Back to GetFilings.com

Table of Contents

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

For the quarterly period ended March 31, 2005

OR

For the transition period from              to             

Commission File Number 0-010699

HUDSON UNITED BANCORP

(Exact name of registrant as specified in its charter)

(201)-236-2600

(Registrant’s telephone number, including area code)

Not Applicable

Former name, former address, and former fiscal year,

if changed since last report.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days    Yes  x    No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 120b-2)     Yes  x    No  ¨

The number of shares of Common Stock, no par value, outstanding as of May 4, 2005 was 44,752,092.

Table of Contents

HUDSON UNITED BANCORP

INDEX

2

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

HUDSON UNITED BANCORP

CONSOLIDATED BALANCE SHEETS (Unaudited)

3

Table of Contents

HUDSON UNITED BANCORP

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

See Notes to Unaudited Financial Statements

4

Table of Contents

HUDSON UNITED BANCORP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

See Notes to Unaudited Consolidated Financial Statements

5

Table of Contents

See Notes to Consolidated Financial Statements

6

Table of Contents

HUDSON UNITED BANCORP

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

See Notes to Consolidated Financial Statements

7

Table of Contents

HUDSON UNITED BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except per share data)

NOTE A — BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of Hudson United Bancorp and Subsidiaries (“Hudson United” or “the Company”) include the accounts of the parent company, Hudson United Bancorp, and its wholly-owned subsidiary: Hudson United Bank (“the Bank”). These unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the information presented includes all adjustments and normal recurring accruals considered necessary for a fair presentation, in all material respects, of the interim period results. The results of operations for periods of less than one year are not necessarily indicative of results for the full year. The consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2004. The Company’s significant accounting policies are outlined in Note 1 “Summary of Significant Accounting Policies in its Form 10-K for the year ended December 31, 2004, previously filed with the SEC. There have not been any significant changes in factors or methodology applied to our critical accounting policies since December 31, 2004 that would be considered material to the Company’s operations.

During May 2003, the Company acquired ownership interests in two companies, a wholly owned company and a 50% owned company, involved in landfill gas projects (“LGPs”). The Company has included both companies in the consolidated financial statements from their date of acquisition, the minority interest is included in other liabilities, income in the noninterest income category and expense in the noninterest expense category.

All intercompany accounts and transactions are eliminated in consolidation.

Trusts holding solely junior debentures of the Company that issued Company-obligated mandatory redeemable preferred capital securities have been deconsolidated and the junior debentures are included under other liabilities on the Company’s consolidated balance sheet, as a result of the application of FIN 46 and SFAS 150.

NOTE B — EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding less restricted stock during the period. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares plus the incremental number of shares issuable from restricted stock and the exercise of stock options, calculated using the treasury stock method.

A reconciliation of weighted average common shares outstanding to weighted average common shares outstanding assuming dilution follows (in thousands, except per share data):

As of March 31, 2005 the Company had 2,133 shares that were not included in the diluted computation because they would have been anti-dilutive. There were no anti-dilutive shares as of March 31, 2004.

8

Table of Contents

NOTE C – ACQUISITIONS/BUSINESS COMBINATIONS

The Company, through its subsidiary Hudson United Bank, acquired Flatiron Credit Company (“Flatiron”) on October 31, 2003. The purchase price of the acquisition was approximately $40 million in cash based on the estimated book value of Flatiron on the closing date of the acquisition. The Bank may also be obligated to make additional earn-out payments, based on the increase in net income of Flatiron in the two years after the closing of the acquisition. The purchase price (excluding any potential earn-out payments) represented a $3.4 million premium to Flatiron’s estimated book value (before acquisition costs). At December 31, 2004, $4.5 million of additional goodwill was recorded representing the first earn-out payment which was finalized with no adjustment and paid in the first quarter of 2005. The final earn-out payment, if any, will be based on 2005 financial results compared to 2004.

In 2003, Hudson United acquired ownership interests in two companies involved in landfill gas projects (“LGPs”). The Company as the owner of the LGPs is eligible to receive tax credits under Section 29 of the Internal Revenue Code (“Section 29 tax credits”), which are available to producers of fuel from non-conventional sources. These Section 29 tax credits were $2.3 million and $2.1 million for the three month periods ended March 31, 2005 and 2004, respectively. The Section 29 tax credits, which may be limited or eliminated based upon a formula tied to the average price of crude oil during each calendar year, are scheduled to expire on December 31, 2007. The difference between the acquisition value of $20 million and the net asset value was recorded as a reduction of the carrying value of long-lived equipment.

The Company entered into agreements in the first quarter of 2005 to purchase third party credit card assets from unaffiliated third parties. As of March 31, 2005, the Company had paid total consideration of $3.6 million for $5.9 million of these assets, with an associated discount of $2.3 million.

NOTE D – INVESTMENT SECURITIES

The following table presents the amortized cost and estimated fair value of investment securities available for sale and held to maturity at the dates indicated excluding trading assets (in thousands):

9

Table of Contents

The following table summarizes trading assets at December 31, 2004 (in thousands):

Investment securities with a fair value of $2,559 million at March 31, 2005 and $2,686 million at December 31, 2004 were pledged as collateral for public sector deposits, customer repurchase agreements and borrowings from the Federal Home Loan Bank and other counterparties.

Other securities include preferred stocks of Government Sponsored Entities, Community Reinvestment Act Funds, and common and preferred stocks of other financial institutions

EITF No. 03-1 “The Meaning of Other-Than –Temporary Impairment and Its Application to Certain Investments” discusses recommendations set forth on the proposed models for evaluating impairment of equity securities and debt securities. While no consensus has yet been reached, guidelines were given for the quantitative and qualitative disclosures for debt and marketable equity securities classified as available for sale or held to maturity. The Company has adopted these guidelines as of December 31, 2003 and continues to monitor the status of the recommendations set forth in EITF No.3-1. The Company monitors the market value fluctuations of its investment portfolio on a monthly basis as well as associated credit ratings to determine potential impairment of a security. As of December 31, 2004, the Company had $81.1 million of securities classified as “Other-Than-Temporarily Impaired.” These securities are carried at the lower of cost or fair value. Charges for “Other-Than-Temporarily Impaired” securities were $13.9 million in 2004. As of March 31, 2005 the Company did not have any securities classified as “Other-Than Temporarily Impaired”. The Company’s investment securities with unrealized losses are considered temporarily impaired due to interest rate fluctuations that occurred during the year.

10

Table of Contents

NOTE E – BORROWINGS

The maturity of the Company’s federal funds purchased, repurchase agreements and FHLB advances at March 31, 2005 and December 31, 2004 are as follows:

The Company decreased its borrowings by $129.3 million at March 31, 2005 over December 31, 2004 levels. This decrease was primarily due to decreases in Federal Home Loan Bank advances. At March 31, 2005 the Company had a $40 million line of credit with an unaffiliated bank, which matures June 30, 2005. The line of credit was not utilized during the first quarter of 2005.

NOTE F – SUBORDINATED DEBT

On May 6, 2002, the Bank issued $200 million of 7.00% subordinated notes due May 2012. The debentures bear interest at a fixed interest rate of 7.00% per annum payable semi-annually. The proceeds of the above issuance were used for general corporate purposes including providing Tier 2 Capital to Hudson United.

In September 1996, the Company issued $75 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. The Company repurchased $7.0 million of this debt during 2002, $37.8 million during 2003 and $5.7 million during 2004. The outstanding balance of this debt is $24.5 million as of March 31, 2005. The 2003 debt repurchase was repurchased from an investment banking firm at a price of 115% of par, which resulted in a premium of $5.7 million and a total transaction value of $44.0 million, which also included accrued interest. The Company at the same time issued a $45 million, 3.50% fixed rate institutional certificate of deposit due in May of 2008 to the same investment banking firm. The changed terms of the debt instruments and the present value of the cash flows of the obligations repurchased and the new obligation issued were not considered to be substantially different. The effective annual interest cost of the new obligation issued by the Company is 6.02%. The Company repurchased $5.7 million of its 8.20% subordinated debt in the third quarter of 2004.

Proceeds of the above issuances were used for general purposes including providing Tier I capital to the subsidiary bank. The debt has been structured to comply with the Federal Reserve Bank and FDIC rules regarding debt qualifying as Tier 2 capital at the Company.

NOTE G – JUNIOR SUBORDINATED DEBENTURES ASSOCIATED WITH CAPITAL TRUST SECURITIES

The Company issued on March 17, 2004, $20 million of capital trust preferred securities, with a final maturity of March 17, 2034, using Hudson United Statutory Trust I, a statutory business trust formed under the laws of the State of Connecticut. The sole asset of the trust, which is the obligor on the Capital Trust Securities, is $20.6 million principal amount variable rate Junior Subordinated Debentures due 2034 of the Company. The capital trust preferred securities have a rate equal to the 3-month LIBOR plus 2.79% adjusting quarterly at each interest payment date and are callable by the Company on or after March 17, 2009 and any subsequent interest payment date thereafter. As of March 31, 2005, $20.0 million of the Hudson United Statutory Trust I and $20.6 million Junior Subordinated Debentures respectively, remained outstanding.

On March 31, 2003, the Company issued $20 million of capital trust preferred securities, with a final maturity on April 15, 2033, using Hudson United Capital Trust I, a statutory business trust formed under the laws of the State of Delaware. The sole asset of the trust, which is the obligor on the Capital Trust Securities, is $20.6 million principal amount at a fixed rate of 6.85% Junior Subordinated Debentures due 2038 of the Company. The capital trust preferred securities are callable at par on April 15, 2008, and have a fixed rate yield of 6.85% until the call date. Thereafter the yield on this issuance is based on 6-month LIBOR plus 3.30%. As of March 31, 2005, $20 million of the Hudson United Capital Trust I and $20.6 million Junior Subordinated Debentures respectively, remained outstanding.

The Company issued on March 28, 2003, $15 million of capital trust preferred securities, with a final maturity of April 10, 2033, using Hudson United 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 Capital Trust Securities, is $15.5 million principal amount at a fixed rate of 6.45% Junior Subordinated Debentures due 2038 of the Company. The capital trust preferred securities are callable at par on April 24, 2008, and have a fixed rate yield of 6.45% until the call date. As of March 31, 2005, $15.0 million of the Hudson United Capital Trust II and $15.5 million of Junior Subordinated Debentures respectively, remained outstanding.

11

Table of Contents

On June 19, 1998, the Company issued $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 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. As of March 31, 2005, $50.0 million of the HUBCO Capital Trust II and $51.5 million Junior Subordinated Debentures respectively, remained outstanding.

On January 31, 1997, the Company issued $50.0 million in aggregate liquidation amount of 8.98% Capital Securities due February 2027, using HUBCO Capital Trust I, a statutory business trust formed under the laws of the State of Delaware. The sole asset of the trust, which is the obligor on the Series B Capital Securities, is $51.5 million principal amount 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 tax is prohibited, treatment as Tier 1 capital is no longer permitted or certain other contingencies arise. As of March 31, 2005, $45.0 million of the 8.98% Capital Securities and $46.5 Junior Subordinated Debentures respectively, remained outstanding.

The five issues of capital securities have preference over the common securities under certain circumstances with respect to cash distributions and amounts payable on liquidation and are guaranteed by the Company. The net proceeds of the offerings are being used for general corporate purposes and to increase capital levels of the Company and its subsidiaries. The securities qualify as Tier I capital under the capital guidelines of the Federal Reserve. At the end of the reporting period, there were no known uncertainties that will have or that are reasonably likely to have a material effect on the Company’s liquidity or capital resources.

The FASB issued Interpretation No. 46 (“Consolidation of Variable Interest Entities”) in December 2003. As a consequence of this interpretation the Company now deconsolidates all of its capital trust issuances and now reports these issuances in the other liability line on the Company’s balance sheet. On March 1, 2005 the Federal Reserve Bank released its final rule on trust preferred securities. The final rule retains the bifurcated system of limits on trust preferred securities: 15% of core capital elements limit for “internationally active banks” ; 25% of core capital elements for non-internationally active banks. The final rule does not have an impact upon the Company.

The following is a maturity distribution of outstanding subordinated debt and junior subordinated debentures associated with capital trust securities, (which are included in the other liability section of the Company’s consolidated balance sheet at March 31, 2005):