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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2001
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 1-08660
HUDSON UNITED BANCORP
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(Exact name of registrant as specified in its Charter)
NEW JERSEY 22-2405746
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
1000 MACARTHUR BLVD.
MAHWAH, NEW JERSEY 07430
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201)236-2600
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, NO PAR VALUE
--------------------------
(Title of Class)
Indicate by check mark whether the registrant (l) 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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, as of March 4, 2002 was $1,334,540,302.
The number of shares of Registrant's common stock, no par value, outstanding as
of March 4, 2002 was 45,383,583.
PART I
ITEM 1. BUSINESS
(a) General Development of Business
Hudson United Bancorp ("HUB" or "Registrant" or the "Company") is a bank holding
company registered under the Bank Holding Company Act of 1956, as amended (the
"Bank Holding Company Act"). The Company was organized under the laws of New
Jersey in 1982 by Hudson United Bank ("Hudson United" or the "Bank") for the
purpose of creating a bank holding company to take advantage of the additional
powers provided to bank holding companies. The Company directly owns Hudson
United plus four additional subsidiaries, which are HUBCO Capital Trust I, HUBCO
Capital Trust II, JBI Capital Trust I and Jefferson Delaware, Inc. 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. The Company is also the
indirect owner, through Hudson United, of nine subsidiaries. All of the assets
and liabilities of the subsidiaries of the Company and the Bank are consolidated
on the balance sheet of the Company for shareholder reporting purposes. A
further description of these subsidiaries is contained in the section "Other
Subsidiaries" in this current document.
At December 31, 2001, HUB, through its subsidiaries, had total deposits of $6.0
billion, total loans and leases ("loans") of $4.4 billion and total assets of
$7.0 billion. HUB ranked third among commercial banks and bank holding companies
headquartered in New Jersey in terms of asset size at December 31, 2001. Hudson
United operates over 200 branches throughout New Jersey, Connecticut, lower New
York State and eastern Pennsylvania.
Hudson United is a full service commercial bank and offers the services
generally provided by commercial banks of similar size and character, including
imaged checking, savings, and time deposit accounts, 24-hour telephone banking,
internet banking, trust services, cash management services, merchant services,
safe deposit boxes, insurance, stock, bond, and mutual fund sales, secured and
unsecured personal and commercial loans, residential and commercial real estate
loans, and international services including import and export financing, foreign
currency purchases and letters of credit. The Bank's deposit accounts are
competitive with those of other banks and include checking, savings, money
market accounts and a variety of interest-bearing transaction accounts. In the
lending area, the Bank primarily engages in commercial lending, commercial real
estate lending, consumer lending primarily consisting of home equity loans and
auto loans and "private label" credit card programs for certain retailers and
other businesses. Most of the Company's loans are secured by commercial real
estate, residential real estate or other assets of borrowers.
The Company's main focus is on building banking relationships with individuals,
and small and medium sized businesses. Management attempts to differentiate the
Company from competitors by creating a superior "customer experience". In
addition, the Company believes its ability to supply the services of a large
institution with the personal touch of a small community bank represents a
competitive advantage.
Recent Change in Asset Size
The Company's total assets at December 31, 2001 were $7.0 billion, which
represented a slight increase in its total assets from the prior year, which
were $6.8 billion at December 31, 2000. This increase was due to increases in
investment securities of $935.8 million and other assets of $126.6 million being
offset in part by a decrease of $896.6 million in residential mortgage loans.
The increase in securities and the decline in residential mortgage loans was due
primarily to residential mortgage loan securitizations of $668.5 million during
2001. The increase in other assets was due primarily to the Company's investment
of $125 million in bank owned life insurance during June 2001. The Company's
primary focus in 2001 was on core business growth. Management focused on
executing its business strategies and in providing superior customer service. In
addition, during the year the Company's management team was strengthened through
the hiring of various senior and executive managers. The managers brought to
Hudson United diverse experience from a wide range of financial institutions.
The Company's total assets at December 31, 2000 were $6.8 billion, which
represented a significant reduction in its total assets from the prior year,
which were $9.7 billion at December 31, 1999. The reduction in total assets was
primarily the result of the Company's decision to implement a balance sheet
deleveraging strategy, under which the Company sold a significant amount of its
lower yielding investment securities portfolio and used the proceeds from such
sale to reduce its borrowings. The Company implemented this deleveraging
strategy to attempt to increase the Company's net interest margin, return on
assets, return on equity and earnings per share through a stock repurchase
program utilizing the capital which was freed up through the deleveraging while
also reducing the Company's exposure to changes in interest rates (See
Management's Discussion and Analysis).
Proposed Merger with Dime Bancorp, Inc. ("Dime") which was Terminated
in 2000
HUB entered into a merger agreement in 1999 with Dime, a New York City based
financial institution, under which HUB and Dime were to merge with Dime as the
surviving corporation in the merger changing its name to Dime United Bancorp,
Inc. ("Dime United"). Dime shareholders would have owned 56% of the outstanding
Dime United stock and HUB shareholders would have owned 44% of the outstanding
Dime United Stock following the merger. The proposed merger with Dime would have
been the largest business combination in HUB's corporate history.
The closing of the proposed merger was initially delayed, and the merger was
eventually terminated in 2000, following the announcement by North Fork
Bancorporation of an unsolicited acquisition bid for Dime. The initial delay and
the eventual termination of the merger had a negative impact on the Company's
growth and profitability during 1999 and 2000.
Under the terms of the merger termination agreement between Dime and the
Company, Dime was required to pay the Company a minimum merger termination fee
of $15 million on or before October 28, 2001. Dime was also required to pay
additional amounts to the Company on or before October 28, 2001, up to a maximum
amount of $92 million, in the event that Dime entered into certain transactions
with third parties involving a sale by Dime of a substantial portion of its
assets, a significant subsidiary, Dime itself or the acquisition of a certain
percentage of Dime's outstanding common stock. HUB recognized the minimum
termination fee payable from Dime as revenue when the pending merger was
terminated in 2000, which revenue was less than the expenses incurred by the
Company in the terminated merger. In June 2001, Dime agreed to merge with
Washington Mutual, Inc. Pursuant to the above mentioned termination agreement,
Dime was required to pay Hudson United $77 million upon the closing of the
merger with Washington Mutual. The merger of Dime and Washington Mutual closed
in January of 2002. The Company recognized the additional $77 million of
termination payments as revenue in the first quarter of 2002. The Company also
recorded in the first quarter of 2002 approximately $15 million of expenses
related to the terminated merger including financial advisor fees, acceleration
of employee retention awards and other expenses.
Acquisition Activity by the Company
The Company did not complete any acquisitions of other companies in 2001 or
2000.
The Company entered into agreements at several times in 2001 to purchase third
party credit card assets from a subsidiary of Transamerica Finance Company. As
of December 31, 2001, the Company had paid total consideration of $161.4 million
for $157.0 million of these assets, with an associated premium of $4.4 million
that is being amortized over five years. In August 2001, the Company assumed
deposit liabilities from First International Bank in the amount of $272.8
million at a discount of $0.5 million. These were deposit liabilities were
primarily short term brokered deposits.
The Company completed six acquisitions in 1999, and had completed a total of 31
acquisitions since October 1990. The Company increased its total assets over
this period from $550 million to $7.0 billion, and increased its branch network
from 15 branches to over 200 branches, primarily as a result of these
acquisitions.
On March 26, 1999, the Company completed its assumption of $151 million of
deposit liabilities and purchase of a retail branch office in Hartford,
Connecticut from First International Bank.
On May 20, 1999, the Company acquired Little Falls Bancorp, Inc. ("LFB") which
had assets of approximately $341 million and operated six offices in the
Hunterdon and Passaic counties of New Jersey.
On October 22, 1999, the Company acquired the assets of Lyon Credit Corporation,
a $350 million asset finance company and subsidiary of Credit Lyonnais Americas.
On December 1, 1999, the Company completed its purchase of loans (approximately
$148 million) and other financial assets, as well as assumed the deposit
liabilities (approximately $112 million) of Advest Bank and Trust. In addition,
a strategic partnership with Advest, Inc. was consummated on October 1, 1999, in
which Hudson United Bank became the exclusive provider of banking products and
services to the clients of Advest, Inc. That agreement was terminated in 2000
due to Advest's acquisition by a third party.
The above acquisitions in 1999 were accounted for under the purchase method of
accounting.
On November 30, 1999, the Company completed its acquisition of JeffBanks, Inc.
("Jeff"), a $1.8 billion bank holding company with 32 branches located
throughout the greater Philadelphia area of Pennsylvania and Southern New
Jersey.
On December 1, 1999, the Company completed its acquisition of Southern Jersey
Bancorp ("SJB"), a $425 million asset institution with 17 branches in Southern
New Jersey.
The Jeff and SJB acquisitions in the year ended December 31, 1999 were accounted
for under the poolings-of-interests method of accounting.
Summary of Acquisitions
The following chart summarizes the acquisitions undertaken by the Company since
October 1990. The amounts shown as "Purchase Price" represent either cash paid
or the market value of securities issued by Hudson United Bancorp to the
shareholders or owners of the acquired entity:
Loans
Purchase Deposits Purchased
Price Assumed or Acquired Branches
INSTITUTION (in millions) (in millions) (in millions) Acquired
- -------------------------------------------------------------------------------------------------------------------------
Mountain Ridge State Bank ............................. $ 0.3 $ 47 $ 12 1
Meadowlands National Bank ............................. 0.4 36 22 3
Center Savings and Loan ............................... 0.1 90 79 1
Irving Federal Savings and Loan ....................... 0.1 160 62 5
Broadway Bank and Trust ............................... 3.4 346 10 8
Pilgrim State Bank .................................... 6.0 123 47 6
Polifly Federal Savings and Loan ...................... 6.2 105 1 4
Washington Savings Bank ............................... 40.5 238 169 8
Shoppers Charge Accounts .............................. 16.3 -- 56 --
Jefferson National Bank ............................... 9.7 85 42 4
Urban National Bank ................................... 38.2 204 90 9
Growth Financial Corp ................................. 25.6 110 102 3
CrossLand Federal Savings Branches .................... 3.0 60 1 3
Lafayette American Bank & Trust ....................... 120.0 647 548 19
Hometown Bancorporation, Inc. ......................... 31.6 162 99 2
UST Bank, CT .......................................... 13.7 95 70 4
Westport Bancorp, Inc. ................................ 67.8 259 183 7
The Bank of Southington ............................... 26.7 122 85 2
Security National Bank & Trust ........................ 11.0 77 48 4
Poughkeepsie Financial ................................ 136.0 611 648 16
MSB Bancorp ........................................... 115.0 686 375 16
First Union Branches .................................. 32.0 320 1 23
Community Financial ................................... 29.6 137 87 8
Dime Financial ........................................ 201.0 817 374 11
IBS Financial ......................................... 227.0 560 218 10
FNB Branch Purchase ................................... 9.1 151 -- 1
Little Falls Bancorp, Inc. ............................ 55.0 234 153 6
Lyon Credit Corporation ............................... not disclosed -- 350 --
Advest Bank & Trust Assets/Liabilities ................ 2.0 112 148 --
JeffBanks, Inc. ....................................... 371.0 1,380 1,429 32
Southern Jersey Bancorp ............................... 54.0 382 213 17
The Company believes that its profitability and its financial condition was
significantly impacted by its acquisition strategy and by the consummation of
its acquisitions. From 1990 to 2001 the Company's return on average assets
increased from less than 1% to 1.5% and its return on average equity increased
from less than 10% to 25%.
The Company intends to continue to seek opportunities to acquire other banks or
financial services companies, and to acquire specific loans or other assets
and/or to assume deposit or other liabilities of other banks or financial
services companies. There can be no assurance that the Company will be
successful in making additional acquisitions or, if additional acquisitions are
made, that these acquisitions will enhance the profitability of the Company.
Stock Repurchases by the Company in 2001 and 2000
In November 1993, the Company's Board of Directors authorized management to
repurchase up to 10 percent of its outstanding common stock each year. The
program may be discontinued or suspended at any time, and there is no assurance
that the Company will purchase the full amount authorized. The acquired shares
are to be held in treasury and to be used for stock option and other employee
benefit plans, stock dividends, or in connection with the issuance of common
stock in future acquisitions. In June 2000, the Company's Board of Directors
authorized the repurchase of up to 20% of the Company's outstanding shares.
During 2000,
the Company purchased 9.4 million treasury shares at an aggregate cost of $l93.3
million,of which 5.2 million shares were reissued for stock dividends, stock
options and other employee benefit plans. In June 2001, the Company's Board of
Directors extended the Company's stock repurchase program until December 2002
and authorized additional repurchases of up to 10% of the Company's outstanding
shares.
During 2001, the Company purchased 2.3 million treasury shares at an aggregate
cost of $56.3 million. During 2001, 179,209 shares were reissued for stock
options. At December 31, 2001, there were 45.8 million shares of the Company's
common stock outstanding.
Other Subsidiaries
In addition to Hudson United Bank, the Company directly owns four consolidated
subsidiaries that were established for the purpose of issuing and servicing the
capital trust securities of the Company which enhance the regulatory capital of
the Company. They are HUBCO Capital Trust I, HUBCO Capital Trust II, JBI Capital
Trust I, and Jefferson Delaware, Inc.
The Company is also the indirect owner, through Hudson United, of the following
nine consolidated subsidiaries.
In 1997, Hudson United established a directly owned subsidiary called HUB
Mortgage Investments, Inc. At December 31, 2001, $578.3 million of mortgage
loans and $851.1 million in mortgage-related investment securities of Hudson
United were being managed by this subsidiary, which operates as a real estate
investment trust. This subsidiary was established to manage the Company's
mortgage-related assets and assist in managing its state income tax liability.
In 1987, Hudson United established a directly owned subsidiary called Hendrick
Hudson Corp. As of December 31, 2001, no Hudson United assets are being managed
by Hendrick Hudson Corp. of New Jersey. This subsidiary was established to
manage the Company's investment portfolio and assist in managing its state
income tax liability.
In 1998 Hudson United established NJ Investments of Delaware, Inc. As of
December 31, 2001, $474.2 million of Hudson United's investment portfolio was
being managed by NJ Investments of Delaware, Inc. This subsidiary was
established to manage the Company's investment portfolio and assist in managing
its state income tax liability.
Hudson United owns five subsidiaries that were established for the purpose of
holding real estate assets. They are -- Lafayette Development Corp., Plural
Realty, Inc., PSB Associates, Inc., AMBA Realty Corporation and Riverdale Timber
Ridge, Inc.
All of the assets and liabilities of the subsidiaries are consolidated in the
Company's financial statements.
Hudson Trader Brokerage Services, Inc., which was established in 1991, is a
subsidiary that was engaged in brokerage services. This subsidiary is inactive
and is expected to be officially dissolved in 2002.
In 1983, HUB formed a directly owned subsidiary called HUB Financial Services,
Inc., which was a wholly owned data processing subsidiary. In 1995, HUB sold 50%
of the stock in HUB Financial Services, Inc. to United National Bank, a New
Jersey based institution. HUB simultaneously made a capital contribution of the
remaining 50% to Hudson United Bank. Simultaneously with the sale of 50% to
United National Bank, the name of HUB Financial Services, Inc. was changed to
United Financial Services, Inc.("UFS"). UFS ceased to provide data processing
and imaged check processing services to both of its owner banks in October 1999.
The Company currently outsources such services to an independent third party
provider of such data processing and other services. The Company's investment in
UFS is zero and UFS is expected to be officially dissolved in 2002.
Employee Relations
Hudson United Bank enjoys a good relationship with its employees and is not
party to any collective bargaining agreements.
Regulatory Matters
The banking industry is highly regulated. Statutory and regulatory controls
increase a bank holding company's cost of doing business and limit the options
of its management to deploy assets and maximize income. Proposals to change the
laws and regulations governing the banking industry are frequently introduced in
Congress, in the state legislatures and before the various bank regulatory
agencies. The likelihood and timing of any changes and the impact such changes
might have on HUB cannot be determined at this time. The following discussion is
not intended to be a complete list of all the activities regulated by the
banking laws or of the impact of such laws and regulations on HUB or its banks.
It is intended only to briefly summarize some material provisions.
Capital Adequacy Guidelines and Deposit Insurance
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"),
required each federal banking agency to revise its risk-based capital standards
to ensure that those standards take adequate account of interest rate risk,
concentration of credit risk and the risks of non-traditional activities. In
addition, pursuant to FDICIA, each federal banking agency has promulgated
regulations, specifying the levels at which a bank would be considered "well
capitalized", "adequately capitalized", "undercapitalized", "significantly
undercapitalized", or "critically undercapitalized", and to take certain
mandatory and discretionary supervisory actions based on the capital level of
the institution.
The regulations implementing these provisions of FDICIA provide that a bank will
be classified as "well capitalized" if it (i) has a total risk-based capital
ratio of at least 10.0 percent, (ii) has a Tier 1 risk-based capital ratio of at
least 6.0 percent, (iii) has a Tier 1 leverage ratio of at least 5.0 percent,
and (iv) meets certain other requirements. A bank will be classified as
"adequately capitalized" if it (i) has a total risk-based capital ratio of at
least 8.0 percent, (ii) has a Tier 1 risk-based capital ratio of at least 4.0
percent, (iii) has a Tier 1 leverage ratio of (a) at least 4.0 percent, or (b)
at least 3.0 percent if the institution was rated 1 in its most recent
examination, and (iv) does not meet the definition of "well capitalized". A bank
will be classified as "undercapitalized" if it (i) has a total risk-based
capital ratio of less than 8.0 percent, (ii) has a Tier 1 risk-based capital
ratio of less than 4.0 percent, or (iii) has a Tier 1 leverage ratio of (a) less
than 4.0 percent, or (b) less than 3.0 percent if the institution was rated 1 in
its most recent examination. A bank will be classified as "significantly
undercapitalized" if it (i) has a total risk-based capital ratio of less than
6.0 percent, (ii) has a Tier 1 risk-based capital ratio of less than 3.0
percent, or (iii) has a Tier 1 leverage ratio of less than 3.0 percent. An
institution will be classified as "critically undercapitalized" if it has a
tangible equity to total assets ratio that is equal to or less than 2.0 percent.
An insured depository institution may be deemed to be in a lower capitalization
category if it receives an unsatisfactory examination.
As of December 31, 2001, the Bank's capital ratios exceed the requirements to be
considered a well capitalized institution under the FDIC regulations.
Bank holding companies must comply with the Federal Reserve Board's risk-based
capital guidelines. Under the guidelines, risk weighted assets are calculated by
assigning assets and certain off-balance sheet items to broad risk categories.
The total dollar value of each category is then weighted by the level of risk
associated with that category. A minimum risk-based capital to risk based assets
ratio of 8.00% must be attained. At least one half of an institution's total
risk-based capital must consist of Tier 1 capital, and the balance may consist
of Tier 2, or supplemental capital. Tier 1 capital consists primarily of common
stockholders' equity along with preferred or convertible preferred stock and
qualifying trust preferred securities, minus goodwill. Tier 2 capital consists
of an institution's allowance for loan and lease losses, subject to limitation,
hybrid capital instruments and certain subordinated debt. The allowance for loan
and lease losses which is considered Tier 2 capital is limited to 1.25% of an
institution's risk-based assets. As of December 31, 2001, HUB's total risk-based
capital ratio was 10.51% and its tier 1 risk-based capital ratio was 7.53%.
In addition, the Federal Reserve Board has promulgated a leverage capital
standard, with which bank holding companies must comply. Bank holding companies
must maintain a minimum Tier 1 capital to total assets ratio of 3%. However,
institutions which are not among the most highly rated by federal regulators
must maintain a ratio 100-to-200 basis points above the 3% minimum. As of
December 31, 2001, HUB had a leverage capital ratio of 5.75%.
HUB and its subsidiary bank are subject to various regulatory capital
requirements administered by federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory--and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on HUB's financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, HUB and its
subsidiary bank must meet specific capital guidelines that involve quantitative
measures of assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. Capital amounts and
classifications are also subject to qualitative judgments by the regulators as
to components, risk weightings, and other factors. Quantitative measures
established by regulation to ensure capital adequacy require banks to maintain
minimum amounts and ratios of total and Tier 1 capital (as defined in the
regulations) to risk weighted assets (as defined) and of Tier 1 capital (as
defined) to average assets (as defined). Management believes, as of December 31,
2001, that HUB and its subsidiary bank meet all capital adequacy requirements to
which they are subject.
Hudson United is a member of the Bank Insurance Fund ("BIF") of the FDIC. The
FDIC also maintains another insurance fund, the Savings Association Insurance
Fund ("SAIF"), which primarily covers savings and loan association deposits but
also covers deposits that are acquired by a BIF-insured institution from a
savings and loan association ("Oakar deposits").
The Economic Growth and Regulatory Reduction Act of 1996 (the "1996 Act")
included the Deposit Insurance Funds Act of 1996 (the "Funds Act") under which
the FDIC was required to impose a special assessment on SAIF assessable deposits
to recapitalize the SAIF. Under the Funds Act, the FDIC also charged assessments
for SAIF and BIF deposits in a 5 to 1 ratio to pay Financing Corporation
("FICO") bonds until January 1, 2000, at which time the assessment became equal.
The 1996 Act instituted a number of other regulatory relief provisions.
Restrictions on Dividend Payments, Loans, or Advances
The holders of HUB's common stock will receive dividends only when, and if such
dividends are declared by the Board of Directors of HUB out of funds legally
available, subject to the preferential dividend rights of any preferred stock
that may be outstanding from time to time.
The only statutory limitation is that such dividends may not be paid when HUB is
insolvent. Because funds for the payment of dividends by HUB come primarily from
the earnings of HUB's bank subsidiary, as a practical matter, restrictions on
the ability of Hudson United to pay dividends act as restrictions on the amount
of funds available for the payment of dividends by HUB.
Certain restrictions exist regarding the ability of Hudson United to transfer
funds to HUB in the form of cash dividends, loans or advances. New Jersey state
banking regulations allow for the payment of dividends in any amount provided
that capital stock will be unimpaired and there remains an additional amount of
paid-in capital of not less than 50 percent of the capital stock amount. As of
December 31, 2001 the maximum amount available for distribution to HUB from
Hudson United was $556.3 million, subject to regulatory capital limitations.
HUB is also subject to Federal Reserve Bank ("FRB") policies which may, in
certain circumstances, limit its ability to pay dividends. The FRB policies
require, among other things, that a bank holding company maintain a minimum
capital base. The FRB would most likely seek to prohibit any dividend payment
which would reduce a holding company's capital below these minimum amounts.
Under Federal Reserve regulations, Hudson United is limited as to the amounts it
may loan to its affiliates, including HUB. All such loans from the Bank are
required to be collateralized by specific assets owned by HUB or affiliates..
Holding Company Supervision
Under the Bank Holding Company Act, HUB may not acquire directly or indirectly
more than 5 percent of the voting shares of, or substantially all of the assets
of, any bank without the prior approval of the Federal Reserve Board.
In general, the Federal Reserve Board, under its regulations and the Bank
Holding Company Act, regulates the activities of bank holding companies and
non-bank subsidiaries of banks. The regulation of the activities of banks,
including bank subsidiaries of bank holding companies, generally has been left
to the authority of the supervisory government agency, which for Hudson United
is the FDIC and the New Jersey Department of Banking and Insurance (the
"NJDOBI").
Interstate Banking Authority
The Riegle-Neale Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Banking and Branching Act") enables a bank holding company to
acquire banks in states other than its home state regardless of applicable state
law.
The Interstate Banking and Branching Act also authorizes banks to merge across
state lines, thereby creating interstate branches. Under the legislation, each
state had the opportunity to "opt out" of this provision, thereby prohibiting
interstate branching in such states. Furthermore, a state may "opt in" with
respect to de novo branching, thereby permitting a bank to open new branches in
a state in which the bank does not already have a branch. Without de novo
branching, an out-of-state bank can enter the state only by acquiring an
existing bank. The vast majority of states have allowed interstate banking by
merger but have not authorized de novo branching.
Recent Legislation
As part of the USA Patriot Act, signed into law on October 26, 2001, Congress
adopted the International Money Laundering Abatement and Financial
Anti-Terrorism Act of 2001 (the "Act"). The Act authorizes the Secretary of the
Treasury, in consultation with the heads of other government agencies, to adopt
special measures applicable to financial institutions such as banks, bank
holding companies, broker-dealers and insurance companies. Among its other
provisions, the Act requires each financial institution: (i) to establish an
anti-money laundering program; (ii) to establish due diligence policies,
procedures and controls that are reasonably designed to detect and report
instances of money laundering in United States private banking accounts and
correspondent accounts maintained for non-United States persons or their
representatives; and (iii) to avoid establishing, maintaining, administering, or
managing correspondent accounts in the United States for, or on behalf of, a
foreign bank that does not have a physical presence in any country. In addition,
the Act expands the circumstances under which funds in a bank account may be
forfeited and requires covered financial institutions to respond under certain
circumstances to requests for information from federal banking agencies within
120 hours.
Treasury regulations implementing the due diligence requirements must be issued
no later than April 24, 2002. Whether or not regulations are adopted, the law
becomes effective July 23, 2002. Additional regulations are to be adopted during
2002 to implement minimum standards to verify customer identity, to encourage
cooperation among financial institutions, federal banking
agencies, and law enforcement authorities regarding possible money laundering or
terrorist activities, to prohibit the anonymous use of "concentration accounts,"
and to require all covered financial institutions to have a Bank Secrecy Act
compliance program.
The Act also amends the Bank Holding Company Act and the Bank Merger Act to
require the federal banking agencies to consider the effectiveness of a
financial institution's anti-money laundering activities when reviewing an
application under these acts.
The Gramm-Leach-Bliley Financial Modernization Act of 1999 became effective in
early 2000. The Modernization Act:
o allows bank holding companies meeting management, capital and Community
Reinvestment Act Standards to engage in a substantially broader range of
nonbanking activities than previously permissible, including insurance
underwriting and making merchant banking investments in commercial and
financial companies; if a bank holding company elects to become a financial
holding company, it files a certification, effective in 30 days, and
thereafter may engage in certain financial activities without further
approvals;
o allows insurers and other financial service companies to acquire banks;
o removes various restrictions previously applied to bank holding company
ownership of securities firms and mutual fund advisory companies; and
o establishes the overall regulatory structure applicable to bank holding
companies that also engage in insurance and securities operations.
The Modernization Act also modified other financial laws, including laws related
to financial privacy and community reinvestment.
Additional proposals to change the laws and regulations governing the banking
and financial services industry are frequently introduced in Congress, in the
state legislatures and before the various bank regulatory agencies. The
likelihood and timing of any such changes and the impact such changes might have
on HUB cannot be determined at this time.
Cross Guarantee Provisions and Source of Strength Doctrine
Under the Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA"), a depository institution insured by the FDIC can be held liable for
any loss incurred by, or reasonably expected to be incurred by, the FDIC in
connection with the default of a commonly controlled FDIC-insured depository
institution in danger of default. "Default" is defined generally as the
appointment of a conservatory or receiver and "in danger of default" is defined
generally as the existence of certain conditions, including a failure to meet
minimum capital requirements, indicative that a "default" is likely to occur in
the absence of regulatory assistance. These provisions have commonly been
referred to as FIRREA's "cross guarantee" provisions. Further, under FIRREA the
failure to meet capital guidelines could subject a banking institution to a
variety of enforcement remedies available to federal regulatory authorities,
including the termination of deposit insurance by the FDIC.
According to Federal Reserve Board policy, bank holding companies are expected
to act as a source of financial strength to each subsidiary bank and to commit
resources to support each such subsidiary. This support may be required at times
when a bank holding company may not be able to provide such support.
Furthermore, in the event of a loss suffered or anticipated by the FDIC - either
as a result of default of a bank subsidiary of the Company or related to FDIC
assistance provided to the subsidiary in danger of default - the other bank
subsidiaries of the Company may be assessed for the FDIC's loss, subject to
certain exceptions.
(b) Industry Segments
The Registrant has one industry segment -- commercial banking.
(c) Narrative Description of Business
HUB exists primarily to hold the stock of its subsidiaries. At December 31,
2001, HUB had 5 wholly-owned subsidiaries including Hudson United. In addition,
HUB, through Hudson United, indirectly owns 9 additional wholly-owned
subsidiaries. The historical growth of, and regulations affecting, each of HUB's
direct and indirect subsidiaries is described in Item 1(a) above, which is
incorporated herein by reference.
HUB is a legal entity separate from its subsidiaries. The stock of Hudson United
is HUB's principal asset. Dividends from Hudson United are the primary source of
income for HUB. As explained above in Item 1(a), legal and regulatory
limitations are imposed on the amount of dividends that may be paid by the Bank
to HUB.
At December 31, 2001, HUB, through its subsidiaries, had total deposits of $6.0
billion, total loans of $4.4 billion and total assets of $7.0 billion. HUB
ranked third among commercial banks and bank holding companies headquartered in
New Jersey in terms of asset size at December 31, 2001. The Bank operates branch
offices throughout the state of New Jersey; in the Hudson Valley area of New
York State; in southern Connecticut in the areas between Greenwich and Hartford;
and in Philadelphia and surrounding areas in Pennsylvania.
Hudson United is a full service commercial bank and offers the services
generally provided by commercial banks of similar size and character, including
imaged checking, savings, and time deposit accounts, 24-hour telephone banking,
internet banking, trust services, cash management services, merchant services,
safe deposit boxes, insurance, stock, bond, and mutual fund sales, secured and
unsecured personal and commercial loans, residential and commercial real estate
loans, and international services including import and export financing, foreign
currency purchases and letters of credit. The Bank's deposit accounts are
competitive with those of other banks and include checking, savings, money
market accounts and a variety of interest-bearing transaction accounts. In the
lending area, the Bank primarily engages in commercial lending, commercial real
estate lending, consumer lending primarily consisting of home equity loans and
auto loans and "private label" credit card programs for certain retailers and
other businesses. Most of the Company's loans are secured by commercial real
estate, residential real estate or other assets of borrowers.
The Company's main focus is on building banking relationships with individuals,
and small and medium sized businesses. Management attempts to differentiate the
Company from competitors by creating a superior "customer experience". In
addition, the Company believes its ability to supply the services of a large
institution with the personal touch of a small community bank represents a
competitive advantage.
Hudson United offers a variety of trust services. At December 31, 2001, Hudson
United's Trust Department had approximately $930.9 million of assets under
management or in its custodial control.
There are numerous commercial banks headquartered in New Jersey, Connecticut,
Pennsylvania and New York, which compete in the market areas serviced by the
Company. In addition, large out-of-state banks compete for the business of
residents and businesses located in the Company's primary market. A number of
other depository institutions compete for the business of individuals and
commercial enterprises including savings banks, savings and loan associations,
brokerage houses, financial subsidiaries of other industries and credit unions.
Other financial institutions, such as mutual funds, consumer finance companies,
factoring companies, and insurance companies, also compete with the Company for
loans or deposits. Competition for depositors' funds, for creditworthy loan
customers and for trust business is intense.
Despite intense competition with institutions commanding greater financial
resources, the Bank has been able to attract deposits, extend loans, sell its
services and operate at a strong level of performance.
Hudson United has focused on becoming an integral part of the communities it
serves. Officers and employees are incented to meet the needs of their customers
and to meet the needs of the local communities served.
The Company had 1,777 full-time equivalent employees as of December 31, 2001.
(d) Financial Information about foreign and domestic operations and export
sales.
Not Applicable
(e) Executive Officers of the Registrant
The following table sets forth certain information as to each executive officer
of the Company who is not a director.
Executive
Name, Age and Officer of
Position with the Company
the Company Since Principal Position
- --------------------------------------------------------------------------------
Joseph Barr, 52 ................. 2001 Executive Vice President,
Retail Banking
William R. Coda, 44 ............. 2000 Executive Vice President,
Human Resources and
Professional Development
William A. Houlihan, 46 ......... 2001 Executive Vice President, and
Chief Financial Officer
James Mayo, 62 .................. 2000 Executive Vice President,
Operations and Technology
Thomas R. Nelson, 57 ............ 1998 Executive Vice President;
Private Label Credit Card
Thomas J. Shara, 44 ............. 1995 Executive Vice President and
Senior Loan Officer
D. Lynn Van Borkulo-Nuzzo, 52 ... 1995 Executive Vice President and
Corporate Secretary
(f) Statistical Disclosure Required Pursuant to Securities Exchange Act,
Industry Guide 3
The statistical disclosures for a bank holding company required pursuant to
Industry Guide 3 are contained on the following pages of this Report on Form
10K.
ITEM 2. PROPERTIES
The corporate headquarters of the Company and the Bank is located in a three
story facility in Mahwah, New Jersey. HUB owns the building which is
approximately 64,350 square feet and houses the executive offices of the Company
and its subsidiaries. Hudson United occupied 201 branch offices as of December
31, 2001, of which 97 are owned and 104 are leased.
ITEM 3. LEGAL PROCEEDINGS
In the normal course of business, lawsuits and claims may be brought by and may
arise against HUB and its subsidiaries. In the opinion of management, no legal
proceedings which have arisen and which are presently pending or threatened
against HUB or its subsidiaries, when resolved, will have a material adverse
effect on the business or financial condition of HUB or any of its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of shareholders of HUB during the fourth
quarter of the year ended December 31, 2001.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of December 31, 2001, the Company had approximately 7,670 shareholders of
record.
The Company's common stock is listed on the New York Stock Exchange under the
symbol of "HU". The following represents the high and low closing sale prices
from each quarter during the last two years. The numbers have been restated to
reflect all stock dividends.
2001
--------------------------
High Low
---------- --------
1st Quarter ..................... $23.42 $20.00
2nd Quarter ..................... 26.20 21.50
3rd Quarter ..................... 28.80 25.01
4th Quarter ..................... 29.33 25.02
2000
--------------------------
High Low
---------- --------
1st Quarter ..................... $22.61 $16.42
2nd Quarter ..................... 24.77 17.67
3rd Quarter ..................... 25.11 20.34
4th Quarter ..................... 24.27 17.27
The following table shows the per share quarterly cash dividends paid upon the
common stock over the last two years, restated to give retroactive effect to
stock dividends.
2001 2000
---- ----
March ............. $0.250 March ........... $0.227
June .............. 0.250 June ............ 0.227
September ......... 0.250 September ....... 0.227
December .......... 0.260 December ........ 0.250
ITEM 6. SELECTED FINANCIAL DATA
(In Thousands Except For Per Share Amounts)
The following selected financial data should be read in conjunction with HUB's
Consolidated Financial Statements and the notes presented elsewhere herein.
Results reported in this table for years other than 2001 have been restated to
reflect pooling of interest transactions. Reference should be made to footnote
2, Business Combinations, of the Financial Statements for a discussion of recent
acquisitions that affect the comparability of the information contained in this
table.
($ 000) except per share data 2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Net Interest Income .......................... $ 285,366 $ 319,726 $ 343,066 $ 328,850 $ 326,544
Provision for Possible Loan and Lease
Losses .................................... 34,147 24,000 52,200 35,607 24,442
Net Income ................................... 94,461 49,821 69,338 26,751 83,995
Per Share Data(1)
Earnings Per Share:
Basic ..................................... 2.02 0.93 1.21 0.46 1.41
Diluted ................................... 2.00 0.92 1.18 0.44 1.35
Cash Dividends - Common ...................... 1.01 0.93 0.88 0.77 0.65
Balance Sheet Totals
(at or for the year ended December 31,):
Total Assets ................................. 6,999,535 6,817,226 9,686,286 8,897,775 8,649,847
Long Term Debt ............................... 248,300 248,300 257,300 257,300 210,050
Average Assets ............................... 6,710,167 8,207,384 9,248,141 8,721,572 8,314,181
Average Deposits ............................. 5,825,107 5,901,510 6,596,220 6,879,120 6,669,840
Average Equity ............................... 378,647 464,860 580,238 646,851 669,756
(1) Per share data is adjusted retroactively to reflect a 10% stock dividend
paid December 1, 2000, a 3% stock dividend paid December 1, 1999, a 3% stock
dividend paid September 1, 1998 and a 3% stock dividend paid December 1, 1997.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Statements Regarding Forward-Looking Information
This form 10-K, both in the Management Discussion & Analysis and elsewhere,
contains forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are not historical facts and
include expressions about management's confidence and strategies and
management's expectations about new and existing programs and products,
relationships, opportunities, technology and market conditions. These statements
may be identified by such forward looking terminology as "expect," "look,"
"believe," "anticipate," "consider," "may," "will," or similar statements or
variations of such terms. Such forward-looking statements involve certain risks
and uncertainties. These include, but are not limited to, changes in interest
rates, changes in economic conditions especially as they have been affected by
recent developments, deposit and loan trends, loan quality, trends in loan loss
provisions; changes in relationships with customers, failure to realize expected
cost savings or revenue enhancements from changes in business strategies and
acquisitions, and the effects of legal and regulatory provisions applicable to
the Company and its competitors. Actual results may differ materially from the
results discussed in these forward-looking statements. The Company assumes no
obligation for updating any such forward-looking statements at any time.
Acquisition Summary
The Company began its acquisition program in the fall of 1990. Since that time,
the Company has completed 31 acquisitions. Through these acquisitions, the
Company has grown from a $550 million asset banking company to a community
banking franchise with $7 billion in assets. From 1990 to 2001 return on average
assets increased from less than 1% to 1.5% and return on average equity
increased from less than 10% to 25%. The acquisition program has been utilized
to achieve efficiencies and to distribute the cost of new products and
technologies over a larger asset base. It is the Company's philosophy that
acquisitions should become accretive to earnings within a short time frame,
generally within one year. The financial results of certain of these
acquisitions are difficult to measure other than on an as-reported basis each
quarter because stock for stock acquisitions accounted for using the
pooling-of-interests method change historical results from those actually
reported by the Company.
The Company did not complete any acquisitions of other companies in 2001 and
2000.
The Company entered into agreements at several times in 2001 to purchase credit
card assets from a subsidiary of Transamerica Finance Company. As of December
31, 2001, the Company had paid total consideration of $161.4 million for $157.0
million of these assets, with an associated premium of $4.4 million that is
being amortized over five years. In August 2001, the Company assumed deposit
liabilities from First International Bank in the amount of $272.8 million at a
discount of $0.5 million. These were primarily brokered time deposits.
The Company consummated six acquisitions in 1999. 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 20, 1999, the Company acquired Little Falls Bancorp, Inc. ("LFB"), which
had assets of approximately $341 million and operated six offices in the
Hunterdon and Passaic counties of New Jersey.
On October 22, 1999, the Company acquired the assets of Lyon Credit Corporation,
a $350 million asset finance company and subsidiary of Credit Lyonnais Americas.
On December 1, 1999, the Company acquired the loans (approximately $148 million)
and other financial assets, as well as assumed the deposit liabilities
(approximately $112 million) of Advest Bank and Trust. In addition, a strategic
partnership with Advest, Inc. was consummated on October 1, 1999, in which
Hudson United Bank became the exclusive provider of banking products and
services to the clients of Advest, Inc. That agreement was terminated in 2000
due to Advest's acquisition by a third party.
The above 1999 acquisitions were accounted for under the purchase method of
accounting and, as such, the assets and earnings of the acquired entity are
included in the Company's consolidated results only from the date of acquisition
and thereafter.
On November 30, 1999, the Company completed its acquisition of JeffBanks, Inc.
("Jeff"), a $1.8 billion bank holding company with 32 branches located
throughout the greater Philadelphia area of Pennsylvania and Southern Jersey.
On December 1, 1999, the Company completed its acquisition of Southern Jersey
Bancorp ("SJB"), a $425 million asset institution with 17 branches in Southern
New Jersey.
The Jeff and SJB acquisitions were accounted for using the pooling-of-interests
accounting method and, accordingly, the statements for periods prior to the
acquisitions have been restated to include these institutions and their results
of operations.
Special Charges Summary
In 2000 and 1999, the Company incurred one-time charges ("special charges") as
detailed below. Further details relative to the special charges are discussed in
the "Noninterest Income" and "Noninterest Expenses" sections that follow.
Years Ended December 31,
SPECIAL CHARGES ------------------------
(IN THOUSANDS) 2000 1999
-------- --------
Merger related and restructuring
charges ............................. $ 15,004 $ 32,031
Nonrecurring Operating Charges ......... 7,000 --
Investment Security losses ............. 63,619 5,162
Special provisions for loan losses ..... -- 33,000
-------- --------
Total special charges pre-tax .......... $ 85,623 $ 70,193
======== ========
Total special charges after-tax ........ $ 58,472 $ 47,854
======== ========
Results of Operations for the Years
Ended December 31, 2001, 2000 and 1999
The Company reported net income of $94.5 million and fully diluted earnings per
share of $2.00 in 2001. The Company had net income of $49.8 million and fully
diluted earnings per share of $0.92 in 2000. Excluding special charges,
operating earnings were $108.3 million and fully diluted earnings per share were
$2.00 in 2000. The Company had net income of $69.3 million and fully diluted
earnings per share of $1.18 in 1999. Excluding special charges, the Company had
operating earnings of $117.2 million and fully diluted earnings per share of
$2.00 in 1999.
Years Ended December 31,
--------------------------------------
2001 2000 1999
--------- --------- ---------
Return on Average Assets .............. 1.41% 0.61% 0.75%
Return on Average Assets
(excluding special charges) ......... 1.41% 1.32% 1.27%
Return on Average Equity .............. 24.95% 10.72% 11.95%
Return on Average Equity
(excluding special charges) ......... 24.95% 23.30% 20.20%
Common Dividend Payout Ratio .......... 50.50% 101.09% 74.58%
Common Dividend Payout Ratio
(excluding special charges) ......... 50.50% 46.50% 44.00%
Average Stockholders' Equity to
Average Assets Ratio ............... 5.64% 5.66% 6.27%
Average Balances, Net Interest Income, Yields, and Rates
Years Ended December 31,
-----------------------------------------------------------------------------------------------------
For the Years Ending 2001 2000 1999
--------------------------------- ------------------------------- --------------------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
($ 000) BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
---------- --------- --------- ----------- -------- ------- ------------ --------- ------
ASSETS
Interest-bearing deposits
with banks ................ $ $ -- -- $ -- $ -- -- $ 17,441 $ 1,132 6.49%
Federal funds sold .......... 108,026 3,241 3.00% 1,770 111 6.31% 76,672 4,980 6.50%
Securities-taxable .......... 1,195,549 81,646 6.83% 2,098,809 133,921 6.38% 3,328,654 204,937 6.16%
Securities-tax exempt (1) ... 38,487 2,628 6.83% 36,217 2,643 7.30% 85,184 7,249 8.51%
Loans (2) ................... 4,793,998 386,791 8.07% 5,470,763 475,672 8.69% 5,136,467 432,041 8.41%
---------- --------- ----- ---------- -------- ---- ---------- -------- ----
Total Earning Assets ........ $6,136,060 $ 474,306 7.73% $7,607,559 $612,347 8.10% $8,644,418 $650,339 7.52%
Cash and due from banks ..... 226,551 243,729 273,926
Allowance for loan losses .. (85,311) (97,500) (79,095)
Premises and equipment ...... 120,880 129,502 115,924
Other assets ................ 311,987 324,094 292,968
---------- ---------- ----------
TOTAL ASSETS ................ $6,710,167 $8,207,384 $9,248,141
========== ========== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
NOW/Money market deposit
accounts .................. $1,061,877 $ 20,198 1.90% $ 1,029,708 $ 23,035 2.24% $1,199,059 $ 24,125 2.01%
Savings accounts ............ 1,382,794 25,666 1.86% 1,504,151 38,506 2.56% 1,405,688 28,184 2.00%
Time deposits ............... 2,279,391 109,199 4.79% 2,192,996 112,290 5.12% 2,821,338 138,426 4.91%
---------- --------- ----- ----------- -------- ---- ---------- -------- ----
Total Interest-Bearing
Deposits .................. 4,724,062 155,063 3.28% $ 4,726,855 $173,831 3.68% $5,426,085 $190,735 3.52%
Borrowings .................. 221,123 9,020 4.08% 1,575,481 93,564 5.94% 1,722,512 88,902 5.16%
Long-term debt .............. 248,300 20,914 8.42% 253,882 21,188 8.35% 257,218 21,873 8.50%
---------- --------- ----- ----------- -------- ---- ---------- -------- ----
Total Interest-Bearing
Liabilities ............... 5,193,485 184,997 3.56% $ 6,556,218 $288,583 4.40% $7,405,815 $301,510 4.07%
Demand deposits ............. 1,101,045 1,174,655 1,170,135
Other liabilities ........... 36,990 11,651 91,953
Stockholders' equity ........ 378,647 464,860 580,238
---------- ----------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ...... $6,710,167 $ 8,207,384 $9,248,141
========== =========== ==========
NET INTEREST INCOME ......... $ 289,309 $323,764 $348,829
========= ======== ========
NET INTEREST MARGIN (3) ..... 4.71% 4.26% 4.04%
==== ==== ====
(1) The tax equivalent adjustments for the years ended December 31, 2001, 2000
and 1999 were $920, $925 and $2,245, respectively, and are based on a tax
rate of 35%.
(2) The tax equivalent adjustments for the years ended December 31, 2001, 2000
and 1999 were $3,023, $3,113 and $3,518, respectively, and are based on a
tax rate of 35%. Average loan balances include nonaccrual loans and loans
held for resale.
(3) Represents tax equivalent net interest income divided by interest-earning
assets.
THE FOLLOWING TABLE PRESENTS THE RELATIVE CONTRIBUTION OF CHANGES IN VOLUMES AND
CHANGES IN RATES TO CHANGES IN NET INTEREST INCOME FOR THE PERIODS INDICATED.
THE CHANGE IN INTEREST INCOME AND INTEREST EXPENSE ATTRIBUTABLE TO THE COMBINED
IMPACT OF BOTH VOLUME AND RATE HAS BEEN ALLOCATED PROPORTIONATELY TO THE CHANGE
DUE TO VOLUME AND THE CHANGE DUE TO RATE (IN THOUSANDS):
Changes in Taxable Equivalent Net Interest Income-Rate/Volume Analysis
INCREASE/(DECREASE) INCREASE/(DECREASE)
--------------------------------------- ------------------------------------
For the Years Ending December 31, 2001 OVER 2000 2000 OVER 1999
--------------------------------------- ------------------------------------
VOLUME RATE TOTAL VOLUME RATE TOTAL
------------ --------- ---------- --------- ---------- ----------
Loans $ (54,603) $(34,278) $ (88,881) $ 29,050 $ 14,581 $ 43,631
Securities-taxable (61,685) 9,410 (52,275) (78,355) 7,339 (71,016)
Securities-tax exempt 155 (170) (15) (3,575) (1,031) (4,606)
Federal funds sold 3,188 (58) 3,130 (4,869) 0 (4,869)
Interest bearing deposits -- -- -- (1,131) 0 (1,131)
--------- -------- --------- -------- -------- ---------
Total interest income $(112,945) $(25,096) $(138,041) $(58,880) $ 20,889 $ (37,991)
--------- -------- --------- -------- -------- ---------
NOW/Money market deposit accounts $ 612 $ (3,449) $ (2,837) $ (3,793) $ 2,703 $ (1,090)
Savings (2,253) (10,587) (12,840) 2,521 7,801 10,322
Time deposits 4,139 (7,230) (3,091) (32,171) 6,035 (26,136)
Short-term borrowings (55,241) (29,304) (84,545) (8,734) 13,396 4,662
Long-term debt (470) 197 (273) (279) (405) (684)
--------- -------- --------- -------- -------- --------
Total interest expense $ (53,213) $(50,373) $(103,586) $(42,456) $ 29,530 $ (12,926)
--------- -------- --------- -------- -------- ---------
Net Interest Income $ (59,732) $ 25,277 $ (34,455) $(16,424) $ (8,641) $ (25,065)
========= ======== ========= ======== ======== =========
Net Interest Income
Net interest income is the difference between the interest earned on earning
assets and the interest paid on interest bearing liabilities. The principal
earning assets are the loan portfolio, comprised of commercial loans to
businesses, mortgage loans to businesses and individuals, consumer loans (such
as car loans, home equity loans, etc.) and credit card loans; and the investment
securities portfolio. The securities portfolio is invested primarily in U.S.
Government Agency securities, U.S. Government Agency mortgage-backed securities
and mortgage-related securities. Cash received from deposits and borrowings not
required to fund loans and other assets are invested primarily in investment
securities. The principal interest bearing liabilities are deposit accounts and
borrowings.
Net interest income is affected by a number of factors including the level,
pricing, and maturity of earning assets and interest-bearing liabilities,
interest rate fluctuations, asset quality and the amount of noninterest-bearing
deposits and capital. In the following discussion, interest income is presented
on a fully taxable-equivalent basis ("FTE"). Fully taxable-equivalent interest
income restates reported interest income on tax-exempt loans and securities as
if such interest were taxed at the statutory Federal income tax rate of 35%.
Net interest income on a FTE basis was $289.3 million for 2001 compared to
$323.8 million for 2000 and $348.8 million for 1999. The decrease in net
interest income in 2001 compared to 2000 was due to a $1.5 billion decrease in
average interest-earning assets, partially offset by an increase in the net
interest margin of 45 basis points. The decrease in average interest-earning
assets was mainly due to a lower average volume of investment securities due to
the Company's deleveraging program. The decline in net interest income in 2000
compared to 1999 was due to a $1.04 billion decrease in average interest-earning
assets, partially offset by a 22 basis point increase in the net interest
margin.
Net Interest Margin
Net interest margin is computed by dividing net interest income on a FTE basis
by average interest-earning assets. The Company's net interest margin was 4.71%
in 2001 compared to 4.26% in 2000 and 4.04% in 1999. The 45 basis point increase
in net interest margin in 2001 from 2000 was due mainly to lower interest rates
paid on deposits and borrowings that exceeded the decrease in interest rates on
interest earning assets. The 22 basis point increase in net interest margin in
2000 from 1999 was primarily due to an improvement in the asset mix, caused by
an increase in average loans and a decrease in lower yielding investment
securities, offset in part by higher interest rates paid on deposits and
borrowings.
Noninterest Income
Noninterest income, excluding security gains/(losses) and trading asset gains
was $98.1 million for 2001, $89.7 million for 2000 and $89.9 million for 1999.
The increase in 2001 compared to 2000 was primarily due to increases in credit
card fees, as a result of the Company's growth in the private label credit card
business, increased retail service fees and the Company's investment in separate
account bank owned life insurance in June 2001. In 2000, deposit account service
fees grew 7% which was offset by declines in credit card and non-deposit related
fee income. Noninterest income, excluding security gains/(losses) and trading
asset gains, as a percentage of total net revenue (net interest income plus non
interest income excluding gains and losses on securities and trading asset
gains) was 26% in 2001, 22% in 2000, and 21% in 1999. Included in noninterest
income for 2000 is a $63.6 million pre-tax special charge, related to the
Company's balance sheet deleveraging program.
Noninterest Expenses
Noninterest expense, excluding special charges, decreased to $227.2 million in
2001 from $228.0 million in 2000 and $239.3 million in 1999. The decline in
expense in 2001 was due primarily to cost savings related to efficiencies in
operations partially offset by higher business development expenses. The
decrease in expenses to $228.0 million in 2000 from $ 239.3 million in 1999 was
due primarily to cost savings related to the JeffBanks and Southern Jersey
Bancorp acquisitions.
Salary and benefit expense was $83.5 million in 2001, $89.9 million in 2000 and
$102.7 million in 1999. The decline in 2001 compared to 2000, and in 2000
compared to 1999, was due to efficiencies realized in staff and support
functions and consolidation of benefit plans.
Equipment expense was $18.6 million in 2001 as compared to $20.4 million in 2000
and $14.7 million in 1999. The lower expense in 2001 when compared to 2000
resulted mainly from efficiencies achieved after system conversion of the 1999
acquisitions was completed. The higher expense in 2000 when compared to 1999
resulted mainly from improvements in the Company's technological infrastructure.
Outside services expense was $50.4 million in 2001 as compared to $43.9 million
in 2000 and $48.8 million in 1999. The increase in 2001 from 2000 resulted
primarily from higher expenses related to developing and supporting the
Company's business lines, paid primarily to third party data and item processing
companies. The increase in 2000 compared to 1999 resulted from a $4.5 million
decrease in professional fees.
Amortization of intangibles expense was $15.1 million in 2001, $15.5 million in
2000 and $14.9 million in 1999. Refer to the Recent Accounting Standards portion
of the Notes to Consolidated Financial Statements for further discussion of
intangible amortization.
There were no merger related and restructuring costs in 2001. Merger related and
restructuring costs were $15.0 million and other nonrecurring operating charges
were $7.0 million in 2000 primarily related to the terminated Dime merger of
equals. These merger related and restructuring costs include the approximate
amounts of $4.8 million for the recognition of severance benefits and consulting
agreements, $2.0 million for stay pay obligations to current employees, $2.0
million for payments and reserves for the settlements of pre-existing litigation
at acquired institutions and $4.2 million for the recognition of obligations for
which the bank will not receive future benefits. The balance of the expenses are
comprised of building writedowns and miscellaneous expenses including search
fees, advisor expenses, and other miscellaneous items. The nonrecurring
operating charges include $3.7 million related to the change to a new outsource
service provider, $2.0 million for planned branch consolidation, and $1.3
million for the recognition of obligations for which the Bank will not recover
future benefits.
Merger related and restructuring costs were $32.0 million in 1999. These costs
include $12.6 million for payout and accruals for employment contracts,
severance and other employee related costs, $3.9 million for branch closings,
fixed asset disposition and other occupancy related costs, $5.6 million for
technical support for system conversion and early termination of system related
contracts, $1.8 million for legal and accounting professional services, $4.1
million for financial advisor costs, $2.0 million provision for other real
estate owned and $2.0 million for other merger related expenses.
Federal Income Taxes
During valuation reviews in 2000, the Company established a $2.9 million
valuation allowance against capital losses resulting from the sale of securities
in 2000. Primarily as a result of a reduction in the allowance due to gains from
the sale of securities and a higher level of tax exempt income resulting from an
investment in bank owned life insurance, the Company had a lower effective tax
rate and a lower provision for income taxes in 2001 compared to 2000 and 1999.
The effective tax rate was 29.2% in 2001, 35.1% in 2000 and 36.0% in 1999.
Financial Condition
Total assets at December 31, 2001 were $7.0 billion, an increase from total
assets at December 31, 2000 of $6.8 billion. This increase was due to increases
in investment securities of $935.8 million and other assets of $126.6 million
being offset in part by a decrease of $896.6 million in residential mortgage
loans. The increase in securities and the subsequent decline in residential
mortgage loans was due mainly to residential mortgage loan securitizations of
$668.5 million during 2001. The increase in other assets was due primarily to
the Company's investment of $125 million in bank owned life insurance during
June 2001.
The Company designated $576 million of available for sale investment securities
as trading account assets in the fourth quarter of 2001. The designation of
securities was done as part of an investment securities portfolio restructuring
strategy to reduce the overall average life of the investment portfolio and
increase its cash flow, in anticipation of a stronger economy and a higher
interest rate environment at some point in the future. This strategy also
involves reducing the duration of the investment portfolio, and decreasing the
potential changes in the market value of the underlying assets. This
restructuring strategy should result in reduced interest income from its
investment portfolio with interest rates at current levels, but more interest
income as interest rates rise. The designation of securities resulted in a $10.2
million pretax gain in the fourth quarter of 2001. All of these securities were
subsequently sold in the first quarter of 2002.
The Company also designated certain non-performing commercial and residential
mortgage loans as held for sale assets in the fourth quarter of 2001. The
designation is being done as part of a strategy to accelerate the resolution of
such assets in 2002, to enable the Company to allocate more resources to new
business activities. The non-performing loans prior to designation had a net
book value of $26.3 million. The designation resulted in a $10.1 million
provision for possible loan and lease losses relating to non-performing loans
held for sale in the fourth quarter of 2001, and a corresponding charge off in
the same amount. It is expected that these non-performing loans will be sold
during the first quarter of 2002.
Total liabilities at December 31, 2001 were $6.6 billion, an increase from total
liabilities at December 31, 2000 of $6.4 billion.
Total Stockholders' Equity was $383.9 million at December 31, 2001, an increase
of $15.4 million from Stockholders' Equity of $368.5 million at December 31,
2000. This increase was due to net income of $94.5 million and other
comprehensive income of $21.7 million, partially offset by cash dividends paid
of $47.4 million and purchases of treasury stock of $56.3 million.
Securities
The securities portfolio serves as a source of liquidity, earnings, and a means
of managing interest rate risk along with other asset liability management
strategies. Consequently, the securities portfolio is managed over time in
response to changes in market conditions and loan demand. The securities
portfolio comprised 19% of the total assets of the Company at December 31, 2001
and 14% of the total assets of the Company at December 31, 2000.
The Company's securities portfolio consists primarily of U.S. government agency
mortgage-backed and mortgage-related securities.
The following tables summarize the composition of the portfolios as of December
31, 2001 and 2000 (in thousands):
2001 2000
--------------------------------------------------- ----------------------------------------------
GROSS UNREALIZED ESTIMATED GROSS UNREALIZED ESTIMATED
AMORTIZED ---------------------- MARKET AMORTIZED --------------------- MARKET
COST GAINS (LOSSES) VALUE COST GAINS (LOSSES) VALUE
------------ ---------- --------- --------- --------- ------- ---------- ---------
AVAILABLE FOR SALE
PORTFOLIO
U.S. Government ........ $ 12,904 $ 147 $ -- $ 13,051 $ 31,839 $ 37 $ (48) $ 31,828
U.S. Government
Agencies .............. -- -- -- -- 3,500 -- -- 3,500
Mortgage-backed
securities ............ 1,032,993 14,670 (1,068) 1,046,595 241,356 320 (3,642) 238,034
States and Political
subdivisions .......... 26,992 363 (6) 27,349 1,516 41 -- 1,557
Asset backed and Other
debt securities ....... 170,747 314 (31) 171,030 3,754 -- (193) 3,561
Federal Home Loan
Bank stock ............ 21,877 -- -- 21,877 105,924 -- -- 105,924
Other equity securities 22,571 614 (690) 22,495 43,092 279 (5,048) 38,323
---------- ------- -------- ---------- -------- ----- ------- --------
$1,288,084 $16,108 $ (1,795) $1,302,397 $430,981 $ 677 $(8,931) $422,727
========== ======= ======== ========== ======== ===== ======= ========
2000
-------------------------------------------
GROSS UNREALIZED ESTIMATED
AMORTIZED -------------------- MARKET
COST GAINS (LOSSES) VALUE
-------------------------------------------
HELD TO MATURITY
PORTFOLIO
U.S. Government ......... $ 24,199 $ -- $ (69) $ 24,130
U.S. Government
Agencies .............. 38,229 488 (45) 38,672
Mortgage-backed
securities ............ 406,518 543 (7,845) 399,216
States and Political
subdivisions .......... 51,246 187 (41) 51,392
Other debt securities ... -- -- -- --
--------- ------- ------- --------
$ 520,192 $ 1,218 $(8,000) $513,410
========= ======= ======= ========
The following table summarizes trading assets at December 31, 2001 (in
thousands):
ESTIMATED MARKET
VALUE
-----------------
TRADING ASSET PORTFOLIO
Mortgage-backed securities ....................... $ 575,007
Other debt securities ............................ 1,301
---------
Total ......................................... $ 576,308
=========
The Company adopted SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities", effective January 1, 2001. At the same time, the total held
to maturity investment portfolio, at an amortized cost of $520,192, was
transferred to the available for sale investment portfolio. At the time of
transfer the market value of these securities was $513,410 and the unrealized
loss on these securities was $6,782. The increase in investment securities at
December 31, 2001 compared to December 31, 2000 was due to the securitization of
$668.5 million of residential mortgages.
INVESTMENT PORTFOLIO
Carrying Value at End of Each Year
As of December 31,
------------------------------------------
2001 2000 1999
----------- ---------- -----------
(in thousands)
U.S. Treasury and other U.S. Government Agencies
and Corporations ........................................ $ 1,059,646 $ 742,308 $ 3,087,607
State and Political Subdivisions .......................... 27,349 52,803 27,620
Asset backed and Other Debt Securities .................... 169,729 3,561 45,348
Equity Securities ......................................... 45,673 144,247 205,951
----------- ---------- -----------
Subtotal ......................................... 1,302,397 942,919 3,366,526
Trading Assets ............................................ 576,308 -- --
----------- ---------- -----------
TOTAL .............................................. $ 1,878,705 $ 942,919 $ 3,366,526
=========== ========= ===========
Maturities and Weighted Average Yield for the Year Ending December 31, 2001 (in
thousands)
Maturing
-------------------------------------------------------------------------------------------
After One But After Five But
Within One Year Within Five Years Within Ten Years After Ten Years
------------------- ------------------ ----------------- --------------------
Amount Yield Amount Yield Amount Yield Amount Yield
-------- ------ ------- ----- -------- ------ ---------- ------
U.S. Treasury and other
U.S. Government
Agencies and
Corporations ........... $ 9,090 3.33% $ 3,139 5.30% $ 88,985 6.15% $ 958,432 5.86%
States and Political
Subdivisions ........... 18,484 4.71 4,839 7.32 3,619 7.85 407 8.00
Asset backed and Other
Debt Securities ........ 68,358 5.45 68,408 5.45 23,938 6.07 9,025 6.65
Equity Securities ......... 21,877 5.55 -- -- -- -- 23,796 5.63
--------- -------- -------- ----------
Subtotal ............. 117,809 5.19 76,386 5.56 116,542 6.19 991,660 5.86
Trading Assets ............ -- -- -- 576,308 6.36
--------- -------- -------- ----------
TOTAL ............... $ 117,809 5.19 $ 76,386 5.56 $116,542 6.19 $1,567,968 6.04
========= ======== ======== ==========
Weighted average yields on tax-exempt obligations have been computed on a fully
tax-equivalent basis assuming a federal tax rate of 35.0 percent.
Loan Portfolio Distribution of Loans by Category
(Dollars in thousands)
(as of December 31,)
----------------------------------------------------------------------------------
2001 2000 1999 1998 1997
----------- ---------- ---------- ---------- -----------
Loans secured by
real estate:
Residential mortgage
loans ................... $ 537,055 $1,433,697 $1,639,578 $1,739,054 $1,877,888
Loans held for sale ....... 16,185 -- 9,073 14,600 4,327
Residential home equity
loans ................... 329,571 338,164 357,941 230,587 216,215
Commercial mortgage loans . 826,151 920,397 1,024,844 978,040 1,105,440
---------- ---------- ---------- ---------- ----------
$1,708,962 $2,692,258 $3,031,436 $2,962,281 $3,203,870
---------- ---------- ---------- ---------- ----------
Commercial and
industrial loans:
Secured by real estate .... 232,005 280,544 275,411 233,536 285,057
Other ..................... 1,602,901 1,610,627 1,490,837 1,004,149 818,484
---------- ---------- ---------- ---------- ----------
$1,834,906 $1,891,171 $1,766,248 $1,237,685 $1,103,541
Credit cards .............. 299,295 158,922 209,863 107,331 114,550
Other loans to
individuals ............. 617,624 535,172 672,034 578,346 489,800
---------- ---------- ---------- ---------- ----------
Total Loan Portfolio ...... $4,460,787 $5,277,523 $5,679,581 $4,885,643 $4,911,761
========== ========== ========== ========== ==========
Total loans decreased by $816.7 million to $4.46 billion at December 31, 2001
from $5.28 billion at December 31, 2000. The decline was mainly due to decreases
in residential and commercial mortgage loans. The decrease in residential
mortgage loans was due in most part to $668.5 million of securitizations
completed during 2001. Credit card and other loans to individuals increased from
year-end 2000 to year-end 2001. The Company continued its strategy of reducing
its percentage of lower yielding residential mortgage loans arising from the
thrift institutions acquired in 1998 as residential mortgage loans were 12% of
total loans at December 31, 2001 compared to 27% of total loans at December 31,
2000.
The following table shows the maturity of loans outstanding (excluding
residential mortgages of 1-4 family residences, installment loans and lease
financing). Also provided are the amounts classified according to the
sensitivity to changes in interest rates.
Maturities and Sensitivity to Changes in Interest Rates as of December 31,
2001 (in thousands)
(In thousands) MATURING
----------------------------------------------------------------
After One
Within But Within After
One Year Five Years Five Years Total
----------- ------------ ------------ -----------
Commercial, Financial,
and Agricultural ........... $1,104,522 $ 218,792 $ 279,587 $1,602,901
Real Estate Construction ...... 194,674 31,826 5,505 232,005
Real Estate - Mortgage ........ 694,127 347,693 464,181 1,506,001
---------- --------- --------- ----------
TOTAL ...... $1,993,323 $ 598,311 $ 749,273 $3,340,907
========== ========= ========= ==========
SENSITIVITY TO CHANGES IN INTEREST RATES
As of December 31, 2001
--------------------------
Fixed Variable
Rate Rate
---------- -----------
Due Within One Year ...................... $ 171,379 $1,821,944
Due After One But Within Five Years ...... 484,676 113,635
Due After Five Years ..................... 730,501 18,772
---------- ----------
TOTAL .................................. $1,386,556 $1,954,351
Asset Quality
The Company's principal earning assets are its loans, which are made primarily
to businesses and individuals located in New Jersey, New York, Connecticut and
Pennsylvania, the areas in which the Company's branches are located. Inherent in
the lending business is the risk of deterioration in a borrower's ability to
repay loans under existing loan agreements. Other risk elements include the
amount of nonaccrual and past-due loans, the amount of potential problem loans,
industry or geographic loan concentrations, and the level of OREO that must be
managed and disposed of.
Nonaccruing loans include commercial loans and commercial mortgage loans past
due for payment 90-days or more or deemed uncollectable. Consumer loans are
charged off after 120 days and credit card loans are charged off after 180 days.
Residential real estate loans are generally placed on nonaccrual status after
180 days of delinquency. Any loan may be put on nonaccrual status earlier if the
Company has concern about the future collectability of the loan or its ability
to return to current status.
Nonaccrual real estate mortgage loans are principally loans in the foreclosure
process secured by real estate, including single family residential,
multi-family, and commercial properties.
Nonaccruing consumer credit loans are loans to individuals. Excluding the credit
card receivables, these loans are principally secured by automobiles or real
estate.
Renegotiated loans are loans which were renegotiated as to the term or rate or
both to assist the borrower after the borrower has suffered adverse effects in
financial condition. Terms are designed to fit the ability of the borrower to
repay and the Company's objective of obtaining repayment. The Company has no
loans which are considered renegotiated as of December 31, 2001.
OREO consists of properties on which the Bank has foreclosed or has taken a deed
in lieu of the loan obligation. OREO properties are carried at the lower of cost
or fair value at all times, net of estimated costs to sell. The cost to maintain
the properties during ownership and any further declines in fair value are
charged to current earnings. The Company has been successful in disposing of
OREO properties, including those acquired in acquisitions. OREO, including OREO
classified in "Assets Held for Sale" on the balance sheet, amounted to $3.4
million at December 31, 2001, $4.3 million at December 31, 2000, and $3.9
million at December 31, 1999.
Nonperforming Assets
Nonperforming assets were $47.9 million at December 31, 2001 compared to $62.2
at December 31, 2000 and $53.1 million at December 31, 1999. Of the
nonperforming assets,at December 31, 2001, $16.2 million were classified as
loans held for sale and are expected to be disposed of in the first quarter of
2002. The decline at December 31, 2001 from December 31, 2000 was mainly the
result of the Company's chargeoffs of non performing loans and resolutions of
non performing loans, due to the Company's continuing effort to reduce the level
of nonperforming assets. The increase at December 31, 2000 from December 31,
1999 was mainly due to an increase in non-performing commercial and industrial
loans.
The amount of interest income on nonperforming loans which would have been
recorded had these loans continued to perform under their original terms
amounted to $7.6 million in 2001, $4.5 million in 2000, and $3.2 million in
1999. The amount of interest income recorded on such loans for each of the years
was $0.9 million in 2001, $0.6 million in 2000, and $0.4 million in 1999. The
Company has no outstanding commitments to advance additional funds to borrowers
whose loans are in a nonperforming status.
Measures to control and reduce the level of nonperforming loans are continuing.
Efforts are made to identify slow paying loans and collection procedures are
instituted. After identification, steps are taken to understand the problems of
the borrower and to work with the borrower toward resolving the problem, if
practicable. Continuing collection efforts are a priority for the Company.
The following table summarizes the Company's nonperforming assets at the dates
indicated (in thousands):
DECEMBER 31,
NONPERFORMING ASSETS (INCLUDING ASSETS HELD FOR SALE) ---------------------------------------------------------------------
2001 2000 1999 1998 1997
--------- --------- -------- --------- -----------
Nonaccrual Loans ....................................... $ 44,469(1) $ 57,898 $ 46,352 $ 46,178 $ 64,766
Renegotiated Loans ..................................... -- -- 2,751 5,632 19,054
--------- --------- -------- --------- ---------
Total Nonperforming Loans ........................... $ 44,469 $ 57,898 $ 49,103 $ 51,810 $ 83,820
Other Real Estate Owned ................................ 3,381 4,318 3,948 8,151 15,568
--------- --------- -------- --------- ---------
Total Nonperforming Assets .......................... $ 47,850 $ 62,216 $ 53,051 $ 59,961 $ 99,388
========= ========= ======== ========= =========
Ratios:
Nonaccrual Loans to Total Loans ..................... 1.00% 1.10% 0.82% 0.95% 1.32%
Allowance for Loan and Lease Losses to
Nonaccrual Loans ................................. 158 164 213 165 132
Allowance for Loan and Lease Losses to
Nonperforming Loans .............................. 158 164 201 147 102
- ----------
(1) Includes $162 million of nonperforming loans held for sale at December 31,
2001.
The following table shows the loans past due 90 days or more and still
accruing and applicable asset quality ratios:
AS OF DECEMBER 31,
-------------------------------
(Dollars in thousands) 2001 2000 1999
--------- ------- ---------
Commercial &
industrial .......... $ 2,600 $ 4,293 $ 3,004
Real estate mortgages . 6,053 13,080 13,085
Consumer credit ....... 3,287 4,034 3,011
Credit card ........... 9,068 8,371 4,139
------- ------- -------
Total Loans
Past-Due 90-Days or
More and Still
Accruing ............ $21,008 $29,778 $23,239
======= ======= =======
As a percent of
Total Loans ....... 0.47% 0.56% 0.41%
As a percent of
Total Assets ...... 0.30% 0.44% 0.24%
Allowance for Possible Loan and Lease Losses
The provision for possible loan and lease losses was $34.1 million for 2001
compared with $24.0 million in 2000 and $52.2 million in 1999. The increase
resulted from a provision established in conjunction with the designation of
certain nonperforming commercial mortgage loans and residential mortgage loans
as held for sale assets in the fourth quarter of 2001. The designation is being
done as part of a strategy to accelerate the resolution of such assets in 2002,
to enable the Company to allocate more resources to new business activities. The
nonperforming loans prior to the designation had a net book value of $26.3
million. The designation resulted in a $10.1 million provision for possible loan
and lease losses relating to nonperforming loans held for sale in the fourth
quarter of 2001, and a corresponding charge off in the same amount. The decrease
in 2000 from 1999 was due to a $33.0 million special provision taken in 1999 to
conform the loan reserve policies of Jeff and SJB to that of the Company.
The determination of the adequacy of the Allowance for Possible Loan and Lease
Losses ("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. The
methodology employed for assessing the adequacy of the Allowance consists of the
following two criteria:
1. 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.
2. 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.
An allocation of the allowance for the non-criticized loans in each portfolio
and for all off-balance sheet exposures is determined 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 work out and collection staffs, 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 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:
- -- regulatory and other examinations
- -- the amount and trend of criticized loans
- -- actual losses
- -- peer comparisons with other financial institutions
- -- economic data associated with the real estate market in the Company's area
of operations
- -- opportunities to dispose of marginally performing loans for cash
considerations
Based upon the process employed and giving recognition to all attendant factors
associated with the loan portfolio, management considers the Allowance for
Possible Loan and Lease Losses to be adequate at December 31, 2001.
The Allowance as a percentage of total loans outstanding was 1.58% at December
31, 2001, 1.80% at December 31, 2000 and 1.74% at December 31, 1999. The
Allowance as a percentage of nonperforming loans was 158% at December 31, 2001,
164% at December 31, 2000 and 201% at December 31, 1999.
The following is a summary of the activity in the allowance for possible loan
and lease losses, by loan category, for the years indicated (in thousands):
- -
ALLOWANCE FOR POSSIBLE LOAN AND LEASE LOSSES
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Amount of Loans Outstanding at End of Year ...... $4,460,787 $5,277,523 $5,679,581 $4,885,643 $4,911,761
Daily Average Amount of Loans Outstanding ....... 4,793,998 $5,470,763 $5,136,467 $4,923,410 $4,824,845
ALLOWANCE FOR POSSIBLE LOAN AND LEASE LOSSES
Balance at beginning of year .................... $ 95,180 $ 98,749 $ 76,043 $ 85,230 $ 81,979
Loans charged off:
Real estate mortgages ......................... 6,851 2,847 13,657 11,207 10,861
Commercial and Industrial ..................... 21,323 8,778 10,388 10,034 7,489
Consumer Credit ............................... 33,517 23,781 24,012 22,083 15,364
Other ......................................... 67 -- -- -- 384
Assets held for sale (1) ...................... 10,147 -- -- 9,521
---------- ---------- ---------- ---------- ----------
Total loans charged off .................... $ 71,905 $ 35,406 $ 48,057 $ 52,845 $ 34,098
Recoveries:
Real estate mortgages ......................... 935 772 1,902 988 2,684
Commercial and Industrial ..................... 1,625 1,822 1,962 1,629 3,113
Consumer Credit ............................... 5,255 5,243 6,065 3,437 3,512
Other ......................................... 98 -- -- 47 798
---------- ---------- ---------- ---------- ----------
Total recoveries ........................... 7,913 7,837 9,929 6,101 10,107
---------- ---------- ---------- ---------- ----------
Net loans charged off ...................... 63,992 27,569 38,128 46,744 23,991
Provision for possible loan and lease losses --
portfolio loans ............................... 24,000 24,000 52,200 35,607 24,442
Provision for possible loan and lease losses --
non-performing loans held for sale ............ 10,147 -- -- -- --
Allowance of acquired companies ................. 4,711 -- 8,634 1,950 2,800
---------- ---------- ---------- ---------- ----------
Balance at end of year .......................... $ 70,046 $ 95,180 $ 98,749 $ 76,043 $ 85,230
---------- ---------- ---------- ---------- ----------
Provision for possible loan and lease losses as
a percentage of average loans outstanding ..... 0.71% 0.44% 1.02% 0.72% 0.51%
Net charge offs as a percentage of average loans
outstanding ................................... 1.33% 0.50% 0.74% 0.95% 0.50%
Allowance for possible loan and lease losses as
a percentage of loans outstanding at year end . 1.57% 1.80% 1.74% 1.56% 1.74%
(1) The writedown of assets held for sale pertains to the planned disposal of
$54 million of nonaccrual loans and OREO properties in 1998 and $16.2
million of nonaccrual loans in 2001.
Management formally reviews the loan portfolio and evaluates credit risk on a
monthly basis throughout the year. Such review takes into consideration the
financial condition of the borrowers, fair market value of the collateral, level
of delinquencies, historical loss experience by loan category, industrial trends
and the impact of local and national economic conditions.
The following is the allocation of the allowance for possible loan losses by
loan category (in thousands):
ALLOCATION OF THE ALLOWANCE FOR POSSIBLE LOAN AND LEASE LOSSES
AS OF DECEMBER 31,
----------------------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
----------------------------------------------------------------------------------------------------------
CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY
PERCENT OF PERCENT OF PERCENT OF PERCENT OF PERCENT OF
ALLOWANCE LOANS(%) ALLOWANCE LOANS(%) ALLOWANCE LOANS(%) ALLOWANCE LOANS(%) ALLOWANCE LOANS(%)
----------------------------------------------------------------------------------------------------------
Real estate mortgages ..... $ 9,607 30.7% $ 23,245 44.4% $25,484 46.5% $23,868 60.6% $30,273 65.2%
Commercial and industrial . 32,546 41.3% 42,355 36.2% 43,974 31.8% 18,493 25.3% 20,233 22.5%
Consumer Credit ........... 27,893 28.0% 28,278 19.4% 24,895 21.7% 20,650 14.1% 11,650 12.3%
Unallocated ............... 0 1,302 4,396 13,032 23,074
------- ----- -------- ----- ------- ----- ------- ----- ------- -----
Total ..................... $70,046 100.0% $ 95,180 100.0% $98,749 100.0% $76,043 100.0% $85,230 100.0%
======= ===== ======== ===== ======= ===== ======= ===== ======= =====
Deposits
As of December 31, 2001, Hudson had 98 branch offices in New Jersey, 36 branch
offices in New York State, 42 branch offices in Connecticut, and 25 branch
offices in Pennsylvania, for a total of 201 branches.
The following table summarizes the deposit base at the dates indicated (in
thousands):
DECEMBER 31,
------------------------------------------------------------------------------
2001 2000 1999
2001 % OF TOTAL 2000 % OF TOTAL 1999 % OF TOTAL
---------- ---------- ---------- ---------- ---------- ----------
Noninterest-bearing deposits ...... $1,215,367 20.3% $1,162,677 20.0% $1,231,478 19.1%
NOW/MMDA deposits ................. 1,233,964 20.6% 1,080,641 18.6% 1,145,398 17.7%
Savings deposits .................. 1,317,973 22.0% 1,441,073 24.8% 1,528,033 23.7%
Time deposits ..................... 2,216,241 37.1% 2,128,876 36.6% 2,550,436 39.5%
---------- ----- ---------- ----- ---------- -----
Total Deposits .................... $5,983,545 100.0% $5,813,267 100.0% $6,455,345 100.0%
========== ===== ========== ===== ========== =====
Total deposits increased at December 31, 2001 from December 31, 2000.
Approximately 20% of the Company's deposits were in non-interest bearing
accounts, 43% in NOW, MMDA and savings accounts, and 37% in time deposits as of
December 31, 2001.
The following table sets forth average deposits and average rates for each of
the years indicated.
As of December 31,
2001 2000 1999
-------------------------- ---------------------------- ---------------------------
Interest Interest Interest
Amount Rate Amount Rate Amount Rate
---------- --------- ------------ ----------- ----------- -----------
(In thousands)
Domestic Bank Offices:
Noninterest bearing demand
deposits .................... $1,101,045 $ 1,174,655 $ 1,170,135
Interest-bearing
demand deposits ............. 1,061,877 1.90% 1,029,708 2.24% 1,199,059 2.01%
Savings deposits .............. 1,382,794 1.86% 1,504,151 2.56% 1,405,688 2.00%
Time deposits ................. 2,279,392 4.79% 2,192,996 5.12% 2,821,338 4.91%
---------- ----------- -----------
TOTAL ................ $5,825,108 $ 5,901,510 $ 6,596,220
========== =========== ===========
Maturities of certificates of deposit and other time deposits of $100,000 or
more issued by domestic offices, outstanding at December 31, 2001 are summarized
as follows:
Time Certificates Other Time
of Deposit Deposits Total
---------- ------------- ----------
(In thousands)
3 months or less ................ $ 285,088 $ 248,824 $ 533,912
Over 3 through 6 months ......... 111,445 27,657 139,102
Over 6 through 12 months ........ 99,687 -- 99,687
12 months and over .............. 61,594 65,291 126,885
---------- ---------- ---------
TOTAL ........................... $ 557,814 $ 341,772 $ 899,586
========== ========== =========
Liquidity
Liquidity is a measure of the Company's ability to meet the needs of depositors,
borrowers, and creditors at a reasonable cost and without adverse financial
consequences. The Company has several liquidity measurements that are evaluated
on a frequent basis. The Company has adequate sources of liquidity including the
ability to attract deposits from businesses and individuals through its
branches; brokered deposits from securities firms; cash flow from interest;
prepayments and principal repayments on investment securities and loans;
Securities Available for Sale, and the ability to borrow funds on a
collateralized basis from the Federal Home Loan Bank and Federal Reserve
discount window, repurchase agreements collateralized by securities with
securities firms, and other sources. The management of balance sheet volumes,
mixes, and maturities enables the Company to maintain adequate levels of
liquidity.
The Company does not rely on its unsecured credit ratings for borrowing senior
debt to fund its operations in the institutional certificate of deposit market
or debt market. The Company does rely on its unsecured credit ratings for
issuing subordinated debt and capital trust securities to enhance its regulatory
capital ratios.
Fitch has assigned Hudson United Bank a rating of A- for long term deposits and
F2 for short term deposits. In addition Fitch has assigned a rating of BBB for
subordinated debt and capital trust obligations of the Company. Moody's has
assigned to Hudson United Bank a Baa1 rating for long term deposits and a rating
of P2 for short term deposits. Standard and Poor's has assigned a rating of BB+
to the Company's subordinated debt.
Any downgrading of the Company's unsecured credit ratings would not cause the
interest rate on any of its subordinated debt or capital trust obligations to
increase, or cause the principal amount to be putable by the holders to the
Company. A downgrading of the
Company's unsecured credit ratings could make it difficult for the Company to
issue additional subordinated debt or capital trust securities on attractive
terms, if at all.
Capital
Capital adequacy is a measure of the amount of capital needed to support asset
and asset growth, absorb unanticipated losses, and provide safety for
depositors. The regulators establish minimum capital ratio guidelines for the
banking industry.
The following table sets forth the regulatory minimum capital ratio guidelines,
the capital ratio guidelines an institution must meet to be considered well
capitalized and the current capital ratios of the Company.
REGULATORY
MINIMUM WELL
CAPITAL CAPITALIZED COMPANY CAPITAL
RATIOS CAPITAL RATIOS RATIOS
------------ ------------- - ---------------
Tier 1 Leverage
Ratio ............ 4% 5% 5.8%
Tier 1 Risk-Based
Capital Ratio .... 4% 6% 7.5%
Total Risk-Based
Capital .......... 8% 10% 10.5%
At December 31, 2001, 2000, and 1999, the Company exceeded all regulatory
capital guidelines including those for a well-capitalized institution (See
Footnote 24 to the Consolidated Financial Statements).
On September 3, 1998, the Company paid a 3% stock dividend and increased its
regular quarterly cash dividend to $0.25 per common share. On December 1, 1999,
the Company paid a 3% stock dividend and maintained its regular quarterly cash
dividend at $0.25 per common share. On December 1, 2000, the Company paid a 10%
stock dividend and maintained its regular quarterly cash dividend at $0.25 per
common share. On October 24, 2001 the Company increased its cash dividend to
$.26 per share. The dividend payout ratio, based on cash dividends per share and
diluted earnings per share, was 101% for 2000 compared to 75% for 1999 and 175%
in 1998. The higher ratios in 2000 and 1998 were due to lower net income
resulting from the special charges in those years. Excluding special charges,
the payout ratio would have been 47% in 2000, 44% in 1999 and 52% in 1998.
In January 1994, the Company issued $25.0 million aggregate principal amount of
subordinated debentures which mature in 2004 and bear interest at a fixed rate
of 7.75% per annum payable semi-annually.
In March 1996, the Company issued $23.0 million aggregate principal amount of
subordinated debentures which mature in 2006 and bear interest at a fixed rate
of 8.75% per annum payable semi-annually. These notes are redeemable at the
option of the Company, in whole or in part, at any time after April 1, 2001, at
their stated principal amount plus accrued interest, if any.
In September 1996, the Company issued $75.0 million of subordinated debt. The
subordinated debentures bear interest at a fixed rated of 8.20% per annum
payable semi-annually and mature in 2006.
Proceeds of the above issuances were used for general corporate purposes
including providing Tier I capital to the subsidiary bank. The debt has been
structured to comply with the Federal Reserve Bank rules regarding debt
qualifying as Tier 2 capital at the Company.
On January 1997, the Company placed $50.0 million in aggregate liquidation
amount at a fixed rate 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 at a fixed rate of 8.98%
Junior Subordinated Debentures due 2027 of the Company. The 8.98% Capital
securities are redeemable by the company on or after February 1, 2007, or
earlier in the event the deduction of related interest for federal income taxes
is prohibited, treatment as Tier 1 capital is no longer permitted or certain
other contingencies arise.
In February 1997, the Company placed $25.0 million in aggregate liquidation
amount at a fixed rate of 9.25% Capital Securities due March 2027, using JBI
Capital Trust I, a statutory business trust formed under the laws of the State
of Delaware. The sole asset of the trust, which is the obligor on the Series B
Capital Securities, is $25.3 million principal amount at a fixed rate of 9.25%
Junior Subordinated Debentures due 2027 of the Company. The 9.25% Trust
preferred securities are callable by the Company on or after March 31, 2002, or
earlier in the event the deduction of related interest for federal income taxes
is prohibited, treatment as Tier I capital is no longer permitted or certain
other contingencies arise.
In June 1998, the Company placed $50.0 million in aggregate liquidation amount
at a fixed rate of 7.65% Capital Securities due June 2028, using HUBCO Capital
Trust II, a statutory business trust formed under the laws of the State of
Delaware. The sole assets of the trust, which is the obligor on the Series B
Capital Securities, is $51.5 million principal amount at a fixed rate of 7.65%
Junior Subordinated Debentures due 2028 of the Company. The 7.65% Capital
securities are redeemable by the company on or after June 15,
2008, or earlier in the event the deduction of related interest for federal
income taxes is prohibited, treatment as Tier 1 capital is no longer permitted
or certain other contingencies arise.
The three issues of capital securities have preference over the common
securities under certain circumstances with respect to cash distributions and
amounts payable on liquidation and are guaranteed by the Company. The net
proceeds of the offerings are being used for general corporate purposes and to
increase capital levels of the Company and its subsidiaries. Except for a
minimal amount, the securities qualify as Tier I capital under the capital
guidelines of the Federal Reserve.
At the end of the reporting period, there were no known uncertainties that will
have or that are reasonably likely to have a material effect on the Company's
liquidity or capital resources.
The following is a maturity distribution of outstanding subordinated debt and
capital trust securities:
YEAR MATURING ($ MILLIONS)
------------- -------------
2004 ................... $ 25.0
2006 ................... 98.0
2027 ................... 75.3
2028 ................... 50.0
-------
$ 248.3
=======
Interest and Liquidity rate sensitivity management
The primary objectives of asset/liability management are to provide for the
safety of depositor and investor funds, assure adequate liquidity, maintain an
appropriate balance between interest-sensitive earning assets and
interest-sensitive liabilities and enhance earnings. Interest rate sensitivity
management ensures that the Company maintains acceptable levels of net interest
income throughout a range of interest rate environments. The Company seeks to
maintain its interest rate risk within a range that it believes is both
manageable and prudent, given its capital and income generating capacity.
Liquidity risk is the risk to earnings or capital that would arise from a bank's
inability to meet its obligations when they come due, without incurring
unacceptable losses. Liquidity management is a planning process that ensures
that the Company has ample funds from net income, cash flow from interest,
prepayments and principal repayment of loans and investment securities, proceeds
from sales of assets, and cash flow from increases in deposits from customers to
satisfy operational needs, potential deposit outflows, repayment of borrowings,
loan commitments and the projected credit needs of its customer base. In
addition, the Company has a number of collateralized borrowing facilities with
the Federal Home Loan Bank and Federal Reserve, primary broker dealers and other
sources that are or can be used as sources of liquidity without having to sell
assets to raise cash. The Company uses several measurements in monitoring its
liquidity position. At December 31, 2001, the Company's liquidity ratios exceed
all minimum standards set forth by internal policies.
The Company has an asset/liability management committee, which manages the risks
associated with the volatility of interest rates and the resulting impact on net
interest income, net income and capital. The management of interest rate risk at
the Company is performed by: (i) "income simulation analysis" which analyzes the
effects of interest rate changes on net interest income, net income and capital
over specific periods of time and captures the dynamic impact of interest rate
changes on the Company's mix of assets and liabilities and (ii) analyzing the
maturity and repricing relationships between interest earning assets and
interest bearing liabilities at specific points in time (`GAP').
The following table presents the GAP position of the Company at December 31,
2001. In preparing this table, management has anticipated prepayments for
mortgage-backed securities and mortgage-related securities according to standard
industry prepayment assumptions in effect at year-end. Total loans include
adjustable rate loans, which are placed according to repricing periods. Fixed
rate residential mortgages are assumed to prepay at rates consistent with
historical average housing turnover rates. Money market deposits and interest
bearing demand accounts have been included in the due within 90 days category.
Assets with daily floating rates are included in the due within 90 days
category. Assets and liabilities are included in the table based on their
maturities, expected cash repayments or period of first repricing, subject to
the foregoing assumptions.
In analyzing its GAP position, although all time periods are considered, the
Company emphasizes the next twelve-month period. An institution is considered to
be liability sensitive, or having a negative GAP, when the amount of
interest-bearing liabilities maturing or repricing within a given time period
exceeds the amount of its interest-earning assets also repricing within that
time period. Conversely, an institution is considered to be asset sensitive, or
having a positive GAP, when the amount of its interest-bearing liabilities
maturing or repricing is less than the amount of its interest-earning assets
also maturing or repricing during the same period. Theoretically, in a falling
interest rate environment, a negative GAP should result in an increase in net
interest income, and in a rising interest rate environment this negative GAP
should adversely affect net interest income. The converse would be true for a
positive GAP.
However, shortcomings are inherent in a simplified GAP analysis that may result
in changes in interest rates affecting net interest income more or less than the
GAP analysis would indicate. For example, although certain assets and
liabilities may have similar maturities or periods to repricing, they may react
in different degrees to changes in market interest rates. Furthermore, repricing
characteristics of certain assets and liabilities may vary substantially within
a given time period. In the event of a change in interest rates, prepayment and
early withdrawal levels could also deviate significantly from those assumed in
calculating GAP. Also, GAP does not permit analysis of how changes in the mix of
various assets and liabilities and growth rate assumptions impact net interest
income.
The following table shows the Gap position of the Company at December 31,
2001 (in thousands):
DUE WITHIN ONE DUE BETWEEN ONE
YEAR AND DUE OVER FIVE
OR LESS FIVE YEARS YEARS TOTAL
-----------------------------------------------------------------------------------------------------------
ASSETS
Securities $ 298,847 $ 1,069,085 $ 484,340 $1,852,272
Total Loans 2,338,960 1,329,555 747,803 4,416,318
---------- ----------- ---------- ----------
Total Earning Assets $2,637,807 $ 2,398,640 $1,232,143 $6,268,590
Percent of Total Earning Assets 42.0% 38.3% 19.7% 100%
LIABILITIES
Interest-Bearing Deposits $2,721,676 $ 1,251,552 $ 794,950 $4,768,178
Borrowings 257,192 25,000 29,774 311,966
---------- ----------- ---------- ----------
Total Interest-Bearing Liabilities $2,978,868 $ 1,276,552 $ 824,724 $5,080,144
Percent of Total 58.6% 25.1% 16.2% 100%
==========================================================================================================
Interest Rate Sensitivity Gap before off-
balance sheet derivatives $ (341,061) $ 1,122,088 $ 407,419 $1,188,446
----------------------------------------------------------------------------------------------------------
Off-balance sheet derivatives $ 225,000 $ 535,000 $ -- $ 760,000
----------------------------------------------------------------------------------------------------------
Gap after off-balance sheet derivatives $ (116,061) $ 1,657,088 $ 407,419 $1,948,446
----------------------------------------------------------------------------------------------------------
Gap as a percent of Earnings Assets (1.8)% 26.4% 6.5% 31.1%
----------------------------------------------------------------------------------------------------------
Due in part to the shortcomings of GAP analysis, the Asset/Liability Committee
of the Company believes that financial simulation modeling more accurately
estimates the effects and exposure on net interest income to changes in interest
rates. It attempts to measure the degree to which the interest income and
interest expense on certain assets and liabilities which are directly leveled to
market indices, such as Fed Funds or the Prime Rate or LIBOR, may change as
market interest rate changes. It also attempts to measure the degree to which
interest expense on deposits, the rates which are administered by the Bank's
management, but which need to be generally competitive with the administered
deposit rates established by other banks, may change as market interest rates
change, and the degree to which balances in deposit accounts may change due to
changes in administered rates implemented by the Bank's management. It
additionally attempts to measure how changes in the composition of the
investment portfolio may change the potential interest income and cash flow of
the Bank, and how hedging instruments such as interest rate derivatives may be
used to change the interest sensitivity of certain assets and liabilities. As
such, net interest income simulation is designed to address the likely
probability of changes in net interest income as a result of interest rate
changes and behavioral response of the components of the balance sheet to those
changes. The Market Value of Portfolio Equity represents the fair values of the
net present value of assets, liabilities, and off-balance sheet items.
Financial modeling is performed under several scenarios including a regulatory
rate shock scenario which measures changes in net interest income over the next
twelve months and market value of portfolio equity given instantaneous and
sustained changes in interest rates.
During 2001, the Company entered into a series of derivative contracts (interest
rate swaps, floors and caps) to hedge the variability of its net interest
income. These agreements are entered into as hedges against interest rate risk
and are designated against specific assets and liabilities. The notional amount
of the derivative contracts totaled $760 million at December 31, 2001.
The purpose of these contracts is to limit the volatility in the Company's net
interest income and net interest margin in the event of changes in interest
rates. Management did not enter into these contracts for speculative purposes.
Under SFAS No. 133, the Company has adopted hedge accounting for these
contracts. SFAS No. 133 states that the net payments under the contracts should
be recorded in interest income and the change in valuation of the contracts
should be recorded in "accumulated other comprehensive income (loss)" in total
stockholders' equity. Changes in interest rates will impact the cash flows and
valuation of the derivative contracts, but management does not expect the
overall financial statement impact to be material under any interest rate
scenario.
The following table depicts the Company's sensitivity to interest rate changes
and the effects on the Market Value of Portfolio Equity as of December 31, 2001
under several scenarios including the regulatory rate shock scenario (in
thousands).
RATE SHOCK MODEL Effect on Market Value
Basis point rate change Net Interest Income of Portfolio Equity
- --------------------------------------------------------------------------------
+200 bp ................ +3% -14%
+100 bp ................ +2% -8%
- -100 bp ................ +.5% +8%
- -200 bp ................ +.1% +18%
The following table illustrates the changes in the Bank's quarterly net interest
income in 2001 management believes that the results shown in the following table
indicate that the Company's use of financial simulation modeling helped it
maintain generally stable net interest income during the year:
Net Interest
Quarter Ended Income (millions)
------------------ -----------------
March 31, 2001 .................... $ 70.4
June 30, 2001 ..................... $ 72.0
September 30, 2001 ................ $ 70.6
December 31, 2001 ................. $ 72.3
Item 7A. QUANTITIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
See Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations "Asset/Liability Management".
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following are included in this item
Report of Independent Public Accountants
Consolidated Balance Sheets at December 31, 2001 and 2000
Consolidated Statements of Income for each of the years ended December 31, 2001,
2000 and 1999
Consolidated Statements of Comprehensive Income for each of the years ended
December 31, 2001, 2000 and 1999
Consolidated Statements of Cash Flows for the each of the years ended
December 31, 2001, 2000 and 1999
Consolidated Statements of Changes in Stockholder's Equity for each of the years
ended December 2001, 2000 and 1999
Notes to Consolidated Financial Statements
Selected quarterly financial data of the Company for 2001 and 2000 are reported
in "Item 7--Management's Discussion and Analysis of Financial Condition and
Results of Operations--Selected Quarterly Financial Data".
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEMS 10 THROUGH 13.
Information required by Part III (Items 10 through 13) of this Form 10-K is
incorporated by reference to the Company's definitive Proxy Statement for the
Annual Meeting of Shareholders scheduled to be held April 17, 2002, which will
be filed with the Securities and Exchange Commission not later than 120 days
after the end of the fiscal year to which this report relates.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Hudson United Bancorp:
We have audited the accompanying consolidated balance sheets of Hudson United
Bancorp (a New Jersey corporation) and subsidiaries as of December 31, 2001 and
2000, and the related consolidated statements of income, comprehensive income,
changes in stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hudson United Bancorp and
subsidiaries as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2001 in conformity with accounting principles generally accepted in
the United States.
Arthur Andersen LLP
Roseland, New Jersey
January 15, 2002
HUDSON UNITED BANCORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DEC 31, DEC 31,
(in thousands) 2001 2000
- --------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks ................................................. $ 231,641 $ 276,784
Federal funds sold and other ............................................ 557 18,755
----------- -----------
TOTAL CASH AND CASH EQUIVALENTS .............................. $ 232,198 $ 295,539
Investment securities available for sale, at market value ............... $ 1,302,397 $ 422,727
Investment securities held to maturity, at cost
(market value of $513,410 at December 31, 2000) ........................ -- 520,192
Trading Assets, at market value ......................................... 576,308 --
Loans Held for Sale ..................................................... 16,185 --
Loans and leases:
Commercial and financial .............................................. $ 1,834,906 $ 1,891,171
Commercial real estate mortgages ...................................... 826,151 920,397
Consumer .............................................................. 947,195 873,336
Credit card ........................................................... 299,295 158,922
----------- -----------
Sub-total .......................................................... $ 3,907,547 $ 3,843,826
Residential mortgages ................................................. 537,055 1,433,697
----------- -----------
TOTAL LOANS AND LEASES ....................................... $ 4,444,602 $ 5,277,523
Less: Allowance for possible loan and lease losses .................... (70,046) (95,180)
----------- -----------
NET LOANS AND LEASES ......................................... $ 4,374,556 $ 5,182,343
Premises and equipment, net ............................................. 115,273 124,821
Other real estate owned ................................................. 3,381 4,318
Intangibles, net of amortization ........................................ 86,157 100,760
Other assets ............................................................ 293,080 166,526
----------- -----------
TOTAL ASSETS ................................................. $ 6,999,535 $ 6,817,226
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest bearing ................................................... $ 1,215,367 $ 1,162,677
Interest bearing ...................................................... 4,768,178 4,650,590
----------- -----------
TOTAL DEPOSITS ............................................... $ 5,983,545 $ 5,813,267
Borrowings .............................................................. 311,966 358,861
Other liabilities ....................................................... 71,820 28,325
Subordinated debt ....................................................... 123,000 123,000
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 ............................................ $ 6,615,631 $ 6,448,753
Stockholders' Equity:
Common stock, no par value; authorized 103,000,000
shares; 52,186,866 shares issued and 45,814,227
shares outstanding December 31, 2001 and 52,171,701
shares issued and 47,964,579 shares outstanding
December 31, 2000 ................................................... $ 92,796 $ 92,762
Additional paid-in capital ............................................ 320,309 322,131
Retained earnings ..................................................... 104,570 56,759
Treasury stock, at cost, 6,372,639 shares
December 31, 2001 and 4,207,122 shares
December 31, 2000 ................................................... (146,560) (92,293)
Restricted Stock ...................................................... (3,795) (5,759)
Accumulated other comprehensive income (loss) ......................... 16,584 (5,127)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY ................................... $ 383,904 $ 368,473
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........................ $ 6,999,535 $ 6,817,226
=========== ===========
See Notes to Consolidated Financial Statements.
HUDSON UNITED BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED
DECEMBER 31,
----------------------------------
(in thousands, except share data) 2001 2000 1999
- ---------------------------------------------------------------------------------------------
INTEREST AND FEE INCOME:
Loans and leases ....................................... $ 383,768 $ 472,559 $ 428,523
Investment securities .................................. 75,664 134,881 209,941
Other .................................................. 10,931 869 6,112
--------- --------- ---------
TOTAL INTEREST AND FEE INCOME ............... $ 470,363 $ 608,309 $ 644,576
--------- --------- ---------
INTEREST EXPENSE:
Deposits ............................................... $ 155,063 $ 173,831 $ 190,735
Borrowings ............................................. 9,020 93,564 88,902
Subordinated and other debt ............................ 20,914 21,188 21,873
--------- --------- ---------
TOTAL INTEREST EXPENSE ...................... $ 184,997 $ 288,583 $ 301,510
--------- --------- ---------
NET INTEREST INCOME ......................... $ 285,366 $ 319,726 $ 343,066
PROVISION FOR POSSIBLE LOAN AND LEASE LOSSES,
PORTFOLIO LOANS ........................... 24,000 24,000 52,200
PROVISION FOR POSSIBLE LOAN AND LEASE LOSSES,
NON-PERFORMING LOANS HELD FOR SALE ....... 10,147 -- --
--------- --------- ---------
TOTAL PROVISION FOR POSSIBLE LOAN AND LEASE LOSSES .. 34,147 24,000 52,200
--------- --------- ---------
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE LOAN AND LEASE LOSSES ............ $ 251,219 $ 295,726 $ 290,866
--------- --------- ---------
NONINTEREST INCOME:
Retail service fees .................................... $ 36,174 $ 29,538 $ 27,576
Credit card fee income ................................. 22,019 21,798 22,128
Trust income ........................................... 3,289 3,773 4,574
Other income ........................................... 36,587 34,625 35,584
Trading asset gains .................................... 10,151 -- --
Securities gains/(losses) .............................. 1,205 (58,639) (1,164)
--------- --------- ---------
TOTAL NONINTEREST INCOME .................... $ 109,425 $ 31,095 $ 88,698
--------- --------- ---------
NONINTEREST EXPENSE:
Salaries and benefits .................................. $ 83,483 $ 88,917 $ 102,749
Occupancy expense ...................................... 27,560 25,492 24,927
Equipment expense ...................................... 18,630 20,388 14,681
Deposit and other insurance ............................ 2,519 2,596 3,521
Other real estate owned expense ........................ 579 42 90
Outside services ....................................... 50,441 43,942 48,805
Amortization of intangibles ............................ 15,051 15,537 14,870
Other .................................................. 28,977 38,113 29,613
Merger related and restructuring costs ................. -- 15,004 32,031
--------- --------- ---------
TOTAL NONINTEREST EXPENSE ................... $ 227,240 $ 250,031 $ 271,287
--------- --------- ---------
INCOME BEFORE INCOME TAXES .................. $ 133,404 $ 76,790 $ 108,277
PROVISION FOR INCOME TAXES ............................. 38,943 26,969 38,939
--------- --------- ---------
NET INCOME .................................. $ 94,461 $ 49,821 $ 69,338
========= ========= =========
NET INCOME PER COMMON SHARE:
Basic .................................................. $ 2.02 $ 0.93 $ 1.21
Diluted ................................................ $ 2.00 $ 0.92 $ 1.18
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic .................................................. 46,846 53,845 57,465
Diluted ................................................ 47,160 54,186 58,566
See Notes to Consolidated Financial Statements.
HUDSON UNITED BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31, (in thousands) 2001 2000 1999
- -----------------------------------------------------------------------------------------------------------
NET INCOME ............................................... $ 94,461 $ 49,821 $ 69,338
========= ========= =========
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Unrealized securities gains (losses) arising during period .......... $ 23,944 $ (2,273) $ (54,364)
Unrealized holding loss from securities transferred from held
to maturity to available for sale ................................. (4,069) -- --
Unrealized gains on derivative contracts ............................ 7,196 -- --
Less: reclassification for (gains) losses included in net income ... (994) 38,051 757
Less: reclassification for gain included in net income for securities
transferred from available for sale to trading assets ............. (4,366) -- --
--------- --------- ---------
Other comprehensive income (loss) ................................... $ 21,711 $ 35,778 $ (53,607)
--------- --------- ---------
COMPREHENSIVE INCOME ..................................... $ 116,172 $ 85,599 $ 15,731
========= ========= =========
See Notes to Consolidated Financial Statements.
HUDSON UNITED BANCORP AND SUBSIDIARIES - CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY For the Years Ended December 31, 2001, 2000 and 1999
CONVERTIBLE
(in thousands, PREFERRED STOCK COMMON STOCK ADDITIONAL
except share data) --------------- ------------ PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
------ ------ ------ ------ ---------
Balance at December 31, 1998 .......... 500 $50 52,570,448 $93,470 $360,621
===== ===== ========== ======= ========
Net income ............................ -- -- -- -- --
Cash dividends common ................. -- -- -- -- --
3% stock dividend ..................... -- -- 159,131 283 2,890
Shares issued for: ....................
Stock options exercised ............ -- -- 590,164 1,050 (7,868)
Warrants exercised ................. -- -- -- -- (182)
Dividend reinvestment and
stock reinvestment plan .......... -- -- 11,742 21 276
Preferred stock conversion ......... (500) (50) -- -- (478)
Cash in lieu of fractional shares ..... -- -- -- -- (22)
Other transactions .................... -- -- (2,106) (4) 4
Purchase of treasury stock ............ -- -- -- -- --
LFB acquisition ....................... -- -- -- -- --
Issue and retirement of
treasury stock ..................... -- -- (1,139,576) (2,026) (32,853)
Effect of compensation plans .......... -- -- -- -- 4,285
Other comprehensive loss .............. -- -- -- -- --
----- ----- ---------- ------- --------
Balance at December 31, 1999 .......... -- -- 52,189,803 $92,794 $326,673
===== ===== ========== ======= ========
Net income ............................ -- -- -- -- --
Cash dividends common ................. -- -- -- -- --
10% stock dividend .................... -- -- 5,217,177 -- 771
Shares issued for:
Stock options exercised ............ -- -- -- -- (4,336)
Cash in lieu of fractional shares ..... -- -- -- -- (172)
Other transactions .................... -- -- (18,027) (32) 67
Purchase of treasury stock ............ -- -- (9,424,374) -- --
Effect of compensation plans .......... -- -- -- -- (872)
Other comprehensive income ............ -- -- -- -- --
----- ----- ---------- ------- --------
Balance at December 31, 2000 .......... 47,964,579 $92,762 $322,131
===== ===== ========== ======= ========
Net income ............................ -- -- -- -- --
Cash dividends common ................. -- -- -- -- --
Shares issued for:
Stock options exercised ............ -- -- 179,209 -- (1,762)
Other transactions .................... -- -- (77,331) 34 (60)
Purchase of treasury stock ........... -- -- (2,252,230) -- --
Effect of compensation plans .......... -- -- -- -- --
Other comprehensive income ............ -- -- -- -- --
----- ----- ---------- ------- --------
Balance at December 31, 2001 .......... -- -- 45,814,227 $92,796 $320,309
===== ===== ========== ======= ========
EMPLOYEE STOCK
AWARDS AND
UNALLOCATED ACCUMULATED
(in thousands, SHARES HELD OTHER
except share data) RETAINED TREASURY IN ESOP AT COMPREHENSIVE
EARNINGS STOCK COST INCOME (LOSS) TOTAL
-------- -------- ------------- -------------- -----
Balance at December 31, 1998 .......... $165,269 $ (9,819) $ (2,368) $ 12,702 $619,925
======== ========= ======== ======== ========
Net income ............................ 69,338 -- -- -- 69,338
Cash dividends common ................. (45,257) -- -- -- (45,257)
3% stock dividend ..................... (36,759) 33,586 -- -- --
Shares issued for:
Stock options exercised ............ -- 24,986 -- -- 18,168
Warrants exercised ................. -- 236 -- -- 54
Dividend reinvestment and
stock reinvestment plan .......... -- -- -- -- 297
Preferred stock conversion ......... -- 528 -- -- --
Cash in lieu of fractional shares ..... -- -- -- -- (22)
Other transactions .................... -- -- -- -- --
Purchase of treasury stock ............ -- (121,367) -- -- (121,367)
LFB acquisition ....................... -- 26,563 -- -- 26,563
Issue and retirement of
treasury stock ..................... -- 34,879 -- -- --
Effect of compensation plans .......... -- 1,970 (1,181) -- 5,074
Other comprehensive loss .............. -- -- -- (53,607) (53,607)
-------- --------- -------- -------- --------
Balance at December 31, 1999 .......... $152,591 $ (8,438) $ (3,549) $(40,905) $519,166
======== ========= ======== ======== ========
Net income ............................ 49,821 -- -- -- 49,821
Cash dividends common ................. (49,319) -- -- -- (49,319)
10% stock dividend .................... (96,334) 95,563 -- -- --
Shares issued for:
Stock options exercised ............ -- 8,426 -- -- 4,090
Cash in lieu of fractional shares ..... -- -- -- -- (172)
Other transactions .................... -- (35) -- -- --
Purchase of treasury stock ............ -- (193,271) -- -- (193,271)
Effect of compensation plans .......... -- 5,462 (2,210) -- 2,380
Other comprehensive income ............ -- -- -- 35,778 35,778
-------- --------- -------- -------- --------
Balance at December 31, 2000 .......... $ 56,759 $(92,293) $ (5,759) $ (5,127) $368,473
======== ========= ======== ======== ========
Net income ............................ 94,461 -- -- -- 94,461
Cash dividends common ................. (47,410) -- -- -- (47,410)
Shares issued for:
Stock options exercised ............ -- 4,123 -- -- 2,361
Other transactions .................... 760 (734) -- -- --
Purchase of treasury stock ............ -- (56,275) -- -- (56,275)
Effect of compensation plans .......... -- (1,381) 1,964 -- 583
Other comprehensive income ............ -- -- -- 21,711 21,711
-------- --------- -------- -------- --------
Balance at December 31, 2001 .......... $104,570 $(146,560) $ (3,795) $ 16,584 $383,904
======== ========= ======== ======== ========
See Notes to Consolidated Financial Statements.
HUDSON UNITED BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2001, 2000 and 1999 (in thousands) 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................................................. $ 94,461 $ 49,821 $ 69,338
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for possible loan and lease losses ........................... 34,147 24,000 52,200
Provision for depreciation and amortization ............................ 29,318 32,077 27,458
Amortization of security premiums, net ................................. 1,804 423 1,776
Amortization of restricted stock ....................................... 597 1,388 673
Securities and trading asset (gains) losses ............................ (11,356) 58,639 1,164
Loss (gain) on sale of premises and equipment ......................... 74 (591) (892)
Gain on sale of loans .................................................. (467) (1,795) (5,065)
Mortgage loans originated for sale ..................................... -- (22,487) (148,616)
Mortgage loan sales .................................................... -- 31,560 154,143
Deferred income tax provision .......................................... 11,015 3,484 554
Net (increase) decrease in assets held for sale ........................ (16,185) -- 14,147
(Increase) decrease in other assets .................................... (152,656) 45,335 15,521
Increase (decrease) in other liabilities ............................... 43,495 (42,484) (21,201)
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES ........................ 34,247 179,370 161,200
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investment securities available for sale ............. 419,298 2,047,169 332,512
Proceeds from repayments and maturities of investment securities:
Available for sale ....................................................... 337,081 332,343 834,451
Held to maturity ......................................................... -- 81,409 155,126
Purchases of investment securities
Available for sale ....................................................... (1,645,815) (977) (1,428,159)
Held to maturity ......................................................... -- (39,628) (82,085)
Net cash used in acquisitions ............................................... -- -- (262,763)
Decrease (increase) in loans other than purchases and sales ................. 935,541 307,034 (158,391)
Loans purchased ............................................................. -- -- (114,273)
Credit card and receivables purchased ....................................... (161,434) -- --
Loans sold .................................................................. -- 38,434 100,449
Proceeds from sales of premises and equipment ............................... 1,464 11,120 7,939
Purchases of premises and equipment ......................................... (6,719) (23,541) (31,483)
Decrease (increase) in other real estate owned .............................. 937 (370) 876
----------- ----------- -----------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES .............. (119,647) 2,752,993 (645,801)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand deposits, NOW and savings accounts ........ 82,913 (220,517) (229,760)
Net increase (decrease) in certificates of deposit .......................... 87,365 (421,560) (595,770)
Net (decrease) increase in borrowings ....................................... (46,895) (2,024,805) 1,354,442
Reduction of ESOP loan ...................................................... -- -- 2,073
Net repayment of debt ....................................................... -- (9,000) --
Net proceeds from issuance of stock ......................................... 2,361 4,090 18,519
Cash dividends paid ......................................................... (47,410) (49,319) (45,257)
Acquisition of treasury stock ............................................... (56,275) (193,271) (121,367)
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ............. 22,059 (2,914,382) 382,880
----------- ----------- -----------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ................. (63,341) 17,981 (101,721)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ................... 295,539 277,558 379,279
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR ......................... $ 232,198 $ 295,539 $ 277,558
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest ................................................................ $ 189,227 $ 299,562 $ 297,116
Income taxes ............................................................ 36,667 20,278 23,167
Additional Disclosures:
Residential mortgage securitization ..................................... 668,522 -- --
Securities transferred from held to maturity to available for sale ...... 520,192 -- --
Securities transferred from available for sale to trading assets ........ 576,308 -- --
Liabilities assumed in purchase business combinations and branch acquisitions -- -- 572,981
See Notes to Consolidated Financial Statements.
Notes To Consolidated Financial Statements
DECEMBER 31, 2001 (in thousands, except share data)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Hudson United Bancorp (the Company) provides a full range of banking services to
individual and corporate customers through its banking subsidiary, Hudson United
Bank (Hudson United), with branch locations in New Jersey, Connecticut, New York
and Pennsylvania. The Company is subject to the regulations of certain Federal
and State banking agencies and undergoes periodic examinations by those
agencies.
BASIS OF PRESENTATION AND CONSOLIDATION
The consolidated financial statements include the accounts of Hudson United
Bancorp and its subsidiaries, all of which are wholly owned. The financial
statements of institutions acquired by the Company in acquisitions that have
been accounted for by the pooling-of-interests method are included herein for
all periods presented.
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent liabilities, as of the date of the
financial statements and revenues and expenses for the period. Actual results
could differ significantly from those estimates.
All significant intercompany accounts and transactions are eliminated in
consolidation.
SECURITIES
The Company classifies its securities as held to maturity, available for sale
and held for trading purposes. Securities for which the Company has the ability
and intent to hold until maturity are classified as held to maturity. These
securities are carried at cost adjusted for amortization of premiums and
accretion of discounts on a straight-line basis, which is not materially
different from the interest method. Trading assets are carried at fair value.
Management reviews its intent to hold securities to maturity as a result of
changes in circumstances, including major business combinations.
Securities which are held for indefinite periods of time which management
intends to use as part of its asset/liability management strategy, or that may
be sold in response to changes in interest rates, changes in prepayment risk,
increases in capital requirements or other similar factors, are classified as
available for sale and are carried at fair value. Differences between available
for sale securities' amortized cost and fair value are charged/credited directly
to stockholders' equity, net of income taxes. The cost of securities sold is
determined on a specific identification basis. The Company had no securities
held for trading purposes at December 31, 2000 and $576.3 million in securities
held for trading purposes at December 31, 2001, which were transferred from the
available for sale category as of December 31, 2001.
Security purchases and sales are recorded on the trade date.
Securities purchased and sold under agreements to resell and repurchase are
accounted for as collateralized financing transactions and are carried at
contract value plus accrued interest. It is the policy of the Company to obtain
possession or control of collateral with market value equal to or in excess of
principal amount loaned under resale agreements. Collateral is valued daily, and
the Company may require counterparties to deposit additional collateral when
appropriate. As of December 31, 2001, the Company had pledged securities with
market values of $26.1 related to repurchase agreements
MORTGAGE LOANS AND ASSETS HELD FOR SALE
Mortgages held for sale are recorded at cost, which approximates market. These
mortgages are typically sold within three months of origination without
recourse. Assets held for sale are carried at lower of cost or market.
LOANS
Loans are recorded at their principal amounts outstanding. Interest income on
loans not made on a discounted basis is credited to income based on principal
amounts outstanding at applicable interest rates. Interest income on consumer
credit loans is recorded primarily using the simple interest method.
Recognition of interest on the accrual method is discontinued when, based on
contractual delinquency, timely payment is not expected. A nonaccrual loan is
not returned to an accrual status until interest is received on a current basis
and other factors indicate that collection of principal and interest is no
longer doubtful.
The net amount of all loan origination fees, direct loan origination costs and
loan commitment fees are deferred and recognized over the estimated life of the
related loans as an adjustment of yield.
ALLOWANCE FOR POSSIBLE LOAN AND LEASE LOSSES
The allowance is maintained at a level believed adequate by management to absorb
potential losses in the loan portfolio. Management's determination of the
adequacy of the allowance is based on an evaluation of the portfolio, past loan
loss experience, current economic conditions, volume, growth and composition of
the loan portfolio and other relevant factors. The allowance is increased by
provisions charged to expense and reduced by net charge-offs.
In accordance with SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan" and SFAS No. 118," Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosure," a loan is deemed impaired when, based on
current information and events, it is probable that the Company will be unable
to collect all amounts due according to the contractual terms of the loan
agreement. These accounting standards require that the measurement of impairment
of a loan be based on one of the following: the present value of expected future
cash flows, net of estimated costs to sell, discounted at the loan's effective
interest rate; a loan's observable market price; or the fair value of
collateral, if the loan is collateral dependent. If the measure of the impaired
loan is less than the recorded investment in the loan, the Company will be
required to establish a valuation allowance, or adjust existing valuation
allowances, with a corresponding charge or credit to the provision for possible
loan losses. The valuation allowance, if any, is maintained as part of the
allowance for possible loan
losses. The Company's process of identifying impaired loans is conducted as part
of its review for the adequacy of the allowance for possible loan losses.
While management uses available information to recognize potential losses on
loans, future additions to the allowance may be necessary based on changes in
economic conditions, particularly in the Company's market areas. In addition,
various regulatory agencies, as an integral part of their examination processes,
periodically review the allowance for possible loan losses of subsidiary banks.
Such agencies may require additions to the allowance based on their judgments of
information available to them at the time of their examinations.
PREMISES AND EQUIPMENT
Land, buildings and furniture, fixtures and equipment are carried at cost.
Depreciation on substantially all buildings and furniture, fixtures and
equipment is provided using the straight-line method based on estimated useful
lives ranging from 3-39 years. Maintenance and repairs are expensed as incurred
and additions and improvements are capitalized.
OTHER REAL ESTATE OWNED
Other real estate owned (OREO) includes loan collateral that has been formally
repossessed. These assets are transferred to OREO and recorded at the lower of
carrying cost or fair value of the properties. Subsequent provisions that result
from ongoing periodic evaluations of these OREO properties are charged to
expense in the period in which they are identified. OREO is carried at the lower
of cost or fair value, less estimated costs to sell. Carrying costs, such as
maintenance and property taxes, are charged to expense as incurred.
CASH SURRENDER VALUE LIFE INSURANCE
Bank owned life insurance, both separate and general account, is recorded in
other assets and reflects the cash surrender value of the underlying policies.
Increases in the cash surrender value resulting from investment returns is
recorded in other income. Any premium payments or related expenses pertaining to
these policies is reflected in noninterest expenses. At year end, the Company
had recorded $153.5 million in bank owned life insurance of which $129.4 million
was separate account bank owned life insurance.
INTANGIBLES
Intangible assets resulting from acquisitions under the purchase method of
accounting consist of goodwill and core deposit intangibles. Goodwill was
amortized on a straight-line basis over periods ranging from five to ten years.
Core deposit intangibles are being amortized, on a straight-line basis, over the
estimated average remaining lives of such intangible assets. Refer to the Recent
Accounting Standards section of these Notes to Consolidated Financial Statements
for further discussion.
FEDERAL INCOME TAXES
The Company uses the liability method of accounting for income taxes. Certain
income and expense items are recorded differently for financial reporting
purposes than for Federal income tax purposes and provisions for deferred taxes
are made in recognition of these temporary differences. A deferred tax valuation
allowance is established if it is more likely than not that all or a portion of
the Company's deferred tax asset will not be realized. Changes in the deferred
tax valuation allowance are reported through charges or credits to the income
tax provision.
The Company and its subsidiaries file a consolidated Federal income tax return.
Under tax sharing agreements, each subsidiary provides for and settles income
taxes with the Company as if they would have filed on a separate return basis.
TREASURY STOCK
The Company determines the cost of treasury shares under the weighted-average
cost method.
STOCK-BASED COMPENSATION
SFAS No. 123 established financial accounting and reporting standards for
stock-based employee compensation plans and allows companies to choose either:
1) a fair value method of valuing stock-based compensation plans which will
affect reported net income; or 2) to continue following the existing accounting
rules for stock option accounting but disclose what the impact would have been
had the new standard been adopted. The Company elected the disclosure option of
this standard. See Note 15.
CASH EQUIVALENTS
Cash equivalents include amounts due from banks and Federal funds sold.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1999 amounts in order to conform
to 2001 and 2000's presentation.
PER SHARE AMOUNTS
Basic earnings per common share is computed by dividing net income, less
dividends on any convertible preferred stock, by the weighted average number of
common shares outstanding during the year. Diluted earnings per share is
computed by dividing net income by the weighted average number of common shares
plus the number of shares issuable upon conversion of any preferred stock and
the incremental number of shares issuable from the exercise of stock options
calculated using the treasury stock method. All per share amounts have been
retroactively adjusted for all stock dividends. All prior annual and interim
periods presented have been restated in the new format.
REPORTING COMPREHENSIVE INCOME
SFAS No. 130 established 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.
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
SFAS No. 131 requires that a public business enterprise report financial and
descriptive information about its reportable operating segments. Hudson United
Bancorp, the bank's holding company, is not a reportable segment because it does
not exceed any of the quantitative thresholds.
EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS
SFAS No. 132 standardized the disclosure requirements for pension and other
postretirement benefits to the extent practicable and requires additional
information on changes in the benefit obligations and fair values of plan
assets.
DERIVATIVE FINANCIAL INSTRUMENTS
The estimated fair values of the Company's derivative instruments are reflected
in its consolidated balance sheets, any change in value of these instruments are
reflected as a component of other comprehensive income in the Company's
stockholders' equity. The Company has entered into certain interest rate
agreements, including interest rate swaps, caps and floors, as part of its
management of interest rate exposure. These agreements are designated against
specific assets and liabilities. The effectiveness of each hedge is analyzed by
the Company on both an initial and ongoing basis.
RECENT ACCOUNTING STANDARDS
The Financial Accounting Standards Board (FASB) issued SFAS No. 141, "Business
Combinations", and SFAS No. 142, "Goodwill and other Intangible Assets", on July
20, 2001. The Company adopted SFAS No. 141 effective June 30, 2001. The adoption
of SFAS No. 141 will not have a material effect Company's financial position or
results of operations. The FASB finalized SFAS No. 142 "Goodwill and Other
Intangible Assets" on June 30, 2001. Under this standard, core deposit
intangibles must continue to be amortized, but goodwill is no longer amortized.
Goodwill acquired prior to July 1, 2001 will cease being amortized on January 1,
2002. Goodwill acquired after June 30, 2001 will not be amortized in 2001 or
beyond. Goodwill that is determined to be impaired must be written-off when that
determination is made. The Company does not expect to take any impairment
charges as a result of the implementation of this standard and expects the
adoption will reduce amortization expense of intangibles by approximately 50%.
The FASB issued SFAS No. 143 "Accounting for Asset Retirement Obligations" in
June 2001. This statement will be effective for financial statements for fiscal
years beginning after June 15, 2002. SFAS No. 143 addresses financial accounting
and reporting for obligations associated with the retirement of tangible
long-lived assets and the associated asset retirement costs. The Company expects
that the adoption of this statement will not have a material effect on its
operations.
(2) BUSINESS COMBINATIONS
The following business combinations have been accounted for using the
pooling-of-interests method of accounting.
On November 30, 1999, the Company acquired all the outstanding shares of
JeffBanks, Inc. (Jeff) based in Philadelphia, Pennsylvania. Each share of Jeff
common stock was converted into .9785 shares of the Company's common stock for a
total of 11,949,376 shares. At the time of the acquisition, Jeff had
approximately $1.8 billion in assets.
On December 1, 1999, the Company acquired all the outstanding shares of Southern
Jersey Bancorp (SJB) based in Bridgeton, New Jersey. Each share of SJB common
stock was converted into 1.2978 shares of the Company's common stock for a total
of 1,614,146 shares. At the time of the acquisition, SJB had approximately $425
million in assets.
The following were accounted for using the purchase method of accounting:
The Company entered into agreements at several times during 2001 to purchase
third party credit card assets from a subsidiary of Transamerica Finance
Company. As of December 31, 2001, the Company had paid total consideration of
$161.4 million for $157.0 million of these assets, with an associated premium of
$4.4 million that is being amortized over five years. In August 2001, the
Company assumed deposit liabilities from First International Bank in the amount
of $272.8 million at a discount of $0.5 million.
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 20, 1999, the Company acquired Little Falls Bancorp, Inc. (LFB) in a
combination stock and cash purchase price of $55.0 million which was $21.8
million in excess of the fair value of net assets acquired. LFB had
approximately $341 million in assets at the time of acquisition.
On October 22, 1999, the Company acquired the assets of Lyon Credit Corporation,
a $350 million asset finance company and subsidiary of Credit Lyonnais Americas.
On December 1, 1999, the Company completed its purchase of loans (approximately
$148 million) and other financial assets, as well as assumed the deposit
liabilities (approximately $112 million) of Advest Bank and Trust. Pro forma
results of operations have not been disclosed herein because the Hartford
branch, LFB, Lyon Credit Corporation, and Advest combinations were not deemed to
be significant.
Merger related and restructuring costs were $15.0 million and other nonrecurring
operating charges were $7.0 million in 2000. Merger related and restructuring
costs include the approximate amounts of $4.8 million for the recognition of
severance benefits and consulting agreements, $2 million for stay pay
obligations to current employees, $2 million for payments and reserves for the
settlements of pre-existing litigation at acquired institutions and $4.2 million
for the recognition of obligations for which the bank will not receive future
benefits. The balance of the expenses are comprised of building writedowns and
miscellaneous expenses including search fees, advisor expenses, and other
miscellaneous items. The nonrecurring operating charges include $3.7 million
related to the change to a new outsource service provider, $2.0 million for
planned branch consolidations, and $1.3 million for the recognition of
obligations for which the Bank will not receive future benefits.
Merger related and restructuring costs were $32.0 million in 1999. These costs
include $12.6 million for payout and accruals for employment contracts,
severance and other employee related costs, $3.9 million for branch closing,
fixed asset disposition and other occupancy related costs, $5.6 million for
technical support for system conversion and early termination of system related
contracts, $1.8 million for legal and accounting professional services and
approval costs, $4.1 million for financial advisor costs, $2.0 million provision
for other real estate owned and $2.0 million for other merger related expenses.
Merger related and restructuring costs were $69.1 million in 1998. The 1998
costs include $29.5 million for payout and accruals for employment contracts,
severance and other employee related costs, $13.2 million for branch closings,
fixed asset dispositions, and other occupancy related costs, $13.6 million for
professional services and $12.8 million for other merger related expenses.
At December 31, 2000, the amount remaining pertaining to the reserve established
in 2000 was $6.4 million. There were no other merger-related and restructuring
reserves at December 31, 2000. During 2001, the Company paid $4.9 million for
severance and related costs and $1.5 million for consolidating operations and
other costs. At December 31, 2001, the Company had no merger related and
restructuring reserves.
(3) CASH AND DUE FROM BANKS
The Company's subsidiary bank is required to maintain an average reserve balance
as established by the Federal Reserve Board. The amount of the reserve balance
for the reserve computation period, which included December 31, 2001, was
approximately $24.0 million.
(4) INVESTMENT SECURITIES
The amortized cost and estimated market value of Investment Securities as of
December 31, are summarized as follows (in thousands):
2001 2000
-----------------------------------------------------------------------------------------------------
GROSS UNREALIZED ESTIMATED GROSS UNREALIZED ESTIMATED
AMORTIZED ------------------------- MARKET AMORTIZED -------------------- MARKET
COST GAINS (LOSSES) VALUE COST GAINS (LOSSES) VALUE
- ----------------------------------------------------------------------------------------------------------------------------------
AVAILABLE FOR SALE
PORTFOLIO
U.S. Government .......... $ 12,904 $ 147 $ -- $ 13,051 $ 31,839 $ 37 $ (48) $ 31,828
U.S. Government Agencies -- -- -- -- 3,500 -- -- 3,500
Mortgage-backed
securities ............ 1,032,993 14,670 (1,068) 1,046,595 241,356 320 (3,642) 238,034
States and Political
subdivisions .......... 26,992 363 (6) 27,349 1,516 41 -- 1,557
Asset backed and Other
debt securities ....... 170,747 314 (31) 171,030 3,754 -- (193) 3,561
Federal Home Loan
Bank stock ............ 21,877 -- -- 21,877 105,924 -- -- 105,924
Other equity securities .. 22,571 614 (690) 22,495 43,092 279 (5,048) 38,323
---------- ------- -------- ----------- ----------- ------- -------- --------
$1,288,084 $16,108 $ (1,795) $ 1,302,397 $ 430,981 $ 677 $ (8,931) $422,727
========== ======= ======== =========== =========== ======= ======== ========
During 2001, the Company transferred securities with an amortized cost of
$565,573 and a market value of $576,308 from available for sale to trading,
resulting in a pretax gain of $10,735.
2000
----------------------------------------------------
GROSS UNREALIZED
AMORTIZED ----------------------- ESTIMATED MARKET
COST GAINS (LOSSES) VALUE
- ----------------------------------------------------------------------------------------
HELD TO MATURITY
U. S. Government ................ $ 24,199 $ -- $ (69) $ 24,130
U. S. Government agencies ....... 38,229 488 (45) 38,672
Mortgage-backed securities ...... 406,518 543 (7,845) 399,216
States and political subdivisions 51,246 187 (41) 51,392
--------- --------- --------- ---------
$ 520,192 $ 1,218 $ (8,000) $ 513,410
========= ========= ========= =========
The amortized cost and estimated market value of debt securities at December 31,
2001, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
ESTIMATED
(in thousands) AMORTIZED COST MARKET VALUE
----------------- ------------
Due in one year or less .............. $ 27,653 $ 27,723
Due after one year through five years 7,826 8,129
Due after five years through ten years 164,753 164,844
Due after ten years .................. 10,411 10,734
---------- ----------
Subtotal ............ $ 210,643 $ 211,430
Mortgage-backed securities ........... 1,032,993 1,046,595
Equity securities .................... 44,448 44,372
Trading assets ....................... 565,573 576,308
---------- ----------
Total ............... $1,853,657 $1,878,705
========== ==========
Sales of securities for the years ended December 31, are summarized as follows
(in thousands):
2001 2000 1999
- --------------------------------------------------------------------------------
Proceeds from sales ............ $ 419,298 $ 2,047,169 $ 332,512
Gross gains from sales ......... 5,320 3,482 4,156
Gross losses from sales ........ (4,115) (62,121) (5,320)
Securities with a book value of $169.9 million and $336.9 million at December
31, 2001 and 2000, respectively, were pledged to secure public funds, repurchase
agreements and for other purposes as required by law.
The Company adopted SFAS No. 133, "Accounting for Derivative Investments and
Hedging Activities", effective January 1, 2001. At the same time, the Company
decided to transfer the total held to maturity investment portfolio, at an
amortized cost of $520.2 million to the available for sale investment portfolio.
At the time of the transfer the market value of these securities was $513.4
million and the unrealized loss on these securities was $6.8 million.
During 2001 the Company securitized $668.5 million of residential mortgages,
which resulted in the assets being transferred into the investment portfolio as
available for sale securities and out of the loan portfolio. The securitization
of mortgages did not result in any assets being sold for financial reporting
purposes, and did not result in the recognition of any gain or loss at the time
of the securitization. The Company did incur certain expenses in the
securitization of mortgages, including annual fees paid to Federal Home Loan
Mortgage Corporation, which expenses are charged to income in the period when
incurred.
(5) LOANS AND THE ALLOWANCE FOR POSSIBLE LOAN AND LEASE LOSSES
The Company's loan portfolio is diversified with no industry comprising greater
than 10% of the total loans outstanding. Real estate loans are primarily made in
the local lending area of the subsidiary banks.
The allowance for possible loan losses is based on estimates, and ultimate
losses may vary from the current estimates. These estimates are reviewed
periodically and, as adjustments become necessary, they are reflected in
operations in the periods in which they become known.
A summary of the activity in the allowance for possible loan and lease losses is
as follows (in thousands):
2001 2000 1999
- ----------------------------------------------------------------------------------------------------
Balance at January 1 ........................................ $ 95,180 $ 98,749 $ 76,043
Additions (deductions):
Provision for possible loan and lease losses --
portfolio loans ........................................ 24,000 24,000 52,200
Provision for possible loan and lease losses --
Non-performing loans held for sale ..................... 10,147 -- --
Allowance acquired through mergers or acquisitions (1) ... 4,711 -- 8,634
Recoveries on loans previously charged off ............... 7,913 7,837 9,929
Loans charged off
Loans held for sale ...................................... (10,147) -- --
Portfolio loans .......................................... (61,758) (35,406) (48,057)
-------- -------- --------
Total loans charged off ..................................... (71,905) (35,406) (48,057)
-------- -------- --------
Balance at December 31 ...................................... $ 70,046 $ 95,180 $ 98,749
======== ======== ========
(1) During the year, the Company paid total consideration of $161.4 million for
$157.0 million of third party credit card assets from a subsidiary of
Transamerica Finance Company, with an associated premium of $4.4 million. The
related allowance for possible loan losses acquired totaled $4.7 million.
(6) NONPERFORMING ASSETS
The following table presents information related to loans which are on
nonaccrual, contractually past due ninety days or more as to interest or
principal payments and loans which have been restructured to provide a reduction
or deferral of interest or principal for reasons related to the debtor's
financial difficulties (in thousands)
DECEMBER 31,
-------------------------------
2001 2000 1999
-------- ------- -------
Nonaccrual loans ............................. $ 44,469(1) $57,898 $46,352
Renegotiated loans ........................ -- -- 2,751
-------- ------- -------
Total nonperforming loans ................. 44,469 57,898 49,103
======== ======= =======
90 days or more past due and still accruing $ 21,008 $29,778 $23,239
======== ======= =======
Gross interest income which would have been
recorded under original terms .............. $ 7,571 $ 4,505 $ 3,217
======== ======= =======
Gross interest income recorded during the year $ 912 $ 564 $ 407
======== ======= =======
- ----------
(1) Includes $16.2 million of nonperforming loans held for sale at December 31,
2001.
At December 31, 2001, 2000 and 1999 impaired loans, comprised principally of
nonaccruing loans, totaled $45.1 million, $58.5 million, and $49.1 million
respectively. The allowance for possible loan and lease losses related to such
impaired loans was $3.9 million, $9.9 million, and $8.3 million at December 31,
2001, 2000 and 1999, respectively. The average balance of impaired loans for
2001, 2000 and 1999 was $51.8 million, $52.1 million and $34.4 million,
respectively.
(7) RELATED PARTY TRANSACTIONS
In the ordinary course of business, the subsidiary bank has extended credit to
various directors, officers and their associates of the Company and its
subsidiaries. The aggregate loans outstanding to related parties are summarized
below for the year ended December 31, 2001 (in thousands):
Balance at January 1 ................................... $ 16,665
New loans issued ....................................... 2,257
Repayment of loans ..................................... (793)
Loans Sold ............................................. (115)
Loans to former directors .............................. (10,695)
--------
Balance at December 31 ................................. $ 7,319
========
Charles F.X. Poggi who is the Chairman of the Compensation Committee and is
involved in setting executive compensation is President of Poggi Press, a
general printing company. During 2001 Poggi Press was paid $281 thousand for
printing work for the Company. Management believes the terms and conditions of
the transactions with Poggi Press to be equivalent to terms available from an
independent third party.
Peter McBride who is on the Compensation Committee and is involved in setting
executive compensation, is affiliated with McBride Corporate Real Estate.
McBride Corporate Real Estate was retained to assist in the sale and/or leasing
of various Hudson United Bancorp properties and in doing so earned commissions
of approximately $280 thousand during 2001. Management believes the terms and
conditions of the transactions with McBride Corporate Real Estate to be
equivalent to terms available from an independent third party.
(8) PREMISES AND EQUIPMENT
The following is a summary of premises and equipment at December 31 (in
thousands):
2001 2000
- --------------------------------------------------------------------------
Land ....................................... $ 18,032 $ 18,339
Premises ................................... 102,112 98,068
Furniture, fixtures and equipment .......... 129,265 125,424
--------- ---------
$ 249,409 $ 241,831
Less--Accumulated depreciation ............. (134,136) (117,010)
--------- ---------
$ 115,273 $ 124,821
========= =========
Depreciation and amortization expense for premises and equipment for 2001, 2000
and 1999 amounted to $16.6 million, $15.8 million and $12.5 million,
respectively.
(9) INCOME TAXES
The components of the provision for income taxes for the year ended December 31
are as follows (in thousands):
2001 2000 1999
- --------------------------------------------------------------------------------
Federal--
Current ............................ $ 27,868 $ 23,432 $ 32,179
Deferred ........................... 11,015 3,484 554
State ................................. 60 53 6,206
-------- -------- --------
Total provision for income taxes ... $ 38,943 $ 26,969 $ 38,939
======== ======== ========
A reconciliation of the provision for income taxes, as reported, with the
Federal income tax at the statutory rate for the year ended December 31 is as
follows (in thousands):
2001 2000 1999
- --------------------------------------------------------------------------------------------
Tax at statutory rate ................................... $ 46,691 $ 26,876 $ 37,897
Increase (decrease) in taxes resulting from:
Non-deductible merger related expenses .............. 1,650 2,083 1,750
Tax-exempt income ................................... (6,016) (2,625) (3,075)
Reduction of valuation allowance .................... (2,900) -- --
State income taxes, net of Federal income tax benefit 40 34 4,033
Other, net .......................................... (522) 601 (1,666)
-------- -------- --------
Provision for income taxes .......................... $ 38,943 $ 26,969 $ 38,939
======== ======== ========
Significant components of deferred tax assets and liabilities are as follows (in
thousands):
DECEMBER 31,
--------------------
2001 2000
- ------------------------------------------------------------------------------
Deferred Tax Assets (Liabilities):
Allowance for possible loan and lease losses ...... $ 24,516 $ 32,613
Federal and state tax operating loss carry forwards 5,827 9,122
Capital losses .................................... 1,806 6,513
Director/Officer Compensation Plans ............... 1,162 1,122
Allowance for Losses on OREO ...................... 3,491 3,478
Depreciation ...................................... 450 (4,412)
Accumulated Other Comprehensive (Income) loss ..... (8,930) 2,762
Acquisition Related Expenses ...................... 8,507 7,620
Unrealized gain on trading assets ................. (3,551) --
Other ............................................. 1,908 (3,639)
-------- --------
Subtotal Net Deferred Tax Asset ................. 35,186 55,179
Less Valuation Allowance against Capital Losses -- (2,900)
-------- --------
Net Deferred Tax Asset ............................ $ 35,186 $ 52,279
======== ========
Management periodically evaluates the realizability of its deferred tax asset
and will adjust the level of the valuation allowance if it is deemed more likely
than not that all or a portion of the asset is realizable. The valuation
allowance at December 31, 2000 was $2.9 million. This valuation allowance was
established due to uncertainties surrounding the ability to generate capital
gains for income tax purposes to offset capital loss carryforwards. During 2001,
the Company adopted a tax planning strategy in connection with repositioning the
investment portfolio that rendered this valuation allowance unnecessary.
The following represents the tax impact of unrealized securities gains (losses)
(in thousands):
For the year ended December 31, 2001
------------------------------------
Before tax Tax Net of Tax
Amount Benefit Amount
----------- --------- ------------
Unrealized holding gains arising during period ................ $ 40,467 $(16,523) $ 23,944
Unrealized holding loss from securities transferred
from held to maturity to available for sale ................. (6,782) 2,713 (4,069)
Change in valuation of derivative contracts ................... 12,196 (5,000) 7,196
Less: reclassification for gains realized in Net Income ....... (1,683) 689 (994)
Less: reclassification for gain included in net income for
securities transferred from available for sale to trading
assets ...................................................... (7,400) 3,034 (4,366)
-------- -------- --------
Net change during period ...................................... $ 36,798 $(15,087) $ 21,711
======== ======== ========
For the year ended December 31, 2000
------------------------------------
Before tax Tax Net of Tax
Amount Benefit Amount
----------- --------- -----------
Unrealized holding losses arising during period ................ $ (3,293) $ 1,020 $ (2,273)
Less: reclassification for losses realized in Net Income ....... 58,639 (20,588) 38,051
-------- -------- --------
Net change during period ....................................... $ 55,346 $(19,568) $ 35,778
======== ======== ========
For the year ended December 31, 1999
------------------------------------
Before tax Tax Net of Tax
Amount Expense Amount
---------- -------- ------------
Unrealized holding losses arising during period ................ $(86,200) $ 31,836 $(54,364)
Less: reclassification for losses realized in Net Income ....... 1,164 (407) 757
-------- -------- --------
Net change during period ....................................... $(85,036) $ 31,429 $(53,607)
======== ======== ========
(10) BENEFIT PLANS AND POSTRETIREMENT BENEFITS
The Company and its acquired subsidiaries have certain pension plans which cover
eligible employees. The plans provide for payments to qualified employees based
on salary and years of service. The Company's funding policy for these plans is
to make the maximum annual contributions allowed by the applicable regulations.
Information regarding the benefit obligation resulting from the actuarial
valuations prepared as of January 1, 2001 and 2000 is as follows (in thousands):
2001 2000
- --------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year .......... $ 37,253 $ 33,664
Service cost ..................................... 2,264 2,220
Interest cost .................................... 2,603 2,483
Actuarial gain ................................... (19) 1,779
Amendments ....................................... -- (155)
Settlements ...................................... -- (391)
Benefits paid .................................... (2,618) (2,347)
-------- --------
Benefit obligation at end of year ................ $ 39,483 $ 37,253
======== ========
2001 2000
- --------------------------------------------------------------------------
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year ... $ 42,922 $ 43,285
Actual (loss) return on plan assets .............. (2,497) 2,184
Employer contribution ............................ 260 191
Settlements ...................................... -- (391)
Benefits paid .................................... (2,618) (2,347)
-------- --------
Fair value of plan assets at end of year ......... $ 38,067 $ 42,922
======== ========
PREPAID/ACCRUED PENSION COST CONSISTS OF THE FOLLOWING AS OF DEC. 31:
Funded status .................................... $(1,416) $ 5,669
Unrecognized net transition obligation ........... (154) (237)
Unrecognized net actuarial gain (loss) ........... 1,008 (5,542)
Unrecognized prior service cost .................. 500 578
------- -------
Prepaid/accrued pension (benefit) cost ........... $ (62) $ 468
======= =======
Assumptions used by the Company in the accounting for its plans in 2001 and 2000
were:
WEIGHTED AVERAGE ASSUMPTIONS AS OF DEC. 31:
2001 2000
- --------------------------------------------------------------------------------
Discount rate .............................. 7.25% 7.5 - 8.0%
Expected return on plan assets ............. 8.5 - 9.5% 8.0 - 9.0%
Rate of compensation increase .............. 3.5% 5.5%
COMPONENTS OF NET PERIODIC BENEFIT COST AS OF
DECEMBER 31, (IN THOUSANDS):
2001 2000 1999
- --------------------------------------------------------------------------------
Service cost ......................... $ 2,264 $ 2,220 $2,023
Interest cost ........................ 2,603 2,483 2,388
Expected return on plan assets ....... (3,759) (2,650) (3,403)
Amendments ........................... -- -- 60
Settlements .......................... 34 30 473
Net Amortization and deferral ........ (353) (986) 44
------- ------- ------
Net periodic benefit cost ............ $ 789 $ 1,097 $1,585
======= ======= ======
The Company has 401(k) savings plans covering substantially all of its
employees. Under these Plans, the Company matches varying percentages of the
employee's contribution. The Company's contributions under these Plans were
approximately $1.5, $1.8, and $1.2 million in 2001, 2000, and 1999.
In addition, the Company provides supplemental employee retirement plans for
certain current and former management employees.
(11) DEPOSITS
The aggregate amount of short-term jumbo certificates of deposit, each with a
minimum denomination of $100,000, was approximately $899.6 million and $703.5
million at December 31, 2001 and 2000, respectively.
The scheduled maturities of certificates of deposit are as follows at December
31, 2001 (in thousands):
3 months or less ...................... $ 852,107
Greater than 3 months to 1 year ....... 998,037
Greater than 1 year to 3 years ........ 279,890
Greater than 3 years .................. 86,207
-----------
$ 2,216,241
===========
(12) BORROWINGS
The following is a summary of borrowings at December 31 2001 (in thousands):
The following table shows the distribution of the Company's borrowings and the
weighted average interest rates thereon at the end of each of the last three
years. Also provided are the maximum amounts of borrowings and the average
amounts of borrowings as well as weighted average interest rates for the last
three years.
Federal Funds
Purchased and
Securities Sold
Under Agreement Other
to Repurchase Borrowings
------------------------------
(In Thousands)
At December 31:
2001 .................................... $ 228,347 $ 83,619
2000 .................................... 176,878 181,983
1999 .................................... 985,170 1,398,496
Weighted average interest rate at year end:
2001 .................................... 2.40% 4.93%
2000 .................................... 4.69% 6.23%
1999 .................................... 5.24% 5.76%
Maximum amount outstanding at any month's end:
2001 .................................... $ 228,347 $ 147,649
2000 .................................... 1,268,412 1,500,562
1999 .................................... 994,143 1,500,677
Average amount outstanding during the year:
2001 .................................... $166,703 $ 54,420
2000 .................................... 718,444 857,037
1999 .................................... 950,039 725,604
Weighted average interest rate during the year:
2001 .................................... 3.89% 5.59%
2000 .................................... 5.75% 6.09%
1999 .................................... 5.08% 5.47%
The following is a summary of borrowings at December 31 (in thousands)
2001 2000
-------- --------
Federal Home Loan Bank advances .............. $ 75,000 $173,847
Securities sold under agreements to repurchase 213,347 176,878
Federal funds purchased ...................... 15,000 --
Treasury, Tax and Loan note .................. 3,846 2,567
Other borrowings ............................. 4,773 5,569
-------- --------
Total borrowings .......................... $311,966 $358,861
======== ========
Maturity distribution of borrowings at December 31, 2001 (in thousands):
2002 .................................... $257,192
2004 .................................... 25,000
2008 .................................... 25,000
2009 and after 4,774
--------
Total $311,966
========
Information concerning securities sold under agreements to repurchase and
FHLB advances is summarized as follows (in thousands):
2001 2000
--------------------------------------------------------------------------
Average daily balance during the year ....... $ 153,724 $ 1,463,467
Average interest rate during the year ....... 5.71% 6.01%
Maximum month-end balance during the year ... $ 213,346 $ 2,463,527
During 2001, the Company paid a penalty of $585,000 in conjunction with the
early extinguishment of $25 million in FHLB advances.
Investment securities underlying the repurchase agreements at December 31 (in
thousands):
2001 2000
- --------------------------------------------------------------------------------
Carrying value ................................ $111,279 $209,947
Estimated fair value .......................... $114,080 $206,594
(13) SUBORDINATED DEBT
In January, 1994, the Company sold $25.0 million aggregate principal amount of
subordinated debentures. The debentures, which mature in 2004, bear interest at
a fixed interest rate of 7.75% per annum payable semi-annually.
In March 1996, the Company issued $23.0 million aggregate principal amount of
subordinated debentures which mature in 2006 and bear interest at a fixed
interest rate of 8.75% per annum payable semi-annually. These notes are
redeemable at the option of the Company, in whole or in part, at any time after
April 1, 2001, at their stated principal amount plus accrued interest, if any.
Under the indenture for the Subordinated Notes, the notes are currently callable
at par plus accrued interest, and are redeemable thirty days following the call
for redemption. On January 7, 2002, the Company announced redemption of this
issue.
In September 1996, the Company sold $75.0 million aggregate principal amount of
subordinated debentures. The debentures, which mature in 2006, bear interest at
a fixed interest rate of 8.20% per annum payable semi-annually.
Proceeds of the above issuances were used for general corporate purposes
including providing Tier I capital to Hudson United. The debt has been
structured to comply with the Federal Reserve Bank rules regarding debt
qualifying as Tier 2 capital at the Company.
(14) CAPITAL TRUST SECURITIES
January 31, 1997, the Company placed $50.0 million in aggregate liquidation
amount at a fixed rate 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 at a fixed rate
of 8.98% Junior Subordinated Debentures due 2027 of the Company. The 8.98%
Capital securities are redeemable by the company on or after February 1, 2007,
or earlier in the event the deduction of related interest for federal income
taxes is prohibited, treatment as Tier 1 capital is no longer permitted or
certain other contingencies arise.
February 5, 1997, the Company placed $25.0 million in aggregate liquidation
amount at a fixed rate of 9.25% Capital Securities due March 2027, using JBI
Capital Trust I, a statutory business trust formed under the laws of the State
of Delaware. The sole asset of the trust, which is the obligor on the Series B
Capital Securities, is $25.3 million principal amount at a fixed rate of 9.25%
Junior Subordinated Debentures due 2027 of the Company. The 9.25% Trust
preferred securities are redeemable 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 at a fixed rate 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 at a fixed rate of 7.65%
Junior Subordinated Debentures due 2028 of the Company. The 7.65% Capital
securities are redeemable by the company on or after June 15, 2008 or earlier in
the event the deduction of related interest for federal income taxes is
prohibited, treatment as Tier 1 capital is no longer permitted or certain other
contingencies arise.
The three issues of capital securities have preference over the common
securities under certain circumstances with respect to cash distributions and
amounts payable on liquidation and are guaranteed by the Company. The net
proceeds of the offerings are being used for general corporate purposes and to
increase capital levels of the Company and its subsidiaries. Except for a
minimal amount, the securities qualify as Tier I capital under the capital
guidelines of the Federal Reserve.
(15) STOCKHOLDERS' EQUITY
On December 1, 2000, the Company paid a 10% stock dividend to stockholders of
record on November 20, 2000. On December 1, 1999, the Company paid a 3% stock
dividend to stockholders of record on November 26, 1999.
The Board of Directors adopted the 1995 Stock Option Plan, which provides for
the issuance of up to 1,030,000 stock options to employees of the Company in
addition to those previously granted. There are other options outstanding that
were granted under the plans of acquired companies. The option or grant price
cannot be less than the fair market value of the common stock at the date of the
grant.
In connection with the PFC, MSB, DFC, IBS, and Jeff acquisitions, all of the
outstanding PFC, MSB, DFC, IBS, and Jeff options were converted into options to
purchase common stock of the Company. Transactions under the Company's plans are
summarized as follows:
NUMBER OF OPTION PRICE
SHARES PER SHARE
- --------------------------------------------------------------------------------
Outstanding, December 31, 1999 .... 2,159,028 $ 4.16 - $31.00
-------------------------------------------
Granted ........................ 289,300 $ 9.38 - $26.06
Exercised ...................... (471,315) $ 6.26 - $29.62
Forfeited/Cancelled ............ (26,930) $ 8.39 - $27.55
-------------------------------------------
Outstanding, December 31, 2000 .... 1,950,083 $ 4.16 - $31.00
-------------------------------------------
Granted ........................ 215,000 $20.06 - $28.50
Exercised ...................... (179,209) $ 4.29 - $22.04
Forfeited/Cancelled ............ (416,608) $ 9.77 - $31.00
-------------------------------------------
Outstanding, December 31, 2001 .... 1,569,266 $ 4.16 - $30.79
-------------------------------------------
Exercisable, December 31, 2001 .... 1,416,266 $ 4.16 - $30.79
-------------------------------------------
In connection with the SJB acquisition in 1999, the Company issued Hudson United
Bancorp common shares to the holders of options to purchase SJB common stock,
the value of which was based on the value of the options on the date of
acquisition.
(16) EARNINGS PER SHARE
In the fourth quarter of 1997, the Company adopted SFAS No. 128, "Earnings Per
Share." This statement established standards for computing and presenting
earnings per share and requires dual presentation of basic and diluted earnings
per share. A reconciliation of net income to net income available to common
stockholders and of weighted average common shares outstanding to weighted
average common shares outstanding assuming dilution follows (in thousands,
except share data):
Year Ended December 31,
------------------------------
2001 2000 1999
------------------------------
Basic Earnings Per Share
Net income .................................. $ 94,461 $ 49,821 $ 69,338
Weighted average common shares outstanding .. 46,846 53,845 57,465
Basic Earnings Per Share .................... $ 2.02 $ 0.93 $ 1.21
======== ======== ========
Diluted Earnings Per Share
Net income .................................. $ 94,461 $ 49,821 $ 69,338
Weighted average common shares outstanding .. 46,846 53,845 57,465
Effect of Dilutive Securities:
Stock Options ............................ 314 341 1,101
-------- -------- --------
47,160 54,186 58,566
Diluted Earnings Per Share .................. $ 2.00 $ 0.92 $ 1.18
======== ======== ========
(17) RESTRICTIONS ON BANK DIVIDENDS, LOANS OR ADVANCES
Certain restrictions exist regarding the ability of Hudson United to transfer
funds to the Company in the form of cash dividends, loans or advances. New
Jersey state banking regulations allow for the payment of dividends in any
amount provided that capital stock will be unimpaired and there remains an
additional amount of paid-in capital of not less than 50 percent of the capital
stock amount. As of December 31, 2001, $556.3 million, subject to regulatory
capital limitations, was available for distribution to the Company from Hudson
United.
Under Federal Reserve regulations, Hudson United is limited as to the amounts it
may loan to its affiliates, including the Company. All such loans are required
to be collateralized by specific obligations.
(18) LEASES
Total rental expense for all leases amounted to approximately $12.3 million,
$10.8 million and $10.3 million in 2001, 2000 and 1999, respectively.
At December 31, 2001, the minimum total rental commitments under all
noncancellable leases on bank premises with initial or remaining terms of more
than one year were as follows (in thousands):
2002 ............................ $ 9,452
2003 ............................ 7,974
2004 ............................ 7,151
2005 ............................ 5,809
2006 and Thereafter ............. 15,757
It is expected that in the normal course of business, leases that expire will be
renewed or replaced by leases of other properties.
(19) COMMITMENTS AND CONTINGENT LIABILITIES
In the fourth quarter of 2000, the Company established a $2 million reserve for
potential legal settlements related to the Jeff and SJB acquisitions. At
December 31, 2001, the balance pertaining to this reserve was zero. The Company
and its subsidiaries, from time to time, may be defendants in legal proceedings
In the opinion of management, based upon consultation with legal counsel, the
ultimate resolution of these legal proceedings will not have a material effect
on the consolidated financial statements. In the normal course of business, the
Company and its subsidiaries have various commitments and contingent liabilities
such as commitments to extend credit, letters of credit
The Company applies APB Opinion 25 and related Interpretations in accounting for
its plan. Accordingly, no compensation cost has been recognized. Had
compensation cost been determined based on the fair value at the grant dates for
awards under those plans consistent with the method of SFAS No. 123, the
Company's net income and income per share would have been reduced to the
proforma amounts indicated below (in thousands, except share data):
2001 2000 1999
- -------------------------------------------------------------------------------
Net income As reported ... $ 94,461 $49,821 $ 69,338
Pro forma ..... 93,316 48,679 67,781
Basic earnings per share
As reported ... 2.02 $ 0.93 $ 1.21
Pro forma ..... 1.99 0.90 1.18
Diluted earnings per share
As reported ... $ 2.00 $ 0.92 $ 1.18
Pro forma ..... 1.98 0.90 1.15
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions used for 2001,
2000 and 1999: dividend yield of 3.61% for 2001, 4.24% for 2000 and 2.87% to
3.05% for 1999; risk-free interest rates of 4.28% to 4.29% in 2001, 4.66% to
4.91% for 2000 and 6.55% in 1999; volatility factors of the expected market
price of the Company's common stock of approximately 28% in 2001, 46% to 56% in
2000 and 51% in 1999 and an expected life of 5 years in 2001, 5 to 10 years in
2000 and 7 years in 1999.
The Company has a restricted stock plan in which 139,861 shares, as of December
31, 2001, of the Company's common stock may be granted to officers and key
employees. 11,230, 219,750 and 68,055 shares of common stock were awarded which
vest between two to ten years from the date of grant during 2001, 2000 and 1999,
respectively. The value of shares issued that have not been vested are $3.8
million, $5.8 million, and $3.5 million for 2001, 2000 and 1999, respectively,
and have been recorded as a reduction of stockholders' equity. Amortization of
restricted stock awards charged to expense amounted to $0.6 million, $1.4
million, and $0.7 million, in 2001, 2000 and 1999, respectively.
Prior to termination of the merger agreement between Hudson United Bancorp and
Dime Bancorp, Inc., the compensation committee adopted the Hudson United Bancorp
and Subsidiaries Key Employee Retention Program. The program was designed to
encourage designated key employees of Hudson United Bancorp and its subsidiaries
(collectively, the "Company") to remain with the Company in connection with the
then pending merger and subsequent transition in light of the uncertainty then
surrounding the consummation of the merger. Eligible employees received awards
under the program that totaled, in the aggregate, 186,000 shares of restricted
stock and $90,000 in cash awards. Restricted stock and cash awards under the
program were to become 100% vested ten years from the date of the award.
Restricted stock and cash awards were to become fully and immediately vested if,
within two years after the Hudson-Dime merger agreement, (1) the Company
received payment of $25 million or more in satisfaction of its rights under the
terms of the September 16, 1999 Stock Option Agreement between Hudson and Dime;
or (2) there occurred a change in control, as defined in the Restricted Stock
Plan. On January 7, 2002 the Company received $77 million of final merger
termination payment from Dime, which resulted in the vesting of the
aforementioned restricted stock and cash awards. The vesting of the restricted
stock and cash awards were part of the approximately $15 million in expenses
related to the closing of the Washington Mutual/Dime merger recorded by the
Company in the first quarter of 2002.
In November 1993, the Company's Board of Directors authorized management to
repurchase up to 10 percent of its outstanding common stock each year. The
program may be discontinued or suspended at any time, and there is no assurance
that the Company will purchase the full amount authorized. The acquired shares
are to be held in treasury and to be used for stock option and other employee
benefit plans, stock dividends, or in connection with the issuance of common
stock in pending or future acquisitions. In June 2000, the Company's Board of
Directors authorized the repurchase of up to 20% of the Company's outstanding
shares. In June 2001, the Company's Board of Directors extended the Company's
stock repurchase program until December 2002 and authorized additional
repurchases of up to 10% of the Company's outstanding shares. During 2001, the
Company purchased 2.3 million treasury shares at an aggregate cost of $56.3
million. During 2001, 179,209 shares were reissued for stock options and other
employee benefit plans.
and liability for assets held in trust which are not reflected in the
accompanying financial statements. Loan commitments, commitments to extend lines
of credit and standby letters of credit are made to customers in the ordinary
course of business. Both arrangements have credit risk essentially the same as
that involved in extending loans to customers and are subject to the Company's
normal credit policies. The Company's maximum exposure to credit loss for loan
commitments, primarily unused lines of credit, and standby letters of credit
outstanding at December 31, 2001 was $2.9 billion and $56.3 million,
respectively.
(20) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK
The Company has no off-balance sheet security financings or related type
entities.
Unused commitments include loan origination commitments, which are legally
binding agreements to lend at a specified interest rate for a specified purpose
and lines of credit, which represent loan agreements under which the lender has
an obligation, subject to certain conditions to lend funds up to a particular
amount, whereby the borrower may repay and re-borrow at anytime within the
contractual period. Stand by letters of credit are conditional commitments
issued by the Company to guarantee the performance of a customer to a third
party.
The Company's maximum exposure to accounting loss related to the contract
amounts of these financial instruments, assuming they are fully funded at
December 31, 2001 is as follows:
(IN THOUSANDS) LOAN ORIGINATION UNUSED STAND BY
COMMITMENTS LOC LOC TOTAL
---------------- ---------- --------- ---------
Real Estate Mortgage .. $ 41,046 $ 41,046
Home Equity Loans ..... $ 337,039 337,039
Other Consumer Loans .. $1,940,618 1,940,618
Commercial Loans ...... $ 616,609 $56,321 672,930
----------
Total ................. $2,991,633
(21) HUDSON UNITED BANCORP (PARENT COMPANY ONLY) FINANCIAL INFORMATION
(in thousands) DECEMBER 31,
BALANCE SHEETS 2001 2000
- --------------------------------------------------------------------------------------------------------------
ASSETS:
Cash .......................................................................... $ 7,345 $ 828
Federal Funds ................................................................. -- 159
Securities:
Available for sale .......................................................... 18,354 36,868
Investment in subsidiaries .................................................... 618,298 587,922
Accounts receivable ........................................................... -- 238
Premises and equipment, net ................................................... 7,487 8,247
Other assets .................................................................. 13,034 9,996
------------------------
TOTAL ASSETS .................................................................. $ 664,518 $ 644,258
========================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Notes payable-subsidiaries .................................................... $ 22,362 $ 24,911
Accrued taxes and other liabilities ........................................... 9,952 2,574
------------------------
$ 32,314 $ 27,485
Subordinated Debt ............................................................. 123,000 123,000
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 ............................................................. $280,614 $275,785
Stockholders' equity .......................................................... 383,904 368,473
------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................................... $ 664,518 $644,258
========================
(in thousands) YEARS ENDED DECEMBER 31,
--------------------------------------
STATEMENTS OF INCOME 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------
INCOME:
Cash dividends from bank subsidiaries ......................... $101,161 $37,761 $53,052
Interest ...................................................... 56 2,272 4,183
Securities (losses) income .................................... (632) 3,533 1,849
Rental income ................................................. 606 927 1,142
Other ......................................................... 2,398 3,445 7,955
--------------------------------------
$103,589 $47,938 $68,181
EXPENSES:
General and administrative ...................................... 1,713 3,960 6,608
Interest ........................................................ 18,141 21,042 25,442
--------------------------------------
$ 19,854 $25,002 $32,050
--------------------------------------
Income before income taxes and equity in
Undistributed net income of subsidiaries ...................... 83,735 $22,936 $36,131
Income tax benefit .............................................. (5,288) (4,979) (6,046)
--------------------------------------
$ 89,023 $27,915 $42,177
Equity in undistributed net income of subsidiaries .............. 5,438 21,906 27,161
--------------------------------------
NET INCOME ...................................................... $ 94,461 $49,821 $69,338
======================================
HUDSON UNITED BANCORP (PARENT COMPANY ONLY) FINANCIAL INFORMATION (CONTINUED)
(in thousands) YEARS ENDED DECEMBER 31,
STATEMENTS OF CASH FLOWS 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------
Operating activities:
Net income .................................................... $ 94,461 $ 49,821 $ 69,338
Adjustments to reconcile net income to net cash provided
by operating activities--
Amortization and depreciation ............................. 800 811 988
Amortization of restricted stock .......................... 597 1,388 673
Securities losses (income) ................................ 632 (3,533) (1,849)
(Increase) decrease in investment in subsidiaries ......... (30,376) 65,631 78,881
Decrease in accounts receivable ........................... 83 11,264 2,024
Decrease (increase) in other assets ....................... 26,301 38,719 (30,470)
(Decrease) increase in notes payable ...................... -- (37,283) 59,745
Increase (decrease) in accounts payable .................. 5,212 (147) (15,458)
Decrease in accrued taxes and other liabilities ........... (385) (4,414) (2,239)
--------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ....................... $ 97,325 $ 122,257 $ 161,633
--------------------------------------
Investing activities:
Proceeds from sale of securities .............................. $ -- $ 46,078 $ 9,232
Proceeds from maturities of securities ........................ 10,282 800 10,000
Purchase of securities ........................................ -- -- (65,813)
Investments in bank's subordinated notes ...................... -- 23,000 --
Capital expenditures .......................................... (220) (1,113) (1,422)
Other ......................................................... 295 -- --
--------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ............. $ 10,357 $ 68,765 $ (48,003)
--------------------------------------
Financing activities:
Proceeds from issuance of common stock ........................ $ 2,361 $ 4,090 $ 18,519
Dividends paid ................................................ (47,410) (49,319) (45,257)
Purchase of treasury stock .................................... (56,275) (193,271) (121,367)
Other ......................................................... -- 36,597 2,073
--------------------------------------
NET CASH USED IN FINANCING ACTIVITIES ........................... $(101,324) $(201,903) $(146,032)
--------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .............. $ 6,358 $ (10,881) $ (32,402)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR .................. 987 11,868 44,270
--------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR ........................ $ 7,345 $ 987 $ 11,868
======================================
(22) SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following quarterly financial information for the two years ended December
31, 2001 and 2000 is unaudited. However, in the opinion of management, all
adjustments, which include only normal recurring adjustments necessary to
present fairly the results of operations for the periods, are reflected. Results
of operations for the periods are not necessarily indicative of the results of
the entire year or any other interim period.
THREE MONTHS ENDED
(Dollars in thousands) March 31(a) June 30(a) September 30(a) December 31
--------------------------------------------------------------
2001
Net interest income ................................ $ 70,428 $ 71,960 $ 70,647 $ 72,331
Provision for possible loan and lease losses,
portfolio loans .................................. 6,000 6,000 6,000 6,000
Provision for possible loan and lease losses,
loans held for sale .............................. -- -- -- 10,147
Income before income taxes ......................... 31,489 32,794 33,682 35,439
Net income ......................................... 22,043 23,284 23,915 25,219
Earnings per share-basic ........................... 0.46 0.50 0.51 0.55
Earnings per share-diluted ......................... 0.46 0.49 0.51 0.54
2000
Net interest income ................................ $ 87,687 $ 84,665 $ 75,814 $ 71,560
Provision for possible loan losses ................. 6,000 6,000 6,000 6,000
Income (loss) before income taxes .................. 45,053 (15,766) 36,805 10,698
Net income (loss) .................................. 29,873 (12,567) 24,457 8,040
Earnings (loss) per share-basic .................... 0.53 (0.22) 0.46 0.16
Earnings (loss) per share-diluted .................. 0.53 (0.22) 0.45 0.16
(a) Net income and related per share amounts for these periods in 2000 were
significantly impacted by merger related and restructuring costs related to
the proposed merger with the Dime.
(23) ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments include cash, loan agreements, accounts receivable and
payable, debt securities, deposit liabilities, loan commitments, standby letters
of credit and financial guarantees, among others. The fair value of a financial
instrument is the amount at which the instrument could be exchanged in a current
transaction between willing parties, other than a forced or liquidation sale.
Estimated fair values have been determined by the Company using the best
available data and estimation methodology suitable for each category of
financial instruments. For those loans and deposits with floating rates, it is
presumed that estimated fair values generally approximate their recorded book
balances. The estimation methodologies used, the estimated fair values and
recorded book balances of the Company's financial instruments at December 31,
2001 and 2000 were as follows:
Cash and cash equivalents include cash and due from bank balances and Federal
funds sold. For these instruments, the recorded book balance approximates their
fair value.
For securities in the Company's portfolio, fair value was determined by
reference to quoted market prices. In the few instances where quoted market
prices were not available, prices for similar securities were used. Additional
detail is contained in Note 4 to these consolidated financial statements.
(in thousands) 2001 2000
------------------------- -------------------------
ESTIMATED RECORDED ESTIMATED RECORDED
FAIR VALUE BOOK VALUE FAIR VALUE BOOK VALUE
- ---------------------------------------------------------------------------------------------------------
Cash and cash equivalents .................... $ 232,198 $ 232,198 $ 295,539 $ 295,539
Investment securities available for sale
(including Trading Assets) ................. 1,878,705 1,878,705 422,727 422,727
Investment securities held to maturity ....... -- -- 513,410 520,192
The fair value of the Company's derivative instruments, which includes interest
rate swaps, floors and caps, was based on quoted market price.
2001 2000
------------------------- ------------------------
ESTIMATED CARRYING ESTIMATED CARRYING
FAIR VALUE VALUE FAIR VALUE VALUE
- --------------------------------------------------------------------------------------------------------
Derivative instruments ....................... $ 13,715 $ 13,715 -- --
The Company aggregated loans into pools having similar characteristics when
comparing their terms, contractual rates, type of collateral, risk profile and
other pertinent loan characteristics. Since no active market exists for these
pools, fair values were estimated using the present value of future cash flows
expected to be received. Loan rates currently offered by the Bank were used in
determining the appropriate discount rate.
2001 2000
------------------------- -------------------------
ESTIMATED RECORDED ESTIMATED RECORDED
FAIR VALUE BOOK VALUE FAIR VALUE BOOK VALUE
- --------------------------------------------------------------------------------------------------------------
Loans, net of allowance, and assets
held for sale .............................. $ 4,742,328 $ 4,390,741 $ 5,293,567 $5,182,343
The fair value of demand deposits, savings deposits and certain money market
accounts approximates their recorded book balances. The fair value of fixed
maturity certificates of deposit was estimated using the present value of
discounted cash flows based on rates currently offered for deposits of similar
remaining maturities.
2001 2000
------------------------- ------------------------
ESTIMATED RECORDED ESTIMATED RECORDED
FAIR VALUE BOOK VALUE FAIR VALUE BOOK VALUE
- --------------------------------------------------------------------------------------------------------------
Deposits ........................................ $ 5,784,222 $ 5,983,545 $ 5,508,970 $5,813,267
The fair value for accrued interest receivable and the cash surrender value of
life insurance policies approximates their respective recorded book balance. The
fair value of borrowed funds is estimated using the present value of discounted
cash flows based on the rates currently offered for debt instruments of similar
remaining maturities.
2001 2000
------------------------- ------------------------
ESTIMATED RECORDED ESTIMATED RECORDED
FAIR VALUE BOOK VALUE FAIR VALUE BOOK VALUE
- --------------------------------------------------------------------------------------------------------------
Accrued interest receivable ..................... 46,996 46,996 $ 55,283 $ 55,283
Cash surrender value of life insurance .......... 153,506 153,506 23,054 23,054
Borrowings ...................................... 299,807 311,966 358,054 358,861
The fair value of the subordinated debt and capital trust securities was
determined by reference to quoted market prices.
2001 2000
------------------------- ------------------------
ESTIMATED RECORDED ESTIMATED RECORDED
FAIR VALUE BOOK VALUE FAIR VALUE BOOK VALUE
- --------------------------------------------------------------------------------------------------------------
Subordinated Debt ............................... $ 123,056 $ 123,000 $ 117,799 $ 123,000
Capital Trust Securities ........................ 125,300 125,300 104,249 125,300
The Company's remaining assets and liabilities, which are not considered
financial instruments, have not been valued differently than has been customary
with historical cost accounting. There is no material difference between the
notional amount and estimated fair value of off-balance sheet items, other than
derivative instruments, which are primarily comprised of unfunded loan
commitments which are generally priced at market at the time of funding.
For certain homogeneous categories of loans, such as some residential mortgages,
fair value is estimated using the quoted market prices for securities backed by
similar loans, adjusted for differences in loan characteristics. The fair value
of other types of loans is estimated by discounting the future cash flows using
the current rates at which similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities.
(24) REGULATORY MATTERS/CAPITAL ADEQUACY
The Company and its subsidiary bank are subject to various regulatory capital
requirements administered by federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company and its subsidiary bank must meet specific capital guidelines that
involve quantitative measures of assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices.
Capital amounts and classification are also subject to qualitative judgements by
the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of Total and Tier I
capital (as defined in the regulations) to risk-weighted assets (as defined),
Tier I capital (as defined) to average assets (as defined). Management believes,
as of December 31, 2001, that the Company and its subsidiary bank meet all
capital adequacy requirements to which they are subject.
The Company's and the Bank's actual capital amounts and ratios at December 31,
2001 and 2000 are presented in the following table
(dollars in thousands):
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
--------------------------- ------------------------- -------------------------
Amount Ratio Amount Ratio Amount Ratio
------------- ------------- ------------- ----------- ------------ -----------
AS OF DECEMBER 31, 2001:
Total Capital to Risk Weighted Assets:
Hudson United Bancorp ............ $ 537,495 10.51% $ 409,061 >8.0% $ 511,326 >10.0%
Hudson United Bank ............... 530,336 10.39% 408,197 >8.0% 510,246 >10.0%
Tier I Capital to Risk Weighted Assets:
Hudson United Bancorp ............ $ 385,112 7.53% $ 204,530 >4.0% $ 306,796 >6.0%
Hudson United Bank ............... 448,142 8.78% 204,099 >4.0% 306,148 >6.0%
Tier I Capital to Average Assets:
Hudson United Bancorp ............ $ 385,112 5.75% $ 267,811 >4.0% $ 334,763 >5.0%
Hudson United Bank ............... 448,142 6.71% 267,307 >4.0% 334,134 >5.0%
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
---------------------------- ------------------------ -------------------------
Amount Ratio Amount Ratio Amount Ratio
------------- ------------- ------------- ----------- ------------ -----------
AS OF DECEMBER 31, 2000:
Total Capital to Risk Weighted Assets:
Hudson United Bancorp ............ $ 571,433 11.05% $ 413,565 >8.0% $ 516,956 >10.0%
Hudson United Bank ............... 528,548 10.27% 411,818 >8.0% 514,773 >10.0%
Tier I Capital to Risk Weighted Assets:
Hudson United Bancorp ............ $ 393,436 7.61% $ 206,782 >4.0% $ 310,174 >6.0%
Hudson United Bank ............... 440,525 8.56% 205,909 >4.0% 308,864 >6.0%
Tier I Capital to Average Assets:
Hudson United Bancorp ............ $ 393,436 5.96% $ 264,031 >4.0% $ 330,039 >5.0%
Hudson United Bank ............... 440,525 6.62% 266,363 >4.0% 332,954 >5.0%
(25) DERIVATIVES FINANCIAL INSTRUMENTS
During 2001, the Company entered into interest rate agreements, which included
interest rate swaps, caps and floors, as part of the Company's interest rate
risk management strategy. These agreements are entered into as cash flow hedges
against interest rate risk and are designated against specific assets and
liabilities. $660 million in interest rate swaps and floors were purchased to
mitigate the exposure of net interest income to declines in interest rates and
had an unrealized gain of $12.5 million at December 31, 2001. A $100 million cap
was purchased to mitigate the exposure of net interest income to increases in
interest rates and had an unrealized loss of $0.3 million at December 31, 2001.
Terms of interest rate agreements are contractually set, and do not change if
the Company's credit rating changes. These agreements are not linked to the
Company's stock price; there is no obligation to issue shares of Hudson United
as part of any interest rate agreements.
Interest rate derivatives outstanding at December 31, 2001 are as follows: (in
thousands)
Maturity Notional Fixed Variable Type of
Amount Interest Rate Rate Index Instrument
- -------------------------------------------------------------------------------------
1 year or less $25,000 5.00% Libor Floor
10,000 6.00% Libor Swap
15,000 5.40% Libor Swap
1 year through 5 years 100,000 7.64% Prime Swap
100,000 7.71% Prime Swap
100,000 7.66% Prime Swap
100,000 7.64% Prime Swap
10,000 6.00% Libor Swap
100,000 7.75% Prime Cap
100,000 7.00% Prime Floor
50,000 7.00% Prime Floor
50,000 7.00% Prime Floor
---------
Total $ 760,000
=========
(26) SUBSEQUENT EVENTS
On January 7, 2002, the Company received $77 million of cash from Dime
representing the final termination payment relating to the uncompleted merger of
the Company and Dime, which was payable upon the closing merger between Dime and
Washington Mutual Inc. Pursuant to the termination agreement between the Company
and Dime dated April 28, 2000, Dime was required to pay the Company a total of
$92 million upon the closing of Washington Mutual's acquisition of Dime. A
minimum payment of $15 million was recorded by the Company in 2000. The
remaining $77 million was recognized as revenue in the first quarter of 2002.
The Company expects to record approximately $15 million of expenses in the first
quarter of 2002 which are related to the closing of the Washington Mutual/Dime
merger, including financial advisor fees, acceleration of employee retention
awards and other expenses.
The Company also announced in January of 2002, the call for redemption of $23
million of 8.75% Subordinated Notes due April 1, 2006, which notes were
originally issued by JeffBanks, Inc. in 1996, and which notes were assumed by
the Company as part of its acquisition of JeffBanks in 1999.
Regarding the Company's 2001 year-end balance sheet restructuring, all the
designated trading account assets, amounting to $576 million, were sold in
January 2002.
Market and Dividend Information
Hudson United Bancorp is traded on the New York Stock Exchange under the symbol
of "HU". At year end, there were approximately 7,760 common stockholders of
record. The quarterly common stock and dividend information is as follows:
Quarterly Common Stock and Dividend Information
(restated to give retroactive effect to stock dividends)
2001 2000
--------------------------------- ------------------------------
Cash Cash
High Low Dividends High Low Dividends
------ ------ --------- ----- ------ ---------
Quarter Ending
March 31 ............. $23.42 $20.00 $0.25 $22.61 $16.42 $0.227
June 30 .............. 26.20 21.50 0.25 24.77 17.67 0.227
September 30 ......... 28.80 25.01 0.25 25.11 20.34 0.227
December 31 .......... 29.33 25.02 0.26 24.27 17.27 0.250
Hudson United Bancorp will provide, free of charge, to any stockholders, upon
written request, a copy of the Corporation's Annual Report on Form 10-K,
including the financial statements and schedules which have been filed with the
Securities & Exchange Commission. Requests should be addressed to D. Lynn Van
Borkulo-Nuzzo, Corporate Secretary, Hudson United Bancorp, 1000 MacArthur Blvd.,
Mahwah, New Jersey, 07430.
Duplicate accounts and mailings are costly and often unnecessary. We can
consolidate such accounts upon written request if you will notify either the
Corporate Secretary at the above address or Carolyn B. O'Neill, American Stock
Transfer and Trust Company, 40 Wall Street, New York 10269.
DIVIDEND REINVESTMENT PLAN
If you are not enrolled in the Corporation's Dividend Reinvestment Plan and
would like to join the plan, you may obtain information by writing to the
Corporate Secretary at the above address.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
HUB's Proxy Statement for its 2002 Annual Meeting under the captions Proposal 1-
"Election of Directors" and "Governance of the Corporation--Section 16(a)
Beneficial Ownership Reporting Compliance" contains the information required by
Item 10 with respect to directors of HUB and certain information with respect to
executive officers and that information is incorporated herein by reference.
Certain additional information regarding executive officers of HUB, who are not
also directors, appears under subsection (e) of Item 1 of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
HUB's Proxy Statement for its 2002 Annual Meeting contains, under the captions
"Executive Compensation", "Governance of the Corporation--Compensation of
Directors" and " Governance of the Corporation--Compensation Committee
Interlocks and Insider Participation", contains the information required by Item
11 and that information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
HUB's Proxy Statement for its 2002 Annual Meeting under the caption "Stock
Ownership of Management and Principal Shareholders", contains the information
required by Item 12 and that information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
HUB's Proxy Statement for its 2002 Annual meeting under the captions "Governance
of the Corporation--Compensation Committee Interlocks and Insider Participation"
and "Governance of the Corporation--Certain Transactions with Management",
contains the information required by Item 13 and that information is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1)&(2) List of Financial Statements and Financial Statement Schedules
The following financial statements and supplementary data are
filed as part of the annual report.
Hudson United Bancorp and Subsidiaries:
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Changes in Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Independent Auditors' Report
Schedules to the Consolidated Financial Statements required by
Article 9 of Regulation S-X are not required under the related
instructions or are inapplicable, and therefore have been
omitted.
(a) (3) Exhibits
List of Exhibits
(3)(A) The Certificate of Incorporation of the Company in effect on
May 11, 1999. (Incorporated by reference from the Company's
Amended Quarterly Report on Form 10 Q/A for the quarter
ended June 30, 1999 filed September 10, 1999, Exhibit (3a)).
(3)(B) Revised By-Laws of HUBCO, Inc. (Incorporated by reference
from the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 2000, Exhibit(3)(B))
(4a) Indenture dated as of January 14, 1994, between HUBCO, Inc.
and Summit Bank as Trustee for $25,000,000 7.75%
Subordinated Debentures due 2004. (Incorporated by reference
from the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993, Exhibit (4)).
(4b) Indenture dated as of September 13, 1996, between HUBCO,
Inc. and Summit Bank as Trustee for $75,000,000 8.20%
Subordinated Debentures due 2006. (Incorporated by reference
from the Company's Current Report on Form 8-K dated
September 18, 1996, Exhibit 99.2).
(4c) Indenture dated as of January 31, 1997, between HUBCO, Inc.
and The Bank of New York as Trustee for $50,000,000 8.98%
Junior Subordinated Debentures due 2027. (Incorporated by
reference from the Company's Current Report on Form 8-K
dated February 11, 1997, Exhibit (4(a)).
(4d) Indenture dated as of June 19, 1998, between HUBCO, Inc. and
The Bank of New York as Trustee for $50,000,000 7.65% Junior
Debentures due 2028. (Incorporated by reference from the
Company's Current Report on Form 8-K dated June 26, 1998,
Exhibit 4(a)).
(10a) The Agreement and Plan of Merger between Hudson United
Bancorp and Dime Bancorp, Inc. as amended and restated on
December 27, 1999. (Incorporated by reference from the
company's Amended Annual Report on Form 10K/A for the fiscal
year ended December 31, 1999 filed on March 31, 2000,
Exhibit 10(a)).
(10b) The Stock Option Agreement between Dime Bancorp, Inc. and
Hudson United Bancorp dated September 16, 1999.
(Incorporated by reference from the Company's filing on Form
8-K dated September 24, 1999, Exhibit 99.2).
(10c) The Termination, Option Cancellation and Settlement
Agreement between Hudson United Bancorp and Dime Bancorp,
Inc. dated April 28, 2000. (Incorporated by reference from
the Company's filing on Form 8-K dated May 1, 2000, Exhibit
99.1).
(10e) The Agreement and Plan of Merger dated June 28, 1999, among
Hudson United Bancorp, Hudson United Bank, JeffBanks, Inc.,
Jefferson Bank, and Jefferson Bank of New Jersey.
(Incorporated by reference from the Company's filing on Form
8-K/A dated June 30, 1999, Exhibit 99.1).
(10f) The Stock Option Agreement dated June 28, 1999, between
Hudson United Bancorp and JeffBanks, Inc. (Incorporated by
reference from the Company's filing on Form 8-KA dated June
30, 1999, Exhibit 99.2).
(10g) The Agreement and Plan of Merger dated June 28, 1999, among
Hudson United Bancorp, Hudson United Bank, Southern Jersey
Bancorp of Delaware, Inc., and Farmers and Merchants
National Bank. (Incorporated by reference from the Company's
filing on Form 8-KA dated June 30, 1999, Exhibit 99.4).
(10h) The Stock Option Agreement dated June 28, 1999, between
Hudson United Bancorp and Southern Jersey Bancorp of
Delaware, Inc. (Incorporated by reference from the Company's
filing on Form 8-KA dated June 30, 1999, Exhibit 99.5).
(10n) HUBCO Supplemental Employees' Retirement Plan dated January
1, 1996. (Incorporated by reference from the Company's
Amended Annual Report on Form 10-K/A for the fiscal year
ended December 31, 1996 filed April 3, 1997, Exhibit (10k)).
(10o) HUBCO, Inc. Directors Deferred Compensation Plan.
(incorporated by reference from the Company's filing on Form
10-K dated December 31, 2000)
(21) List of Subsidiaries.
(b) Reports on Form 8-K.
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Hudson United Bancorp
By: /s/ KENNETH T. NEILSON
----------------------
Kenneth T. Neilson
Chairman of the Board
Dated: March 15, 2002
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ KENNETH T. NEILSON
- ------------------------ Chairman of the Board March 15, 2002
Kenneth T. Neilson President, CEO, Director
Principal Executive Officer
/s/ ROBERT J. BURKE
- ------------------------ Director March 15, 2002
Robert J. Burke
/s/ DONALD P. CALCAGNINI
- ------------------------ Director March 15, 2002
Donald P. Calcagnini
/s/ JOAN DAVID
- ------------------------ Director March 15, 2002
Joan David
/s/ NOEL DECORDOVA, JR.
- ------------------------ Director March 15, 2002
Noel deCordova, Jr.
/s/ BRYANT D. MALCOLM
- ------------------------ Director March 15, 2002
Bryant D. Malcolm
/s/ W. PETER MCBRIDE
- ------------------------ Director March 15, 2002
W. Peter McBride
/s/ CHARLES F. X. POGGI
- ------------------------ Director March 15, 2002
Charles F. X. Poggi
/s/ DAVID A. ROSOW
- ------------------------ Director March 15, 2002
David A. Rosow
/s/ JAMES E. SCHIERLOH
- ------------------------ Director March 15, 2002
James E. Schierloh
/s/ JOHN H. TATIGIAN, JR.
- ------------------------ Director March 15, 2002
John H. Tatigian, Jr.
/s/ WILLIAM A. HOULIHAN
- ------------------------ Executive Vice President March 15, 2002
William A. Houlihan and Chief Financial Officer
Exhibit 21
LIST OF SUBSIDIARIES
SUBSIDIARIES OF HUDSON UNITED BANCORP:
Hudson United Bank, organized under New Jersey business laws
HUBCO Capital Trust I, a Delaware statutory business trust
HUBCO Capital Trust II, a Delaware statutory business trust
JBI Capital Trust I, a Delaware statutory business trust
Jefferson Delaware, Inc., a service corporation for payment of JBI Capital Trust
SUBSIDIARIES OF HUDSON UNITED BANK:
HUB Mortgage Investments, Inc., organized under New Jersey business laws
NJ Investments of Delaware, Inc., organized under Delaware business laws
Hendrick Hudson Corp. of New Jersey, organized under New Jersey business laws
Lafayette Development Corp., organized under New Jersey business laws
Plural Realty, Inc., organized under New York business laws
PSB Associates, Inc., organized under New York business laws
AMBA Realty Corporation, organized under Connecticut banking laws
Riverdale Timber Ridge, Inc., organized under New York business laws
Hudson Trader Brokerage Services, organized under New York business laws