SOURCE: HUDSON VALLEY HOLDING CORP.

HUDSON VALLEY HOLDING CORP. ANNOUNCES FINANCIAL RESULTS FOR THE THIRD QUARTER OF 2012

– C&I Loan Balances Grow 15 percent –
– Bank Continues to Grow Core Deposits and Lower Funding Costs –

– Operational Efficiency Drives 5 percent Reduction in Expenses,
Even While Strategic Hiring and Investments in Technology Continue –

– Board Declares Dividend of $0.18 for the Fourth Quarter of 2012 –

YONKERS, N.Y. – October 24, 2012 – Hudson Valley Holding Corp. (NYSE: HVB) today reported sustained profitability in the third quarter ended September 30, 2012, as the bank continued to grow commercial loan balances, reduce funding costs and contain operational expenses.

The parent company of Hudson Valley Bank earned net income of $3.1 million, or $0.16 per diluted share, for the third quarter of 2012, compared to $5.0 million, or $0.25 per diluted share during the second quarter of 2012 and $8.5 million, or $0.43 per share, during the third quarter of 2011. All earnings per share data reported today reflect additional shares outstanding as a result of Hudson Valley’s 10 percent stock dividend issued in December 2011.

“Knowing that Hudson Valley Bank’s proven focus on small- and middle-market commercial customers is capable of delivering so much more, we’re certainly not satisfied with the bottom line, even as we’re pleased to report a profitable third quarter,” President and Chief Executive Officer Stephen R. Brown said. “We continue to acquire low-cost core deposits, profitable new lending relationships and experienced banking talent. All the while, we continue to position the company to take full advantage of opportunities to fully deploy our excess liquidity in the quarters ahead, as we work to diversify our loan portfolio and product offering for businesses and their principals in metro New York.”

Third quarter profitability was dampened by a credit impairment charge on one loan relationship in addition to the continued impact of the bank’s excess cash position. Cash totaled $843.9 million at September 30, 2012, up 27.2 percent from June 30, 2012 and nearly tripled from $290.6 million at September 30, 2011. The position has accumulated as a result of the company’s successful first quarter 2012 loan sales, along with continued cash flows generated by the bank’s loan and securities portfolios.

Excess cash lowered the yield on interest-earning assets to 3.90 percent in the third quarter of 2012 from 4.26 percent in the linked quarter and 4.93 percent in the third quarter of 2011. As a result, Hudson Valley’s net interest margin was 3.60 percent in the third quarter of 2012, compared to 3.93 percent in the second quarter of 2012 and 4.47 percent in the third quarter of 2011.

Lower yield and margin were partially offset by continued improvement in deposit funding costs. During the third quarter of 2012, the company’s historically low average cost of deposits fell still further to 0.22 percent, one basis point lower than the linked quarter and 14 basis points below the third quarter of 2011.

During the third quarter of 2012 the bank earned $4.4 million in non-interest income, compared to $4.8 million in the second quarter of 2012 and $5.7 million in the third quarter of 2011. Fee income declined from both the linked and year-ago quarters due to a lower level of activities which generate service charges as well as fluctuating equity markets levels, which reduced investment advisory fees. Compared to last year’s third quarter, third quarter 2012 non-interest income was also lower due to about $0.9 million in gains on certain assets held for sale in 2011.

The company again demonstrated its commitment to operational efficiency during the third quarter, even while continuing to invest in corporate initiatives to attract senior-level talent, introduce best practices and expand products and services. Non-interest expense totaled $20.0 million for the three months ended September 30, 2012, a reduction of $1.0 million, or 4.8 percent, from the second quarter of 2012 and virtually unchanged compared to the third quarter of 2011. Hudson Valley’s efficiency ratio was 69.3 percent in the third quarter, compared to 68.1 percent and 56.7 percent in the linked and year-ago quarters, respectively.

Hudson Valley’s unique core deposit base continued to expand in the third quarter of 2012. Core deposits, which exclude time deposits greater than $100,000, increased $111.3 million from the linked quarter to $2.5 billion, comprising 96 percent of total deposits. Stable and low-cost deposit funding remains the foundation of Hudson Valley’s commercial banking franchise.

Commercial Loan Portfolio

Growth in commercial and industrial (C&I) loans during the third quarter of 2012 demonstrates the company’s success in executing on its strategic plan to diversify its commercial loan base among new and existing customers in its metro New York markets. C&I balances grew to $266.1 million at September 30, 2012, a 15.1 percent increase from $231.1 million at June 30, 2012. C&I loans totaled $218.5 million at December 31, 2011 and $221.2 million at September 30, 2011.

The bank continues to reduce its overall concentration in commercial real estate (CRE) lending. At September 30, 2012, CRE represented 313.5 percent of risk-based capital, a level below the bank’s previously disclosed commitment to maintain its concentration of commercial real estate loans below 400 percent. CRE loans including construction and multi-family loans totaled $884.1 million on September 30, 2012, decreasing from $944.1 million at June 30, 2012, $1.2 billion at December 31, 2011 and $1.5 billion at September 30, 2011.

1

Portfolio Credit Quality

Overall portfolio trends continue to reflect a generally improving credit environment across Hudson Valley’s niche commercial franchise, while credit events specific to one customer relationship drove the linked quarter decline in asset quality.

Hudson Valley’s total nonperforming assets (NPAs), including nonaccrual loans, nonaccrual loans held for sale, accruing loans delinquent over 90 days and other real estate owned (OREO), were $42.6 million at September 30, 2012, compared to $39.6 million at June 30, 2012, $58.9 million at December 31, 2011 and $61.7 million at September 30, 2011. NPAs totaled 1.45 percent of total assets at September 30, 2012, compared to 1.40 percent at June 30, 2012, 2.11 percent at December 31, 2011 and 2.11 percent at September 30, 2011.

The linked quarter increase in nonperforming assets reflected the addition of classified credits totaling $6.5 million. The relationship associated with these credits has unique aspects and, therefore, we do not believe it is indicative of a general trend. The sale of $474 million in held-for-sale loans, including $27.8 million in nonperforming loans held-for-sale, significantly improved the bank’s key asset quality measures compared to December 31, 2011 and September 30, 2011.

Net charge-offs during the third quarter of 2012 were $4.3 million, $0.7 million lower than in the second quarter of 2012 and $2.1 million higher than in the third quarter of 2011. Net charge-offs for the third quarter of 2012 were primarily attributable to a single relationship, with impairment charges of $4.1 million. As a percentage of average loans, annualized net charge-offs were 1.16 percent in the third quarter of 2012, compared to 1.27 percent in the second quarter of 2012 and 0.47 percent in the third quarter of 2011.

The provision for loan losses was $3.7 million for the third quarter of 2012. Provision for loan losses was $1.9 million and $2.5 million in the linked and year-ago quarters, respectively.

The bank’s allowance for loan losses was $28.1 million at September 30, 2012, compared to $28.7 million at June 30, 2012, $30.7 million at December 31, 2011 and $42.2 million at September 30, 2011. Allowances measured 1.86 percent, 1.85 percent, 1.95 and 2.07 percent of total loans at each of those dates, respectively.

At September 30, 2012, classified assets represented 31.9 percent of risk-based capital. The company continues to target concentration levels for classified assets relative to risk-based capital below 25 percent.

$0.18 Cash Dividend Declared

Hudson Valley’s board of directors declared a cash dividend of $0.18 per share, payable to all common stock shareholders of record as of the close of business on November 13, 2012. The dividend will be payable on November 23, 2012.

Capital Strength

At September 30, 2012, Hudson Valley Holding Corp. posted a total risk-based capital ratio of 17.4 percent, a Tier 1 risk-based capital ratio of 16.1 percent, and a Tier 1 leverage ratio of 9.4 percent.

Its Hudson Valley Bank subsidiary at September 30, 2012 recorded a total risk-based capital ratio of 17.2 percent, a Tier 1 risk-based capital ratio of 15.9 percent, and a Tier 1 leverage ratio of 9.2 percent.

Hudson Valley’s capital ratios remain in excess of “well capitalized” levels applicable to banks under current regulations. Further, Hudson Valley Bank’s capital ratios at September 30, 2012 were in excess of the following internal minimum capital ratios established under the Bank’s capital plan submitted to the Office of the Comptroller of the Currency (“OCC”): total risk-based capital ratio of at least 13.0 percent, a Tier 1 risk-based capital ratio of at least 10.0 percent, and a Tier 1 leverage ratio of at least 8.5 percent.

Third Quarter and Nine Month Review

The company recorded net income for the three month period ended September 30, 2012 of $3.1 million or $0.16 per diluted share, a decrease of $5.4 million compared to net income of $8.5 million or $0.43 per diluted share for the same period in the prior year. Net income for the nine month period ended September 30, 2012 was $26.1 million or $1.33 per diluted share, an increase of $5.3 million compared to net income of $20.8 million or $1.06 per diluted share for the same period in the prior year. Per share amounts for the 2011 periods have been adjusted to reflect the effects of the 10 percent stock dividend issued in December 2011.

The decrease in earnings for the three month period ended September 30, 2012, compared to the same period in the prior year, was primarily due to a $5.9 million decrease in net interest income, the anticipated result of excess liquidity remaining from the proceeds of the loan sales conducted in the first and second quarters of 2012. The loan sales were conducted as part of the company’s efforts to reduce the levels of nonperforming and other classified loans, and also to reduce the overall concentration in commercial real estate loans. In addition to the decrease in net interest income, net income for the third quarter of 2012 was lower, compared to the same period in the prior year, as a result of a higher provision for loan losses and lower fee income, partially offset by lower losses on sales and revaluations of loans and other real estate owned and slightly lower non interest expenses. The increase in earnings for the nine month period ended September 30, 2012, compared to the same period in the prior year, resulted primarily from pretax gain of $15.9 million resulting from the successful completion of $474 million of loan sales announced in the fourth quarter of 2011 and completed at the end of the first quarter of 2012. In addition to the gains on the loan sales, income for the nine month period ended September 30, 2012 was higher, compared to the same period in the prior year, due to a lower provision for loan losses, partially offset by lower net interest income, higher impairment charges on securities available for sale and slightly higher non interest expenses.

Total loans, excluding loans held for sale, decreased $47.9 million and $68.3 million during the three and nine month periods ended September 30, 2012 compared to the prior year end. The overall decrease was primarily the result of pay downs and payoffs of existing loans exceeding new production and additional loan sales conducted in the second quarter of 2012, partially offset by the purchase of adjustable rate residential loans in the first quarter of 2012, which were purchased as partial redeployment of proceeds from sales of loans held for sale. The company continues to provide lending availability to both new and existing customers.

Nonperforming assets decreased to $42.6 million at September 30, 2012, compared to $58.9 million at December 31, 2011. Overall asset quality continued to be adversely affected by the current state of the economy and the real estate market. Although there is evidence that the current economic downturn may have begun to slowly turn around, higher than normal levels of delinquent and nonperforming loans, slowdowns in repayments and declines in the loan-to-value ratios on existing loans continued during the first three quarters of 2012. Despite overall reductions in classified and nonperforming loans, the company’s loan portfolio continued to be adversely impacted by the effects of declines in the demand for and values of virtually all commercial and residential real estate properties. These declines, together with the limited availability of residential mortgage financing, resulted in some continuing weakness in the overall asset quality of the company’s loan portfolio. As a result of these factors, the company has continued to follow aggressive strategies for resolving problem assets and has maintained the allowance for loan loss at a higher than normal level. The provision for loan losses totaled $3.7 million and $7.0 million, respectively, for the three and nine month periods ended September 30, 2012, compared to $2.5 million and $9.5 million, respectively, for the same periods in the prior year. The 2012 provision is lower than in 2011 reflecting improvements achieved in the resolutions of classified and nonperforming loans, however, the provisions in both 2012 and 2011 are reflective of continued weakness in the overall economy, and the related effects of this weakness on the company’s overall asset quality.         .

Total deposits increased by $123.3 million during the nine month period ended September 30, 2012, compared to the prior year end. The company continued to emphasize its core deposit growth, while placing less emphasis on non core deposits including deposits which are obtained on a bid basis.

Liquidity from deposit growth and excess loan and investment repayments over new production was retained in the company’s short-term liquidity portfolios, available to fund future loan growth. With interest rates remaining at historical low levels, this increase in liquidity contributed to significant margin compression. The net interest margin was 3.60 percent and 4.09 percent, respectively, for the three and nine month periods ended September 30, 2012, compared to 4.47 percent and 4.47 percent, respectively, for the same periods in the prior year. The company expects some additional net interest margin compression in future quarters due to maturing loans and investments being reinvested at lower interest rates and until redeployment of the excess proceeds from the recent loan sales and other maturing assets can be completed in a manner consistent with both the company’s risk management policies and the requirements of the OCC. Regardless of the timing of the aforementioned redeployment, if interest rates continue at current levels, we expect that additional downward pressure on net interest margin will continue.

As a result of the aforementioned activity in the company’s core businesses of loans and deposits and other asset/liability management activities, tax equivalent basis net interest income decreased by $6.1 million or 19.9 percent to $24.5 million for the three month period ended September 30, 2012, compared to $30.6 million for the same period in the prior year. Tax equivalent basis net interest income decreased by $6.5 million or 7.3 percent to $82.4 million for the nine month period ended September 30, 2012, compared to $88.9 million for the same period in the prior year. The effect of the adjustment to a tax equivalent basis was $0.4 million and $1.5 million, respectively, for the three and nine month periods ended September 30, 2012, compared to $0.6 million and $1.8 million, respectively, for the same periods in the prior year.

The company’s non interest income was $4.4 million and $29.5 million, respectively, for the three and nine month periods ended September 30, 2012. This represented a decrease of $1.3 million and an increase of $14.7 million, respectively, compared to $5.7 million and $14.8 million, respectively, for the same periods in the prior year. The decrease in the three month period ended September 30, 2012, compared to the same period in the prior year, resulted from lower service fees, lower investment advisory fees and lower net gains on sales and revaluations of assets. The increase in the nine month period ended September 30, 2012, compared to the same period in the prior year, resulted from a $15.9 million pretax gain on sales of loans completed in the first quarter of 2012 and higher other income, partially offset by lower service fees, lower investment advisory fees and higher impairment charges on securities available-for-sale. Investment advisory fee income was lower in 2012 primarily as a result of the effects of continued fluctuation in both domestic and international equity markets. Service charges decreased due to decreased activity. Pre-tax impairment charges on securities available for sale were $0.5 million for the nine month period ended September 30, 2012 and $0.3 million for the same period in the prior year. The impairment charges were related to the company’s investments in pooled trust preferred securities. Non interest income also included other gains of $0.9 million and $0.1 million, respectively, for the three and nine month periods ended September 30, 2011. These gains related to sales and revaluations of other real estate owned and loans held for sale.

Non interest expense was $20.0 million and $61.9 million, respectively, for the three and nine month periods ended September 30, 2012. This represented a decrease of $0.1 million or 0.5 percent and an increase of $0.7 million or 1.1 percent, respectively, compared to $20.1 million and $61.2 million, respectively, for the same periods in the prior year. The overall increase in non interest expense resulted primarily from an additional provision of $1.3 million related to the previously announced ongoing investigations by the Securities and Exchange Commission (SEC) and the Department of Labor (DOL) relating to issues surrounding the brokerage practices and policies and disclosures about such practices of the company’s investment advisory subsidiary, A.R. Schmeidler & Co., Inc. Based on ongoing discussions with the SEC and the DOL, the company believes it has substantially accrued for any penalties and related costs anticipated in the final resolution of this matter although, until final agreement is reached, the exact result cannot be determined. Other changes in non interest expense included decreases in costs associated with problem loan resolution and decreases in FDIC insurance, partially offset by increases in investments in technology and personnel to accommodate expanding risk management requirements and growth and the expansion of services and products available to new and existing customers.

Hudson Valley’s capital ratios remain significantly in excess of “well capitalized” levels generally applicable to banks under current regulations. At September 30, 2012, Hudson Valley Holding Corp. posted a total risk-based capital ratio of 17.4 percent, a Tier 1 risk-based capital ratio of 16.1 percent, and a Tier 1 leverage ratio of 9.4 percent.

2

Non-GAAP Financial Disclosures and Reconciliation to GAAP

In addition to evaluating Hudson Valley Holding Corp’s results of operations in accordance with U.S. generally accepted accounting principles (“GAAP”), management routinely supplements this evaluation with an analysis of certain non-GAAP financial measures, such as the tangible equity ratio and tangible book value per share. Management believes these non-GAAP financial measures provide information useful to investors in understanding Hudson Valley Holding Corp’s underlying operating performance and trends, and facilitates comparisons with the performance of other banks. Further, the tangible equity ratio and tangible book value per share are used by management to analyze the relative strength of Hudson Valley Holding Corp’s capital position.

In light of diversity in presentation among financial institutions, the methodologies used by Hudson Valley Holding Corp. for determining the non-GAAP financial measures discussed above may differ from those used by other financial institutions.

Conference Call

As previously announced, Hudson Valley will hold its quarterly conference call to review the company’s financial results on Wednesday, October 24, 2012 at 10:00 AM ET:

Domestic (toll free): 1-877-317-6789; International (toll): + 1-412-317-6789.

All participants should dial in at least ten minutes prior to the call and request the “HVB Third Quarter Earnings Call.”

A replay of the call will be available one hour from the close of the conference through November 9, 2012 at 9:00 AM ET:

Domestic Toll Free: 1-877-344-7529 — Conference # 10019414;
International Toll: +1-412-317-0088 — Conference # 10019414.

Participants will be required to state their name and company upon entering call.

The company webcast will be available live at 10:00 AM ET, and archived after the call through its website at www.hudsonvalleybank.com.

About Hudson Valley Holding Corp.
Hudson Valley Holding Corp., headquartered in Yonkers, NY, is the parent company of Hudson Valley Bank.. Hudson Valley Bank is a Westchester based Bank with more than $2.9 billion in assets, serving the metropolitan area with 36 branches located in Westchester, Rockland, the Bronx, Manhattan and Brooklyn in New York and Fairfield County and New Haven County, in Connecticut. Hudson Valley Bank specializes in providing a full range of financial services to businesses, professional services firms, not-for-profit organizations and individuals; and provides investment management services through a subsidiary, A. R. Schmeidler & Co., Inc. Hudson Valley Holding Corp.’s common stock is traded on the NYSE under the ticker symbol “HVB” and is included in the Russell 3000® Index. Additional information on Hudson Valley Bank can be obtained on their web-site at www.hudsonvalleybank.com

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Hudson Valley Holding Corp. (“Hudson Valley”) has made in this press release various forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to earnings, credit quality and other financial and business matters for periods subsequent to December 31, 2011. These statements may be identified by such forward-looking terminology as “expect”, “may”, “will”, “anticipate”, “continue”, “believe” or similar statements or variations of such terms. Hudson Valley 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.

Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements, in addition to those risk factors disclosed in the Hudson Valley’s Annual Report on Form 10-K for the year ended December 31, 2011 include, but are not limited to:

We assume no obligation for updating any such forward-looking statements at any given time.