Cash dividends-common - (45,257)
3% Stock dividend - -
Shares issued for:
Stock options exercised - 18,168
Warrants exercised - 54
Dividend reinvestment and
stock reinvestment plan - 297
Preferred stock conversion - -
Cash in lieu of fractional shares - (22)
Other transactions - -
Purchase of treasury stock - (121,367)
LFB acquisition - 26,563
Issuance and retirement of
treasury stock - -
Effect of compensation plans - 5,074
Other comprehensive loss (53,607) (53,607)
--------------------------------------------------------------
Balance at December 31, 1999 (40,905) 519,166
--------------------------------------------------------------
Net income - 17,306
Cash dividends-common - (25,259)
Shares issued for stock options
exercised - 3,203
Cash in lieu of fractional shares - (134)
Other transactions - -
Purchase of treasury stock - (44,045)
Effect of compensation plans - 674
Other comprehensive income 32,875 32,875
------------------------------------------------------------
Balance at June 30, 2000 $ (8,030) $ 503,786
--------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
HUDSON UNITED BANCORP
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
(in thousands) SIX MONTHS ENDED
JUNE 30,
----------- -----------
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 17,306 $ 57,740
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible loan losses 12,000 9,045
Provision for depreciation and amortization 16,095 14,104
Amortization of security premiums, net 248 687
Securities gains (2,758) (3,248)
Loss on assets held for sale 63,619 --
Gain on sales of premises and equipment (63) (114)
Gain on sale of loans (1,398) (3,164)
Loans originated for sale (22,487) (107,119)
Loans sold 9,073 101,768
Net change in assets held for sale -- 14,147
Decrease in other assets 2,216 7,188
(Decrease) increase in other liabilities (49,778) 3,793
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 44,073 94,827
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investment securities:
Available for sale 113,559 268,669
Proceeds from repayments and maturities of investment securities:
Available for sale 288,404 661,599
Held to maturity 43,155 65,228
Purchase of investment securities:
Available for sale (972) (1,311,357)
Held to maturity (21,962) (59,704)
Net cash acquired through acquisitions -- 132,446
Net decrease (increase) in loans other than purchases and sales 136,584 (53,424)
Proceeds from sales of loans 26,227 71,576
Purchase of loans -- (114,273)
Proceeds from sales of premises and equipment 9,148 5,351
Purchases of premises and equipment (18,303) (7,936)
Decrease in other real estate 45 481
----------- -----------
NET CASH PROVIDED BY (USED IN) IN INVESTING ACTIVITIES 575,885 (341,344)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in demand deposits, NOW accounts, and savings accounts (155,058) (190,703)
Net decrease in certificates of deposit (459,080) (185,978)
Net increase in borrowed funds 102,824 734,334
Reduction in ESOP loan -- 1,983
Proceeds from issuance of common stock 3,203 8,413
Cash dividends (25,259) (22,776)
Acquisition of treasury stock (44,045) (74,934)
----------- -----------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (577,415) 270,339
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 42,543 23,822
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 277,558 379,279
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 320,101 $ 403,101
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest 180,833 133,714
Income Taxes 20,276 21,108
=========== ===========
</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
("Hudson United", "the Company") include the accounts of the parent company,
Hudson United Bancorp, and its wholly-owned subsidiaries: Hudson United Bank,
HUBCO Capital Trust I, HUBCO Capital Trust II, and JBI Capital Trust I. All
material intercompany balances and transactions have been eliminated in
consolidation. 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 for the year ended December 31, 1999, as amended on March
31, 2000 and July 20, 2000.
7
<PAGE>
NOTE B -- EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income 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 preferred
stock (when outstanding) and the incremental number of shares issuable from the
exercise of stock options and stock warrants, calculated using the treasury
stock method. All per share amounts have been retroactively restated to reflect
all stock splits and stock dividends.
A reconciliation of weighted average common shares outstanding to weighted
average shares outstanding assuming dilution follows (in thousands, except per
share data):
THREE MONTHS ENDED JUNE 30,
--------------------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------------------
BASIC (LOSS) EARNINGS PER SHARE
Net (Loss) Income $(12,567) $ 28,989
Weighted Average Common Shares Outstanding 50,933 52,637
Basic (Loss) Earnings Per Share $ ( 0.25) $ 0.55
======== ========
DILUTED (LOSS) EARNINGS PER SHARE
Net (Loss) Income $(12,567) $ 28,989
Weighted Average Common Shares Outstanding 50,933 52,637
Effect Of Dilutive Securities:
Convertible Preferred Stock -- --
Warrants -- --
Stock Options -- 1,089
-------- --------
Weighted Average Common Shares Outstanding
Assuming Dilution 50,933 53,726
Diluted (Loss) Earnings Per Share $ (0.25) $ 0.54
======== ========
SIX MONTHS ENDED JUNE 30,
--------------------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------------------
BASIC EARNINGS PER SHARE
Net Income $17,306 $57,740
Weighted Average Common Shares Outstanding 51,280 52,759
Basic Earnings Per Share $ 0.34 $ 1.09
======= =======
DILUTED EARNINGS PER SHARE
Net Income $17,306 $57,740
Weighted Average Common Shares Outstanding 51,280 52,759
Effect Of Dilutive Securities:
Convertible Preferred Stock -- 2
Warrants -- 2
Stock Options 328 1,097
------- -------
Weighted Average Common Shares Outstanding 51,608 53,860
Assuming Dilution
Diluted Earnings Per Share $ 0.34 $ 1.07
======= =======
8
<PAGE>
NOTE C -- ACQUISITIONS
There were no acquisitions announced or completed in the first half of 2000.
On November 30, 1999, the Company acquired all the outstanding shares of
JeffBanks, Inc., based in Philadelphia, Pennsylvania. At the time of the
acquisition, Jeffbanks, Inc. had total assets of $1.8 billion.
On December 1, 1999, the Company acquired all the outstanding shares of Southern
Jersey Bancorp based in Bridgeton, New Jersey. At the time of the acquisition,
Southern Jersey Bancorp had total assets of approximately $425 million.
The above two acquisitions were accounted for using the pooling-of-interests
accounting method and, accordingly, the statements for periods prior to the
mergers have been restated to include these institutions and their results of
operations.
At June 30, 2000, the Company had merger-related and restructuring reserves of
$3.2 million consisting of $2.5 million of a 1999 reserve and $759 thousand of a
1998 reserve. In 1999, a $32.0 million reserve was established for
merger-related and restructuring charges. At December 31, 1999, the 1999 reserve
consisted of $12.2 million for severance and related costs ("severance") and
$11.7 million for the cost of consolidating operations ("consolidations").
During the first half of 2000, the Company paid $10.2 million for severance and
$11.2 million for consolidations related to the 1999 reserve. At June 30, 2000,
the 1999 reserve consisted of $2.0 million for severance and $493 thousand for
consolidations. In 1998, a $69.1 million reserve was established for
merger-related and restructuring charges. At December 31, 1999, the 1998 reserve
consisted of $142 thousand for severance and $1.8 million for consolidations.
During the first half of 2000, the Company paid $75 thousand for severance and
$1.1 million for consolidations related to the 1998 reserve. At June 30, 2000,
the 1998 reserve consisted of $67 thousand for severance and $692 thousand for
consolidations. The Company believes that the remaining restructuring reserves
as of June 30, 2000 are adequate and that no revisions of estimates are
necessary at this time.
9
<PAGE>
NOTE D -- SECURITIES
The following table presents the amortized cost and estimated market value of
investment securities available for sale and held to maturity at the dates
indicated:
<TABLE>
<CAPTION>
June 30, 2000
-----------------------------------------------
Gross Unrealized Estimated
Amortized ---------------------- Market
Cost Gains (Losses) Value
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Government $ 35,831 $ 11 $ (345) $ 35,497
U.S. Government agencies 3,501 1,047 -- 4,548
Mortgage-backed securities 264,883 451 (10,493) 254,841
States and political subdivisions 2,020 44 (5) 2,059
Other debt securities 3,890 -- (388) 3,502
Equity securities 153,549 813 (7,053) 147,309
--------- --------- --------- ---------
$ 463,674 $ 2,366 $ (18,284) $ 447,756
========= ========= ========= =========
<CAPTION>
June 30, 2000
-----------------------------------------------
Gross Unrealized Estimated
Amortized ---------------------- Market
Cost Gains (Losses) Value
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
HELD TO MATURITY
U.S. Government $ 24,197 $ -- $ (231) $ 23,966
U.S. Government agencies 38,203 -- (947) 37,256
Mortgage-backed securities 440,013 252 (22,298) 417,967
States and political subdivisions 38,389 13 (244) 38,158
Other debt securities 121 -- (2) 119
--------- --------- --------- ---------
$ 540,923 $ 265 $ (23,722) $ 517,466
========= ========= ========= =========
<CAPTION>
December 31, 1999
------------------------------------------------------
Gross Unrealized Estimated
Amortized -------------------------- Market
Cost Gains (Losses) Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Government $ 87,332 $ 196 $ (303) $ 87,225
U.S. Government agencies 350,040 85 (7,595) 342,530
Mortgage-backed securities 2,167,606 1,431 (48,880) 2,120,157
States and political subdivisions 3,118 12 (10) 3,120
Other debt securities 47,128 4 (1,813) 45,319
Equity securities 213,826 1,932 (9,807) 205,951
----------- ----------- ----------- -----------
$ 2,869,050 $ 3,660 $ (68,408) $ 2,804,302
=========== =========== =========== ===========
<CAPTION>
December 31, 1999
-----------------------------------------------
Gross Unrealized Estimated
Amortized ---------------------- Market
Cost Gains (Losses) Value
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
HELD TO MATURITY
U.S. Government $ 24,195 $ -- $ (253) $ 23,942
U.S. Government agencies 45,960 201 (636) 45,525
Mortgage-backed securities 467,540 220 (19,967) 447,793
States and political subdivisions 24,500 26 (575) 23,951
Other debt securities 29 -- -- 29
--------- --------- --------- ---------
$ 562,224 $ 447 $ (21,431) $ 541,240
========= ========= ========= =========
</TABLE>
10
<PAGE>
NOTE E -- COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED CAPITAL SECURITIES
OF THREE SUBSIDIARY TRUSTS HOLDING SOLELY JUNIOR SUBORDINATED
DEBENTURES OF THE COMPANY
On January 31, 1997, the Company placed $50.0 million in aggregate liquidation
amount of 8.98% Capital Securities due February 2027, using HUBCO Capital Trust
I, a statutory business trust formed under the laws of the State of Delaware.
The sole asset of the trust, which is the obligor on the Series B Capital
Securities, is $51.5 million principal amount of 8.98% Junior Subordinated
Debentures due 2027 of Hudson United Bancorp. The net proceeds of the offering
are being used for general corporate purposes and to increase capital levels of
the Company and its subsidiaries. The securities qualify as Tier I capital under
the capital guidelines of the Federal Reserve.
On February 5, 1997, the company placed $25.0 million aggregate liquidation
amount of 9.25% Capital Securities due March 2027, using JBI Capital Trust I, a
statutory business trust formed under the laws of the State of Delaware. The
sole asset of the trust, which is the obligor on the capital securities, is
$25.3 million principal amount of 9.25% Junior Subordinated Deferrable
Debentures due 2027 of Hudson United Bancorp. The net proceeds of the offering
are being used for general corporate purposes and to increase capital levels of
the Company and its subsidiaries. The securities qualify as Tier I capital under
the capital guidelines of the Federal Reserve. The securities are callable by
the Company on or after March 31, 2002, or earlier in the event the deduction of
related interest for federal income taxes is prohibited, treatment as Tier I
capital is no longer permitted or certain other contingencies arise.
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.
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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, 2000
---------- ----------- ----------
Before tax Tax Benefit Net of Tax
amount (Expense) Amount
---------- ----------- ----------
Unrealized security gains (losses)
arising during the period $ (8,057) $ 365 $ (7,692)
Less: reclassification adjustment
for losses realized in net income (60,812) 18,290 (42,522)
-------- -------- --------
Net change during period $ 52,755 $(17,925) $ 34,830
-------- -------- --------
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 $(39,065) $ 14,478 $(24,587)
Less: reclassification adjustment
for gains realized in net income 1,069 (374) 695
-------- -------- --------
Net change during period $(40,134) $ 14,852 $(25,282)
-------- -------- --------
For the six-months ended
June 30, 2000
---------- ----------- ----------
Before tax Tax Benefit Net of Tax
amount (Expense) Amount
---------- ----------- ----------
Unrealized security gains (losses)
arising during the period $(12,031) $ 2,351 $ (9,680)
Less: reclassification adjustment
for losses realized in net income (60,861) 18,306 (42,555)
-------- -------- --------
Net change during period $ 48,830 $(15,955) $ 32,875
-------- -------- --------
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 $(61,476) $ 26,523 $(34,953)
Less: reclassification adjustment
for gains realized in net income 3,284 (1,149) 2,135
-------- -------- --------
Net change during period $(64,760) $ 27,672 $(37,088)
-------- -------- --------
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.
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<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. JeffBanks,
Inc. was acquired on November 30, 1999 and Southern Jersey Bancorp was acquired
on December 1, 1999. 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. Little
Falls Bancorp, Inc. was acquired on May 20, 1999 and Lyon Credit Corporation on
October 22, 1999. In addition, the Company completed its purchase of deposits
and a retail branch office in Hartford, Connecticut from First International
Bank on March 26, 1999 and on December 1, 1999, completed a purchase and sale
transaction in which Hudson United Bank acquired the loans, other financial
assets, and assumed the deposit liabilities of Advest Bank and Trust. These
transactions were accounted for under the purchase method of accounting 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. The Company assumes no obligation for updating any such
forward-looking statements at any time.
RESULTS OF OPERATIONS
OVERVIEW
During the second quarter ended June 30, 2000, the Company executed a balance
sheet restructuring initiative designed to improve earnings per share,
performance ratios and reduce the Company's sensitivity to rising interest
rates. The initiative involves the sale of approximately $2 billion of the
Company's investment securities, which have been carried as available for sale,
with the majority of the proceeds to be used to pay down short-term borrowings.
The Company recorded a $44.4 million after-tax loss as these securities, which
are predominantly mortgage-related, were transferred to the held for sale
category effective June 30, 2000.
The Company had a net loss for the second quarter ended June 30, 2000 of $12.6
million due to a $44.4 million after-tax non-recurring loss which resulted from
the Company's recently announced balance sheet restructuring. The non-recurring
loss was recorded in the Consolidated Statement of Income as "Loss on assets
held for sale." Operating earnings, which exclude the non-recurring loss, were
$31.8 million for the second quarter of 2000 and net income was $29.0 million
for the same period in 1999. Fully diluted earnings per share amounted to a net
loss of $0.25 per share for the 2000 second quarter. Operating fully diluted
earnings per share were $0.62 for the 2000 second quarter compared to fully
diluted earnings per share of $0.54 in the 1999 second quarter. The increase in
operating earnings for the second quarter of 2000 was due to the realization of
cost savings from recent acquisitions and business growth compared to last
year's second quarter. For the three months ended June 30, 2000, excluding the
non-recurring loss, return on average assets was 1.38% and return on average
equity was 25.33%. For the corresponding 1999 period, return on average assets
was 1.26% and return on average equity was 19.38%.
For the six-months ended June 30, 2000, the Company had net income of $17.3
million or $0.34 per fully diluted share. Operating earnings for the same period
were $61.7 million or $1.20 per fully diluted share. In the 1999 period, net
income was $57.7 million and fully diluted earnings per share was $1.07. The
increase in operating earnings resulted primarily from revenue growth in our
core businesses and the realization of cost saves related to our most recent
acquisitions. On an operating basis, for the six-month period ended June 30,
2000, return on average assets was 1.33% and return on average equity was
24.39%. For the corresponding period in 1999, return on average assets was 1.30%
and return on average equity was 19.39%.
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<PAGE>
NET INTEREST INCOME
Net interest income was $84.7 million for the three-month period ended June 30,
2000 and $87.0 million for the three-month period ended June 30, 1999. The
decrease in net interest income was due primarily to a lower net interest margin
(4.00% in 2000 and 4.12% in 1999). While average interest-earning assets
declined $17 million in the second quarter of 2000 compared to the corresponding
1999 period, average loan volume was $549 million higher in the 2000 second
quarter compared to the same period in 1999. Interest income increased by $9.0
million in the second quarter of 2000 compared to the second quarter of 1999 due
to a $15.4 million increase in interest on loans. The higher loan interest was
the result of higher average loan volumes and an increase in loan yields.
Interest expense for the three-months ended June 30, 2000 was $11.3 million
higher than the same 1999 period due to higher interest expense on borrowings,
partially offset by lower interest expense on deposits. The increase in
borrowing expense of $19.1 million was primarily due to higher average volumes.
The decline in deposit expense of $7.6 million resulted from lower average
deposit volumes and a 13 basis point decline in the cost of deposits to 2.77% in
the second quarter of 2000. The decline in the cost of deposits was largely the
result of a more favorable deposit mix.
Net interest income was $172.4 million for the six-month period ended June 30,
2000 and $167.7 million for the same period in 1999. The increase in net
interest income was due a higher average volume of interest-earning assets,
primarily loans. Partially offsetting this was a 9 basis point decline in the
net interest margin to 4.02% for the 2000 period. Interest income increased by
$30.7 million in the first half of 2000 compared to the first half of 1999 due
to a $36.2 million increase in interest on loans. The increase in loan interest
was due to both higher loan volumes and loan yields. Interest expense for the
six-months ended June 30, 2000 was $26.0 million higher than the same 1999
period due to a $37.8 million increase in interest expense on borrowings,
partially offset by a $11.5 million decrease in interest expense on deposits. As
for the quarterly comparison, the increase in borrowing expense was primarily
due to higher average volumes. The decline in deposit expense resulted from
lower average deposit volumes and a lower cost of deposits resulting from a more
favorable deposit mix.
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses was $6.0 million and $4.5 million for the
three-month periods ended June 30, 2000 and 1999, respectively. For the
six-months ended June 30, 2000 and 1999, the provision for possible loan losses
was $12.0 million and $9.0 million, respectively. The higher provision reflects
the nonperforming assets and charge-offs in our portfolio including the acquired
companies utilizing the Company's reserve methodology. The allowance for
possible loan losses ("the Allowance") was $98.2 million, $98.1 million, and
$98.7 million at June 30, 2000, March 31, 2000, and December 31, 1999. For the
same three periods respectively, the allowance represented 176%, 178%, and 201%
of non-performing loans and 1.78%, 1.74%, and 1.74% of total loans.
The determination of the adequacy of the Allowance 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. 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 acquired in 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
business combinations, knowledge about customers, the results of ongoing credit
quality monitoring processes, the adequacy and expertise of the Company's
lending staff, underwriting policies, loss histories, delinquency trends, the
cyclical nature of economic and business conditions, and the concentration of
real estate related loans located in the Northeastern 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
14
<PAGE>
underlying values available to protect the Company from loss. Other evidence
used to determine 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
Based upon the process employed and giving recognition to all attendant factors
associated with the loan portfolio, management considers the Allowance to be
adequate at June 30, 2000.
15
<PAGE>
Nonperforming assets were $59.5 million at June 30, 2000 and $53.1 million at
December 31, 1999. The increase from year-end resulted primarily from several
acquisition-related credits moving to nonaccrual status. 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)
----------------------
6/30/00 12/31/99
------- -------
Nonaccrual Loans:
Commercial $18,363 $ 7,516
Real Estate 34,593 38,190
Consumer 2,666 646
------- -------
Total Nonaccrual Loans 55,622 46,352
Renegotiated Loans -- 2,751
------- -------
Total Nonperforming Loans 55,622 49,103
Other Real Estate Owned 3,903 3,948
------- -------
Total Nonperforming Assets $59,525 $53,051
======= =======
Nonaccrual Loans to Total Loans 1.01% 0.82%
Nonperforming Assets to Total Assets 0.65% 0.55%
Allowance for Loan Losses to Nonaccrual Loans 176% 213%
Allowance for Loan Losses to Nonperforming Loans 176% 201%
Loans Past Due 90 Days or More and Accruing
Commercial $ 6,020 $ 3,004
Real Estate 13,019 13,085
Consumer 5,542 3,011
Credit card 2,326 4,139
------- -------
Total Past Due Loans $26,907 $23,239
======= =======
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<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
6/30/00 12/31/99
----------------------------
(Dollars in thousands)
Amount of Loans Outstanding at Period End $ 5,518,998 $ 5,679,581
=========== ===========
Daily Average Amount of Loans Outstanding $ 5,605,312 $ 5,136,467
=========== ===========
ALLOWANCE FOR LOAN LOSSES
Balance at beginning of year $ 98,749 $ 76,043
Loans charged off:
Real estate mortgages (937) (13,657)
Commercial (3,748) (10,388)
Consumer (12,332) (24,012)
----------- -----------
Total loans charged off (17,017) (48,057)
----------- -----------
Recoveries:
Real estate mortgages 520 1,902
Commercial 821 1,962
Consumer 3,092 6,065
----------- -----------
Total recoveries 4,433 9,929
----------- -----------
Net loans charged off (12,584) (38,128)
Allowance of acquired companies -- 8,634
Provision for possible loan losses 12,000 52,200
----------- -----------
Balance at end of period $ 98,165 $ 98,749
=========== ===========
Ratio of Annualized Net Loans Charged Off
During Period to Average Loans Outstanding 0.45% 0.74%
=========== ===========
17
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NONINTEREST INCOME
Total noninterest income for the second quarter of 2000 was a loss of $40.7
million. Excluding the $63.6 million loss on assets held for sale resulting from
the balance sheet restructuring, total noninterest income was $22.9 million.
Total noninterest income for the second quarter of 1999 was $21.9 million.
Service charges on deposit accounts and credit card fee income were each up 10%
from the 1999 period.
For the six-months ended June 30, 2000, total noninterest income, including the
loss on assets held for sale was a loss of $17.0 million. Excluding the loss on
assets held for sale of $63.6 million, total noninterest income was $46.6
million. For the six-months ended June 30, 1999, total noninterest income was
$44.9 million. As in the second quarter comparison, service charges on deposit
accounts and credit card fee income had year over year increases.
NONINTEREST EXPENSE
Noninterest expense for the second quarter of 2000 was $53.7 million compared to
$60.6 million in the second quarter of 1999. Included in the second quarter 2000
noninterest expense is the recognition of a $15 million guaranteed payment under
the terms of a termination agreement between Hudson United and Dime Bancorp. The
present value of this payment, or $13.6 million was recorded net of expenses
related to the terminated merger in the Company's Consolidated Statement of
Income as merger related and restructuring costs. The merger related expenses
exceeded the income recognized by $4 thousand. The decline in expenses was
primarily due to cost savings related to the JeffBanks, Inc. and Southern Jersey
Bancorp acquisitions. The efficiency ratio was 47.3% for the 2000 second quarter
and 51.7% for the 1999 second quarter. Noninterest expenses for the 2000 second
quarter were also lower than the 2000 first quarter by $6.6 million and the
efficiency ratio in the latest reported quarter was below the 50.1% reported in
the first quarter of this year.
Noninterest expenses were $114.0 million and $116.7 million for the first six
months of 2000 and 1999, respectively. The efficiency ratio was 48.7% for the
first half of 2000 and 51.4% for the first half of 1999. Acquisition related
cost savings were the primary reason for the decline in expenses, partially
offset by higher expenses in our expanding business units.
FINANCIAL CONDITION
Total assets amounted to $9.1 billion at June 30, 2000 and $9.7 billion at
December 31, 1999. At June 30, 2000, total loans were $5.5 billion, $161 million
lower than at December 31, 1999. Commercial loans were $1.9 billion at June 30,
2000, which was an increase of $84 million from December 31, 1999. As a result
of the balance sheet restructuring, $1.9 billion of available for sale
investment securities were recorded on the Consolidated Balance Sheet in the
category "Assets held for sale." At June 30, the remaining investment portfolio,
both available for sale and held to maturity, totaled $1.0 billion.
Deposits were $5.8 billion at June 30, 2000 and $6.5 billion at December 31,
1999. The decline in deposits was primarily in the higher cost interest-bearing
deposit categories. At June 30, 2000, borrowings amounted to $2.5 billion, $103
million higher than at December 31, 1999. As a result of the balance sheet
restructuring, borrowings are expected to decline significantly from the June
30th level. Total stockholders' equity was $503.8 million at June 30, 2000 and
$519.2 million at December 31, 1999. The loss incurred from the balance sheet
restructuring did not impact equity since it was already reflected as a
deduction in the category "Accumulated other comprehensive loss."
18
<PAGE>
The Company is not aware of any current recommendations by the regulatory
authorities that would have a material adverse effect on the Company's capital
resources or operations. The capital ratios for the Company at June 30, 2000 and
the minimum regulatory guidelines for such capital ratios for qualification as a
well-capitalized institution are as follows:
Minimum
Ratios at Regulatory
June 30, 2000 Guidelines
------------- -----------
Total Risk-Based Capital 12.02% 10.0%
Tier 1 Risk-Based Capital 8.80% 6.0%
Tier 1 Leverage Ratio 5.72% 4.0%
19
<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 Form 8-K
(1) On April 17, 2000, the Company filed a Form 8-K Item 5 (date of
earliest event -- April 14, 2000), containing the Company's press
release reporting earnings for the fist quarter of 2000.
(2) On May 1, 2000, Hudson United Bancorp filed a Form 8-K Item 5
(date of earliest event -- April 28, 2000), to announce the
termination of its pending merger agreement with Dime Bancorp,
Inc. and the entry into a Termination, Option Cancellation and
Settlement Agreement with Dime Bancorp, Inc.
20
<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 14, 2000 /s/ KENNETH T. NEILSON
----------------- ----------------------------------------------
Date Kenneth T. Neilson
Chairman, President & Chief Executive Officer
August 14, 2000 /s/ CHRIS A. McFADDEN
----------------- ----------------------------------------------
Date Chris A. McFadden
Senior Vice President & Chief Financial Officer
21
