<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 2000
Commission File No. 030525
HUDSON VALLEY HOLDING CORP.
(Exact name of registrant as specified in its charter)
NEW YORK 13-3148745
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
21 Scarsdale Road, Yonkers, NY 10707
(Address of principal executive office with zip code)
914-961-6100
(Registrant's telephone number including area code)
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 and (2) has been subject to such filing requirements for
the past 90 days.
YES [X] NO [_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
OUTSTANDING AT
CLASS AUGUST 11, 2000
----- ---------------
Common stock, par value 4,275,554
$0.20 per share
<PAGE>
TABLE OF CONTENTS
<TABLE>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED
JUNE 30, 1999 (UNAUDITED) 1
CONSOLIDATED STATEMENTS OF
INCOME FOR THE SIX MONTHS ENDED
JUNE 30, 2000 AND 1999 (UNAUDITED) 2
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME FOR THE
THREE AND SIX MONTH PERIODS
ENDED JUNE 30, 2000 AND 1999
(UNAUDITED) 3
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2000 (UNAUDITED) AND
DECEMBER 31, 1999 4
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED
JUNE 30, 2000 AND 1999 (UNAUDITED) 5
CONSOLIDATED STATEMENTS OF CASH
FLOWS FOR THE SIX MONTHS ENDED
JUNE 30, 2000 AND 1999 (UNAUDITED) 6
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED) 7
ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 8
ITEM 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK 39
</TABLE>
i
<PAGE>
<TABLE>
Page
----
<S> <C> <C>
PART II. OTHER INFORMATION AND SIGNATURES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 41
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 43
</TABLE>
ii
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HUDSON VALLEY HOLDING CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Dollars in thousands, except per share amounts
<TABLE>
<CAPTION>
Three Months
Ended
June 30,
----------------
2000 1999
------- -------
<S> <C> <C>
Interest Income:
Loans, including fees........................................... $10,182 $ 7,437
Securities:
Taxable....................................................... 9,278 7,671
Exempt from Federal income taxes.............................. 1,711 1,530
Federal funds sold.............................................. 194 326
------- -------
Total interest income........................................... 21,365 16,964
------- -------
Interest Expense:
Deposits........................................................ 6,512 4,219
Securities sold under repurchase agreements and other short term
borrowings..................................................... 1,969 1,391
Other borrowings................................................ 1,415 1,405
------- -------
Total interest expense.......................................... 9,896 7,015
------- -------
Net Interest Income............................................. 11,469 9,949
Provision for loan losses....................................... 350 225
------- -------
Net interest income after provision for loan losses............. 11,119 9,724
------- -------
Non Interest Income:
Service charges................................................. 273 256
Realized gain on sales of securities, net....................... -- 15
Other income.................................................... 132 108
------- -------
Total non interest income....................................... 405 379
------- -------
Non Interest Expense:
Salaries and employees benefits................................. 3,764 3,293
Occupancy....................................................... 547 493
Professional services........................................... 725 637
Equipment....................................................... 421 482
Business development............................................ 171 261
FDIC assessment................................................. 40 19
Other operating expenses........................................ 902 894
------- -------
Total non interest expense...................................... 6,570 6,079
------- -------
Income Before Income Taxes...................................... 4,954 4,024
Income Taxes.................................................... 1,313 986
------- -------
Net Income...................................................... $ 3,641 3,038
======= =======
Basic Earnings Per Common Share................................. $ 0.85 $ 0.72
Diluted Earnings Per Common Share............................... $ 0.82 $ 0.70
</TABLE>
See notes to consolidated financial statements
1
<PAGE>
HUDSON VALLEY HOLDING CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Dollars in thousands, except per share amounts
<TABLE>
<CAPTION>
Six Months
Ended
June 30,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Interest Income:
Loans, including fees......................................................... $ 19,700 $ 14,377
Securities:
Taxable................................................................... 18,405 14,724
Exempt from Federal income taxes.......................................... 3,369 3,043
Federal funds sold............................................................ 346 477
-------- --------
Total interest income......................................................... 41,820 32,621
-------- --------
Interest Expense:
Deposits...................................................................... 11,756 7,949
Securities sold under repurchase agreements and other short term borrowings... 4,842 3,042
Other borrowings.............................................................. 2,531 2,467
-------- --------
Total interest expense........................................................ 19,129 13,458
-------- --------
Net Interest Income........................................................... 22,691 19,163
Provision for loan losses..................................................... 700 450
-------- --------
Net interest income after provision for loan losses........................... 21,991 18,713
-------- --------
Non Interest Income:
Service charges............................................................... 550 492
Realized gain on sales of securities, net..................................... - 15
Other income.................................................................. 481 245
-------- --------
Total non interest income..................................................... 1,031 752
-------- --------
Non Interest Expense:
Salaries and employees benefits............................................... 7,263 6,230
Occupancy..................................................................... 1,096 981
Professional services......................................................... 1,343 1,105
Equipment..................................................................... 864 912
Business development.......................................................... 409 465
FDIC assessment............................................................... 82 40
Other operating expenses...................................................... 1,849 1,777
-------- --------
Total non interest expense.................................................... 12,906 11,510
-------- --------
Income Before Income Taxes.................................................... 10,116 7,955
Income Taxes.................................................................. 2,681 1,949
-------- --------
Net Income.................................................................... $ 7,435 $ 6,006
======== ========
Basic Earnings Per Common Share............................................... $ 1.74 $ 1.43
Diluted Earnings Per Common Share............................................. $ 1.70 $ 1.40
</TABLE>
See notes to consolidated financial statements
2
<PAGE>
HUDSON VALLEY HOLDING CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
Dollars in thousands
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ---------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Income................................................ $ 3,641 $ 3,038 $ 7,435 $ 6,006
Other comprehensive income (loss), net of tax:
Unrealized holding gain (loss) on securities available
for sale arising during the period..................... 1,202 (13,070) 2,548 (15,986)
Income tax effect....................................... (492) 5,352 (1,043) 6,546
-------- --------- --------- ---------
Other comprehensive income (loss)......................... 710 (7,718) 1,505 (9,440)
-------- --------- --------- ---------
Comprehensive Income (Loss)............................... $ 4,351 $ (4,680) $ 8,940 $ (3,434)
======== ========= ========= =========
</TABLE>
See notes to consolidated financial statements
3
<PAGE>
HUDSON VALLEY HOLDING CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
Dollars in thousands, except per share and share amounts
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks............................... $ 35,075 $ 26,185
Federal funds sold.................................... 11,700 20,900
Securities available for sale, at estimated fair value
(amortized cost of $680,438 in 2000 and $656,791 in
1999)................................................ 660,298 634,973
Federal Home Loan Bank of New York (FHLB) Stock....... 9,461 9,361
Loans (net of allowance for loan losses of $4,687 in
2000 and $4,047 in 1999)............................. 445,366 412,914
Accrued interest and other receivables................ 10,678 9,556
Premises and equipment, net........................... 13,283 13,732
Other real estate owned............................... 2,151 2,193
Deferred income taxes................................. 12,001 12,175
Other assets.......................................... 7,367 5,483
---------- ----------
TOTAL ASSETS.......................................... $1,207,380 $1,147,472
========== ==========
LIABILITIES
Deposits:
Non interest-bearing................................ $ 267,329 $ 226,345
Interest-bearing.................................... 595,016 528,501
---------- ----------
Total deposits...................................... 862,345 754,846
Securities sold under repurchase agreements and other
short-term borrowings................................ 169,555 219,484
Other borrowings...................................... 87,968 94,234
Accrued interest and other liabilities................ 11,990 10,598
---------- ----------
TOTAL LIABILITIES..................................... 1,131,858 1,079,162
---------- ----------
STOCKHOLDERS' EQUITY
Common stock, $0.20 par value; authorized 10,000,000
shares; outstanding 4,263,566 and 4,223,599 shares in
2000 and 1999, respectively.......................... 1,023 1,011
Additional paid-in-capital............................ 88,468 87,011
Retained earnings..................................... 18,841 13,955
Accumulated other comprehensive loss.................. (12,079) (13,584)
Treasury stock, at cost............................... (20,731) (20,083)
---------- ----------
Total stockholders' equity............................ 75,522 68,310
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............ $1,207,380 $1,147,472
========== ==========
</TABLE>
See notes to consolidated financial statements
4
<PAGE>
HUDSON VALLEY HOLDING CORP. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity (Unaudited)
Six Months Ended June 30, 2000 and 1999
Dollars in thousands, except share amounts
<TABLE>
<CAPTION>
Accumulated
Number of Additional Other
Shares Common Treasury Paid-in Retained Comprehensive
Outstanding Stock Stock Capital Earnings Income (Loss) Total
----------- ------ -------- ---------- -------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
2000................... 4,223,599 $1,011 $(20,083) $87,011 $13,955 $(13,584) $68,310
Net income.............. 7,435 7,435
Exercise of stock
options................ 58,054 12 1,416 1,428
Purchase of treasury
stock.................. (23,163) (772) (772)
Sale of treasury stock.. 5,076 124 41 165
Cash dividend........... (2,549) (2,549)
Net unrealized gain on
securities available
for sale............... 1,505 1,505
--------- ------ -------- ------- ------- -------- -------
Balance at June 30,
2000................... 4,263,566 $1,023 $(20,731) $88,468 $18,841 $(12,079) $75,522
========= ====== ======== ======= ======= ======== =======
<CAPTION>
Accumulated
Number of Additional Other
Shares Common Treasury Paid-in Retained Comprehensive
Outstanding Stock Stock Capital Earnings Income (Loss) Total
----------- ------ -------- ---------- -------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1999................... 3,802,510 $ 915 $(18,087) $72,898 $16,469 $ 3,501 $75,696
Net income.............. 6,006 6,006
Exercise of stock
options................ 47,887 10 915 925
Purchase of treasury
stock.................. (48,749) (1,512) (1,512)
Sale of treasury stock.. 1,443 35 10 45
Cash dividend........... (2,048) (2,048)
Net unrealized loss on
securities available
for sale............... (9,440) (9,440)
--------- ------ -------- ------- ------- -------- -------
Balance at June 30,
1999................... 3,803,091 $ 925 $(19,564) $73,823 $20,427 $ (5,939) $69,672
========= ====== ======== ======= ======= ======== =======
</TABLE>
See notes to consolidated financial statements
5
<PAGE>
HUDSON VALLEY HOLDING CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Dollars in thousands
<TABLE>
<CAPTION>
Six Months
Ended June 30,
--------------------
2000 1999
--------- ---------
<S> <C> <C>
Operating Activities:
Net income $ 7,435 $ 6,006
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses................................ 700 450
Depreciation and amortization............................ 855 836
Amortization of premiums on securities, net.............. 130 1,199
Increase (decrease) in deferred loan fees................ 590 (5)
Increase in accrued interest and other receivables....... (1,122) (643)
Increase in other assets................................. (1,842) (52)
Increase (decrease) in accrued interest and other
liabilities............................................. 1,392 (373)
Other changes, net....................................... 1 89
--------- ---------
Net cash provided by operating activities.................. 8,139 7,507
--------- ---------
Investing Activities:
Net (increase) decrease in short term investments.......... 9,200 (9,700)
Increase in FHLB stock..................................... (100) (1,249)
Proceeds from maturities of securities available for sale.. 28,771 96,466
Purchases of securities available for sale................. (52,548) (168,519)
Net increase in loans...................................... (33,742) (46,361)
Net purchases of premises and equipment.................... (406) (2,114)
--------- ---------
Net cash used in investing activities...................... (48,825) (131,477)
--------- ---------
Financing Activities:
Proceeds from issuance of common stock..................... 1,428 925
Proceeds from sale of treasury stock....................... 165 45
Net increase in deposits................................... 107,499 117,914
Cash dividend paid......................................... (2,549) (2,048)
Repayment of other borrowings.............................. (27,266) --
Proceeds from other borrowings............................. 21,000 18,727
Net decrease in securities sold under repurchase agreements
and short term borrowings................................. (49,929) (10,056)
Acquisition of treasury stock.............................. (772) (1,512)
--------- ---------
Net cash provided by financing activities.................. 49,576 123,995
--------- ---------
Increase in cash and due from banks........................ 8,890 25
Cash and due from banks, beginning of period............... 26,185 29,359
--------- ---------
Cash and due from banks, end of period..................... $ 35,075 $ 29,384
========= =========
Supplemental Disclosures:
Interest paid.............................................. $ 17,898 $ 13,377
Income tax payments........................................ 3,165 2,238
Change in unrealized gain (loss) on securities available
for sale-net of tax....................................... 1,505 (9,440)
</TABLE>
See notes to consolidated financial statements
6
<PAGE>
HUDSON VALLEY HOLDING CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Description of Operations
Hudson Valley Holding Corp. (the "Company") is a New York corporation
founded in 1982. The Company is registered as a bank holding company under the
Bank Holding Company Act of 1956.
The Company provides financial services through its wholly-owned subsidiary,
Hudson Valley Bank (the "Bank"), a New York chartered commercial bank
established in 1972. The Bank is an independent bank headquartered in
Westchester County, New York. The Bank has 13 branch offices in Westchester
County and 1 in Bronx County, New York. The Bank anticipates opening an
Aadditional facility in Bronx County in 2000. The Company and the Bank derive
substantially all of their revenue and income from providing banking and
related services to small and medium-sized business, professionals,
municipalities, not-for-profit organizations and individuals located in
Westchester County and, to a lesser extent, the Bronx.
2. Summary of Significant Accounting Policies
In the opinion of management, the accompanying unaudited consolidated
financial statements include all adjustments (comprising only normal recurring
adjustments) necessary to present fairly the financial position of the Company
at June 30, 2000 and December 31, 1999 and the results of its operations,
comprehensive income, cash flows and changes in stockholders' equity for the
three and six month periods ended June 30, 2000 and 1999. The results of
operations for the three and six month periods ended June 30, 2000 are not
necessarily indicative of the results of operations to be expected for the
remainder of the year.
The unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles ("GAAP") and
predominant practices used within the Banking industry. Certain information and
note disclosures normally included in annual financial statements have been
omitted.
In preparing such financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the dates of the consolidated balance sheets and income and
expenses for the periods reported. Actual results could differ significantly
from those estimates.
An estimate that is particularly susceptible to significant change in the
near term relates to the determination of the allowance for loan losses. In
connection with the determination of the allowance for loan losses, management
utilizes the work of professional appraisers for significant properties.
These unaudited consolidated financial statements should be read in
conjunction with our audited consolidated financial statements as of and for
the year ended December 31, 1999 and notes thereto.
Intercompany items and transactions have been eliminated in consolidation.
Certain reclassifications have been made to prior period accounts to conform to
the current period's presentation.
3. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings
per common share for each of the periods indicated:
<TABLE>
<CAPTION>
(000's except share data)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- -------------------------
2000 1999 2000 1999
----------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Numerator:
Net income available to common shareholders $ 3,641 $ 3,038 $ 7,435 $ 6,006
for basic and diluted earnings per share
Denominator:
Denominator for basic earnings per common
share - weighted average shares 4,297,067 4,210,399 4,270,010 4,196,350
Effect of diluted securities:
Stock options 135,008 104,849 112,420 101,764
---------- ---------- ---------- -----------
Denominator for dilutive earnings per common
share - adjusted weighted average shares 4,432,075 4,315,248 4,382,430 4,298,114
========== ========== ========== ===========
Basic earnings per common share $ 0.85 $ 0.72 $ 1.74 $ 1.43
Diluted earnings per common share $ 0.82 $ 0.70 $ 1.70 $ 1.40
</TABLE>
7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This section presents discussion and analysis of the Company's consolidated
financial condition at June 30, 2000 and consolidated results of operations for
the three and six month periods ended June 30, 2000 and June 30, 1999. The
Company is consolidated with its wholly-owned subsidiary, Hudson Valley Bank,
and the Bank's subsidiaries, Hudson Valley Investment Corp., Grassy Sprain Real
Estate Holdings, Inc., Sprain Brook Realty Corp. and Hudson Valley Mortgage
Corp. (collectively the "Bank"). This discussion and analysis should be read in
conjunction with the financial statements and supplementary financial
information contained in the Company's Registration Statement on Form 10.
8
<PAGE>
Results of Operations for the Three and Six Month Periods Ended June 30, 2000
and June 30, 1999
Summary of Results
The Company reported net income of $3.6 million and $7.4 million for the
three and six month periods ended June 30, 2000, respectively. This compares to
$3.0 million and $6.0 million for the three and six month periods ended June 30,
1999, respectively. The increase in net income in the current year periods was
primarily due to higher net interest income and higher non interest income
partially offset by higher non interest expense, a higher provision for loan
losses and a higher effective tax rate .
Diluted earnings per share were $0.82 and $1.70 for the three and six month
periods ended June 30, 2000, respectively. This compares to $0.70 and $1.40 of
diluted earnings per share for the three and six month periods ended June 30,
1999, respectively. On this basis, diluted earnings per share increased $0.12 or
17.1 percent and $0.30 or 21.4 percent, respectively. Return on average equity
was 17.05 percent and 17.73 percent for the three and six month periods ended
June 30, 2000, respectively, compared to 16.50
9
<PAGE>
percent and 16.51 percent for the three and six month periods ended June 30,
1999, respectively. Return on average assets for the three and six month periods
ended June 30, 2000 was 1.21 percent and 1.26 percent, respectively. This
compares to 1.17 percent and 1.19 percent for the three and six month periods
ended June 30, 1999, respectively.
10
<PAGE>
Average Balances and Interest Rates
The following table sets forth the average balances of interest earning
assets and interest bearing liabilities for the three month periods ended June
30, 2000 and June 30, 1999, as well as total interest and corresponding yields
and rates. The data contained in the table has been adjusted to a tax
equivalent basis, based on the federal statutory rate of 34 percent.
<TABLE>
<CAPTION>
(000's except percentages)
Three Months Ended June 30,
---------------------------------------------------------------
2000 1999
------------------------------ -------------------------------
Average Yield/ Average Yield/
Balance Interest Rate(/3/) Balance Interest Rate(/3/)
---------- -------- --------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets:
Federal funds sold...... $ 12,453 $ 194 6.23% $ 27,164 $ 326 4.80%
Securities:(/1/)
Taxable............... 548,163 9,278 6.77 497,670 7,671 6.17
Exempt from Federal
income taxes......... 139,376 2,593 7.44 124,176 2,319 7.47
Loans, net (/2/)........ 434,940 10,182 9.36 335,286 7,437 8.87
---------- -------- ----------- --------
Total interest earning
assets................. 1,134,932 22,247 7.84 984,296 17,753 7.21
---------- -------- ----------- --------
Non interest earning
assets:
Cash and due from
banks................ 28,448 25,386
Other assets.......... 36,255 31,970
---------- --------
Total non interest
earning assets......... 64,703 57,356
---------- -----------
Total assets............ $1,199,635 $ 1,041,652
========== ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest bearing
liabilities:
Deposits:
Money market.......... $ 156,412 $ 1,119 2.86% $ 118,907 $ 699 2.35%
Savings............... 51,179 191 1.49 52,751 200 1.52
Time.................. 348,193 4,991 5.73 274,951 3,114 4.53
Checking with
interest............. 62,314 211 1.35 58,202 206 1.42
Securities sold under
Repurchase agreements
and other short-term
borrowings 132,781 1,969 5.93 118,029 1,391 4.71
Other borrowings........ 101,081 1,415 5.60 109,906 1,405 5.11
---------- -------- ----------- --------
Total interest bearing
liabilities............ 851,960 9,896 4.65 732,746 7,015 3.83
---------- -------- ----------- --------
Non interest bearing
liabilities:
Demand deposits....... 249,372 224,549
Other liabilities..... 12,876 10,704
---------- -----------
Total non interest
bearing liabilities.... 262,248 235,253
Stockholders' equity
(/1/).................. 85,427 73,653
---------- -----------
Total liabilities and
stockholders'
equity(/1/)............ $1,199,635 $ 1,041,652
========== ===========
Net interest earnings... $ 12,351 $ 10,738
======== ========
Net yield on interest
earning assets......... 4.35% 4.36%
</TABLE>
__________________
(/1/) Excludes unrealized gains (losses) on securities available for sale
(/2/) Includes loans classified as non-accrual
(/3/) Effect of adjustment to a tax equivalent basis was $882 and $789 for the
three months ended June 30, 2000 and June 30, 1999, respectively.
11
<PAGE>
Average Balances and Interest Rates
The following table sets forth the average balances of interest earning
assets and interest bearing liabilities for the six month periods ended June 30,
2000 and June 30, 1999, as well as total interest and corresponding yields and
rates. The data contained in the table has been adjusted to a tax equivalent
basis, based on the federal statutory rate of 34 percent.
<TABLE>
<CAPTION>
(000's except percentages)
Six Months Ended June 30,
-------------------------------------------------------------
2000 1999
----------------------------- ------------------------------
Average Yield/ Average Yield/
Balance Interest Rate(/3/) Balance Interest Rate(/3/)
---------- -------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets:
Federal funds sold...... $ 11,590 $ 346 5.97% $ 19,955 $ 477 4.78%
Securities:(/1/)
Taxable............... 544,206 18,405 6.76 482,069 14,724 6.11
Exempt from Federal
income taxes......... 137,462 5,105 7.43 122,907 4,611 7.50
Loans, net (/2/)........ 426,659 19,700 9.23 324,693 14,377 8.86
---------- ------- ---------- -------
Total interest earning
assets................. 1,119,917 43,556 7.78 949,624 34,189 7.20
---------- ------- ---------- -------
Non interest earning
assets:
Cash and due from
banks................ 27,770 25,643
Other assets.......... 35,582 32,489
---------- ----------
Total non interest
earning assets......... 63,352 58,132
---------- ----------
Total assets............ $1,183,269 $1,007,756
========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest bearing
liabilities:
Deposits:
Money market.......... $ 149,340 $ 2,125 2.85% $ 113,635 $ 1,352 2.38%
Savings............... 51,325 390 1.52 52,657 424 1.61
Time.................. 320,235 8,848 5.53 253,082 5,767 4.56
Checking with
interest............. 60,335 393 1.30 57,308 406 1.42
Securities sold under
Repurchase agreements
and other short-term
borrowings 171,286 4,842 5.65 130,753 3,042 4.65
Other borrowings........ 90,069 2,531 5.62 93,276 2,467 5.29
---------- ------- ---------- -------
Total interest bearing
liabilities............ 842,590 19,129 4.54 700,711 13,458 3.84
---------- ------- ---------- -------
Non interest bearing
liabilities:
Demand deposits....... 244,447 221,827
Other liabilities..... 12,386 12,456
---------- --------
Total non interest
bearing liabilities.... 256,833 234,283
---------- --------
Stockholder's equity
(/1/).................. 83,846 72,762
---------- --------
Total liabilities and
stockholders'
equity(/1/)............ $1,183,269 $1,007,756
========== ==========
Net interest earnings... $24,427 $20,731
======= =======
Net yield on interest
earning assets......... 4.36% 4.37%
</TABLE>
--------
(/1/) Excludes unrealized gains (losses) on securities available for sale
(/2/) Includes loans classified as non-accrual
(/3/) Effect of adjustment to a tax equivalent basis was $1,736 and $1,568 for
the six months ended June 30, 2000 and June 30, 1999, respectively.
12
<PAGE>
Interest Differential
The following table sets forth the dollar amount of changes in interest
income, interest expense and net interest income between the three and six month
periods ended June 30, 2000 and June 30, 1999.
<TABLE>
<CAPTION>
(000's)
------------------------------------------------------------
Six Month Period Three Month Period
Increase (Decrease) Due to Increase (Decrease) Due to
Change in Change in
----------------------------- ----------------------------
Volume Rate Total(1) Volume Rate Total(1)
-------- ------ -------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Federal funds sold...................................... $ (200) $ 69 $ (131) $ (177) $ 45 $ (132)
Securities:
Taxable............................................. 1,898 1,783 3,681 778 829 1,607
Exempt from Federal income taxes.................... 546 (52) 494 284 (10) 274
Loans, net.............................................. 4,515 808 5,323 2,210 535 2,745
------- ------- ------- ------- ------- -------
Total interest income................................... 6,759 2,608 9,367 3,095 1,399 4,494
------- ------- ------- ------- ------- -------
Interest expense:
Deposits:
Money market........................................ $ 425 $ 348 $ 773 $ 220 $ 200 $ 420
Savings............................................. (11) (23) (34) (6) (3) (9)
Time................................................ 1,530 1,551 3,081 830 1,047 1,877
Checking with interest.............................. 21 (34) (13) 15 (10) 5
Securities sold under repurchase agreements
and other short-term borrowings....................... 943 857 1,800 174 404 578
Other borrowings........................................ (85) 149 64 (113) 123 10
------- ------- ------- ------- ------- -------
Total interest expense.................................. 2,823 2,848 5,671 1,120 1,761 2,881
Increase (decrease) in interest differential............ $ 3,936 $ (240) $ 3,696 $ 1,975 $ (362) $ 1,613
======= ======= ======= ======= ======= =======
</TABLE>
--------
(1) Changes attributable to both rate and volume are allocated between the rate
and volume variances based upon their absolute relative weights to the
total change.
13
<PAGE>
Net Interest Income
Net interest income, the difference between interest income and interest
expense, is the most significant component of the Company's consolidated
earnings. For the three and six month periods ended June 30, 2000, net interest
income, on a tax equivalent basis, increased 15.0 percent to $12.4 million from
$10.7 million, and 17.8 percent to $24.4 million from $20.7 million,
respectively, compared to the prior year periods. Net interest income rose
because of the increase in the excess of average interest earning assets over
average interest bearing liabilities for the three and six month periods ended
June 30, 2000 to $283.0 million from $251.6 million, and to $277.3 million from
$248.9 million, respectively, compared to the prior year periods. The net
interest margin, on a tax equivalent basis, was virtually unchanged during these
periods.
Interest income is determined by the volume of, and related rates earned
on, interest earning assets. Volume increases in securities and loans plus rate
increases in all asset categories (except securities exempt from federal income
taxes), partially offset by lower volume in Federal funds sold, contributed to
the higher interest income in the current year periods as
14
<PAGE>
compared to the same periods in the prior year. For the three and six month
periods ended June 30, 2000, average interest earning assets increased 15.3
percent to $1,134.9 million from $984.3 million, and 17.9 percent to $1,119.9
million from $949.6 million, respectively, compared to the prior year periods.
Interest income, on a tax equivalent basis, for the three and six month periods
ended June 30, 2000, increased 25.3 percent to $22.2 million from $17.8 million,
and 27.4 percent to $43.6 million from $34.2 million, respectively, compared to
the prior year periods.
Average total securities increased $65.7 million, or 10.6 percent to $687.5
million for the three month period ended June 30, 2000 compared to the prior
year period. For the six month period ended June 30, 2000, average total
securities increased $76.7 million, or 12.7 percent to $681.7 million compared
to the prior year period. These increases in average total securities in the
current year periods, as compared to the same periods in the prior year, were
principally the result of management's efforts to effectively leverage capital.
Interest income on securities increased in the current year periods due to
higher volume and higher aggregate rates.
15
<PAGE>
Average net loans increased $99.7 million, or 29.7 percent to $434.9
million for the three month period ended June 30, 2000 compared to the prior
year period. For the six month period ended June 30, 2000, average net loans
increased $102.0 million, or 31.4 percent to $426.7 million compared to the
prior year period. These increases in average net loans reflect management's
greater emphasis on making new loans, more effective market penetration and
continuing strong economic conditions in the Company's primary market. Interest
income on net loans increased in the current year periods due to higher volume
and higher rates.
Interest expense is a function of the volume of, and rates paid for,
interest bearing liabilities, comprised of deposits and borrowings. Interest
expense for the three and six month periods ended June 30, 2000 increased 41.1
percent to $9.9 million from $7.0 million, and 42.1 percent to $19.1 million
from $13.5 million, respectively, compared to the prior year periods. For the
three and six month periods ended June 30, 2000, average balances in all deposit
categories, except for savings accounts, increased compared to the prior year
periods. Deposits increased from existing customers, new customers and the
opening of a new branch in June, 1999 in the Bronx, New York. In addition, time
deposits increased, principally from municipalities,
16
<PAGE>
which are obtained on a bid basis, and borrowings increased in a continuing
effort to effectively leverage capital. These funds were invested in loans and
securities. The amount of non interest bearing demand deposits, which increased
11.1 percent to $249.4 million from $224.5 million, and 10.2 percent to $244.4
million from $221.8 million, respectively, compared to the prior year periods,
is an important component of the Company's liability management and has a direct
impact on the determination of net interest income. Interest rates paid on
average money market accounts, time deposits and borrowings, increased in the
current year periods compared to the prior year periods due to a higher interest
rate environment. Savings accounts and checking with interest accounts were not
as sensitive to general interest rate changes and, therefore, the rates on these
deposits showed only small changes during these periods.
The interest rate spread on a tax equivalent basis for the three and six
month periods ended June 30, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
Three Month Period Six Month Period
Ended June 30, Ended June 30,
2000 1999 2000 1999
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Average interest rate on:
Total average interest earning assets 7.84% 7.21% 7.78% 7.20%
Total average interest bearing
liabilities 4.65 3.83 4.54 3.84
Total interest rate spread 3.19 3.38 3.24 3.36
</TABLE>
17
<PAGE>
Higher overall yields on interest earning assets offset by higher rates on
interest bearing liabilities, resulting from: a higher interest rate
environment; a shifting of funding to higher rate deposits and borrowings; and
loans, the highest yielding asset category, growing as a component of total
interest earning assets, reduced the interest rate spread in the current year
periods compared to the prior year periods. Management cannot predict what
impact market conditions will have on the Company's interest rate spread and
compression in net interest rate spread may occur. The leveraging of capital
generally tends to decrease the interest rate spread, however, it adds net
interest income without adding significant operating costs.
Provision for Loan Losses
The Bank recorded a provision for loan losses of $350,000 and $225,000 for
the three month periods ended June 30, 2000 and 1999, respectively, and $700,000
and $450,000 for the six month periods ended June 30, 2000 and 1999,
respectively. The provision for loan losses is charged to income to bring the
Bank's allowance for loan losses to a level deemed appropriate by management.
See "Financial Condition" for further discussion.
18
<PAGE>
Non Interest Income
Non interest income for the three and six month periods ended June 30, 2000
increased 6.9 percent to $405,000 from $379,000, and 37.1 percent to $1.0
million from $752,000, respectively, compared to the prior year periods.
Service charges for the three and six month periods ended June 30, 2000
increased 6.6 percent to $273,000 from $256,000, and 11.8 percent to $550,000
from $492,000, respectively, compared to the prior year periods. These increases
reflect a higher level of fees charged and increased activity.
Other income for the three and six month periods ended June 30, 2000
increased 22.2 percent to $132,000 from $108,000, and 96.3 percent to $481,000
from $245,000, respectively, compared to the prior year periods. The increase
for the three month period ended June 30, 2000 compared to the prior year period
was principally the result of an insurance dividend received in the current year
period and not received in the prior year period. The increase for the six month
period ended June 30, 2000 compared to the prior year period was principally the
result of a gain of $233,000 in the
19
<PAGE>
current year period from the sale of a branch facility which was relocated
during 1999.
Non Interest Expense
Non interest expense for the three and six month periods ended June 30,
2000 increased 8.1 percent to $6.6 million from $6.1 million, and 12.1 percent
to $12.9 million from $11.5 million, respectively, compared to the prior year
periods. These increases reflect the overall growth of the Company and resulted
from increases in salaries and employee benefits, occupancy costs, professional
services, FDIC assessment and other operating expense, partially offset by
decreases in equipment expense and business development expense in the current
year periods compared to the prior year periods.
Salaries and employee benefits, the largest component of non interest
expense, for the three and six month periods ended June 30, 2000 increased 14.3
percent to $3.8 million from $3.3 million, and 16.6 percent to $7.3 million from
$6.2 million, respectively, compared to the prior year periods.
20
<PAGE>
These increases resulted from increased staff to accommodate the increases in
loans and deposits, the opening of a new branch facility, as well as merit
increases. In addition, salaries and employee benefits increased as a result of
higher costs of employee benefit programs such as medical coverage, retirement,
costs associated with related payroll taxes and training expenses. Further,
recruitment related costs increased due to increased recruiting activity.
Occupancy expense for the three and six month periods ended June 30, 2000
increased 11.0 percent to $547,000 from $493,000, and 11.7 percent to $1.1
million from $981,000, respectively, compared to the prior year periods. These
increases reflect the opening of a new branch facility in June, 1999, as well as
rising costs on leased facilities, real estate taxes, utility costs, maintenance
costs and other costs to operate the Company's facilities.
Professional services for the three and six month periods ended June 30,
2000 increased 13.8 percent to $725,000 from $637,000, and 21.5 percent to $1.3
million from $1.1 million, respectively, compared to the prior year periods.
These increases resulted from professionals engaged to
21
<PAGE>
assist with first-time filings with the Securities and Exchange Commission and
to review certain operating functions. The increase for the six month period
ended June 30, 2000 was additionally due to professionals engaged to perform a
customer satisfaction survey, compared to the prior year period.
Equipment expense for the three and six month periods ended June 30, 2000
decreased 12.7 percent to $421,000 from $482,000, and 5.3 percent to $864,000
from $912,000, respectively, compared to the prior year periods. These decreases
reflect higher depreciation costs associated with the Company's in-house
computer systems offset by equipment related expenditures made during the prior
year periods, not made in the current year periods, associated with the opening
of a new branch facility in June, 1999.
Business development expense for the three and six month periods ended June
30, 2000 decreased 34.5 percent to $171,000 from $261,000, and 12.0 percent to
$409,000 from $465,000, respectively, compared to the prior year periods. These
decreases reflect costs associated with increased general promotion of products
and services as well as expanded business development efforts, offset by
business development costs in the prior year
22
<PAGE>
periods, not incurred in the current year periods, associated with the opening
of a new branch in June, 1999.
The assessment of the Federal Deposit Insurance Corporation (FDIC) for the
three and six month periods ended June 30, 2000 increased 110.5 percent to
$40,000 from $19,000, and 105.0 percent to $82,000 from $40,000, respectively,
compared to the prior year periods. These increases resulted from increases in
the Bank's deposits subject to FDIC assessment as well as a general increase in
the overall assessment rate.
Significant changes, more than 5 percent, in other components of non
interest expense for the three and six month periods ended June 30, 2000
compared to June 30, 1999, were due to the following:
. Increase of $7,000 (5.6%) and $34,000 (14.5%), respectively, in
stationery and printing costs related primarily to increases in
supplies, forms and stationery due to increased business activity and
a new branch facility.
23
<PAGE>
. Increase of $15,000 (8.9%) and $40,000 (12.6%), respectively, in
communications expense, due to added voice and data lines associated
with expansion of technology usage and growth in customers and
business activity.
. Increase of $15,000 (19.9%) and $29,000 (19.7%), respectively, in
courier expense due to increased customer utilization of the service
and an increase in costs of such service.
. Increase of $51,000 (102.5%) and $80,000 (77.1%), respectively, in
dues, meetings and seminar costs due to increased participation in
such events.
. Decrease of $19,000 (25.4%) and $39,000 (25.6%), respectively, in
other insurance expense resulting from reductions in the estimates of
the net cost of certain life insurance programs, partially offset by
higher automobile insurance costs.
24
<PAGE>
. Decrease of $77,000 (76.9%) and $138,000 (67.2%), respectively, in
other loan expense principally due to reduced costs associated with
OREO.
Income Taxes
Income taxes for the three and six month periods ended June 30, 2000
increased 33.2 percent to $1.3 million from 1.0 million, and 37.6 percent to
$2.7 million from $1.9 million, respectively, compared to the prior year
periods. The effective tax rate was 26.5 percent for the current year periods
compared to 24.5 percent in the prior year periods. The increase in the
effective tax rate reflects an increase in income subject to tax largely due to
the decrease in tax exempt income as a percentage of total interest income and
the Company becoming subject to New York City tax during the last half of 1999.
25
<PAGE>
Financial Condition
At June 30, 2000, the Company had total assets of $1,207.4 million, an
increase of $59.9 million, or 5.2 percent, from the $1,147.5 million at
December 31, 1999.
The securities portfolio consists of securities available for sale of
$660.3 million and $635.0 million and Federal Home Loan Bank of New York (FHLB)
stock totaling $9.5 million and $9.4 million at June 30, 2000 and December 31,
1999, respectively.
The following table sets forth the amortized cost, gross unrealized gains
and losses and the estimated fair value of securities classified as available
for sale at June 30, 2000 (the Company had no securities classified as held to
maturity at June 30, 2000):
<TABLE>
<CAPTION>
(000's)
------------------------------------------------------------
Amortized Gross Unrealized Estimated
---------------------------
Cost Gains Losses Fair Value
---------- --------- ---------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury and government agencies $218,416 $ 5 $11,796 $206,625
Mortgage-backed securities 316,099 384 8,908 307,575
Obligations of state and political 140,261 1,452 1,412 140,301
subdivisions
Other debt securities 4,579 -- 288 4,291
---------- --------- ---------- -----------
Total debt securities 679,355 1,841 22,404 658,792
Equity securities 1,083 447 24 1,506
---------- --------- ---------- -----------
Total $680,438 $2,288 $22,428 $660,298
========== ========= ========== ===========
</TABLE>
F-28
<PAGE>
During the six months ended June 30, 2000, U.S. Treasury and government
agency obligations increased $18.8 million to $206.6 million due to purchases of
$22.7 million and other increases of $0.1 million, offset by maturities of $4.0
million. The purchases were made based upon the attractive yield available in
the market.
Mortgage-backed securities, including CMO's, decreased $2.3 million during
the period to $307.6 at June 30, 2000. The decrease was due to purchases of
$14.8 million and other increases of $0.6 million, offset by principal paydowns
and redemptions of $17.7 million. These purchases were fixed rate mortgage-
backed securities with average lives of less than ten years at the time of
purchase.
Obligations of state and political subdivisions increased $7.4 million
during the period to $140.3 million due to purchases of $13.4 million,
maturities of $6.5 million and other increases of $0.5 million. The purchases
were made for the attractive yields in the market and for their favorable income
tax treatment.
F-29
<PAGE>
The Company invests in FHLB stock and other securities which are rated with
an investment grade by nationally recognized credit rating organizations and, on
a limited basis, in non-rated securities. Non-rated securities totaled $8.7
million at June 30, 2000 comprised primarily of obligations of municipalities
located within the Company's market area.
Except for securities of the U.S. Treasury and government agencies, FHLB
stock having a book value and estimated fair value of $9.5 million and mortgage-
backed securities having a book value of $10.0 million and an estimated fair
value of $9.1 million issued by Residential Funding Mortgage Corp. (a subsidiary
of General Motors Acceptance Corp., which in turn is a wholly-owned subsidiary
of General Motors, a company with an estimated market value of $32 billion at
June 30, 2000), there were no obligations of any single issuer which exceeded
ten percent of stockholders' equity at June 30, 2000.
Total loans were $452.1 at June 30, 2000 compared to $418.4 million at
December 31, 1999, reflecting a $33.7 million increase. This increase resulted
principally from a $16.3 million increase in commercial real estate loans, an
$8.2 million increase in residential real estate loans and a $10.0 million
increase in commercial and industrial loans. All other loan types showed little
change during the six month period ended June 30, 2000.
F-30
<PAGE>
Major classifications of loans at June 30, 2000 and December 31, 1999 are
as follows:
<TABLE>
<CAPTION>
(000's)
-------------------------------
June 30, December 31,
2000 1999
---------- ------------
<S> <C> <C>
Real Estate:
Commercial $170,512 $153,823
Construction 25,949 26,526
Residential 136,416 127,959
Commercial and industrial 87,266 77,276
Individuals 9,615 9,280
Lease financing 22,331 23,543
---------- -----------
Total 452,089 418,407
Deferred loan fees (2,036) (1,446)
Allowance for loan losses (4,687) (4,047)
---------- -----------
Loans, net $445,366 $412,914
========== ===========
</TABLE>
In March 2000, the Company ended its participation in an automobile leasing
program due to the sale of the company that originated and serviced the leases
and resulting changes to various aspects of the program. The balance of $22.3
million of such leases at June 30, 2000 will continue to decline as repayments
of existing leases continue. The Company has not determined if it will seek to
participate in a similar program in the future.
During the quarter ended June 30, 2000, certain loans were reclassified by
type. The December 31, 1999 loan classifications by type in the above table have
been reclassified to conform to the June 30, 2000 presentation.
F-31
<PAGE>
The following table summarizes the Company's non-accrual loans, loans past
due 90 days or more and still accruing, restructured loans and OREO as of June
30, 2000 and December 31, 1999.
<TABLE>
<CAPTION>
(000's except percentages)
----------------------------------
June 30, December 31,
2000 1999
---------- ------------
<S> <C> <C>
Non accrual loans at period end $5,028 $3,855
OREO at period end 2,151 2,193
Restructured loans at period end -- 323
---------- ------------
Total nonperforming assets 7,179 6,371
Loans past due 90 days or more and still accruing 1,589 264
Nonperforming assets to total assets at period end 0.59% 0.56%
</TABLE>
Gross interest income that would have been recorded if these borrowers had
been current in accordance with their original loan terms was $253,000, $386,000
and $698,000 for the three and six months ended June 30, 2000 and the year ended
December 31, 1999, respectively. There was no interest income on these loans
included in net income for the three and six month periods ended June 30, 2000
and the year ended December 31, 1999.
F-32
<PAGE>
The Bank maintains an allowance for loan losses to absorb losses inherent
in the loan portfolio based on ongoing quarterly assessments of estimated
losses. The Bank's methodology for assessing the appropriateness of the
allowance consists of several key components, which include a specific allowance
for identified problem loans, a formula allowance and an unallocated allowance.
A summary of the components of the allowance for loan losses, changes in
the components and the impact of charge-offs/recoveries on the resulting
provision for loan losses for the dates indicated is as follows:
<TABLE>
<CAPTION>
(000's)
----------------------------------------------
June 30, Change December 31,
2000 During Period 1999
----------- ------------- -------------
<S> <C> <C> <C>
Specific component $ 309 $ 252 $ 57
Formula component 337 (530) 867
Unallocated component 4,041 918 3,123
----------- -------------- -------------
Total allowance $4,687 $4,047
=========== =============
Net change 640
Net recoveries 60
--------------
Provision amount $ 700
==============
</TABLE>
The change in the specific component of the allowance for loan losses is
the result of our analysis of impaired loans and other problem loans and our
determination of the amount required to reduce the carrying amount of such loans
to estimated fair value.
F-33
<PAGE>
The change in the formula component of the allowance for loan losses is the
result of the application of historical loss experience to outstanding loans by
type. Loss experience for each year is based upon average charge-off experience
for the prior three year period by loan type.
The change in the unallocated component of the allowance for loan losses is
the result of our consideration of other relevant factors affecting loan
collectibility. Due to the inherent uncertainty in the process, we do not
attempt to quantify separate amounts for each of the conditions considered in
estimating the unallocated component of the allowance. We periodically adjust
the unallocated component to an amount that, when considered with the specific
and formula components, represents our best estimate of probable losses in the
loan portfolio as of each balance sheet date. The following factors affected
the changes in the unallocated component for loan losses at June 30, 2000:
. Credit quality - Non-accrual loans and loans past due 90 days or more
increased by $2.5 million. Certain of the loans are also considered in
connection with the analysis of impaired loans performed to
F-34
<PAGE>
determine the specific component of the allowance. However, due to the
uncertainty of that determination, such loans are also considered in the
process of determining the unallocated component of the allowance.
. Change in underwriting criteria - The Bank increased its loan to value
ratio guidelines on all loans secured by real estate (except for loans
secured by 1-4 family residential real estate) to remain competitive for
such loans.
. New loan products - The Bank began financing business equipment leases
during the period. Any probable losses with respect to business equipment
leases are not reflected in the formula component of the allowance for loan
losses since there is no loss history.
. Economic and business conditions - Increasing interest rates negatively
affected the general ability of borrowers to repay their loans.
F-35
<PAGE>
As a result of our detailed review process and consideration of the
identified relevant factors, management determined that an increase in the
unallocated component of the allowance of $918,000 reflects our best estimate of
probable losses which have been incurred as of June 30, 2000.
Total deposits increased $107.5 million for the six month period ended June
30, 2000 to $862.3 million, or 14.2 percent from $754.8 million at December 31,
1999.
The following table presents a summary of deposits at June 30, 2000 and
December 31, 1999:
<TABLE>
<CAPTION>
(000's)
--------------------------------------------------
June 30, December 31, Increase
2000 1999 (Decrease)
---------- ------------ ------------
<S> <C> <C> <C>
Demand deposits $267,329 $226,345 $ 40,984
Money market accounts 155,830 140,462 15,368
Savings accounts 51,149 52,548 (1,399)
Time deposits of $100,000 or more 255,179 226,997 28,182
Time deposits of less than $100,000 61,702 50,146 11,556
Checking with interest 71,156 58,348 12,808
--------- ------------ ----------
$862,345 $754,846 $107,499
========= ============ ==========
</TABLE>
The increase in non interest bearing demand deposits reflects the Company's
continuing emphasis on developing this funding source. The increase in time
deposits of $100,000 or more primary resulted from an increase in CD's from
municipal customers which are acquired on a bid
F-36
<PAGE>
basis. The increase in checking with interest, money market accounts and time
deposits of less than $100,000 reflects new customer relationships and increased
account activity. The decrease in savings accounts reflects the lower rate paid
on such accounts and customers switching to other higher rate accounts or to
other investments.
Total borrowings decreased $56.2 million to $257.5 million at June 30, 2000
from $313.7 million at December 31, 1999. This overall decrease in borrowings
resulted from deposit growth in excess of growth in loans and securities.
Stockholders' equity increased $7.2 million to $75.5 million at June 30,
2000 from $68.3 million at December 31, 1999. Increases in stockholders' equity
resulted from:
. Net income of $7.4 million for the six months ended June 30, 2000
. $1.4 million of stock options exercised
. $0.2 million of treasury stock sales
. $1.5 million unrealized gain on securities available for sale
F-37
<PAGE>
Decreases in stockholders' equity resulted from:
. $0.8 million treasury stock purchases
. $2.5 million cash dividend paid on common stock
The Company's and the Bank's capital ratios at June 30, 2000 and December
31, 1999 are as follows:
<TABLE>
<CAPTION>
Minimum for
Capital
June 30, December 31, Adequacy
2000 1999 Purposes
------------------------------------------
<S> <C> <C> <C>
Leverage ratio:
Company 7.1% 7.2% 4.0%
Bank 7.1 7.1 4.0
Tier 1 capital:
Company 15.6 15.7 4.0
Bank 15.5 15.5 4.0
Total capital:
Company 16.4 16.5 8.0
Bank 16.3 16.3 8.0
</TABLE>
The Company and the Bank exceed all current regulatory capital
requirements. In addition, the Bank was in the "well capitalized" category at
June 30, 2000 and December 31, 1999.
F-38
<PAGE>
The Bank's liquid assets, at June 30, 2000, include cash and due from banks
of $35.1 million and Federal funds sold of $11.7 million. Other sources of
liquidity at June 30, 2000 include maturities and principal and interest
payments on loans and securities, comprised of approximately $162.5 million of
loans maturing in one year or less, and approximately $54.0 million of
securities having contractual maturities or expected call dates or average lives
of one year or less. In addition, at June 30, 2000, the Bank had an available
borrowing capacity of approximately $90 million from the FHLB, $12.5 million
under two Federal funds purchased facilities, $60 million available under Retail
CD Brokerage Agreements and had securities totaling approximately $90 million
that could be sold under agreements to repurchase.
F-39
<PAGE>
Forward-Looking Statements
The Company has made, and may continue to make, various forward-looking
statements with respect to earnings, credit quality and other financial and
business matters for periods subsequent to June 30, 2000. The Company
cautions that these forward-looking statements are subject to numerous
assumptions, risks and uncertainties, and that statements relating to
subsequent periods increasingly are subject to greater uncertainty because of
the increased likelihood of changes in underlying factors and assumptions.
Actual results could differ materially from forward-looking statements.
In addition to those factors previously disclosed by the Company and those
factors identified elsewhere herein, the following factors could cause actual
results to differ materially from such forward-looking statements:
. competitive pressure on loan and deposit product pricing;
. other actions of competitors;
. changes in economic conditions;
. the extent and timing of actions of the Federal Reserve Board;
. a loss of customer deposits;
. changes in customer's acceptance of the Banks' products and services;
. increases in federal and state income taxes and/or the Company's
effective income tax rate; and
. the extent and timing of legislative and regulatory actions and reform.
Impact of Inflation and Changing Prices
The Consolidated Financial Statements and Notes thereto presented herein
have been prepared in accordance with generally accepted accounting principles
("GAAP"), which require the measurement of financial position and operating
results in terms of historical dollar amounts or estimated fair value without
considering the changes in the relative purchasing power of money over time due
to inflation. The impact of inflation is reflected in the increased cost of the
Company's operations. Unlike industrial companies, nearly all of the assets and
liabilities of the Company are monetary in nature. As a result, interest rates
have a greater impact on the Company's performance than do the effects of
general levels of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the price of goods and services.
F-40
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and qualitative disclosures about market risk at December
31, 1999 were previously reported in the Company's Registration Statement on
Form 10. There have been no material changes in the Company's market risk
exposure at June 30, 2000 compared to December 31, 1999.
The Company's primary market risk exposure is interest rate risk since
substantially all transactions are denominated in U.S. dollars with no direct
foreign exchange or changes in commodity price exposure.
All market risk sensitive instruments continue to be classified as available
for sale with no financial instruments entered into for trading purposes. The
Company does not use derivative financial instruments extensively. However, an
interest rate floor with a notional amount of $50 million was in place as of
June 30, 2000 to manage the Company's interest rate exposure. The Company did
not enter into any new derivative financial instruments during the six months
ended June 30, 2000.
The Company uses two methods to evaluate market risk to changes in interest
rates, a "Static Gap" analysis and a simulation analysis of the impact of
changes in interest rates on the Company's net interest income. Both methods
show the Company's net interest income declining if interest rates gradually
rise.
F-26
<PAGE>
The Company's "Static Gap" at June 30, 2000 was negative $341 million in the
one year time frame.
The Company's policy limit on interest rate risk has remained unchanged
since December 31, 1999. The following table illustrates the estimated
exposure under a rising rate scenario and a declining rate scenario calculated
as a percentage change in estimated net interest income assuming a gradual
shift in interest rates for the next 12 month measurement period, beginning
June 30, 2000.
<TABLE>
<CAPTION>
Percentage Change
in Estimated
Gradual Change in Net Interest Income
Interest Rates from June 30, 2000 Policy Limit
----------------- ------------------- ------------
<S> <C> <C>
+200 basis points (4.7)% (5.0)%
-200 basis points 3.9 % (5.0)%
</TABLE>
The percentage change in estimated net interest income in the +200 and -200
basis points scenario is within the Company's policy limits.
F-27
<PAGE>
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of the Company was held on April 27,
2000 for the purpose of considering and voting upon the following matters:
I. Election of the following directors, constituting all members of the Board
of Directors, to a one-year term of office: William E. Griffin, James M.
Coogan, Gregory F. Holcombe, Angelo R. Martinelli, Ronald F. Poe, John A. Pratt
Jr., Cecile D. Singer, Craig S. Thompson and John N. Finnerty.
II. Approval of amendment to the Certificate of Incorporation to increase the
authorized number of shares of common stock, $0.20 par value per share, from
5,000,000 to 10,000,000.
III. Approval of amendment to the 1992 Stock Option Plan to authorize an
additional 400,000 shares which may be granted pursuant to the provisions of
said plan.
<PAGE>
The results of votes for each of the items above were as follows:
Votes
--------------------------------------------------
Against or Broker
--------------------------------------------------
Non-
For Withheld Absentions Votes
--------------------------------------------------
ITEM I.
William E. Griffin 3,105,472 2 - -
James M. Coogan 3,105,472 2 - -
Gregory F. Holcombe 3,105,472 2 - -
Angelo R. Martinelli 3,105,472 2 - -
Ronald F. Poe 3,105,472 2 - -
John A. Pratt Jr. 3,105,472 2 - -
Cecile D. Singer 3,105,472 2 - -
Craig S. Thompson 3,105,472 2 - -
John N. Finnerty 3,105,472 2 - -
ITEM II. 3,064,007 41,467 - -
ITEM III. 3,055,656 49,818 - -
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(B) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter ended
June 30, 2000.
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 VALLEY HOLDING CORP.
(Registrant)
By: /s/ STEPHEN R. BROWN
------------------------
Name: Stephen R. Brown
Title: Executive Vice President
Chief Operating Officer and
Chief Financial Officer
August 14, 2000
