HUDSON UNITED BANCORP AUDIT COMMITTEE CHARTER

Purpose

The Audit Committee ("Committee") of Hudson United Bancorp (the "Company") shall be members of and appointed by the Board to assist the Board in monitoring (1) the integrity of the financial statements of the Company, (2) the compliance by the Company with legal and regulatory requirements and (3) the qualifications, independence and performance of the Company's internal auditor (internal audit function is presently outsourced) and external auditor ("independent auditor").

Committee Membership and Meetings

The Board on the recommendation of the Nominating and Governance Committee shall appoint the members of the Committee and the Chairman of the Committee. The members of the Committee shall meet the independence and experience requirements of The New York Stock Exchange and the Sarbanes-Oxley Act of 2002. In particular, all Committee members must be financially literate, as such qualification is interpreted by the Company's board in its business judgment, or must become financially literate within a reasonable period of time after his or her appointment to the Committee, and at least one member shall be an "audit committee financial expert," as defined by the Securities and Exchange Commission ("SEC") regulations.

The Committee shall meet at least quarterly per year or more frequently as circumstances require. The Committee shall be comprised of not fewer than three (3) directors. The Committee may conduct a telephonic meeting if needed.

A majority of the Audit Committee shall constitute a quorum. The Audit Committee may act by a majority of the members present at a meeting of the Committee. In the event of a tie vote on an issue, the Chairpersonšs vote shall decide the issue.

Committee Authority and Responsibilities

The Committee shall be directly responsible for and have the sole authority to appoint or replace the independent auditor, and shall have the sole authority to pre-approve all audit engagement fees and terms and pre-approve all non-audit engagements with the independent auditors in accordance with the rules of the New York Stock Exchange ("NYSE") and Section 10A(i)(1)(B) of the Exchange Act. The independent auditor shall report directly to the Committee. The Committee shall consult with management but shall not delegate its responsibilities hereunder.

The Committee shall receive from the independent auditor reports on critical accounting policies and practices, alternative treatments and material communications with management as required by Section 10A(k) of the Exchange Act.

The Committee shall prepare the "Audit Committee Report" required by SEC regulations to be included in the Company's annual proxy statement.

The Committee shall have the authority, to the extent it deems necessary or appropriate, to retain independent legal, accounting or other consultants to advise the Committee. The Company shall provide for appropriate funding, as determined by the Committee, for payment of compensation to the independent auditor for the purpose of rendering or issuing an audit report and to any advisors or consultants employed by the Committee. The Committee may request any officer or employee of the Company or the Company's outside counsel or independent auditor to attend a meeting of the Committee or to meet with any members of, or consultants to, the Committee. The Committee shall meet with management, the internal auditor and the independent auditor in separate executive sessions at least quarterly. The Committee may appoint and delegate authority to subcommittees when appropriate.

The Committee shall make regular reports to the Board. The Committee shall review and reassess the adequacy of this Charter annually and recommend any proposed changes to the Board for approval.

Additional Responsibilities

The Committee, to the extent it deems necessary or appropriate, shall:

  1. Review and discuss with management and the independent auditor the annual audited financial statements including disclosures made in management's discussion and analysis, and recommend to the Board whether the audited financial statements should be included in the Company's Form 10-K.
  2. Review and discuss with management and the independent auditor the Company's quarterly financial statements prior to the filing of its Form 10-Q, including the results of the independent auditor's review of the quarterly financial statements.
  3. Discuss with management and the independent auditor significant financial reporting issues and judgments made in connection with the preparation of the Company's financial statements, including any significant changes in the Company's selection or application of accounting principles, any major issues as to the adequacy of the Company's internal controls and any special steps adopted in light of material control deficiencies.
  4. Review reports prepared by management and the independent auditor of significant financial reporting issues and judgments made in connection with the preparation of the Company's financial statements. This shall include an analysis of the effect of alternative GAAP methods on the Company's financial statements and a description of any transactions for which management consulted with other independent auditors during the year about auditing or accounting matters.
  5. Review and discuss quarterly reports from the independent auditors on:

(a) All critical accounting policies and practices to be used.
(b) all alternative treatments of financial information within generally accepted accounting principles ("GAAP") that have been discussed with management, ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent auditor.
(c) other material written communications between the independent auditor and management, such as any management letter or schedule of unadjusted differences.

  1. Review with management and the independent auditor the effect of regulatory and accounting initiatives as well as off-balance sheet structures, if any, on the Company's financial statements.
  2. Meet periodically with management, the internal auditor and the independent auditor to review and discuss the Company's major financial risk exposures and those policies and procedures management has adopted to monitor and control such exposures, including the adequacy of the reserve for loan losses.
  3. Obtain and review a report from the independent auditor at least annually regarding:

(a) the independent auditor's internal quality-control procedures,
(b) any material issues raised by the most recent internal quality-control review, or peer review, of the firm, or by any inquiry or investigation by governmental or professional authorities within the preceding five years respecting one or more independent audits carried out by the firm,
(c) any steps taken to deal with any such issues, and
(d) all relationships between the independent auditor and the Company.

  1. Receive and monitor information, from any source, regarding the independent auditor's independence. In evaluating the independence of the independent auditor, due consideration shall be given to consulting and other special services provided by it.

Evaluate the qualifications, performance and independence of the independent auditor, including considering whether the auditor's quality controls are adequate and the provision of permitted non-audit services is compatible with maintaining the auditor's independence, taking into account the opinions of management and the internal auditors. The Committee shall present its conclusions with respect to the independent auditor to the Board.

  1. Review and approve annually the appointment of the internal auditor including fees paid to it.
  2. Review the scope of responsibilities of the internal auditor including the annual audit plan and schedule.
  3. Review reports by the Company's Loan Review Group on its scope and loan review plan. Also, review its loan review and loan loss reserve adequacy reports.
  4. Review reports by the Compliance Officer on CRA and other compliance issues.
  5. Meet with the independent auditor prior to the annual audit to review the scope of the audit.
  6. Obtain from the independent auditor an assurance of compliance with Section 10A (Auditor Disclosure of Corporate Fraud) of the Securities Act of 1934.
  7. Discuss with management and the independent auditor, any matters required to be discussed by, including but not limited to, Statements on Auditing Standards No. 61 (Communication with Audit Committees), No. 100 (Interim Financial Information) relating to the conduct of an audit or an interim review, No. 90 (which amends these two SASs), No. 99 (Consideration of Fraud in a Financial Statement Audit), or matters relating to compliance with provisions of the Sarbanes-Oxley Act of 2002 or any amendments thereto.
  8. Review and assess the results of all audit reports prepared by the internal auditor and management's responses thereto.
  9. The Committee shall ensure that minutes and other records of its meetings and activities of the Committee shall be prepared and retained.
  10. Review with the Company's General Counsel, annually or as deemed necessary, legal matters that may have a material impact on the financial statements, the Company's compliance policies and any other material reports or inquiries received from regulators or governmental agencies.
  11. The Committee shall review examination reports, by State and Federal Regulatory Agencies, and management's responses thereto.
  12. Review the reports of the independent auditor and/or the internal auditor that describe internal accounting, organizational, or operating control findings.
  13. Review with Management, the independent auditor, and internal auditor all reports required under Section 112 of the Federal Deposit Insurance Corporation Improvement Act ("FDICIA").
  14. Review with the independent auditor any problems, disagreements or difficulties the independent auditor may have encountered with management and any communication from the auditor to management relating thereto, including the Company's response. Such review should include:

(a) Restrictions on or changes in the scope of its audit activities or access to required information.
(b) Resolution of all problems, disagreements or difficulties, if any, between management and the independent auditor.

  1. Discuss with management and the independent auditor the Company's proposed earnings press releases, including the use of "pro forma" or "adjusted" non-GAAP information, as well as financial information and earnings guidance provided to analysts and rating agencies.
  2. Review and evaluate the experience and qualifications of the lead partner of the independent auditor team. Assure that the lead audit partner of the independent auditor and the audit partner responsible for reviewing the audit are rotated at least every five years and consider rotation of the independent auditor firm itself on a regular basis.
  3. Recommend to the Board policies for the Company's hiring of employees or former-employees of the independent auditor who were engaged on the Company's account (recognizing that the independent auditor may not perform the audit if the chief executive officer, controller, chief financial officer or chief accounting officer of the Company was employed by the independent auditor and participated in any capacity in the audit during the one year preceding the initiation of the audit).
  4. Establish procedures as required by law for:

(a) The receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls, or auditing matters.
( b) The confidential, anonymous submission by employees of the Company and its subsidiaries of concerns regarding questionable accounting or auditing matters.

  1. The Committee shall perform an evaluation of its performance at least annually to determine whether it is functioning effectively.
  2. Review disclosures made to the Audit Committee by the Company's CEO and CFO during their certification process for the Form 10-K and Form 10-Q about any significant deficiencies in the design or operation of internal controls or material weaknesses therein and any fraud involving management or other employees who have a significant role in the Company's internal controls.

The Audit Committee may establish sub-committees of one or more of its members for the purpose of implementing its responsibilities. Any such sub-committees shall provide reports to the full Committee.

While the Audit Committee has the responsibilities and powers set forth in this Charter, it is not the duty of the Audit Committee to plan or conduct audits. It is management's responsibility for the preparation, presentation, completeness and integrity of the financial statements and for the appropriate use of accounting principles and reporting policies. The independent auditor is responsible for auditing the financial statements, expressing an opinion thereon in accordance with GAAP, and complying with all applicable law.