SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D. C. 20549

FORM 10-K

|(Mark One)                                                    |                                                                                         
|------------------------------------------------------------- | ----------------------------------------------------------------------------------------
|ý                                                             | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|For the fiscal year ended December 31, 2003                  
|OR                                                           
|o                                                             | 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

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Hudson United Bancorp(Exact name of registrant as specified in its Charter)

|New Jersey(State or other jurisdiction of
Incorporation or organization)        |  | 22-2405746(I.R.S. Employer Identification No.)
|------------------------------------------------------------------------------- |  | ----------------------------------------------
|1000 MacArthur Blvd.
Mahwah, New Jersey(Address of principal executive offices) |  | 07430(Zip Code)                               

Registrant's
telephone number, including area code:(201)236-2600

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

|Common Stock, no par value |  | New York Stock Exchange               
|-------------------------- |  | --------------------------------------
|(Title of Class)           |  | (Name of exchange on which registered)

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

None

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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 ý    NO o

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. ý

Indicate by check mark whether the Registrant is an accelerated filer as defined in Exchange Act
Rule 126-2 ý

The aggregate market value of the voting stock held by non-affiliates of the Registrant, as of June 30, 2003 was $73,922,707.

The
number of shares of Registrant's common stock, no par value, outstanding as of March 10, 2004 was 44,805,950.

Documents
incorporated by reference: Contains portions of the Registrants Definitive Proxy Statement for the 2004 Annual Meeting of Shareholders to be held April 1 2004 will be
incorporated by reference in Part III



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PART I

ITEM 1. BUSINESS

(a)    General Development of Business

Hudson
United Bancorp ("HUB", "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 six additional subsidiaries, which are HUBCO Capital Trust I, HUBCO Capital Trust II, JBI Capital Trust I, Hudson United Capital Trust I,
Hudson United Capital Trust II 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 thirteen 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, 2003, HUB, through its subsidiaries, had total deposits of $6.2 billion, total loans and leases of $4.7 billion and total assets of
$8.1 billion. HUB ranked third among commercial banks and bank holding companies headquartered in New Jersey in terms of asset size at December 31, 2003. Hudson United operates over 205
branches located throughout the state of New Jersey; in the Hudson
Valley area of New York State; in New York City; 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 exchange
and letters of credit. The Bank's deposit accounts are competitive with those of other banks and include checking, savings, money market accounts, a variety of interest-bearing transaction accounts
and time deposits. In the lending area, the Bank primarily engages in commercial lending; commercial real estate lending; insurance premium finance lending; consumer lending primarily consisting of
automobile loans and home equity 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.

Available Information

The Company makes available free of charge on or through its website, www.hudsonunitedbank.com, all materials that it files electronically with the Securities and
Exchange Commission ("SEC"), including its annual report on Form 10-K, quarterly reports on Form 10Q, current reports on Form 8-K, and amendments to those
reports filed or furnished pursuant to

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Section 13(a)
or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after electronically filing such materials with, or furnishing them to, the SEC. During the
period covered by this Form 10-K, the Company made all such materials available through its website as soon as reasonably practicable after filing such materials with the SEC.

You
may also read and copy any materials filed by the Company with the SEC at the SEC's Public Reference Room at 450 Fifth Street. N.W., Washington, D.C. 20549, and you may obtain
information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an
Internet website, www.sec.gov, that contains reports, proxy and information statements and other information that the Company files electronically with the SEC.

A
copy of the Company's Corporate Governance Guidelines, its Code of Business Conduct and Ethics, and the charters of the Audit Committee, Compensation Committee, and Nominating and
Governance Committee of the Board of Directors are posted on the Company's website, www.hudsonunitedbank.com, and are available in print to any shareholder who requests copies by contacting D. Lynn
Van Borkulo-Nuzzo, Corporate Secretary, at the Company's principal executive offices set forth above.



Loans:

The Company classifies its loans into five major categories: commercial and financial; commercial real estate mortgages; consumer; private label credit cards; and
residential mortgages.

Loan
and lease categories consisting of commercial and financial, commercial real estate mortgages, consumer, and private label credit cards totaled $4.5 billion at
December 31, 2003, or 96% of total loans. The Company emphasizes these types of loans, because they generally have more attractive yields; interest rate sensitivity; and maturity
characteristics than single-family mortgage loans. The Company also believes that these loans provide better opportunities to obtain deposit relationships and/or fee based product relationships with
borrowers than do single-family mortgage loans, which tend to be transactional.

The
Company emphasizes commercial loans to small and mid-sized privately owned businesses, most of which are located in its four state business area. Most of the Company's
loans are in the form of annually renewable lines of credit, indexed to the Prime Rate or LIBOR, and term loans with either variable or fixed rates. The average size of the Company's commercial loans
is less than $1 million. Most of the Company's commercial loans are secured by assets owned by the borrower, including commercial real estate. Most of the Company's commercial loans are also
supported by personal guarantees from the owners of those private companies. The Company has an immaterial amount of "shared national credits" for regulatory purposes in its commercial loans
outstanding at December 31, 2003. All of these credits are considered in market.

The
Company emphasizes short maturity and intermediate maturity loans in its commercial real estate activities. These loans may be collateralized by existing properties, or by properties
acquired by a borrower for their use or in an attempt to improve the value of the property prior to refinancing or sale of the property; or may be construction loans generally supported by
pre-sale or pre-lease commitments for the completed properties. Most of these properties collateralizing these loans are located in the Company's four state business area.
These loans have variable interest rates indexed to the Prime Rate, LIBOR or other indices, or have fixed interest rates generally not longer than 5 years. The average size of the Company's
commercial real estate loan is less than $1 million. The Company also originates some commercial real estate loans in the size range of $10 million or greater. Most of the Company's
loans are also supported by personal guarantees by the owners of the properties. The Company does not emphasize long term, fixed rate, non recourse loans to investors in commercial real estate. The
Company had very few purchased participations in both its commercial real estate loans and commercial and financial loans at December 31, 2003.

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The
Company emphasizes automobile loans and home equity loans in its consumer lending activities. The Company's consumer loan portfolio also includes some recreational vehicle loans,
manufactured housing loans, boat loans, unsecured consumer loans, and other miscellaneous loans. The Company's automobile loans generally are originated by dealers located in the Company's four state
business area, and purchased by the Company throughout the year on a periodic basis after the Company performs an independent review of the borrower's credit worthiness and an assessment of the loan
collateral. Most of these loans have fixed interest rates and intermediate maturities. The Company's home equity loans are generally collateralized by properties located in the Company's four state
business area, secured by the primary residence of the borrower, and originated by the Bank's employees. Most of these loans have variable interest rates indexed to the Prime Rate, or may have fixed
interest rates. The Company uses Fair Isaacs Company ("FICO") scores and other underwriting techniques to evaluate the credit worthiness of the borrowers for the Company's consumer loans and leases.
The borrowers for the Company's consumer loans and leases had an average FICO score of greater than 720 at December 31, 2003. The total lease receivables for the Company at December 31,
2003 were $65.7 million with a residual value of $56.9 million at December 31, 2003. These residual values are guaranteed by a third party, and the guarantee is also supported by
collateral up to a certain amount, which was approximately $5.2 million at December 31, 2003. The Company's risk exposure at December 31, 2003 calculated using industry standards
for the lease industry was $5.7 million, which was mitigated in part by the $5.2 collateral. These auto leases were purchased in 2001. The Company believes that the residual values are properly
recorded as of December 31, 2003.

The
Company emphasizes "private label" credit card activities, and it does not emphasize VISA or MasterCard credit card activities. The Company has relationships with approximately 110
retailers located throughout the United States, which merchants offer unsecured sales financing to their customers through a private label credit card, and which merchants allow the Company to
underwrite the resulting credit card receivables on a daily basis. The Company's relationships with its merchants are generally multi year contractual relationships. The Company generates these
merchant relationships through the marketing efforts of its employees, as well as by purchasing the right to merchant relationships from other financial institutions. The Company receives a fee from
the merchants when it underwrites a purchase, and it receives interest, late fees and credit card account insurance income
from the individual customers that maintain balances on their private label credit card accounts. The Company's credit card loans include both fixed and variable interest rates. The average balance
outstanding on the Company's credit card loans was less than $700 at December 31, 2003. The Company uses FICO scores and other underwriting techniques to evaluate the creditworthiness of the
borrowers for its credit card loans. The borrowers for the Company's private label credit card loans had an average credit score of 703,at December 31, 2003. New loans approved during 2003 had
average credit scores greater than 735. The Company, in the normal course of business, does not approve loan applications with credit scores less than 650. The Company's total credit card loans of
$326.7 million at December 31, 2003 include $5.8 million of VISA and MasterCard credit card loans.

Deposits

The Company classifies its deposits into non-interest bearing; NOW; savings; money market deposit accounts ("MMDA"); and time deposit categories.

Deposits
consisting of non-interest bearing; NOW; savings; and MMDA accounts totaled $4.3 billion at December 31, 2003, or 69% of total deposits. The Company
emphasizes these categories of deposits because they generally have lower yields; are subject to repricing at the Company's option; and provide more fee based product opportunities than time deposits,
which tend to be transactional.

The
Company primarily generates deposits from individuals, but it also obtains deposits from businesses, and municipalities and related entities ("public sector deposits").

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Most
of the Company's deposits are generated through its more than 200 branches in its four state business area. Most of the Company's deposits are in amounts less than $100,000, and are
fully insured by the FDIC. Deposits in amounts greater than $100,000 are primarily from businesses and public sector deposits, and are generally secured at the depositor's request by a portion of the
Company's investment securities portfolio.



The Company's total assets at December 31, 2003 were $8.1 billion, which represented an increase in its total assets from the prior year, which were
$7.7 billion at December 31, 2002. This increase was due to increases in investment securities of $89.7 million; an increase in commercial, commercial real estate and consumer
credit of $440.3 million; partially offset by a decrease in residential mortgages of $106.6 million. The increase in investment securities in 2003 was partly due to purchases made in
connection with an increase in deposits and borrowings. The increase in commercial, commercial real estate and consumer loans in 2003 reflected the Company's focus on its major loan categories and the
acquisition of the Flatiron insurance premium finance loan business in October 2003. The Flatiron acquisition added $248.4 million in commercial and financial loans as of
December 31, 2003. The Company's total assets at December 31, 2002 were $7.7 billion, which represented an increase in its total assets from the prior year, which were
$7.0 billion at December 31, 2001. This increase was due mainly to increases in investment securities and trading assets of $631.6 million, commercial, commercial real estate,
consumer and credit card loans of $263.6 million being offset in part by a decrease of $262.6 million in residential mortgage loans. The increase in securities and the decline in
residential mortgage loans was due in part to exchanges of residential mortgages for comparable mortgage backed securities, backed by the same mortgages of $118.0 million in 2002

The
Company's primary focus in 2003 and 2002 was on core business growth. Management focused on executing its business strategies and in providing superior customer service.



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 between the Company and Dime had a negative impact on the Company's growth and profitability during 1999 and
2000. Dime agreed to merge with Washington Mutual, Inc. in June of 2001. The Dime/Washington Mutual merger was completed in January of 2002.

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, 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, on
or before October 28, 2001.

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. Pursuant to the above mentioned termination agreement, Dime was required to

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pay
Hudson United $77 million upon the closing of the merger with Washington Mutual. The Company recognized the additional $77 million of termination payments as revenue in the first
quarter of 2002, when it was received. The Company also recorded in the first quarter of 2002 approximately $8.3 million of expenses related to the terminated merger including financial advisor
fees and acceleration of employee retention awards, $13.2 million of other expenses, and a $21.3 million provision for possible loan losses related to the accelerated disposition of
certain non performing loans.



The Company has engaged in only limited acquisition activity in recent years, as it focused on core business growth within its four state business area. The
Company had an explicit focus on acquisitions in the 1990s, when acquisitions were its primary source of growth in those years.

The
Company, through its subsidiary Hudson United Bank, acquired Flatiron Credit Company ("Flatiron") on October 31, 2003. Flatiron is the seventh largest insurance premium
finance company in the nation. 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 next two years after the closing of the acquisition. The
purchase price (excluding any potential earn-out payments) represents a $3.4 million premium to Flatiron's estimated book value (before acquisition costs), which were
$259.6 million on the closing date. The majority of Flatiron's loans are short-term fixed rate loans made to small business customers located throughout the nation. The loans are
secured by the remaining unearned insurance premiums from the insurance company.

The
Company announced, on June 26, 2002, a purchase and assumption transaction with the FDIC as the receiver for the failed Connecticut Bank of Commerce ("the CBC transaction").
The Company, in this transaction, purchased certain consumer loans that could be put back to the FDIC, and assumed certain insured deposits, of initially, $180.2 million along with an option to
purchase two branches in Connecticut and to lease one branch in Connecticut and two branches in New York City. Subsequently, the Bank put back the consumer loans, purchased the two Connecticut
branches and assumed the leases of the one branch in Connecticut and two branches in New York City. The Bank paid an acquisition premium of $17.3 million to the FDIC in this transaction, of
this total $4.1 million was classified as core deposit intangible and $13.2 million was considered goodwill. Subsequently in the fourth quarter of 2003 $1.9 of this intangible was
written-off (see Note 28 "Subsequent Events" for further discussion).

The
Company entered into agreements at several times in 2003 and 2002 to purchase third party credit card assets from unaffiliated third parties. The Company paid total consideration of
$19.0 million for $23.0 million of these assets in 2003, with an associated discount of $4.0 million. The Company paid total consideration of $62.6 million for
$66.2 million of these assets in 2002, with an associated discount of $3.6 million.



In November 1993, the Board 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.

On
January 29, 2003, the Company's Board of Directors (the "Board") extended the Company's stock repurchase program until June 2004 and authorized additional repurchases of
up to 10% of the Company's outstanding shares.

During
2003, the Company purchased 527.1 thousand treasury shares at an aggregate cost of $16.5 million. During 2003, 250 thousand shares were reissued for stock
options.

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During
2002, the Company purchased 1.3 million treasury shares at an aggregate cost of $37.7 million. During 2002, the Company reissued 434,813 shares for stock options.

At
December 31, 2003, there were 44.8 million shares of the Company's common stock outstanding.



In addition to Hudson United Bank, the Company directly owns six consolidated subsidiaries that were established for the purpose of issuing the capital trust
securities of the Company which enhance the regulatory capital of the Company. They are Hudson United Capital Trust I, Hudson United Capital Trust II, 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 thirteen consolidated subsidiaries as discussed below.

In
1987, Hudson United established a directly owned subsidiary called Hendrick Hudson Corp. Hendrick Hudson Corp. directly owns HUB Mortgage Investments Inc., which was
established in 1997 and operates as a real estate investment trust. As of December 31, 2003, Hendrick Hudson Corp. had no assets other than its investment in HUB Mortgage
Investments Inc. As of December 31, 2003, $1,427.2 million of mortgage loans and $1,713.1 million in mortgage related investment securities were being managed by HUB
Mortgage Investments Inc. These two entities were established to assist in managing a portion of the Company's investment portfolio.

In
1998, Hudson United established NJ Investments of Delaware, Inc. As of December 31, 2003, $121.8 million of Hudson United's investment portfolio was being managed
by NJ Investments of Delaware, Inc. This subsidiary was established to assist in managing a portion of the Company's investment portfolio.

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 2004. The Company now provides investment securities brokerage services to its customers through a business relationship with an affiliate of John Hancock Insurance.

In
2002, Hudson United established Hudson Insurance Services, Inc. This subsidiary provides a wide range of insurance risk management services as an agent; it does not engage in
any insurance underwriting activities.

In
2003 Hudson United acquired ownership interests in two companies involved in landfill gas projects ("LGPs"). These LGPs lease gas rights within landfills and own and operate the
equipment that recovers methane gas and converts the gas to electricity, and generate revenues by selling the electricity. 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 are anticipated to amount to approximately $9.5 million per year, and are scheduled to expire on December 31, 2007. The acquisition of the ownership interests was recorded at a
value of $19.6 million, which was approximately equal to the carrying value of the Company's loan to the LGPs on the closing date. 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 acquisition occurred in connection with the satisfaction of a loan the Company
had previously made to the prior owner of LGPs. The LGPs or predecessor entities have been in existence since 1997, and generated net income for the previous owner of the LGPs in prior years. The
Company expected the ownership in the LGPs to result in an increase to its revenues; an increase to its operating expenses in an amount greater than the increase in revenues; and an increase in net
income and accretion to EPS, primarily due to the reduction in its provision for taxes due to the Section 29 tax credits.

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In
2003 Hudson United acquired Flatiron Credit Company. This subsidiary provides insurance premium financing and is the seventh largest provider of such service in the United States.
Flatiron Credit Company directly owns the following subsidiaries: FPF, Inc. a Colorado corporation, FPCAL, Inc., a California corporation and Westchester Premium Acceptance Corporation,
a Texas corporation. Flatiron Credit Company indirectly owns the following subsidiaries through its direct subsidiaries: Westchester Premium Acceptance Corporation of California, Inc., a
California corporation, Elite Premium Services, Inc., a Texas corporation, Elite Premium Finance, Ltd, a limited partnership, Advantage Specialty Programs, Ltd, a limited
partnership and Flatiron IPF trust, a Delaware business trust.

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.

The
FASB issued FIN 46,"Consolidation of Variable Interest Entities" as amended in December 2003. This interpretation provides guidance on how to identify a variable interest
entity and determine when the assets, liabilities, noncontrolling interests and results of operations are to be included in an entity's consolidated financial statements. The Company applied the
provisions of FIN 46 to wholly-owned subsidiary trusts in 2003 and 2002 that issued capital trust securities to third-party investors. For purposes of financial statement presentation, the Company has
deconsolidated the trusts issuing the capital trust preferred securities and now includes the junior subordinated debentures under other liabilities on its consolidated balance sheet. This does not
have a material impact on the Company's operations.

The
Company has no other subsidiaries that are not consolidated into the Company's financial statements.



Hudson United Bank enjoys a good relationship with its employees and is not party to any collective bargaining agreements.



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,

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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, 2003, 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, 2003, HUB's total
risk-based capital ratio was 13.67% and its Tier 1 risk-based capital ratio was 8.72%.

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, 2003, HUB had a leverage capital ratio of 6.36%.

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, 2003,
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").

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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.

The
Basel Committee on Banking Supervision ("Basel Committee") is developing a new set of risk-based capital standards("New Accord"). In a press release dated
January 15, 2004, it was announced that the Basel Committee will make further refinements to certain critical components of the New Accord. The Basel Committee intends to finalize the New
Accord by mid-year 2004. U.S. banking regulators have proposed an effective date of January 1, 2007, for the New Accord, which will effect the Company. The Company will continue to
monitor the progress of the Basel initiative.

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, 2003 the maximum amount available for distribution to HUB from Hudson United was $169.5 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. Loans outstanding from Hudson United to HUB were $1.2 million at December 31, 2003.

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").

10

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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

On July 30, 2002 the Sarbanes-Oxley Act of 2002 (SOA) was signed into law. The stated goals of SOA are to increase corporate responsibility, provide for
enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the
securities laws. The SOA includes very specific additional disclosure requirements and new corporate governance rules, requires the SEC and security exchanges to adopt extensive additional disclosure,
corporate governance and other related rules and mandates further studies of certain issues by the SEC and the Comptroller General. The SOA represents significant federal involvement in matters
traditionally left to state regulatory systems, such as the regulation of the accounting profession, and to state corporate law, such as the relationship between a board of directors and its
committees.

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.

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:



11

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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.



The
Registrant has one industry segmentcommercial banking.



HUB
exists primarily to hold the stock of its subsidiaries. At December 31, 2003, HUB had seven wholly-owned subsidiaries including Hudson United. In addition, HUB, through Hudson
United, indirectly owns 13 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, 2003, HUB, through its subsidiaries, had total deposits of $6.2 billion, total loans of $4.7 billion and total assets of $8.1 billion. HUB
ranked third among commercial banks and bank holding companies headquartered in New Jersey in terms of asset size at December 31, 2003. The Bank operates branch offices throughout the state of
New Jersey; in the Hudson Valley area of New York

12

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State;
in New York City; 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 exchange
and letters of credit. The Bank's deposit accounts are competitive with those of other banks and include checking, savings, money market accounts, a variety of interest-bearing transaction accounts
and time deposits. In the lending area, the Bank primarily engages in commercial lending; commercial real estate lending; consumer lending primarily consisting of auto loans and home equity 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, 2003, Hudson United's Wealth Management Department had approximately $337.6 million of assets under
management and total trust assets of $566.1 million.

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 1,859 full-time equivalent employees as of December 31, 2003.





13

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The
following table sets forth certain information as to each executive officer of the Company who is not a director.

|Name, Age and
Position with
the Company |  | Executive
Officer of
the Company
Since |  | Principal Position                                  
|--------------------------------------- |  | -------------------------------------- |  | ----------------------------------------------------
|James Mayo, 63                          |  | 2000                                   |  | Executive Vice President,
Operations and Technology 
|James W. Nall, 55                       |  | 2003                                   |  | Executive Vice President and
Chief Financial Officer
|Thomas R. Nelson, 59                    |  | 1994                                   |  | Executive Vice President;
Private Label Credit Card 
|James Rudgers, 54                       |  | 2002                                   |  | Executive Vice President,
Retail Banking            
|Thomas J. Shara, 45                     |  | 1989                                   |  | Executive Vice President and
Senior Loan Officer    
|D. Lynn Van Borkulo-Nuzzo, 54           |  | 1988                                   |  | Executive Vice President and
Corporate Secretary    



The
statistical disclosures for a bank holding company required pursuant to Industry Guide 3 are contained on the following pages of this Annual Report on Form 10-K,
within Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

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 205 branch offices as of December 31, 2003, of which 88 are owned and 117 are
leased. The Company owns three additional non-branch facilities, in addition to leasing another six.

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. In December 2003, the Company terminated, its banking business for its correspondent customers. The Company had been notified of an investigation by
government authorities concerning certain accounts and customers of the correspondent business and the Company's administration of the business. On March 2, 2004 the Company announced that
Hudson United Bank had entered into a settlement with the New York County District Attorney's Office concerning the District Attorney's investigation of the Company's banking business for
correspondent customers. Under the terms of the agreement, the Company agreed to pay $3.5 million to the City of New York and $1.5 million to the District Attorney's office for the costs
of the investigation. The Company, which recently upgraded its compliance program, agreed to continue its corrective actions. The $5 million was charged against fourth quarter 2003 results of
operations. The FDIC currently is conducting a compliance examination covering the same issues which were involved in the settlement with the District Attorney's Office.

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, 2003.

14

---

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

As of December 31, 2003, the Company had approximately 8,198 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.

2003

2002High

Low

High

Low1st Quarter

$
32.32

$
29.80

$
31.86

$
28.752nd Quarter


35.36


30.83


32.85


28.403rd Quarter


40.39


34.08


29.99


25.174th Quarter


37.56


34.26


31.50


23.30


The
following table shows the per share quarterly cash dividends paid upon the common stock over the last two years.

2003

2002March

$
0.28

March

$
0.26June


0.30

June


0.28September


0.30

September


0.28December


0.30

December


0.28


The
Company's restrictions on the payment of dividends is covered under Note 17 ("Restrictions on Bank Dividends, Loans or Payments"). In addition to these restrictions, under the
terms of the Company's junior subordinated debentures, the Company could not pay dividends on its common stock if it deferred payments on the junior subordinated debentures which provide the cash flow
for the payments on the trust preferred securities.

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 year 1999 have been restated to reflect pooling of interest transactions. Reference should be made to Note 2, Business Combinations, of the
Financial Statements

15

---

for
a discussion of recent acquisitions that affect the comparability of the information contained in this table.

|                                                             |              | 2003 |           | 2002      |   | 2001      |           | 2000 |           | 1999     
|------------------------------------------------------------ | ------------ | ---- | --------- | --------- | - | --------- | --------- | ---- | --------- | ---------
|
|Net Interest Income                                          |              | $    | 299,258   |           | $ | 300,757   |           | $    | 285,366   |          
|Provision for Loan and Lease Losses                          |              |      | 26,000    |           |   | 51,333    |           |      | 34,147    |          
|Net Income                                                   |              |      | 112,321   |           |   | 123,206   |           |      | 94,461    |          
|Per Share Data(1) Earnings Per Share:                        |              |      |           |           |   |           |           |      |           |          
|                                                             | Basic        |      |           | 2.51      |   |           | 2.73      |      |           | 2.02     
|                                                             | Diluted      |      |           | 2.50      |   |           | 2.72      |      |           | 2.00     
|Cash DividendsCommon                                        |              |      | 1.18      |           |   | 1.10      |           |      | 1.01      |          
|Balance Sheet Totals (at or for the year ended December 31): |              |      |           |           |   |           |           |      |           |          
|                                                             | Total Assets |      |           | 8,100,658 |   |           | 7,654,261 |      |           | 6,999,535
|Long Term Debt                                               |              |      | 368,750   |           |   | 402,553   |           |      | 248,300   |          
|Average Assets                                               |              |      | 7,945,700 |           |   | 7,216,121 |           |      | 6,710,167 |          
|Average Deposits                                             |              |      | 6,154,645 |           |   | 6,150,184 |           |      | 5,825,107 |          
|Average Equity                                               |              |      | 437,487   |           |   | 409,838   |           |      | 378,647   |          

---

Cautionary Statement Regarding Forward-Looking Information

This release 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. Actual results may differ materially from the results discussed in these forward-looking statements. Factors
that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among others, unexpected changes in interest rates, deterioration in economic
conditions, declines in deposit or a decline in loan volume trends, decline in levels of loan quality, change in the trend in loan loss provisions, the unexpected unavailability of tax credits,
especially the Company's Section 29 credits, additional expense, costs or limitations arising from exiting the correspondent banking business or the investigation of the Company's
administration of the business and the unanticipated effects of legal, tax and regulatory provisions applicable to the Company. The Company assumes no obligation for updating any such forward-looking
statements at any time.

ITEM 7    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



The year 2003 continued to be a challenging one for the Company and the banking sector as a whole. Historically high prepayments on mortgage loans, the
historically low interest rate environment and the suppressed economy all contributed to the challenges of the past year. In the third and fourth quarter of 2003, the Company experienced a slow
reversing of the trends that had been evident over the prior quarters.

Net
interest margin in the fourth quarter started a reversal of the downward trend that had been exhibited over previous quarters. This was a welcome change since the Company's margin
has been and continues to be its major source of revenue. The Company saw a marked slowdown in the prepayments

16

---

on
the mortgage backed portion of its investment portfolio and subsequent pick up in yield on these investments. The third and fourth quarters of 2003 also saw a pickup in commercial loan growth as
new business owners chose to move their accounts and loans to Hudson United Bank. The Company is optimistic that these trends will continue and expand into 2004.

The
Company is increasing its focus on the high growth, high profit areas of its business. Commercial lending has exhibited a growth rate of 16% over the past year and these loans
continue to bring in associated deposit balances. These particular business owners appreciate the full service and quick loan response time that the Company's lenders provide. The Company enjoys a
strong credit card niche through its third party credit card business. This business enjoyed a 14% growth in credit card fee income in 2003 as compared to 2002. The Company believes that it competes
successfully in this sector due to the high level of service that our merchants receive. The Company's acquisition of Flatiron Credit Company ("Flatiron") on October 31, 2003 provided yet
another potentially profitable diversification of its business (see discussion under Part I "Acquisition Activity by the Company"). Flatiron already has started contributing to the Company's
bottom line with a $567 thousand after tax contribution in November and December of 2003. As with all its loan products, the Company is continuing its stringent loan quality guidelines which
has resulted in stable, low levels of non performing loans during 2003.

The
Company's major contributors from operating activities, include net interest income and fee income from its retail franchise and private label credit card business. Financing
activities received cash flow from increases in certificates of deposit and borrowings, offset in part by the use of cash for payment of debt securities, declines in core deposits, cash dividends and
acquisition of treasury stock. Investing activities, which utilized cash, came mainly from net purchase activity in the Company's investment portfolio. The Company's net cash position saw an increase
of $38.4 million in 2003 compared to 2002.

During
2004 and subsequent years, the Company expects to continue to focus on the internal growth of its businesses through seizing opportunities that arise in its market as well as
supplementing internal growth through acquisitions. Acquisitions will be considered only if the Company believes they add customer relationships, product capabilities and can be accretive to earnings
per share.



Certain amounts from prior years have been reclassified to conform to the current year's presentation.

The
Company had net income of $112.3 million or $2.50 per fully diluted share in 2003.

The
Company had net income of $123.2 million or $2.72 per fully diluted share in 2002. Earnings for 2002 include the $77 million cash payment from Dime Bancorp, Inc.
("Dime") on January 7, 2002, representing the final termination payment relating to the uncompleted merger of the Company and Dime. Earnings for 2002 also include $21.5 million of one
time expenses resulting from the merger dissolution of $8.3 million and $13.2 million of other charges, and an additional $21.3 million provision for possible loan and lease
losses relating to the accelerated disposition of certain nonperforming commercial and industrial loans.

The
Company had net income of $94.5 million, or $2.00 per diluted share in 2001.

Years Ended December 31,2003

2002

2001Return on Average Assets

1.41
%
1.71
%
1.41
%Return on Average Equity

25.67
%
30.06
%
24.95
%Common Dividend Payout Ratio

47.03
%
40.77
%
50.50
%Average Stockholders' Equity to Average Assets Ratio

5.51
%
5.68
%
5.64
%


17

---



Average Balances, Net Interest Income, Yields, and Rates

(Net interest income is on a tax equivalent basis, see footnotes below)

|                                     |                                            | Years Ended December 31, |          
|------------------------------------ | ------------------------------------------ | ------------------------ | ---------
|
|
|Assets                               |                                            |                          |          
|Interest bearing due from banks      |                                            | $                        | 56,127   
|Securities-taxable(1)                |                                            |                          | 2,926,670
|Securities-tax exempt(2)             |                                            |                          | 50,836   
|Loans(3)                             |                                            |                          | 4,333,435
|                                     |                                            |                          |          
|Total Earning Assets                 |                                            | $                        | 7,367,068
|Cash and due from banks              |                                            |                          | 199,931  
|Allowance for loan losses            |                                            |                          | (69,566  
|Premises and equipment               |                                            |                          | 98,394   
|Other assets                         |                                            |                          | 349,873  
|                                     |                                            |                          |          
|Total Assets                         |                                            | $                        | 7,945,700
|                                     |                                            |                          |          
|Liabilities and Stockholders' Equity |                                            |                          |          
|NOW accounts                         |                                            | $                        | 687,710  
|Savings accounts                     |                                            |                          | 1,248,971
|Money market accounts                |                                            |                          | 1,197,033
|Time deposits                        |                                            |                          | 1,746,370
|                                     |                                            |                          |          
|Total Interest-Bearing Deposits      |                                            | $                        | 4,880,084
|Borrowings                           |                                            |                          | 900,576  
|Long-term debt                       |                                            |                          | 378,600  
|                                     |                                            |                          |          
|Total Interest-Bearing Liabilities   |                                            | $                        | 6,159,260
|Demand deposits                      |                                            |                          | 1,274,562
|Other liabilities                    |                                            |                          | 74,391   
|Stockholders' equity                 |                                            |                          | 437,487  
|                                     |                                            |                          |          
|                                     | Total Liabilities and Stockholders' Equity |                          | $        
|                                     |                                            |                          |          
|Net Interest Income                  |                                            |                          |          
|Net Interest Margin(4)               |                                            |                          |          

---

18

---

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) |  
|------------------------------- |  | ------------------- | ------ | ------------------- | -
|
|
|
|Loans                           |  | $                   | 3,305  |                     | $
|Securities-taxable              |  |                     | 39,738 |                     |  
|Securities-tax exempt           |  |                     | 593    |                     |  
|Interest bearing due from banks |  |                     | 423    |                     |  
|                                |  |                     |        |                     |  
|Total interest income           |  | $                   | 44,059 |                     | $
|                                |  |                     |        |                     |  
|NOW                             |  | $                   | 326    |                     | $
|Savings                         |  |                     | (380   | )                   |  
|Money market                    |  |                     | 1,886  |                     |  
|Time deposits                   |  |                     | (5,449 | )                   |  
|Short-term borrowings           |  |                     | 21,100 |                     |  
|Long-term debt                  |  |                     | 2,080  |                     |  
|                                |  |                     |        |                     |  
|Total interest expense          |  | $                   | 19,563 |                     | $
|                                |  |                     |        |                     |  
|Net Interest Income             |  | $                   | 24,496 |                     | $
|                                |  |                     |        |                     |  

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, commercial mortgage loans; consumer loans (such as automobile loans, home equity loans, etc.); credit card loans; and
residential mortgages; and the investment securities portfolio. The securities portfolio is invested primarily in mortgage-related securities, such as mortgage backed securities and collateralized
mortgage obligations derived from mortgage backed securities; asset backed and other securities; and equity securities of the Federal Home Loan Bank, government sponsored enterprises ("GSEs") and
other entities. 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. The Company may also receive interest income or incur interest expense on interest rate derivatives that it has entered into as hedges for certain assets and
liabilities.

Net
interest income is affected by a number of factors including the level, of non-accrual loans, 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 $303.4 million for 2003 compared to $304.5 million for 2002 and $289.3 million for 2001. The decrease in net interest income
in 2003 compared to 2002 was attributable to lower yields on variable rate loans and increased amortization of premiums on investment securities resulting from faster prepayment speeds, which
partially offset an increase in average investments and average loans. The decrease in interest income was offset in part by lower interest expense on deposits in 2003 as compared to 2002. The
increase in net interest income in 2002

19

---

compared
to 2001 was due to an increase in average earning assets, partially offset by a decrease in the net interest margin of 6 basis points. The increase in average interest-earning assets was
mainly due to an increase in average investment securities. This occurred due to a higher level of securities purchases in 2002, primarily associated with growth in money market deposits and long term
debt. The increase in securities and the decrease in residential mortgages in 2002 was also attributable to the exchange of $118.0 million of residential mortgages for mortgage backed
securities backed by the same mortgages. The mortgage exchanges resulted in a transfer of assets from the loan portfolio to the investment portfolio.

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 4.12% in
2003 compared to 4.65% in 2002 and 4.71% in 2001. The 53 basis point decrease in net interest margin in 2003 from 2002 was due mainly to the decrease in interest rates on interest earning assets, due
to the prevailing low interest rate environment, being greater than the decline in interest rates paid on deposits and borrowings. Higher prepayments on securities and loans further negatively
impacted the net interest margin due to a much lower reinvestment rate in 2003. The 6 basis point decrease in net interest margin in 2002 from 2001 was primarily due to lowering of interest rates
received on loans and investments exceeding the decrease in rates on interest bearing liabilities.

Provision for Loan and Lease Losses

The provision for loan and lease losses was $26.0 million for the year ended December 31, 2003, compared to $51.3 million for the year ended
December 31, 2002. The decrease was due to $21.3 million established for the accelerated disposition of certain non-performing loans in 2002 as well as reduced levels of net
loan charge-offs in the third and fourth quarters of 2003. The increase from 2001 to 2002 was mainly due to a provision of $21.3 million established for the accelerated disposition
of certain non-performing loans during 2002. In 2001, the Company established a provision of $10.1 million related to loans that were held for sale. The provision established for
portfolio loans increased to $30 million at December 31, 2002 from $24 million at December 31, 2001, mainly due to the then current economic conditions.

Noninterest Income

Noninterest income was $133.0 million for 2003, $185.1 million for 2002 and $109.4 million for 2001. The decrease in 2003 compared to 2002
was due to mainly to the $77 million Dime merger termination payment received in 2002, offset by increases in income from the Company's Shopper's Charge credit card fee income, retail service
fees, securities gains, investment in landfill gas companies, trading asset gains and other income in 2003. The increase in 2002 over 2001 was due mainly to the $77 million Dime termination
payment received and also higher credit card fees, commercial lending fees and increased income from separate account bank owned life insurance. 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.

Noninterest Expenses

Noninterest expense was $256.3 million in 2003, $247.1 million in 2002 and $227.2 million for 2001. The increase in 2003 from 2002 was due
primarily to the Company's investment in landfill gas companies, increases in salaries and benefit expense, occupancy expense, amortization of intangibles, outside services-data processing
and litigation resolution, being offset by the $21.5 million of certain expenses incurred in 2002. These increases in expense were offset in part by declines in marketing

20

---

expense,
equipment expense and outside services-other in 2003. The increase in 2002 over 2001 was due in most part to $21.5 million in certain merger resolution and other charges incurred in
2002. The Company classified as "Expenses related to Dime termination payment" $8.3 million, and the remaining $13.2 million was classified into other expense categories. The
$13.2 million was classified as follows: $0.2 million to salaries and benefits, $1.3 million to occupancy expenses, $1.1 million to equipment expense, $0.2 million
to outside services-other and $10.4 million to other expenses. The decline in 2002 compared to 2001 was primarily due to the elimination of amortization expense on goodwill, due to the
implementation of FASB Statement No.142, partially offset by increased salary and benefits expense.

Salary
and benefit expense was $101.8 million in 2003, $94.8 million in 2002 and $83.5 million in 2001. The increase in 2003 over 2002 was due primarily to
$4.5 million of charges in the fourth quarter of 2003 relating to executive transition, replacement of the Company's medical and dental benefit insurance provider and a modification of the
payroll process. The increase in 2002 as compared to 2001 was due primarily to additional salary expense related to the CBC transaction and increased retail and commercial banking incentive payments.

Equipment
expense was $18.5 million in 2003 as compared to $20.3 million in 2002 and $18.6 million in 2001. The lower expense in 2003 compared to 2002 was due to the
Company's focused management of capital expenditures and infrastructure expense. The higher expense in 2002 as compared to 2001 was due primarily to the Company enhancing its technology
infrastructure.

Outside
services expense was $53.4 million in 2003 as compared to $53.0 million in 2002 and $50.4 million in 2001. The increase in 2003 compared to 2002 was
primarily due to higher legal expenses in 2003. The increase in 2002 compared to 2001 was due mainly to increased processing expense to support business expansion in credit card activities, the
outsourcing of the internal audit function, and higher professional service fees.

Occupancy
expense increased in 2003 to $30.3 million compared to $29.2 million in 2002 and $27.6 million in 2001. The increase in 2003 over 2002 was mainly due to
higher snow removal costs
expensed in 2003. The increase in 2002 over 2001 was due in most part to the CBC acquisition, which added five banking offices.

Telephone
expense of $5.9 million in 2003, $6.1 million in 2002 and $8.0 million in 2001 reflects the cost reduction programs initiated by the Company to reduce and
control these expenses.

Marketing
expense has declined to $3.3 million at December 31, 2003 from $5.5 million at December 31, 2002 and $5.9 million at December 31, 2001
due to increased management focus on cost effective marketing expenditures.

Amortization
of goodwill was $0 in 2003, $0 million in 2002 and $11.2 million in 2001. Refer to the Recent Accounting Standards portion of the Notes to Consolidated
Financial Statements for further discussion of intangible amortization.

Amortization
of intangibles was $4.3 million in 2003, $4.0 million in 2002 and $3.8 million in 2001. The increase in 2003 over 2002 was due to an increase in
intangibles due to the Company's acquisition of Flatiron. The increase in 2002 over 2001 was due to the Company's acquisition of CBC.

Other
expenses decreased to $14.2 million for 2003 compared to $23.7 million in 2002 and $15.6 million in 2001. The decrease in 2003 over 2002 was due mainly to the
inclusion in 2002 of $10.4 million of certain expenses as discussed above. The increase in 2002 over 2001 includes $10.4 million in certain expenses. Excluding these certain expenses,
other expenses have declined due to reductions in discretionary spending and other cost controls.

In
2003 there were $7.4 million in expenses related to the resolution of the Company's correspondent banking business. This total consisted of $5.0 million in settlement
fees, $1.9 million in

21

---

the
write-off of the core deposit intangible associated with the Company's acquisition of CBC, and $0.5 million in professional fees. In 2002 there were $8.3 million in
expenses related to the Dime termination payment. Of this amount $4.7 million was an investment banking advisory fee, $1.6 million was the acceleration of restricted stock expense,
$1.1 million was for executive and other employee bonuses and $0.9 million was for other related expenses. There were no merger related and restructuring costs in 2001.

Provision for Income Taxes

The Company considers its accounting for income taxes to be a critical accounting policy. The potential establishment of a deferred tax valuation allowance can be
based in part upon subjective measurements by management as to the realization of the Company's deferred tax asset. In addition a potential deferred tax valuation allowance could be material in nature
to the operations of the Company. The provisioning for income taxes may involve estimates as management takes into consideration investments in assets with favorable tax treatment and tax legislation.
The Company's policies for Federal Income Taxes is further discussed under Note (1) Summary of Significant Accounting Policies.

The
Company's provision for income taxes was $37.7 million in 2003, $64.2 million in 2002 and $38.9 million in 2001. The Company's effective tax rate was 24.3% in
2003, 34.3% in 2002 and 29.2% in 2001. The decrease in 2003 over 2002 was due to the Company's increased investment in tax advantaged securities; as well as energy tax credits, the tax benefit
associated with the closure of certain tax years and the inclusion in 2002's income of the Dime merger termination payment offset by certain expenses. The increase in provision in 2002 compared to
2001 reflected an increase in pretax income.

The
decrease in the effective tax rate in 2003 compared to 2002 was due to the Company's increased investment in tax advantaged securities: as well as energy tax credits; the tax benefit
associated with the closure of certain tax years; and the inclusion in 2002's income of the Dime merger termination payment offset by certain expenses. The increase in the effective tax rate in 2002
compared to 2001 was primarily the result of the utilization in 2001 of tax losses generated by sales of securities in 2000 that were done as part of the Company's deleveraging strategy.

The
Company's effective tax rate in 2003 was also favorably impacted by the Company's investment in tax advantaged securities and bank owned life insurance. The Company's effective tax
rate in 2002 was also favorably impacted by the Company's increased investment in tax advantaged securities and increased average investment in separate bank owned life insurance, unfavorably impacted
by an increase in the Company's alternative minimum tax liability as a result of State of New Jersey legislation enacted during 2002; and favorably impacted by an updated assessment of all of the
Company's tax preference income, reserves and related liabilities. The Company's effective tax rate in 2001 was also favorably impacted by the Company's increased investment in separate bank owned
life insurance.

The
Company's effective tax rate in 2003, 2002 and 2001 was also favorably impacted by the Company's use of HUB Mortgage Investments Inc. and NJ Investments of Delaware to assist
in managing a portion of the Company's investment portfolio (see Business (a) General Development of Business; Other Subsidiaries)

Financial Condition

Total assets at December 31, 2003 were $8.1 billion, an increase from total assets at December 31, 2002 of $7.7 billion. This increase
was due to the acquisition of Flatiron Credit Company in October 2003 which increased loans by $248.9 million, increases in investment securities of $89.7 million, and increases
in commercial, commercial mortgage, consumer and credit card loans of $177.9 million being offset in part by a decrease of $106.6 million in residential mortgage loans. The

22

---

increase
in securities was due primarily to increased purchases associated with growth in deposits and borrowings. The increase in commercial; commercial real estate; consumer; and credit card loans
was due to an increased focus on core business activities. The decline in residential mortgage loans was due to prepayments throughout the year. Total assets at December 31, 2002 were
$7.7 billion, an increase from total assets at December 31, 2001 of $7.0 billion. This increase was due to increases in investment securities of $631.6 million, net of the
transfer of $576.3 million in available for sale securities to trading assets at December 31, 2001 and commercial, commercial mortgage, consumer and credit card loans of
$263.6 million being offset in part by a decrease of $262.6 million in residential mortgage loans

The
Company designated $576 million of available for sale investment securities as trading account assets in the fourth quarter of 2001. The change in 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 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 involved reducing the duration of the investment portfolio, and decreasing the potential changes in the market value of
the underlying assets. This restructuring strategy resulted in reduced interest income from its investment portfolio, but positioned the Company to have higher interest income when interest rates
rise.

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 was 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 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. These non-performing loans were sold during 2002 at a gain of $0.2 million.

Total
liabilities at December 31, 2003 were $7.6 billion, an increase from total liabilities at December 31, 2002 of $7.2 billion. The increase was primarily
due to a $43.7 million increase in deposits; a $451.5 million increase in borrowings; offset in part by decreases of $32.0 million and $42.5 million in other liabilities
and subordinated debt, respectively.

Total
Stockholders' Equity was $458.2 million at December 31, 2003, an increase of $25.7 million from Stockholders' Equity of $432.5 million at
December 31, 2002. This increase was due primarily to net income of $112.3 million, partially offset by cash dividends declared and paid of $52.8 million and purchases of treasury
stock of $16.5 million.

Investment 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 33% of the total assets of the
Company at December 31, 2003, 34% of the total assets of the Company at December 31, 2002, and 28% of the total assets of the Company at December 31, 2001.

23

---

The
following tables summarize the composition of the investment securities as of December 31, 2003 and 2002 (in thousands):

|                                       |  | 2003 |           | 2002
|-------------------------------------- |  | ---- | --------- | ----
|
|
|
|Available for Sale Portfolio           |  |      |           |     
|U.S. Treasury and Government Agencies  |  | $    | 1,484,587 |     
|States and Political subdivisions      |  |      | 39,560    |     
|Asset backed and other debt securities |  |      | 1,027,682 |     
|Federal Home Loan Bank stock           |  |      | 16,250    |     
|Other equity securities                |  |      | 141,429   |     
|                                       |  |      |           |     
|                                       |  | $    | 2,709,508 |     
|                                       |  |      |           |     

Securities with a book value of $1,822.9 million and $1,053.6 million at December 31, 2003 and 2002, respectively, were
pledged to secure public funds, repurchase agreements and for other purposes as required by law. The increase was due to the Company's increased public sector deposits, which require different degrees
of collateralization depending upon which state or municipality they are affiliated with along with increased levels of borrowings.

The
majority of the Company's mortgage backed securities, and asset backed securities and other debt securities, are guaranteed by U.S. Agencies or Government Sponsored Entities (GSEs),
or have credit ratings of triple A by one or more rating agencies. The majority of these assets have fixed interest rates.

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 laid forth in EITF No.3. 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, 2003 the Company did not have any impaired securities in its investment portfolio. As of year end 2003, 89% of the Company's investment
portfolio was rated A or better. The Company's investment securities with unrealized losses are considered temporarily impaired due to interest rate fluctuations that occurred during the year.

The
majority of the Company's other debt securities are capital trust securities and other corporate securities of other financial institutions, which are either not rated by the rating
agencies, or have non investment grade credit ratings from one or more rating agencies. The majority of these assets have fixed interest rates. Other equity securities also include preferred stocks of
GSEs, and common stocks of other financial institutions.

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 $520.2 million was transferred to the available for sale investment portfolio. At the time of transfer, the market value of these securities was
$513.4 million and the unrealized loss on these securities was $6.8 million, which was recorded in other comprehensive income (loss).

24

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In
the two tables below, mortgage backed securities backed by government and government sponsored agencies are included in the U.S. Treasury and other U.S. Government Agencies and
Corporations
caption. Other mortgage backed securities are included in the Asset backed, Other Mortgage Backed and Other Debt Securities caption. Other securities include both common and preferred stock.

INVESTMENT SECURITIES PORTFOLIO  Carrying Value at End of Each Year

As of December 31,2003

2002

2001(in thousands)U.S. Treasury and other U.S. Government Agencies and Corporations

$
1,475,894

$
1,172,419

$
1,059,646States and Political Subdivisions


40,074


45,316


27,349Asset backed, Other Mortgage Backed and Other Debt Securities


1,030,463


1,248,358


275,842Other Securities


159,754


150,359


45,673Subtotal


2,706,185


2,616,452


1,408,510Trading Assets








576,308TOTAL

$
2,706,185

$
2,616,452

$
1,984,818


Maturities
and Weighted Average Yield for the Year Ending December 31, 2003 (in thousands)

|                                                                  |       | Maturing |       
|----------------------------------------------------------------- | ----- | -------- | ------
|
|
|U.S. Treasury and other U.S. Government Agencies and Corporations |       | $        | 6,043 
|States and Political Subdivisions                                 |       |          | 33,881
|Asset backed, Other Mortgage Backed and Other Debt Securities     |       |          | 1,161 
|Other Securities                                                  |       |          |      
|                                                                  |       |          |       
|                                                                  | TOTAL |          | $     
|                                                                  |       |          |       

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.

Contractual
maturities of the Company's investment securities may differ from expected maturities and average lives because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.

25

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Loans and Leases

Loan Portfolio Distribution of Loans by Category (excludes loans held for sale)

|                                |  | As of December 31,
|------------------------------- |  | ------------------
|
|
|Loans secured by real estate:   |  |                   
|Residential mortgage loans      |  | $                 
|Residential home equity loans   |  |                   
|Commercial mortgage loans       |  |                   
|                                |  |                   
|                                |  | $                 
|                                |  |                   
|Commercial and financial loans: |  |                   
|Credit cards                    |  |                   
|Other loans to individuals      |  |                   
|                                |  |                   
|Total Loan Portfolio            |  | $                 
|                                |  |                   

Total
loans increased by $320.3 million to $4,659.8 million at December 31, 2003 from $4,339.5 million at December 31, 2002. The increase was in the
categories of commercial and financial and commercial mortgages. The acquisition of Flatiron Credit Company in October 2003 added $248.9 million in commercial and financial loans to the
Company's loan portfolio.

Total
loans, increased by $1.0 million to $4,339 million at December 31, 2002 from $4,338 million at December 31, 2001. The increase was mainly due to
increases in the commercial, commercial mortgage, consumer and credit card portfolios being offset in part by a decline in the residential mortgage portfolio. The decrease in residential mortgage
loans resulted from prepayments throughout the year, and an exchange of $118.0 million of residential mortgage loans for comparable mortgage backed securities, backed by the same mortgages,
completed with Fannie Mae in the third quarter of 2002. The Company continued its demphasis of residential mortgage loans as they generally provide lower yields, prepayment volatility and longer
maturity characteristics than the core loans of commercial and industrial, commercial real estate, consumer and private label credit cards.

The
Company continued its emphasis on commercial; commercial mortgage; consumer; and credit card loans in 2003 and 2002. These loans represented 96.4% of loans at December 31,
2003; 93.7% of loans at December 31, 2002 and 87.6% of loans at December 31,2001.

The
following table shows the maturity of loans outstanding (excluding 1-4 family residential mortgages and credit cards). 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, 2003 (in thousands)

|                         |       | MATURING
|------------------------ | ----- | --------
|
|
|Commercial and Financial |       | $       
|Real Estate Construction |       |         
|Commercial Mortgage      |       |         
|Consumer Loans           |       |         
|                         |       |         
|                         | TOTAL |         
|                         |       |         

26

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Contractual
maturities of the Company's loans may differ from expected maturities and average lives because borrowers may have the right to call or prepay loans with or without call or
prepayment penalties.

SENSITIVITY TO CHANGES IN INTEREST RATES

As of December 31, 2003Fixed
Rate

Variable
RateDue Within One Year

$
480,876

$
1,742,449Due After One But Within Five Years


671,124


266,833Due After Five Years


513,668


490,179TOTAL

$
1,665,668

$
2,499,461


Asset Quality

One of the Company's principal earning assets are its loans, which are made primarily to businesses and individuals located in its four state business area.
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. The Company believes that the practices it
follows for classifying loans as non-accrual loans are generally consistent with general practices within the banking industry.

Nonaccrual
real estate mortgage loans are principally loans secured by real estate in the foreclosure process, 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, 2003.

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 fair value, 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 amounted to $1.0 million at December 31, 2003, $1.3 million at December 31, 2002, and $3.4 million at
December 31, 2001.

Nonperforming Assets

Nonperforming assets were $14.2 million at December 31, 2003 compared to $16.7 at December 31, 2002 and $47.9 million at
December 31, 2001. The decline in non-performing assets in 2002 was due primarily to sales, accelerated dispositions and other resolutions. The amount of interest

27

---

income
on nonperforming loans which would have been recorded had these loans continued to perform under their original terms amounted to $1.2 million in 2003, $3.0 million in 2002, and
$7.6 million in 2001. The amount of interest income recorded on a cash basis on such loans for each of the years was $0 million in 2003, $0.9 million in 2002, and
$0.9 million in 2001. 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 assets 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):

Nonperforming Assets (including assets held for sale)

|                        |                                                            | At December 31, |       
|----------------------- | ---------------------------------------------------------- | --------------- | ------
|
|
|Nonaccrual Loans        |                                                            | $               | 13,217
|Renegotiated Loans      |                                                            |                 |      
|                        |                                                            |                 |       
|                        | Total Nonperforming Loans                                  |                 | $     
|                        |                                                            |                 |       
|Other Real Estate Owned |                                                            |                 | 977   
|                        |                                                            |                 |       
|                        | Total Nonperforming Assets                                 |                 | $     
|                        |                                                            |                 |       
|Ratios:                 |                                                            |                 |       
|                        | Nonaccrual Loans to Total Loans                            |                 |       
|                        | Nonperforming assets to loans and OREO                     |                 |       
|                        | Allowance for Loan and Lease Losses to Nonaccrual Loans    |                 |       
|                        | Allowance for Loan and Lease Losses to Nonperforming Loans |                 |       

---

The
following table shows the loans past due 90 days or more and still accruing and applicable asset quality ratios:

As of December 31,2003

2002

2001

2000

1999(in thousands)Commercial & financial

$
4,107

$
1,596

$
2,600

$
4,293

$
3,004Real estate mortgages


2,867


6,921


6,053


13,080


13,085Consumer credits


2,228


2,269


3,287


4,034


3,011Credit cards


7,481


9,004


9,068


8,371


4,139Total Loans Past-Due 90-Days or More and Still Accruing

$
16,683

$
19,790

$
21,008

$
29,778

$
23,239As a percent of Total Loans


0.36
%

0.46
%

0.48
%

0.56
%

0.41
%


28

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The
Company determines the placement of loans into the 90 days past due or more and still accruing based on management's determination of the collectability of the assets and their associated
interest, consistent with regulatory guidelines.

Allowance for Loan and Lease Losses

The Company considers its allowance for loan and lease losses policy to be a critical accounting policy. The methodology for assessing the adequacy of the
allowance as well as the components of the allowance includes management's subjective judgements on such factors as: economic data, peer comparisons, trends in criticized loans and the designation of
individual loans as requiring attention. The Company's policy regarding the allowance for loan and lease losses is further discussed in Note (1) Summary of Significant Accounting Policies.

The
provision for loan and lease losses was $26.0 million for 2003 compared with $51.3 million in 2002 and $34.1 million in 2001. The decrease in the provision in
2003 compared to 2002 was due to the $21.3 million provision related to accelerated disposition of loans in 2002 as well as reduced levels of net loan charge-offs in the third and
fourth quarter of 2003. The increase in the
provision in 2002 compared to 2001 resulted mainly from a provision of $21.3 established in the first quarter of 2002 in conjunction with the planned accelerated disposition of certain nonperforming
commercial mortgage loans and residential mortgage loans, which were also charged off in the first quarter of 2002. The higher provision was established 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.

Management
formally reviews the loan portfolio, the allowance for loan and lease losses and the components of the allowance for loan and lease losses for credit risk on a monthly basis
throughout the year. Such review takes into consideration the Company's assessment of the financial condition of the borrowers, and the Company's internal risk grading of the borrowers, fair value of
the collateral, level of delinquencies, historical loss experience by loan category, industrial trends and the impact of local and national economic conditions. Management also evaluates the allowance
for loan and lease losses, and the components of the Allowance for Loan and Lease Losses throughout the year, based on changes in external conditions and other factors, and makes changes to the
Allowance accordingly.

The
determination of the adequacy of the Allowance for 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:



An
allocation of the allowance for the non-criticized loans in each portfolio 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 within the Company's footprint. 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

29

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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:



Based
upon the process employed and giving recognition to all attendant factors associated with the loan portfolio, management considers the Allowance for Loan and Lease Losses to be
adequate at December 31, 2003.

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 Loan and Lease Losses

|                                                                                                      |                          | 2003                    |           | 2002   |        | 2001      |        | 2000   |           | 1999   |       
|----------------------------------------------------------------------------------------------------- | ------------------------ | ----------------------- | --------- | ------ | ------ | --------- | ------ | ------ | --------- | ------ | ------
|Amount of Loans Outstanding at End of Year                                                            |                          | $                       | 4,659,755 |        | $      | 4,339,475 |        | $      | 4,460,787 |        | $     
|Daily Average Amount of Loans Outstanding                                                             |                          |                         | 4,333,434 |        |        | 4,287,200 |        |        | 4,793,998 |        |       
|Allowance for Loan and Lease Losses                                                                   |                          |                         |           |        |        |           |        |        |           |        |       
|Balance at beginning of year                                                                          |                          | $                       | 71,929    |        | $      | 70,046    |        | $      | 95,180    |        | $     
|Loans charged off:                                                                                    |                          |                         |           |        |        |           |        |        |           |        |       
|                                                                                                      | Real estate mortgages    |                         |           | 1,427  |        |           | 2,420  |        |           | 6,851  |       
|                                                                                                      | Commercial and financial |                         |           | 7,825  |        |           | 10,505 |        |           | 21,323 |       
|                                                                                                      | Consumer Credit          |                         |           | 28,214 |        |           | 27,155 |        |           | 33,517 |       
|                                                                                                      | Other                    |                         |           |       |        |           | 79     |        |           | 67     |       
|                                                                                                      | Accelerated disposition  |                         |           |       |        |           | 21,333 |        |           |       |       
|                                                                                                      | Assets held for sale(1)  |                         |           |       |        |           |       |        |           | 10,147 |       
|                                                                                                      |                          |                         |           |        |        |           |        |        |           |        |       
|                                                                                                      |                          | Total loans charged off |           | $      | 37,466 |           | $      | 61,492 |           | $      | 71,905
|Recoveries:                                                                                           |                          |                         |           |        |        |           |        |        |           |        |       
|                                                                                                      | Real estate mortgages    |                         |           | 928    |        |           | 912    |        |           | 935    |       
|                                                                                                      | Commercial and financial |                         |           | 4,412  |        |           | 4,636  |        |           | 1,625  |       
|                                                                                                      | Consumer Credit          |                         |           | 6,905  |        |           | 6,412  |        |           | 5,255  |       
|                                                                                                      | Other                    |                         |           | 168    |        |           | 82     |        |           | 98     |       
|                                                                                                      |                          |                         |           |        |        |           |        |        |           |        |       
|                                                                                                      |                          | Total recoveries        |           | $      | 12,413 |           | $      | 12,042 |           | $      | 7,913 
|                                                                                                      |                          |                         |           |        |        |           |        |        |           |        |       
|                                                                                                      |                          | Net loans charged off   |           |        | 25,053 |           |        | 49,450 |           |        | 63,992
|Provision for loan and lease
lossesportfolio loans                                                   |                          |                         | 26,000    |        |        | 30,000    |        |        | 24,000    |        |       
|Provision for loan and lease
lossesnon-performing loans held for
accelerated disposition or for sale |                          |                         |          |        |        | 21,333    |        |        | 10,147    |        |       
|Reclassification of acquired reserves of
credit card portfolios to loans                              |                          |                         | (5,030    | )      |        |          |        |        |          |        |       
|Allowance acquired through
mergers and acquisitions                                                   |                          |                         |          |        |        |          |        |        | 4,711     |        |       
|                                                                                                      |                          |                         |           |        |        |           |        |        |           |        |       
|Balance at end of year                                                                                |                          | $                       | 67,846    |        | $      | 71,929    |        | $      | 70,046    |        | $     
|                                                                                                      |                          |                         |           |        |        |           |        |        |           |        |       
|Provision for loan and lease losses as a percentage of average loans outstanding                      |                          |                         | 0.60      | %      |        | 1.20      | %      |        | 0.71      | %      |       
|Net charge offs as a percentage of
average loans outstanding                                          |                          |                         | 0.58      | %      |        | 1.15      | %      |        | 1.33      | %      |       
|Allowance for loan and lease losses as a percentage of loans outstanding at year end                  |                          |                         | 1.46      | %      |        | 1.66      | %      |        | 1.57      | %      |       

---

30

---

The following is the allocation of the allowance for loan and lease losses by loan category (in thousands):

Allocation of the Allowance for Loan and Lease Losses

|                         |  | As of December 31, |       
|------------------------ |  | ------------------ | ------
|
|
|Real estate mortgages    |  | $                  | 6,082 
|Commercial and financial |  |                    | 26,521
|Consumer Credit          |  |                    | 35,232
|Unallocated              |  |                    | 11    
|                         |  |                    |       
|Total                    |  | $                  | 67,846
|                         |  |                    |       

Deposits

As of December 31, 2003, Hudson had 98 branch offices in New Jersey, 37 branch offices in New York State, 45 branch offices in Connecticut, and 25 branch
offices in Pennsylvania, for a total of 205 branches.

The
following table summarizes deposits at the dates indicated (in thousands):

December 31,2003

2003
% of Total

2002

2002
% of Total

2001

2001
% of TotalNoninterest-bearing deposits

$
1,328,586

21.3
%
$
1,304,289

21.0
%
$
1,215,367

20.3
%NOW accounts


728,708

11.7
%

712,004

11.5
%

682,303

11.4
%Savings deposits


1,214,998

19.4
%

1,231,225

19.9
%

1,317,973

22.0
%MMDA


1,066,114

17.1
%

1,176,004

19.0
%

551,661

9.2
%Time deposits


1,904,953

30.5
%

1,776,179

28.6
%

2,216,241

37.1
%Total Deposits

$
6,243,359

100
%
$
6,199,701

100.0
%
$
5,983,545

100.0
%


Total
deposits increased by $43.7 million at December 31, 2003 compared to December 31, 2002. In December 2003 the Company terminated its banking business for
correspondent customers of CBC (see Note 28 Subsequent Events of Notes to the Consolidated Financial Statements). The effect on deposits of this termination was a decline of approximately
$50 million which is reflected in the Company's balance sheet as of December 31, 2003. Total deposits increased by $216.2 million at December 31, 2002 compared to
December 31, 2001. The increase was attributable to increases in non-interest bearing, NOW and MMDA accounts being offset in part by declines in savings accounts and time deposits.
Management has focused on increasing non-interest bearing and low cost deposits by offering products designed to bring in balances of this type. Part of the increase in NOW accounts was
from the development of a new deposit account used by the public sector group to solicit relationships with government units. These accounts only pay interest on excess balances.

31

---

The following table sets forth average deposits and average rates for each of the years indicated.

|                                    |       | 2003 |           | As of December 31, 2002 |      | 2001 |  
|----------------------------------- | ----- | ---- | --------- | ----------------------- | ---- | ---- | -
|
|Noninterest bearing demand deposits |       | $    | 1,274,562 |                         |      |      | $
|Interest bearing NOW                |       |      | 687,710   |                         | 0.37 | %    |  
|Savings deposits                    |       |      | 1,248,971 |                         | 0.39 | %    |  
|Interest-bearing MMDA               |       |      | 1,197,033 |                         | 1.10 | %    |  
|Time deposits                       |       |      | 1,746,370 |                         | 2.11 | %    |  
|                                    |       |      |           |                         |      |      |  
|                                    | TOTAL |      | $         | 6,154,646               |      |      |  
|                                    |       |      |           |                         |      |      |  

Maturities
of certificates of deposit and other time deposits of $100,000 or more issued, outstanding at December 31, 2003 are summarized as follows:

Time Certificates
of Deposit

Other Time
Deposits

Total(in thousands)3 months or less

$
374,387

$
25,000

$
399,387Over 3 through 6 months


149,665





149,665Over 6 through 12 months


54,520





54,52012 months and over


18,489


304,027


322,516TOTAL

$
597,061

$
329,027

$
926,088


Other time deposits consist solely of brokered certificates of deposit.

Borrowings

The following is a summary of borrowings at December 31, 2003 (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

32

---

amounts
of borrowings and the average amounts of borrowings as well as weighted average interest rates for the last three years.

|                                                |      | Securities Sold
Under Agreement
to Repurchase |   | Other
Borrowings |  
|----------------------------------------------- | ---- | --------------------------------------------- | - | ---------------- | -
|
|At December 31:                                 |      |                                               |   |                  |  
|                                                | 2003 |                                               | $ | 532,485          |  
|                                                | 2002 |                                               |   | 134,920          |  
|                                                | 2001 |                                               |   | 213,346          |  
|Weighted average interest rate at year end:     |      |                                               |   |                  |  
|                                                | 2003 |                                               |   | 0.63             | %
|                                                | 2002 |                                               |   | 1.93             | %
|                                                | 2001 |                                               |   | 2.40             | %
|Maximum amount outstanding at any month's end:  |      |                                               |   |                  |  
|                                                | 2003 |                                               | $ | 691,679          |  
|                                                | 2002 |                                               |   | 142,301          |  
|                                                | 2001 |                                               |   | 228,347          |  
|Average amount outstanding during the year:     |      |                                               |   |                  |  
|                                                | 2003 |                                               | $ | 365,712          |  
|                                                | 2002 |                                               |   | 131,439          |  
|                                                | 2001 |                                               |   | 166,703          |  
|Weighted average interest rate during the year: |      |                                               |   |                  |  
|                                                | 2003 |                                               |   | 0.87             | %
|                                                | 2002 |                                               |   | 2.18             | %
|                                                | 2001 |                                               |   | 3.89             | %

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
individuals, businesses and public sector customers through its branches, ATMs, call center, internet banking capabilities and marketing efforts of its employees; brokered deposits; cash flow from
interest prepayments and principal repayments on investment securities and loans; sales of securities, loans or other assets, 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, or to replace subordinated debt and capital trust
securities from time to time that the Company has redeemed or repurchased. During 2004, the Company increased its unsecured line of credit to $40 million with an unaffiliated U.S. bank. This
line of credit is available for general corporate purposes.

The
Bank and the Company have obtained credit ratings for certain of its obligations from Moody's, Standard and Poor's and Fitch, which are nationally recognized rating agencies.

33

---

The
Company's credit ratings are as follows:

Moody's

S&P

FitchBank

Short-term deposits

P2

A2

F2Long-term deposits

Baa1

BBB

BBB+Subordinated debt

Baa3

BBB-

BBBCompany

Subordinated debt

Not rated

BB+

BBBCapital trust securities

Not rated

Not rated

BBB


Any
downgrading of the Company's unsecured credit ratings would not cause the interest rate on any of its subordinated debt or capital trust securities 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 Capital
Ratios

Well Capitalized
Capital Ratios

Company
Capital RatiosTier 1 Leverage Ratio

4
%
5
%
6.36
%Tier 1 Risk-Based Capital Ratio

4
%
6
%
8.72
%Total Risk-Based Capital

8
%
10
%
13.67
%


At
December 31, 2003, 2002, and 2001, the Company exceeded all regulatory capital guidelines including those for a well-capitalized institution (See Note 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. In the second quarter of 2002 the Company increased its cash
dividend to $.28 per share. In the second quarter of 2003 the Company increased its dividend to $0.30 per share. The dividend payout ratio, based on cash dividends per share and diluted earnings per
share, was 47.0 for 2003, 40.8% for 2002 and 50.5% for 2001. The increase in the dividend payout ratio in 2003 compared to 2002 was due to the decline in net income in 2003 as compared to 2002 offset
in part byfewer common shares outstanding.The decrease in the dividend payout ratio in 2002 compared to 2001, was due primarily to increased net income in 2002.

In
May 2002, the Bank issued $200.0 million aggregate principal amount of subordinated debentures. The debentures, which mature in 2012, bear interest at a fixed interest
rate of 7.00% per annum payable semi-annually. Proceeds of the above issuance were used for general corporate purposes including providing Tier 2 capital to Hudson United.

34

---

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. The Company repurchased $7.0 million of this debt during 2002.

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 were redeemable at the option of the Company,, at any time after April 1, 2001, at their stated principal amount plus accrued interest, if
any. On January 7,2002, the Company announced the redemption of this issue. The notes were redeemed in February 2002.

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. During 2002, the Company repurchased $16.2 million of this debt.

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
March 31, 2003, the Company issued $20 million of 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 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%. The Company issued on March 28, 2003, $15 million of 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 trust preferred securities are callable at
par on April 24, 2008, and have a fixed rate yield of 6.45% until the call date.

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.

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 were callable by the Company on or after March 31, 2002,
or earlier in the event the deduction of related interest for federal income taxes is prohibited, treatment as Tier I capital is no longer permitted or certain other contingencies arise. On
February 3, 2003, the Company redeemed at par all of the aforementioned securities.

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.
$45.0 million of the 8.98% Capital Securities remained outstanding as of December 31, 2003.

35

---

The
four 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. The treatment of trust preferred securities for purposes
of Tier I regulatory capital has not yet been finalized. The Company is closely watching how this issue develops as the outcome may have a material impact on the Company's capital ratios.

The
following is a maturity distribution of outstanding subordinated debt and capital trust securities at December 31, 2003 (in millions)

Year Maturing

Year Callable

Subordinated Debt

Capital Trust
Securities

Total
($ millions)2004

Not callable

$
8.8




$
8.82006

Not callable


30.8





30.82012

Not callable


200.2





200.22027

2007




$
45.0


45.02028

2008





50.0


50.02033

2008





34.0


34.0$
239.8

$
129.0

$
368.8


The
above schedule includes $0.7 million in mark to market adjustment that is included on the Company's balance sheet on the portion of the Company's subordinated debt that is
hedged with
interest rate derivatives along with $1.0 million in deferred issuance costs on the Company's capital trust preferred securities.

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 operations; cash flow from interest, payments 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.

36

---

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: "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.

The
Asset/Liability Committee of the Company believes that financial simulation modeling reasonably 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 linked to market indices, such as Fed Funds or the Prime
Rate or LIBOR, may change as market interest rates change. It also attempts to measure the degree to which interest expense on deposits, which are administered by the Bank's management but which need
to be generally competitive with the deposit rates of 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. 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. Net interest income simulation is designed to address the likely results to 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 estimated fair values of the net present value of assets, liabilities, and off-balance sheet items. The
estimated fair value of many loans and other assets, and of deposits and other liabilities, may not be based on public market prices if markets do not readily exist for trading and valuing such assets
and liabilities.

Financial
modeling is performed under several scenarios including a regulatory interest 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.

The
Company enters into interest rate derivative contracts (interest rate swaps; interest rate floors; and interest rate caps) from time to time for asset liability management purposes.
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, in the context of the management of
the Company's overall asset liability risk. Management did not enter into these contracts for speculative purposes. The Company's derivative contracts include LIBOR indexed interest rate swaps entered
into in connection with certain fixed rate certificates of deposits and with a specified amount of the Company's fixed rate borrowings, to effectively convert those fixed rate liabilities into LIBOR
indexed liabilities. The notional amount of the derivative contracts totals $590.0 million at December 31, 2003.

The
derivative contracts hedging the fixed rate certificates of deposit and the fixed rate borrowings are accounted for as "fair value" hedges using the "short-cut method"
under SFAS No. 133. Under the short-cut method, any changes in value of the hedged item is assumed to be exactly as much as the change in the value of the derivative contract.
Therefore, in a fair value hedge, the hedged item is adjusted by exactly the same amount as the derivative, with no impact on earnings.

The
Company's policies for the use of interest rate derivative contracts, its actual use of interest rate derivative contracts, and the effectiveness of the interest rate derivative
contracts as hedges are reviewed throughout the year by the Company's Asset Liability Committee.

37

---

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, 2003 under several
scenarios (in thousands).

Rate Shock Model

Basis point rate change

Net Interest Income

Effect on Market Value
of Portfolio Equity+200 bp

+3.1%

-5.4%+100 bp

+3.1%

-1.7%-100 bp

-5.9%

-1.1%


The
following table illustrates the changes in the Bank's quarterly net interest income in 2003. 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:

Quarter Ended

Net Interest Income
(millions)March 31, 2003

$
75.2June 30, 2003


76.2September 30, 2003


72.8December 31, 2003


75.1


Financial Instruments with Off-Balance Sheet Risk and Concentrations of Credit Risk

The Company has no off-balance sheet debt financing 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 loss relating to its loan portfolio was $4.6 billion at December 31, 2003, utilizing the book value of its loan portfolio less the allowance.

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, 2003 and 2002 is
as follows:

|                     |  | 2003
|-------------------- |  | ----
|
|
|Real Estate Mortgage |  | $   
|Home Equity Loans    |  |     
|Other Consumer Loans |  |     
|Commercial Loans     |  |     
|                     |  |     
|Total                |  | $   

38

---

|                     |  | 2002
|-------------------- |  | ----
|
|
|Real Estate Mortgage |  | $   
|Home Equity Loans    |  |     
|Other Consumer Loans |  |     
|Commercial Loans     |  |     
|                     |  |     
|Total                |  | $   

The
following table outlines the Company's contractual obligations as of December 31, 2003:

|Contractual Obligations |  | Less than
one year |        | 1-3 years |   | 3-5 years |  | More than 5 years |        | Total
|----------------------- |  | ------------------ | ------ | --------- | - | --------- |  | ----------------- | ------ | -----
|Long-Term Debt          |  | $                  | 35,632 |           | $ | 83,116    |  | $                 | 48,218 |      
|Operating Leases        |  |                    | 10,027 |           |   | 15,674    |  |                   | 8,879  |      

All
of the Company's material operating leases are for bank premises.

The
Company's long-term debt includes the Company's payments on its junior subordinated debt (related to its capital trust preferred securities) and subordinated debt
principal, as well as interest payable. As of December 31, 2003, there was $368.7 in principal and $379.9 in interest payments over the term of the debt.

The
Company makes monthly payments to its data processing service vendors of minimum amounts based upon levels of transactions and services utilized. These payment amounts can vary
considerably from month to month depending upon certain circumstances. Actual expense is reflected in the Company's financial statements and was $29.7 million, $26.9 million and
$28.1 million for the years-ended 2003, 2002 and 2001, respectively.

Item 7A.    QUANTITIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

See
Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations "Interest Rate and Liquidity Sensitivity Management".

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The
following are included in this item

Report
of Independent Auditors

Consolidated
Balance Sheets at December 31, 2003 and 2002

Consolidated
Statements of Income for each of the years ended December 31, 2003, 2002 and 2001

Consolidated
Statements of Comprehensive Income for each of the years ended December 31, 2003, 2002 and 2001

Consolidated
Statements of Cash Flows for the each of the years ended December 31, 2003, 2002 and 2001

Consolidated
Statements of Changes in Stockholder's Equity for each of the years ended December 2003, 2002 and 2001

Notes
to Consolidated Financial Statements

Selected
quarterly financial data of the Company for 2003 and 2002 are reported in "Item 7- Management's Discussion and Analysis of Financial Condition and Results of
Operations-Selected Quarterly Financial Data".

39

---



REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of Hudson United Bancorp:

We
have audited the accompanying consolidated balance sheets of Hudson United Bancorp and Subsidiaries (the "Company") as of December 31, 2003 and 2002, and the related
consolidated statements of income, comprehensive income, stockholders' equity, and cash flows for each of the two years in the period ended December 31, 2003. 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. The financial statements of Hudson United Bancorp and
Subsidiaries as of December 31, 2001 and for the year then ended were audited by other auditors who have ceased operations and whose report dated January 15, 2002, expressed an
unqualified opinion on those statements.

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 2003 and 2002 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Hudson United Bancorp and
Subsidiaries at December 31, 2003 and 2002, and the consolidated results of their operations and their cash flows for each of the two years in the period ended December 31, 2003, in
conformity with accounting principles generally accepted in the United States.

/s/
Ernst and Young LLP
Ernst & Young LLP
New York, New York
January 20, 2004
except for Note 28, as to which the date is March 2, 2004

40

---



Hudson United Bancorp and Subsidiaries        Consolidated Balance Sheets

|                                                          |                                                                                                                                                                                                                          | December 31, |           | December 31, |          
|--------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------ | --------- | ------------ | ---------
|
|
|ASSETS                                                    |                                                                                                                                                                                                                          |              |           |              |          
|Cash and due from banks non-interest bearing              |                                                                                                                                                                                                                          | $            | 272,636   |              | $        
|Interest bearing due from banks                           |                                                                                                                                                                                                                          |              | 41,358    |              |          
|                                                          |                                                                                                                                                                                                                          |              |           |              |          
|TOTAL CASH AND CASH EQUIVALENTS                           |                                                                                                                                                                                                                          | $            | 313,994   |              | $        
|Investment securities available for sale, at market value |                                                                                                                                                                                                                          | $            | 2,706,185 |              | $        
|Loans and leases:                                         |                                                                                                                                                                                                                          |              |           |              |          
|                                                          | Commercial and financial                                                                                                                                                                                                 |              | $         | 2,137,499    |          
|                                                          | Commercial real estate mortgages                                                                                                                                                                                         |              |           | 993,937      |          
|                                                          | Consumer                                                                                                                                                                                                                 |              |           | 1,033,693    |          
|                                                          | Credit card                                                                                                                                                                                                              |              |           | 326,713      |          
|                                                          |                                                                                                                                                                                                                          |              |           |              |          
|                                                          |                                                                                                                                                                                                                          | Sub-total    |           | $            | 4,491,842
|                                                          | Residential mortgages                                                                                                                                                                                                    |              |           | 167,913      |          
|                                                          |                                                                                                                                                                                                                          |              |           |              |          
|TOTAL LOANS AND LEASES                                    |                                                                                                                                                                                                                          | $            | 4,659,755 |              | $        
|                                                          | Less: Allowance for loan and lease losses                                                                                                                                                                                |              |           | (67,846      | )        
|                                                          |                                                                                                                                                                                                                          |              |           |              |          
|NET LOANS AND LEASES                                      |                                                                                                                                                                                                                          | $            | 4,591,909 |              | $        
|Premises and equipment, net                               |                                                                                                                                                                                                                          |              | 125,168   |              |          
|Other real estate owned                                   |                                                                                                                                                                                                                          |              | 977       |              |          
|Intangibles, net of amortization                          |                                                                                                                                                                                                                          |              | 22,664    |              |          
|Goodwill                                                  |                                                                                                                                                                                                                          |              | 81,068    |              |          
|Investment in separate account bank owned life insurance  |                                                                                                                                                                                                                          |              | 144,126   |              |          
|Other assets                                              |                                                                                                                                                                                                                          |              | 114,567   |              |          
|                                                          |                                                                                                                                                                                                                          |              |           |              |          
|TOTAL ASSETS                                              |                                                                                                                                                                                                                          | $            | 8,100,658 |              | $        
|                                                          |                                                                                                                                                                                                                          |              |           |              |          
|LIABILITIES AND STOCKHOLDERS' EQUITY                      |                                                                                                                                                                                                                          |              |           |              |          
|Deposits:                                                 |                                                                                                                                                                                                                          |              |           |              |          
|                                                          | Noninterest bearing                                                                                                                                                                                                      |              | $         | 1,328,586    |          
|                                                          | NOW, money market and savings                                                                                                                                                                                            |              |           | 3,009,821    |          
|                                                          | Time deposits                                                                                                                                                                                                            |              |           | 1,904,952    |          
|                                                          |                                                                                                                                                                                                                          |              |           |              |          
|TOTAL DEPOSITS                                            |                                                                                                                                                                                                                          | $            | 6,243,359 |              | $        
|Repurchase agreements                                     |                                                                                                                                                                                                                          |              | 532,485   |              |          
|Other borrowings                                          |                                                                                                                                                                                                                          |              | 388,734   |              |          
|                                                          |                                                                                                                                                                                                                          |              |           |              |          
|TOTAL BORROWINGS                                          |                                                                                                                                                                                                                          | $            | 921,219   |              | $        
|Other liabilities                                         |                                                                                                                                                                                                                          |              | 238,117   |              |          
|Subordinated debt                                         |                                                                                                                                                                                                                          |              | 239,773   |              |          
|                                                          |                                                                                                                                                                                                                          |              |           |              |          
|TOTAL LIABILITIES                                         |                                                                                                                                                                                                                          | $            | 7,642,468 |              | $        
|Stockholders' Equity:                                     |                                                                                                                                                                                                                          |              |           |              |          
|                                                          | Common stock, no par value; authorized 103,000,000 shares; 52,186,866 shares issued and 44,798,901 shares outstanding December 31, 2003 and 52,186,866 shares issued and 45,023,459 shares outstanding December 31,
2002 |              | $         | 92,788       |          
|                                                          | Additional paid-in capital                                                                                                                                                                                               |              |           | 311,310      |          
|                                                          | Retained earnings                                                                                                                                                                                                        |              |           | 237,046      |          
|                                                          | Treasury stock, at cost, 7,387,965 shares December 31, 2003 and 7,163,407 shares December 31, 2002                                                                                                                       |              |           | (176,505     | )        
|                                                          | Effect of Stock Based Compensation                                                                                                                                                                                       |              |           | (3,899       | )        
|                                                          | Accumulated other comprehensive (loss) income                                                                                                                                                                            |              |           | (2,550       | )        
|                                                          |                                                                                                                                                                                                                          |              |           |              |          
|TOTAL STOCKHOLDERS' EQUITY                                |                                                                                                                                                                                                                          | $            | 458,190   |              | $        
|                                                          |                                                                                                                                                                                                                          |              |           |              |          
|TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                |                                                                                                                                                                                                                          | $            | 8,100,658 |              | $        
|                                                          |                                                                                                                                                                                                                          |              |           |              |          

See Notes to Consolidated Financial Statements.

41

---



Hudson United Bancorp and Subsidiaries        Consolidated Statements of Income

|                                                                                                   |  | Year Ended December 31,
|-------------------------------------------------------------------------------------------------- |  | -----------------------
|
|
|INTEREST AND FEE INCOME:                                                                           |  |                        
|Loans and leases                                                                                   |  | $                      
|Investment securities                                                                              |  |                        
|Other                                                                                              |  |                        
|                                                                                                   |  |                        
|TOTAL INTEREST AND FEE INCOME                                                                      |  | $                      
|                                                                                                   |  |                        
|INTEREST EXPENSE:                                                                                  |  |                        
|Deposits                                                                                           |  | $                      
|Borrowings                                                                                         |  |                        
|Subordinated and other debt                                                                        |  |                        
|                                                                                                   |  |                        
|TOTAL INTEREST EXPENSE                                                                             |  | $                      
|                                                                                                   |  |                        
|NET INTEREST INCOME                                                                                |  | $                      
|PROVISION FOR LOAN AND LEASE LOSSES, PORTFOLIO LOANS                                               |  |                        
|PROVISION FOR LOAN AND LEASE LOSSES, NON-PERFORMING LOANS HELD FOR ACCELERATED DISPOSITION OR SALE |  |                        
|                                                                                                   |  |                        
|TOTAL PROVISION FOR LOAN AND LEASE LOSSES                                                          |  |                        
|                                                                                                   |  |                        
|NET INTEREST INCOME AFTER PROVISION FOR LOAN AND LEASE LOSSES                                      |  | $                      
|                                                                                                   |  |                        
|NONINTEREST INCOME:                                                                                |  |                        
|Retail service fees                                                                                |  | $                      
|Credit card fee income                                                                             |  |                        
|Loan fees                                                                                          |  |                        
|ATM and debit card fees                                                                            |  |                        
|Separate account bank owned life insurance income                                                  |  |                        
|Trust income                                                                                       |  |                        
|Income From Landfill Investments                                                                   |  |                        
|Dime merger termination payment                                                                    |  |                        
|Impairment on mortgage related servicing assets                                                    |  |                        
|Trading asset gain                                                                                 |  |                        
|Securities gains                                                                                   |  |                        
|Other income                                                                                       |  |                        
|                                                                                                   |  |                        
|TOTAL NONINTEREST INCOME                                                                           |  | $                      
|                                                                                                   |  |                        
|NONINTEREST EXPENSE:                                                                               |  |                        
|Salaries and benefits                                                                              |  | $                      
|Occupancy expense                                                                                  |  |                        
|Equipment expense                                                                                  |  |                        
|Deposit and other insurance                                                                        |  |                        
|Outside servicesdata processing                                                                   |  |                        
|Outside servicesother                                                                             |  |                        
|Amortization of intangibles                                                                        |  |                        
|Amortization of goodwill                                                                           |  |                        
|Marketing expense                                                                                  |  |                        
|Telephone expense                                                                                  |  |                        
|Expenses for Landfill Investments                                                                  |  |                        
|Expenses related to Dime termination payment                                                       |  |                        
|CBC correspondent bank settlement and related expense                                              |  |                        
|Other                                                                                              |  |                        
|                                                                                                   |  |                        
|TOTAL NONINTEREST EXPENSE                                                                          |  | $                      
|                                                                                                   |  |                        
|INCOME BEFORE INCOME TAXES                                                                         |  | $                      
|PROVISION FOR INCOME TAXES                                                                         |  |                        
|                                                                                                   |  |                        
|NET INCOME                                                                                         |  | $                      
|                                                                                                   |  |                        
|NET INCOME PER COMMON SHARE:                                                                       |  |                        
|Basic                                                                                              |  | $                      
|Diluted                                                                                            |  | $                      
|WEIGHTED AVERAGE SHARES OUTSTANDING:                                                               |  |                        
|Basic                                                                                              |  |                        
|Diluted                                                                                            |  |                        

See Notes to Consolidated Financial Statements.

42

---

Hudson United Bancorp and Subsidiaries
Consolidated Statements of Comprehensive Income

|                                                                                                                                                     |  | 2003 |         | 2002 |   | 2001    |  
|---------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | ---- | - | ------- | -
|
|NET INCOME                                                                                                                                           |  | $    | 112,321 |      | $ | 123,206 |  
|                                                                                                                                                     |  |      |         |      |   |         |  
|OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:                                                                                                       |  |      |         |      |   |         |  
|Unrealized securities gains (losses) arising during period (tax benefit of $13,683 and tax expenses of $5,712, and $16,523, respectively)            |  | $    | (25,668 | )    | $ | 12,450  |  
|Unrealized holding loss from securities transferred from held to maturity to available for sale (tax benefit of $2,713)                              |  |      |         |      |   |        |  
|Unrealized (losses) gains on derivative contracts (tax benefits of $2,471, $6,740 and a tax expense of $5,000, respectively)                         |  |      | (3,684  | )    |   | (11,221 | )
|Less: reclassification for securities gains (losses) included in net income (tax benefits of $3,652, $2,238 and a tax expense of $689, respectively) |  |      | (5,748  | )    |   | (3,241  | )
|Less: reclassification for gain included in net income for securities transferred from available for sale to trading assets (tax benefit of $3,034)  |  |      |        |      |   |        |  
|Other comprehensive (loss) income                                                                                                                    |  | $    | (23,604 | )    | $ | 4,470   |  
|                                                                                                                                                     |  |      |         |      |   |         |  
|COMPREHENSIVE INCOME                                                                                                                                 |  | $    | 88,717  |      | $ | 127,676 |  
|                                                                                                                                                     |  |      |         |      |   |         |  

See
Notes to Consolidated Financial Statements.

43

---



Hudson United Bancorp and Subsidiaries        Consolidated Statements of Stockholders' Equity

|                                         |                         | Common Stock |         |   |        |   |   |         |        | Effect of Stock
Based
Compensation
Plans |         | Accumulated
Other
Comprehensive
Income (loss) |   |          |       
|---------------------------------------- | ----------------------- | ------------ | ------- | - | ------ | - | - | ------- | ------ | ---------------------------------------- | ------- | --------------------------------------------- | - | -------- | ------
|
|
|Balance at December 31, 2000             |                         | 47,964,579   |         | $ | 92,762 |   | $ | 322,131 |        | $                                        | 56,759  |                                               | $ | (92,293  | )     
|                                         |                         |              |         |   |        |   |   |         |        |                                          |         |                                               |   |          |       
|Net income                               |                         |              |         |   |        |   |   |         |        |                                          | 94,461  |                                               |   |          |       
|Cash dividends common                    |                         |             |         |   |       |   |   |        |        |                                          | (47,410 | )                                             |   |         |       
|                                         |                         |             |         |   |       |   |   |        |        |                                          |        |                                               |   |         |       
|Shares issued for:                       |                         |              |         |   |        |   |   |         |        |                                          |         |                                               |   |          |       
|                                         | Stock options exercised |              | 179,209 |   |        |  |   |         | (1,762 | )                                        |         |                                              |   |          | 4,123 
|Other transactions                       |                         | (77,331      | )       |   | 34     |   |   | (60     | )      |                                          | 760     |                                               |   | (734     | )     
|Purchase of treasury stock               |                         | (2,252,230   | )       |   |       |   |   |        |        |                                          |        |                                               |   | (56,275  | )     
|Effect of stock based compensation plans |                         |             |         |   |       |   |   |        |        |                                          |        |                                               |   | (1,381   | )     
|Other comprehensive income               |                         |             |         |   |       |   |   |        |        |                                          |        |                                               |   |         |       
|                                         |                         |              |         |   |        |   |   |         |        |                                          |         |                                               |   |          |       
|Balance at December 31, 2001             |                         | 45,814,227   |         | $ | 92,796 |   | $ | 320,309 |        | $                                        | 104,570 |                                               | $ | (146,560 | )     
|                                         |                         |              |         |   |        |   |   |         |        |                                          |         |                                               |   |          |       
|Net income                               |                         |             |         |   |       |   |   |        |        |                                          | 123,206 |                                               |   |         |       
|Cash dividends common                    |                         |             |         |   |       |   |   |        |        |                                          | (50,232 | )                                             |   |         |       
|Shares issued for:                       |                         |              |         |   |        |   |   |         |        |                                          |         |                                               |   |          |       
|                                         | Stock options exercised |              | 434,813 |   |        |  |   |         | (6,842 | )                                        |         |                                              |   |          | 12,250
|Other transactions                       |                         |             |         |   | (8     | ) |   |        |        |                                          |        |                                               |   |          |       
|Purchase of treasury stock               |                         | (1,303,952   | )       |   |       |   |   |        |        |                                          |        |                                               |   | (37,686  | )     
|Effect of stock based compensation plans |                         | 78,371       |         |   |       |   |   |        |        |                                          |        |                                               |   | 2,125    |       
|Other comprehensive income               |                         |             |         |   |       |   |   |        |        |                                          |        |                                               |   |         |       
|                                         |                         |              |         |   |        |   |   |         |        |                                          |         |                                               |   |          |       
|Balance at December 31, 2002             |                         | 45,023,459   |         | $ | 92,788 |   | $ | 313,467 |        | $                                        | 177,544 |                                               | $ | (169,871 | )     
|                                         |                         |              |         |   |        |   |   |         |        |                                          |         |                                               |   |          |       
|Net income                               |                         |             |         |   |       |   |   |        |        |                                          | 112,321 |                                               |   |         |       
|Cash dividends common                    |                         |             |         |   |       |   |   |        |        |                                          | (52,819 | )                                             |   |         |       
|Shares issued for:                       |                         |              |         |   |        |   |   |         |        |                                          |         |                                               |   |          |       
|                                         | Stock options exercised |              | 250,383 |   |        |  |   |         | (2,332 | )                                        |         |                                              |   |          | 7,778 
|Other transactions                       |                         | (11,220      | )       |   |       |   |   | 175     |        |                                          |        |                                               |   | (175     | )     
|Purchase of treasury stock               |                         | (527,095     | )       |   |       |   |   |        |        |                                          |        |                                               |   | (16,525  | )     
|Effect of stock based compensation plans |                         | 63,374       |         |   |       |   |   |        |        |                                          |        |                                               |   | 2,288    |       
|Other comprehensive (loss)               |                         |             |         |   |       |   |   |        |        |                                          |        |                                               |   |         |       
|                                         |                         |              |         |   |        |   |   |         |        |                                          |         |                                               |   |          |       
|Balance at December 31, 2003             |                         | 44,798,901   |         | $ | 92,788 |   | $ | 311,310 |        | $                                        | 237,046 |                                               | $ | (176,505 | )     
|                                         |                         |              |         |   |        |   |   |         |        |                                          |         |                                               |   |          |       

See Notes to Consolidated Financial Statements.

44

---



Hudson United Bancorp and Subsidiaries Consolidated    Statements of Cash Flows

|For the Years Ended December 31, 2003, 2002 and 2001 (in thousands)               |                                                                    | 2003 |           | 2002       |   | 2001     |           
|--------------------------------------------------------------------------------- | ------------------------------------------------------------------ | ---- | --------- | ---------- | - | -------- | ----------
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |                                                                    |      |           |            |   |          |           
|Net income                                                                        |                                                                    | $    | 112,321   |            | $ | 123,206  |           
|Adjustments to reconcile net income to net cash provided by operating activities: |                                                                    |      |           |            |   |          |           
|                                                                                  | Provision for possible loan and lease losses                       |      |           | 26,000     |   |          | 51,333    
|                                                                                  | Provision for depreciation and amortization                        |      |           | 20,967     |   |          | 24,464    
|                                                                                  | Amortization of security premiums, net                             |      |           | 27,243     |   |          | 4,346     
|                                                                                  | Amortization of restricted stock                                   |      |           | 845        |   |          | 3,464     
|                                                                                  | Impairment on mortgage servicing assets                            |      |           | 2,004      |   |          |          
|                                                                                  | Securities (gains)                                                 |      |           | (8,566     | ) |          | (730      
|                                                                                  | Loss (gain) on sale of premises and equipment                      |      |           | (417       | ) |          | (318      
|                                                                                  | Gain on sale of loans                                              |      |           |           |   |          |          
|                                                                                  | Deferred income tax provision                                      |      |           | 2,150      |   |          | 45,654    
|                                                                                  | Net (increase) decrease in assets held for sale                    |      |           |           |   |          |          
|                                                                                  | (Increase) decrease in other assets                                |      |           | 10,892     |   |          | (64,020   
|                                                                                  | Increase (decrease) in other liabilities                           |      |           | (14,285    | ) |          | 83,438    
|                                                                                  |                                                                    |      |           |            |   |          |           
|NET CASH PROVIDED BY OPERATING ACTIVITIES                                         |                                                                    | $    | 179,154   |            | $ | 270,837  |           
|                                                                                  |                                                                    |      |           |            |   |          |           
|CASH FLOWS FROM INVESTING ACTIVITIES:                                             |                                                                    |      |           |            |   |          |           
|Proceeds from sales of investment securities available for sale                   |                                                                    | $    | 1,459,280 |            | $ | 768,125  |           
|Proceeds from repayments and maturities of investment securities:                 |                                                                    |      |           |            |   |          |           
|                                                                                  | Available for sale                                                 |      |           | 1,555,035  |   |          | 701,911   
|Purchases of investment securities                                                |                                                                    |      |           |            |   |          |           
|                                                                                  | Available for sale                                                 |      |           | (3,158,831 | ) |          | (1,996,478
|Decrease (increase) in loans other than purchases and sales                       |                                                                    |      | (89,185   | )          |   | (109,343 | )         
|Increase in loans due to purchases                                                |                                                                    |      | (5,922    | )          |   |         |           
|Payment for acquisition of Flatiron Credit Company, net of cash acquired          |                                                                    |      | (32,492   | )          |   |          |           
|Credit card receivables purchased                                                 |                                                                    |      | (10,148   | )          |   | (62,579  | )         
|Loans sold                                                                        |                                                                    |      |          |            |   | 34,543   |           
|Proceeds from sales of premises and equipment                                     |                                                                    |      | 1,395     |            |   | 1,287    |           
|Purchases of premises and equipment                                               |                                                                    |      | (39,498   | )          |   | (7,135   | )         
|Decrease in other real estate owned                                               |                                                                    |      | 338       |            |   | 2,066    |           
|                                                                                  |                                                                    |      |           |            |   |          |           
|NET CASH (USED IN) BY INVESTING ACTIVITIES                                        |                                                                    | $    | (320,028  | )          | $ | (667,603 | )         
|                                                                                  |                                                                    |      |           |            |   |          |           
|CASH FLOWS FROM FINANCING ACTIVITIES:                                             |                                                                    |      |           |            |   |          |           
|Net increase (decrease) in demand deposits, NOW and savings accounts              |                                                                    | $    | (85,115   | )          | $ | 656,218  |           
|Net increase (decrease) in certificates of deposit                                |                                                                    |      | 128,773   |            |   | (440,062 | )         
|Net increase (decrease) in borrowings                                             |                                                                    |      | 228,586   |            |   | 157,720  |           
|Proceeds from issuance of debt securities                                         |                                                                    |      | 33,976    |            |   |         |           
|Payment of debt securities                                                        |                                                                    |      | (25,300   | )          |   | (51,210  | )         
|Proceeds from issuance of subordinated debt                                       |                                                                    |      |          |            |   | 200,000  |           
|Payment of subordinated debt securities                                           |                                                                    |      | (37,734   | )          |   |         |           
|Net proceeds from issuance of stock                                               |                                                                    |      | 5,446     |            |   | 5,400    |           
|Cash dividends paid                                                               |                                                                    |      | (52,819   | )          |   | (50,232  | )         
|Acquisition of treasury stock                                                     |                                                                    |      | (16,525   | )          |   | (37,686  | )         
|                                                                                  |                                                                    |      |           |            |   |          |           
|NET CASH PROVIDED BY FINANCING ACTIVITIES                                         |                                                                    | $    | 179,288   |            | $ | 440,148  |           
|                                                                                  |                                                                    |      |           |            |   |          |           
|INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                  |                                                                    | $    | 38,414    |            | $ | 43,382   |           
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                    |                                                                    |      | 275,580   |            |   | 232,198  |           
|                                                                                  |                                                                    |      |           |            |   |          |           
|CASH AND CASH EQUIVALENTS AT END OF YEAR                                          |                                                                    | $    | 313,994   |            | $ | 275,580  |           
|                                                                                  |                                                                    |      |           |            |   |          |           
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                                |                                                                    |      |           |            |   |          |           
|Cash paid during the year for-                                                    |                                                                    |      |           |            |   |          |           
|                                                                                  | Interest                                                           |      | $         | 97,333     |   | $        | 134,177   
|                                                                                  | Income taxes                                                       |      |           | 34,793     |   |          | 27,159    
|                                                                                  | Fair value of assets acquired-Flatiron                             |      |           | 259,609    |   |          |          
|                                                                                  | Cash Paid for Flatiron acquisition                                 |      |           | 40,000     |   |          |          
|                                                                                  | Liabilities assumed-Flatiron                                       |      |           | 219,609    |   |          |          
|Additional Disclosures:                                                           |                                                                    |      |           |            |   |          |           
|                                                                                  | Residential mortgage exchange for mortgage-backed securities       |      |           |           |   |          | 118,012   
|                                                                                  | Securities transferred from held to maturity to available for sale |      |           |           |   |          |          
|                                                                                  | Securities transferred from available for sale to trading assets   |      |           | 133,457    |   |          |          
|                                                                                  | See Notes to Consolidated Financial Statements.                    |      |           |            |   |          |           

45

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        DECEMBER 31, 2003        (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 from those estimates.

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 ("LPGs"). 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 "other income" category and
expense in the "other expense" category.

All
intercompany accounts and transactions are eliminated in consolidation.

Certain
amounts from prior years have been reclassified to conform to the current year's presentation.

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
positive 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. 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, and 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 other comprehensive income (loss), net of income taxes. Securities held for trading purposes are carried
at fair value, with changes in fair value charged/credited directly to income. The Company had no securities held for trading purposes or held to maturity at December 31, 2003 and
December 31, 2002.

Security
purchases and sales are recorded on the trade date. The cost of securities sold is determined on a specific identification basis.

46

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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 counter parties to deposit additional collateral when appropriate.

Loans 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.
Loans held for sale are carried at lower of cost or market.

Loans

Loans are recorded at their principal amounts outstanding except for certain credit card loans purchased at a discount, which are recorded at a value less than
the principal amount 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 a loan, including commercial loans and commercial mortgage loans are past due for payment 90-days or more
are deemed uncollectable. Both impaired and nonaccruing loans, recognize interest income on a cash basis. 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. 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 loan origination fees, direct loan origination costs and loan commitment fees are deferred if the life of the loan is greater than one year, and recognized over the
estimated life of the related loans as an adjustment of yield.

Allowance For Loan and Lease Losses

The allowance is maintained at a level believed adequate by management to absorb probable 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

47

---

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 establish a valuation allowance, or adjust existing valuation allowances, with a
corresponding charge or credit to the provision for loan and lease losses. The valuation allowance, if any, is maintained as part of the allowance for loan and lease losses. The Company's process of
identifying impaired loans is conducted as part of its review for the adequacy of the allowance for loan and lease losses.

While
management uses available information to recognize probable losses on loans, future additions to the allowance may be necessary based on changes in economic conditions,
particularly in the Company's market areas. Various regulatory agencies, as an integral part of their examination processes, periodically review the allowance for loan and lease losses of the Bank.
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. Leasehold improvements and banking premises are amortized and depreciated over the shorter of the lease term including renewals or 39 years;
furniture and fixtures over 7 years; machinery, equipment and software are depreciated generally over 5 years and up to 20 years for landfill gas equipment; and bank owned
automobiles are depreciated over 3 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 fair value of the
properties, less estimated costs to sell. Subsequent provisions that result from ongoing periodic evaluations of these OREO properties are charged to expense in the period in which they are
identified. Carrying costs, such as maintenance and property taxes, are charged to expense as incurred.

Bank Owned Life Insurance

Separate account bank owned life insurance, which is recorded separately on the balance sheet, and general account bank owned life insurance, which is recorded in
other assets, reflect the cash surrender value of the underlying policies. Increases in the cash surrender value resulting from investment returns net of expenses is recorded in noninterest income as
a separate line item. Any premium payments or related expenses pertaining to these policies are reflected in noninterest expenses. At December 31, 2003 the Company had recorded
$172.0 million in bank owned life insurance of which $144.1 million was separate account bank owned life insurance. The assets in the separate account consist of investment grade rated
securities, the majority of which are Treasuries or Triple A rated mortgage backed securities. The assets in the separate account are independently managed by Goldman Sachs Asset Management LP. The
Company's investment equaled its cash surrender value at the end of 2003. The Company made its investment in separate account bank owned

48

---

life
insurance as part of a plan to manage the long-term cost of employee benefits, and to do so in a tax efficient manner, and consequently the Company has no current intention of
surrendering its policy. The cash surrender value of the policy is guaranteed by Sun Life Insurance Company of Canada ("Sun Life") in the ordinary course of business. Sun Life does not guarantee the
cash surrender value if the Company were to exchange its policy for a similar policy of a different insurance carrier rather than surrender it for cash, or if the Company has undergone a change of
control within two years prior to the date of surrender. The Company would also be subject to increased federal income tax liability if it were to surrender the policy.

At
year-end 2002, the Company had recorded $162.2 million in bank owned life insurance, of which $137.2 million was in separate account bank owned life
insurance.

Goodwill

Goodwill resulting from acquisitions under the purchase method of accounting was amortized on a straight-line basis over periods ranging from five to
ten years. The Financial Accounting Standards Board ("FASB") issued SFAS No. 142, "Goodwill and Other Intangible Assets". Under this standard, core deposit intangibles must continue to be
amortized, but goodwill is no longer amortized. Goodwill acquired prior to July 1, 2001 ceased being amortized on January 1, 2002. Goodwill acquired after June 30, 2001 ceased
being amortized starting January 1, 2002. Goodwill that is determined to be impaired must be written-off when that determination is made. The Company did not have to take any
impairment charges as a result of the implementation of this standard.

Intangibles

Intangible assets resulting from acquisitions under the purchase method of accounting consist of core deposit intangibles and customer intangibles. Customer
intangibles carried on the books of the Company are the result of the Company's acquisition of Flatiron Credit Company on October 31, 2003. Core deposit intangibles are being amortized, on a
straight-line basis, over the estimated average remaining lives of such intangible assets. Customer intangibles are being amortized, on a straight-line basis, over the
estimated life of the customer relationship.

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 arrangement, each subsidiary provides for and settles income taxes with the
Company as if they would have filed on a separate return basis.

49

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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. Prior to January 1, 2003,the Company elected the disclosure option of this standard. The Company
applied 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
in Note 15, Stockholders' Equity.

SFAS
No. 148 has provided alternative transition methods to SFAS No. 123's fair value method of accounting for stock -based employee compensation. The Company has adopted
SFAS No. 148 as of January 1, 2003 and has chosen the prospective method of transition. The adoption of this standard did not have a material effect on the Company's operations.

Cash Equivalents

Cash equivalents include amounts due from banks.

Per Share Amounts

Basic earnings per common share is computed by dividing net income, 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, in applicable years.

Reporting Comprehensive Income (Loss)

SFAS No. 130 established standards for the reporting of comprehensive income (loss)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 Loss 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, does not have any

50

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reportable
segments since the activities of the Company and its subsidiaries are primarily banking related and none of the quantitative thresholds are met.

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. The Company does not currently offer post retirement benefits and has only a small number of grandfathered accounts of
immaterial amounts.

Derivative Financial Instruments

The Company enters into interest rate derivative contracts (interest rate swaps; interest rate floors; and interest rate caps) from time to time for asset
liability management purposes. 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, in the context of the management of the Company's overall asset liability risk. Management does not enter into these contracts for speculative purposes. 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. Under SFAS No.133, the Company has
adopted hedge accounting for these contracts. The current derivative contracts are utilized to hedge fixed rate certificates of deposit and fixed rate borrowings and are accounted for as "fair value"
hedges using the "short-cut method" under SFAS No. 133. 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 Company's adoption of SFAS No. 149, which amends and clarifies certain provisions of SFAS
No. 133, had no material impact on the Company's operations.

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 has not had a material effect on the 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 ceased being amortized on January 1, 2002. Goodwill acquired after June 30, 2001 was not
amortized in 2001 or beyond. Goodwill that is determined to be impaired must be written-off when that determination is made. The Company did not have to take any impairment charges as a
result of the implementation of this standard.

The
FASB issued SFAS No. 145, which was a rescission of SFAS No. 4, 44 and 64, amendment of SFAS No. 13 and technical corrections in April 2002. The amendment
to SFAS No. 13 requires that lease modifications be accounted for in the same manner as sale-leaseback transactions. This statement was effective for financial statements issued on
or after May 15, 2002. The adoption of this statement did not have a material effect on the Company's operations.

51

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The
FASB issued SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities" in June of 2002. SFAS No. 146 addresses financial accounting and reporting
for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity". SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred.
This statement is effective for the exit or disposal activities initiated after December 31, 2002. The adoption of this statement did not have a material impact on the Company's operations.

The
FASB issued SFAS No. 147 "Acquisitions of Certain Financial Institutions" on October 1, 2002. This statement is effective for acquisitions for which the date of
acquisition is on or after October 1, 2002. SFAS No. 147 is an amendment of FASB Statements No. 72 and 144 and FASB Interpretation No. 9 and provides guidance and
clarification as to the treatment of certain types of acquisitions. The adoption of this statement did not have a material effect on the Company's operations.

The
FASB issued SFAS No. 148 "Accounting for Stock-Based CompensationTransition and Disclosure" on December 31, 2002. This pronouncement provides alternative
methods of transition to FAS 123. The Company has adopted FASB No. 148 effective January 1, 2003. The Company has elected to utilize the prospective method, which requires that
companies apply the recognition provisions of Statement 123 to all employee awards granted, modified, or settled after the beginning of the fiscal year in which the recognition provisions are first
applied.    The adoption of this statement did not have a material effect on the Company's operations.

The
FASB issued SFAS No. 149 "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" in April 2003. This statement amends and clarifies financial
accounting and reporting for derivative instruments and hedging activities under FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities". The Company expects no
material impact on its operations from adoption of this statement.

The
FASB issued SFAS No. 150 "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" in May 2003. This pronouncement requires
that an issuer classify a financial instrument that is within its scope as a liability. As a result of adoption of this statement the Company reclassified its capital trust security issuances into the
other liability category on the Company's consolidated balance sheets. There was no material impact on the Company's operations from adoption of this statement.

The
FASB issued FIN 46,"Consolidation of Variable Interest Entities" as amended in December 2003. This interpretation provides guidance on how to identify a variable interest
entity and determine when the assets, liabilities, noncontrolling interests and results of operations are to be included in an entity's consolidated financial statements. The Company applied the
provisions of FIN 46 to wholly-owned subsidiary trusts in 2003 and 2002 that issued capital trust securities to third-party investors. For purposes of financial statement presentation, the Company has
deconsolidated the trusts issuing the capital trust securities and now includes the junior subordinated debentures under other liabilities on its consolidated balance sheet. . This does not have a
material impact on the Company's operations. There has not yet been a final determination, as to the effect of FIN No. 46 on the

52

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treatment
of capital trust preferred securities for purposes of regulatory capital. Depending upon the outcome of this determination there may be a material impact on the Company's regulatory capital.

EITF
No. 03-1 "The Meaning of Other-Than -Temporary Impairment and Its Application to Certain Investments" was issued in November 2003 and 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 laid forth in EITF No. 03-1.

(2)    BUSINESS COMBINATIONS

The following business combinations were accounted for using the purchase method of accounting:

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 next two years after the closing of the acquisition. The purchase price (excluding any potential earn-out payments) represents a
$3.4 million premium to Flatiron's estimated book value (before acquisition costs).

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 $6.3 million for the seven months during 2003 ended December 31, 2003. The Section 29 tax credits are scheduled to expire on December 31, 2007. The book value
of the LPG's net assets was approximately $19.5 million. 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 at several times in 2003 and 2002 to purchase third party credit card assets from unaffiliated third parties. As of December 31, 2003, the
Company had paid total consideration of $19.0 million for $23.0million of these assets, with an associated discount of $4.0 million. As of December 31, 2002, the Company had paid
total consideration of $62.6 million for $66.2 million of these assets, with an associated discount of $3.6 million

The
Company had $21.5 million in merger related and other expenses in 2002. The Company classified as "Expenses related to Dime termination payment" $8.3 million, and the
remaining $13.2 million was classified into other expense categories. The $13.2 million was classified as follows: $0.2 million to salaries and benefits, $1.3 million to
occupancy expenses, $1.1 million to equipment expense, $0.2 million to outside services-other and $10.4 million to other expenses.

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, 2003 and
2002, the Company had no merger related and restructuring reserves.

53

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(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, 2003, was approximately $49.4 million.

(4)    INVESTMENT SECURITIES

The amortized cost and estimated market value of Investment Securities as of December 31, are summarized as follows (in thousands):

|                                       |  | 2003 |           | 2002
|-------------------------------------- |  | ---- | --------- | ----
|
|
|
|Available for Sale Portfolio           |  |      |           |     
|U.S. Treasury and Government Agencies  |  | $    | 1,484,587 |     
|States and Political subdivisions      |  |      | 39,560    |     
|Asset backed and other debt securities |  |      | 1,027,682 |     
|Federal Home Loan Bank stock           |  |      | 16,250    |     
|Other securities                       |  |      | 141,429   |     
|                                       |  |      |           |     
|                                       |  | $    | 2,709,508 |     
|                                       |  |      |           |     

The amortized cost and estimated market value of investment securities at December 31, 2003, by contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Amortized Cost

Estimated Market Value(in thousands)Due in one year or less

$
56,642

$
56,692Due after one year through five years


155,909


154,897Due after five years through ten years


104,631


104,735Due after ten years


2,392,326


2,389,861Total

$
2,709,508

$
2,706,185


Sales
of securities for the years ended December 31, are summarized as follows (in thousands):

2003

2002

2001Proceeds from sales

$
1,459,280

$
768,125

$
419,298Gross gains from sales


12,583


8,029


5,320Gross losses from sales


(7,466
)

(4,484
)

(4,115
)


54

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The
following table represents the Company's investment securities that are temporarily impaired as of December 31, 2003.

Less than one year
Fair Value

Less than one year
Unrealized loss

One year or greater
Fair Value

One year or greater
Unrealized lossU.S. Treasury & Gov't Agencies

$
1,026,924

$
(15,075
)
$
9,688

$
(83
)Asset backed and other debt securities


511,488


(11,369
)

58,630


(1,397
)Other securities


10,042


(100
)




Total

$
1,548,454

$
(26,544
)
$
68,318

$
(1,480
)


The
Company's investment securities with unrealized losses are temporarily impaired due to interest rate fluctuations that occurred during the year.

Securities
with a book value of $1,822.8 million and $1,053 million at December 31, 2003 and 2002, respectively, were pledged to secure public sector deposits,
repurchase agreements, derivative contracts and for other purposes as required by law.

During
2002, the Company executed an exchange of $118.0 million of residential mortgage loans for mortgage backed securities, backed by the same mortgages, with Fannie Mae, which
resulted in the assets being transferred into the investment portfolio as available for sale securities and from the loan portfolio.

The
exchange of mortgages in 2002 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
exchange. The Company did incur certain expenses in the exchange of mortgages, including annual fees paid to Fannie Mae and Freddie Mac, which expenses are charged to income in the period when
incurred.

(5)    LOANS AND THE ALLOWANCE FOR 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 four state lending area of the Bank.

The
Company had $391.0 million and $260.9 million outstanding construction loans at December 31, 2003 and 2002, respectively.

Included
in the loan portfolio at December 31, 2003 were $65.7 million in lease receivables with a residual value of $56.9 million. These residual values are guaranteed by
a third party, and the guarantee is also supported by collateral up to a certain amount. The auto leases were purchased in 2001. The Company believes that the residual values are properly recorded as
of December 31, 2003.

The
allowance for loan and lease 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.

55

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A
summary of the activity in the allowance for loan and lease losses is as follows (in thousands):

2003

2002

2001Balance at January 1

$
71,929


70,046

$
95,180Additions (deductions):Provision for loan and lease lossesportfolio loans


26,000


30,000


24,000Provision for loan and lease lossesNon-performing loans held for accelerated disposition or for sale





21,333


10,147Allowance acquired through mergers and acquisitions








4,711Reclassification of acquired reserves of credit card portfolios to loans


(5,030
)




Recoveries on loans previously charged off


12,413


12,042


7,913Loans charged offLoans held for sale








(10,147
)Portfolio loans


(37,466
)

(61,492
)

(61,758
)Total loans charged off


(37,466
)

(61,492
)

(71,905
)Balance at December 31

$
67,846

$
71,929

$
70,046


(6)    NONPERFORMING ASSETS

The following table presents information related to loans which are on nonaccrual (non-performing loans), or contractually past due ninety days or
more as to interest or principal payments (in thousands)

2003

December 31,
2002

2001Nonperforming loans

$
13,217

$
15,357

$
44,469
(1)90 days or more past due and still accruing

$
16,683

$
19,790

$
21,008Gross interest income which would have been recorded under original terms

$
1,250

$
3,044

$
7,571Gross interest income recorded during the year

$
519

$
919

$
912


---

At
December 31, 2003, 2002 and 2001, impaired loans, comprised principally of nonaccruing loans, totaled $13.8 million, $15.9 million, and $45.1 million
respectively. The allowance for possible loan and lease losses related to such impaired loans was $1.9 million, $2.1 million, and $3.9 million at December 31, 2003, 2002
and 2001, respectively. The average balance of impaired loans for 2003, 2002 and 2001 was $14.8 million, $30.5 million and $51.8 million, respectively. The interest recognized on
impaired loans in 2003, 2002 and 2001 was $0.5 million, $0.9 million and $0.9 million respectively.

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(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, 2003, 2002 and 2001 (in thousands):

Balance at January 1, 2003

$
6,343New loans issued


1,000Repayment of loans


(2,930
)Loans to former directors


(2
)Balance at December 31, 2003

$
4,411Balance at January 1, 2002

$
7,319New loans issued


527Repayment of loans


(923
)Loans to former directors


(580
)Balance at December 31, 2002

$
6,343Balance at January 1, 2001


16,665New loans issued


2,257Repayment of loans


(793
)Loans sold


(115
)Loans to former directors


(10,695
)Balance at December 31, 2001

$
7,319


Charles
F.X. Poggi, who is a director, was formerly President of Poggi Press, a general printing company. Mr. Poggi is no longer a director, shareholder or executive officer of
Poggi Press. During 2003, 2002 and 2001, Poggi Press was paid $205 thousand, $267 thousand and $281 thousand, respectively, 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.

The
son-in-law of Mr. Calcagnini, a director of the Company, is a partner in a law firm which was paid approximately $171 thousand in legal fees by
HUB and $59 thousand in legal fees by HUB's customers for services to HUB in 2003. Management believes the terms and conditions of the transactions with this law firm were equivalent to terms
and conditions available from an independent third party. Mr. Calcagnini himself received no benefits from these payments.

57

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(8)    PREMISES AND EQUIPMENT

The following is a summary of premises and equipment at December 31 (in thousands):

2003

2002Land

$
16,936

$
17,518Premises


67,693


67,409Leasehold improvements


35,880


33,960Furniture, fixtures and equipment


160,477


129,597$
280,986

$
248,484LessAccumulated depreciation


(132,948
)

(126,500
)LessAccumulated amortization


(22,870
)

(20,993
)$
125,168

$
100,991


Depreciation
expense for premises and equipment for 2003, 2002 and 2001 amounted to $15.7 million, $16.3 million and $14.7 million, respectively. Amortization
expense for 2003, 2002 and 2001 amounted to $1.9 million, $1.9 million and $1.9 million, respectively.

(9)    INCOME TAXES

The components of the provision for income taxes for the year ended December 31 are as follows (in thousands):

2003

2002

2001FederalCurrent

$
35,032

$
17,869

$
27,868Deferred


2,557


41,149


11,015StateCurrent


505


691


60Deferred


(407
)

4,505


Total provision for income taxes

$
37,687

$
64,214

$
38,943


58

---

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):

2003

2002

2001Tax at statutory rate

$
52,503

$
65,597

$
46,691Increase (decrease) in taxes resulting from:Section 29 tax credits


(6,316
)




Non-deductible merger related expenses








1,650Tax-exempt income


(7,839
)

(6,718
)

(6,016
)Release of reserve


(1,500
)




(2,900
)Release of valuation allowance


(1,215
)Non-deductible settlement payment


1,750State income taxes, net of Federal income tax benefit-merger
termination related





4,505


State income taxes, net of Federal income tax benefit


328


691


40Other, net


(24
)

139


(522
)Provision for income taxes

$
37,687

$
64,214

$
38,943


The
Company includes in its tax provision an estimate of taxes that may be payable in future periods based on the actual tax treatment of certain income exclusions and expense deductions
claimed by the Company in its tax returns. The total amount of such deferred tax provisions for such items constitutes the Company's tax reserve. The Company believes that its tax reserve at
December 31, 2003 was adequate. The Company periodically reviews the adequacy of its tax reserves, and any changes in the Company's assessment of the adequacy of its tax reserve may result in
an increase or a decrease in the current or deferred tax provision in future years. For the tax year ended December 31, 2003, the tax reserve was reduced by $1.5 million due to the
resolution of issues related to the tax year ended December 31, 1999.

59

---

Significant
components of deferred tax assets and liabilities are as follows (in thousands):

December 31,2003

2002Deferred Tax Assets:Allowance for loan and lease losses

$
28,563

$
25,175Federal and state tax operating loss carry forwards


3,625


4,286Capital losses


4,247


6,393Director/Officer compensation Plans


2,075


1,521Allowance for losses on OREO





1,479Accumulative other comprehensive loss


161


Other


4,153


4,711Subtotal Deferred Tax Asset

$
42,824

$
43,565Deferred Tax Liabilities:Acquisition related expenses


23,587


21,068Accumulated other comprehensive (income)





12,333Pension plan


4,882


2,452Depreciation


10,485


17,823Other


1,247


357Subtotal Deferred Tax Liability

$
40,201

$
54,033Net Deferred Tax Asset (Liability)

$
2,623

$
(10,468
)


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 net deferred tax asset is realizable. As part of the evaluation process in the current year, it was determined that the New Jersey alternative minimum assessment ("AMA") should be
treated as a temporary item because
New Jersey allows for AMA credit to offset regular income tax in future years, the AMA credit has an indefinite life and the Company is expected to pay the New Jersey regular income tax in the
foreseeable future. If the Company's New Jersey tax profile changes, it will reconsider whether a valuation allowance should be established to offset the AMA credit. In addition, the Company released
a valuation allowance against its state and local deferred items. The release of the valuation occurred in the tax year ended December 31, 2003, because, as stated above, the Company's state
tax profile has changed.

The
Company has a net operating loss ("NOL") of approximately $10.4 million. These NOLs relate to various subsidiaries that the Company acquired. As such, these
NOLs generally have Internal Revenue Code Section 382 limitations. The NOLs should start to expire in 2006. However, the Company believes that the NOLs are realizable prior to expiration taking
into consideration the Section 382 limitations, the expiration schedule, and the history of the taxable income of the Company. Accordingly, no valuation allowance has been established related
to the NOLs. The Company also has capital losses that carry forward to future years and start expiring in 2005. The Company believes that the capital losses are recognizable before they expire
considering tax planning strategies available to the Company which the Company is prepared to execute to absorb the capital losses. Accordingly, no valuation allowance has been established related to
the capital loss carry forward.

60

---



(10)    BENEFIT PLANS AND POSTRETIREMENT BENEFITS

The Company provides pension plan benefits to eligible employees. Payments are based on salary and years of service. The Company's funding policy is to make the
maximum annual contributions allowed by the applicable regulations.

Investment Policies and Strategies

Retirement Plan assets are invested in accordance with the Company's Trust Department overall investment guidelines consistent with its stated investment
objective. In terms of our asset allocation guidelines the Retirement Plan has an investment objective of growth with income. This objective allows for cash to range 010% of the total
market value of the account, fixed income 3050% and stocks 50-70%.

The
selection of individual bonds and stocks is consistent with the Company's Trust Department fixed income and equity investment policies. Bonds are all investment grade with laddered
maturities to minimize reinvestment risk. In accordance with the Company's Trust Department equity investment philosophy, it blends growth stocks and value stocks consistent with its stated
guidelines. While the Company concentrates its equity selections on large capitalization domestic equities, mutual funds may be appropriate vehicles for international or small cap stocks. The
investment goal is to achieve results that will contribute to the proper funding of the pension plan by exceeding the rate of inflation over the long-term. In addition, investment managers
are expected to provide above average performance when compared to their peer managers. Performance volatility is also monitored.

Current Asset Allocation

The Company's pension plan weighted average asset allocations at January 1, 2003 and 2004, by asset category are as follows:

|Asset Category                      |  | Plan assets at January 1, 2003 |   | Plan assets at January 1, 2004 |  
|----------------------------------- |  | ------------------------------ | - | ------------------------------ | -
|Equity securities                   |  | 53                             | % | 61                             | %
|Debt securities (Bond Mutual Funds) |  | 29                             | % | 30                             | %
|Cash (Money Market)                 |  | 18                             | % | 9                              | %
|Total                               |  | 100                            | % | 100                            | %

Included in the above Equity securities are 111,621 shares of Hudson United Bancorp common stock at 1/1/2003 and 1/1/2004, respectively.

The Company had 743,748 thousand and 615,448 thousand common shares held in the plan at December 31, 2003 and 2002, respectively. Fair value
of these shares was $33.2 million and $22.5 million at year end December 2003 and 2002, respectively. Dividends paid to the plan were $0.6 million and $0.4 million
at December 31, 2003 and December 31, 2002, respectively.

Determination of Long-Term Rate of Return

The long-term rate of return on assets assumption was set based on historical returns earned by equities and fixed income securities, adjusted to
reflect expectations of future returns as applied to the plan's target allocation of asset classes. Equities and fixed income securities were assumed to earn real rates of return in the ranges of
5-9% and 2-6% respectively. The long-term inflation rate was estimated

61

---

to
be 3%. When these overall return expectations are applied to the plan's target allocation, the expected rate of return is determined to be 9.0% which is approximately the midpoint of the range of
expected return.

Cash Flows

Contributions

For the fiscal year ending December 31, 2004, based on an actuarial calculation, the Company would contribute approximately $100 thousand to the
Plan. However, as in past years the Company may make the maximum tax-deductible contribution.

Estimated Future Benefit Payments

The disclosure of projected benefit payments is not currently required. This disclosure is first required for fiscal years that end after June 15, 2004.

Information
regarding the benefit obligation resulting from the actuarial valuations prepared as of January 1, 2003 and 2002 is as follows (in thousands):

|                                        |  | 2003 |        | 2002 |  
|--------------------------------------- |  | ---- | ------ | ---- | -
|Change in benefit obligation:           |  |      |        |      |  
|Benefit obligation at beginning of year |  | $    | 44,542 |      | $
|Service cost                            |  |      | 2,130  |      |  
|Interest cost                           |  |      | 2,985  |      |  
|Actuarial (gain) loss                   |  |      | 522    |      |  
|Settlements                             |  |      | (673   | )    |  
|Benefits paid                           |  |      | (1,929 | )    |  
|                                        |  |      |        |      |  
|Benefit obligation at end of year       |  | $    | 47,577 |      | $
|                                        |  |      |        |      |  

|Change in plan assets:                                                |  |   |        |   |   |        |  
|--------------------------------------------------------------------- |  | - | ------ | - | - | ------ | -
|Fair value of plan assets at beginning of year                        |  | $ | 44,054 |   | $ | 38,067 |  
|Actual gain (loss) on plan assets                                     |  |   | 7,116  |   |   | (3,416 | )
|Employer contribution                                                 |  |   | 7,173  |   |   | 13,527 |  
|Settlements                                                           |  |   | (673   | ) |   | (2,309 | )
|Benefits paid                                                         |  |   | (1,929 | ) |   | (1,815 | )
|                                                                      |  |   |        |   |  
|Fair value of plan assets at end of year                              |  | $ | 55,741 |   | $ | 44,054 |  
|                                                                      |  |   |        |   |  
|Prepaid/accrued pension cost consists of the following as of Dec. 31: |  |   |        |   |   |        |  
|Funded status                                                         |  | $ | 8,165  |   | $ | (488   | )
|Unrecognized net transition obligation                                |  |   |       |   |   | (70    | )
|Unrecognized net actuarial gain                                       |  |   | 8,422  |   |   | 12,125 |  
|Unrecognized prior service cost                                       |  |   | 345    |   |   | 423    |  
|                                                                      |  |   |        |   |  
|Prepaid/accrued pension cost (benefit)                                |  | $ | 16,932 |   | $ | 11,990 |  
|                                                                      |  |   |        |   |  

62

---

Assumptions
used by the Company in the accounting for its plans in 2003 and 2002 were:

Weighted average assumptions as of Dec. 31:

2003

2002Discount rate

6.75
%
6.75
%Expected return on plan assets

9.0
%
9.0
%Rate of compensation increase

3.0
%
3.0
%


Components of net periodic benefit cost as of
December 31, (in thousands):

2003

2002

2001Service cost

$
2,129

$
1,701

$
2,264Interest cost


2,985


2,936


2,603Expected return on plan assets


(3,900
)

(3,603
)

(3,759
)Settlements


55


377


34Net Amortization and deferral


962


64


(353
)Net periodic benefit cost

$
2,231

$
1,475

$
789


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 $0.8 million, $1.5 million, and $1.5 million in 2003, 2002, and 2001, respectively.

The
Company has a supplemental employees' retirement plan for certain current executives, established in 2002. This is a nonfunded,nonqualified plan. The expense for this plan was
$0.7 million in 2003 and $0.1 million in 2002. In addition, the Company provides supplemental employee benefits for certain former management employees, certain retirees of acquired
institutions and current and former directors. These plans are unfunded by the Company and resulted in $0.4, of expense in the years of 2003, 2002 and 2001.

(11)    DEPOSITS

The scheduled maturities of certificates of deposit are as follows at December 31, 2003 (in thousands):

3 months or less

$
622,057Greater than 3 months to 1 year


628,636Greater than 1 year to 3 years


231,457Greater than 3 years


422,802$
1,904,952


The
Company had $926.1 million and $630.9 million in time deposits greater than $100,000 at December 31, 2003 and December 31, 2002, respectively. Investment
Securities of $353.6 million and $576.1 million are pledged as collateral for public sector deposits as of December 31, 2003 and December 31, 2002, respectively. The
Company has hedged $305 million of its time deposits with interest rate swaps accounted for as fair value hedges under FAS 133 as of year end 2003 and

63

---

$70 million
was hedged at year-end December 31, 2002.. The amount of the fair value adjustment that is included in time deposit balances was $1.7 million at
December 31, 2003 and $0.5 million at December 31, 2002.

(12)    BORROWINGS

The following is a summary of borrowings at December 31, 2003 (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.

Securities Sold
Under Agreement
to Repurchase

Other
Borrowings($ in thousands)At December 31:2003

$
532,485

$
388,7342002


134,920


334,7662001


213,346


98,620Weighted average interest rate at year-end:2003


0.63
%

1.84
%2002


1.93
%

1.38
%2001


2.40
%

4.93
%Maximum amount outstanding at any month's end:2003

$
691,679

$
941,2282002


142,301


334,7662001


228,347


147,649Average amount outstanding during the year:2003

$
365,712

$
534,8652002


131,439


81,0752001


166,703


54,420Weighted average interest rate during the year:2003


0.87
%

2.00
%2002


2.18
%

3.49
%2001


3.89
%

5.59
%


64

---

The
following is a summary of borrowings at December 31 (in thousands)

2003

2002Federal Home Loan Bank advances

$
298,825

$
333,000Bank repurchase agreements


430,857


25,001Customer repurchase agreements


101,628


109,919Treasury, Tax and Loan note


1,650


1,766Other borrowings


88,259


Total borrowings

$
921,219

$
469,686


Maturity
distribution of borrowings at December 31, 2003 (in thousands):

2004

$
215,4602005


100,0002006


400,0002007


180,7592008


25,000Total

$
921,219


The
company holds $25 million of repurchase agreements with a quarterly call and $300 million callable in June of 2004. Information concerning securities sold under
agreements to repurchase and FHLB advances is summarized as follows (in thousands):

2003

2002Average daily balance during the year

$
483,160

$
183,086Average interest rate during the year


1.11
%

2.10
%Maximum month-end balance during the year

$
1,073,428

$
467,920


Investment
securities underlying the repurchase agreements and FHLB advances at December 31 are as follows (in thousands):

2003

2002Amortized cost

$
1,258,876

$
181,737Estimated fair value

$
1,253,543

$
184,069


At
December 31, 2003 the Company had a $20 million line of credit with an unaffiliated Bank. The outstanding balance on this line was $7.5 million at year-end 2003.

(13)    SUBORDINATED DEBT

In May 2002, the Bank issued $200.0 million aggregate principal amount of subordinated debentures. The debentures, which mature in 2012, 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.

65

---



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. The Company repurchased $7.0 million of this debt during 2002 and $37.8 million during 2003.

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. The Company redeemed these notes in February 2002. 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. The Company repurchased $16.2 million
of this debt during 2002. The 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.

The
Company has marked to market $85.0 million of its subordinated debt as a result of it being hedged by interest rate swaps accounted for as fair value hedges. The fair value
adjustment as of December 31, 2003 on the Company's subordinated debt was $0.7 million.

The
Company repurchased $37.8 million of the $68.0 million outstanding of its 8.20% fixed rate subordinated debt due in September of 2006 in the second quarter of 2003. The
debt 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%.

(14)    CAPITAL TRUST SECURITIES

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 principle 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%. 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 principle 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.

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

66

---

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.

On
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 Company redeemed the securities on February 3, 2003.

On
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. As of December 31, 2003, $45 million of the 8.98% Capital Securities and $46.5 Junior Subordinated Debentures respectively, remained outstanding.

The
FASB issued SFAS No. 150 "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" in May 2003. This pronouncement requires
that an issuer classify a financial instrument that is within its scope as a liability. As a result of adoption of this statement the Company reclassified its capital trust security issuances into the
other liability category on the Company's consolidated balance sheets. There was no material impact on the Company's operations from adoption of this statement.

The
FASB issued FIN 46,"Consolidation of Variable Interest Entities" as amended in December 2003. This interpretation provides guidance on how to identify a variable interest
entity and determine when the assets, liabilities, noncontrolling interests and results of operations are to be included in an entity's consolidated financial statements. The Company applied the
provisions of FIN 46 to the wholly-owned subsidiary trusts described above in 2003 and 2002 that issued capital trust preferred securities to third-party investors. For purposes of financial statement
presentation, the Company has deconsolidated the trusts issuing the capital trust securities and now includes these junior subordinated debentures under other liabilities on its consolidated balance
sheet. . This does not have a material impact on the Company's operations. There has not yet been a final determination, as to the effect of FIN No. 46 on the treatment of capital trust
securities for purposes of regulatory capital. Depending upon the outcome of this determination there may be a material impact on the Company's regulatory capital.

The
four outstanding issues of capital trust preferred 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

67

---

general
corporate purposes and to increase capital levels of the Company and its subsidiaries. The securities qualify as Tier I capital under the capital guidelines of the Federal Reserve.

The
following is a maturity distribution of outstanding subordinated debt and capital trust preferred securities as of December 31, 2003: (in millions)

Year Maturing

Year Callable

Subordinated Debt

Capital Trust
Securities

Total
($ millions)2004

Not callable

$
8.8




$
8.82006

Not callable


30.8





30.82012

Not callable


200.2





200.22027

2007




$
45.0


45.02028

2008





50.0


50.02033

2008





34.0


34.0$
239.8

$
129.0

$
368.8


The
above schedule includes $0.7 million in mark to market adjustment that is included on the Company's balance sheet on the portion of the Company's subordinated
debt that is hedged with interest rate derivatives along with $1.0 million in deferred issuance costs on the Company's capital trust preferred securities.

(15)    STOCKHOLDERS' EQUITY

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.

On
April 17, 2002, the Board of Directors adopted the 2002 Stock Option Plan, which provides for the issuance of up to 1,250,000 stock options to employees of the Company. As of
the adoption date there are no further issuances from any of the previous plans. As of December 31, 2003, there remained 915,700 shares available for grant from the 2002 Stock Option Plan.

In
connection with the acquisitions completed by the Company in prior years, any outstanding options were converted into options to purchase common stock of the Company.

68

---

Transactions
under the Company's plans are summarized as follows:

Number of
Shares

Weighted Average
Exercise Price

Weighted Average
Remaining Contractual Life

Option Price Per
ShareOutstanding, December 31, 2001

1,681,970

$
20.16

8.8 yrs

$
4.16$30.79Granted

282,000

$
27.41

9.6 yrs

$
27.39$29.14Exercised

(165,888
)
$
10.28

1.9 yrs

$
4.16$10.36Exercised

(173,526
)
$
11.65

1.5 yrs

$
10.36$12.42Exercised

(52,528
)
$
13.23

2.0 yrs

$
12.42$14.64Exercised

(42,871
)
$
21.05

5.2 yrs

$
18.92$29.19Forfeited/Cancelled

(131,463
)
$
24.35

6.5 yrs

$
17.67$30.16Outstanding, December 31, 2002

1,397,694

$
24.39

11.3 yrs

$
7.14$30.79Granted

88,700


34.43

9.4 yrs

$
31.10$34.74Exercised

(88,273
)

12.66

0.9 yrs


7.1413.56Exercised

(18,022
)

21.93

3.9 yrs


18.3623.73Exercised

(104,302
)

26.68

4.5 yrs


25.0726.76Exercised

(39,786
)

28.83

6.0 yrs


28.5030.16Forfeited/Cancelled

(232,217
)

23.29

5.7 yrs


12.4234.74Outstanding, December 31, 2003

1,003,794

$
26.20

14.4 yrs

$
10.36$34.74Exercisable, December 31, 2003

168,480

$
21.47

2.8 yrs

$
10.36$28.98


If compensation cost had been determined based on the fair value at the grant dates for stock options awarded under the Company's 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 for quarter end and period end December 31,
2003 and December 31, 2002. The

69

---

Company
has adopted the prospective method of recording stock compensation expense effective January 1, 2003 (in thousands except per share data):

Twelve Month EndedDecember 31, 2003

December 31, 2002

December 31, 2001Net income

As reported

$
112,321

$
123,206


94,461Plus: Stock-based employee compensation cost, net of related tax effects, included in the determination of net income as reported(1)




549


1,225


388Less: Stock-based employee compensation cost, net of related tax effects, that would have been included in the determination of net income, if the fair value method had been applied to all awards(2)




6,075


7,059


6,634Pro forma

$
106,795

$
117,372

$
88,215Basic earnings per share

As reported

$
2.51

$
2.73

$
2.02Pro forma

$
2.39

$
2.60

$
1.88Diluted earnings per share

As reported

$
2.50

$
2.72

$
2.00Pro forma

$
2.38

$
2.59


1,87


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 2003, 2002 and 2001: dividend yield of 3.40%3.75% for 2003, 3.66% for 2002 and 3.61% for 2001; risk-free interest rates of 2.322%2.961% in 2003, 3.05% to
3.25% in 2002, and 4.28% to 4.29% in 2001; volatility factors of the expected market price of the Company's common stock of approximately 22.40% in 2003, 34% in 2002 and 28% in 2001 and an expected
life of 5 years in 2003, 2002 and 2001.

The
Company adopted as of January 1, 2003 SFAS No. 148 and will utilize the prospective method of transition, which requires that companies apply the recognition provisions
of Statement 123 to all employee awards granted, modified, or settled after the beginning of the fiscal year in which the recognition provisions are first applied. Adoption of this statement has no
material effect on the Company's operations.

The
Company has a restricted stock plan in which 37,597 shares, as of December 31, 2003, of the Company's common stock may be granted to officers and key employees. During 2003,
2002 and 2001,
respectively, the Company awarded 80,000, 52,850 and 11,230 shares of common stock which vest between two to ten years from the date of grant. The value of shares issued that have not been vested are
$3.9 million, $2.4 million, and $3.8 million for 2003, 2002 and 2001, respectively, and have been recorded as a reduction of stockholders' equity. Amortization of restricted stock
awards charged to expense amounted to $0.8 million, $1.9 million, and $0.6 million, in 2003, 2002 and 2001, 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

70

---

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 could become vested ten years from the date of the award of
the Compensation Committee, if extended after the initial two-year period. 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 compensation expense resulting from the vesting of the
restricted stock and cash awards were part of the approximately $8.3 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. The Board further authorized on January 30, 2003 the repurchase of up to
$4.5 million outstanding shares of the Company. During 2003, the Company purchased 0.5 million treasury shares at a cost of $16.5 million. During 2002, the Company purchased
1.3 million treasury shares at an aggregate cost of $37.7 million, of which 434,813 shares were reissued for stock options. 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.

(16)    EARNINGS PER SHARE

A reconciliation of 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 31,2003

2002

2001Basic Earnings Per ShareNet income

$
112,321

$
123,206

$
94,461Weighted average common shares outstanding


44,737


45,159


46,846Basic Earnings Per Share

$
2.51

$
2.73

$
2.02


71

---

Diluted Earnings Per ShareNet income

$
112,321

$
123,206

$
94,461Weighted average common shares outstanding


44,737


45,159


46,846Effect of Dilutive Securities:Stock Options


160


190


31544,897


45,349


47,161Diluted Earnings Per Share

$
2.50

$
2.72

$
2.00


(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, 2003, $169.5 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 assets.

(18)    LEASES

Total rental expense for all leases amounted to approximately $12.4 million, $11.8 million and $12.3 million in 2003, 2002 and 2001,
respectively.

At
December 31, 2003, 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):

2004

$
10,2822005


9,0062006


7,5642007


5,9232008


4,0502009 and thereafter


10,801Total

$
47,626


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

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 financial condition of the Company.

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 and
liability for assets held in trust which are not reflected in the accompanying financial statements. Loan commitments,

72

---

commitments
to extend lines of credit and stand-by 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.

See
Note 28 "Subsequent Events" of this document for further discussion of commitments and contingent liabilities.

(20)    FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF CREDIT RISK

The Company has no off-balance sheet debt financing 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 loss relating to its loan portfolio was $4.6 billion at December 31, 2003, utilizing the book value of its loan portfolio less the allowance.

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, 2003 and 2002 is
as follows:

2003Loan Origination
Commitments

Unused
Lines of Credit

Stand by
Letters of
Credit

Total(in thousands)Real Estate Mortgage

$
45,572







$
45,572Home Equity Loans




$
411,877





411,877Other Consumer Loans


37,666


1,074,774





1,112,440Commercial Loans


48,749


641,555

$
85,441


775,745Total

$
131,987

$
2,128,206

$
85,441

$
2,345,634


2002Loan Origination
Commitments

Unused
Lines of Credit

Stand by
Letters of
Credit

Total(in thousands)Real Estate Mortgage

$
56,434







$
56,434Home Equity Loans




$
433,790





433,790Other Consumer Loans


39,408


1,383,258





1,422,666Commercial Loans


70,745


603,127

$
66,144


740,016Total

$
166,587

$
2,420,175

$
66,144

$
2,652,906


73

---

(21)    HUDSON UNITED BANCORP (PARENT COMPANY ONLY) FINANCIAL INFORMATION

BALANCE SHEETS

December 31,2003

2002(in thousands)ASSETS:Cash and due from banks

$
23,892

$
4,796Investment securitiesAvailable for sale


12,074


16,137Investment in subsidiaries


572,440


586,603Premises and equipment, net


6,471


6,934Other assets


28,045


26,677TOTAL ASSETS

$
642,922

$
641,147LIABILITIES AND STOCKHOLDERS' EQUITY:Notes payable-subsidiaries

$
1,164

$
1,413Other liabilities


144,563


129,431Subordinated Debt


39,005


77,777TOTAL LIABILITIES

$
184,732

$
208,621Stockholders' equity


458,190


432,526TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$
642,922

$
641,147


74

---

STATEMENTS OF INCOME

Years Ended December 31,2003

2002

2001(in thousands)Income:Cash dividends from bank subsidiaries

$
113,376

$
126,723

$
101,161Interest income


111


172


56Securities (losses) gains


6,745


(1,309
)

(632
)Rental income








606Other income


648


2,006


2,398$
120,880

$
127,592

$
103,589Expenses:General and administrative


2,958


5,053


1,713Interest expense


14,519


16,851


18,141$
17,477

$
21,904

$
19,854Income before income taxes and equity in Undistributed net income of subsidiaries


103,403


105,688


83,735Income tax benefit


(2,992
)

(6,311
)

(5,288
)$
106,395

$
111,999

$
89,023Equity in undistributed net income of subsidiaries


5,926


11,207


5,438NET INCOME

$
112,321

$
123,206

$
94,461


75

---



STATEMENTS OF CASH FLOWS

|                                               |                                                  | Years Ended December 31,                                                                                       |         
|---------------------------------------------- | ------------------------------------------------ | -------------------------------------------------------------------------------------------------------------- | --------
|
|
|Operating activities:                          |                                                  |                                                                                                                |         
|                                               | Net income                                       |                                                                                                                | $       
|                                               |                                                  | Adjustments to reconcile net income to net cash provided by operating activities-Amortization and depreciation |         
|                                               |                                                  | Amortization of restricted stock                                                                               |         
|                                               |                                                  | Securities losses (income)                                                                                     |         
|                                               |                                                  | (Increase) in investment in subsidiaries                                                                       |         
|                                               |                                                  | Decrease in accounts receivable                                                                                |         
|                                               |                                                  | Decrease (increase) in other assets                                                                            |         
|                                               |                                                  | Increase in accounts payable                                                                                   |         
|                                               |                                                  | (Decrease) in accrued taxes and other liabilities                                                              |         
|                                               |                                                  |                                                                                                                |         
|NET CASH PROVIDED BY OPERATING ACTIVITIES      |                                                  | $                                                                                                              | 110,956 
|                                               |                                                  |                                                                                                                |         
|Investing activities:                          |                                                  |                                                                                                                |         
|                                               | Proceeds from sale of securities                 |                                                                                                                |         
|                                               | Proceeds from maturities of securities           |                                                                                                                |         
|                                               | Purchase of securities                           |                                                                                                                |         
|                                               | Investments in bank's subordinated notes         |                                                                                                                |         
|                                               | Capital expenditures                             |                                                                                                                |         
|                                               | Other                                            |                                                                                                                |         
|                                               |                                                  |                                                                                                                |         
|NET CASH PROVIDED BY INVESTING ACTIVITIES      |                                                  | $                                                                                                              | 11,059  
|                                               |                                                  |                                                                                                                |         
|Financing activities:                          |                                                  |                                                                                                                |         
|                                               | Proceeds from issuance of common stock           |                                                                                                                |         
|                                               | Dividends paid                                   |                                                                                                                |         
|                                               | Purchase of treasury stock                       |                                                                                                                |         
|                                               | Other                                            |                                                                                                                |         
|                                               |                                                  |                                                                                                                |         
|NET CASH USED IN FINANCING ACTIVITIES          |                                                  | $                                                                                                              | (102,919
|                                               |                                                  |                                                                                                                |         
|                                               | INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |                                                                                                                | $       
|CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR |                                                  |                                                                                                                | 4,796   
|                                               |                                                  |                                                                                                                |         
|CASH AND CASH EQUIVALENTS AT END OF YEAR       |                                                  | $                                                                                                              | 23,892  
|                                               |                                                  |                                                                                                                |         

76

---



(22)    SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following quarterly financial information for the two years ended December 31, 2003 and 2002 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 EndedMarch 31

June 30

September 30

December 31(in thousands, except per share data)2003Interest and fee income

$
102,410

$
101,365

$
94,314

$
96,040Interest expense


27,206


25,167


21,562


20,936Net interest income


75,204


76,198


72,752


75,104Provision for loan and lease losses,
portfolio loans


7,000


7,000


6,500


5,500Gain (loss) on security sales


(3,259
)

2,364


1,228


4,784Other non-interest income


30,142


27,242


34,259


36,285Non-interest expense


54,657


58,999


63,044


79,595Income before income taxes


40,430


39,805


38,695


31,078Net income

$
28,301

$
29,135

$
30,403

$
24,482Earnings per share-basic


0.63


0.65


0.68


0.55Earnings per share-diluted


0.63


0.65


0.68


0.542002Interest and fee income

$
106,293

$
109,399

$
111,003

$
107,451Interest expense


34,731


34,086


33,790


30,782Net interest income


71,562


75,313


77,213


76,669Provision for possible loan and lease losses,
portfolio loans


7,500


7,500


7,500


7,500Provision for possible loan and lease losses,
loans held for sale


21,333








Gain (loss) on security sales


275


402


519


3,545Other non-interest income


102,308


25,940


26,926


25,207Non-interest expense


74,274


56,600


58,425


57,827Income before income taxes


71,038


37,555


38,733


40,094Net income

$
42,281

$
25,537

$
27,113

$
28,275Earnings per share-basic


0.93


0.56


0.60


0.63Earnings per share-diluted


0.93


0.56


0.60


0.63


The
Company has adjusted its previously released financial results for the fourth quarter of 2003 and the full year 2003 to include the settlement. The Company's fourth quarter income
after tax prior to adjustment was $29.5 million or $0.66 per fully diluted share and $117.3 million or $2.61 per fully diluted share for the full year of 2003. The Company's adjusted
fourth quarter net income after tax totaled $24.5 million or $0.54 per fully diluted share and $112.3 million or $2.50 per fully diluted share for the full year of 2003.

77

---

(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, 2003 and 2002 were as follows:

Cash
and cash equivalents include cash and due from bank balances. For these instruments, the recorded book balance approximates their fair value.

For
available for sale 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.

2003

2002Estimated
Fair Value

Recorded
Book Value

Estimated
Fair Value

Recorded
Book Value(in thousands)Cash and cash equivalents

$
313,994

$
313,994

$
275,580

$
275,580Investment securities available
for sale

$
2,706,185

$
2,706,185

$
2,616,452

$
2,616,452


The
fair value of the Company's derivative instruments, which includes interest rate swaps, floors and caps, was based on quoted broker price quotes.

2003

2002Estimate
Fair Value

Carrying
Value

Estimated
Fair Value

Carrying
ValueDerivative instruments

$
(2,121
)
$
(2,121
)
$
12,126

$
12,126


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.

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

78

---

flows
using the estimated current rates at which similar loans on average would be made to borrowers and for the same average remaining maturities.

2003

2002Estimated
Fair Value

Recorded
Book Value

Estimated
Fair Value

Recorded
Book ValueLoans, net of allowance, and assets held for sale

$
4,650,955

$
4,591,909

$
4,424,403

$
4,267,546


The
fair value of demand deposits, savings deposits and certain money market accounts are assumed to approximate 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.

2003

2002Estimated
Fair Value

Recorded
Book Value

Estimated
Fair Value

Recorded
Book ValueDeposits

$
6,307,345

$
6,243,359

$
6,197,874

$
6,199,701


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.

2003

2002Estimated
Fair Value

Recorded
Book Value

Estimated
Fair Value

Recorded
Book ValueAccrued interest receivable

$
40,427

$
40,427

$
41,622

$
41,622Cash surrender value of separate
life insurance


144,126


144,126


162,195


162,195Borrowings


928,202


921,219


472,768


469,686


The
fair value of the subordinated debt and capital trust securities was determined by reference to estimated market prices.

2003

2002Estimated
Fair Value

Recorded
Book Value

Estimated
Fair Value

Recorded
Book ValueSubordinated Debt

$
259,119

$
239,773

$
308,125

$
282,253Capital Trust Securities


129,115


129,000


121,270


120,300


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.
The fair value of off-balance sheet items, which are primarily unused lines of credit, is not material because they are generally priced at market at time of offering.

79

---

(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, 2003, that the Company and its subsidiary bank meet all capital adequacy requirements to which they are subject. The consideration of the
impact of FIN 46 for Trust Preferred Securities has not yet been finalized by the Federal Reserve. The Company is currently including the allowable portion of its trust preferred securities in the
calculation of regulatory capital. Depending upon the final interpretation given, there may be a material impact upon the Company's regulatory capital.

The
Company's and the Bank's actual capital amounts and ratios at December 31, 2003 and 2002 are presented in the following table (dollars in thousands):

Actual

For Capital
Adequacy Purposes

To Be Well Capitalized
Under Prompt Corrective
Action ProvisionsAmount

Ratio

Amount

Ratio

Amount

RatioAs of December 31, 2003:Total Capital to Risk Weighted Assets:Hudson United Bancorp

$
792,036

13.67
%
$
464,863

>8.0%

$
581,078

>10.0%Hudson United Bank


754,300

13.05
%

464,012

>8.0%


580,014

>10.0%Tier I Capital to Risk Weighted Assets:Hudson United Bancorp

$
505,128

8.72
%
$
232,431

>4.0%

$
348,647

>6.0%Hudson United Bank


485,520

8.40
%

232,006

>4.0%


348,009

>6.0%Tier I Capital to Average Assets:Hudson United Bancorp

$
505,128

6.36
%
$
317,691

>4.0%

$
397,114

>5.0%Hudson United Bank


485,520

6.14
%

316,046

>4.0%


395,057

>5.0%


80

---



Actual

For Capital
Adequacy Purposes

To Be Well Capitalized
Under Prompt Corrective
Action ProvisionsAmount

Ratio

Amount

Ratio

Amount

RatioAs of December 31, 2002:Total Capital to Risk Weighted Assets:Hudson United Bancorp

$
708,450

13.07
%
$
433,705

>8.0%

$
542,131

>10.0%Hudson United Bank


730,242

13.47
%

433,728

>8.0%


542,160

>10.0%Tier I Capital to Risk Weighted Assets:Hudson United Bancorp

$
426,682

7.87
%
$
216,852

>4.0%

$
325,279

>6.0%Hudson United Bank


461,902

8.52
%

216,864

>4.0%


325,296

>6.0%Tier I Capital to Average Assets:Hudson United Bancorp

$
426,682

5.82
%
$
293,305

>4.0%

$
366,632

>5.0%Hudson United Bank


461,902

6.31
%

292,761

>4.0%


365,951

>5.0%


(25)    DERIVATIVES FINANCIAL INSTRUMENTS

The Company enters into interest rate derivative contracts (interest rate swaps; interest rate floors; and interest rate caps) from time to time for asset
liability management purposes. 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, within
the context of the management of the Company's overall asset liability risk. Management does not enter into these contracts for speculative purposes. The notional amount of the derivative contracts
totals $590 million at December 31, 2003.    The Company's derivatives contracts include LIBOR indexed interest rate swaps entered into in connection with certain fixed rate
certificates of deposits and with a specified amount of the Company's fixed rate borrowings, to effectively convert those fixed rate liabilities into LIBOR indexed liabilities.

Under
SFAS No.133, the Company has adopted hedge accounting for these contracts. The derivative contracts hedging the fixed rate certificates of deposit and the fixed rate subordinated
debt are accounted for as "fair value" hedges using the "short-cut method" under SFAS No.133 under the short cut method, any change in the value of the hedged item is assumed to be exactly
as much as the change in value of the derivative contract. Therefore, in a fair value hedge, the hedged item is adjusted by exactly the same amount as the derivative, with no impact on earnings.
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 FASB issued SFAS No. 149 "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" in April 2003. This statement amends and clarifies financial
accounting and reporting for derivative instruments and hedging activities under FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities". The Company had no
material impact on its operations from adoption of this statement.

81

---

The
Company's policies for the use of interest rate derivative contracts, its actual use of interest rate derivative contracts, and the effectiveness of the interest rate derivative
contracts as hedges are reviewed throughout the year by the Company's Asset Liability Committee.

Interest
rate derivatives outstanding at December 31, 2003 are as follows: (in thousands)

|Maturity                   |  | Notional
Amount |         | Fixed Interest
Rate |           | Variable
Rate Index |       | Type of
Instrument
|-------------------------- |  | --------------- | ------- | ------------------- | --------- | ------------------- | ----- | ------------------
|1 year through three years |  | $               | 100,000 |                     | 2.03      | %                   | Libor |                   
|                           |  |                 | 100,000 |                     | 2.60      | %                   | Libor |                   
|3 year through 5 years     |  |                 | 45,000  |                     | 3.50      | %                   | Libor |                   
|                           |  |                 |         |                     |           |                     | Libor |                   
|Greater than 5 years       |  |                 | 345,000 |                     | 4.13-7.00 | %                   | Libor |                   
|                           |  |                 |         |                     |           |                     |       |                   
|Total                      |  | $               | 590,000 |                     |           |                     |       |                   
|                           |  |                 |         |                     |           |                     |       |                   

(26)    INTANGIBLES

Intangibles are as follows for the periods indicated ($ in thousands)

|At December 31, 2003     |  | Gross Carrying
Amount |        | Accumulated
Amortization |   | Net Carrying
Amount
|------------------------ |  | --------------------- | ------ | ------------------------ | - | -------------------
|Core deposit intangibles |  | $                     | 42,029 |                          | $ | 21,776             
|Customer intangibles     |  |                       | 2,268  |                          |   | 75                 
|Credit card intangible   |  |                       | 261    |                          |   | 43                 

|At December 31, 2002     |  | Gross Carrying
Amount |        | Accumulated
Amortization |   | Net Carrying
Amount
|------------------------ |  | --------------------- | ------ | ------------------------ | - | -------------------
|Core deposit intangibles |  | $                     | 42,029 |                          | $ | 15,606             
|                         |  |                       |        |                          |   |                    

|At December 31, 2001    |  | Gross Carrying
Amount |        | Accumulated
Amortization |   | Net Carrying
Amount
|----------------------- |  | --------------------- | ------ | ------------------------ | - | -------------------
|Core deposit intangible |  | $                     | 37,899 |                          | $ | 11,591             
|                        |  |                       |        |                          |   |                    

The
net increase in core deposit intangibles from 2002 to 2003 was due to the Company's acquisition of CBC and the subsequent write down due to the termination of the Company's
correspondent banking business.

The
following is the estimated amortization expense on intangibles for the years indicated ($ in thousands):

2004

$
4,6102005


4,8892006


4,8492007


4,7142008


3,045


82

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The following table discloses the effect on net income and earnings per share of excluding amortization expense on goodwill for 2001 period indicated ($ in
thousands, except per share amounts)

|                           |                                     | Twelve months ended December 31
|-------------------------- | ----------------------------------- | -------------------------------
|
|Reported net income        |                                     | $                              
|Goodwill amortization      |                                     |                                
|                           |                                     |                                
|                           | Adjusted net income                 |                                
|                           |                                     |                                
|Basic earnings per share   |                                     | $                              
|Goodwill amortization      |                                     |                                
|                           |                                     |                                
|                           | Adjusted basic earnings per share   |                                
|                           |                                     |                                
|Diluted earnings per share |                                     | $                              
|Goodwill amortization      |                                     |                                
|                           |                                     |                                
|                           | Adjusted diluted earnings per share |                                
|                           |                                     |                                

The
Company annually tests its goodwill for impairment. As of December 31, 2003 and December 31, 2002 the Company did not consider its goodwill impaired.

(27)    CONTRACTUAL OBLIGATIONS

The following table outlines the Company's contractual obligations as of December 31, 2003:

|Contractual Obligations |  | Less than
one year |        | 13 years |   | 35 years |  | More than
5 years |        | Total
|----------------------- |  | ------------------ | ------ | --------- | - | --------- |  | ----------------- | ------ | -----
|Long-Term Debt          |  | $                  | 35,632 |           | $ | 83,116    |  | $                 | 48,218 |      
|Operating Leases        |  |                    | 10,282 |           |   | 16,570    |  |                   | 9,973  |      

All
of the Company's material operating leases are for bank premises.

The
Company's long-term debt includes the Company's payments on its junior subordinated debt (related to its capital trust preferred securities) and subordinated debt
principal as well as interest payable. As of December 31, 2003 there was $368.7 in principal and $379.9 in interest payments over the life of the long-term debt.

The
Company makes monthly payments to its data processing service vendors of minimum amounts based upon levels of transactions and services utilized. These payment amounts can vary
considerably from month to month depending upon certain circumstances. Actual expense is reflected in the Company's financial statements and was $29.7 million, $26.9 million and
$28.1 million for the years-ended 2003, 2002 and 2001, respectively.

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(28)    SUBSEQUENT EVENTS

CBC correspondent Banking Business Settlement and Related Expenses

In December 2003, the Company terminated its banking business for its correspondent customers. This business primarily served customers organized in or
operating from South America, Central America and the Caribbean. On June 26, 2002, the Company acquired this business as part of its assumption of the deposit liabilities of Connecticut Bank of
Commerce from the Federal Deposit Insurance Corporation as Receiver for Connecticut Bank of Commerce. This business had been operated out of an office located at 90 Broad Street in New York City.

During
the fourth quarter of 2003, the Company had been notified of an investigation by Government authorities.

On
March 2, 2004 Hudson United Bank entered into a complete settlement with the New York County District Attorney's Office. Under the terms of the agreement, the Company agreed to
pay $3.5 million to the City of New York and $1.5 million to the District Attorney's office for the costs of the investigation. The Company, which recently upgraded its compliance
program, agreed to continue its corrective actions. The $5 million was charged against fourth quarter 2003 results of operations.

Correspondent
Banking Settlement and related expenses includes:

Settlement

$
5,000,000Core deposit intangible write-off


1,948,000Professional fees


473,000Total

$
7,421,000


---

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 8,198 common
stockholders of record. The quarterly common stock and dividend information is as follows:

Quarterly Common Stock and Dividend Information

|               |              | 2003 |   | 2002 
|-------------- | ------------ | ---- | - | -----
|
|Quarter Ending |              |      |   |      
|               | March 31     |      | $ | 32.32
|               | June 30      |      |   | 35.36
|               | September 30 |      |   | 40.39
|               | December 31  |      |   | 37.56

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

84

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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.

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ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

On May 22, 2002, HUB decided to dismiss Arthur Andersen LLP ("Andersen") as its independent accountants, and on May 29, 2002 appointed
Ernst & Young LLP ("E&Y") as its independent accountants for the year ending December 31, 2002. The decision to dismiss Andersen and to retain E&Y was approved by HUB's Audit Committee
of the Board of Directors.

Andersen's
reports on HUB's consolidated financial statements as of and for the years ended December 31, 2000 and 2001 did not contain an adverse opinion or a disclaimer of
opinion, and were not qualified or modified as to uncertainty, audit scope, or accounting principles. In connection with the audits of the two fiscal years ended December 31, 2000 and 2001 and
through May 22, 2002, there were no disagreements with Andersen on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Andersen, would have caused Andersen to make reference to the disagreements in connection with their report on HUB's consolidated financial
statements for such years; and there were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K.

The
Company provided Andersen with a copy of the foregoing disclosures.

Item 9A.    CONTROLS AND PROCEDURES

The Company's Chief Executive Officer and Chief Financial Officer, with the assistance of other members of the Company's management, have evaluated the
effectiveness of the Company's disclosure controls and procedures as of the end of the period covered by this report. Based on such evaluation, the Company's Chief Executive Officer and Chief
Financial Officer have concluded that the Company's disclosure controls and procedures are effective.

The
Company's Chief Executive Officer and Chief Financial Officer have also concluded that there have not been any changes in the Company's internal control over financial reporting that
has materially affected, or is reasonably likely to materially affect, the Company's internal controls over financial reporting.

The
Company's management, including the CEO and CFO, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control
system, no matter how well conceived and operated, provides reasonable, not absolute, assurance that the objectives of the control system are met. The design of a control system reflects resource
constraints; the benefits of controls must be considered relative to their costs. Because there are inherent limitations in all control systems, no evaluation of controls can provide absolute
assurance that all control issues and instances of fraud, if any, within the Company have been or will be detected. These inherent limitations include the realities that judgments in decision-making
can be faulty and that breakdowns occur because of simple error or mistake. Controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management
override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed
in achieving its stated goals under all future conditions; over time, control may become inadequate because of changes in conditions or deterioration in the degree of compliance with the policies or
procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

86

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PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

HUB's
Proxy Statement for its 2004 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, certain information with respect to executive officers, audit committee
financial experts, code of ethics and material changes in shareholder nominating procedures 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 2004 Annual Meeting, 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

|Plan category                                              |  | Number of securities to be issued upon exercise of outstanding options, warrants and rights |  | Weighted average exercise price of
outstanding options, warrants and
rights |       | Number of securities remaining
available for future issuance under
equity compensation plans (excluding
securities reflected in column (a)
|---------------------------------------------------------- |  | ------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------- | ----- | ------------------------------------------------------------------------------------------------------------------------------------------
|Equity compensation plans approved by security holders     |  | 1,192,198                                                                                   |  | $                                                                           | 26.34 |                                                                                                                                           
|Equity compensation plans not approved by security holders |  | NONE                                                                                        |  |                                                                             | NONE  |                                                                                                                                           
|                                                           |  |                                                                                             |  |                                                                             |       |                                                                                                                                           
|Total                                                      |  | 1,192,198                                                                                   |  |                                                                             |       |                                                                                                                                           
|                                                           |  |                                                                                             |  |                                                                             |       |                                                                                                                                           

The
Company has 17,531 outstanding options that have been granted under the different plans of acquired institutions. These plans cannot have any further issuances from them.

HUB's
Proxy Statement for its 2004 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 2004 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.

ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

The Company's proxy statement for its 2004 Annual Meeting under the captions Independent Public Accountants contains the information required by Item 14 and that
information is incorporated herein by reference.

87

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|ITEM 15.     |  | 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:                                                          
|             |  |                                                                                                  
|             |  |                                                                                                  
|(a)    (3)   |  | Exhibits                                                                                         

|List of
Exhibits |  |                                                                                                                                                                                                                                                                        
|---------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2.1)            |  | Flatiron Purchase Agreement. (Incorporated by reference to the Company's filing on Form 8-Kfiled on July 28, 2003).                                                                                                                                                    
|(3)(A)           |  | The Certificate of Incorporation of the Company as in effect on the date of this filing. (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 the Company dated April 15, 2003 as in effect on the date of this filing. (Filed herewith.)                                                                                                                                                         
|(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. (Filed herewith).                                                                                                       
|(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 Annual Report on Form 10-K for the fiscal year
ended 2002).             
|(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. (Incoroprated by reference from the Company's Annual Repot on Form 10-K for the
fiscal year ended 2002).
|(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)).           
|4 (e)            |  | Indenture dated March 28, 2003 between Hudson United Bancorp, Inc. and Wilmington Trust Company as Trustee for $20,000,000 6.85% Junior Subordinated Debentures due 2033 (Incorporated by reference from the company's Form 10-Q for the quarter
ended March 31, 2003).
|                 |  |                                                                                                                                                                                                                                                                        

88

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|4 (f) |  | Guarantee Agreement dated March 28, 2003 between Hudson United Bancorp Inc. and Wilmington Trust Company (Incorporated by reference from the company's Form 10-Q for the quarter ended March 31,).                                                             
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4 (g) |  | Amended and Restated Declaration of Trust for Hudson United Capital Trust II dated March 28, 2003 (Incorporated by reference from the company's Form 10-Q for the quarter ended March 31,).                                                                    
|4 (h) |  | Purchase Agreement dated March 28, 2003 between Hudson United Capital Trust II, Hudson United Bancorp Inc. and Sandler O'Neill & Partners, LP(Incorporated by reference from the company's Form 10-Q for the quarter ended
March 31, 2003).                    
|4 (i) |  | Indenture dated March 31, 2003 between Hudson United Bancorp, Inc. and Bank of New York as Trustee for $15,000,000 6.448% Junior Subordinated Debentures due 2033 (Incorporated by reference from the company's Form 10-Q for the quarter ended
March 31, 2003)
|4 (j) |  | Guarantee Agreement dated March 31, 2003 between Hudson United Bancorp Inc. and Bank of New York (Incorporated by reference from the company's Form 10-Q for the quarter ended March 31, 2003)                                                                 
|4 (k) |  | Amended and Restated Declaration of Trust for Hudson United Capital Trust I dated March 31, 2003 (Incorporated by reference from the company's Form 10-Q for the quarter ended March 31, 2003)                                                                 
|4 (l) |  | Purchase Agreement dated March 31, 2003 between Hudson United Capital Trust I, Hudson United Bancorp Inc. and Trapeza CDO II, LLC(Incorporated by reference from the company's Form 10-Q for the quarter ended March 31, 2003)                                 
|(10i) |  | Change in control, Severance and Employment Agreement with Kenneth T. Neilson dated September 17,2003, filed herewith                                                                                                                                          
|(10j) |  | Change in control, Severance and Employment Agreement with D. Lynn VanBorkulo-Nuzzo dated September 17, 2003, filed herewith                                                                                                                                   
|(10k) |  | Change in control, Severance and Employment Agreement with James Mayo dated September 17, 2003, filed herewith.                                                                                                                                                
|(10l) |  | Change in control, Severance and Employment Agreement with Thomas R. Nelson dated September 17, 2003. filed herewith.                                                                                                                                          
|(10m) |  | Change in control, Severance and Employment Agreement with James Rudgers dated September 17, 2003, filed herewith.                                                                                                                                             
|(10n) |  | Change in control, Severance and Employment Agreement with Thomas Shara dated September 17, 2003, filed herewith                                                                                                                                               
|(10o) |  | Supplemental Employee Retirement Participation Agreement as restated with Kenneth T. Neilson dated March 1, 2004 (filed herewith)                                                                                                                              
|(10p) |  | Supplemental Employee Retirement Participation Agreement as restated with Thomas Shara dated March 1, 2004 (filed herewith)                                                                                                                                    
|(10q) |  | Supplemental Employee Retirement Participation Agreement as restated with D. Lynn VanBurkolo-Nuzzo dated March 1, 2004 (filed herewith)                                                                                                                        
|      |  |                                                                                                                                                                                                                                                                

89

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|(10r) |  | Supplemental Employee Retirement Participation Agreement as restated with James Mayo dated March 1, 2004 (filed herewith)                                                                                                                                             
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10s) |  | Supplemental Employee Retirement Participation Agreement as restated with Thomas R.Nelson dated March 1, 2004 (filed herewith)                                                                                                                                        
|(10t) |  | Supplemental Employee Retirement Participation Agreement as restated with James Rudgers dated March 1, 2004 (filed herewith)                                                                                                                                          
|(10u) |  | Hudson United Bancorp Inc. Supplemental Employee's Retirement Plan (as amended and restated effective October 1, 2002). (Incorporated by reference to the Company's filing on Form 10-k for the fiscal year ended December 31,
2002.)                                 
|(10v) |  | HUBCO, Inc. Directors Deferred Compensation Plan. (incorporated by reference from the Company's filing on Form 10-K for the fiscal year ended December 31, 2000)                                                                                                      
|(10w) |  | Hudson United Bancorp 2002 Stock Option Plan dated April 17,2002. (Incorporated by reference to the Company's filing on Form 10-k for the fiscal year ended 2002)                                                                                                     
|(10x) |  | Hudson United Bancorp Restricted Stock Plan of 1989, as amended (Filed herewith)                                                                                                                                                                                      
|(10y) |  | Separation agreement with William A. Houlihan dated November 5, 2003 (filed herewith)                                                                                                                                                                                 
|(10z) |  | Supplemental Employee Retirement Participation Agreement as restated with James Nall, dated March 5, 2004 (filed herewith)                                                                                                                                            
|21    |  | List of Subsidiaries (Filed herewith).                                                                                                                                                                                                                                
|23    |  | Consent of Ernst & Young LLP, filed herewith                                                                                                                                                                                                                          
|31.1  |  | Certification of Chief Executive Officer (filed herewith)                                                                                                                                                                                                             
|31.2  |  | Certification of Chief Financial Officer (filed herewith)                                                                                                                                                                                                             
|32    |  | Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Kenneth T. Neilson, Chief Executive Officer of the Company and James W. Nall. Chief Financial Officer of the
Company (filed herewith)

90

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SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.

|                   |  | HUDSON UNITED BANCORP
|------------------ |  | ---------------------
|MARCH 15, 2004DATE |  | By:                  
|March 15, 2004Date |  | By:                  

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.

|/s/KENNETH T. NEILSONKenneth T. Neilson     |  | Chairman, President and Chief Executive Officer and Director |  | March 15, 2004
|------------------------------------------- |  | ------------------------------------------------------------ |  | --------------
|/s/JAMES W. NALLJames W. Nall               |  | EVP, CFO (Principal Financial Officer)                       |  | March 15, 2004
|/s/RICHARD ALBANRichard Alban               |  | SVP, Controller (Principal Accounting Officer)               |  | March 15, 2004
|/s/ROBERT J. BURKERobert J. Burke           |  | Director                                                     |  | March 15, 2004
|/s/DONALD P. CALCAGNINIDonald P. Calcagnini |  | Director                                                     |  | March 15, 2004
|/s/JOAN DAVIDJoan David                     |  | Director                                                     |  | March 15, 2004
|/s/BRYANT D. MALCOLMBryant D. Malcolm       |  | Director                                                     |  | March 15, 2004
|/s/W. PETER MCBRIDEW. Peter McBride         |  | Director                                                     |  | March 15, 2004
|/s/CHARLES F.X. POGGICharles F.X. Poggi     |  | Director                                                     |  | March 15, 2004
|                                            |  |                                                              |  |               

91

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|/s/DAVID A. ROSOWDavid A. Rosow             |  | Director |  | March 15, 2004
|------------------------------------------- |  | -------- |  | --------------
|/s/JAMES E. SCHIERLOHJames E. Schierloh     |  | Director |  | March 15, 2004
|/s/JAMES E. SCHIERLOHJames E. Schierloh     |  | Director |  | March 15, 2004
|/s/JOHN H. TATIGIAN JR.John H. Tatigian Jr. |  | Director |  | March 15, 2004

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