HUDSON UNITED BANCORP - 10-Q Quarterly Report

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, 2004

¨	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: shares, no par value 44,948,148 outstanding as of July 31, 2004.

HUDSON UNITED BANCORP

INDEX



PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited):

	Consolidated Balance Sheets At June 30, 2004 and December 31, 2003	2

	Consolidated Statements of Income For the Three Months Ended June 30, 2004 and 2003	3

	Consolidated Statements of Income For the Six Months Ended June 30, 2004 and 2003	4

	Consolidated Statements of Comprehensive Income For the Three Months Ended June 30, 2004 and 2003	5

	Consolidated Statements of Comprehensive Income For the Six Months Ended June 30, 2004 and 2003	5

	Consolidated Statements of Changes in Stockholders’ Equity For the Six Months Ended June 30, 2004 and for the Year Ended December 31, 2003	6

	Consolidated Statements of Cash Flows For the Six Months Ended June 30, 2004 and 2003	7

	Notes to Consolidated Financial Statements	8-14

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15-19
Item 3.	Quantitative and Qualitative Disclosure about Market Risk	19-20
Item 4.	Controls and Procedures	20

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	21
Item2(e).	Issuer Repurchases of Its Equity Shares During the Quarter	21
Item 4.	Submission of Matters to a Vote of Security Holders	22
Item 6.	Exhibits and Reports on Form 8-K	23
	Signatures	23

HUDSON UNITED BANCORP

CONSOLIDATED BALANCE SHEETS (Unaudited)


*(in thousands, except per share data)*	June 30, 2004			December 31, 2003
ASSETS
Cash and due from banks	$	223,044		$	272,636
Interest bearing due from banks		35,787			41,358

TOTAL CASH AND CASH EQUIVALENTS	$	258,831		$	313,994

Investment securities available for sale, at market value ($1,997 and $1,813 million pledged at June 30, 2004 and December 31, 2003 respectively)	$	2,892,400		$	2,706,185
Investment securities held to maturity, at cost; $583 thousand market value ($553 million, at cost pledged, at June 30, 2004)	$	613,655		$	—
Loans and leases:
Commercial and financial	$	2,208,139		$	2,137,499
Commercial real estate mortgages ($190 million pledged at June 30, 2004)		1,041,677			993,937
Consumer		1,049,631			1,033,693
Credit card		323,763			326,713

Sub-total	$	4,623,210		$	4,491,842
Residential mortgages		140,571			167,913

TOTAL LOANS AND LEASES	$	4,763,781		$	4,659,755
Less: Allowance for loan and lease losses		(66,048	)		(67,846	)

NET LOANS AND LEASES	$	4,697,733		$	4,591,909

Premises and equipment, net		122,965			125,168
Goodwill		79,009			81,068
Core deposit and other intangibles, net of amortization		20,548			22,664
Investment in separate account bank owned life insurance		147,173			144,126
Other assets		126,404			115,544

TOTAL ASSETS	$	8,958,718		$	8,100,658

LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Noninterest bearing	$	1,354,671		$	1,328,586
NOW, money market and savings		3,062,544			3,009,821
Time deposits		1,711,778			1,904,952

TOTAL DEPOSITS	$	6,128,993		$	6,243,359
Repurchase agreements		583,325			532,485
Other borrowings		1,283,395			388,734

TOTAL BORROWINGS	$	1,866,720		$	921,219
Other liabilities		256,293			238,117
Subordinated debt		228,542			239,773

TOTAL LIABILITIES	$	8,480,548		$	7,642,468
Stockholders’ Equity:
Common stock, no par value; authorized 103,000,000 shares; 52,186,866 shares issued and 44,948,148 shares outstanding in 2004 and 52,186,866 shares issued and 44,758,366 shares outstanding in 2003		92,788			92,788
Additional paid-in capital		309,759			311,310
Retained earnings		270,000			237,046
Treasury stock, at cost 7,238,718 shares in 2004 and 7,428,500 shares in 2003		(171,098	)		(176,505	)
Other Stock Compensation		(6,558	)		(3,899	)
Accumulated other comprehensive income (loss)		(16,721	)		(2,550	)

TOTAL STOCKHOLDERS’ EQUITY	$	478,170		$	458,190

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	8,958,718		$	8,100,658

See Notes to Consolidated Financial Statements

December 31,2003 Balance sheet from audited financial statements

HUDSON UNITED BANCORP

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)


	Three Months Ended June 30,
*(in thousands, except per share data)*	2004		2003
INTEREST AND FEE INCOME:
Loans and leases	$	66,462	$	68,533
Investment securities		33,412		32,503
Other		355		329

TOTAL INTEREST AND FEE INCOME	$	100,229	$	101,365

INTEREST EXPENSE:
Deposits	$	10,986	$	15,391
Borrowings		4,929		3,847
Subordinated and other debt		6,217		5,929

TOTAL INTEREST EXPENSE	$	22,132	$	25,167

NET INTEREST INCOME	$	78,097	$	76,198
PROVISION FOR LOAN AND LEASE LOSSES, PORTFOLIO LOANS		4,750		7,000

NET INTEREST INCOME AFTER TOTAL PROVISION FOR LOAN AND LEASE LOSSES	$	73,347	$	69,198

NONINTEREST INCOME:
Retail service fees	$	7,702	$	9,456
Credit card fee income		6,929		6,073
Loan Fees		4,755		3,104
ATM and debit card fees		1,820		1,969
Separate account bank owned life insurance income		1,501		1,775
Trust income		811		693
Income from Landfill Investments		10,453		2,404
Other income		4,264		3,859
Impairment on mortgage related servicing assets		—		(2,004	)
Securities gains		857		2,364
Trading asset losses		—		(87	)

TOTAL NONINTEREST INCOME	$	39,092	$	29,606

NONINTEREST EXPENSE:
Salaries and benefits	$	25,400	$	24,261
Occupancy expense		7,435		7,373
Equipment expense		4,346		4,879
Outside services - data processing		8,056		7,906
Outside services-other		7,174		6,105
Amortization of intangibles		1,223		1,056
Marketing expense		2,787		881
Deposit and other insurance		640		519
Telephone expense		1,495		1,551
Expense from Landfill Investments		7,497		3,598
Other expense		3,737		870

TOTAL NONINTEREST EXPENSE	$	69,790	$	58,999

INCOME BEFORE INCOME TAXES	$	42,649	$	39,805
PROVISION FOR INCOME TAXES		10,990		10,670

NET INCOME	$	31,659	$	29,135

NET INCOME PER COMMON SHARE
Basic	$	0.71	$	0.65
Diluted	$	0.70	$	0.65
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic		44,651		44,614
Diluted		44,920		44,829

See Notes to Consolidated Financial Statements

HUDSON UNITED BANCORP

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)


	Six Months Ended June 30,
*(in thousands, except per share data)*	2004		2003
INTEREST AND FEE INCOME:
Loans and leases	$	133,659	$	140,870
Investment securities		64,002		61,951
Other		713		954

TOTAL INTEREST AND FEE INCOME	$	198,374	$	203,775

INTEREST EXPENSE:
Deposits	$	22,944	$	32,863
Borrowings		7,139		7,069
Subordinated and other debt		12,303		12,441

TOTAL INTEREST EXPENSE	$	42,386	$	52,373

NET INTEREST INCOME	$	155,988	$	151,402
PROVISION FOR LOAN AND LEASE LOSSES, PORTFOLIO LOANS		10,350		14,000

NET INTEREST INCOME AFTER TOTAL PROVISION FOR LOAN AND LEASE LOSSES	$	145,638	$	137,402
NONINTEREST INCOME:
Retail service fees	$	15,790	$	18,459
Credit card fee income		14,128		12,469
Loan Fees		9,289		6,561
ATM and debit card fees		3,473		3,742
Separate account bank owned life insurance income		3,047		3,571
Trust income		1,609		1,188
Income from Landfill Investments		15,615		2,404
Other Income		7,377		7,545
Impairment on mortgage related servicing assets		—		(2,004	)
Securities gains/(losses)		4,327		(895	)
Trading asset gains		—		3,449

TOTAL NONINTEREST INCOME	$	74,655	$	56,489

NONINTEREST EXPENSE:
Salaries and benefits	$	51,035	$	47,203
Occupancy expense		15,636		15,590
Equipment expense		8,826		9,372
Outside services – data processing		15,567		14,799
Outside services-other		15,378		11,549
Amortization of intangibles		2,467		2,111
Marketing expense		3,493		1,581
Deposit and other insurance		1,261		1,039
Telephone expense		2,861		2,996
Expense from Landfill Investments		13,379		3,598
Other expense		6,456		3,818

TOTAL NONINTEREST EXPENSE	$	136,359	$	113,656

INCOME BEFORE INCOME TAXES	$	83,934	$	80,235
PROVISION FOR INCOME TAXES		21,293		22,799

NET INCOME	$	62,641	$	57,436

NET INCOME PER COMMON SHARE
Basic	$	1.40	$	1.29
Diluted	$	1.40	$	1.28
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic		44,624		44,684
Diluted		44,901		44,880

See Notes to Consolidated Financial Statements

H UDSON UNITED BANCORP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)


	Three Months Ended June 30
*(In thousands)*	2004			2003
NET INCOME	$	31,659		$	29,135
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Net unrealized securities (losses)/gains arising during period (tax benefit of $20,309 and tax expense of $2,814)	$	(33,781	)	$	4,412
Amortization of net unrealized losses arising from the transfer of securities from AFS to HTM (tax expense of $402)		535

Change in valuation of derivative contracts (tax benefit of $605 in 2003)		—			(982	)
Less: reclassification for net losses included in net income (tax benefits of $461 and tax benefit of $2,015 respectively)		(613	)		(3,268	)

Other comprehensive income	$	(32,633	)	$	6,698

COMPREHENSIVE INCOME/(LOSS)	$	(974	)	$	35,833


	Six Months Ended June 30
*(In thousands)*	2004			2003
NET INCOME	$	62,641		$	57,436
OTHER COMPREHENSIVE INCOME NET OF TAX:
Net unrealized securities losses arising during period (tax benefits of $9,443 and $383 respectively)	$	(15,226	)	$	(1,041	)
Amortization of net unrealized losses arising from the transfer of securities from AFS to HTM (tax expense of $402)		535			—

Change in valuation of derivative contracts (tax benefit $2,471 in 2003)		—			(3,684	)
Less: reclassification for net losses included in net income (tax benefits of $390 and $4,462 respectively)	$	(520	)		(6,812	)

Other comprehensive income	$	(14,171	)	$	2,087

COMPREHENSIVE INCOME/(LOSS)	$	48,470		$	59,523

See Notes to Consolidated Financial Statements

HUDSON UNITED BANCORP

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)

(in thousands, except shares)


	Common Stock				Additional Paid-in- Capital			Retained Earnings			Treasury Stock			Effect of Stock Based Compensation			Accumulated Other Comprehensive Income (Loss)			Total
	Shares		Amount		Additional Paid-in- Capital			Retained Earnings			Treasury Stock			Effect of Stock Based Compensation			Accumulated Other Comprehensive Income (Loss)			Total
Balance at December 31, 2002	45,023,459		$	92,788	$	313,467		$	177,544		$	(169,871	)	$	(2,456	)	$	21,054		$	432,526

Net income	—			—		—			112,321			—			—			—			112,321
Cash dividends ($1.18 cash paid per share)	—			—		—			(52,819	)		—			—			—			(52,819	)
Stock options exercised	250,383			—		(2,332	)		—			7,778			—			—			5,446
Other transactions	(11,220	)		—		175			—			(175	)		—			—			—
Purchase of treasury stock	(527,095	)		—		—			—			(16,525	)		—			—			(16,525	)
Effect of stock based compensation plans	63,374			—		—			—			2,288			(1,443	)		—			845
Other comprehensive income	—			—		—			—			—			—			(23,604	)		(23,604	)

Balance at December 31, 2003	44,798,901		$	92,788	$	311,310		$	237,046		$	(176,505	)	$	(3,899	)	$	(2,550	)	$	458,190

Net income	—			—		—			62,641			—			—			—			62,641
Cash dividends ($0.66 cash paid per share)	—			—		—			(29,687	)		—			—			—			(29,687	)
Stock options exercised	72,677			—		(1,551	)		—			2,541			—			—			990
Other transactions	—			—		—			—			—			—			—			—
Purchase of treasury stock	(14,980	)		—		—			—			(561	)		—			—			(561	)
Effect of stock based compensation plans	91,550			—		—			—			3,427			(2,659	)		—			768
Other comprehensive income	—			—		—			—			—			—			(14,171	)		(14,171	)

Balance at June 30, 2004	44,948,148		$	92,788	$	309,759		$	270,000		$	(171,098	)	$	(6,558	)	$	(16,721	)	$	478,170

See Notes to Consolidated Financial Statements

HUDSON UNITED BANCORP

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)


	Six Months Ended June 30,
*(in thousands)*	2004			2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income	$	62,641		$	57,436
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan and lease losses		10,350			14,000
Provision for depreciation and amortization		8,665			9,588
Amortization (Accretion) of investment securities premiums (discounts), net		3,830			12,535
Amortization on stock based compensation		768			238
Impairment on mortgage servicing assets		—			2,004
Securities (gains) / losses		(4,327	)		895
Trading gains		—			(3,449	)
(Gain) / Loss on sales of premises and equipment		69			(153	)

(Increase)/Decrease in other assets		(4,750	)		(9,488	)
Decrease in other liabilities		(1,634	)		(77,058	)

NET CASH PROVIDED BY OPERATING ACTIVITIES	$	75,612		$	6,548

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investment securities:
Available for sale	$	352,429		$	1,033,336
Proceeds from repayments and maturities of investment securities:
Available for sale		668,667			747,301
Held to maturity		199,930
Purchases of investment securities:
Available for sale		(1,969,921	)		(2,125,518	)
Held to maturity		(73,300	)
Net (increase) / decrease in loans other than purchases and sales		(120,595	)		6,668
Increase in loans due to purchases		—			(2,718	)
Proceeds from sales of loans		6,003			—
Acquisition of credit card assets		(1,582	)		(7,373	)
Proceeds from sales of premises and equipment		12			407
Purchases of premises and equipment		(4,076	)		(2,549	)
(Increase) / Decrease in foreclosed property		(1,167	)		115

NET CASH USED IN INVESTING ACTIVITIES	$	(943,600	)	$	(350,331	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase / (decrease) in demand, now and money market deposits	$	78,808		$	24,931
Net increase / (decrease) in Time Deposits		(193,174	)		6,897
Net increase / (decrease) in borrowings		945,501			384,681
Payment of subordinated debt securities		(8,862	)		(34,360	)
Proceeds from issuance of debt securities		19,810			33,959
Payment of debt securities		—			(25,300	)
Proceeds from issuance of Common stock		990			4,524
Cash dividends		(29,687	)		(26,034	)
Acquisition of treasury stock		(561	)		(16,525	)

NET CASH PROVIDED BY FINANCING ACTIVITIES	$	812,825		$	352,773

INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS	$	(55,163	)	$	8,990
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		313,994			275,580

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	258,831		$	284,570

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period
Interest	$	41,803		$	54,831
Taxes		32,983			23,061
Additional Disclosures
Securities transferred from available for sale to held to maturity	$	742,617		$	—

See Notes to Consolidated Financial Statements

HUDSON UNITED BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in thousands, except per share data)

NOTE A — BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements of Hudson United Bancorp and Subsidiaries (“Hudson United”or “the Company”) include the accounts of the parent company, Hudson United Bancorp, and its wholly-owned subsidiary: Hudson United Bank (“the Bank”). These unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the information presented includes all adjustments and normal recurring accruals considered necessary for a fair presentation, in all material respects, of the interim period results. The results of operations for periods of less than one year are not necessarily indicative of results for the full year. The consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2003. The Company’s significant accounting policies are outlined in Note 1 “Summary of Significant Accounting Policies in its Form 10-K for the year ended December 31, 2003, previously filed with the SEC. There have not been any significant changes in factors or methodology applied to our critical accounting policies since December 31, 2003 that would be considered material to the Company’s operations.

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

All intercompany accounts and transactions are eliminated in consolidation.

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

Certain amounts from the prior year have been reclassified to the current year’s presentation.

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 restricted stock and the exercise of stock options, calculated using the treasury stock method.

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


	Three Months Ended June 30,
	2004		2003
Basic Earnings Per Share
Net Income	$	31,659	$	29,135
Weighted average common shares outstanding		44,651		44,614
Basic earnings per share	$	0.71	$	0.65
Diluted Earnings Per Share
Net Income	$	31,659	$	29,135
Weighted average common shares outstanding		44,651		44,614
Effect of dilutive securities:
Stock options		269		215

Weighted average common shares outstanding assuming dilution		44,920		44,829
Diluted earnings per share	$	0.70	$	0.65


	Six Months Ended June 30,
	2004		2003
Basic Earnings Per Share
Net Income	$	62,641	$	57,436
Weighted average common shares outstanding		44,624		44,684
Basic earnings per share	$	1.40	$	1.29
Diluted Earnings Per Share
Net Income	$	62,641	$	57,436
Weighted average common shares outstanding		44,624		44,684
Effect of dilutive securities:
Stock options		277		196

Weighted average common shares outstanding assuming dilution		44,901		44,880
Diluted earnings per share	$	1.40	$	1.28

NOTE C – ACQUISITIONS/BUSINESS COMBINATIONS

The Company, through its subsidiary Hudson United Bank, acquired Flatiron Credit Company (“Flatiron”) on October 31, 2003. The purchase price of the acquisition was approximately $40 million in cash based on the estimated book value of Flatiron on the closing date of the acquisition. The Bank may also be obligated to make additional earn-out payments, based on the increase in net income of Flatiron in the next two years after the closing of the acquisition. The purchase price (excluding any potential earn-out payments) represents a $3.4 million premium to Flatiron’s estimated book value (before acquisition costs). During the first quarter of 2004 the Company finalized the book value calculation of Flatiron. This finalization resulted in a downward adjustment to goodwill for $2.1 million.

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. The acquisition occurred in connection with the satisfaction of a loan the Company had previously made to the prior owner of the LGPs. The LGPs or predecessor entities have been in existence since 1997.

NOTE D – INVESTMENT SECURITIES

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


	June 30, 2004
	Amortized Cost		Gross Unrealized					Estimated Market Value
	Amortized Cost		Gains		(Losses)			Estimated Market Value
Available for Sale
U.S. Treasury and Government Agency Obligations	$	149,136	$	4	$	(1,098	)	$	148,042
State and Political Subdivisions		42,332		356		—			42,688
Mortgage backed securities guaranteed or issued by U.S. Government Agencies		1,954,855		5,764		(27,360	)		1,933,259
All other mortgage backed securities		200,435		573		(2,355	)		198,653
Asset backed and other debt securities		358,327		9,966		(7,363	)		360,930
FHLB stock		65,350		—		—			65,350
Other securities		145,110		1,154		(2,786	)		143,478

	$	2,915,545	$	17,817	$	(40,962	)	$	2,892,400


	December 31, 2003
	Amortized Cost		Gross Unrealized					Estimated Market Value
	Amortized Cost		Gains		(Losses)			Estimated Market Value
Available for Sale
U.S. Treasury and Government Agency Obligations	$	6,012	$	31	$			$	6,043
State and Political subdivisions		39,560		514		—			40,074
Mortgage backed securities guaranteed or issued by U.S. Government Agencies		1,478,575		6,433		(15,157	)		1,469,851
All other mortgage backed securities		579,136		3,488		(3,727	)		578,897
Asset backed and other debt securities		448,546		12,060		(9,040	)		451,566
FHLB stock		16,250		—		—			16,250
Other securities		141,429		2,175		(100	)		143,504

	$	2,709,508	$	24,701	$	(28,024	)	$	2,706,185


	June 30, 2004
	Amortized Cost		Gross Unrealized					Estimated Market Value
	Amortized Cost		Gains		(Losses)			Estimated Market Value
Held to Maturity
U.S.Treasury and Government Agency Obligations	$	73,300	$	—	$	(2,124	)	$	71,176
Mortgage backed securities guaranteed or issued by U.S. Government Agencies		440,589		—		(26,665	)		413,924
All other mortgage backed securities		99,766		5		(1,951	)		97,820

	$	613,655	$	5	$	(30,740	)	$	582,920

Investment securities with a market value of $2,521 million at June 30, 2004 and $1,813 million at December 31, 2003 were pledged as collateral for public sector deposits, customer repurchase agreements and borrowings from the Federal Home Loan Bank and other counterparties.

On July 9 and August 6, 2004, the Company sold approximately $530 million of U.S. Government Agency Mortgage Backed Securities and realized a gain on sale of securities of approximately $7.6 million. These security sales fully utilized the Company’s remaining tax capital loss carry forward and reduced the average life and duration of the investment securities portfolio.

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

NOTE E – BORROWINGS

The maturity of the Company’s federal funds purchased, repurchase agreements and FHB advances at June 30, 2004 and December 31, 2003 are as follows:


	6/30/2004		12/31/2003
2004	$	639,700	$	215,460
2005 (1)		1,002,020		100,000
2006		200,000		400,000
2007		—		180,759
2008 and thereafter		25,000		25,000

Total	$	1,866,720	$	921,219

(1)	Includes $278 million of structured repurchase agreements extendable at the option of the counterparty in May 2005.


	June 30, 2004		December 31, 2003
Weighted average rate	1.28	%	1.35	%

In the second quarter of 2004, the Company increased its borrowings by $945.5 million. This increase was due mainly to the funding of approximately $800 million of investment securities purchased and $162 million of net loan growth in the second quarter of 2004.

NOTE F – SUBORDINATED DEBT

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

In September 1996, the Company issued $75 million aggregate principal amount of subordinated debentures. The debentures, which mature in 2006, bear interest at a fixed interest rate of 8.20% per annum payable semi-annually. The Company repurchased $7.0 million of this debt during 2002 and $37.8 million during 2003. The outstanding balance of this debt is $30.2 million as of June 30, 2004.

In January, 1994, the Company sold $25.0 million aggregate principal amount of subordinated debentures which bore interest at a fixed rate of 7.75% per annum payable semi-annually. The debentures, matured in January 2004, at which time, the Company redeemed the debt.

The Company has marked to market $85.0 million of its subordinated debt as a result of it being hedged by interest rate swaps accounted for as fair value hedges. The fair value adjustment as of June 30, 2004 on the Company’s subordinated debt was $1.7 million.

The Company repurchased $37.8 million 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%.

NOTE G – JUNIOR SUBORDINATED DEBENTURES ASSOCIATED WITH CAPITAL TRUST SECURITIES

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

On March 31, 2003, the Company issued $20 million of capital trust preferred securities, with a final maturity on April 15, 2033, using Hudson United Capital Trust I, a statutory business trust formed under the laws of the State of Delaware. The sole asset of the trust, which is the obligor on the Capital Trust Securities, is $20.6 million principal amount at a fixed rate of 6.85% Junior Subordinated Debentures due 2038 of the Company. The capital trust preferred securities are callable at par on April 15, 2008, and have a fixed rate yield of 6.85% until the call date. Thereafter the yield on this issuance is based on 6-month LIBOR plus 3.30%. The Company issued on March 28, 2003, $15 million of capital trust preferred securities, with a final maturity of April 10, 2033, using Hudson United Capital Trust II, a statutory business trust formed under the laws of the State of Delaware. The sole asset of the trust, which is the obligor on the Capital Trust Securities, is $15.5 million principal amount at a fixed rate of 6.45% Junior Subordinated Debentures due 2038 of the Company. The capital trust preferred securities are callable at par on April 24, 2008, and have a fixed rate yield of 6.45% until the call date.

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

On 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, 2004, $45.0 million of the 8.98% Capital Securities and $46.5 Junior Subordinated Debentures respectively, remained outstanding.

The following is a maturity distribution of outstanding subordinated debt and junior subordinated debentures associated with capital trust securities,(which are included in the other liabiltiy section of the Company’s consolidated balance sheet at March 31, 2004:


Year Maturing	Year Callable/ Maturity	Subordinated Debt		Junior Subordinated Debentures		Total ($ millions)
2006	Not callable	$	30,215			$	30,215
2012	Not callable		198,327				198,327
2027	2007				46,500		46,500
2028	2008				51,500		51,500
2033	2008				35,077		35,077
2034	2009				20,431		20,431

		$	228,542	$	153,508	$	382,050

The table above includes $1.7 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 and $1.2 million in issuance costs associated with the Company’s junior subordinated debentures.

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

The outstanding issues of capital trust preferred securities have preference over the common securities under certain circumstances with respect to cash distributions and amounts payable on liquidation and are guaranteed by the Company. The net proceeds of the offerings are being used for general corporate purposes and to increase capital levels of the Company and its subsidiaries. The Basel Committee on Banking Supervision (“Basel Committee”) is developing a new set of risk-based capital standards(“New Accord”). In a press release dated January 15, 2004, it was announced that the Basel Committee will make further refinements to certain critical components of the New Accord. The consideration of the impact of FIN 46 for capital trust securities has not yet been finalized by the Federal Reserve. The Company is currently including the allowable portion of its trust preferred securities in the calculation of regulatory capital. Depending upon the final interpretation given, there may be a material impact upon the Company’s regulatory capital. The Basel Committee intends to finalize the New Accord by mid-year 2004. U.S. banking regulators have proposed an effective date of January 1, 2007, for the New Accord, which will affect the Company. The Company will continue to monitor the progress of the Basel initiative.

NOTE H: - 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, 2004, there remained 904,600 shares and as of December 31, 2003 there remained 915,700 shares available for grant from the 2002 Stock Option Plan.

The Board of Directors has adopted and the shareholders approved on April 21, 2004 an amended restricted stock plan, which authorized an additional one million shares available for future issuances. As of June 30, 2004 946,047 remain available for grants.

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, 2004 and June 30, 2003. The Company has adopted the prospective method of recording stock compensation expense effective January 1, 2003 (in thousands except per share data):


	Three months ended
	June 30, 2004		June 30, 2003 (A) Restated
Net income
As reported	$	31,659	$	29,135
Plus: Stock-based employee compensation cost, net of related tax effects, included in the determination of net income as reported (1)		269		57
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)		349		245
Pro forma	$	31,579	$	28,947

Basic earnings per share
As reported	$	0.71	$	0.65
Pro forma	$	0.71	$	0.65

Diluted earnings per share
As reported	$	0.70	$	0.65
Pro forma	$	0.70	$	0.65

	Six months ended
	June 30, 2004		June 30, 2003(A) Restated
Net income
As reported	$	62,641	$	57,436
Plus: Stock-based employee compensation cost, net of related tax effects, included in the determination of net income as reported (1)		499		155
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)		721		535
Pro forma	$	62,419	$	57,056

Basic earnings per share
As reported	$	1.40	$	1.29
Pro forma	$	1.40	$	1.28

Diluted earnings per share
As reported	$	1.40	$	1.28
Pro forma	$	1.39	$	1.27

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

(2)	Includes expenses for stock options only

(A)

In July 2004, the Company identified an error in the computation of pro forma stock based compensation cost, pro forma net income and pro forma basic and fully diluted earnings per share included in the financial statements as of March 31, 2004 and all prior periods. The computation error related to amortization of such awards and the calculation of forfeitures. The table above has been revised for the three months ended June 30, 2003 and the six months ended June 30, 2003. These revisions had no effect upon the Company’s Consolidated Balance Sheets, Consolidated Statements of Income and reported basic and fully diluted earnings per share.

NOTE I: INCOME TAXES

The following represents the components of the Company’s income tax expense for the six-month period ended June30:


	June 30, 2004		June 30, 2003
Federal taxes	$	20,793		22,547
State taxes		500		252

Total	$	21,293	$	22,799

A reconciliation of the provision for income taxes, as reported, with the Federal income tax at the statutory rate for the six-month period ended June 30 is as follows (in thousands)


	Six months ended
	June 30, 2004			June 30, 2003
Tax at statutory rate	$	29,377		$	28,082
Increase (decrease) in taxes resulting from:
Section 29 tax credits		(4,637	)		(1,271	)
Tax-exempt income		(3,432	)		(3,819	)
State income taxes, net of Federal income tax benefit		325			164
Other, net		(340	)		(357	)

Provision for income taxes	$	21,293		$	22,799

NOTE J: COMMITMENTS AND CONTINGENT LIABILITIES

The Company and its subsidiaries, from time to time, may be defendants in legal proceedings. In the opinion of management, based upon consultation with legal counsel, the ultimate resolution of these legal proceedings will not have a material effect on the financial condition of the Company.

In the normal course of business, the Company and its subsidiaries have various commitments and contingent liabilities such as commitments to extend credit, letters of credit and liability for assets held in trust which are not reflected in the accompanying financial statements. Loan commitments, commitments to extend lines of credit and stand-by letters of credit are made to customers in the ordinary course of business. Both arrangements have credit risk essentially the same as that involved in extending loans to customers and are subject to the Company’s normal credit policies. As of June 30, 2004 the Company had a total of $2,452.4 million in commitments to extend credit, $58.9 million in standby letters of credit and $30.8 million in commercial letters of credit.

NOTE K: PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS

The following table outlines the Company’s net periodic benefit costs for each of the income statement period contained in this report on Form 10-Q:


	Six months ended
	June 30, 2004			June 30, 2003
Service cost	$	1,136		$	1,065
Interest cost		1,534			1,453
Expected return on plan assets		(2,402	)		(1,883	)
Amortization of unrecognized transition asset		—			(35	)
Amortization on unrecognized gains		136			442
Amortization of unrecognized past service liability		39			39

Net periodic benefit costs:	$	443		$	1,081


	Three months ended
	June 30, 2004			June 30, 2003
Service cost	$	568		$	533
Interest cost		767			726
Expected return on plan assets		(1,201	)		(942	)
Amortization of unrecognized transition asset		—			(17	)
Amortization on unrecognized gains		68			221
Amortization of unrecognized past service liability		19			20

Net periodic benefit costs:	$	221		$	541

The Company did not have any gains or losses on settlements, prior service costs or recognized gains or losses in the six-month periods ended June 30, 2004 and June 30, 2003.

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,

•

deterioration in economic conditions,

•

deterioration in deposit and loan volume trends,

•

deterioration in levels of loan quality,

•

one or more changes in business models or 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.

•

a failure to satisfactorily comply with the FDIC order

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, 2003.

RESULTS OF OPERATIONS

OVERVIEW

The Company reported net income of $31.7 million, or $0.70 per diluted share, for the second quarter of 2004 compared to $29.1 million, or $0.65 per diluted share, for the second quarter of 2003. The Company had net income of $62.6 million, or $1.40 per diluted share, for the six months ended June 30, 2004. For the corresponding 2003 period, the Company reported net income of $57.4 million, or $1.28 per diluted share.

The Company’s return on average equity was 26.58 % and return on average assets was 1.51% for the second quarter of 2004. The net interest margin was 4.05% and noninterest income as a percent of net revenue was 33% for the second quarter of 2004. 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 noninterest income as a percent of net revenue was 28% for the second quarter of 2003.

For the first six months of 2004, the Company had a return on average equity of 26.55%, return on average assets of 1.53%, net interest margin of 4.15% and noninterest income, as a percent of net revenue was 32%. For the same period in 2003, the Company had a return on average equity of 26.69%, return on average assets of 1.48%, net interest margin of 4.27% and noninterest income, as a percent of net revenue was 27%.

NET INTEREST INCOME

Net interest income for the 2004 second quarter was $78.1 million and the net interest margin on a tax equivalent basis was 4.05%. Net interest income for the second quarter of 2003 was $76.2 million and the net interest margin on a tax equivalent basis was 4.18%. Net interest income increased by $1.9 million in the second quarter of 2004 compared to the same period of 2003. The increase in net interest income in the second quarter of 2004 compared to the comparable quarter in 2003 was due primarily to lower interest expense on deposits. This was offset in part by lower interest income on earning assets in the second quarter of 2004 as compared to the second quarter of 2003, which resulted from lower market interest yields.

Net interest income for the first half of 2004 was $156.0 million and the net interest margin on a tax equivalent basis was 4.15%. Net interest income for the first half of 2003 was $151.4 million and the net interest margin on a tax equivalent basis was 4.27%. Net interest

income increased by $4.6 when comparing the 2004 period to the corresponding 2003 period. The increase in net interest income for the first six months of 2004 compared to the comparable period in 2003 was due primarily to lower interest expense on deposits. This was offset in part by lower interest income on earning assets for the first half of 2004 as compared to the first half of 2003, which resulted from lower market interest yields.

NONINTEREST INCOME

Noninterest income was $39.1 million in the second quarter of 2004 and $29.6 million in the second quarter of 2003. Noninterest income for the second quarter of 2004 increased by $9.5 million, or 32.0 %, compared to the second quarter of 2003. The increase in noninterest income in 2004 compared to 2003 was due mainly to income from landfill gas operations. In addition to the normal income associated with the Company’s landfill gas operations, the Company received a one time settlement related to bankruptcy claims in the amount of $4.7 million, $3.4 million net of minority interest of $1.3 million included in ladfill expenses, in the second quarter of 2004.

Noninterest income was $74.7 million for the first half of 2004 and $56.5 million for the first half of 2003. Noninterest income for the first six months of 2004 increased by $18.2 million, or 32.2 %, compared to the same 2003 period. The increase in noninterest income in 2004 compared to 2003 was due mainly to normal income associated with the Company’s landfill gas operations, the aforementioned one time settlement of $3.4 million and $4.3 million of security gains in 2004.

NONINTEREST EXPENSE

Noninterest expense was $69.8 million for the second quarter of 2004 and $59.0 million for the second quarter of 2003. The increase in noninterest expense when comparing the second quarter of 2004 to the corresponding 2003 period was due primarily to operating expenses of $1.5 million related to Flatiron Credit Company, the acquisition which occurred in October 2003, $3.9 million of landfill gas expenses, and $3.0 million of costs related to the terminated correspondent banking business and in marketing expenses resulting from new marketing initiatives.

Noninterest expense was $136.4million for the first half of 2004 and $113.7 million for the first half of 2003. The increase in noninterest expense when comparing the first half of 2004 to the corresponding 2003 period was due primarily to operating expenses of $3.3 million related to Flatiron Credit Company, the acquisition which occurred in October 2003, $9.8 million of landfill gas expenses, and $4.6 million of costs related to the terminated correspondent banking business and in marketing expenses resulting from new marketing initiatives.

INCOME TAXES

The Company’s pretax income for the second quarter of 2004 was $42.6 million, an increase of $2.8 million, or 7.1%, compared to the second quarter of 2003. The Company’s provision for income taxes was $11.0 million for the quarter ended June 30, 2004 compared to $10.7 million for the same period in 2003. The increase in the provision for income taxes was due to higher pre-tax income in the 2004 period. The lower effective tax rate reflected for the second quarter of 2004 compared to the second quarter of 2003 was due to the full quarter effect of the Company’s investment in landfill gas operations.

The Company’s pretax income for the first half of 2004 was $84.0 million, an increase of $3.7 million, or 4.6%, compared to the first half of 2003. The Company’s provision for income taxes was $21.3 million for the first six months of 2004 and $22.8 million for the same period in 2003. The decrease in the provision for income taxes for the 2004 period compared to the 2003 period was due to the full six-month effect of the Company’s investment in landfill gas operations, off-set by the higher pre-tax income. The lower effective tax rate for the 2004 period compared to the 2003 period was due to the full six-month effect of the Company’s investment in landfill gas operations.

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

The provision for loan and lease losses was $4.8 million for the second quarter of 2004 and $7.0 million for the second quarter of 2003. The decrease in 2004 compared 2003 was primarily due to the lower levels of nonperforming loans and lower net charge-offs. Net charge offs were $5.8 million for the second quarter of 2004 and $6.8 million for the second quarter of 2003.

The provision for loan and lease losses was $10.4 million for the first six months of 2004 and $14.0 million for the first six months of 2003. The decrease in 2004 compared 2003 was primarily due to the lower levels of nonperforming loans and lower net charge-offs. Net charge-offs were $11.5 million for the first six months of 2004 and $13.8 million for the first six months of 2003.

The Allowance for loan and lease losses (“allowance”) totaled $66.0 million at June 30, 2004 compared to $67.8 at December 31, 2003. It represented 537% of nonperforming loans and leases at June 30, 2004, compared to 513% at December 31, 2003. The Allowance as a percentage of total loans and leases was 1.39% at June 30, 2004 and 1.46% at December 31, 2003.

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 and 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 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, 2004

Non Performing Loans and Non Performing Assets

Nonperforming loans and leases totaled $12.3 million at June 30, 2004. This was a decrease of $0.9 million, or 7.0 %, compared to $13.2 million of nonperforming loans and leases as of December 31, 2003. Nonperforming loans and leases were 0.26 % of total loans and leases at June 30, 2004, compared to 0.28% at December 31, 2003.

Nonperforming assets were $14.4 million at June 30, 2004, up slightly from $14.2 million at December 31, 2003. Nonperforming assets as a percent of loans, leases and OREO were 0.30% at June 30, 2004 and 0.30% at December 31, 2003.

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


	June 30, 2004			December 31, 2003
Nonaccrual Loans:
Commercial	$	6,996		$	7,555
Real Estate		5,147			5,477
Consumer		143			185

Total Nonaccrual Loans	$	12,286		$	13,217
Foreclosed Assets		2,144			977

Total Nonperforming Assets	$	14,430		$	14,194

Nonaccrual Loans to Total Loans and Leases		0.26	%		0.28	%
Allowance for Loan and Lease Losses to Nonaccrual Loans		537	%		513	%

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, 2004			December 31, 2003
Loans Past Due 90 Days or More and Accruing
Commercial	$	1,812		$	4,107
Real Estate		4,698			2,867
Consumer		1,174			2,228
Credit card		5,832			7,481

Total Past Due Loans	$	13,516		$	16,683

As a percent of Total Loans and Leases		0.28	%		0.36	%

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 Months Ended June 30, 2004			Year Ended December 31, 2003
Amount of Loans and Leases Outstanding at Period End	$	4,763,781		$	4,659,755

Daily Average Amount of Loans and Leases Outstanding	$	4,653,061		$	4,333,434

Allowance for Loan and Lease Losses
Balance at beginning of the period	$	67,846		$	71,929
Loans charged off:
Real estate	$	931		$	1,427
Commercial		3,076			7,825
Consumer		12,806			28,214
Other		5			—

Total loans charged off	$	16,818		$	37,466

Recoveries:
Real estate	$	232		$	928
Commercial		1,860			4,412
Consumer		3,165			6,905
Other		108			168

Total recoveries	$	5,365		$	12,413

Net loans charged off	$	11,453		$	25,053

Provision for loan and lease losses, portfolio loans		10,350			26,000

Reclassification of reserves		(695	)		(5,030	)

Balance at period end	$	66,048		$	67,846

Allowance for Loan and Lease Losses to Total Loans and Leases		1.39	%		1.46	%

Provision for loan and lease losses, as a percentage of average loans and leases outstanding		0.44	%(1)		0.60	%

Net loans charged off during period to average loans and leases outstanding		0.49	%(1)		0.58	%

(1)	Annualized

FINANCIAL CONDITION

Loan and lease categories consisting of commercial and financial, commercial real estate, consumer, and credit card loans totaled $4.6 billion at June 30, 2004, compared to $4.5 billion at December 31, 2003. 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 97% of loans and leases at June 30, 2004, compared to 96% at December 31, 2003. Residential mortgage loans, which are not an area of emphasis for the Company, were $140.6 million as of June 30, 2004, compared to $167.9 million at December 31, 2003. The loan to deposit ratio at June 30, 2004 and December 31, 2003 was 78% and 75%, respectively.

Total investment securities were $3.5 billion at June 30, 2004, compared to $2.7 billion at December 31, 2003. The increase in investment securities was due primarily to planned purchases associated with the growth in stockholders’ equity. Total assets were $8.9 billion at June 30, 2004 compared to $8.1 billion at December 31, 2003.

Deposits other than time deposits were $4.4 billion at June 30, 2004 and $4.3 billion at December 31, 2003. Total deposits were $6.1 billion at June 30, 2004 and $6.2 billion at December 31, 2003.

Total borrowings increased by $946.0 million over year-end 2003 levels to $1.9 billion. This increase was primarily due to increases in Federal Home Loan Bank advances with terms ranging from one month to slightly over one year.

Total stockholders’ equity was $478.2 million and $458.2 million at June 30, 2004 and December 31, 2003, respectively. Book value per common share (defined as total stockholders’ equity divided by total shares outstanding) was $10.64 at June 30, 2004 and $10.23 at December 31, 2003. 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 $62.6 million of net income, partially offset by payment of cash dividends of $29.7 million and a decrease in accumulated other comprehensive income of $14.2 million.

The Company did not repurchase any shares in the second quarter of 2004. The Company repurchased a total of 14,980 shares in the first quarter of 2004, at an average price of $37.48 per share. The total cash allocated for these repurchases was $0.6 million.

Total shares outstanding at June 30, 2004 were 44.9 million shares, compared to 44.8 million shares at December 31, 2003.

The Company paid cash dividends of $0.33 per share in the second quarter of 2004. Total cash dividends paid in the 2004 second quarter were $14.8 million. Dividends paid in 2004 year to date were $0.66 per share. Total cash dividends paid in 2004 year to date were $29.7 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, 2003.

During the second quarter of 2004, the Company increased its investment portfolio by approximately $800 million compared to December 31, 2003. These securities were funded with floating rate short-term borrowings. The overall effect of this transaction was to make the Company’s balance sheet interest rate sensitivity basically neutral at June 30, 2004 as compared to slightly asset sensitive at December 31, 2003.

The Company enters into interest rate derivative contracts (interest rate swaps) from time to time for asset liability management purposes. The notional amount of the derivative contracts totaled $580 million at June 30, 2004 and $590 million at December 31, 2003.

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 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 are 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. All of the derivative contracts outstanding as of June 30, 2004 that are hedges for the Company’s borrowings and certificates of deposit are indexed to LIBOR. Changes in interest rates will impact the cash flows and valuation of such 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, through repurchase agreements collateralized by securities with customers and with securities firms; and through other sources. The management of balance sheet volumes, mixes and maturities enables the Company to maintain adequate levels of liquidity.

Capital

The capital ratios for the Company at June 30, 2004 and the minimum regulatory guidelines for such capital ratios for qualification as a well-capitalized institution are as follows:


Holding Company Capital Ratios

	Ratios at June 30, 2004		Minimum Regulatory Guidelines for Well-Capitalized
Total Risk-Based Capital	13.84	%	10.0	%
Tier 1 Risk-Based Capital	9.26	%	6.0	%
Tier 1 Leverage Ratio	6.75	%	4.0	%


Bank Capital Ratios

	Ratios at March 31, 2004		Minimum Regulatory Guidelines for Well-Capitalized
Total Risk-Based Capital	12.74	%	10.0	%
Tier 1 Risk-Based Capital	8.35	%	6.0	%
Tier 1 Leverage Ratio	6.08	%	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, other than the potential impact of FIN 46 as described under Note F.

Item 3. Quantitative and Qualitative Disclosure about Market Risk

(see discussion above under “Market Risk, Interest rate Risk”)

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, controls 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 1. Legal Proceedings

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

On March 2, 2004 Hudson United Bank entered into a complete settlement with the New York County District Attorney’s Office. Under the terms of the agreement, the Company agreed to pay $3.5 million to the City of New York and $1.5 million to the District Attorney’s office for the costs of the investigation. The Company, which in the first quarter of 2004 started to upgrade its compliance program, agreed to continue its corrective actions. The $5 million was charged against fourth quarter 2003 results of operations. Further expenses were incurred in the first and second quarters of 2004 as disclosed earlier in this document. The settlement agreement provides that the Company will prepare enhanced written policies and procedures and implement a Company wide compliance training program. The estimated cost of professional fees related to these initiatives is approximately $1.0 million and will be expensed when incurred.

On May 28, 2004, the Bank consented to the issuance of an order to cease and desist (Order) by the FDIC. The Bank committed to take affirmative action to complete: an internal assessment of compliance with policies and procedures, an independent comprehensive written review of the BSA/AML program, establish a committee of the board of directors that is charged with the responsibility of ensuring compliance with the provisions of the Order and the BSA plan, designate a qualified BSA officer to monitor day-to-day compliance, provide appropriate BSA training, enhance the level of internal and external audits of BSA compliance, implement an enhanced system of internal processes and controls to ensure compliance with BSA and implement an enhanced system of internal processes and controls to ensure compliance with BSA and implement enhanced due diligence procedures for all high risk accounts that are newly-established, renewed or modified. The Department of Banking and Insurance of the State of New Jersey did not participate in the Order.

Item 2(e) Issuer Repurchases of Its Equity Shares During the Quarter


	Total number shares Purchased	Average price paid per share	Total number of shares purchased as part of publicly announced plans or programs	Maximum number of shares that may yet be purchased under the plan
April 1 – 30, 2004	—	—	—	3,944,707
May 1 – 31, 2004	—	—	—	3,944,707
June 1 – 30, 2004	—	—	—	3,944,707

In November 1993, the Company’s Board of Directors authorized management to repurchase up to 10 percent of its outstanding common stock each year. The program may be discontinued or suspended at any time, and there is no assurance that the Company will purchase the full amount authorized. The acquired shares are to be held in treasury and to be used for stock option and other employee benefit plans, stock dividends, or in connection with the issuance of common stock in pending or future acquisitions. In June 2000, the Company’s Board of Directors authorized the repurchase of up to 20% of the Company’s outstanding shares. In June 2001, the Company’s Board of Directors extended the Company’s stock repurchase program until December 2002 and authorized additional repurchases of up to 10% of the Company’s outstanding shares. The Board further authorized on January 30, 2003 the repurchase of up to $4.5 million outstanding shares of the Company. This most recent authorization will expire on June 30, 2004. The 14,980 shares repurchased during the first quarter of 2004 were related to the vesting of shares under the Company’s Restricted Stock Award Program.

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

The Annual Meeting of shareholders of Hudson United Bancorp was held April 21, 2004.

The names of the directors who were elected at the 2004 Annual Meeting and the names of the directors whose terms extend beyond the 2004 Annual Meeting are set forth in the tables below.

Directors elected at the 2004 Annual Meeting:

Robert J. Burke

Joan David


Directors whose terms extend beyond the 2004 Annual Meeting
W. Peter McBride		Charles F.X. Poggi
John H. Tatigian, Jr.		Bryant D. Malcolm
Donald P. Calcagnini		Kenneth T. Neilson
David A. Rosow

The following is a brief description as well as the tabulation of votes for each of the matters which were voted upon at the 2004 Annual Meeting:

Election of the following four persons as directors of Hudson United Bancorp:


Director	For	Authority Withheld
Robert J. Burke	34,123,768	1,219,997
Joan David	34,552,967	768,421

Amendment to the Hudson United Bancorp Restricted Stock Plan:


For	Against	Authority Withheld
24,062,196	3,589,761	218,090

In addition the Company included in its proxy a shareholder proposal. The shareholder did not appear at the Annual Meeting, therefore, this proposal was not voted upon.

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

(a) Exhibits

3(a) Certificate of Incorporation of the Company as in effect on the date of this filing (Incorporated by reference from the Company’s Amended Quarterly Reports on From 10Q/A for the quarter ended June 30, 1999. filed September 10, 1999, Exhibit 3(a)).

3(b) By-laws of the Company, as in effect on the date of the filing (Incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003 filed May 15, 2003, Exhibit 3(b)).

10(a) FDIC Order to Cease and Desist Dated May 28, 2004. (incorporated by reference to the Company’s Form 8-K Announcing that the Company entered into an enforcement action with the FDIC arising out of the regulatory review of its Bank Secrecy Act compliance filed May 28, 2004)



31.1		Certification of Chief Executive Officer. (filed herewith)

31.2		Certification of Chief Financial Officer. (filed herewith)

32		Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of The Sarbanes-Oxley Act of 2002, signed by Kenneth T. Neilson, Chief Executive Officer of the Company, and James W. Nall, Chief Financial Officer of the Company. (filed herewith)

(b) Current Reports on Form 8-K –

Current Report on Form 8-K dated April 19, 2004, (Furnishing first quarter earnings for Hudson United Bancorp)

Current Report on Form 8-K dated April 21, 2004, (Announcing a presentation at Hudson United Bancorp’s annual shareholders meeting)

Current Report on Form 8-K dated May 28, 2004, ()

Current Report on Form 8-K dated July 19, 2004, (Announcing second quarter 2004 earnings for Hudson United Bancorp)

Current Report on Form 8-K dated July 26, 2004, (Announcing corrected EPS effect on Stock Based Compensation)

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 9, 2004	By:	/s/ KENNETH T. NEILSON
DATE		Kenneth T. Neilson
		Chairman, President and Chief Executive Officer

August 9, 2004	By:	/s/ JAMES W. NALL
DATE		James W. Nall
		Executive Vice President, Chief Financial Officer and Chief Accounting Officer

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