UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 000-24187
HUDSON RIVER BANCORP, INC.
(Exact name of Registrant as Specified in its Charter)
Delaware 14-1803212
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Hudson City Centre, Hudson, New York 12534
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (518) 828-4600
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. [X] YES [ ] NO
As of August 4, 2000 there were issued and outstanding 15,310,560
shares of the Registrant's Common Stock.
<PAGE>
FORM 10-Q
HUDSON RIVER BANCORP, INC.
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (unaudited)
Consolidated Balance Sheets at June 30,
2000 and March 31, 2000
Consolidated Income Statements for the
three months ended June 30, 2000 and 1999
Consolidated Statements of Cash Flows for
the three months ended June 30, 2000 and
1999
Notes to Unaudited Consolidated Interim
Financial Statements
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
ITEM 3. Quantitative and Qualitative Disclosures about
Market Risk
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
ITEM 2. Changes in Securities and Use of Proceeds
ITEM 3. Defaults Upon Senior Securities
ITEM 4. Submission of Matters to a Vote of Security Holders
ITEM 5. Other Information
ITEM 6. Exhibits and Reports on Form 8-K
EXHIBIT INDEX
SIGNATURE PAGE
<PAGE>
Item 1. Financial Statements
<TABLE>
<CAPTION>
Hudson River Bancorp, Inc.
Consolidated Balance Sheets
(unaudited)
June 30, March 31,
(In thousands, except share and per share data) 2000 2000
----------- -----------
<S> <C> <C>
Assets
Cash and due from banks $ 15,481 $ 16,612
Securities available for sale, at fair value 232,583 236,980
Securities held to maturity (fair value of $4,968 and $11,065) 5,020 11,144
Federal Home Loan Bank of New York (FHLB) stock, at cost 9,202 7,425
Loans receivable 843,025 823,855
Allowance for loan losses (20,524) (19,608)
----------- -----------
Net loans receivable 822,501 804,247
----------- -----------
Accrued interest receivable 6,625 6,470
Premises and equipment, net 18,971 18,719
Other real estate owned (OREO) and repossessed property 1,313 1,641
Goodwill and other intangibles 11,337 11,618
Other assets 33,154 34,691
----------- -----------
Total assets $ 1,156,187 $ 1,149,547
=========== ===========
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Savings 179,504 180,932
N.O.W. and money market 126,797 126,429
Time deposits 384,050 392,962
Noninterest-bearing 54,681 48,240
----------- -----------
Total deposits 745,032 748,563
----------- -----------
Securities sold under agreements to repurchase 4,294 4,214
Short-term FHLB advances 147,530 116,450
----------- -----------
Total short-term borrowings 151,824 120,664
----------- -----------
Long-term FHLB borrowings 30,600 30,600
Mortgagors' escrow deposits 9,318 5,500
Other liabilities 19,315 43,497
----------- -----------
Total liabilities 956,089 948,824
----------- -----------
Shareholders' Equity:
Preferred stock, $.01 par value, Authorized 5,000,000 shares -- --
Common stock, $.01 par value, Authorized 40,000,000 shares;
Issued 17,853,750 shares 179 179
Additional paid-in capital 174,733 174,733
Unallocated common stock held by ESOP (15,583) (15,583)
Unvested restricted stock awards (6,098) (6,289)
Treasury stock, at cost ( 2,543,190 and 2,235,190 shares) (27,210) (24,248)
Retained earnings, substantially restricted 81,481 79,555
Accumulated other comprehensive loss (7,404) (7,624)
----------- -----------
Total shareholders' equity 200,098 200,723
----------- -----------
Total liabilities and shareholders' equity $ 1,156,187 $ 1,149,547
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated interim financial statements.
1
<PAGE>
<TABLE>
<CAPTION>
Hudson River Bancorp, Inc.
Consolidated Income Statements
(unaudited)
For the Three
Months Ended June 30,
---------------------------
(In thousands, except per share data) 2000 1999
------- -------
<S> <C> <C>
Interest income:
Interest and fees on loans $17,847 $12,931
Securities available for sale 4,008 3,516
Securities held to maturity 141 322
Federal funds sold 1 --
Federal Home Loan Bank of New York stock 145 55
------- -------
Total interest income 22,142 16,824
------- -------
Interest expense:
Deposits 6,967 5,760
Securities sold under agreements to repurchase 52 6
Short-term FHLB advances 2,192 473
Long-term FHLB borrowings 462 --
------- -------
Total interest expense 9,673 6,239
------- -------
Net interest income 12,469 10,585
Provision for loan losses 1,425 1,700
------- -------
Net interest income after
provision for loan losses 11,044 8,885
------- -------
Other operating income:
Service charges on deposit accounts 443 332
Loan servicing income 33 37
Net securities transactions -- 79
Other income 218 144
------- -------
Total other operating income 694 592
------- -------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Other operating expenses:
Compensation and benefits 3,448 3,098
Occupancy 503 387
Equipment 829 590
Other real estate owned and repossessed property 272 403
Advertising 368 199
Legal and other professional fees 370 232
Postage and item transportation 189 179
Goodwill and other intangibles amortization 281 91
Other expenses 1,320 1,122
------- -------
Total other operating expenses 7,580 6,301
------- -------
Income before tax expense 4,158 3,176
Tax expense 1,515 1,115
------- -------
Net income $ 2,643 $ 2,061
======= =======
Basic earnings per share $ 0.19 $ 0.13
======= =======
Diluted earnings per share $ 0.19 $ 0.13
======= =======
</TABLE>
See accompanying notes to unaudited consolidated interim financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
Hudson River Bancorp, Inc.
Consolidated Statements of Cash Flows
(unaudited)
For the Three Months Ended
June 30,
-----------------------
(In thousands) 2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,643 $ 2,061
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation 560 486
Goodwill and other intangibles amortization 281 91
Provision for loan losses 1,425 1,700
Amortization of restricted stock awards 191 217
Net securities transactions -- (79)
Adjustments of OREO and repossessed property to fair value 208 320
Net gain on sales of OREO and repossessed property (347) (212)
Net loss on disposition of premises and equipment 103 --
Net increase in accrued interest receivable (155) 411
Net decrease in other assets 1,390 248
Net decrease in other liabilities (24,182) (27,986)
-------- --------
Net cash used in operating activities (17,883) (22,743)
-------- --------
Cash flows from investing activities:
Proceeds from sales of securities available for sale -- 2,959
Proceeds from maturities, calls and paydowns of securities available
for sale 4,764 25,983
Purchases of securities available for sale -- (4,988)
Proceeds from maturities, calls and paydowns of securities held to
maturity 6,124 4,256
Purchase of FHLB stock (1,777) --
Net loans made to customers (20,788) (26,666)
Proceeds from sales of and payments received on OREO
and repossessed property 1,576 1,415
Purchases of premises and equipment (915) (417)
-------- --------
Net cash (used in) provided by investing activities (11,016) 2,542
-------- --------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Cash flows from financing activities:
Net (decrease) increase in deposits (3,531) 6,929
Net increase in short-term borrowings 31,160 17,718
Net increase in mortgagors' escrow deposits 3,818 2,814
Dividends paid (717) (484)
Purchases of treasury stock (2,962) (7,186)
-------- --------
Net cash provided by financing activities 27,768 19,791
-------- --------
Net decrease in cash and cash equivalents (1,131) (410)
Cash and cash equivalents at beginning of period 16,612 12,722
-------- --------
Cash and cash equivalents at end of period $ 15,481 $ 12,312
======== ========
Supplemental cash flow information:
Interest paid $ 9,235 $ 6,244
Taxes paid $ -- $ --
Supplemental disclosures of non-cash investing and financing activities:
Loans transferred to OREO and repossessed property $ 1,109 $ 698
Adjustment of securities available for sale to fair value, net of tax $ 220 $ (2,183)
</TABLE>
See accompanying notes to unaudited consolidated interim financial statements.
3
<PAGE>
Hudson River Bancorp, Inc.
NOTES TO UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. The accompanying unaudited consolidated interim financial statements
have been prepared in accordance with generally accepted accounting principles
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 generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting solely of normal recurring accruals) considered necessary for a fair
presentation have been included. The accompanying unaudited consolidated interim
financial statements should be read in conjunction with the Company's Annual
Report on Form 10-K as of and for the year ended March 31, 2000. Operating
results for the three month period ended June 30, 2000 are not necessarily
indicative of the results that may be expected for a full year.
2. On April 25, 2000, the Company entered into a definitive agreement
with Cohoes Bancorp, Inc. ("Cohoes") to provide for a merger between the Company
and Cohoes. Under the terms of the agreement, the Company will issue 1.185
shares of Company common stock in exchange for each share of Cohoes common
stock. The total deal value is approximately $87 million based on the Company's
stock price immediately preceding the announcement. The transaction will be
accounted for under the purchase method of accounting. It is expected that the
transaction will result in negative goodwill which will be allocated to reduce
noncurrent, nonmonetary assets of Cohoes, with any remaining amount classified
as other liabilities upon the closing of the transaction. The remaining negative
goodwill, if any, will be accreted into income on a straight-line method over
the estimated period of benefit. Pending regulatory and shareholder approvals,
the transaction is expected to close prior to year-end 2000.
3. Comprehensive income (loss) includes the reported net income (loss)
of a company adjusted for certain items that are currently accounted for as
direct entries to equity, such as the mark to market adjustment on securities
available for sale, foreign currency items and minimum pension liability
adjustments. At the Company, comprehensive income (loss) represents net income
(loss) plus other comprehensive income (loss), which consists of the net change
in unrealized gains or losses on securities available for sale for the period,
net of tax. Accumulated other comprehensive income (loss) represents the net
unrealized gains or losses on securities available for sale, net of tax, as of
the balance sheet dates. Comprehensive income (loss) for the three month periods
ended June 30, 2000 and 1999 was $2.9 million and $(122) thousand, respectively.
4. The following table sets forth certain information regarding the
calculation of basic and diluted earnings per share for the three month periods
ended June 30, 2000 and 1999. Basic earnings per share is calculated by dividing
net income by the weighted-average number of common shares outstanding during
the period. Shares of restricted stock are not considered outstanding for the
calculation of basic earnings per share until they become fully vested. Diluted
earnings per share is computed in a manner similar to that of basic earnings per
share except that the weighted-average number of common shares outstanding is
increased to include the number of additional common shares that would have been
outstanding if all potentially dilutive common shares (such as stock options and
unvested restricted stock) were issued during the reporting period. Unallocated
common shares held by the Company's Employee Stock Ownership Plan are not
included in the weighted-average number of common shares outstanding for either
the basic or diluted earnings per share calculations.
4
<PAGE>
Hudson River Bancorp, Inc.
Notes to Unaudited Consolidated Interim Financial Statements
(continued)
<TABLE>
<CAPTION>
For the Three Months Ended June 30,
-----------------------------------------------------------------------------------
(In thousands, except 2000 1999
share and per share amounts) -------------------------------------- --------------------------------------
Weighted- Per Weighted- Per
Net Average Share Net Average Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share $ 2,643 13,671,940 $ 0.19 $ 2,061 15,293,786 $ 0.13
Dilutive effect of potential common
shares outstanding:
Stock options 322 -
Restricted stock awards 843 -
------- ---------- ------- ------- ---------- ------
Diluted earnings per share $ 2,643 13,673,105 $ 0.19 $ 2,061 15,293,786 $ 0.13
======= ========== ======= ======= ========== ======
</TABLE>
At June 30, 2000 and 1999, there were 1.1 million and 1.2 million stock
options, respectively, not included in the above table as potential common
shares outstanding because the effect was anti-dilutive. At June 30, 2000 and
1999, there were 547 thousand and 710 thousand unvested restricted stock awards,
respectively, not included in the above table as potential common shares
outstanding because the effect was anti-dilutive.
5
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
-------
The financial review which follows focuses on the factors affecting the
consolidated financial condition and results of operations of Hudson River
Bancorp, Inc. and subsidiary (the "Company") during the three months ended June
30, 2000, with comparisons to 1999 as applicable. The unaudited consolidated
interim financial statements and related notes, as well as the 2000 Annual
Report on Form 10-K, should be read in conjunction with this review. Amounts in
prior periods' consolidated financial statements are reclassified whenever
necessary to conform to the current period's presentation.
The Company's primary market area, with 18 full-service branches,
consists of the New York counties of Columbia, Rensselaer, Albany, Schenectady,
Dutchess, and Saratoga. The Company has been, and intends to continue to be, a
community-oriented financial institution offering a variety of financial
services. The Company's principal business is attracting deposits from customers
within its market area and investing those funds in primarily loans, and, to a
lesser extent, in marketable securities. The financial condition and operating
results of the Company are dependent on its net interest income which is the
difference between the interest income earned on its assets and the interest
expense paid on its liabilities, primarily consisting of deposits and
borrowings. Net income is also affected by provisions for loan losses and other
operating income, such as loan servicing income and fees on deposit related
services; it is also impacted by other operating expenses, such as compensation
and occupancy expenses, and federal and state income taxes.
The Company's results of operations are significantly affected by
general economic and competitive conditions (particularly changes in market
interest rates), government policies, changes in accounting standards and
actions of regulatory agencies. Future changes in applicable laws, regulations
or government policies may have a material impact on the Company. Lending
activities are substantially influenced by the demand for and supply of housing,
competition among lenders, the level of interest rates, and the availability of
funds. The ability to gather deposits and the cost of funds are influenced by
prevailing market interest rates, fees and terms on deposit products, as well as
the availability of alternative investments including mutual funds and stocks.
MERGER AND ACQUISITION ACTIVITY
-------------------------------
On September 3, 1999 the Company completed its acquisition of SFS
Bancorp, Inc. ("SFS") paying $25.10 in cash for each share of SFS common stock
outstanding (the "SFS Acquisition"). The total consideration of approximately
$32 million was funded primarily by long-term FHLB borrowings. The transaction
was accounted for under the purchase method of accounting and goodwill
associated with this transaction totaling $9.1 million was recorded. The
goodwill is being amortized straight line over fifteen years. SFS had total
assets of $176.9 million and total deposits of $150.4 million as of September 3,
1999. Its four branches within Schenectady County were added to the Bank's
branch network.
On April 25, 2000, the Company announced that a definitive agreement
had been reached with Cohoes Bancorp, Inc. ("Cohoes") to provide for a merger
between the Company and Cohoes. Cohoes is a $700 million institution with 21
branches in six counties headquartered in Cohoes, New York. The Company will
issue 1.185 shares of Company common stock in exchange for each share of Cohoes
common stock. The total deal is valued at approximately $87 million based on the
Company's stock price immediately preceding the announcement. The transaction
will be accounted for under the purchase method of accounting, and pending
regulatory and shareholder approvals, is expected to close before the year-end
2000. All 21 Cohoes branches will be renamed as Hudson River Bank & Trust
Company branches upon completion of the merger, and the Company will be renamed
as Cohoes-Hudson Bancorp, Inc. The combined company will have over $1.8 billion
in total assets and $1.2 billion in deposits.
In June 2000, the Company received an unsolicited offer from TrustCo
Bank Corp NY ("TrustCo") to acquire the Company for TrustCo stock equivalent to
$14 per share of Company stock. This unsolicited offer was declined by the Board
of Directors on June 23, 2000 because, among other reasons, TrustCo's offer was
inadequate as to the price, the Company was not for sale, and the proposal
required the Company to terminate its agreement to merge with Cohoes. TrustCo
subsequently announced its intention to proceed with a proxy solicitation to
encourage Company shareholders to vote against the Cohoes merger, and to
initiate a hostile tender offer for Company shares. The Company is committed to
its merger with Cohoes and is continuing to solicit proxies in favor of the
Cohoes merger.
6
<PAGE>
Hudson River Bancorp, Inc.
Management's Discussion and Analysis
(continued)
OVERVIEW
--------
The Company earned net income for the three months ended June 30, 2000
amounting to $2.6 million, or $0.19 per share, up $582 thousand from the $2.1
million, or $0.13 per share, earned during the three months ended June 30, 1999.
The increase was primarily a result of higher net interest income and a lower
provision for loan losses, partially offset by higher other operating expenses
and higher tax expense. For the three months ended June 30, 2000, the Company's
return on average assets was .92%, down from .95% for the same period in 1999.
The Company's return on average equity for the three months ended June 30, 2000
was 5.30%, up from 3.83% in 1999. See Table A, "Financial Highlights".
ASSET/LIABILITY MANAGEMENT
--------------------------
The Company attempts to maximize net interest income, and net income,
while actively managing its liquidity and interest rate sensitivity through the
mix of various core deposits and other sources of funds, which in turn, fund an
appropriate mix of earning assets. The changes in the Company's asset mix and
sources of funds, and the resultant impact on net interest income are discussed
below.
Earning Assets
Total average earning assets increased to $1.1 billion for the three
months ended June 30, 2000, up from $837.1 million in the same period of 1999.
This increase was primarily a result of the completion of the SFS Acquisition
during the quarter ended September 30, 1999. Interest income for the three
months ended June 30, 2000 was $22.1 million, up $5.3 million for the same
period in 1999. The increase in average balances was the primary reason for the
higher income. The yield on earning assets rose from 8.08% for the three months
ended June 30, 1999 to 8.20% for the same period in 2000. The change in the
Company's asset mix from lower yielding investments to higher yielding loans has
been enhanced by the impact of a rising rate environment. Earning assets at June
30, 2000 and March 31, 2000 were $1.1 billion, largely as a result of increases
for the three month period ended June 30, 2000 in loans receivable and FHLB
stock offset by decreases in securities available for sale and securities held
to maturity.
Loans
The average balance of loans increased to $833.8 million for the three
months ended June 30, 2000, up $243.3 million from the $590.5 million average
for the same period in the prior year. The yield on loans for the quarter
decreased 23 basis points, from 8.81% in 1999 to 8.58% in 2000. The decrease is
attributed to the impact of adding loans which were generally at a lower rate to
the Company's loan portfolio as a result of the SFS Acquisition. Interest income
on loans for the three months ended June 30, 2000 increased to $17.8 million
from $12.9 million for the same period in 1999. The increase in average balances
for the quarter resulted in a $5.2 million increase in interest income that was
partially offset by a $298 thousand decrease in interest income due to lower
rates.
Total loans were $843.0 million at June 30, 2000, up $19.2 million from
the $823.9 million at March 31, 2000. Loans secured by residential real estate
increased from $491.8 million, or 59.7% of total loans at March 31, 2000, to
$509.3 million, or 60.4% of total loans at June 30, 2000. Commercial real estate
loans increased $4.1 million to $143.0 million at June 30, 2000 from $138.9
million at March 31, 2000. Commercial loans increased to $41.6 million at June
30, 2000 from $37.2 million at March 31, 2000. These increases were partially
offset by decreases of $1.6 million in manufactured housing loans and $7.7
million in financed insurance premium loans. Management intends to continue to
reduce the portfolio of manufactured housing loans gradually through normal
paydown activity while it continues its focus on commercial real estate and
commercial lending, as well as residential lending. The decrease in financed
insurance premiums is a seasonal fluctuation as the majority of this business is
written during the quarter ending March 31 and is paid down over the subsequent
three quarters. See Table D, "Loan Portfolio Analysis".
7
<PAGE>
Hudson River Bancorp, Inc.
Management's Discussion and Analysis
(continued)
Securities
The average balance of securities available for sale and securities
held to maturity (collectively "securities") decreased $2.5 million to $240.7
million for the three months ended June 30, 2000, down from $243.2 million for
the three months ended June 30, 1999. This decrease is the result of the
Company's continued efforts to change the asset mix from lower yielding
investments to higher yielding loans. Interest income earned on securities was
$4.1 million for the three months ended June 30, 2000, up $311 thousand from the
$3.8 million earned in the three months ended June 30, 1999.
Securities at June 30, 2000 were $237.6 million, down $10.5 million
from the $248.1 million the Company held as of March 31, 2000. The decrease was
due to maturities and paydowns of securities. Reinvestment of the proceeds were
primarily directed to the loan portfolio to accommodate the growth experienced
in that asset category. Management is continuing to allow the balance of
securities held to maturity to decrease with any new purchases of securities
directed to the securities available for sale classification.
Federal Funds Sold
The Company had limited federal funds sold during the three months
ended June 30, 2000. For the immediate future, the Company does not anticipate
utilizing this asset category for significant investments other than on a
temporary basis as market conditions warrant.
Funding Sources
The Company utilizes traditional deposit products such as time, savings
and N.O.W. and money market deposits as its primary source for funding. Other
sources such as short-term FHLB advances and long-term FHLB borrowings, however,
are utilized as necessary to support the Company's growth in assets and to
achieve interest rate sensitivity objectives. The average balance of
interest-bearing liabilities increased to $874.4 million for the three months
ended June 30, 2000 from $595.9 million for the three months ended June 30,
1999. This increase in average balances is attributed primarily to the
completion of the SFS Acquisition. Interest expense for the three months ended
June 30, 2000 was $9.7 million, up $3.4 million from the same period in 1999.
The increase in volume, along with an increase in the average rate paid from
4.21% to 4.44%, resulted in the overall increase in interest expense for the
three month period.
Interest-bearing liabilities at June 30, 2000 were $882.1 million, up
from $857.1 million at March 31, 2000. This increase was a result of the need to
fund the growth in assets of the Company, primarily in the loan portfolio.
Deposits
The average balance of savings accounts increased $32.1 million to
$178.4 million for the three months ended June 30, 2000, up from $146.2 million
for the same period in 1999. These fluctuations are primarily the result of the
impact of the SFS Acquisition during the quarter ended September 30, 1999.
Interest expense on savings accounts was consistent at $1.1 million for both the
three months ended June 30, 2000 and 1999. The decrease in average rates paid
from 3.03% to 2.54% was offset by the effect of the higher average balances in
the quarter ending June 30, 2000.
Interest expense on N.O.W. and money market accounts increased from
$727 thousand for the three months ended June 30, 1999 to $799 thousand for the
same period in 2000. The average balance of N.O.W. and money market accounts
increased to $127.2 million from $103.3 million for the three month period ended
June 30, 1999. A decrease in average rates paid from 2.83% to 2.52% somewhat
offset the effect of the higher average balances.
The average balance of time deposits increased from $301.9 million for
the three months ended June 30, 1999 to $388.5 million for the three months
ended June 30, 2000. Interest expense on time deposits increased a total of $1.1
million for the three months ended June 30, 2000 from the comparable period in
1999. Lower average rates paid on time deposits of 5.16% for the three months
ended June 30, 2000 down from 5.20% in 1999 only partially offset the effect of
the higher average balances resulting in the increase in interest expense in
2000.
Total deposits, including $54.7 million of noninterest-bearing
deposits, were $745.0 million at June 30, 2000, down from $748.6 million ($48.2
million of noninterest-bearing deposits) at March 31, 2000. Decreases in higher
cost time deposits were almost entirely offset by increases in
noninterest-bearing deposits.
8
<PAGE>
Hudson River Bancorp, Inc.
Management's Discussion and Analysis
(continued)
Short-term FHLB Advances and Long-term FHLB Borrowings
The average balance of short-term FHLB advances increased to $138.0
million for the three months ended June 30, 2000 from $38.5 million for the same
period in 1999. Interest expense on these borrowings increased $1.7 million to
$2.2 million for the three months ended June 30, 2000. This increase is
primarily attributed to the increase in volume while an increase in rates paid
from 4.95% to 6.37% accounted for the remainder. The average balance of
long-term FHLB borrowings was $30.6 million for the three months ended June 30,
2000. The Company did not have any long-term FHLB borrowings during the three
months ended June 30, 1999.
Short-term FHLB advances were $147.5 million at June 30, 2000, up from
$116.5 million at March 31, 2000. This increase is a result of the funding of
amounts due to insurance companies relating to the Company's financed insurance
premium loans. These amounts due were accrued in other liabilities as of March
31, 2000 and paid in April 2000. Long-term FHLB borrowings were $30.6 million at
both June 30, 2000 and March 31, 2000. The interest rates on the long-term debt
are fixed with maturities ranging from one-to-five years, with call options
ranging from one-to-three years.
Net Interest Income
Net interest income for the three months ended June 30, 2000 was $12.5
million, up from the $10.6 million for the three months ended June 30, 1999. The
increase was the result of the increase in average earning assets and higher
rates on those assets. The impact of these factors was offset in part by higher
balances of, and higher rates paid on, interest-bearing liabilities. As a result
of these volume and rate fluctuations, the Company's net interest margin for the
three months ended June 30, 2000 was 4.62%, down from 5.09% for the three months
ended June 30, 1999. See Table B, "Average Balances, Interest and Yields" and
Table C, "Volume and Rate Analysis".
Noninterest Sensitive Assets and Liabilities
Noninterest sensitive assets include accrued interest receivable,
premises and equipment, other real estate owned and repossessed property,
goodwill and other intangibles, and other assets. Premises and equipment
amounted to $19.0 million at June 30, 2000, up from $18.7 million at March 31,
2000. The increase is primarily attributed to the opening of the Clifton Park
branch in June 2000. Other assets were $33.2 million at June 30, 2000, down from
$34.7 million at March 31, 2000. This decrease is associated with the accrual of
estimated income taxes.
Noninterest sensitive liabilities include noninterest-bearing deposit
accounts (primarily checking accounts) and other liabilities. Noninterest-
bearing deposits increased from $48.2 million at March 31, 2000 to $54.7 million
at June 30, 2000. This increase is associated with a new branch opening in June
2000 and growth in the Company's commercial accounts, which are generally
noninterest-bearing. Other liabilities decreased from $43.5 million at March 31,
2000 to $19.3 million at June 30, 2000. The decrease is almost entirely related
to the funding of amounts due to insurance companies in April of each year for
financed insurance premium loans. These amounts were recorded as other
liabilities as of March 31, 2000.
<PAGE>
RISK MANAGEMENT
---------------
Credit Risk
Credit risk is managed through the interrelationship of loan officer
lending authorities, Board of Director oversight, loan policies, a credit
administration department, an internal loan review function, and a problem loan
committee. These components of the Company's underwriting and monitoring
functions are critical to the timely identification, classification and
resolution of problem credits.
Nonperforming Assets
--------------------
Nonperforming assets include nonperforming loans (loans in a nonaccrual
status, loans that have been restructured, and loans past due 90 days or more
and still accruing interest) and assets which have been foreclosed or
repossessed. Foreclosed assets typically represent residential or commercial
properties while repossessed property is primarily manufactured homes abandoned
by their owners or repossessed by the Company.
9
<PAGE>
Hudson River Bancorp, Inc.
Management's Discussion and Analysis
(continued)
Total nonperforming assets at June 30, 2000 were $14.3 million or 1.24%
of total assets, compared with $11.9 million or 1.04% at March 31, 2000. The
$2.3 million increase in total nonperforming assets is due to a $2.7 million
increase in nonperforming loans, partially offset by a $328 thousand decrease in
foreclosed and repossessed property.
The increase in nonperforming loans was in part the result of a $3.3
million increase in financed insurance premium loans placed on nonaccrual. These
loans are placed on nonaccrual usually within 30 days of a missed payment and
collection procedures from insurance companies of the unearned premiums can take
90 days or longer. The increase is a by-product of the Company's seasonal growth
in this lending category as of March 31, 2000 and is expected to be a temporary
increase based upon the Company's past experience with these loans. In addition,
increases of residential real estate nonaccruals of $1.1 million were more than
offset by a $1.4 million decrease in commercial real estate nonaccruals and a
$224 thousand decrease in manufactured housing nonaccruals.
The $328 thousand decrease in foreclosed and repossessed property was
made up of a $361 thousand reduction of repossessed manufactured homes partially
offset by a $33 thousand increase in foreclosed properties.
Allowance and Provision For Loan Losses
---------------------------------------
The allowance for loan losses at June 30, 2000 was $20.5 million, up
from $19.6 million at March 31, 2000. The allowance as a percentage of
nonperforming loans decreased from 190.5% at March 31, 2000 to 158.3% at June
30, 2000. The adequacy of the allowance for loan losses is evaluated quarterly
by management based upon a review of significant loans, with particular emphasis
on nonperforming and delinquent loans that management believes warrant special
attention, as well as an analysis of the higher risk elements of the Company's
loan portfolio. Net charge-offs for the three months ended June 30, 2000 were
$509 thousand, up from $260 thousand for the same period in 1999.
As a result of management's analysis of the risk characteristics of the
lending portfolio, as well as the trends and levels of nonperforming and other
delinquent loans, a provision for loan losses of $1.4 million for the three
months ended June 30, 2000 was recorded. The $1.4 million provision is down $275
thousand from the $1.7 million provision recorded for the three months ended
June 30, 1999. The provision as a percentage of average loans declined from
1.16% for the three months ended June 30, 1999 to 0.69% in 2000. The decline is
primarily a result of the reduction in nonperforming loans from $15.7 million at
June 30, 1999 to $13.0 million at June 30, 2000. The Company continues to
maintain certain portfolios of loans with higher credit risk, such as
manufactured housing loans, commercial loans and financed insurance premium
loans. The growth in loan balances, net charge-offs, risk elements of the
Company's loan portfolio, economic conditions in the Company's market area and
nonperforming loan balances are the primary factors which are considered in
determining the level of the Company's provision for loan losses. See Table E,
"Non-Performing Assets" and Table F, "Loan Loss Experience".
Market Risk
Interest rate risk is the most significant market risk affecting the
Company. Other types of market risk, such as foreign currency exchange rate risk
and commodity price risk, do not arise in the normal course of the Company's
business activities.
Interest rate risk is defined as an exposure to a movement in interest
rates that could have an adverse effect on the Company's net interest income.
Net interest income is susceptible to interest rate risk to the degree that
interest-bearing liabilities mature or reprice on a different basis than earning
assets. When interest-bearing liabilities mature or reprice more quickly than
earning assets in a given period, a significant increase in market rates of
interest could adversely affect net interest income. Similarly, when earning
assets mature or reprice more quickly than interest-bearing liabilities, falling
interest rates could result in a decrease in net income.
In an attempt to manage its exposure to changes in interest rates,
management monitors the Company's interest rate risk. Management's
asset/liability committee meets monthly to review the Company's interest rate
risk position and profitability, and to recommend strategies for consideration
by the Board of Directors. Management also reviews loan and deposit pricing, and
the Company's securities portfolio, formulates investment and funding
strategies, and oversees the timing and implementation of transactions to assure
attainment of the Board's objectives in the most effective manner.
Notwithstanding the Company's interest rate risk management activities, the
potential for changing interest rates is an uncertainty that can have an adverse
effect on net income.
In adjusting the Company's asset/liability position, the Board and
management attempt to manage the Company's interest rate risk while enhancing
net interest margin. At times, depending on the level of general interest
10
<PAGE>
Hudson River Bancorp, Inc.
Management's Discussion and Analysis
(continued)
rates, the relationship between long- and short-term interest rates, market
conditions and competitive factors, the Board and management may determine to
increase the Company's interest rate risk position somewhat in order to increase
its net interest margin. The Company's results of operations and net portfolio
values remain vulnerable to changes in interest rates and to fluctuations in the
difference between long- and short-term interest rates.
Interest rate risk analyses performed by the Company indicate that the
Company is virtually neutral to changes in interest rates as of June 30, 2000.
As a result, rising or falling interest rates projected over a 12-month horizon
would not have significant impact on net interest income. Management makes
certain assumptions in relation to prepayment speeds for loans, CMO's and
mortgage-backed securities, which would prepay much faster in a falling rate
scenario, and slower in a rising rate scenario. Consistent with the
asset/liability management philosophy described above, the Company has taken
steps to manage its interest rate risk by attempting to match the repricing
periods of its earning assets to its interest-bearing liabilities, while still
allowing for maximization of net interest income. The Company's purchases of
securities, retention of fixed rate loan products, and emphasis on lower cost,
more stable non-certificate deposit accounts are methods the Company has
utilized to manage its interest rate risk. Management continuously evaluates
various alternatives to address interest rate risk including, but not limited
to, the purchase of interest rate swaps, caps, and floors, leveraging scenarios,
and changes in asset or funding mix.
The preceding sensitivity analysis does not represent a Company
forecast and should not be relied upon as being indicative of expected operating
results. These hypothetical estimates are based upon numerous assumptions
including: the nature and timing of interest rate levels including yield curve
shape, prepayments on loans and securities, deposit decay rates, pricing
decisions on loans and deposits, reinvestment/replacement of asset and liability
cash flows, and others. While assumptions are developed based upon current
economic and local market conditions, the Company cannot make assurances as to
the predicative nature of these assumptions including how customer preferences
or competitor influences might change. Also, as market conditions vary from
those assumed in the sensitivity analysis, actual results will differ due to:
prepayment/refinancing levels likely deviating from those assumed, the varying
impact of interest rate changes on caps and floors on adjustable rate assets,
the potential effect of changing debt service levels on customers with
adjustable rate loans, depositor early withdrawals and product preference
changes, and other internal/external variables. Furthermore, the sensitivity
analysis does not reflect actions that management might take in responding to or
anticipating changes in interest rates.
Liquidity Risk
Liquidity is defined as the ability to generate sufficient cash flow to
meet all present and future funding commitments, depositor withdrawals and
operating expenses. Management monitors the Company's liquidity position on a
daily basis and evaluates its ability to meet depositor withdrawals or make new
loans or investments.
The Company's cash inflows result primarily from loan repayments;
maturities, principal payments, and calls of securities held to maturity and
securities available for sale; new deposits; and borrowings from the Federal
Home Loan Bank of New York. The Company's cash outflows consist of new loan
originations; security purchases; deposit withdrawals; operating expenses; and
treasury stock purchases. The timing of cash inflows and outflows is closely
monitored by management although changes in interest rates, economic conditions,
and competitive forces strongly impact the predictability of these cash flows.
The Company attempts to provide stable and flexible sources of funding through
the management of its liabilities, including core deposit products offered
through its branch network, and through the use of borrowings. Management
believes that the level of the Company's liquid assets combined with daily
monitoring of cash inflows and outflows provide adequate liquidity to fund
outstanding loan commitments, meet daily withdrawal requirements of depositors,
and meet all other daily obligations of the Company.
11
<PAGE>
Hudson River Bancorp, Inc.
Management's Discussion and Analysis
(continued)
CAPITAL RESOURCES
-----------------
Consistent with its goal to operate a sound and profitable financial
organization, the Company actively seeks to maintain a "well-capitalized"
institution in accordance with regulatory standards. Total equity was $200.1
million at June 30, 2000, or 17.31% of total assets on that date. As of March
31, 2000, total equity was $200.7 million or 17.46% of total assets. Ratios of
tangible equity to tangible assets were 16.49% and 16.62% as of June 30, 2000
and March 31, 2000, respectively. These reductions in the equity to assets
ratios are reflective of management's objectives to leverage capital through
asset growth, mergers and acquisitions, and share repurchases. The Company is
currently executing a 10% share repurchase program. As of June 30, 2000, the
Company had an additional 109 thousand shares to acquire under its current
repurchase program. As of June 30, 2000, the Company and the Bank exceeded all
of their regulatory capital requirements and the Bank was classified as a
well-capitalized institution.
OTHER OPERATING INCOME AND EXPENSES
-----------------------------------
Total other operating income was $694 thousand for the three months
ended June 30, 2000 up slightly from the $592 thousand earned for the same
period in 1999. Other operating income is composed primarily of service charges
on deposit accounts, loan servicing income and other income. Income from service
charges on deposit accounts increased from $332 thousand in 1999 to $443
thousand in 2000, primarily as a result of the SFS Acquisition and its resultant
increase in deposit accounts. Loan servicing income decreased slightly due to
the reductions in the Company's loan servicing portfolio as a result of
paydowns. Other income was $218 thousand for the three months ended June 30,
2000 as compared to $144 thousand for the same period in 1999. This increase is
a result of earnings from the Company's investment in bank owned life insurance
during December 1999, offset in part by losses recorded in relation to the
Company's equity investment in a mortgage company.
Total other operating expenses were $7.6 million for the three months
ended June 30, 2000, up $1.3 million from the same period in 1999. This increase
was due to higher expenses in compensation and benefits, occupancy, equipment,
advertising, legal and other professional fees, goodwill and other intangibles
amortization, and other expenses, partially offset by a reduction in expenses on
other real estate owned and repossessed property.
Compensation and benefits increased $350 thousand to $3.4 million for
the three months ended June 30, 2000 from $3.1 million in 1999. This increase is
substantially the result of the SFS Acquisition and the opening of our
eighteenth branch in June 2000.
Occupancy expense for the three months ended June 30, 2000 was $503
thousand, up $116 thousand from the $387 thousand for the same period in the
prior year. Equipment expenses for the three months ended June 30, 2000 were
$829 thousand, up from $590 thousand in 1999. These expenses were higher due to
the SFS Acquisition and the opening of the Company's eighteenth branch.
Expenses on other real estate owned and repossessed property decreased
from $403 thousand during the three months ended June 30, 1999 to $272 thousand
during the same period in 2000. This decrease is the result of management's
continued efforts to reduce the level of problem assets.
Advertising expenses were $368 thousand for the three months ended June
30, 2000, up from $199 thousand for the same period in 1999. Advertising related
to product sale campaigns and the opening of our eighteenth branch generally
accounted for the increase.
Legal and other professional fees increased to $370 thousand for the
three months ended June 30, 2000, up from $232 thousand in 1999. This increase
is attributed to expenses associated with the Company's defense of a hostile
takeover attempt discussed previously. Management anticipates higher levels of
expenses in the next quarter as it continues to defend against the takeover
attempt.
Goodwill and other intangibles amortization for the three months ended
June 30, 2000 was $281 thousand, up from $91 thousand for the same period a year
earlier. The increases relate to the goodwill associated with the Company's
equity investment in The Bostwick Group, an insurance brokerage company, in
September 1999, as well as the SFS Acquisition.
Other expenses were $1.3 million for the three months ended June 30,
2000 up from $1.1 million during the same period in 1999. The increase is the
result of general increases associated with the continued growth of the Company
through branch openings, acquisitions and loan growth.
12
<PAGE>
Hudson River Bancorp, Inc.
Management's Discussion and Analysis
(continued)
TAX EXPENSE
-----------
Tax expense increased from $1.1 million for the three months ended June
30, 1999 to $1.5 million for the comparable period in 2000. The increase is
primarily the result of higher income before tax expense.
IMPACT OF INFLATION AND CHANGING PRICES
---------------------------------------
The Company's consolidated financial statements are prepared in
accordance with generally accepted accounting principles which require the
measurement of financial position and operating results in terms of historical
dollars without considering the changes in the relative purchasing power of
money over time due to inflation. The impact of inflation is reflected in the
increasing cost of the Company's operations. Unlike most industrial companies,
nearly all assets and liabilities of the Company are monetary. As a result,
interest rates have a greater impact on the Company's performance than do the
effects of general levels of inflation. In addition, interest rates do not
necessarily move in the direction, or to the same extent as the price of goods
and services.
IMPACT OF NEW ACCOUNTING STANDARDS
----------------------------------
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the balance
sheet and measure those instruments at fair value. The accounting for changes in
the fair value of a derivative depends on the intended use of the derivative and
the resulting designation. As amended, this Statement is currently effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. Management is
currently evaluating what impact, if any, this Statement will have on the
Company's consolidated financial statements.
FORWARD-LOOKING STATEMENTS
--------------------------
When used in this filing or future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases "will likely
result", "are expected to", "should continue", "is anticipated", "estimate",
"project", "believe", or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. In addition, certain disclosures and information
customarily provided by financial institutions are inherently based upon
predictions of future events and circumstances. Furthermore, from time to time,
the Company may publish other forward-looking statements relating to such
matters as anticipated financial performance, business prospects, and similar
matters.
The Private Securities Litigation Reform Act of 1995 provides a safe
harbor for forward-looking statements. In order to comply with the terms of the
safe harbor, the Company notes that a variety of factors could cause the
Company's actual results and experience to differ materially from the
anticipated results or other expectations expressed in the Company's
forward-looking statements. Some of the risks and uncertainties that may affect
the operations, performance, development and results of the Company's business,
the interest rate sensitivity of its assets and liabilities, and the adequacy of
its allowance for loan losses, include but are not limited to the following:
a. Deterioration in local, regional, national or global economic
conditions which could result, among other things, in an increase
in loan delinquencies, a decrease in property values, or a change
in the housing turnover rate;
b. Changes in market interest rates or changes in the speed at which
market interest rates change;
c. Changes in laws and regulations affecting the financial services
industry;
d. Changes in competition; and
e. Changes in consumer preferences.
The Company wishes to caution readers not to place undue reliance on
any forward-looking statements, which speak only as of the date made, and to
advise readers that various factors, including those described above, could
affect the Company's financial performance and could cause the Company's actual
results or circumstances for future periods to differ materially from those
anticipated or projected.
The Company does not undertake, and specifically disclaims any
obligations, to publicly release the result of any revisions that may be made to
any forward-looking statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.
13
<PAGE>
Hudson River Bancorp, Inc.
Management's Discussion and Analysis
(continued)
Table A. Financial Highlights
<TABLE>
<CAPTION>
At or At or
For the Three Months Ended For the Years Ended
June 30, March 31,
------------------------ ----------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Financial Ratios
----------------
Basic earnings per share(1) $ 0.19 $ 0.13 $ 0.65 $ 0.17
Diluted earnings per share(1) 0.19 0.13 0.65 0.17
Return on average assets(2) 0.92% 0.95% 0.96% 0.47%
Return on average equity(2) 5.30 3.83 4.58 2.05
Return on average tangible equity(2) 5.63 3.88 4.77 2.06
Net interest rate spread 3.76 3.87 3.85 3.63
Net interest margin(2) 4.62 5.09 4.83 4.82
Efficiency ratio(3) 53.38 52.32 52.61 50.48
Expense ratio(2)(3) 2.46 2.69 2.56 2.49
<CAPTION>
--------------------------------------
At Period Ended
--------------------------------------
June 30, March 31,
------------------------
2000 2000 1999
---------- ---------- ----------
<S> <C> <C> <C>
Share Information
-----------------
Book value per share $ 14.78 $ 14.50 $ 14.02
Tangible book value per share 13.94 13.66 13.81
Book value per share, including unallocated
ESOP shares and unvested RRP shares 13.07 12.85 12.39
Tangible book value per share, including unallocated
ESOP shares and unvested RRP shares 12.33 12.11 12.21
Closing market price 11.88 10.00 10.94
Capital Ratios
--------------
Equity to total assets 17.31% 17.46% 24.89%
Tangible equity to tangible assets 16.49 16.62 24.62
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------
At Period Ended
--------------------------------------
June 30, March 31,
------------------------
2000 2000 1999
---------- ---------- ----------
<S> <C> <C> <C>
Asset Quality Ratios
--------------------
Nonperforming loans to total loans 1.54 1.25 1.72
Nonperforming assets to total assets 1.24 1.04 1.41
Allowance for loan losses to:
Loans 2.43 2.38 2.47
Nonperforming loans 158.28 190.50 143.77
</TABLE>
(1) Earnings per share data only applies to periods since the Company's initial
public offering on July 1, 1998.
(2) Annualized for the three month periods.
(3) Ratio does not include other real estate owned and repossessed property
expenses, net securities transactions, and goodwill and other intangibles
amortization for each period. The ratio for the year ended March 31, 1999
does not include a charitable contribution to the Hudson River Bank & Trust
Company Foundation.
14
<PAGE>
Hudson River Bancorp, Inc.
Management's Discussion and Analysis
(continued)
Table B. Average Balances, Interest, and Yields
<TABLE>
<CAPTION>
Three Months Ended June 30,
-------------------------------------------------------------------------
2000 1999
-------------------------------------- ----------------------------------
Average Average Average Average
(In thousands) Balance Interest Yield/Rate Balance Interest Yield/Rate
------- -------- ---------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Earning assets
Federal funds sold $ 69 $ 1 5.81% $ - $ - -%
Securities available for sale (1) 232,350 4,008 6.92 223,741 3,516 6.32
Securities held to maturity 8,384 141 6.75 19,508 322 6.64
Federal Home Loan Bank of New York stock 8,615 145 6.75 3,299 55 6.71
Loans receivable (2) 833,831 17,847 8.58 590,507 12,931 8.81
--------- ------ ---- ------- ------ ----
Total earning assets 1,083,249 22,142 8.20% 837,055 16,824 8.08%
------ ---- ------ ----
Cash and due from banks 14,435 13,147
Allowance for loan losses (19,879) (14,689)
Other nonearning assets 68,705 32,902
----------- ---------
Total assets $ 1,146,510 $ 868,415
=========== =========
Interest-bearing liabilities
Savings accounts $178,392 $ 1,128 2.54% $ 146,249 $ 1,100 3.03%
N.O.W. and money market accounts 127,181 799 2.52 103,294 727 2.83
Time deposit accounts 388,464 5,000 5.16 301,863 3,904 5.20
Mortgagors' escrow deposits 7,585 40 2.12 5,402 29 2.16
Securities sold under agreements to repurchase 4,124 52 5.06 610 6 3.96
Short-term FHLB advances 138,021 2,192 6.37 38,469 473 4.95
Long-term FHLB borrowings 30,600 462 6.06 - - -
--------- ------ ---- ------- ------ ----
Total interest-bearing liabilities 874,367 9,673 4.44% 595,887 6,239 4.21%
------ ---- ------ ----
Noninterest-bearing deposits 51,609 42,386
Other noninterest-bearing liabilities 20,673 13,484
Shareholders' equity 199,861 216,658
----------- ---------
Total liabilities and shareholders' equity $ 1,146,510 $ 868,415
=========== =========
Net interest income $ 12,469 $ 10,585
======== ========
Net interest spread 3.76% 3.87%
==== ====
Net interest margin 4.62% 5.09%
==== ====
</TABLE>
(1) Average balances include fair value adjustment.
(2) Average balances include nonaccrual loans.
15
<PAGE>
Hudson River Bancorp, Inc.
Management's Discussion and Analysis
(continued)
Table C. Volume and Rate Analysis
<TABLE>
<CAPTION>
Three Months Ended
June 30,
-----------------------------------
2000 vs 1999
-----------------------------------
Due To Due To Net
(In thousands) Volume Rate Change
------- ------- -------
<S> <C> <C> <C>
Interest income
Federal funds sold $ 1 $ -- $ 1
Securities available for sale 139 353 492
Securities held to maturity (187) 6 (181)
Federal Home Loan Bank of New York stock 89 1 90
Loans receivable 5,214 (298) 4,916
------- ------- -------
Total interest income 5,256 62 5,318
------- ------- -------
Interest expense
Savings accounts $ 219 $ (191) $ 28
N.O.W. and money market accounts 156 (84) 72
Time deposit accounts 1,115 (19) 1,096
Mortgagors' escrow deposits 12 (1) 11
Securities sold under agreements to repurchase 44 2 46
Short-term FHLB advances 1,545 174 1,719
Long-term FHLB borrowings 462 -- 462
------- ------- -------
Total interest expense 3,553 (119) 3,434
------- ------- -------
Net interest income $ 1,703 $ 181 $ 1,884
======= ======= =======
</TABLE>
Note: Changes attributable to both rate and volume, which cannot be segregated,
have been allocated proportionately to the change due to volume and the change
due to rate.
16
<PAGE>
Hudson River Bancorp, Inc.
Management's Discussion and Analysis
(continued)
Table D. Loan Portfolio Analysis
<TABLE>
<CAPTION>
June 30, March 31,
-------------------------- ------------------------------------------------------
(In thousands) 2000 2000 1999
-------------------------- -------------------------- --------------------------
Amount % Amount % Amount %
------------ ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Loans secured by real estate:
Residential $ 509,338 60.4% $ 491,811 59.7% $ 295,466 51.1%
Commercial 143,018 17.0 138,891 16.9 91,480 15.8
Construction 9,893 1.2 9,144 1.1 3,401 0.6
--------- ----- --------- ----- --------- -----
Total loans secured by real estate $ 662,249 78.6% $ 639,846 77.7% $ 390,347 67.5%
--------- ----- --------- ----- --------- -----
Other loans:
Manufactured housing $ 79,920 9.5% $ 81,542 9.9% $ 90,354 15.6%
Commercial 41,645 4.9 37,167 4.5 29,024 5.0
Financed insurance premiums 44,144 5.2 51,796 6.3 57,901 10.0
Consumer 16,647 2.0 15,536 1.9 12,440 2.2
--------- ----- --------- ----- --------- -----
Total other loans $ 182,356 21.6% $ 186,041 22.6% $ 189,719 32.8%
--------- ----- --------- ----- --------- -----
Unearned discount and net deferred loan
origination fees and costs (1,580) (0.2) (2,032) (0.3) (1,967) (0.3)
--------- ----- --------- ----- --------- -----
Total loans receivable $ 843,025 100.0% $ 823,855 100.0% $ 578,099 100.0%
===== ===== ======
Allowance for loan losses (20,524) (19,608) (14,296)
--------- --------- ---------
Net loans receivable $ 822,501 $ 804,247 $ 563,803
========= ========= =========
</TABLE>
17
<PAGE>
Hudson River Bancorp, Inc.
Management's Discussion and Analysis
(continued)
Table E. Nonperforming Assets
<TABLE>
<CAPTION>
March 31,
June 30, ---------------------
(In thousands) 2000 2000 1999
------- ------- -------
<S> <C> <C> <C>
Nonaccruing loans
Residential real estate $ 4,343 $ 3,199 $ 2,253
Commercial real estate 1,109 2,536 2,669
Commercial loans 16 137 --
Manufactured housing 1,687 1,911 2,315
Financed insurance premiums 5,737 2,453 2,549
Consumer 75 57 158
------- ------- -------
Total nonperforming loans $12,967 $10,293 $ 9,944
======= ======= =======
Foreclosed and repossessed property
Residential real estate $ 200 $ 85 $ 258
Commercial real estate 295 377 474
Repossessed property 818 1,179 1,776
------- ------- -------
Total $ 1,313 $ 1,641 $ 2,508
======= ======= =======
Total nonperforming assets $14,280 $11,934 $12,452
======= ======= =======
Allowance for loan losses $20,524 $19,608 $14,296
======= ======= =======
Allowance to nonperforming loans 158.28% 190.50% 143.77%
Nonperforming to total assets 1.24% 1.04% 1.41%
Nonperforming loans to total loans 1.54% 1.25% 1.72%
</TABLE>
18
<PAGE>
Hudson River Bancorp, Inc.
Management's Discussion and Analysis
(continued)
Table F. Loan Loss Experience
<TABLE>
<CAPTION>
Three Months Ended Years Ended
(In thousands) June 30, March 31,
-------------------------- --------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Loans outstanding (end of period) $ 843,025 $ 603,807 $ 823,855 $ 578,099
========= ========= ========= =========
Average loans outstanding (period to date) $ 833,831 $ 590,507 $ 698,403 $ 522,974
========= ========= ========= =========
Allowance for loan losses at beginning of period $ 19,608 $ 14,296 $ 14,296 $ 8,227
Loan charge-offs:
Residential real estate (56) (24) (282) (251)
Commercial real estate (227) -- (14) (95)
Commercial loans -- -- (150) (136)
Manufactured housing (298) (243) (1,283) (1,331)
Consumer (28) (77) (228) (139)
Financed insurance premiums (146) (117) (586) (1,239)
--------- --------- --------- ---------
Total charge-offs (755) (461) (2,543) (3,191)
--------- --------- --------- ---------
Loan recoveries:
Residential real estate 77 40 54 341
Commercial real estate 4 42 184 777
Commercial loans -- 2 4 17
Manufactured housing 41 13 86 73
Consumer 11 4 38 25
Financed insurance premiums 113 100 281 686
--------- --------- --------- ---------
Total recoveries 246 201 647 1,919
--------- --------- --------- ---------
Loan charge-offs, net of recoveries (509) (260) (1,896) (1,272)
Provision charged to operations 1,425 1,700 6,200 7,341
Allowance acquired -- -- 1,008 --
--------- --------- --------- ---------
Allowance for loan losses at end of period $ 20,524 $ 15,736 $ 19,608 $ 14,296
========= ========= ========= =========
Ratio of net charge-offs to average loans
outstanding (annualized) 0.24% 0.18% 0.27% 0.24%
========= ========= ========= =========
Provision to average loans outstanding (annualized) 0.69% 1.16% 0.89% 1.40%
========= ========= ========= =========
Allowance to loans outstanding 2.43% 2.61% 2.38% 2.47%
========= ========= ========= =========
</TABLE>
19
<PAGE>
Hudson River Bancorp, Inc.
Quantitative and Qualitative Disclosures About Market Risk
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See detailed discussion of market risk within the Risk Management
section of Management's Discussion and Analysis included in Item 2 of this Form
10-Q.
HUDSON RIVER BANCORP, INC.
PART II- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5: OTHER INFORMATION
None
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibit is included herein
(27) Financial Data Schedule (included in electronic
format only)
(b) Reports on Form 8-K
A current report on Form 8-K was filed with the SEC
on May 5, 2000 to announce the Company's entering
into a definitive agreement to merge with Cohoes
Bancorp, Inc.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HUDSON RIVER BANCORP, INC.
8/10/00 /s/Carl A. Florio
------- -----------------
Date Carl A. Florio, Director, President and
Chief Executive Officer (Principal
Executive and Operating Officer)
8/10/00 /s/Timothy E. Blow
------- ------------------
Date Timothy E. Blow, Chief Financial
Officer (Principal Financial and
Accounting Officer)
21
