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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549





FORM 10-Q





|x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- |  | ---------------------------------------------------------------------------------------



| |  | For the quarterly period ended June 30, 2003
| |  | --------------------------------------------



OR



| ̈ |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- |  | ----------------------------------------------------------------------------------------





For the transition period
from to





Commission File Number 0-010699





HUDSON UNITED BANCORP

(Exact name of
registrant as specified in its charter)





|New Jersey                                                     |  | 22-2405746                             
|-------------------------------------------------------------- |  | ---------------------------------------
|(State of other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)
|                                                               | 
|1000 MacArthur Blvd, Mahwah, NJ                                |  | 07430                                  
|(Address of principal executive office)                        |  | (Zip Code)                             





(201)-236-2600

(Registrants telephone number, including area code)





Not Applicable

Former name, former address, and former fiscal year,

if changed since last report.





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





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





Indicate the
number of shares outstanding of each of the issuers classes of common stock, as of the last practicable date: 44,772,951 shares, no par value, outstanding as of July 31, 2003.



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##### Table of Contents

HUDSON UNITED BANCORP



INDEX





|PART I.  FINANCIAL INFORMATION |  |                                                                                                                                           
|------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------------
|                               |  |                                                                                                                                           
|Item 1.                        |  | Financial Statements (Unaudited):                                                                                                         
|                               |  |                                                                                                                                           
|                               |  | Consolidated Balance Sheets At June 30, 2003 and December 31, 2002                                                                        
|                               |  |                                                                                                                                           
|                               |  | Consolidated Statements of Income For the Three Months Ended June 30, 2003 and 2002                                                       
|                               |  |                                                                                                                                           
|                               |  | Consolidated Statements of Income For the Six Months Ended June 30, 2003 and 2002                                                         
|                               |  |                                                                                                                                           
|                               |  | Consolidated Statements of Comprehensive Income For the Three Months Ended June 30, 2003 and 2002                                         
|                               |  |                                                                                                                                           
|                               |  | Consolidated Statements of Comprehensive Income For the Six Months Ended June 30, 2003 and 2002                                           
|                               |  |                                                                                                                                           
|                               |  | Consolidated Statements of Changes in Stockholders Equity For the Six Months Ended June 30, 2003 and for the Year Ended December 31, 2002
|                               |  |                                                                                                                                           
|                               |  | Consolidated Statements of Cash Flows For the Six Months Ended June 30, 2003 and 2002                                                     
|                               |  |                                                                                                                                           
|                               |  | Notes to Consolidated Financial Statements                                                                                                
|                               |  |                                                                                                                                           
|Item 2.                        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                     
|                               |  |                                                                                                                                           
|Item 3.                        |  | Quantitative and Qualitative Disclosure about Market Risk                                                                                 
|                               |  |                                                                                                                                           
|Item 4.                        |  | Controls and Procedures                                                                                                                   
|                               | 
|PART II.  OTHER INFORMATION    |  |                                                                                                                                           
|                               |  |                                                                                                                                           
|Item 4.                        |  | Submission of Matters to a Vote of Security Holders                                                                                       
|                               |  |                                                                                                                                           
|Item 6.                        |  | Exhibits and Reports on Form 8-K                                                                                                          
|                               |  |                                                                                                                                           
|                               |  | Signatures                                                                                                                                

|
|

|
|



1



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HUDSON UNITED BANCORP

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CONSOLIDATED BALANCE SHEETS (Unaudited)



|(in thousands, except per share data)                                                                                                                                                                |  |  |  | June 30,2003 |           |   | December 31,2002 |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  |  |  | ------------ | --------- | - | ---------------- | -
|                                                                                                                                                                                                    
|ASSETS                                                                                                                                                                                               |  |  |  |              |           |   |                  |  
|Cash and due from banks                                                                                                                                                                              |  |  |  | $            | 230,663   |   |                  | $
|Interest bearing due from banks                                                                                                                                                                      |  |  |  |              | 53,907    |   |                  |  
|                                                                                                                                                                                                     |  |  |  |              |           |   |                  |  
|TOTAL CASH AND CASH EQUIVALENTS                                                                                                                                                                      |  |  |  | $            | 284,570   |   |                  | $
|                                                                                                                                                                                                     |  |  | 
|Investment securities available for sale, at market value ($1,426 and $1,072 million pledged at June 30, 2003 and December
31, 2002 respectively)                                                    |  |  |  | $            | 2,955,047 |   |                  | $
|                                                                                                                                                                                                     |  |  | 
|Loans and leases:                                                                                                                                                                                    |  |  |  |              |           |   |                  |  
|Commercial and financial                                                                                                                                                                             |  |  |  | $            | 1,806,113 |   |                  | $
|Commercial real estate mortgages                                                                                                                                                                     |  |  |  |              | 931,368   |   |                  |  
|Consumer                                                                                                                                                                                             |  |  |  |              | 1,037,039 |   |                  |  
|Credit card                                                                                                                                                                                          |  |  |  |              | 322,088   |   |                  |  
|                                                                                                                                                                                                     |  |  |  |              |           |   |                  |  
|Sub-total                                                                                                                                                                                            |  |  |  | $            | 4,096,608 |   |                  | $
|Residential mortgages                                                                                                                                                                                |  |  |  |              | 227,512   |   |                  |  
|                                                                                                                                                                                                     |  |  |  |              |           |   |                  |  
|TOTAL LOANS AND LEASES                                                                                                                                                                               |  |  |  | $            | 4,324,120 |   |                  | $
|Less: Allowance for loan and lease losses                                                                                                                                                            |  |  |  |              | (67,151   | ) |                  |  
|                                                                                                                                                                                                     |  |  |  |              |           |   |                  |  
|NET LOANS AND LEASES                                                                                                                                                                                 |  |  |  | $            | 4,256,969 |   |                  | $
|Premises and equipment, net                                                                                                                                                                          |  |  |  |              | 95,808    |   |                  |  
|Other real estate owned                                                                                                                                                                              |  |  |  |              | 1,200     |   |                  |  
|Goodwill                                                                                                                                                                                             |  |  |  |              | 73,921    |   |                  |  
|Core deposit and other intangibles, net of amortization                                                                                                                                              |  |  |  |              | 24,574    |   |                  |  
|Investment in separate account bank owned life insurance                                                                                                                                             |  |  |  |              | 140,729   |   |                  |  
|Other assets                                                                                                                                                                                         |  |  |  |              | 151,221   |   |                  |  
|                                                                                                                                                                                                     |  |  |  |              |           |   |                  |  
|TOTAL ASSETS                                                                                                                                                                                         |  |  |  | $            | 7,984,039 |   |                  | $
|                                                                                                                                                                                                     |  |  |  |              |           |   |                  |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                                 |  |  |  |              |           |   |                  |  
|Deposits                                                                                                                                                                                             |  |  |  |              |           |   |                  |  
|Noninterest bearing                                                                                                                                                                                  |  |  |  | $            | 1,327,635 |   |                  | $
|NOW, money market and savings                                                                                                                                                                        |  |  |  |              | 3,120,818 |   |                  |  
|Time deposits                                                                                                                                                                                        |  |  |  |              | 1,783,076 |   |                  |  
|                                                                                                                                                                                                     |  |  |  |              |           |   |                  |  
|TOTAL DEPOSITS                                                                                                                                                                                       |  |  |  | $            | 6,231,529 |   |                  | $
|Customer repurchase agreements                                                                                                                                                                       |  |  |  |              | 106,570   |   |                  |  
|FHLB and other borrowings                                                                                                                                                                            |  |  |  |              | 747,797   |   |                  |  
|                                                                                                                                                                                                     |  |  |  |              |           |   |                  |  
|TOTAL BORROWINGS                                                                                                                                                                                     |  |  |  | $            | 854,367   |   |                  | $
|Other liabilities                                                                                                                                                                                    |  |  |  |              | 69,737    |   |                  |  
|Subordinated debt                                                                                                                                                                                    |  |  |  |              | 245,195   |   |                  |  
|Company-obligated mandatory redeemable preferred capital securities of subsidiary trusts holding solely junior subordinated
debentures of the Company                                                |  |  |  |              | 128,959   |   |                  |  
|                                                                                                                                                                                                     |  |  |  |              |           |   |                  |  
|TOTAL LIABILITIES                                                                                                                                                                                    |  |  |  | $            | 7,529,787 |   |                  | $
|Stockholders Equity:                                                                                                                                                                                |  |  |  |              |           |   |                  |  
|Common stock, no par value; authorized 103,000,000 shares; 52,186,866 shares issued and 44,758,366 shares outstanding in 2003 and
52,186,866 shares issued and 45,023,459 shares outstanding in 2002 |  |  |  |              | 92,788    |   |                  |  
|Additional paid-in capital                                                                                                                                                                           |  |  |  |              | 311,977   |   |                  |  
|Retained earnings                                                                                                                                                                                    |  |  |  |              | 208,946   |   |                  |  
|Treasury stock, at cost, 7,428,500 shares in 2003 and 7,163,407 shares in 2002                                                                                                                       |  |  |  |              | (177,903  | ) |                  |  
|Restricted stock                                                                                                                                                                                     |  |  |  |              | (4,697    | ) |                  |  
|Accumulated other comprehensive income                                                                                                                                                               |  |  |  |              | 23,141    |   |                  |  
|                                                                                                                                                                                                     |  |  |  |              |           |   |                  |  
|TOTAL STOCKHOLDERS EQUITY                                                                                                                                                                           |  |  |  | $            | 454,252   |   |                  | $
|                                                                                                                                                                                                     |  |  |  |              |           |   |                  |  
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                                           |  |  |  | $            | 7,984,039 |   |                  | $
|                                                                                                                                                                                                     |  |  |  |              |           |   |                  |  



See Notes to Consolidated Financial
Statements



2



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HUDSON UNITED BANCORP

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CONSOLIDATED STATEMENTS OF INCOME (Unaudited)



|                                                                    |  |  |  | Three Months Ended June 30,
|------------------------------------------------------------------- |  |  |  | ---------------------------
|(in thousands, except per share data)                               |  |  |  | 2003                       
|                                                                   
|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                |  |  |  |                            
|                                                                    |  |  |  |                            
|NET INTEREST INCOME AFTER TOTAL PROVISION FOR LOAN AND LEASE LOSSES |  |  |  | $                          
|                                                                    |  |  |  |                            
|NONINTEREST INCOME:                                                 |  |  |  |                            
|Retail service fees                                                 |  |  |  | $                          
|Credit card fee income                                              |  |  |  |                            
|ATM and debit card fees                                             |  |  |  |                            
|Separate account bank owned life insurance income                   |  |  |  |                            
|Trust income                                                        |  |  |  |                            
|Other income                                                        |  |  |  |                            
|Impairment on mortgage related servicing assets                     |  |  |  |                            
|Securities gain                                                     |  |  |  |                            
|Trading asset losses                                                |  |  |  |                            
|                                                                    |  |  |  |                            
|TOTAL NONINTEREST INCOME                                            |  |  |  | $                          
|                                                                    |  |  |  |                            
|NONINTEREST EXPENSE:                                                |  |  |  |                            
|Salaries and benefits                                               |  |  |  | $                          
|Occupancy expense                                                   |  |  |  |                            
|Equipment expense                                                   |  |  |  |                            
|Outside servicesdata processing                                    |  |  |  |                            
|Outside services-other                                              |  |  |  |                            
|Telephone expense                                                   |  |  |  |                            
|Marketing expense                                                   |  |  |  |                            
|Amortization of intangibles                                         |  |  |  |                            
|Deposit and other insurance                                         |  |  |  |                            
|Other expense                                                       |  |  |  |                            
|                                                                    |  |  |  |                            
|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



3



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HUDSON UNITED BANCORP

---

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)



|                                                                    |  |  |  | Six Months Ended June 30,
|------------------------------------------------------------------- |  |  |  | -------------------------
|(in thousands, except per share data)                               |  |  |  | 2003                     
|                                                                   
|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, ACCELERATED DISPOSITION        |  |  |  |                          
|                                                                    |  |  |  |                          
|TOTAL PROVISION FOR LOAN AND LEASE LOSSES                           |  |  |  |                          
|                                                                    |  |  |  |                          
|NET INTEREST INCOME AFTER TOTAL PROVISION FOR LOAN AND LEASE LOSSES |  |  |  | $                        
|                                                                    |  |  |  |                          
|NONINTEREST INCOME:                                                 |  |  |  |                          
|Retail service fees                                                 |  |  |  | $                        
|Credit card fee income                                              |  |  |  |                          
|ATM and debit card fees                                             |  |  |  |                          
|Separate account bank owned life insurance income                   |  |  |  |                          
|Trust income                                                        |  |  |  |                          
|Dime merger termination payment                                     |  |  |  |                          
|Impairment on mortgage related servicing assets                     |  |  |  |                          
|Securities (losses)gains                                            |  |  |  |                          
|Trading asset gains                                                 |  |  |  |                          
|Other income                                                        |  |  |  |                          
|                                                                    |  |  |  |                          
|TOTAL NONINTEREST INCOME                                            |  |  |  | $                        
|                                                                    |  |  |  |                          
|NONINTEREST EXPENSE:                                                |  |  |  |                          
|Salaries and benefits                                               |  |  |  | $                        
|Occupancy expense                                                   |  |  |  |                          
|Equipment expense                                                   |  |  |  |                          
|Outside servicesdata processing                                    |  |  |  |                          
|Outside services-other                                              |  |  |  |                          
|Telephone expense                                                   |  |  |  |                          
|Marketing expense                                                   |  |  |  |                          
|Amortization of intangibles                                         |  |  |  |                          
|Deposit and other insurance                                         |  |  |  |                          
|Expenses related to Dime termination payment                        |  |  |  |                          
|Other expense                                                       |  |  |  |                          
|                                                                    |  |  |  |                          
|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



4



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HUDSON UNITED BANCORP

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)



|                                                                                                                            |  |  |  | Three Months Ended June 30, |       
|--------------------------------------------------------------------------------------------------------------------------- |  |  |  | --------------------------- | ------
|(In thousands)                                                                                                              |  |  |  | 2003                        |       
|                                                                                                                           
|NET INCOME                                                                                                                  |  |  |  | $                           | 29,135
|OTHER COMPREHENSIVE INCOME, NET OF TAX:                                                                                     |  |  |  |                             |       
|Net unrealized securities gains arising during period (tax expenses of $2,814 and $17,489 respectively)                     |  |  |  | $                           | 4,412 
|Change in valuation of derivative contracts (tax benefits of $605 and $2,018 respectively)                                  |  |  |  |                             | (982  
|Less: reclassification for net losses included in net income (tax benefit of $2,015 and tax expense of
$56 respectively)    |  |  |  |                             | (3,268
|                                                                                                                            |  |  |  |                             |       
|Other comprehensive income                                                                                                  |  |  |  | $                           | 6,698 
|                                                                                                                            |  |  |  |                             |       
|COMPREHENSIVE INCOME                                                                                                        |  |  |  | $                           | 35,833
|                                                                                                                            |  |  |  |                             |       
|                                                                                                                            |  | 
|                                                                                                                            |  |  |  | Six Months Ended June 30,   |       
|(In thousands)                                                                                                              |  |  |  | 2003                        |       
|                                                                                                                           
|NET INCOME                                                                                                                  |  |  |  | $                           | 57,436
|OTHER COMPREHENSIVE INCOME NET OF TAX:                                                                                      |  |  |  |                             |       
|Net unrealized securities (losses)/gains arising during period (tax benefit of $383 and tax expense of $7,355
respectively) |  |  |  | $                           | (1,041
|Change in valuation of derivative contracts (tax benefits of $2,471 and $4,195 respectively)                                |  |  |  |                             | (3,684
|Less: reclassification for net losses included in net income (tax benefits of $4,462 and $2,395 respectively)               |  |  |  |                             | (6,812
|                                                                                                                            |  |  |  |                             |       
|Other comprehensive income                                                                                                  |  |  |  | $                           | 2,087 
|                                                                                                                            |  |  |  |                             |       
|COMPREHENSIVE INCOME                                                                                                        |  |  |  | $                           | 59,523
|                                                                                                                            |  |  |  |                             |       



See Notes to Consolidated Financial
Statements



5



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HUDSON UNITED BANCORP

---

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (Unaudited)

(in thousands, except shares)



|                             |  | Common Stock |   |  | AdditionalPaid-in- Capital |        |   | RetainedEarnings |   |         | TreasuryStock |  |   | RestrictedStock |   |  | AccumulatedOtherComprehensiveIncome (Loss) |          |   | Total |  
|---------------------------- |  | ------------ | - |  | -------------------------- | ------ | - | ---------------- | - | ------- | ------------- |  | - | --------------- | - |  | ------------------------------------------ | -------- | - | ----- | -
|                             |  | Shares       |   |  | Amount                     |        |   |                  |   |         |               | 
|Balance at December 31, 2001 |  | 45,814,227   |   |  | $                          | 92,796 |   |                  | $ | 320,309 |               |  | $ | 104,570         |   |  | $                                          | (146,560 | ) |       | $
|                            
|Net income                   |  |             |   |  |                            |       |   |                  |   |        |               |  |   | 123,206         |   |  |                                            |         |   |       |  
|Cash dividends               |  |             |   |  |                            |       |   |                  |   |        |               |  |   | (50,232         | ) |  |                                            |         |   |       |  
|Stock options exercised      |  | 434,813      |   |  |                            |       |   |                  |   | (6,842  | )             |  |   |                |   |  |                                            | 12,250   |   |       |  
|Other transactions           |  |             |   |  |                            | (8     | ) |                  |   |        |               |  |   |                |   |  |                                            |         |   |       |  
|Purchase of treasury stock   |  | (1,303,952   | ) |  |                            |       |   |                  |   |        |               |  |   |                |   |  |                                            | (37,686  | ) |       |  
|Effect of 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                   |  |             |   |  |                            |       |   |                  |   |        |               |  |   | 57,436          |   |  |                                            |         |   |       |  
|Cash dividends               |  |             |   |  |                            |       |   |                  |   |        |               |  |   | (26,034         | ) |  |                                            |         |   |       |  
|Stock options exercised      |  | 202,372      |   |  |                            |       |   |                  |   | (1,665  | )             |  |   |                |   |  |                                            | 6,189    |   |       |  
|Other transactions           |  | (11,220      | ) |  |                            |       |   |                  |   | 175     |               |  |   |                |   |  |                                            | (175     | ) |       |  
|Purchase of treasury stock   |  | (527,095     | ) |  |                            |       |   |                  |   |        |               |  |   |                |   |  |                                            | (16,525  | ) |       |  
|Effect of compensation plans |  | 70,850       |   |  |                            |       |   |                  |   |        |               |  |   |                |   |  |                                            | 2,479    |   |       |  
|Other comprehensive income   |  |             |   |  |                            |       |   |                  |   |        |               |  |   |                |   |  |                                            |         |   |       |  
|                             |  |              |   |  |                            |        |   |                  |   |         |               |  |   |                 |   |  |                                            |          |   |       |  
|Balance at June 30, 2003     |  | 44,758,366   |   |  | $                          | 92,788 |   |                  | $ | 311,977 |               |  | $ | 208,946         |   |  | $                                          | (177,903 | ) |       | $
|                             |  |              |   |  |                            |        |   |                  |   |         |               |  |   |                 |   |  |                                            |          |   |       |  



See Notes to Consolidated Financial
Statements





6



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##### Table of Contents

HUDSON UNITED BANCORP

---

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)



|                                                                                  |  | Six Months Ended June 30, |           
|--------------------------------------------------------------------------------- |  | ------------------------- | ----------
|(in thousands)                                                                    |  | 2003                      |           
|                                                                                 
|CASH FLOWS FROM OPERATING ACTIVITIES:                                             |  |                           |           
|Net Income                                                                        |  | $                         | 57,436    
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                           |           
|Provision for loan and lease losses                                               |  |                           | 14,000    
|Provision for depreciation and amortization                                       |  |                           | 9,826     
|Amortization (Accretion) of investment securities premiums (discounts), net       |  |                           | 12,535    
|Impairment on mortgage servicing assets                                           |  |                           | (2,004    
|Securities losses                                                                 |  |                           | (895      
|Trading gains                                                                     |  |                           | 3,449     
|Loss on sales of premises and equipment                                           |  |                           | (153      
|Increase in deferred taxes                                                        |  |                           | 1,346     
|(Increase)/Decrease in other assets                                               |  |                           | (5,480    
|Decrease in other liabilities                                                     |  |                           | (78,404   
|                                                                                  |  |                           |           
|NET CASH PROVIDED BY OPERATING ACTIVITIES                                         |  | $                         | 11,656    
|                                                                                  |  |                           |           
|CASH FLOWS FROM INVESTING ACTIVITIES:                                             |  |                           |           
|Proceeds from sales of investment securities:                                     |  |                           |           
|Available for sale                                                                |  | $                         | 1,033,336 
|Proceeds from repayments and maturities of investment securities:                 |  |                           |           
|Available for sale                                                                |  |                           | 742,193   
|Purchases of investment securities:                                               |  |                           |           
|Available for sale                                                                |  |                           | (2,125,518
|Net decrease in loans other than purchases and sales                              |  |                           | 6,668     
|Increase in loans due to purchases                                                |  |                           | (2,718    
|Proceeds from sales of loans                                                      |  |                           |           
|Acquisition of credit card assets                                                 |  |                           | (7,373    
|Proceeds from sales of premises and equipment                                     |  |                           | 407       
|Purchases of premises and equipment                                               |  |                           | (2,549    
|Decrease in other real estate                                                     |  |                           | 115       
|                                                                                  |  |                           |           
|NET CASH USED IN INVESTING ACTIVITIES                                             |  | $                         | (355,439  
|                                                                                  |  |                           |           
|CASH FLOWS FROM FINANCING ACTIVITIES:                                             |  |                           |           
|Net increase in deposits                                                          |  | $                         | 31,828    
|Net increase (decrease) in borrowings                                             |  |                           | 384,681   
|Payment of subordinated debt securities                                           |  |                           | (34,360   
|Proceeds from issuance of debt securities                                         |  |                           | 33,959    
|Payment of debt securities                                                        |  |                           | (25,300   
|Proceeds from issuance of Common stock                                            |  |                           | 4,524     
|Cash dividends                                                                    |  |                           | (26,034   
|Acquisition of treasury stock                                                     |  |                           | (16,525   
|                                                                                  |  |                           |           
|NET CASH PROVIDED BY FINANCING ACTIVITIES                                         |  | $                         | 352,773   
|                                                                                  |  |                           |           
|INCREASE IN CASH AND CASH EQUIVALENTS                                             |  | $                         | 8,990     
|CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                  |  |                           | 275,580   
|                                                                                  |  |                           |           
|CASH AND CASH EQUIVALENTS AT END OF PERIOD                                        |  | $                         | 284,570   
|                                                                                  |  |                           |           
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                                |  |                           |           
|Cash paid during the period                                                       |  |                           |           
|Interest                                                                          |  | $                         | 54,831    
|Taxes                                                                             |  |                           | 23,061    



See Notes to Consolidated Financial
Statements



7



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##### Table of Contents

HUDSON UNITED BANCORP

---



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except per share data)





NOTE A  BASIS OF PRESENTATION



The accompanying unaudited
consolidated financial statements of Hudson United Bancorp and Subsidiaries (Hudson Unitedor the Company) include the accounts of the parent company, Hudson United Bancorp, and its wholly-owned subsidiaries: Hudson United
Bank (the Bank), HUBCO Capital Trust I, HUBCO Capital Trust II, Hudson United Capital Trust I and Hudson United Capital Trust II. All material intercompany balances and transactions have been eliminated in consolidation. These unaudited
consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the information presented includes all adjustments and normal recurring accruals
considered necessary for a fair presentation, in all material respects, of the interim period results. The results of operations for periods of less than one year are not necessarily indicative of results for the full year. The consolidated
financial statements should be read in conjunction with the Companys Annual Report on Form 10-K for the year ended December 31, 2002.



For purposes of presentation, management has discussed some comparisons to the six months ended 2002 on a GAAP and non-GAAP basis excluding certain items, which are
listed in the body of the individual discussions. Management feels that it is necessary to discuss certain items in this manner to give the reader a more meaningful assessment of the Companys performance because of certain income and expense
items that occurred in the first quarter of 2002 related to the Dime merger termination (see paragraph below under Reclassification of Certain Assets, Revenues and Expenses).





Reclassification of Certain Assets, Revenues and
Expenses



Net income for the first six months of 2002 included $77.0
million cash payment received from Dime Bancorp, Inc. (Dime) on January 7, 2002, representing the final termination payment relating to the uncompleted merger of the Company and Dime. Also included in the first half of 2002 were $21.5
million of certain expenses resulting from the merger resolution and other charges ($8.3 million in expenses directly related to the Dime termination payment and other expenses including, $0.2 million in salaries and benefits, $1.3 million in
occupancy expenses, $1.1 million in equipment expenses, $0.2 million in expenses classified as outside services  other, and $10.4 million in other expense) 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.



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NOTE B  EARNINGS PER SHARE



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



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



|                                                             |  | Three Months Ended June 30,
|------------------------------------------------------------ |  | ---------------------------
|                                                             |  | 2003                       
|                                                            
|Basic Earnings Per Share                                     |  |                            
|Net Income                                                   |  | $                          
|Weighted average common shares outstanding                   |  |                            
|Basic earnings per share                                     |  | $                          
|Diluted Earnings Per Share                                   |  |                            
|Net Income                                                   |  | $                          
|Weighted average common shares outstanding                   |  |                            
|Effect of dilutive securities:                               |  |                            
|Stock options                                                |  |                            
|                                                             |  |                            
|Weighted average common shares outstanding assuming dilution |  |                            
|Diluted earnings per share                                   |  | $                          
|                                                             | 
|                                                             |  | Six Months Ended June 30,  
|                                                             |  | 2003                       
|                                                            
|Basic Earnings Per Share                                     |  |                            
|Net Income                                                   |  | $                          
|Weighted average common shares outstanding                   |  |                            
|Basic earnings per share                                     |  | $                          
|Diluted Earnings Per Share                                   |  |                            
|                                                             |  |                            
|Net Income                                                   |  | $                          
|Weighted average common shares outstanding                   |  |                            
|Effect of dilutive securities:                               |  |                            
|Stock options                                                |  |                            
|                                                             |  |                            
|Weighted average common shares outstanding assuming dilution |  |                            
|Diluted earnings per share                                   |  | $                          



---

|(1) |  | 2002 six month ended figures include $77 million cash payment received from Dime Bancorp, Inc. (Dime) on January 7, 2002, representing the final termination payment
relating to the uncompleted merger of the Company and Dime, $21.5 million of certain expenses resulting from the merger resolution and 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.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





NOTE C  ACQUISITIONS/BUSINESS COMBINATIONS



The Company acquired ownership interests in the second quarter of 2003 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 generate revenues by selling the gas. 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 $10 million per year, and are scheduled to expire on December 31,
2007. The acquisition of the ownership interests was recorded at a value of $20 million, which was



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approximately equal to the book value of the net assets of the LGPs on the closing date. 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 expects the ownership in the LGPs to result in an increase to its other revenues and total noninterest income; an increase to its other expenses and total noninterest expenses in an amount greater than the increase in other revenues and
total noninterest income; and an immediate 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.



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, assumed certain insured deposits and consumer loans, along with an option to purchase two branches in Connecticut and to lease two branches in New York City and one in
Connecticut. Subsequently, the Bank has put back the consumer loans, purchased the two Connecticut branches and assumed the leases of the two branches in New York City and the one branch in Connecticut. The Bank paid an acquisition premium of $17.3
million to the FDIC in this transaction.



During the first six months of 2003
the Company paid total consideration of $7.4 million for $7.7 million in credit card receivables from unrelated third parties, with an associated discount of $0.3 million. The Company entered into agreements at several times in 2002 to purchase
third party credit card assets from unrelated third parties. The Company had paid total consideration during 2002 of $62.6 million for $66.2 million of these assets, with an associated discount of $3.6 million.





NOTE D 
INVESTMENT SECURITIES



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



|                                                 |  | June 30, 2003    
|------------------------------------------------ |  | -----------------
|                                                 |  | AmortizedCost    
|                                                 |  |                  
|Available for Sale                               |  |                  
|U.S. Government securities/agencies              |  | $                
|Mortgage-backed securities                       |  |                  
|Asset backed and other debt securities           |  |                  
|Obligations of states and political subdivisions |  |                  
|FHLB stock                                       |  |                  
|Other equity securities                          |  |                  
|                                                 |  |                  
|                                                 |  | $                
|                                                 |  |                  
|                                                 | 
|                                                 |  | December 31, 2002
|                                                 |  | AmortizedCost    
|                                                 |  |                  
|Available for Sale                               |  |                  
|U.S. Government securities/agencies              |  | $                
|Mortgage-backed securities                       |  |                  
|Asset backed and other debt securities           |  |                  
|Obligations of states and political subdivisions |  |                  
|FHLB stock                                       |  |                  
|Other equity securities                          |  |                  
|                                                 |  |                  
|                                                 |  | $                
|                                                 |  |                  



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##### Table of Contents

Investment securities with a market value of $1,426 million at June 30, 2003 and $1,072 million at December 31, 2002 were
pledged as collateral for public sector deposits, customer repurchase agreements and borrowings from the Federal Home Loan Bank and other counterparties.



Other equity securities include preferred stocks of Government Sponsored Entities, and common and preferred stocks of other financial institutions.





NOTE E 
SUBORDINATED DEBT



In January, 1994, the Company sold $25.0 million aggregate
principal amount of subordinated debentures. The debentures, which mature in 2004, bear interest at a fixed rate of 7.75% per annum payable semi-annually. The Company repurchased $7.8 million of this debt during the second quarter of 2002, and $8.8
million remains outstanding as of June 30, 2003.



In March 1996, Jeff Banks,
Inc. 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 acquired JeffBanks, Inc. in 1999. These notes were
redeemable at the option of the Company, in whole or in part, at any time after April 1, 2001, at their stated principal amount plus accrued interest, if any. On January 7, 2002, the Company announced redemption of this issue. The notes were
redeemed in February 2002.



In September 1996, the Company sold $75 million
aggregate principal amount of subordinated debentures. The debentures, which mature in 2006, bear interest at a fixed interest rate of 8.20% per annum payable semi-annually. The outstanding balance of this debt is $30.2 million as of June 30, 2003,
after the reduction described below.



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%.



On May 6, 2002, the Bank issued
$200 million of 7.00% subordinated notes due May of 2012. Interest on the note are payable semi-annually.





NOTE F  COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED CAPITAL SECURITIES OF SUBSIDIARY TRUSTS HOLDING SOLELY JUNIOR SUBORDINATED
DEBENTURES OF THE COMPANY



On January 31, 1997, the Company issued $50.0
million in aggregate liquidation amount of 8.98% Capital Securities due February 2027, using HUBCO Capital Trust I, a statutory business trust formed under the laws of the State of Delaware. The sole asset of the trust, which is the obligor on the
Series B Capital Securities, is $51.5 million principal amount of 8.98% Junior Subordinated Debentures due 2027 of the Company. The 8.98% Capital securities are redeemable by the Company on or after February 1, 2007, or earlier in the event the
deduction of related interest for federal income tax is prohibited, treatment as Tier 1 capital is no longer permitted or certain other contingencies arise. As of June 30, 2003, $45.0 million of the 8.98% Capital Securities remained outstanding.



On February 5, 1997, a predecessor of the Company issued $25.0 million in
aggregate liquidation amount of 9.25% Capital Securities due March 2027, using JBI Capital Trust I, a statutory business trust formed under the laws of the State of Delaware. The sole asset of the trust, which is the obligor on the Series B Capital
Securities, is $25.3 million principal amount of 9.25%Junior Subordinated Deferrable Debentures due 2027 of the Company. The 9.25% Trust Capital Securities became redeemable by the Company on March 31, 2002. On February 3, 2003, the Company
redeemed at par all of the aforementioned securities.



On June 19, 1998, the
Company issued $50.0 million in aggregate liquidation amount of 7.65% Capital Securities due June 2028, using HUBCO Capital Trust II, a statutory business trust formed under the laws of the State of Delaware. The sole asset of the trust, which is
the obligor on the Series B Capital Securities, is $51.5 million principal amount of 7.65% Junior



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##### Table of Contents

Subordinated Debentures due 2028 of the Company. The 7.65% Capital Securities are redeemable by the Company on or after
June 15, 2008, or earlier in the event the deduction of related interest for federal income taxes is prohibited, treatment as Tier 1 capital is no longer permitted or certain other contingencies arise.



The Company issued on March 31, 2003, $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.



The following is a maturity distribution of outstanding subordinated debt and capital trust
securities at March 31, 2003:



|Year Maturing |  | Year Callable/ Maturity |  |  | SubordinatedDebt |         |  | Capital TrustSecurities |   |         | Total ($ millions) |  |  
|------------- |  | ----------------------- |  |  | ---------------- | ------- |  | ----------------------- | - | ------- | ------------------ |  | -
|             
|2004          |  | Not callable            |  |  | $                | 8,790   |  |                         |   |         |                    |  | $
|2006          |  | Not callable            |  |  |                  | 30,860  |  |                         |   |         |                    |  |  
|2012          |  | Not callable            |  |  |                  | 205,545 |  |                         |   |         |                    |  |  
|2027          |  | 2007                    |  |  |                  |         |  |                         | $ | 45,000  |                    |  |  
|2028          |  | 2008                    |  |  |                  |         |  |                         |   | 50,000  |                    |  |  
|2033          |  | 2008                    |  |  |                  |         |  |                         |   | 33,959  |                    |  |  
|              |  |                         |  |  |                  |         |  |                         |   |         |                    |  |  
|              |  |                         |  |  | $                | 245,195 |  |                         | $ | 128,959 |                    |  | $
|              |  |                         |  |  |                  |         |  |                         |   |         |                    |  |  



The table above
includes $2.8 million in mark to market adjustment that is included in the Companys balance sheet on the portion of the Companys subordinated debt that is hedged with interest rate derivatives, $3.4 million in deferred gains associated
with the cancelation of derivatives associated with a portion of the Companys subordinated debt and $1.0 million in costs associated with the Companys issuance of Capital Trust Securities.





NOTE G 
COMPREHENSIVE INCOME (LOSS)



The Company displays Consolidated
Statements of Income and Consolidated Statements of Comprehensive Income separately for the disclosed periods. Comprehensive Income is displayed on the Consolidated Balance Sheets and Consolidated Statements of Changes in Stockholders Equity
as a separate item entitled Accumulated Other Comprehensive Income (Loss). The following is a reconciliation of the tax effect allocated to each component of comprehensive income for the periods presented.



|                                                                        |  | Three Months Ended June 30, 2003 |       
|----------------------------------------------------------------------- |  | -------------------------------- | ------
|                                                                        |  | Before taxamount                 |       
|Unrealized net securities gains arising during the period               |  | $                                | 7,226 
|                                                                        |  |                                  |       
|Change in valuation of derivative contracts                             |  |                                  | (1,587
|Less: reclassification adjustment for net losses realized in net income |  |                                  | (5,283
|                                                                        |  |                                  |       
|Net change during period                                                |  | $                                | 10,922
|                                                                        |  |                                  |       



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|                                                                        |  | Three Months Ended June 30, 2002 |        
|----------------------------------------------------------------------- |  | -------------------------------- | -------
|                                                                        |  | Before taxamount                 |        
|Unrealized net security gain arising during the period                  |  | $                                | 46,475 
|Change in valuation of derivative contracts                             |  |                                  | (4,939 
|Less: reclassification adjustment for net gains realized in net income  |  |                                  | 138    
|                                                                        |  |                                  |        
|Net change during period                                                |  | $                                | 41,398 
|                                                                        |  |                                  |        
|                                                                        | 
|                                                                        |  | Six Months Ended June 30, 2003   |        
|                                                                        |  | Before taxamount                 |        
|Unrealized net securities losses arising during the period              |  | $                                | (1,424 
|Change in valuation of derivative contracts                             |  |                                  | (6,155 
|Less: reclassification adjustment for net losses realized in net income |  |                                  | (11,274
|                                                                        |  |                                  |        
|Net change during period                                                |  | $                                | 3,695  
|                                                                        |  |                                  |        
|                                                                        | 
|                                                                        |  | Six Months Ended June 30, 2002   |        
|                                                                        |  | Before taxamount                 |        
|Unrealized net securities gains arising during the period               |  | $                                | 21,668 
|Change in valuation of derivative contracts                             |  |                                  | (10,270
|Less: reclassification adjustment for net losses realized in net income |  |                                  | (5,863 
|                                                                        |  |                                  |        
|Net change during period                                                |  | $                                | 17,261 
|                                                                        |  |                                  |        





NOTE H  RECENT ACCOUNTING STANDARDS



The FASB issued SFAS No. 142 Goodwill and Other Intangible Assets during 2001. Under this standard, intangible assets must continue to be amortized, but
goodwill is no longer amortized starting January 1, 2002. Goodwill that is determined to be impaired must be written-off when that determination is made. The Company has concluded that no impairment charge was required during the first half of 2003
or year ended 2002. The Company is required to perform an impairment test of its goodwill on at least an annual basis. Core deposit intangibles and other intangibles, with a carrying value of $24.6 million at June 30, 2003, are being amortized and
the related amortization expense was $2.1 million at June 30, 2003. The carrying values for goodwill and core deposit intangibles include the premium paid in the CBC transaction. (see note J for additional details).



The FASB issued SFAS No. 143 Accounting for Asset Retirement Obligations in June
2001. This statement is effective for financial statements issued for fiscal years beginning after June 15, 2002. SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets
and the associated asset retirement costs. The adoption of this statement did not have a material effect on the Companys operations.



The FASB issued SFAS No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets in August 2002. This statement is effective for financial
statements issued for fiscal years beginning after December 15, 2001. SFAS No. 144 establishes a single accounting model for long-lived assets to be disposed of as well as establishing criteria for both long-lived assets to be disposed of other than
by sale and long-lived assets to be disposed of by sale. The adoption of this statement did not have a material effect on the Companys operations.



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The FASB issued SFAS No. 145, which was a rescission of SFAS Nos. 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. The adoption of this statement did not have a material effect on the Companys
operations.



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. The adoption of this statement did not have a material effect 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 the 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 are first applied. The Company expects no material impact on its operations from adoption of this statement. The Company did not record any expense related to the adoption of this statement in the second quarter of 2003 or year to date
June 30, 2003.



The FASB issued SFAS No. 149 Amendment of Statement
133 on Derivative Instruments and Hedging Activities in April 2003. This statement mends 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. The Company expects no material impact on its operations from adoption of this statement.





NOTE I  STOCK BASED COMPENSATION



The Board of Directors adopted and the shareholders, approved on April 17,2002, the 2002
Stock Option Plan, which provides for the issuance of up to 1,250,000 stock options to employees of the Company, in addition to those previously granted. The option or grant price cannot be less than the fair market value of the common stock at the
date of the grant. As of the adoption date there were no further issuances from any of the previous plans. There are other options outstanding that were granted under the plans of acquired companies. As of June 30, 2003, there remained 898,300
shares and as of December 31, 2002 there remained 968,000 shares available for grant from the 2002 Stock Option Plan.



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 June 30, 2003 and June 30, 2002. The Company has adopted the prospective method of
recording stock compensation expense effective January 1, 2003 (in thousands except per share data):



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|                                                                                                                                                                                                        |  |             |  | Three months ended
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- |  | ------------------
|                                                                                                                                                                                                        |  |             |  | June 30, 2003     
|Net income                                                                                                                                                                                              |  | As reported |  | $                 
|Plus: Stock-based employee compensation cost, net of related tax effects, included in the determination of net income as reported
(1)                                                                   |  |             |  |                   
|Less: 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) |  |             |  |                   
|                                                                                                                                                                                                        |  | Pro forma   |  | $                 
|Basic earnings per share                                                                                                                                                                                |  | As reported |  | $                 
|                                                                                                                                                                                                        |  | Pro forma   |  | $                 
|Diluted earnings per share                                                                                                                                                                              |  | As reported |  | $                 
|                                                                                                                                                                                                        |  | Pro forma   |  | $                 
|                                                                                                                                                                                                        |  |            
|                                                                                                                                                                                                        |  |             |  | Six months ended  
|                                                                                                                                                                                                        |  |             |  | June 30, 2003     
|Net income                                                                                                                                                                                              |  | As reported |  | $                 
|Plus: Stock-based employee compensation cost, net of related tax effects, included in the determination of net income as reported
(1)                                                                   |  |             |  |                   
|Less: 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) |  |             |  |                   
|                                                                                                                                                                                                        |  | Pro forma   |  | $                 
|Basic earnings per share                                                                                                                                                                                |  | As reported |  | $                 
|                                                                                                                                                                                                        |  | Pro forma   |  | $                 
|Diluted earnings per share                                                                                                                                                                              |  | As reported |  | $                 
|                                                                                                                                                                                                        |  | Pro forma   |  | $                 



---

|(1) |  | Includes expenses for both stock options and restricted stock
|--- |  | -------------------------------------------------------------

|(2) |  | Includes expenses for stock options only
|--- |  | ----------------------------------------



15



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##### Table of Contents

NOTE J:



Core deposit and other intangibles is as follows for the periods indicated (in thousands):



|At June 30, 2003                   |  | Gross CarryingAmount |  | AccumulatedAmortization |  | Net CarryingAmount
|---------------------------------- |  | -------------------- |  | ----------------------- |  | ------------------
|Core deposit and other intangibles |  | $42,291              |  | $17,717                 |  | $24,574           
|                                   |  |                      |  |                         |  |                   
|                                   |  |                      | 
|At December 31, 2002               |  | Gross CarryingAmount |  | AccumulatedAmortization |  | Net CarryingAmount
|Core deposit intangibles           |  | $42,029              |  | $15,606                 |  | $26,423           
|                                   |  |                      |  |                         |  |                   



The following is the estimated
amortization expense on core deposit intangibles for the years ended December 31:



|2003 |  | $ | 4,265
|---- |  | - | -----
|2004 |  |   | 4,308
|2005 |  |   | 4,308
|2006 |  |   | 4,268
|2007 |  |   | 4,222





MANAGEMENTS DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



This financial review presents managements discussion and analysis of financial
condition and results of operations. It should be read in conjunction with the Companys Consolidated Financial Statements and the accompanying notes. All dollar amounts, other than per share information, are presented in thousands unless
otherwise noted.





STATEMENTS REGARDING FORWARD-LOOKING INFORMATION



This document, both in Management Discussion & Analysis and elsewhere, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are not historical facts and include
expressions about managements confidence and strategies and managements expectations about new and existing programs and products, relationships, opportunities, technology and market conditions. These statements may be identified by such
forward-looking terminology as expect, look, believe, anticipate, consider, may, will, or similar statements or variations of such terms. Such forward- looking
statements involve certain risks and uncertainties. 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,
| | - |  | -------------------------------------



| | · |  | deteroration in economic conditions,
| | - |  | ------------------------------------



| | · |  | deteroration in deposit and loan volume trends,
| | - |  | -----------------------------------------------



| | · |  | deterioration in levels of loan quality,
| | - |  | ----------------------------------------



| | · |  | failure to realize expected cost savings or revenue enhancements from changes in business models and acquisitions,
| | - |  | ------------------------------------------------------------------------------------------------------------------



| | · |  | the continued existence and availability of tax credits, especially its Section 29 credits and other tax advantaged investments
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| | · |  | the 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. Information on potential factors that could cause the Companys
financial results to differ from the forward-looking statements also is included from time to time in the Companys public reports filed with the SEC, including in our Form 10-K for the year ending December 31, 2002.



16



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##### Table of Contents

RESULTS OF OPERATIONS



OVERVIEW



The Company had net income of $29.1 million, or $0.65 per diluted share, for the second quarter of 2003 compared to $25.5 million, or $0.56 per diluted share for the comparable period in 2002. The Company had net income of $57.4 million, or
$1.28 per diluted share, for the six months ended 2003 compared to $67.8 million, or $1.49 per diluted share for the comparable period in 2002. Net income for the first six months of 2002 included $77.0 million cash payment received from Dime
Bancorp, Inc. (Dime) on January 7, 2002, representing the final termination payment relating to the uncompleted merger of the Company and Dime. Also included in the first half of 2002 were $21.5 million of certain expenses resulting from
the merger resolution and other charges ($8.3 million in expenses directly related to the Dime termination payment and other expenses including, $0.2 million in salaries and benefits, $1.3 million in occupancy expenses, $1.1 million in equipment
expenses, $0.2 million in expenses classified as outside services  other, and $10.4 million in other expense) and an additional $21.3 million provision for loan and lease losses relating to the accelerated disposition of certain nonperforming
commercial and industrial loans.



The Companys return on average equity
was 26.52 % and return on average assets was 1.46% for the second quarter of 2003. The net interest margin was 4.18% and the efficiency ratio was 53.16% for the second quarter of 2003. The Companys return on average equity was 26.41%, return
on average assets was 1.45% for the second quarter of 2002. The net interest margin was 4.75% and the efficiency ratio was 54.34% for the second quarter of 2002. The Companys efficiency ratio is calculated by dividing noninterest expense
(minus amortization expense and OREO expense) by the sum of net interest income, noninterest income and the tax equivalent adjustment, minus securities gains. The Companys OREO expense, included as a part of other expense on the Companys
Consolidated Statements of Income, was $0.1 million and zero for the quarters ended June 30, 2003 and June 30, 2002 respectively. The Companys tax equivalent adjustments were $1.0 million and $0.9 million respectively for the quarters ended
June 30, 2003 and June 30, 2002. The Company believes that the efficiency ratio effectively measures the Companys ability to control its expenses in relationship to increasing or decreasing income components. The formula used by the
Company is a common formula used to arrive at the efficiency ratio for banks and this formula allows the Company to compare itself to its peers. The formula may not be the same as that used by other Companies.



The Companys return on average equity was 26.69 % and return on average assets was
1.48% for the first six months of 2003. The net interest margin was 4.27% and the efficiency ratio was 52.56% for the first six months of 2003. The Companys return on average equity was 34.94%, return on average assets was 1.95% for the first
six months of 2002. The net interest margin was 4.74% and the efficiency ratio was 46.35% for the first six months of 2002. The Companys ORE expense, included as a part of other expense on the Companys Consolidated Statements of Income,
was $0.3 million and $0.5 million for the six months ended June 30, 2003 and June 30, 2002 respectively. The Companys tax equivalent adjustments were $2.1 million and $1.7 million respectively for the six months ended June 30, 2003 and
June 30, 2002. Results for the first six months of 2002 included a $77.0 million cash payment received from Dime Bancorp, Inc. (Dime) on January 7, 2002, representing the final termination payment relating to the uncompleted merger of
the Company and Dime. Also included in the first half of 2002 were $21.5 million of certain expenses resulting from the merger resolution and other charges ($8.3 million in expenses directly related to the Dime termination payment and other expenses
including, $0.2 million in salaries and benefits, $1.3 million in occupancy expenses, $1.1 million in equipment expenses, $0.2 million in expenses classified as outside services  other, and $10.4 million in other expense) and an additional
$21.3 million provision for loan and lease losses relating to the accelerated disposition of certain nonperforming commercial and industrial loans.





NET REVENUE



Net revenue, which is the sum of net interest income and noninterest income, was $103.2 million for the second quarter of 2003. This was
comprised of net interest income of $76.2 million and noninterest income of $27.0 million. Net revenue for the second quarter of 2003 increased by $1.6 million, or 1.5%, compared to net revenue for the second quarter of 2002.



Net revenue was $205.3 million for the first six months of 2003. This was comprised of net
interest income of $151.4 million and noninterest income of $53.9 million. Net revenue for the first half of 2003 decreased by $70.5 million, or 25.6%, compared to net revenue in the first half of 2002, when it was $275.8 million. The decrease in
the first half of 2003 from the first half of 2002 is primarily attributed to the aforementioned $77.0 million Dime merger termination payment received in the first quarter of 2002.



17



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##### Table of Contents

NET INTEREST INCOME



Net interest income for the second quarter of 2003 was $76.2 million and the net interest margin was 4.18%. Net interest income for the second quarter of 2002 was $75.3
million and the net interest margin was 4.75%. Net interest income increased by $0.9 million in the second quarter of 2003 compared to the comparable second quarter of 2002. The increase in net interest income in the second quarter of 2003 compared
to the comparable quarter in 2002 was due primarily to lower interest expense on deposits. This was offset in part by lower interest income on loans in the second quarter of 2003 as compared to the second quarter of 2002, which was primarily
attributable to prepayments and scheduled repayments on existing securities and loans and subsequent purchases of new securities and originations of loans at lower average yields. Interest income on securities decreased in the second quarter of 2003
compared to the comparable period in 2002 as a decline in average yield more than offset an increase in average volume.



Net interest income for the first half of 2003 was $151.4 million and the net interest margin was 4.27%. Net interest income for the first half of 2002 was $146.9 million
and the net interest margin was 4.74%. Net interest income increased by $4.5 million in the first half of 2003 compared to the comparable first half of 2002. The increase in net interest income in the first half of 2003 compared to the comparable
period in 2002 was due primarily to lower interest expense on deposits. This lower interest expense was offset in part by lower interest income on loans, which was attributable to prepayments and scheduled repayments on existing securities and loans
and subsequent purchases of securities and originations of loans at lower average yields. Interest income on securities increased in the first half of 2003 compared to the comparable period in 2002 due to an increase in the average volume being
partially offset by a decline in average yield.





NONINTEREST INCOME



Noninterest income was $27.0 million in the second quarter of 2003 and $26.3 million in the second quarter of 2002. Noninterest income for the second quarter of 2003 increased by $0.7 million, or 2.5 %, compared to
the second quarter of 2002. The increase in noninterest income in 2003 compared to 2002 was due mainly to increases in retail service fees.



Noninterest income was $53.9 million in the first half of 2003 and $128.9 million in the first half of 2002. Noninterest income for the first half of 2003 decreased by
$75.0 million, or 58.2%, compared to the first half of 2002. The decrease in noninterest income in 2003 compared to 2002 was due mainly to the aforementioned $77.0 million Dime merger termination payment in 2002.





NONINTEREST
EXPENSE



Noninterest expense was $56.4 million for the second quarter of 2003
compared to $56.6 million for the second quarter of 2002. The decrease in noninterest expense in the second quarter of 2003 compared to the second quarter of 2002 was due primarily to a decrease in the other expense category, which was offset in
part by increases in salaries and benefits, occupancy, outside service fees, telephone and equipment expenses. The efficiency ratio was 53.16% for the second quarter of 2003 and 54.34% for the second quarter of 2002.



Noninterest expense was $111.1 million for the first half of 2003 compared to $130.9 million
for the first half of 2002. The decrease in noninterest expense in the first half of 2003 compared to the first half of 2002 was due primarily to the aforementioned $21.5 million of certain expenses incurred in 2002 being offset in part by increases
in occupancy and salaries and benefits expenses related to the purchase and assumption transaction with the FDIC as the receiver for CBC transaction.





INCOME TAXES



The Companys pretax income for the second quarter of 2003 was $39.8 million, an increase of $2.3 million, or 6.0%, compared to the
second quarter of 2002. The Companys provision for income taxes was $10.7 million for the quarter ended June 30, 2003, reflecting an effective tax rate of approximately 27%. The Companys provision for income taxes for the second quarter
of 2002 reflected an effective tax rate of approximately 32%. This decrease in the provision and the lower effective tax rate for the second quarter of 2003 was due to several factors. These factors included: the Companys increased investment
in tax advantaged securities during the second half of 2002; an updated reassessment of the Companys tax preference income, reserves and related liabilities; and tax credits arising from an acquisition completed in the quarter (see note C of
the consolidated financial statements).



18



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##### Table of Contents

The Companys pretax income for the first half of 2003 was $80.2 million, a decrease of $28.4 million, or 26.1%,
compared to the first half of 2002. The Companys provision for income taxes was $22.8 million for the six months ended June 30, 2003, reflecting an effective tax rate of approximately 28%. The Companys provision for income taxes for the
first half of 2002 reflected an effective tax rate of approximately 38%. This decrease in pretax income for the first half of 2003 was primarily due to the Dime merger termination payment and certain expenses recorded in the first half of 2002. The
lower tax rate is due to the Companys increased investment in tax advantaged securities during the second half of 2002; an updated reassessment of the Companys tax preference income, reserves and related liabilities; and tax credits
arising from an acquisition completed in the quarter (see note C of the consolidated financial statements).





PROVISION FOR LOAN AND LEASE LOSSES AND ALLOWANCE FOR LOAN AND LEASE LOSSES



The provision for loan and lease losses was $7.0 million for the second quarter of 2003 and $7.5 million for the second quarter of 2002. The
decrease in 2003 over 2002 was primarily due to the lower levels of nonperforming loans. Net charge offs for the second quarter of 2003 were $6.8 million, which was less than the provision for loan and leases losses.



The provision for loan and lease losses was $14.0 million for the first six months of 2003
and $36.3 million for the first six months of 2002. The decrease in 2003 over 2002 was due to the aforementioned $21.3 million provision related to accelerated disposition of loans in 2002.



The Allowance for loan and lease losses (allowance) totaled $67.2 million at June
30, 2003 compared to $71.9 at December 31, 2002 and $72.0 million at June 30, 2002. It represented 458% of nonperforming loans and leases at June 30, 2003, compared to 468% at December 31, 2002 and 412% at June 30, 2002. The Allowance as a
percentage of total loans and leases was 1.55% at June 30, 2003, 1.66% at December 31,2002 and 1.66% at June 30, 2002.



The Company reclassified certain purchase accounting adjustments for the acquisition of credit card receivables in the second quarter of 2003. The Company recorded a
reduction in the Allowance for Loan and Lease Losses (the Allowance) in the second quarter of 2003 of $4.9 million, and an increase in the carrying value of Credit Card Loans (Loans) in the same amount. This accounting
reclassification relates to acquisitions made by the Company in 2001 and 2002 of private label credit card portfolios and the related multi-year exclusive merchant relationships (the Transactions). The Company disclosed the Transactions
in its annual reports to shareholders in 2001 and 2002 in the Business Combinations footnote, noting that the Transactions were accounted for under the purchase method of accounting. Part of the original purchase accounting adjustments
for the Transactions increased the Allowance by a portion of the purchase price for the Transactions deemed to be attributable to the purchased Allowance. The reductions to the Allowance and to Loans had no impact on Stockholders Equity or Net
Income.



The determination of the adequacy of the Allowance and the periodic
provisioning for estimated losses included in the consolidated financial statements is the responsibility of management. The evaluation process is undertaken on a monthly basis. The methodology employed for assessing the adequacy of the Allowance
consists of the following:



| | · |  | the establishment of allowance amounts for all specifically identified criticized loans, including those arising from business combinations, that have been designated as requiring
attention by managements internal loan review program.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · |  | the establishment of reserves for pools of homogenous types of loans not subject to specific review, including 1-4 family residential mortgages, consumer loans and leases, and
credit card portfolios, based upon historical loss rates.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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 business combinations, knowledge about customers, industries, the results of ongoing credit
quality monitoring processes, the adequacy and expertise of the Companys lending staff, underwriting policies, loss histories, delinquency trends, nature of economic and business conditions, and any concentration in the portfolio including
real estate related loans located in the northeastern part of the United States. Since many of the loans depend upon the sufficiency of real estate collateral as a secondary source of repayment, any adverse trend



19



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##### Table of Contents

in the real estate markets could affect underlying values available to protect the Company from loss. Other evidence used
to determine the amount of the Allowance and its components are as follows:



| | · |  | regulatory and other examinations
| | - |  | ---------------------------------



| | · |  | the amount and trend of criticized loans
| | - |  | ----------------------------------------



| | · |  | actual losses
| | - |  | -------------



| | · |  | peer comparisons with other financial institutions
| | - |  | --------------------------------------------------



| | · |  | opportunities to dispose of marginally performing loans for cash consideration
| | - |  | ------------------------------------------------------------------------------



Based upon the process employed and giving recognition to all attendant factors associated with the loan portfolio, management considers the Allowance to be adequate
at June 30, 2003.





Non Performing Loans and Non Performing Assets



Nonperforming loans and leases totaled $14.7 million at June 30, 2003. This was a decrease of $0.7 million, or 4.5%, compared to $15.4 million of nonperforming loans and leases as of December 31, 2002, and a decrease of $2.8 million, or
16.2%, compared to $17.5 million of nonperforming loans leases at June 30, 2002. Nonperforming loans and leases were 0.34% of total loans and leases at June 30, 2003, compared to 0.35% at December 31, 2002 and 0.40% at June 30, 2002.



Nonperforming assets were $15.9 million at June 30, 2003, down from $16.7 million at December
31, 2002 and $18.6 million at June 30, 2002. Nonperforming assets as a percent of loans, leases and OREO were 0.37% at June 30, 2003, 0.38% at December 31, 2002 and 0.43% at June 30, 2002.



The following table presents the composition of non-performing assets and selected asset
quality ratios at the dates indicated (in thousands):



|                                                        |  | June 30, 2003 |        |   | December 31, 2002 |  
|------------------------------------------------------- |  | ------------- | ------ | - | ----------------- | -
|Nonaccrual Loans:                                       |  |               |        |   |                   |  
|Commercial                                              |  | $             | 7,072  |   |                   | $
|Real Estate                                             |  |               | 7,319  |   |                   |  
|Consumer                                                |  |               | 269    |   |                   |  
|                                                        |  |               |        |   |                   |  
|Total Nonaccrual Loans                                  |  | $             | 14,660 |   |                   | $
|Other Real Estate Owned                                 |  |               | 1,200  |   |                   |  
|                                                        |  |               |        |   |                   |  
|Total Nonperforming Assets                              |  | $             | 15,860 |   |                   | $
|                                                        |  |               |        |   |                   |  
|Nonaccrual Loans to Total Loans and Leases              |  |               | 0.34   | % |                   |  
|Allowance for Loan and Lease Losses to Nonaccrual Loans |  |               | 458    | % |                   |  



20



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##### Table of Contents

Loans Past Due 90 Days and Still Accruing



The following table shows loans past due 90 days or more and still accruing, along with the applicable asset quality ratio (in thousands):



|                                            |  | June 30, 2003 |        |   | December 31, 2002 |  
|------------------------------------------- |  | ------------- | ------ | - | ----------------- | -
|Loans Past Due 90 Days or More and Accruing |  |               |        |   |                   |  
|Commercial                                  |  | $             | 3,394  |   |                   | $
|Real Estate                                 |  |               | 6,100  |   |                   |  
|Consumer                                    |  |               | 1,587  |   |                   |  
|Credit card                                 |  |               | 7,964  |   |                   |  
|                                            |  |               |        |   |                   |  
|Total Past Due Loans                        |  | $             | 19,045 |   |                   | $
|                                            |  |               |        |   |                   |  
|                                            |  |              
|As a percent of Total Loans and Leases      |  |               | 0.44   | % |                   |  





Allowance for Loan and Lease Losses



The following table presents the activity in the allowance for loan and lease losses for the periods indicated:



|                                                                                             |  | Summary of Activity in the Allowance By Loan Category |          
|-------------------------------------------------------------------------------------------- |  | ----------------------------------------------------- | ---------
|(Dollars in thousands)                                                                       |  | Six MonthsEndedJune 30,2003                           |          
|Amount of Loans and Leases Outstanding at Period End                                         |  | $                                                     | 4,324,120
|                                                                                             |  |                                                       |          
|Daily Average Amount of Loans and Leases Outstanding                                         |  | $                                                     | 4,274,059
|                                                                                             |  |                                                       |          
|Allowance for Loan and Lease Losses                                                          |  |                                                       |          
|Balance at beginning of the period                                                           |  | $                                                     | 71,929   
|Loans charged off:                                                                           |  |                                                       |          
|Real estate                                                                                  |  | $                                                     | 748      
|Commercial                                                                                   |  |                                                       | 4,027    
|Consumer                                                                                     |  |                                                       | 14,718   
|Accelerated disposition (1)                                                                  |  |                                                       |         
|                                                                                             |  |                                                       |          
|Total loans charged off                                                                      |  | $                                                     | 19,493   
|                                                                                             |  |                                                       |          
|Recoveries:                                                                                  |  |                                                       |          
|Real estate                                                                                  |  | $                                                     | 443      
|Commercial                                                                                   |  |                                                       | 1,707    
|Consumer                                                                                     |  |                                                       | 3,498    
|                                                                                             |  |                                                       |          
|Total recoveries                                                                             |  | $                                                     | 5,648    
|                                                                                             |  |                                                       |          
|Net loans charged off                                                                        |  | $                                                     | 13,845   
|Provision for loan and lease losses, portfolio loans                                         |  |                                                       | 14,000   
|Provision for loan and lease losses, accelerated disposition (1)                             |  |                                                       |         
|Reclassification of acquired reserves of credit card portfolios to loans                     |  |                                                       | (4,933   
|                                                                                             |  |                                                       |          
|Balance at period end                                                                        |  | $                                                     | 67,151   
|                                                                                             |  |                                                       |          
|Allowance for Loan and Lease Losses to Total Loans and Leases                                |  |                                                       | 1.55     
|                                                                                             |  |                                                       |          
|Provision for loan and lease losses, as a percentage of average loans and leases outstanding |  |                                                       | 0.66     
|                                                                                             |  |                                                       |          
|Net loans charged off during period to average loans and leases outstanding                  |  |                                                       | 0.65     
|                                                                                             |  |                                                       |          

---

|(1) |  | Relates primarily to the planned accelerated disposition of certain nonperforming commercial and industrial loans at March 31, 2002.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Annualized
|--- |  | ----------



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FINANCIAL CONDITION



Loan and lease categories consisting of commercial and financial, commercial real estate, consumer, and credit card loans totaled $4.1 billion at June 30, 2003, compared
to $4.1 billion at December 31, 2002 and $3.9 billion at June 30, 2002. These four loan and lease categories are the areas of loans that the Company emphasizes. This is because they generally have more attractive yields; interest rate sensitivity;
and maturity characteristics than single family loans. These four loan and lease categories represented approximately: 95% of loans and leases at June 30, 2003, compared to 94% at December 31, 2002 and 90% of loans and leases at June 30, 2002. The
loan to deposit ratio at June 30, 2003 and December 31, 2002 was 69% and 70%, respectively.



Residential mortgage loans, which are not an area of emphasis for the Company, were $227.5 million as of June 30, 2003, compared to $274.5 million at December 31, 2002 and $448.3 million at June 30, 2002. The decrease
in loans resulted mainly from prepayments, and an exchange of $118.0 million of residential mortgage loans for comparable mortgage backed securities, completed with Fannie Mae in the third quarter of 2002. The mortgage exchange resulted in a
transfer of assets from the loan portfolio to the investment portfolio. The Company also sold $14.6 million of the related performing mortgage assets in the third quarter of 2002.



Total investment securities were $3.0 billion at June 30, 2003, compared to $2.6 billion at December 31, 2002 and $2.4 billion at
June 30, 2002. Investment securities increased in 2003 over prior periods due primarily to increased purchases associated with growth in deposits and borrowings. Total assets were $8.0 billion at June 30, 2003, compared to $7.7 billion at
December 31, 2002 and to $7.5 billion at June 30, 2002.



The
Companys total assets were $8.0 billion at June 30, 2003, compared to $7.7 billion at year-end 2002.



Deposits other than time deposits were $4.4 billion at June 30, 2003, $4.4 billion at December 31, 2002 and $4.3 billion at June 30, 2002. Non-interest bearing deposits increased $23.3 million from December 31, 2002
levels to $1.3 billion at June 30, 2003. Total deposits were $6.2 billion at June 30, 2003, $6.2 billion at December 31, 2002 and $6.3 billion at June 30, 2002.



Total borrowings increased by $384.7 million over year-end 2002 levels to $854.4 million. This increase was primarily due to increases in reverse repurchase
agreements, with maturities of three years to four years, entered into in the second quarter of 2003. 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%.



Total stockholders equity was $454.3 million and $432.5 million at June 30, 2003 and December 31, 2002 respectively. Book value per
common share (defined as total stockholders equity divided by total shares outstanding), was $10.15 at June 30, 2003 and $9.61 at December 31, 2002. All regulatory capital ratios exceed those necessary to be considered a well-capitalized
institution at both June 30, 2003 and December 31, 2002.



The increase in
stockholders equity resulted primarily from $57.4 million of net income, offset by payment of cash dividends of $26.0 million and treasury repurchases of $16.5 million, stock compensation exercises of $4.5 million and an increase in
accumulated other comprehensive income of $2.1 million.



The Company did not
repurchase any shares in the second quarter of 2003. The Company repurchased a total of 527,095 shares in the first six months of 2003, at an average price of $31.35 per share. The total cash allocated for these repurchases was $16.5 million.



Total shares outstanding at June 30, 2003 were 44.8 million shares, compared
to 45.0 million shares at December 31, 2002 and 45.3 million shares at June 30, 2002.



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The Company paid cash dividends of $0.30 per share in the second quarter of 2003. Total cash dividends paid in the second
quarter was $13.3 million. Dividends paid in 2003 year to date were $0.58 per share. Total cash dividends paid in 2003 year to date were $26.0 million.





MARKET RISK



Interest Rate Risk



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.



The Company evaluates on a monthly basis its simulation model to measure the sensitivity of
net interest income to changes in market interest rates. There have been no material changes in these monthly simulations from the Companys results outlined in its Form 10-K for the year ended December 31, 2002.



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 notional amount of the derivative contracts totals $490.0 million at June 30, 2003 and $860.0 million at December 31, 2002. The change in notional
amount occurred in the second quarter of 2003 when approximately $700 million in Prime Rate hedges, that had been accounted for as cash flow hedges under SFAS No. 133, matured. This was offset in part by new derivative contracts on a portion of the
Companys borrowings and certificates of deposit.



The purpose of these
contracts is to attempt 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. Under SFAS No.133, the Company has adopted hedge accounting for these contracts. The derivative contracts hedging the pool of prime rate-based loans are being accounted for as
cash flow hedges under SFAS No.133, whereby the net payments under the contracts are recorded in interest income and the change in valuation of the contracts are recorded in accumulated other comprehensive income (loss) in
total stockholders equity. Certain of the derivative contracts hedging the fixed rate certificates of deposit and fixed rate debt and that have payments linked to LIBOR 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 fair value hedges also include Fed Funds indexed interest rate swaps entered into in connection with certain fixed rate certificates of
deposit and with a specified amount of the Companys fixed rate borrowings. 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.





Liquidity



Liquidity is a measure of the Companys ability to meet the needs of depositors, borrowers, and creditors at a reasonable cost and without adverse financial consequences. The Company has several liquidity
measurements that are evaluated on a frequent basis. The Company has adequate sources of liquidity including the ability to attract deposits from businesses and individuals through its branches; brokered deposits from securities firms; cash flow
from interest, prepayments and principal repayments on investment securities and loans; Securities Available for Sale; and the ability to borrow funds on a collateralized basis from the Federal Home Loan Bank and Federal Reserve discount window,
repurchase agreements collateralized by securities with customers and with securities firms; and other sources. The management of balance sheet volumes, mixes and maturities enables the Company to maintain adequate levels of liquidity.



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Capital



The capital ratios for the Company at June 30, 2003, and the minimum regulatory guidelines for such capital ratios for qualification as a well-capitalized institution are
as follows:





|Holding Company Capital Ratios |  |  |  | 
|------------------------------ |  |  |  | 

|                          |  | Ratios atJune 30, 2003 |  | Minimum RegulatoryGuidelines for Well-Capitalized
|------------------------- |  | ---------------------- |  | -------------------------------------------------
|Total Risk-Based Capital  |  | 13.58%                 |  | 10.0%                                            
|Tier 1 Risk-Based Capital |  | 8.37%                  |  | 6.0%                                             
|Tier 1 Leverage Ratio     |  | 5.87%                  |  | 4.0%                                             

|                    |  | 
|------------------- |  | 
|Bank Capital Ratios |  | 

|                          |  | Ratios at June 30, 2003 |  | Minimum Regulatory Guidelines for Well-Capitalized
|------------------------- |  | ----------------------- |  | --------------------------------------------------
|Total Risk-Based Capital  |  | 13.31%                  |  | 10.0%                                             
|Tier 1 Risk-Based Capital |  | 8.40%                   |  | 6.0%                                              
|Tier 1 Leverage Ratio     |  | 5.89%                   |  | 4.0%                                              



The Company is not aware of any
current recommendations by the regulatory authorities that would have a material adverse effect on the Companys capital resources or operations.





SUBSEQUENT EVENTS



Hudson United Bancorp (the Company), the holding company for Hudson United Bank (theBank) entered into a definitive
agreement on July 25, 2003 to acquire all capital stock of Flatiron Credit Company (Flatiron). The Company expects to complete the acquisition in the fourth quarter of 2003, after receiving regulatory approvals.



Flatiron is the seventh largest insurance premium finance company in the nation. The majority
of loans outstanding in Flatirons portfolio: are made to small business customers located throughout the nation; are in amounts between $20,000 and $500,000; are secured by an ability to cancel the insurance policy upon a payment default and
obtain refund of the remaining unearned premiums from the insurance company; have maturities of less than one year; are fixed rate; and are originated at yields that are higher than the Prime Rate. Flatiron primarily finances its loans with
borrowings priced at a spread over LIBOR. Flatiron currently operates profitably and the Company expects the acquisition to be immediately accretive to EPS.



The senior management team of Flatiron will continue to operate Flatiron as a subsidiary of the Bank following the closing of the proposed acquisition.



The purchase price of the acquisition will be $40 million in cash, subject to certain
adjustments, based on the book value on the closing date; and also subject to additional potential earn-out payments by the Company, based on the increase in net income of Flatiron in the two years after the closing of the acquisition. The purchase
price (excluding any potential earn-out payments) represents a $3.4 million premium to Flatirons projected book value of $36.6 million on the closing date, which is a 9% premium to projected book value. The premium is also approximately 1% of
Flatirons loans, which are projected to be greater than $275 million on the closing date.





|Item 3. |  | Quantitative and Qualitative Disclosure about Market Risk
|------- |  | ---------------------------------------------------------



(see discussion above under Market Risk, Interest rate Risk)



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##### Table of Contents

|Item 4. |  | 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 quarterly report on From 10-Q. 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.





PART
II.  OTHER INFORMATION



|Item 4. |  | Submission of Matters to a Vote of Security Holders
|------- |  | ---------------------------------------------------



| | A. |  | The Annual Meeting of shareholders of Hudson United Bancorp was held April 15, 2003.
| | -- |  | ------------------------------------------------------------------------------------

| | B. |  | The names of the directors who are nominees for election for the 2003 Annual Meeting and the names of the directors whose terms extend beyond the 2003 Annual Meeting are set forth
in the tables below.
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Nominees for the 2003 Annual Meeting:



Bryant D. Malcolm

Donald P. Calcagnini

David A. Rosow

Kenneth T. Neilson



Directors whose terms extend beyond the 2003 Annual Meeting:



Robert J. Burke

Joan David

James E. Schierloh

W. Peter McBride

Charles F.X. Poggi

John H.
Tatigian Jr.



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##### Table of Contents

| | C. |  | The following is a brief description as well as the tabulation of votes for each of the matters which were voted upon at the 2003 Annual Meeting:
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| | 1. |  | Election of the following four persons as directors of Hudson United Bancorp:
| | -- |  | -----------------------------------------------------------------------------

|Director             |  | For        |  |  |  | AuthorityWithheld
|-------------------- |  | ---------- |  |  |  | -----------------
|Bryant D. Malcolm    |  | 36,446,260 |  |  |  | 651,126          
|Donald P. Calcagnini |  | 35,688,448 |  |  |  | 1,408,937        
|David A. Rosow       |  | 35,656,109 |  |  |  | 1,441,275        
|Kenneth T. Neilson   |  | 33,553,626 |  |  |  | 3,543,759        



| |  |  | No other matters were voted upon at the meeting.
| |  |  | ------------------------------------------------





|Item 6: |  | Exhibits and Reports on Form 8-K 
|------- |  | ----------------------------------



| | (a) |  | Exhibits
| | --- |  | --------



3(a)  Certificate of Incorporation of the Company in effect on May 11, 1999 (Incorporated by reference from the Companys Amended Quarterly Report on From 10Q/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 (incorporated by reference from the Companys Quarterly Report on From 10Q for the quarter ended March 31, 2003, filed May 15, 2003, Exhibit 3(b)).



4(a)  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)



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 William A. Houlihan, Chief Financial Officer of the Company.



| | (b) |  | Current Reports on Form 8-K 
| | --- |  | -----------------------------



| | 1) |  | Current Report on Form 8-K dated July 17, 2003, (Furnishing second quarter earnings release for Hudson United Bancorp)
| | -- |  | ----------------------------------------------------------------------------------------------------------------------



| | 2) |  | Current Report on Form 8-K dated July 25, 2003, (Announcing the signing of a definitive Stock Purchase Agreement to acquire all of the capital stock of Flatiron Credit Company,
Inc.)
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

SIGNATURES



Pursuant to the requirements of
the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.





|Hudson United Bancorp |  |  |  |                                                     
|--------------------- |  |  |  | ----------------------------------------------------
|                      |  | 
|August 13, 2003       |  |  |  | /S/    KENNETH T. NEILSON                           
|                      |  |  |  |                                                     
|Date                  |  |  |  | Kenneth T. Neilson                                  
|                      |  |  |  | Chairman, President and Chief Executive Officer     
|                      |  | 
|August 13, 2003       |  |  |  | /S/    WILLIAM A. HOULIHAN                          
|                      |  |  |  |                                                     
|Date                  |  |  |  | William A. Houlihan                                 
|                      |  |  |  | Executive Vice President and Chief Financial Officer



27