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Table of Contents

 

 

UNITED STATES

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 Quarterly Period Ended June 30, 2014

Commission File No. 001-34453

 

 

HUDSON VALLEY HOLDING CORP.

(Exact name of registrant as specified in its charter)

 

NEW YORK   13-3148745

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

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 by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

  

Outstanding at

August 1, 2014

Common stock, par value $0.20 per share    19,987,909

 

 

 


Table of Contents

FORM 10-Q

TABLE OF CONTENTS

 

          Page No.  

PART I:    FINANCIAL INFORMATION

  

ITEM 1

  

CONDENSED FINANCIAL STATEMENTS

     2   

ITEM 2

  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     30   

ITEM 3

  

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     46   

ITEM 4

  

CONTROLS AND PROCEDURES

     46   

PART II:    OTHER INFORMATION

  

ITEM 1A

  

RISK FACTORS

     47   

ITEM 6

  

EXHIBITS

     48   

SIGNATURES

     49   

 

1


Table of Contents

PART 1 — FINANCIAL INFORMATION

 

Item 1. Condensed Financial Statements

HUDSON VALLEY HOLDING CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(In thousands, except per share data)

 

     Three Months Ended
June 30
 
     2014      2013  

Interest Income:

     

Loans, including fees

   $ 19,505       $ 18,826   

Securities:

     

Taxable

     2,755         2,390   

Exempt from Federal income taxes

     622         780   

Federal funds sold

     8         11   

Deposits in banks

     391         540   
  

 

 

    

 

 

 

Total interest income

     23,281         22,547   
  

 

 

    

 

 

 

Interest Expense:

     

Deposits

     1,172         1,292   

Securities sold under repurchase agreements and other short-term borrowings

     9         7   

Other borrowings

     —           180   
  

 

 

    

 

 

 

Total interest expense

     1,181         1,479   
  

 

 

    

 

 

 

Net Interest Income

     22,100         21,068   

Provision for loan losses

     460         289   
  

 

 

    

 

 

 

Net interest income after provision for loan losses

     21,640         20,779   
  

 

 

    

 

 

 

Non-Interest Income:

     

Service charges

     1,415         1,394   

Investment advisory fees

     1,871         1,959   

Realized gains on securities available for sale, net

     12         —     

Other income

     633         528   
  

 

 

    

 

 

 

Total non-interest income

     3,931         3,881   
  

 

 

    

 

 

 

Non-Interest Expense:

     

Salaries and employee benefits

     12,693         11,120   

Occupancy

     2,365         2,101   

Professional services

     1,928         1,731   

Equipment

     980         1,001   

Business development

     927         591   

FDIC assessment

     522         949   

Other operating expenses

     2,675         2,325   
  

 

 

    

 

 

 

Total non-interest expense

     22,090         19,818   
  

 

 

    

 

 

 

Income before income taxes

     3,481         4,842   

Income taxes

     1,041         1,355   
  

 

 

    

 

 

 

Net Income

   $ 2,440       $ 3,487   
  

 

 

    

 

 

 

Basic earnings per common share

   $ 0.12       $ 0.18   

Diluted earnings per common share

   $ 0.12       $ 0.18   

See notes to condensed consolidated financial statements

 

2


Table of Contents

HUDSON VALLEY HOLDING CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(In thousands, except per share data)

 

     Six Months Ended
June 30
 
     2014     2013  

Interest Income:

    

Loans, including fees

   $ 39,043      $ 38,085   

Securities:

    

Taxable

     5,073        4,585   

Exempt from Federal income taxes

     1,252        1,548   

Federal funds sold

     16        22   

Deposits in banks

     732        988   
  

 

 

   

 

 

 

Total interest income

     46,116        45,228   
  

 

 

   

 

 

 

Interest Expense:

    

Deposits

     2,262        2,539   

Securities sold under repurchase agreements and other short-term borrowings

     15        16   

Other borrowings

     10        359   
  

 

 

   

 

 

 

Total interest expense

     2,287        2,914   
  

 

 

   

 

 

 

Net Interest Income

     43,829        42,314   

Provision for loan losses

     538        1,061   
  

 

 

   

 

 

 

Net interest income after provision for loan losses

     43,291        41,253   
  

 

 

   

 

 

 

Non-Interest Income:

    

Service charges

     3,198        3,133   

Investment advisory fees

     3,798        3,892   

Realized gains on securities available for sale, net

     38        —     

Gains on sales and revaluation of other real estate owned, net

     —          17   

Prepayment penalty—FHLB Borrowings

     (1,860     —     

Other income

     1,236        1,356   
  

 

 

   

 

 

 

Total non-interest income

     6,410        8,398   
  

 

 

   

 

 

 

Non-Interest Expense:

    

Salaries and employee benefits

     25,732        22,402   

Occupancy

     4,384        4,210   

Professional services

     3,621        3,236   

Equipment

     1,978        2,057   

Business development

     1,598        1,043   

FDIC assessment

     1,128        1,893   

Other operating expenses

     5,439        4,588   
  

 

 

   

 

 

 

Total non-interest expense

     43,880        39,429   
  

 

 

   

 

 

 

Income Before Income Taxes

     5,821        10,222   

Income Taxes

     1,779        3,084   
  

 

 

   

 

 

 

Net Income

   $ 4,042      $ 7,138   
  

 

 

   

 

 

 

Basic Earnings Per Common Share

   $ 0.20      $ 0.36   

Diluted Earnings Per Common Share

   $ 0.20      $ 0.36   

See notes to condensed consolidated financial statements

 

3


Table of Contents

HUDSON VALLEY HOLDING CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(In thousands)

 

     Three Months Ended
June 30
    Six Months Ended
June 30
 
     2014     2013     2014     2013  

Net income

   $ 2,440      $ 3,487      $ 4,042      $ 7,138   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net of tax:

        

Net change in unrealized gains (losses):

        

Other-than-temporarily impaired securities available for sale:

        

Total gains

     —          354        —          550   

Losses recognized in earnings

     —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Gains recognized in comprehensive income

     —          354        —          550   

Income tax effect

     —          (146     —          (226
  

 

 

   

 

 

   

 

 

   

 

 

 

Unrealized holding gains on other-than-temporarily impaired securities available for sale, net of tax

     —          208        —          324   
  

 

 

   

 

 

   

 

 

   

 

 

 

Securities available for sale not other-than-temporarily impaired:

        

Gains (losses) arising during the period

     4,480        (10,733     8,364        (12,276

Income tax effect

     (1,737     4,135        (3,238     4,729   
  

 

 

   

 

 

   

 

 

   

 

 

 
     2,743        (6,598     5,126        (7,547
  

 

 

   

 

 

   

 

 

   

 

 

 

Gains recognized in earnings

     (12     —          (38     —     

Income tax effect

     5        —          15        —     
  

 

 

   

 

 

   

 

 

   

 

 

 
     (7     —          (23     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Unrealized holding gains (losses) on securities available for sale not other-than-temporarily-impaired, net of tax

     2,736        (6,598     5,103        (7,547
  

 

 

   

 

 

   

 

 

   

 

 

 

Unrealized holding gains (losses) on securities, net

     2,736        (6,390     5,103        (7,223
  

 

 

   

 

 

   

 

 

   

 

 

 

Accrued benefit liability adjustment:

        

Net gain during the period

     —          —          —          —     

Reclassification adjustment for amortization of prior service cost and net gain/loss included in net period pension cost

     188        155        376        310   

Income tax effect

     (75     (62     (150     (124
  

 

 

   

 

 

   

 

 

   

 

 

 

Net of tax

     113        93        226        186   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     2,849        (6,297     5,329        (7,037
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive Income (Loss)

   $ 5,289      $ (2,810   $ 9,371      $ 101   
  

 

 

   

 

 

   

 

 

   

 

 

 

See notes to condensed consolidated financial statements

 

4


Table of Contents

HUDSON VALLEY HOLDING CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands, except share and per share data)

 

     June 30     December 31  
     2014     2013  

ASSETS

    

Cash and non-interest earning due from banks

   $ 52,856      $ 37,711   

Interest earning deposits in banks

     454,577        661,643   
  

 

 

   

 

 

 

Total cash and cash equivalents

     507,433        699,354   

Federal funds sold

     15,539        27,134   

Securities available for sale, at estimated fair value (amortized cost of $839,454 in 2014 and $550,785 in 2013)

     839,193        542,198   

Securities held to maturity, at amortized cost (estimated fair value of $5,758 in 2014 and $6,556 in 2013)

     5,466        6,238   

Federal Home Loan Bank of New York (FHLB) stock

     3,212        3,478   

Loans (net of allowance for loan losses of $27,275 in 2014 and $25,990 in 2013)

     1,742,569        1,606,179   

Accrued interest and other receivables

     17,394        14,663   

Premises and equipment, net

     15,039        15,103   

Deferred income tax, net

     24,513        31,433   

Bank owned life insurance

     42,387        41,224   

Goodwill

     5,142        5,142   

Other intangible assets

     618        713   

Other assets

     6,879        6,340   
  

 

 

   

 

 

 

Total Assets

   $ 3,225,384      $ 2,999,199   
  

 

 

   

 

 

 

LIABILITIES

    

Deposits:

    

Non-interest bearing

   $ 1,082,169      $ 1,069,631   

Interest bearing

     1,777,707        1,564,113   
  

 

 

   

 

 

 

Total deposits

     2,859,876        2,633,744   

Securities sold under repurchase agreements and other short-term borrowings

     46,072        34,379   

Other borrowings

     —          16,388   

Accrued interest and other liabilities

     27,390        30,379   
  

 

 

   

 

 

 

Total Liabilities

     2,933,338        2,714,890   
  

 

 

   

 

 

 

STOCKHOLDERS’ EQUITY

    

Preferred Stock, $0.01 par value; authorized 15,000,000 shares; no shares outstanding in 2014 and 2013, respectively

     —          —     

Common stock, $0.20 par value; authorized 25,000,000 shares: outstanding 19,984,352 and 19,935,559 shares in 2014 and 2013, respectively

     4,257        4,247   

Additional paid-in capital

     351,860        351,108   

Retained earnings (deficit)

     (5,465     (7,111

Accumulated other comprehensive loss

     (1,042     (6,371

Treasury stock, at cost; 1,299,414 shares in 2014 and 2013

     (57,564     (57,564
  

 

 

   

 

 

 

Total Stockholders’ Equity

     292,046        284,309   
  

 

 

   

 

 

 

Total Liabilities and Stockholders’ Equity

   $ 3,225,384      $ 2,999,199   
  

 

 

   

 

 

 

See notes to condensed consolidated financial statements

 

5


Table of Contents

HUDSON VALLEY HOLDING CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

Six Months Ended June 30, 2014 and 2013

(In thousands, except share and per share data)

 

     Number of
Shares
Outstanding
     Common
Stock
     Treasury
Stock
    Additional
Paid-in
Capital
     Retained
Earnings
(Deficit)
    Accumulated
Other
Comprehensive
Income (Loss)
    Total  

Balance at January 1, 2013

     19,761,426       $ 4,212       $ (57,564   $ 348,643       $ (3,471   $ (849   $ 290,971   

Net income

     —           —           —          —           7,138        —          7,138   

Other comprehensive loss

     —           —           —          —           —          (7,037     (7,037

Common stock issued for dividend reinvestment

     1,082         —           —          18         —          —          18   

Vesting and exercise of stock options, net of tax

     12,817         3         —          219         —          —          222   

Restricted stock awards and related expense

     122,820         25         —          508         —          —          533   

Cash dividends ($0.12 per share)

     —           —           —          —           (2,379     —          (2,379
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Balance at June 30, 2013

     19,898,145       $ 4,240       $ (57,564   $ 349,388       $ 1,288      $ (7,886   $ 289,466   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Balance at January 1, 2014

     19,935,559       $ 4,247       $ (57,564   $ 351,108       $ (7,111   $ (6,371   $ 284,309   

Net income

     —           —           —          —           4,042        —          4,042   

Other comprehensive income

     —           —           —          —           —          5,329        5,329   

Common stock issued for dividend reinvestment

     1,380         —           —          24         —          —          24   

Vesting and exercise of stock options, net of tax

     6,413         2         —          120         —          —          122   

Restricted stock awards and related expense

     41,000         8         —          608         —          —          616   

Cash dividends ($0.12 per share)

     —           —           —          —           (2,396     —          (2,396
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Balance at June 30, 2014

     19,984,352       $ 4,257       $ (57,564   $ 351,860       $ (5,465   $ (1,042   $ 292,046   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

See notes to condensed consolidated financial statements

 

6


Table of Contents

HUDSON VALLEY HOLDING CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)

 

     Six Months Ended
June 30
 
     2014     2013  

Operating Activities:

    

Net Income

   $ 4,042      $ 7,138   

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

    

Provision for loan losses

     538        1,061   

Depreciation and amortization

     1,378        1,814   

Realized gain on security transactions net

     (38     —     

Amortization of premiums on securities, net

     962        879   

Realized gain on sale of loans and revaluation of OREO, net

     —          (17

Increase in cash value of bank owned life insurance

     (954     (951

Amortization of other intangible assets

     95        95   

Share-based payment expense

     616        533   

Deferred tax expense

     3,547        40   

Increase (decrease) in deferred loan fees, net

     632        (2,153

(Increase) decrease in accrued interest and other receivables

     (2,731     8,246   

(Increase) decrease in other assets

     (539     4,080   

Excess tax benefit from share-based payment arrangements

     (58     (9

Decrease in accrued interest and other liabilities

     (2,611     (4,186
  

 

 

   

 

 

 

Net Cash Provided by Operating Activities

     4,879        16,570   
  

 

 

   

 

 

 

Investing Activities:

    

Net decrease (increase) in short term investments

     11,595        (5,109

Decrease in FHLB stock

     266        1,347   

Proceeds from maturities of securities available for sale

     48,772        119,469   

Proceeds from maturities of securities held to maturity

     775        2,893   

Proceeds from sales of securities available for sale

     9,805        —     

Purchases of securities available for sale

     (348,174     (210,376

Net increase in loans

     (137,561     (10,022

Proceeds from sales of OREO

     —          267   

Premiums paid on bank owned life insurance

     (209     (209

Net (purchases) sales of premises and equipment

     (1,314     1,011   
  

 

 

   

 

 

 

Net Cash Used in Investing Activities

     (416,045     (100,729
  

 

 

   

 

 

 

Financing Activities:

    

Proceeds from issuance of common stock

     146        240   

Excess tax benefits from share-based payment arrangements

     58        9   

Net increase in deposits

     226,132        105,154   

Cash dividends paid

     (2,396     (2,379

Repayment of other borrowings

     (16,388     (20

Net increase (decrease) in securities sold under repurchase agreements and short-term borrowings

     11,693        (10,722
  

 

 

   

 

 

 

Net Cash Provided by Financing Activities

     219,245        92,282   
  

 

 

   

 

 

 

(Decrease) Increase in Cash and Cash Equivalents

     (191,921     8,123   
  

 

 

   

 

 

 

Cash and Cash Equivalents, Beginning of Period

     699,354        827,523   
  

 

 

   

 

 

 

Cash and Cash Equivalents, End of Period

   $ 507,433      $ 835,646   
  

 

 

   

 

 

 

Supplemental Disclosures:

    

Interest paid

   $ 2,391      $ 2,834   

Income tax payments

     —          5,095   

Change in unrealized loss on securities available for sale, net of tax

     5,103        (7,223

Transfers from loans held for sale back to loan portfolio

     —          2,317   

See notes to condensed consolidated financial statements

 

7


Table of Contents

HUDSON VALLEY HOLDING CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except share and per share data)

 

1. Description of Operations

Hudson Valley Holding Corp. (“Hudson Valley” or 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, N.A. (“HVB” or the “Bank”), a national banking association established in 1972, with operational headquarters in Westchester County, New York. HVB has 17 branch offices in Westchester County, New York, 4 in Manhattan, New York, 4 in Bronx County, New York, 2 in Rockland County, New York, and 1 in Kings County, New York. During 2013, the Company announced and completed the consolidation and/or closure of its six Connecticut branches, one branch in Westchester, and one branch in Manhattan, New York.

The Company provides investment management services through a wholly-owned subsidiary of HVB, A.R. Schmeidler & Co., Inc. (“ARS”), a money management firm, thereby generating fee income, which has offices at 500 Fifth Avenue in Manhattan, New York.

The Company provides asset based lending products through a wholly-owned subsidiary of HVB, HVB Capital Credit LLC, which has offices at 489 Fifth Avenue in Manhattan, New York.

The Company provides equipment loan and lease financing through a wholly-owned subsidiary of HVB, HVB Equipment Capital, LLC, which also has offices at 489 Fifth Avenue in Manhattan, New York.

We derive substantially all of our revenue and income from providing banking and related services to businesses, professionals, municipalities, not-for-profit organizations and individuals within our market area.

Our principal executive offices are located at 21 Scarsdale Road, Yonkers, New York 10707.

Our principal customers are businesses, professionals, municipalities, not-for-profit organizations and individuals. Our strategy is to operate community-oriented banking institutions dedicated to providing personalized service to customers and focusing on products and services for selected segments of the market. We believe that our ability to attract and retain customers is due primarily to our focused approach to our markets, our personalized and professional services, our product offerings, our experienced staff, our knowledge of our markets and our ability to provide responsive solutions to customer needs. We provide these products and services to a diverse range of customers and do not rely on a single large depositor for a significant percentage of deposits.

 

2. Basis of Presentation

The unaudited condensed consolidated financial statements included in this report have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not contain all of the information and footnotes required by GAAP for annual financial statements and should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

The accounting and reporting policies followed in the presentation of the unaudited condensed consolidated financial statements are consistent with those described in Note 1 of the Notes to Consolidated Financial Statements included in the Company’s 2013 Annual Report on Form 10-K. Management has evaluated all significant events and transactions that occurred after June 30, 2014, for potential recognition or disclosure in these consolidated financial statements. In the opinion of management, these consolidated financial statements reflect all adjustments necessary to present fairly such information for the periods and dates indicated. Such adjustments are normal and recurring in nature. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the current period’s presentation. Reclassifications had no effect on prior period net income or stockholders’ equity.

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 statements of income for the periods reported. Actual results could differ significantly from those estimates. Estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, the

 

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determination of the fair value of securities available for sale, the determination of other-than-temporary impairment of investments and the carrying amounts of goodwill and deferred tax assets. In connection with the determination of the allowance for loan losses, management utilizes the work of professional appraisers for significant properties.

 

3. Securities

The following tables set forth the amortized cost, gross unrealized gains and losses and the estimated fair value of securities classified as available for sale and held to maturity at the dates indicated:

 

     June 30, 2014  
     Amortized      Gross Unrealized      Estimated  
     Cost      Gains      Losses      Fair Value  
     (In thousands)  

Classified as Available for Sale

           

U.S. Treasury and government agencies

   $ 122,680       $ 138       $ 261       $ 122,557   

Mortgage-backed securities - residential

     609,929         3,205         5,232         607,902   

Obligations of states and political subdivisions

     96,143         1,293         73         97,363   

Other debt securities

     973         5         —           978   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total debt securities

     829,725         4,641         5,566         828,800   

Mutual funds and other equity securities

     9,729         898         234         10,393   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 839,454       $ 5,539       $ 5,800       $ 839,193   
  

 

 

    

 

 

    

 

 

    

 

 

 
     Amortized      Gross Unrecognized      Estimated  
     Cost      Gains      Losses      Fair Value  
     (In thousands)  

Classified as Held to Maturity

           

Mortgage-backed securities - residential

   $ 2,643       $ 252         —         $ 2,895   

Obligations of states and political subdivisions

     2,823         40         —           2,863   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 5,466       $ 292         —         $ 5,758   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

     December 31, 2013  
     Amortized      Gross Unrealized      Estimated  
     Cost      Gains      Losses      Fair Value  
     (In thousands)  

Classified as Available for Sale

           

U.S. Treasury and government agencies

   $ 94,427       $ 35       $ 770       $ 93,692   

Mortgage-backed securities - residential

     349,216         2,211         11,732         339,695   

Obligations of states and political subdivisions

     87,884         1,520         100         89,304   

Other debt securities

     9,529         4         4         9,529   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total debt securities

     541,056         3,770         12,606         532,220   

Mutual funds and other equity securities

     9,729         636         387         9,978   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 550,785       $ 4,406       $ 12,993       $ 542,198   
  

 

 

    

 

 

    

 

 

    

 

 

 
     Amortized      Gross Unrecognized      Estimated  
     Cost      Gains      Losses      Fair Value  
     (In thousands)  

Classified as Held to Maturity

           

Mortgage-backed securities - residential

   $ 3,133       $ 249         —         $ 3,382   

Obligations of states and political subdivisions

     3,105         69         —           3,174   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 6,238       $ 318         —         $ 6,556   
  

 

 

    

 

 

    

 

 

    

 

 

 

Included in other debt securities at December 31, 2013, were investments in pooled trust preferred securities with an original cost of $19,995 and a carrying value of $8,753. These investments had been severely negatively affected by the economic downturn of recent years and had accumulated other-than-temporary impairment (“OTTI”) losses of $11,242. The Company sold these investments in January 2014 using the specific identification method without further loss. There were no OTTI losses recognized in the six month periods ended June 30, 2014 or 2013.

 

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The following table summarizes the change in pretax OTTI credit related losses on securities available for sale for the periods indicated:

 

     Six Months Ended June 30,  
     2014     2013  
     (In thousands)  

Balance at beginning of period:

    

Total OTTI credit related impairment charges beginning of period

   $ 11,242      $ 10,002   

Increase to the amount related to the credit loss for which other-than-temporary impairment was previously recognized

     —          —     

Credit related impairment dispositions

     (11,242     —     

Credit related impairment not previously recognized

     —          —     
  

 

 

   

 

 

 

Balance at end of period:

   $ —        $ 10,002   
  

 

 

   

 

 

 

At June 30, 2014 and December 31, 2013, securities having a stated value of approximately $350,296 and $216,051, respectively, were pledged to secure public deposits, securities sold under agreements to repurchase and for other purposes as required or permitted by law.

The following tables reflect the fair value and gross unrealized loss of the Company’s investments, aggregated by investment category and length of time the individual securities have been in a continuous unrealized loss position, as of the dates indicated:

 

     Less Than 12 Months      Greater Than 12 Months      Total  

June 30, 2014

   Fair
Value
     Gross
Unrealized
Loss
     Fair
Value
     Gross
Unrealized
Loss
     Fair
Value
     Gross
Unrealized
Loss
 
     (In thousands)  

Available for sale:

                 

U.S. Treasuries and government agencies

   $ 19,674       $ 15       $ 21,478       $ 246       $ 41,152       $ 261   

Mortgage-backed securities - residential

     177,856         516         165,215         4,716         343,071         5,232   

Obligations of states and political subdivisions

     9,235         50         2,209         23         11,444         73   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total debt securities

     206,765         581         188,902         4,985         395,667         5,566   

Mutual funds and other equity securities

     15         1         8,936         233         8,951         234   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total temporarily impaired securities

   $ 206,780       $ 582       $ 197,838       $ 5,218       $ 404,618       $ 5,800   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

     Less Than 12 Months      Greater Than 12 Months      Total  

December 31, 2013

   Fair
Value
     Gross
Unrealized
Loss
     Fair
Value
     Gross
Unrealized
Loss
     Fair
Value
     Gross
Unrealized
Loss
 
     (In thousands)  

Available for sale:

                 

U.S. Treasuries and government agencies

   $ 53,299       $ 761       $ 3,469       $ 9       $ 56,768       $ 770   

Mortgage-backed securities - residential

     240,192         10,593         20,216         1,139         260,408         11,732   

Obligations of states and political subdivisions

     8,060         94         1,322         6         9,382         100   

Other debt securities

     203         2         98         2         301         4   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total debt securities

     301,754         11,450         25,105         1,156         326,859         12,606   

Mutual funds and other equity securities

     —           —           8,785         387         8,785         387   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total temporarily impaired securities

   $ 301,754       $ 11,450       $ 33,890       $ 1,543       $ 335,644       $ 12,993   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

There were no securities classified as held to maturity in an unrealized loss position at June 30, 2014 or December 31, 2013.

 

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The total number of securities in the Company’s portfolio that were in an unrealized loss position was 195 and 215, respectively, at June 30, 2014 and December 31, 2013. The Company has determined that it does not intend to sell, nor is it more likely than not that it will be required to sell, its securities that are in an unrealized loss position prior to the recovery of its amortized cost basis. The Company believes that its securities continue to have satisfactory ratings, are readily marketable and that current unrealized losses are primarily a result of changes in interest rates and other market conditions. Therefore, management does not consider these investments to be other-than-temporarily impaired at June 30, 2014.

The contractual maturity of all debt securities held at June 30, 2014 is shown below. Actual maturities may differ from contractual maturities because some issuers have the right to call or prepay obligations with or without call or prepayment penalties.

 

     Available for Sale      Held to Maturity  
     Amortized
Cost
     Fair
Value
     Amortized
Cost
     Fair
Value
 
     (In thousands)  

Contractual Maturity

           

Within 1 year

   $ 38,165         38,270       $ 1,505       $ 1,537   

After 1 year but within 5 years

     157,608         158,342         1,318         1,326   

After 5 year but within 10 years

     24,023         24,286         —           —     

After 10 years

     —           —           —           —     

Mortgage-backed securities - residential

     609,929         607,902         2,643         2,895   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 829,725       $ 828,800       $ 5,466       $ 5,758   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

4. Loans

The loan portfolio is comprised of the following:

 

     June 30
2014
    December 31
2013
 
     (In thousands)  

Real Estate:

    

Commercial

   $ 622,615      $ 593,476   

Construction

     87,146        88,311   

Residential Multi-Family

     295,008        226,898   

Residential Other

     417,297        432,999   

Commercial & Industrial

     308,555        258,578   

Individuals & Lease Financing

     38,476        30,528   
  

 

 

   

 

 

 

Total loans

     1,769,097        1,630,790   

Deferred loan costs, net

     747        1,379   

Allowance for loan losses

     (27,275     (25,990
  

 

 

   

 

 

 

Loans, net

   $ 1,742,569      $ 1,606,179   
  

 

 

   

 

 

 

Risk characteristics of the Company’s loan portfolio segments include the following:

Commercial Real Estate Loans — In underwriting commercial real estate loans, the Company evaluates both the prospective borrower’s ability to make timely payments on the loan and the value of the property securing the loan. Repayment of such loans may be negatively impacted should the borrower default or should there be a substantial decline in the value of the property securing the loan, or a decline in general economic conditions. Where the owner occupies the property, the Company also evaluates the business’s ability to repay the loan on a timely basis. In addition, the Company may require personal guarantees, lease assignments and/or the guarantee of the operating company when the property is owner occupied. These types of loans may involve greater risks than other types of lending, because payments on such loans are often dependent upon the successful operation of the business involved, therefore, repayment of such loans may be negatively impacted by adverse changes in economic conditions affecting the borrowers’ business.

Construction Loans — Construction loans are short-term loans (generally up to 18 months) secured by land for both residential and commercial development. The loans are generally made for acquisition and improvements. Funds are disbursed as phases of

 

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construction are completed. Most non-residential construction loans require pre-approved permanent financing or pre-leasing by the company or another bank providing the permanent financing. The Company funds construction of single family homes and commercial real estate, when no contract of sale exists, based upon the experience of the builder, the financial strength of the owner, the type and location of the property and other factors. Construction loans are generally personally guaranteed by the principal(s). Repayment of such loans may be negatively impacted by the builders’ inability to complete construction, by a downturn in the new construction market, by a significant increase in interest rates or by a decline in general economic conditions. The Bank’s primary regulator considers construction loans to be part of commercial real estate for concentration risk measurement purposes.

Residential Real Estate Loans — Various loans secured by residential real estate properties are offered by the Company, including 1-4 family residential mortgages, multi-family residential loans and a variety of home equity line of credit products. Repayment of such loans may be negatively impacted should the borrower default, should there be a significant decline in the value of the property securing the loan or should there be a decline in general economic conditions. These loans are available for 7 or 10 year terms with one 5 year extension option. A 7 year term with no extension option is also offered. Pricing is typically based on a spread over the corresponding Federal Home Loan Bank (“FHLB”) rate. Amortization of up to 30 years, a maximum loan to value ratio of 75% and a debt service coverage ratio of 1.2 to 1 are generally required. The Bank’s primary regulator considers multi-family residential loans to be part of commercial real estate for concentration risk measurement purposes.

Commercial and Industrial Loans — The Company’s commercial and industrial loan portfolio consists primarily of commercial business loans and lines of credit to businesses and professionals. These loans are usually made to finance the purchase of inventory, new or used equipment or other short or long-term working capital purposes. These loans are generally secured by corporate assets, often with real estate as secondary collateral, but are also offered on an unsecured basis. In granting this type of loan, the Company primarily looks to the borrower’s cash flow as the source of repayment with collateral and personal guarantees, where obtained, as a secondary source. In late 2013, the Company initiated an asset-based lending (“ABL”) program which offers credit facilities in the form of credit lines and/or term loans to manufacturers, wholesalers, distributors, service providers and retailers. ABL refers to loans secured by a variety of assets usually comprised of accounts receivable, inventory, machinery and equipment and, at times, real estate. The collateral is considered the primary source of repayment and the operation of the business is the secondary source. Commercial loans are often larger and may involve greater risks than other types of loans offered by the Company. Payments on such loans are often dependent upon the successful operation of the underlying business involved and, therefore, repayment of such loans may be negatively impacted by adverse changes in economic conditions, management’s inability to effectively manage the business, claims of others against the borrower’s assets which may take priority over the Company’s claims against assets, death or disability of the borrower or loss of market for the borrower’s products or services.

Lease Financing and Other Loans — The Company originates lease financing transactions which are primarily conducted with businesses, professionals and not-for-profit organizations. In late March 2014, the Company initiated an equipment leasing program with a focus on financing income producing equipment in the manufacturing, healthcare, technology and transportation segments. Payments on such loans are often dependent upon the successful operation of the underlying business involved and, therefore, repayment of such loans may be negatively impacted by adverse changes in economic conditions, and management’s inability to effectively manage the business or loss of market for the borrower’s products or services. The Company also offers installment loans and reserve lines of credit to individuals. Repayment of such loans are often dependent on the personal income of the borrower which may be negatively impacted by adverse changes in economic conditions. The Company does not place an emphasis on originating these types of loans.

The following table presents the allowance for loan losses by portfolio segment for the periods indicated:

 

     For the three months ended June 30, 2014  
     Commercial
Real Estate
     Construction      Residential
Real Estate
    Commercial &
Industrial
    Lease
Financing
& Other
    Total  
     (In thousands)  

Balance at beginning of period

   $ 11,538       $ 4,314       $ 6,537      $ 4,085      $ 430      $ 26,904   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Charge-offs

     —           —           (469     (67     —          (536

Recoveries

     1         —           100        305        41        447   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Net Recoveries (Charge-offs)

     1         —           (369     238        41        (89

Provision for loan losses

     292         146         263        (146     (95     460   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Net change during the period

     293         146         (106     92        (54     371   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 11,831       $ 4,460       $ 6,431      $ 4,177      $ 376      $ 27,275   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

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     For the six months ended June 30, 2014  
     Commercial
Real Estate
    Construction     Residential
Real Estate
    Commercial &
Industrial
    Lease
Financing
& Other
    Total  
     (In thousands)  

Balance at beginning of period

   $ 11,231      $ 4,641      $ 6,236      $ 3,436      $ 446      $ 25,990   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Charge-offs

     —          —          (686     (99     (10     (795

Recoveries

     788        37        148        436        133        1,542   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Recoveries (Charge-offs)

     788        37        (538     337        123        747   

Provision for loan losses

     (188     (218     733        404        (193     538   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net change during the period

     600        (181     195        741        (70     1,285   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 11,831      $ 4,460      $ 6,431      $ 4,177      $ 376      $ 27,275   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     For the three months ended June 30, 2013  
     Commercial
Real Estate
     Construction     Residential
Real Estate
    Commercial &
Industrial
    Lease
Financing
& Other
    Total  
     (In thousands)  

Balance at beginning of period

   $ 11,270       $ 4,559      $ 6,420      $ 3,424      $ 415      $ 26,088   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Charge-offs

     —           (192     (1,022     (256     (247     (1,717

Recoveries

     56         —          1,104        76        30        1,266   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Recoveries (Charge-offs)

     56         (192     82        (180     (217     (451

Provision for loan losses

     18         (255     (56     394        188        289   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net change during the period

     74         (447     26        214        (29     (162
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 11,344       $ 4,112      $ 6,446      $ 3,638      $ 386      $ 25,926   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     For the six months ended June 30, 2013  
     Commercial
Real Estate
    Construction     Residential
Real Estate
    Commercial &
Industrial
    Lease
Financing
& Other
    Total  
     (In thousands)  

Balance at beginning of period

   $ 10,090      $ 3,949      $ 8,119      $ 4,077      $ 377      $ 26,612   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Charge-offs

     (368     (582     (1,570     (675     (247     (3,442

Recoveries

     57        3        1,353        249        33        1,695   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net Charge-offs

     (311     (579     (217     (426     (214     (1,747

Provision for loan losses

     1,565        742        (1,456     (13     223        1,061   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net change during the period

     1,254        163        (1,673     (439     9        (686
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of period

   $ 11,344      $ 4,112      $ 6,446      $ 3,638      $ 386      $ 25,926   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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The following tables present the allowance for loan losses and the recorded investment in loans by portfolio segment based on impairment method as of the dates indicated:

 

    June 30, 2014  
    Commercial
Real Estate
    Construction     Residential
Real Estate
    Commercial &
Industrial
    Lease
Financing
& Other
    Total  
    (In thousands)  

Allowance for loan losses:

           

Ending balance attributed to loans:

           

Collectively evaluated for impairment

  $ 11,831      $ 4,460      $ 6,431      $ 4,177      $ 376      $ 27,275   

Individually evaluated for impairment

    —          —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total allowance for loan losses

  $ 11,831      $ 4,460      $ 6,431      $ 4,177      $ 376      $ 27,275   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans:

           

Ending balance of loans:

           

Collectively evaluated for impairment

  $ 606,713      $ 86,267      $ 697,197      $ 299,543      $ 38,476      $ 1,728,196   

Individually evaluated for impairment

    15,902        879        15,108        9,012        —          40,901   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans

  $ 622,615      $ 87,146      $ 712,305      $ 308,555      $ 38,476      $ 1,769,097   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    December 31, 2013  
    Commercial
Real Estate
    Construction     Residential
Real Estate
    Commercial &
Industrial
    Lease
Financing
& Other
    Total  
    (In thousands)  

Allowance for loan losses:

           

Ending balance attributed to loans:

           

Collectively evaluated for impairment

  $ 11,231      $ 4,641      $ 6,236      $ 3,436      $ 446      $ 25,990   

Individually evaluated for impairment

    —          —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total allowance for loan losses

  $ 11,231      $ 4,641      $ 6,236      $ 3,436      $ 446      $ 25,990   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Total loans:

           

Ending balance of loans:

           

Collectively evaluated for impairment

  $ 580,561      $ 87,432      $ 642,957      $ 248,260      $ 30,528      $ 1,589,738   

Individually evaluated for impairment

    12,915        879        16,940        10,318        —          41,052   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans

  $ 593,476      $ 88,311      $ 659,897      $ 258,578      $ 30,528      $ 1,630,790   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

The following table presents the recorded investment in non-accrual loans and loans past due 90 days and still accruing by class of loans as of the dates indicated:

 

    June 30, 2014     December 31, 2013  
    Non-Accrual     Past Due
90 Days and
Still Accruing
    Non-Accrual     Past Due
90 Days and
Still Accruing
 
    (In thousands)  

Loans:

       

Commercial Real Estate:

       

Owner occupied

  $ 3,561        —        $ 3,768        —     

Non owner occupied

    3,355        —          2,861        —     

Construction:

       

Commercial

    879        —          879        —     

Residential

    —          —          —          —     

Residential:

       

Multifamily

    —          —          1,282        —     

1-4 family

    11,696        —          12,164        —     

Home equity

    1,055        —          1,113        —     

Commercial & Industrial

    —          —          1,422        —     

Other:

       

Lease financing & other

    —          —          —          —     

Overdrafts

    —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 20,546        —        $ 23,489        —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Gross interest income that would have been recorded if these borrowers had been current in accordance with their original loan terms was $270 and $542 for the three and six month periods ended June 30, 2014, respectively, and $323 and $641 for the same periods in the prior year. There was no interest income recorded on non-accrual loans during the six month periods ended June 30, 2014 and 2013.

 

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Table of Contents

The following table presents the aging of loans (including past due and non-accrual loans) by class of loans as of the dates indicated:

 

    June 30, 2014  
    31-60 Days
Past Due
    61-89 Days
Past Due
    90 Days
Or More
Past Due
    Total
Past Due
    Current     Total  
    (In thousands)  

Loans:

           

Commercial Real Estate:

           

Owner occupied

  $ 425      $ 968      $ 629      $ 2,022      $ 156,240      $ 158,262   

Non owner occupied

    —          —          3,355        3,355        460,998        464,353   

Construction:

           

Commercial

    —          —          879        879        52,086        52,965   

Residential

    —          —          —          —          34,181        34,181   

Residential:

           

Multifamily

    —          —          —          —          295,008        295,008   

1-4 family

    1,896        325        9,706        11,927        290,430        302,357   

Home equity

    151        346        981        1,478        113,462        114,940   

Commercial & Industrial

    191        1,600        —          1,791        306,764        308,555   

Other:

           

Lease financing & other

    3        —          —          3        36,634        36,637   

Overdrafts

    —          —          —          —          1,839        1,839   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 2,666      $ 3,239      $ 15,550      $ 21,455      $ 1,747,642      $ 1,769,097   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    December 31, 2013  
    31-60 Days
Past Due
    61-89 Days
Past Due
    90 Days
Or More
Past Due
    Total
Past Due
    Current     Total  
    (In thousands)  

Loans:

           

Commercial Real Estate:

           

Owner occupied

    —        $ 158      $ 704      $ 862      $ 167,509      $ 168,371   

Non owner occupied

  $ 200        —          2,861        3,061        422,044        425,105   

Construction:

           

Commercial

    —          —          879        879        46,160        47,039   

Residential

    1        —          —          1        41,271        41,272   

Residential:

           

Multifamily

    —          —          —          —          226,898        226,898   

1-4 family

    1,012        190        11,841        13,043        307,597        320,640   

Home equity

    408        540        1,113        2,061        110,298        112,359   

Commercial & Industrial

    1,606        321        1,365        3,292        255,286        258,578   

Other:

           

Lease financing & other

    185        4        —          189        29,437        29,626   

Overdrafts

    —          —          —          —          902        902   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 3,412      $ 1,213      $ 18,763      $ 23,388      $ 1,607,402      $ 1,630,790   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Impaired loans and the recorded investment in impaired loans as of the dates indicated were as follows:

 

    June 30, 2014     December 31, 2013  
    Unpaid
Principal
Balance
    Recorded
Investment
    Allowance for
Loan Losses
Allocated
    Unpaid
Principal
Balance
    Recorded
Investment
    Allowance for
Loan Losses
Allocated
 
    (In thousands)  

With no related allowance recorded:

           

Commercial Real Estate:

           

Owner occupied

  $ 11,377      $ 11,111        —        $ 10,320      $ 10,054        —     

Non owner occupied

    4,792        4,793        —          2,861        2,861        —     

Construction:

           

Commercial

    1,231        879        —          1,231        879        —     

Residential

    —          —          —          —          —          —     

Residential:

           

Multifamily

    1,615        1,615        —          2,921        2,921        —     

1-4 family

    14,631        12,361        —          14,782        12,831        —     

Home equity

    1,130        1,130        —          1,705        1,188        —     

Commercial & Industrial

    9,043        9,012        —          11,421        10,318        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans

  $ 43,819      $ 40,901        —        $ 45,241      $ 41,052        —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The carrying value of impaired loans was determined using either the fair value of the underlying collateral of the loan or by an analysis of the expected cash flows related to the loan.

The following table presents the average recorded investment in impaired loans by portfolio segment and interest recognized on impaired loans for the periods indicated:

 

     Three Months Ended June 30,      Six Months Ended June 30,  
     2014      2013      2014      2013  
     Average
Recorded
Investment
     Interest
Income
     Average
Recorded
Investment
     Interest
Income
     Average
Recorded
Investment
     Interest
Income
     Average
Recorded
Investment
     Interest
Income
 
     (In thousands)  

Commercial Real Estate:

                       

Owner occupied

   $ 11,174       $ 18       $ 20,782       $ 4       $ 10,907       $ 36       $ 21,336       $ 7   

Non owner occupied

     4,546         80         3,189         76         4,064         157         3,188         147   

Construction:

                       

Commercial

     879         —           975         —           879         —           1,351         —     

Residential

     —           —           1,757         61         —           —           1,902         72   

Residential:

                       

Multifamily

     1,622         17         3,292         40         1,949         35         3,220         79   

1-4 family

     12,533         13         13,338         —           12,651         24         12,124         —     

Home equity

     1,130         1         462         —           1,145         1         650         —     

Commercial & Industrial

     9,094         117         11,759         109         9,421         215         11,874         222   

Lease Financing & Other

     —           —           —           —           —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 40,978       $ 246       $ 55,554       $ 290       $ 41,016       $ 468       $ 55,645       $ 527   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

During the six months ended June 30, 2014, the terms of certain loans were modified as troubled debt restructurings (“TDRs”). The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan. Modifications involving a reduction of the stated interest rate of the loan were for periods ranging from 6 months to 15 years. Modifications involving an extension of the maturity date were for periods ranging from 6 months to 3 years.

The Company is not committed to extend any additional credit to borrowers whose loans are classified as TDRs. Impaired loans as of June 30, 2014 and December 31, 2013 included $31,373 and $30,864, respectively, of loans considered to be TDRs. The Company classifies all loans considered to be TDRs as impaired.

 

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Table of Contents

For the six month period ended June 30, 2014, fifteen TDRs with carrying amounts of $20,355 were on accrual status and performing in accordance with their modified terms. All other TDRs for the six month period ended June 30, 2014 were on non-accrual status. At June 30, 2014, there was one loan totaling $3,874 modified as a TDR that was in payment default within twelve months following the modification. There were no TDRs with payment defaults within twelve months following the modification during the six month periods ended June 30, 2013. The Company’s policy states that a loan is considered to be in payment default once it is 45 days contractually past due under the modified terms.

The following tables present loans by class modified as TDRs that occurred during the periods indicated:

 

    Three Months Ended
June 30, 2014
    Six Months Ended
June 30, 2014
 
    Number
of Loans
    Pre-Modification
Outstanding
Recorded
Investment
    Post-Modification
Outstanding
Recorded
Investment
    Number
of Loans
    Pre-Modification
Outstanding
Recorded
Investment
    Post-Modification
Outstanding
Recorded
Investment
 
    (Dollars in thousands)  

Commercial Real Estate:

           

Owner occupied

    —          —          —          1      $ 1,299      $ 1,299   

Non owner occupied

    —          —          —          2        1,444        1,444   

Construction:

           

Commercial

    —          —          —          —          —          —     

Residential

    —          —          —          —          —          —     

Residential:

           

Multifamily

    —          —          —          —          —          —     

1-4 family

    2      $ 283      $ 283        2        283        283   

Home equity

    1      $ 75      $ 75        1        75        75   

Commercial & Industrial

    —          —          —          —          —          —     

Other:

           

Lease financing and other

    —          —          —          —          —          —     

Overdrafts

    —          —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    3      $ 358      $ 358        6      $ 3,101      $ 3,101   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The TDRs described above resulted in no charge-offs during both the three and six month periods ended June 30, 2014.

 

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Table of Contents
    Three Months Ended
June 30, 2013
    Six Months Ended
June 30, 2013
 
    Number
of Loans
    Pre-Modification
Outstanding
Recorded
Investment
    Post-Modification
Outstanding
Recorded
Investment
    Number
of Loans
    Pre-Modification
Outstanding
Recorded
Investment
    Post-Modification
Outstanding
Recorded
Investment
 
    (Dollars in thousands)  

Commercial Real Estate:

           

Owner occupied

    —          —          —          —          —          —     

Non owner occupied

    1      $ 5,546      $ 5,546        1      $ 5,546      $ 5,546   

Construction:

           

Commercial

    —          —          —          —          —          —     

Residential

    —          —          —          —          —          —     

Residential:

           

Multifamily

    —          —          —          —          —          —     

1-4 family

    —          —          —          4        5,202        5,026   

Home equity

    —          —          —          —          —          —     

Commercial & Industrial

    2        569        538        2        569        538   

Other:

           

Lease financing and other

    —          —          —          —          —          —     

Overdrafts

    —          —          —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

    3      $ 6,115      $ 6,084        7      $ 11,317      $ 11,110   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The TDRs described above resulted in charge-offs of $31 and $221 during the three and six month periods ended June 30, 2013, respectively.

The Company categorizes loans into risk categories based on relevant information about the ability of the borrowers to service their debt such as value of underlying collateral, current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Company analyzes non-homogeneous loans individually and classifies them as to credit risk on a quarterly basis. The Company uses the following definitions for risk ratings:

Special Mention — Loans classified as special mention have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of repayment prospects for the asset or in the institution’s credit position at some future date.

Substandard — Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

Doubtful — Loans classified as doubtful have all the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable.

Loans not meeting the above criteria that are analyzed individually as part of the above described process are considered to be pass rated loans.

 

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Table of Contents

The following table presents the risk category by class of loans as of the dates indicated of non-homogeneous loans individually classified as to credit risk as of the most recent analysis performed:

 

    June 30, 2014  
    Pass     Special
Mention
    Substandard     Doubtful     Total  
    (In thousands)  

Commercial Real Estate:

         

Owner occupied

  $ 130,876      $ 7,360      $ 20,026        —        $ 158,262   

Non owner occupied

    432,380        24,076        7,897        —          464,353   

Construction:

         

Commercial

    41,025        11,061        879        —          52,965   

Residential

    34,181        —          —          —          34,181   

Residential:

         

Multifamily

    292,393        2,615        —          —          295,008   

1-4 family

    26,099        4,225        16,902        —          47,226   

Home equity

    33        —          1,825        —          1,858   

Commercial & Industrial

    298,524        9,104        927        —          308,555   

Lease Financing & Other

    33,060        —          279        —          33,339   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans

  $ 1,288,571      $ 58,441      $ 48,735        —        $ 1,395,747   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

    December 31, 2013  
    Pass     Special
Mention
    Substandard     Doubtful     Total  
    (In thousands)  

Commercial Real Estate:

         

Owner occupied

  $ 139,108      $ 6,342      $ 22,921        —        $ 168,371   

Non owner occupied

    399,009        14,024        12,072        —          425,105   

Construction:

         

Commercial

    46,160        —          879        —          47,039   

Residential

    37,931        3,341        —          —          41,272   

Residential:

         

Multifamily

    222,147        2,550        2,201        —          226,898   

1-4 family

    42,158        2,008        17,274        —          61,440   

Home equity

    34        —          1,112        —          1,146   

Commercial & Industrial

    249,238        5,207        4,133        —          258,578   

Lease Financing & Other

    28,391        —          270        —          28,661   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans

  $ 1,164,176      $ 33,472      $ 60,862        —        $ 1,258,510   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Loans not individually rated, primarily consisting of certain 1-4 family residential mortgages and home equity lines of credit, are evaluated for risk in groups of homogeneous loans. The primary risk characteristic evaluated on these pools is delinquency.

 

20


Table of Contents

The following table presents the delinquency categories by class of loans as of the dates indicated for loans evaluated for risk in groups of homogeneous loans:

 

    June 30, 2014  
    31-59 Days
Past Due
    60-89 Days
Past Due
    90 Days
Or More
Past Due
    Total
Past Due
    Current     Total  
    (In thousands)  

Residential:

           

1-4 family

  $ 295      $ 325        —        $ 620      $ 254,511      $ 255,131   

Home equity

    151        —          —          151        112,931        113,082   

Other:

           

Other loans

    3        —          —          3        3,295        3,298   

Overdrafts

    —          —          —          —          1,839        1,839   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans

  $ 449      $ 325        —        $ 774      $ 372,576      $ 373,350   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
    December 31, 2013  
    31-59 Days
Past Due
    60-89 Days
Past Due
    90 Days
Or More
Past Due
    Total
Past Due
    Current     Total  
    (In thousands)  

Residential:

           

1-4 family

  $ 705      $ 115        —        $ 820      $ 258,381      $ 259,201   

Home equity

    408        540        —          948        110,264        111,212   

Other:

           

Other loans

    23        4        —          27        938        965   

Overdrafts

    —          —          —          —          902        902   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total loans

  $ 1,136      $ 659        —        $ 1,795      $ 370,485      $ 372,280   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

5. Earnings Per Share

FASB ASC 260-10-45 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share (“EPS”). The restricted stock awards and restricted stock units granted by the Company contain non-forfeitable rights to dividends and therefore are considered participating securities. The two-class method for calculating basic EPS excludes dividends paid to participating securities and any undistributed earnings attributable to participating securities. Restricted stock unit awards which contain forfeitable rights to dividends and are non-voting, are considered common stock equivalents and are considered only in diluted earnings per share.

 

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The following table presents the calculation of earnings per share for the periods indicated:

 

     Three Months Ended      Six Months Ended  
     June 30      June 30  
     2014      2013      2014      2013  
     (Dollars in thousands)  

Net income

   $ 2,440       $ 3,487       $ 4,042       $ 7,138   

Less: Dividends paid on and earnings allocated to participating securities

     34         53         56         96   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income attributable to common stock

   $ 2,406       $ 3,434       $ 3,986       $ 7,042   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common shares outstanding, including participating securities

     19,990,070         19,885,481         19,986,778         19,848,369   

Less: Weighted average participating securities

     275,919         302,722         284,001         275,394   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common shares outstanding

     19,714,151         19,582,759         19,702,777         19,572,975   
  

 

 

    

 

 

    

 

 

    

 

 

 

Basic earnings per common share

   $ 0.12       $ 0.18       $ 0.20       $ 0.36   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income attributable to common stock

   $ 2,406       $ 3,434       $ 3,986       $ 7,042   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common shares outstanding

     19,714,151         19,582,759         19,702,777         19,572,975   

Weighted average common equivalent shares outstanding

     56,882         —           42,381         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average common and equivalent shares outstanding

     19,771,033         19,582,759         19,745,158         19,572,975   
  

 

 

    

 

 

    

 

 

    

 

 

 

Diluted earnings per common share

   $ 0.12       $ 0.18       $ 0.20       $ 0.36   
  

 

 

    

 

 

    

 

 

    

 

 

 

Dividends per common share

   $ 0.06       $ 0.06       $ 0.12       $ 0.12   
  

 

 

    

 

 

    

 

 

    

 

 

 

There were 211,542 and 344,125 options outstanding at June 30, 2014, and 2013, respectively, that were not included in the computation of diluted earnings per share because the options’ exercise prices were greater than the average market price of common stock and were, therefore, antidilutive.

 

6. Benefit Plans

In addition to defined contribution pension and savings plans which cover substantially all employees, the Company provides additional retirement benefits to certain officers and directors pursuant to unfunded supplemental defined benefit plans. The following table summarizes the components of the net periodic pension cost of the defined benefit plans.

 

     Three Months Ended     Six Months Ended  
     June 30     June 30  
     2014      2013     2014      2013  
     (In thousands)  

Service cost

   $ 109       $ 131      $ 218       $ 262   

Interest cost

     153         154        307         304   

Amortization of prior service cost

     —           (54     —           (108

Amortization of net loss

     188         209        376         418   
  

 

 

    

 

 

   

 

 

    

 

 

 

Net periodic pension cost

   $ 450       $ 440      $ 901       $ 876   
  

 

 

    

 

 

   

 

 

    

 

 

 

The Company makes contributions to the unfunded defined benefit plans only as benefit payments become due. The Company disclosed in its 2013 Annual Report on Form 10-K that it expected to contribute $1,067 to the unfunded defined benefit plans during 2014. For the three and six month periods ended June 30, 2014, the Company contributed $225 and $450 to these plans.

 

7. Stock-Based Compensation

In accordance with the provisions of the Hudson Valley Holding Corp. 2010 Omnibus Incentive Plan, the Company may grant eligible employees, including directors, consultants and advisors, incentive stock options, non-qualified stock options, restricted stock awards, restricted stock units, stock appreciation rights, performance awards and other types of awards. Prior to the 2010 Plan, the Company had stock option plans that provided for the granting of options to directors, officers, eligible employees, and certain advisors at an exercise price not less than the market value of the stock on the date of grant subject to various eligibility and vesting requirements. There will be no further grants under any plans adopted prior to the 2010 plan.

 

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Compensation costs relating to stock-based payment transactions are recognized in the financial statements with measurement based upon the fair value of the equity or liability instruments issued. Stock-based payments are expensed over their respective vesting periods.

The following table summarizes stock-based compensation activity for the six month period ended June 30, 2014:

 

Prior Option Plans (1):

  Shares     Weighted
Average Grant or
Exercise Price
    Aggregate
Intrinsic
Value (2) (In thousands)
    Weighted Average
Remaining
Contractual Term
 

Outstanding at December 31, 2013

    295,627      $ 21.62       

Granted

    —          —         

Exercised

    (6,413     18.78       

Cancelled or Expired

    (11,547     22.49       
 

 

 

       

Outstanding at June 30, 2014

    277,667        21.65      $ —          1.0   
 

 

 

       

Exercisable at June 30, 2014

    277,667        21.65        —          1.0   
 

 

 

       

Non-vested at June 30, 2014

    —          —         
 

 

 

       

2010 Omnibus Incentive Plan:

                       

Non-vested at December 31, 2013

    251,274      $ 16.30       

Granted at fair value

    169,626        18.18       

Restriction released

    (39,958     16.40       

Cancelled

    (55,941     16.44       
 

 

 

       

Non-vested at June 30, 2014

    325,001        17.25       
 

 

 

       

Available for grant at December 31, 2013

    968,762         

Restricted stock awards

    (169,626   $ 18.12       

Unissued or cancelled

    116,629        16.22       
 

 

 

       

Available for future grant

    915,765         
 

 

 

       

 

(1) 2010 Omnibus Incentive Plan includes restricted stock awards while prior option plans do not.
(2) The aggregate intrinsic value of a stock option in the table above represents the total pre-tax intrinsic value (the amount by which the current fair value of the underlying stock exceeds the exercise price of the option) that would have been received by the option holders had all option holders exercised their options on June 30, 2014. This amount changes based on the fair value of the Company’s stock.

The fair value (present value of the estimated future benefit to the option holder) of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. There were no stock options granted in the six month period ended June 30, 2014 or the year ended December 31, 2013.

There was no net compensation expense related to stock options included in net income for the six month periods ended June 30, 2014 and 2013. There was no remaining unrecognized compensation expense related to stock options at June 30, 2014 and 2013.

During 2014, the Company granted 65,531 of restricted stock units. Each unit cliff vests three years from the date of grant with the amount of shares awarded dependent upon the Company’s performance relative to a defined peer group. No expense has been recognized in either the three or six months ended June 30, 2014.

Compensation expense of $911 and $556 related to the Company’s restricted stock awards was included in net income for the six month periods ended June 30, 2014 and 2013, respectively. The tax effect related thereto was $377 and $229, respectively. Unrecognized compensation expense related to restricted stock awards totaled $3,622 at June 30, 2014. This expense is expected to be recognized over a remaining weighted average period of 2.2 years.

 

8. Fair Value

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

 

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Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

A description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. While management believes the Company’s valuation methodologies are appropriate and consistent with other financial institutions, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

Investment Securities — The fair values of investment securities are determined by obtaining quoted prices on nationally recognized securities exchanges, if available (Level 1), or matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities, which is a Level 2 input.

Impaired Loans — At the time a loan is considered impaired, it is generally valued at lower of cost or fair value. Impaired loans carried at fair value generally are partially charged off or receive specific allocations of the allowance for loan losses. For collateral dependent loans, fair value is commonly based on recent real estate appraisals adjusted for market conditions and costs to sell. Management may apply additional discounts based on changes in the market from the time of valuation. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and the client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Other Real Estate Owned (“OREO”) — Real estate properties acquired through loan foreclosure are recorded at estimated fair value, net of estimated selling costs, at time of foreclosure establishing a new cost basis. Fair value is commonly based on real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs used in determining fair value.

 

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Assets and liabilities measured at fair value are summarized below:

 

    Fair Value Measurements at  
    June 30, 2014  
    Quoted Prices in
Active Markets
for Identical Assets
(Level 1)
    Significant
Other
Observable Inputs
(Level 2)
    Significant
Unobservable
Inputs

(Level 3)
    Total  
    (In thousands)  

Measured on a recurring basis:

       

Available for sale securities:

       

U.S. Treasury and government agencies

    —        $ 122,557        —        $ 122,557   

Mortgage-backed securities - residential

    —          607,902        —          607,902   

Obligations of states and political subdivisions

    —          97,363        —          97,363   

Other debt securities

    —          978        —          978   

Mutual funds and other equity securities

  $ 10,393        —          —          10,393   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total assets at fair value

  $ 10,393      $ 828,800        —        $ 839,193   
 

 

 

   

 

 

   

 

 

   

 

 

 

Measured on a non-recurring basis:

       

Impaired loans: (1)

       

Commercial Real Estate

    —          —          —          —     

Construction

    —          —          —          —     

Residential

    —          —        $ 3,874      $ 3,874   

Commercial & Industrial

    —          —          —          —     
 

 

 

   

 

 

   

 

 

   

 

 

 

Total assets at fair value

    —          —        $ 3,874      $ 3,874   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Impaired loans are reported at the fair value of the underlying collateral if repayment is expected solely from the collateral. Collateral values are estimated using Level 2 and Level 3 inputs which include independent appraisals and internally customized discounting criteria. The recorded investment in impaired loans subject to fair value reporting on June 30, 2014 was $3,874 for which no specific allowance has been established within the allowance for loan losses. During the six months ended June 30, 2014, $195 of charge-offs were recorded related to this loan. The level of charge-offs has a direct impact on the determination of the provision for loan losses. The fair values were based on internally customized discounting criteria of the collateral and thus classified as Level 3 fair values.

 

    Fair Value Measurements at  
    December 31, 2013  
    Quoted Prices in
Active Markets
for Identical Assets
(Level 1)
    Significant
Other
Observable Inputs
(Level 2)
    Significant
Unobservable
Inputs

(Level 3)
    Total  
    (In thousands)  

Measured on a recurring basis:

       

Available for sale securities:

       

U.S. Treasury and government agencies

    —        $ 93,692        —        $ 93,692   

Mortgage-backed securities - residential

    —          339,695        —          339,695   

Obligations of states and political subdivisions

    —          89,304        —          89,304   

Other debt securities

    —          9,529        —          9,529   

Mutual funds and other equity securities

  $ 9,978        —          —          9,978   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total assets at fair value

  $ 9,978      $ 532,220        —        $ 542,198   
 

 

 

   

 

 

   

 

 

   

 

 

 

Measured on a non-recurring basis:

       

Impaired loans: (1)

       

Commercial Real Estate

    —          —          —          —     

Construction

    —          —          —          —     

Residential

    —          —        $ 380      $ 380   

Commercial & Industrial

    —          —          895        895   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total assets at fair value

    —          —        $ 1,275      $ 1,275   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Impaired loans are reported at the fair value of the underlying collateral if repayment is expected solely from the collateral. Collateral values are estimated using Level 2 and Level 3 inputs which include independent appraisals and internally customized discounting criteria. The recorded investment in impaired loans subject to fair value reporting on December 31, 2013 was $1,275 for which no specific allowance has been established within the allowance for loan losses. During 2013, $31 of charge-offs were recorded related to these loans. The level of charge-offs has a direct impact on the determination of the provision for loan losses. The fair values were based on internally customized discounting criteria of the collateral and thus classified as Level 3 fair values.

 

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The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis as of the dates indicated:

 

Asset

   Fair Value at
June 30, 2014
(In thousands)
     Valuation
Technique
   Unobservable
Inputs
   Discount

Impaired loans - residential real estate

   $ 3,874       Sales comparison approach    Discounts to appraisals
for market conditions
   5%

Asset

   Fair Value at
December 31, 2013
(In thousands)
     Valuation
Technique
   Unobservable
Inputs
   Discount Range
(Weighted Average)

Impaired loans - residential real estate

   $ 380       Sales comparison approach    Discounts to appraisals
for market conditions
   0% (0%)

Impaired loans - commercial and industrial

     895       Sales comparison approach    Discounts to appraisals
for market conditions
   0% (0%)

The table below presents a reconciliation and income statement classification of gains and losses for securities available for sale measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six month periods ended June 30, 2013:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2014      2013     2014      2013  
     (In thousands)  

Balance at beginning of period

     —         $ 3,038        —         $ 2,950   

Additions to Level 3

     —           62        —           158   

Net unrealized gain included in other comprehensive income (1)

     —           354        —           550   

Principal payments

     —           (119     —           (323
  

 

 

    

 

 

   

 

 

    

 

 

 

Balance at end of period

     —         $ 3,335        —         $ 3,335   
  

 

 

    

 

 

   

 

 

    

 

 

 

 

(1) Reported under “Gains recognized in comprehensive income”

 

9. Fair Value of Financial Instruments

The Company follows the “Financial Instruments” topic of the FASB Accounting Standards Codification which requires the disclosure of the estimated fair value of certain financial instruments. These estimated fair values as of June 30, 2014 and December 31, 2013 have been determined using available market information and appropriate valuation methodologies. Considerable judgment is required to interpret market data to develop estimates of fair value. The estimates presented are not necessarily indicative of amounts the Company could realize in a current market exchange. The use of alternative market assumptions and estimation methodologies could have had a material effect on these estimates of fair value.

 

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Carrying amount and estimated fair value of financial instruments, not previously presented, at the dates indicated were as follows:

 

                   Fair Value Measurements  
June 30, 2014    Carrying
Amount
     Total
Fair
Value
     Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
     Significant
Other Observable
Inputs

(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 
     (In millions)  

Assets:

              

Held to maturity securities and accrued interest

     5.5         5.8         —         $ 5.8         —     

FHLB Stock

     3.2         N/A         —           —           —     

Loans and accrued interest

     1,771.9         1,785.1         —           —         $ 1,785.1   

Liabilities:

              

Deposits with no stated maturity and accrued interest

     2,747.1         2,747.1       $ 2,747.1         —           —     

Time deposits and accrued interest

     113.0         113.0         —           113.0         —     

Securities sold under repurchase agreements and other short-term borrowing and accrued interest

     46.1         46.1         46.1         —           —     
                   Fair Value Measurements  
December 31, 2013    Carrying
Amount
     Total
Fair
Value
     Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
     Significant
Other Observable
Inputs

(Level 2)
     Significant
Unobservable
Inputs

(Level 3)
 
     (In millions)  

Assets:

              

Held to maturity securities and accrued interest

     6.2         6.6         —         $ 6.6         —     

FHLB Stock

     3.5         N/A         —           —           —     

Loans and accrued interest

     1,637.3         1,655.6         —           —         $ 1,655.6   

Liabilities:

              

Deposits with no stated maturity and accrued interest

     2,517.8         2,517.8       $ 2,517.8         —           —     

Time deposits and accrued interest

     116.1         116.1         —           116.1         —     

Securities sold under repurchase agreements and other short-term borrowing and accrued interest

     34.4         34.4         34.4         —           —     

Other borrowings and accrued interest

     16.5         14.6         —           14.6         —     

The estimated fair value of the indicated items was determined as follows:

Financial assets for which carrying value approximates fair value are excluded from the table — The estimated fair value approximates carrying amount because of the immediate availability of these funds or based on the short maturities and current rates for similar deposits.

Held to maturity securities and accrued interest — The fair value of securities held to maturity was estimated based on quoted market prices or dealer quotations. Accrued interest is stated at its carrying amounts which approximates fair value.

FHLB Stock — It is not practicable to determine its fair value due to restrictions placed on its transferability.

Loans and accrued interest — The fair value of loans was estimated by discounting projected cash flows at the reporting date using current rates for similar loans. Accrued interest is stated at its carrying amount which approximates fair value. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

Deposits with no stated maturity and accrued interest — The estimated fair value of deposits with no stated maturity and accrued interest, as applicable, are considered to be equal to their carrying amounts.

Time deposits and accrued interest — The fair value of time deposits has been estimated by discounting projected cash flows at the reporting date using current rates for similar deposits. Accrued interest is stated at its carrying amount which approximates fair value.

 

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Securities sold under repurchase agreements and other short-term borrowings and accrued interest — The estimated fair value of these instruments approximate carrying amount because of their short maturities and variable rates. Accrued interest is stated at its carrying amount which approximates fair value.

Other borrowings and accrued interest — The fair value of callable FHLB advances was estimated by discounting projected cash flows at the reporting date using the rate applicable to the projected call date option. Accrued interest is stated at its carrying amount which approximates fair value.

 

10. Accumulated Other Comprehensive Income (Loss)

Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on securities available for sale and accrued benefit liability adjustments which are also recognized as separate components of equity. Activity in accumulated other comprehensive income (loss), net of tax, was as follows:

 

     Securities
Available
For Sale
    Defined
Benefit
Plans
    Accumulated
Other
Comprehensive
Income (Loss)
 
     (In thousands)  

Balance at January 1, 2014

   $ (5,328   $ (1,043   $ (6,371

Other comprehensive income before reclassification

     5,126        —          5,126   

Amounts reclassified from accumulated other comprehensive income

     (23     226        203   
  

 

 

   

 

 

   

 

 

 

Net other comprehensive income during period

     5,103        226        5,329   
  

 

 

   

 

 

   

 

 

 

Balance at June 30, 2014

   $ (225   $ (817   $ (1,042
  

 

 

   

 

 

   

 

 

 

Balance at January 1, 2013

   $ 624      $ (1,473   $ (849

Other comprehensive (loss) income before reclassification

     (7,223     —          (7,223

Amounts reclassified from accumulated other comprehensive income

     —          186        186   
  

 

 

   

 

 

   

 

 

 

Net other comprehensive (loss) income during period

     (7,223     186        (7,037
  

 

 

   

 

 

   

 

 

 

Balance at June 30, 2013

   $ (6,599   $ (1,287   $ (7,886
  

 

 

   

 

 

   

 

 

 

The following table represents the reclassification out of accumulated other comprehensive income for the periods indicated:

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2014     2013     2014     2013  
     (In thousands)  

Unrealized gains (losses) on securities available for sale:

        

Realized gains (losses) on securities transactions

   $ 12        —        $ 38        —     

Income tax expense

     (5     —          (15     —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Net of tax

     7        —          23        —     
  

 

 

   

 

 

   

 

 

   

 

 

 

Amortization of pension and post-retirement benefit items:

        

Amortization of net actuarial loss

     (188   $ (209     (376   $ (418

Amortization of prior service cost

     —          54        —          108   

Income tax expense

     75        62        150        124   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net of tax

     (113     (93     (226     (186
  

 

 

   

 

 

   

 

 

   

 

 

 

Total reclassifications, net of tax

   $ (106   $ (93   $ (203   $ (186
  

 

 

   

 

 

   

 

 

   

 

 

 

The income statement line items impacted by the reclassification of unrealized gains (losses) on securities available for sale are net impairment loss recognized in earnings and income tax expense. The income statement line items impacted by the reclassification of amortization of pension and post-retirement benefit items are salaries and employee benefits and income tax expense.

 

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11. Recent Accounting Pronouncements

In January 2014, the FASB issued ASU 2014-04, “Receivables—Troubled Debt Restructuring by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans Upon Foreclosure,” to clarify that when an in substance repossession or foreclosure occurs, a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. ASU 2014- 04 is effective for annual reporting periods beginning after December 15, 2014. The Company is in the process of evaluating the impact of ASU 2014-04 on its consolidated financial statements and processes.

In April 2014, the FASB issued ASU 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360) – Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” The amendments in this ASU change the criteria for reporting discontinued operations and improve related disclosures. Under the ASU, only disposals representing a strategic shift having a major effect on an entity’s operations and financial results, such as a disposal of a major geographic area, a major line of business or a major investment may be presented as discontinued operations. Additionally, the ASU requires expanded disclosures about discontinued operations that will provide more information about the assets, liabilities, income, and expenses of discontinued operations. ASU 2014-08 will be effective for annual financial statements with fiscal years beginning on or after December 31, 2014, and interim periods thereafter. The adoption of this ASU is not expected to have a material impact on the consolidated statement of financial position or results of operations.

 

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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, 2014 and December 31, 2013, and the consolidated results of operations for the six month periods ended June 30, 2014 and June 30, 2013. The Company is consolidated with its wholly owned subsidiaries Hudson Valley Bank, N.A. and its subsidiaries (collectively “HVB” or the “Bank”) and HVHC Risk Management Corp. This discussion and analysis should be read in conjunction with the financial statements and supplementary financial information contained in the Company’s 2013 Annual Report on Form 10-K.

Forward-Looking Statements

In this Form 10-Q, the Company has made 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 June 30, 2014. Such statements are not historical facts and include expressions about management’s confidence and strategies and management’s expectations about items such as new and existing programs and products, relationships, opportunities, taxation, technology, market conditions and economic expectations. These statements may be identified by such forward-looking terminology as “should,” “expect,” “believe,” “view,” “intends,” “estimates,” “predicts,” “opportunity,” “allow,” “continues,” “reflects,” “typically,” “usually,” “anticipate,” and words of similar import. 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.

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 Company’s Annual Report on Form 10-K for the year ended December 31, 2013 include, but are not limited to, statements regarding:

 

    the Office of the Comptroller of the Currency and other bank regulators may require us to modify or change our mix of assets, including our concentration in certain types of loans, or require us to take further remedial actions;

 

    our inability to deploy our excess cash, reduce our expenses and improve our operating leverage and efficiency;

 

    our ability to pay quarterly cash dividends to shareholders in light of our earnings, the current and future economic environment, Federal Reserve Board guidance, our Bank’s capital plan and other regulatory requirements applicable to Hudson Valley or Hudson Valley Bank;

 

    the possibility that we may need to raise additional capital in the future and our ability to raise such capital on terms that are favorable to us;

 

    further increases in our nonperforming loans and allowance for loan losses;

 

    ineffectiveness in managing our commercial real estate portfolio;

 

    lower than expected future performance of our investment portfolio;

 

    inability to effectively integrate and manage the new businesses and lending teams;

 

    a lack of opportunities for growth, plans for expansion (including opening new branches) and increased or unexpected competition in attracting and retaining customers;

 

    continued poor economic conditions generally and in our market area in particular, which may adversely affect the ability of borrowers to repay their loans and the value of real property or other property held as collateral for such loans;

 

    lower than expected demand for our products and services;

 

    possible additional impairment of our goodwill and other intangible assets;

 

    our inability to manage interest rate risk;

 

    increased expense and burdens resulting from the regulatory environment in which we operate and our ability to comply with existing and future regulatory requirements;

 

    our inability to maintain regulatory capital above the minimum levels Hudson Valley Bank has set as its minimum capital levels or such higher capital levels as may be required;

 

    proposed legislative and regulatory action may adversely affect us and the financial services industry;

 

    legislative and regulatory actions (including the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act and related regulations) may subject us to additional regulatory oversight which may result in increased compliance costs and/or require us to change our business model;

 

    future increased Federal Deposit Insurance Corporation, or FDIC, special assessments or changes to regular assessments;

 

    potential liabilities under federal and state environmental laws; and

 

    legislative and regulatory changes to laws governing New York State’s taxation of HVB’s REIT subsidiary.

 

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The Company does not undertake to update or revise any of its forward-looking statements even if experience shows that the indicated results or events will not be realized.

Overview of Management’s Discussion and Analysis

This overview is intended to highlight selected information included in this Quarterly Report on Form 10-Q. It does not contain sufficient information for a complete understanding of the Company’s financial condition and operating results and, therefore, should be read in conjunction with this entire Quarterly Report on Form 10-Q and the Company’s 2013 Annual Report on Form 10-K.

The Company derives substantially all of its revenue from providing banking and related services to businesses, professionals, municipalities, not-for profit organizations and individuals within its market area, primarily Westchester County and Rockland County, New York, and portions of New York City. The Company’s assets consist primarily of cash and cash equivalents, loans and investment securities, which are funded by deposits, borrowings and capital. The primary source of revenue is net interest income, the difference between interest income on cash and cash equivalents, loans and investments, and interest expense on deposits and borrowed funds. The Company’s strategy includes investigation of opportunities for expansion within our market area, select lending opportunities outside our market area, as well as an ongoing review of our existing branch system to evaluate if our current locations have or have not met expectations for growth and profitability. Considering current economic conditions, the Company’s primary market risk exposures are interest rate risk, the risk of deterioration of market values of collateral supporting the Company’s loan portfolio, primarily commercial and residential real estate, and potential risks associated with the impact of regulatory changes that have occurred and may continue to take place in reaction to current conditions in the financial system. Interest rate risk is the exposure of net interest income to changes in interest rates. Commercial and residential real estate are the primary collateral for the majority of the Company’s loans.

The Company recorded net income for the three month period ended June 30, 2014 of $2.4 million or $0.12 per diluted share, a decrease of $1.1 million compared to net income of $3.5 million or $0.18 per diluted share for the same period in the prior year. Net income for the six month period ended June 30, 2014 was $4.0 million or $0.20 per diluted share, a decrease of $3.1 million compared to net income of $7.1 million or $0.36 per diluted share for the same period in the prior year. The decrease in earnings for the three month period ended June 30, 2014, compared to the same period in the prior year, was due to higher non-interest expense, which was primarily due to professional fees incurred to expand the residential lending operation, executive severance payments, and new hires in the ABL and equipment financing units. The decrease in earnings for the six month period ended June 30, 2014, compared to the same period in the prior year, was primarily due to the reasons noted above coupled with lower non-interest income, which was primarily a result of a $1.9 million pre-tax charge for prepaying all $16.4 million of the Company’s outstanding Federal Home Loan Bank borrowings.

Total loans increased $138.3 million to $1,769.1 million during the six month period ended June 30, 2014 compared to $1,630.8 million at the prior year end. The overall increase was primarily the result of new production and multi-family residential and commercial real estate loan purchases in excess of payoffs and net pay downs. The purchases were conducted as a part of the ongoing reinvestment of excess liquidity. The Company continues to provide lending availability to both new and existing customers.

Nonperforming assets decreased to $20.5 million at June 30, 2014, compared to $23.5 million at December 31, 2013. Overall asset quality showed continued improvement but continues to be adversely affected by the current state of the economy and the real estate market. Overall reductions in classified and nonperforming loans have resulted from the Company’s aggressive strategies for resolving problem assets. However, levels of nonperforming and classified loans remain at elevated levels. As a result of these factors, the Company has continued to maintain the allowance for loan losses at a higher than historical level, while recognizing the measurable improvements in overall asset quality and the general economic outlook. The allowance for loan losses totaled $27.3 million or 1.54 percent of total loans at June 30, 2014, compared to $26.0 million or 1.59 percent of total loans at December 31, 2013. The provision for loan losses totaled $0.5 million for both the three and six month periods ended June 30, 2014, compared to $0.3 million and $1.1 million, respectively, for the same periods in the prior year, reflecting both loan growth and continued improvement in overall credit quality.

Total deposits increased by $226.2 million to $2,859.9 million during the six month period ended June 30, 2014, compared to $2,633.7 million at 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.

The net interest margin was 3.05 percent and 3.10 percent, respectively, for the three and six month periods ended June 30, 2014, compared to 3.06 percent and 3.12 percent, respectively, for the same periods in the prior year. The Company has increased its efforts to redeploy excess liquidity, primarily in new loans and purchasing investment securities while reducing interest expense by repaying other borrowings. The effects of the continuation of historically low interest rates on the reinvestment of maturing loans and

 

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investments has impacted the net interest margin. Net interest income increased by $1.0 million or 4.7 percent to $22.1 million for the three month period ended June 30, 2014 compared to $21.1 million for the same period in the prior year. Net interest income increased by $1.5 million or 3.5 percent to $43.8 million for the six month period ended June 30, 2014 compared to $42.3 million for the same period in the prior year.

The tax equivalent net interest margin was 3.10 percent and 3.14 percent, respectively, for the three and six month periods ended June 30, 2014, compared to 3.12 percent and 3.18 percent, respectively, for the same periods in the prior year. 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 increased by $0.9 million or 4.2 percent to $22.4 million for the three month period ended June 30, 2014, compared to $21.5 million for the same period in the prior year. Tax equivalent basis net interest income increased by $1.4 million or 3.2 percent to $44.5 million for the six month period ended June 30, 2014, compared to $43.1 million for the same period in the prior year. Tax equivalent basis net interest income is a non-GAAP financial measure.

The Company’s non-interest income was $3.9 million and $6.4 million, respectively, for the three and six month periods ended June 30, 2014, compared to $3.9 million and $8.4 million, respectively, for the same periods in the prior year. The decrease for the six month period ended June 30, 2014, compared to the same period in the prior year, was primarily due to a previously disclosed $1.9 million pre-tax charge for prepaying all $16.4 million of the Company’s outstanding Federal Home Loan Bank borrowings.

Non-interest expense was $22.1 million and $43.9 million, respectively, for the three and six month periods ended June 30, 2014, compared to $19.8 million and $39.4 million, respectively, for the same periods in the prior year. The increase for the three and six month periods ended June 30, 2014, compared to the same periods in the prior year, was primarily due to professional fees incurred to expand the residential lending operation, executive severance payments, and new hires in the ABL and equipment financing units.

Hudson Valley’s capital ratios remain in excess of “well capitalized” levels generally applicable to banks under current regulations. At June 30, 2014, Hudson Valley Holding Corp. maintained a total risk-based capital ratio of 16.0 percent, a Tier 1 risk-based capital ratio of 14.7 percent, and a Tier 1 leverage ratio of 9.4 percent. At June 30, 2014, Hudson Valley Bank, N.A. maintained a total risk-based capital ratio of 15.7 percent, a Tier 1 risk-based capital ratio of 14.4 percent, and a Tier 1 leverage ratio of 9.2 percent.

Critical Accounting Policies

Application of Critical Accounting Policies — The Company’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). Certain accounting policies require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. On an on-going basis, management evaluates its estimates and assumptions, and the effects of revisions are reflected in the financial statements in the period in which they are determined to be necessary. The critical accounting policies discussed in our Annual Report on Form 10-K for the year ended December 31, 2013, are those that most frequently require management to make estimates and judgments, and therefore, are critical to understanding the Company’s results of operations. Senior management has discussed the development and selection of these accounting estimates and the related disclosures with the Audit Committee of the Company’s Board of Directors. There have been no changes to the Company’s critical accounting policies during the three months ended June 30, 2014.

Results of Operations for the Three and Six Month Periods Ended June 30, 2014 and June 30, 2013

Summary of Results

The Company recorded net income of $2.4 million or $0.12 per diluted share for the three month period ended June 30, 2014, compared to net income of $3.5 million or $0.18 per diluted share for the same period in the prior year. Net income for the six month period ended June 30, 2014 was $4.0 million or $0.20 per diluted share, compared to net income of $7.1 million or $0.36 per diluted share for the same period in the prior year. The decrease in net income for the three month period ended June 30, 2014, compared to the same period in the prior year, was primarily due to professional fees incurred to expand the residential lending operation, executive severance payments, and new hires in the ABL and equipment financing units. The decrease in net income for the six month period ended June 30, 2014, compared to the same period in the prior year, was primarily due to the same factors for the three month period coupled with a $1.9 million pre-tax charge for prepaying all $16.4 million of the Company’s outstanding Federal Home Loan Bank borrowings and a $0.2 million tax charge related to the New York State Corporate Tax Reform enacted on March 31, 2014. The provision for loan losses totaled $0.5 million for both the three and six month period ended June 30, 2014, compared to $0.3 million and $1.1 million for the same periods in the prior year, respectively, reflecting both loan growth and continued improvement in overall credit quality.

 

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Annualized returns on average stockholders’ equity and average assets were 3.4 percent and 0.3 percent for the three month period ended June 30, 2014, compared to 4.7 percent and 0.5 percent for the same period in the prior year. Annualized returns on average stockholders’ equity and average assets were 2.8 percent and 0.3 percent for the six month period ended June 30, 2014, compared to 4.9 percent and 0.5 percent for the same period in the prior year. Returns on adjusted average stockholders’ equity were 3.4 percent and 4.7 percent, respectively, for the three month periods ended June 30, 2014 and 2013. Adjusted average stockholders’ equity excludes the effects of average net unrealized losses, net of tax, offset by the tax equivalent income adjustment, totaling $1.4 million and $1.2 million, respectively, for the three month periods ended June 30, 2014 and 2013. Returns on adjusted average stockholders’ equity were 2.8 percent and 4.9 percent, respectively, for the six month periods ended June 30, 2014 and 2013. Adjusted average stockholders’ equity excludes the effects of average net unrealized losses, net of tax, offset by the tax equivalent income adjustment, totaling $2.2 million and $0.6 million, respectively, for the six month periods ended June 30, 2014 and 2013. The annualized return on adjusted average stockholders’ equity is, under SEC regulations, a non-GAAP financial measure. Management believes that this non-GAAP financial measure more closely reflects actual performance, as it is more consistent with the Company’s stated asset/liability management strategies, which do not contemplate significant realization of market gains or losses on securities available for sale which were primarily related to changes in interest rates or illiquidity in the marketplace.

 

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Average Balances and Interest Rates

The following tables set forth the average balances of interest earning assets and interest bearing liabilities for the periods indicated, as well as total interest and corresponding yields and rates.

 

     Three Months Ended June 30,  
     2014     2013  
     Average
Balance
     Interest (3)      Yield/
Rate
    Average
Balance
     Interest (3)      Yield/
Rate
 
(Unaudited)    (Dollars in thousands)  

ASSETS

                

Interest earning assets:

                

Deposits in Banks

   $ 579,589       $ 391         0.27   $ 822,288       $ 540         0.26

Federal funds sold

     19,898         8         0.16     23,279         11         0.19

Securities: (1)

                

Taxable

     530,332         2,755         2.08     421,394         2,390         2.27

Exempt from federal income taxes

     96,053         957         3.99     82,236         1,200         5.84

Loans, net (2)

     1,671,938         19,505         4.67     1,409,875         18,826         5.34
  

 

 

    

 

 

      

 

 

    

 

 

    

Total interest earning assets

     2,897,810         23,616         3.26     2,759,072         22,967         3.33
  

 

 

    

 

 

      

 

 

    

 

 

    

Non-interest earning assets:

                

Cash & due from banks

     55,965              60,270         

Other assets

     108,621              132,272         
  

 

 

         

 

 

       

Total non-interest earning assets

     164,586              192,542         
  

 

 

         

 

 

       

Total assets

   $ 3,062,396            $ 2,951,614         
  

 

 

         

 

 

       

LIABILITIES AND STOCKHOLDERS’ EQUITY

                

Interest bearing liabilities:

                

Deposits:

                

Money market

   $ 951,827       $ 793         0.33   $ 894,878       $ 784         0.35

Savings

     122,539         36         0.12     123,925         95         0.31

Time

     113,904         132         0.46     124,058         155         0.50

Checking with interest

     510,645         211         0.17     442,048         258         0.23

Securities sold under repo & other s/t borrowings

     32,297         9         0.11     26,115         7         0.11

Other borrowings

     —           —           0.00     16,412         180         4.39
  

 

 

    

 

 

      

 

 

    

 

 

    

Total interest bearing liabilities

     1,731,212         1,181         0.27     1,627,436         1,479         0.36
  

 

 

    

 

 

      

 

 

    

 

 

    

Non-interest bearing liabilities:

                

Demand deposits

     1,014,081              1,001,674         

Other liabilities

     25,947              27,658         
  

 

 

         

 

 

       

Total non-interest bearing liabilities

     1,040,028              1,029,332         
  

 

 

         

 

 

       

Stockholders’ equity (1)

     291,156              294,846         
  

 

 

         

 

 

       

Total liabilities and stockholders’ equity

   $ 3,062,396            $ 2,951,614         
  

 

 

         

 

 

       

Net interest earnings

      $ 22,435            $ 21,488      
     

 

 

         

 

 

    

Net yield on interest earning assets

           3.10           3.12

 

(1) Excludes unrealized gains (losses) on securities available for sale. Management believes that this presentation more closely reflects actual performance, as it is more consistent with the Company’s stated asset/liability management strategies, which have not resulted in significant realization of temporary market gains or losses on securities available for sale which were primarily related to changes in interest rates. Effects of these adjustments are presented in the non-GAAP financial disclosures and reconciliation to GAAP table below.
(2) Includes loans classified as non-accrual.
(3) The data contained in this table has been adjusted to a tax equivalent basis, based on the Company’s federal statutory rate of 35 percent. Management believes that this presentation provides comparability of net interest income and net interest margin arising from both taxable and tax-exempt sources and is consistent with industry practice and SEC rules. Effects of these adjustments are presented in the non-GAAP financial disclosures and reconciliation to GAAP table below.

 

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     Six Months Ended June 30,  
     2014     2013  
     Average
Balance
     Interest (3)      Yield/
Rate
    Average
Balance
     Interest (3)      Yield/
Rate
 
(Unaudited)    (Dollars in thousands)  

ASSETS

                

Interest earning assets:

                

Deposits in Banks

   $ 582,369       $ 732         0.25   $ 787,982       $ 988         0.25

Federal funds sold

     20,141         16         0.16     24,415         22         0.18

Securities: (1)

                

Taxable

     493,825         5,073         2.05     403,689         4,585         2.27

Exempt from federal income taxes

     93,621         1,926         4.11     83,058         2,382         5.74

Loans, net (2)

     1,644,048         39,043         4.75     1,415,970         38,085         5.38
  

 

 

    

 

 

      

 

 

    

 

 

    

Total interest earning assets

     2,834,004         46,790         3.30     2,715,114         46,062         3.39
  

 

 

    

 

 

      

 

 

    

 

 

    

Non-interest earning assets:

                

Cash & due from banks

     57,671              56,284         

Other assets

     110,092              134,438         
  

 

 

         

 

 

       

Total non-interest earning assets

     167,763              190,722         
  

 

 

         

 

 

       

Total assets

   $ 3,001,767            $ 2,905,836         
  

 

 

         

 

 

       

LIABILITIES AND STOCKHOLDERS’ EQUITY

                

Interest bearing liabilities:

                

Deposits:

                

Money market

   $ 923,728       $ 1,538         0.33   $ 878,399       $ 1,625         0.37

Savings

     123,420         79         0.13     127,108         187         0.29

Time

     114,468         265         0.46     126,521         318         0.50

Checking with interest

     483,674         380         0.16     405,065         409         0.20

Securities sold under repo & other s/t borrowings

     30,608         15         0.10     28,019         16         0.11

Other borrowings

     453         10         4.42     16,417         359         4.37
  

 

 

    

 

 

      

 

 

    

 

 

    

Total interest bearing liabilities

     1,676,351         2,287         0.27     1,581,529         2,914         0.37
  

 

 

    

 

 

      

 

 

    

 

 

    

Non-interest bearing liabilities:

                

Demand deposits

     1,006,537              1,002,967         

Other liabilities

     28,375              28,458         
  

 

 

         

 

 

       

Total non-interest bearing liabilities

     1,034,912              1,031,425         
  

 

 

         

 

 

       

Stockholders’ equity (1)

     290,504              292,882         
  

 

 

         

 

 

       

Total liabilities and stockholders’ equity

   $ 3,001,767            $ 2,905,836         
  

 

 

         

 

 

       

Net interest earnings

      $ 44,503            $ 43,148      
     

 

 

         

 

 

    

Net yield on interest earning assets

           3.14           3.18

 

(1) Excludes unrealized gains (losses) on securities available for sale. Management believes that this presentation more closely reflects actual performance, as it is more consistent with the Company’s stated asset/liability management strategies, which have not resulted in significant realization of temporary market gains or losses on securities available for sale which were primarily related to changes in interest rates. Effects of these adjustments are presented in the non-GAAP financial disclosures and reconciliation to GAAP table below.
(2) Includes loans classified as non-accrual.
(3) The data contained in this table has been adjusted to a tax equivalent basis, based on the Company’s federal statutory rate of 35 percent. Management believes that this presentation provides comparability of net interest income and net interest margin arising from both taxable and tax-exempt sources and is consistent with industry practice and SEC rules. Effects of these adjustments are presented in the non-GAAP financial disclosures and reconciliation to GAAP table below.

 

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Non-GAAP Reconciliation to GAAP

 

     Three Months Ended
June 30
    Six Months Ended
June 30
 
     2014     2013     2014     2013  
     (Dollars in thousands)  

Total interest earning assets:

        

As reported

   $ 2,895,635      $ 2,756,881      $ 2,830,446      $ 2,713,959   

Unrealized loss on securities available-for-sale (a)

     2,175        2,191        3,558        1,155   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted total interest earning assets

   $ 2,897,810      $ 2,759,072      $ 2,834,004      $ 2,715,114   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net interest income:

        

As reported

   $ 22,100      $ 21,068      $ 43,829      $ 42,314   

Adjustment to tax equivalency basis (b)

     335        420        674        834   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted net interest income

   $ 22,435      $ 21,488      $ 44,503      $ 43,148   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net yield on interest earning assets:

        

As reported

     3.05     3.06     3.10     3.12

Effects of (a) and (b) above

     0.05     0.06     0.04     0.06
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted net yield on interest earning assets

     3.10     3.12     3.14     3.18
  

 

 

   

 

 

   

 

 

   

 

 

 

Average stockholders’ equity:

        

As reported

   $ 289,761      $ 293,616      $ 288,258      $ 292,290   

Effects of (a) and (b) above

     1,395        1,230        2,246        592   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted average stockholders’ equity

   $ 291,156      $ 294,846      $ 290,504      $ 292,882   
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest income:

        

As reported

   $ 23,281      $ 22,547      $ 46,116      $ 45,228   

Adjustment to tax equivalency basis (b)

     335        420        674        834   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted interest income

   $ 23,616      $ 22,967      $ 46,790      $ 46,062   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross yield on interest earning assets:

        

As reported

     3.22     3.27     3.26     3.33

Effects of (a) and (b) above

     0.04     0.06     0.04     0.06
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted gross yield on interest earning assets

     3.26     3.33     3.30     3.39
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

Interest Differential

The following table sets forth the changes in interest income, interest expense and net interest income for the periods indicated:

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2014 Compared to 2013     2014 Compared to 2013  
     Volume     Rate     Total (1)     Volume     Rate     Total (1)  
     (In thousands)  

Interest income:

            

Deposits in Banks

   $ (159   $ 10      $ (149   $ (258   $ 2      $ (256

Federal funds sold

     (2     (1     (3     (4     (2     (6

Securities:

            

Taxable

     618        (253     365        1,024        (536     488   

Exempt from federal income taxes (2)

     202        (445     (243     303        (759     (456

Loans, net

     3,499        (2,820     679        6,135        (5,177     958   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest income

     4,158        (3,509     649        7,200        (6,472     728   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest expense:

            

Deposits:

            

Money market

     50        (41     9        84        (171     (87

Savings

     (1     (58     (59     (5     (103     (108

Time

     (13     (10     (23     (30     (23     (53

Checking with interest

     40        (87     (47     79        (108     (29

Securities sold under repo & other s/t borrowings

     2        —          2        1        (2     (1

Other borrowings

     (180     —          (180     (349     —          (349
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total interest expense

     (102     (196     (298     (220     (407     (627
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest differential

   $ 4,260      $ (3,313   $ 947      $ 7,420      $ (6,065   $ 1,355   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Changes attributable to both rate and volume are allocated between the rate and volume variances based upon their absolute relative weight to the total change.
(2) Equivalent yields on securities exempt from federal income taxes are based on a federal statutory rate of 35 percent in 2014 and 2013.

Net Interest Income

For purposes of the financial information included in this section, the Company adjusts average interest earning assets to exclude the effects of unrealized gains and losses on securities available for sale and adjusts net interest income to a tax equivalent basis. Management believes that this alternate presentation more closely reflects actual performance, as it is consistent with the Company’s stated asset/liability management strategies. The effects of these non-GAAP adjustments to tax equivalent basis net interest income and adjusted average assets are included in the table presented above in the “Average Balances and Interest Rates” section herein.

Net interest income, the difference between interest income and interest expense, is the most significant component of the Company’s consolidated earnings. The Company, its customers and marketplace have experienced an extended period of negative, although recently improving, economic conditions and historically low interest rates. Management has commenced several initiatives to redeploy remaining excess liquidity from previous loan sales. These initiatives included asset purchases, expanded residential mortgage programs and the establishment of new commercial lending programs in asset-based lending and equipment lease financing. Management believes that the results of these efforts will enable the Company to maximize its net interest income, and effectively diversify its portfolio from both asset composition and interest rate risk management perspectives. In addition to the aforementioned initiatives, during the three months ended June 30, 2014, the Company purchased $304 million of highly liquid securities with a weighted average yield of 1.79%, an average life of 4.1 years, and an average duration of 3.9 years.

Net interest income, on a tax equivalent basis, increased by $0.9 million or 4.2 percent to $22.4 million and by $1.4 million or 3.2 percent to $44.5 million, respectively, for the three and six month periods ended June 30, 2014, compared to $21.5 million and $43.1 million, respectively, for the same periods in the prior year. Net interest income was higher partially due to higher volumes of loans and securities. Adjusted average interest earning assets over average interest bearing liabilities increased $34.9 million or 3.1 percent to $1,166.6 million and $24.1 million or 2.1 percent to $1,157.7 million for the three and six month periods ended June 30, 2014, compared to $1,131.7 million and $1,133.6 million for the same periods in the prior year. Net interest income in accordance with GAAP increased by $1.0 million or 4.7 percent to $22.1 million and by $1.5 million or 3.4 percent to $43.8 million, respectively, for the three and six month periods ended June 30, 2014 compared to $21.1 million and $42.3 million, respectively, for the same periods in the prior year.

 

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Table of Contents

The Company’s overall asset quality has improved as a result of actions taken by management to reduce concentrations and classified assets and the gradually improving credit environment. However, the Company has continued to experience elevated levels of delinquent and nonperforming loans. Changes in the levels of nonperforming loans have a direct impact on net interest income.

Interest income is determined by the volume of, and related rates earned on, interest earning assets. Volume increases in average loans and investments, and a lower average cost of interest bearing liabilities, partially offset by a volume decrease in deposits in banks, federal funds sold, and a lower average yield on interest earning assets, resulted in slightly higher interest income for the three and six month periods ended June 30, 2014, compared to the same periods in the prior year. Adjusted total average interest earning assets for the three month period ended June 30, 2014, increased $138.7 million or 5.0 percent to $2,897.8 million, compared to $2,759.1 million for the same period in the prior year. Adjusted total average interest earning assets for the six month period ended June 30, 2014, increased $118.9 million or 4.4 percent to $2,834.0 million, compared to $2,715.1 million for the same period in the prior year.

Loans are the largest component of interest earning assets. Average net loans increased $262.0 million or 18.6 percent to $1,671.9 million, for the three month period ended June 30, 2014, compared to $1,409.9 million for the same period in the prior year. Average net loans increased $228.0 million or 16.1 percent to $1,644.0 million, for the six month period ended June 30, 2014, compared to $1,416.0 million for the same period in the prior year. The increase in average loans resulted from the purchases of 1-4 family residential mortgages and other new production in excess of payoffs and paydowns. The average yield on loans was 4.67 percent for the three month period ended June 30, 2014, compared to 5.34 percent for the same period in the prior year. The average yield on loans was 4.75 percent for the six month period ended June 30, 2014, compared to 5.38 percent for the same period in the prior year. This reduction resulted primarily from continued historically low interest rates and their effect on the yield of new and renewing loans. Interest income on loans was higher for the three and six month periods ended June 30, 2014, compared to the same period in the prior year, due to higher volume.

Average total securities, including FHLB stock and excluding net unrealized gains and losses, increased $122.8 million or 24.4 percent to $626.4 million for the three month period ended June 30, 2014, compared to $503.6 million for the same period in the prior year. Average total securities, including FHLB stock and excluding net unrealized gains and losses, increased $100.7 million or 17.2 percent to $587.4 million for the six month period ended June 30, 2014, compared to $486.7 million for the same period in the prior year. The increase in average total securities resulted primarily from planned increases in the portfolio. The average tax equivalent basis yield on securities was 2.37 percent and 2.38 percent, respectively, for the three and six month period ended June 30, 2014, compared to 2.85 percent and 2.86 percent, respectively, for the same periods in the prior year. Tax equivalent basis interest income on securities increased for the three and six month periods ended June 30, 2014, compared to the same periods in the prior year, due to higher volume, partially offset by lower interest rates. Average securities for the three and six months ended June 30, 2014, include less than one month’s effect of the $304 million of securities purchased in June 2014.

Interest expense is a function of the volume of, and rates paid for, interest bearing liabilities, comprised of deposits and borrowings. Interest expense decreased $0.3 million or 20.0 percent to $1.2 million for the three month period ended June 30, 2014, compared to $1.5 million for the same period in the prior year. Interest expense decreased $0.6 million or 20.7 percent to $2.3 million for the six month period ended June 30, 2014, compared to $2.9 million for the same period in the prior year. Average interest bearing liabilities increased $103.8 million or 6.4 percent to $1,731.2 million for the three month period ended June 30, 2014, compared to $1,627.4 million for the same period in the prior year. Average interest bearing liabilities increased $94.9 million or 6.0 percent to $1,676.4 million for the six month period ended June 30, 2014, compared to $1,581.5 million for the same period in the prior year. The increase in average interest bearing liabilities for the six month period ended June 30, 2014, compared to the same period in the prior year, was due to volume increases in interest bearing deposits, securities sold under repurchase agreements, and other short-term borrowings, which was partially offset by volume decreases in other borrowings. The average interest rate paid on interest bearing liabilities was 0.27 percent for both the three and six month periods ended June 30, 2014, compared to 0.36 percent and 0.37 percent, respectively, for the same periods in the prior year.

Average non-interest bearing demand deposits increased $12.4 million or 1.2 percent to $1,014.1 million for the three month period ended June 30, 2014 compared to $1,001.7 million for the same period in the prior year. Average non-interest bearing demand deposits increased $3.5 million or 0.3 percent to $1,006.5 million for the six month period ended June 30, 2014 compared to $1,003.0 million for the same period in the prior year. Non-interest bearing demand deposits are an important component of the Company’s ongoing asset liability management, and also have a direct impact on the determination of net interest income.

 

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Table of Contents

The interest rate spread on a tax equivalent basis for the periods indicated was as follows:

 

     Three Months
Ended
June 30,
    Six Months
Ended
June 30,
 
     2014     2013     2014     2013  

Average interest rate on:

        

Total average interest earning assets

     3.26     3.33     3.30     3.39

Total average interest bearing liabilities

     0.27     0.36     0.27     0.37

Total interest rate spread

     2.99     2.97     3.03     3.02

Interest rate spreads increase or decrease as a result of the relative change in average interest rates on interest earning assets compared to the change in average interest rates on interest bearing liabilities. Management cannot predict what impact market conditions will have on its interest rate spread and future compression of net interest spread may occur.

Provision for Loan Losses

The provision for loan losses was $0.5 million for both the three and six month periods ended June 30, 2014, compared to $0.3 million and $1.1 million, respectively, for the same periods in the prior year, reflecting both loan growth and continued improvement in overall credit quality. Net charge-offs (recoveries) totaled $0.1 million and ($0.7) million for the three and six month periods ended June 30, 2014, respectively, compared to $0.5 million and $1.7 million for the same periods in the prior year.

Non-Interest Income

The Company’s non-interest income was $3.9 million and $6.4 million, respectively, for the three and six month periods ended June 30, 2014. Non-interest income remained unchanged for the three month period ended June 30, 2014 compared to the same period in the prior year, and decreased $2.0 million or 23.8 percent for the six month period ended June 30, 2014, compared to $8.4 million for the same period in the prior year. The decrease was primarily due to the $1.9 million prepayment penalty on FHLB borrowings. Non-interest income was also affected by a slight decrease in investment management fees which were $1.9 million and $3.8 million for the three and six month periods ended June 30, 2014, respectively, compared to $2.0 million and $3.9 million for the same periods in the prior year.

Non-Interest Expense

Non-interest expense was $22.1 million and $43.9 million, respectively, for the three and six month periods ended June 30, 2014. This represented increases of $2.3 million or 11.6 percent and $4.5 million or 11.4 percent, respectively, compared to $19.8 million and $39.4 million, respectively, for the same periods in the prior year. The increases for the three and six month period ended June 30, 2014, compared to the same periods in the prior year, were primarily due to due to professional fees incurred to expand the residential lending operation, executive severance payments, and new hires in the ABL and equipment financing units.

Salaries and employee benefits expense, the largest component of non-interest expense, increased $1.6 million or 14.4 percent and $3.3 million or 14.7 percent to $12.7 million and $25.7 million for the three and six month periods ended June 30, 2014, respectively, compared to $11.1 million and $22.4 million for the same periods in the prior year, primarily due to severance pay and increases in salaries and employee benefits expense related to new hires in the ABL and equipment financing units.

Occupancy expense increased $0.3 million or 14.3 percent and $0.2 million or 4.8 percent to $2.4 million and $4.4 million for the three and six month periods ended June 30, 2014, respectively, compared to $2.1 million and $4.2 million for the same periods in the prior year, primarily due to the additional office space leased for the ABL and equipment leasing teams.

Professional service fees increased $0.2 million or 11.8 percent and $0.4 million or 12.5 percent to $1.9 million and $3.6 million for the three and six month periods ended June 30, 2014, respectively, compared to $1.7 million and $3.2 million for the same periods in the prior year. The increases were due to fees incurred to expand residential lending operations and to assist with new systems implementations.

Equipment expense remained unchanged at $1.0 million and $2.0 million for the three and six month periods ended June 30, 2014, respectively, compared to the same periods in the prior year.

Business development expense increased $0.3 million or 50.0 percent and $0.6 million or 60.0 percent to $0.9 million and $1.6 million for the three and six month periods ended June 30, 2014, respectively, compared to $0.6 million and $1.0 million for the same periods in the prior year. The increases were due to higher participation in business development activities and increased promotion of the Bank’s products and services.

 

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Table of Contents

The FDIC assessment decreased $0.4 million or 44.4 percent and $0.8 million or 42.1 percent to $0.5 million and $1.1 million for the three and six month periods ended June 30, 2014, respectively, compared to $0.9 million and $1.9 million for the same periods in the prior year. The decreases were reflective of changes in the Bank’s premium calculation base and assessment rate.

Significant changes in other components of non-interest expense for the six month period ended June 30, 2014 compared to June 30, 2013, were due to the following:

 

    Increase of $0.2 million (33.3%) in other loan expense due to higher problem loans resolution expenses.

 

    Increase of $0.3 million (14.3%) in outside services expense primarily due to higher data processing costs.

 

    Increase of $0.3 million (42.9%) in other expenses primarily due to a sublease write-down.

Income Taxes

Income taxes of $1.0 million and $1.8 million were recorded in the three and six month periods ended June 30, 2014, respectively, compared to $1.4 million and $3.1 million for the same periods in the prior year. The overall effective income tax rate was 29.9 percent and 30.6 percent for the three and six month periods ended June 30, 2014, respectively, compared to 28.0 percent and 30.2 percent for the same periods in the prior year. The 2014 effective rate included a $0.2 million tax charge related to the New York State Corporate Tax Reform enacted on March 31, 2014. The 2014 effective tax rate was higher primarily due to tax-exempt income representing a lower percentage of income before taxes, compared to the same period in the prior year period. The Company is subject to a Federal statutory tax rate of 35 percent, a New York State tax rate of 7.1 percent plus a 17 percent surcharge, and a New York City tax rate of 9.0 percent. The Company is in process of evaluating the future effect on its effective tax rate that will result from the aforementioned New York State Tax Reform legislation.

In May 2013, the Internal Revenue Service (IRS) commenced a routine examination of the Company’s 2009, 2010 and 2011 income tax returns. In May 2014, the Company received results of the examinations and there were no significant adjustments noted. In March 2014, the Company was informed that an examination of its New York State income tax returns for the years 2009 through 2012 will commence in the near future.

Financial Condition

Assets

The Company had total assets of $3,225.4 million at June 30, 2014, an increase of $226.2 million or 7.5 percent from $2,999.2 million at December 31, 2013.

Cash and Due from Banks

Cash and due from banks was $507.4 million at June 30, 2014, a decrease of $192.0 million or 27.5 percent from $699.4 million at December 31, 2013. Included in cash and due from banks is interest earning deposits of $454.6 million at June 30, 2014, compared to $661.6 million at December 31, 2013. The decrease was primarily the result of increasing the loan portfolio and securities purchases.

Federal Funds Sold

Federal funds sold totaled $15.5 million at June 30, 2014, a decrease of $11.6 million or 42.8 percent from $27.1 million at December 31, 2013.

Securities Portfolio

Securities are selected to provide safety of principal, liquidity, pledging capabilities (to collateralize certain deposits and borrowings), income, and to leverage capital. The Company’s investment strategy focuses on maximizing income while providing for safety of principal, maintaining appropriate utilization of capital, providing adequate liquidity to meet loan demand or deposit outflows and to manage overall interest rate risk. The Company selects individual securities whose credit, cash flow, maturity and interest rate characteristics, in the aggregate, affect the stated strategies.

 

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Table of Contents

Securities are classified as either available for sale, representing securities the Company may sell in the ordinary course of business, or as held to maturity, representing securities the Company has the ability and positive intent to hold until maturity. Securities available for sale are reported at fair value with unrealized gains and losses (net of tax) excluded from operations and reported in other comprehensive income. Securities held to maturity are stated at amortized cost.

The available for sale portfolio totaled $839.2 million at June 30, 2014 which was an increase of $297.0 million or 54.8 percent from $542.2 million at December 31, 2013, primarily due to $304 million in securities purchased in June 2014. The Company purchased these highly liquid securities in order to redeploy excess liquidity into higher yielding assets. The purchase resulted in an increase of the amortized cost totaling $260.7 million in mortgage-backed securities, a $28.3 million increase in U.S. Treasury and agency securities, a $8.3 million increase of obligations of state political subdivisions, which were partially offset by a $8.6 million decrease in other debt securities. The weighted average yield of the $304 million of purchased securities was 1.79% with an average life of 4.1 years and an average duration of 3.9 years.

The held to maturity portfolio totaled $5.5 million at June 30, 2014, which was a decrease of $0.7 million or 11.3 percent from $6.2 million at December 31, 2013. The decrease was due to principal payments on mortgage-backed securities.

The Bank, as a member of the FHLB, invests in stock of the FHLB as a prerequisite to obtaining funding under various programs offered by the FHLB. The Bank must purchase additional shares of FHLB stock to obtain increases in such borrowings. Shares in excess of required amounts for outstanding borrowings are generally redeemed by the FHLB. The investment in FHLB stock totaled $3.2 million at June 30, 2014, a decrease of $0.3 million or 8.6 percent from $3.5 million at December 31, 2013.

The Company continues to exercise a conservative approach to investing by purchasing high credit quality investments with various maturities and cash flows to provide for liquidity needs and prudent asset liability management. The Company’s securities portfolio provides for a significant source of income and liquidity and is utilized in managing Company-wide interest rate risk. These securities are used to collateralize borrowings and deposits to the extent required or permitted by law. Therefore, the securities portfolio is an integral part of the Company’s funding strategy.

Loan Portfolio

Net loans totaled $1,742.6 million at June 30, 2014, an increase of $136.4 million or 8.5 percent from $1,606.2 million at December 31, 2013. The overall increase in loans was primarily driven by loan originations and purchases totaling $216.0 million, which was partially offset by $79.6 million of pay-downs, payoffs, and other changes.

The loan portfolio, excluding loans held for sale, is comprised of the following:

 

     June 30
2014
    December 31
2013
 
     (In thousands)  

Real Estate:

    

Commercial

   $ 622,615      $ 593,476   

Construction

     87,146        88,311   

Residential Multi-Family

     295,008        226,898   

Residential Other

     417,297        432,999   

Commercial & Industrial

     308,555        258,578   

Individuals & Lease Financing

     38,476        30,528   
  

 

 

   

 

 

 

Total loans

     1,769,097        1,630,790   

Deferred loan costs, net

     747        1,379   

Allowance for loan losses

     (27,275     (25,990
  

 

 

   

 

 

 

Loans, net

   $ 1,742,569      $ 1,606,179   
  

 

 

   

 

 

 

 

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Table of Contents

The following table illustrates the trend in nonperforming assets from June 2013 to June 2014:

 

     Jun 30
2014
    Mar 31
2014
    Dec 31
2013
    Sep 30
2013
    Jun 30
2013
 
     (Dollars in thousands)  

Total Loans Past Due 90 Days or More and Still Accruing

     —          —          —          —          —     

Non-Accrual Loans:

          

Real Estate:

          

Commercial

   $ 6,916      $ 6,525      $ 6,629      $ 15,884      $ 16,272   

Construction

     879        879        879        2,540        2,635   

Residential

     12,751        13,093        14,559        13,617        9,114   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Real Estate

     20,546        20,497        22,067        32,041        28,021   

Commercial & Industrial

     —          508        1,422        1,923        2,246   

Lease Financing & Other

     —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Non-Accrual Loans

     20,546        21,005        23,489        33,964        30,267   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other Real Estate Owned

     —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Nonperforming Assets including loans held for sale

   $ 20,546      $ 21,005      $ 23,489      $ 33,964      $ 30,267   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (recoveries) charge-offs during quarter

   $ 89      $ (836   $ 520      $ 830      $ 452   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Nonperforming assets to total assets

     0.64     0.72     0.78     1.12     1.01

Non-accrual loans totaled $20.5 million at June 30, 2014, and $23.5 million at December 31, 2013. There was no interest income on non-accrual loans included in net income for the six month period ended June 30, 2014 and the year ended December 31, 2013. Gross interest income that would have been recorded if these borrowers had been current in accordance with their original loan terms was $0.3 million and $0.8 million for the six month period ended June 30, 2014 and the year ended December 31, 2013, respectively.

Net income is adversely impacted by the level of nonperforming assets caused by the deterioration of the borrowers’ ability to meet scheduled interest and principal payments. In addition to forgone revenue, the Company must increase the level of provision for loan losses and incur higher collection costs and other costs associated with the management and disposition of foreclosed properties.

During the six month period ended June 30, 2014:

 

    Non-accrual commercial real estate loans increased $0.3 million resulting from the addition of one loan totaling $0.9 million, which was partially offset by principal payments of $0.6 million.

 

    Non-accrual construction loans remained unchanged at $0.9 million.

 

    Non-accrual residential loans decreased $1.8 million resulting from principal payments of $3.4 million and charge-offs of $0.7 million, which were partially offset by the addition of nine loans totaling $2.3 million.

 

    Non-accrual commercial and industrial loans decreased $1.4 million resulting from principal payments of $0.9 million and the transfer of one loan totaling $0.5 million to accrual status.

There were no loans past due 90 days or more and still accruing at June 30, 2014 and December 31, 2013. The Company had $5.9 million and $4.6 million of loans that were 31-89 days delinquent and still accruing at June 30, 2014 and December 31, 2013, respectively.

There were twenty-two loans totaling $31.4 million and twenty loans totaling $30.9 million at June 30, 2014 and December 31, 2013, respectively, that were considered troubled debt restructurings. There were fifteen loans totaling $20.4 million at June 30, 2014 and ten loans totaling $17.6 million at December 31, 2013 that were performing in accordance with their restructured terms. The remaining loans which totaled $11.0 million and $13.3 million at June 30, 2014 and December 31, 2013, respectively, were on non-accrual status. At June 30, 2014, the Company had no commitments to lend additional funds to non-accrual or restructured loans.

 

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Table of Contents

Allowance for Loan Losses

The Company maintains an allowance for loan losses to absorb probable losses incurred in the loan portfolio based on ongoing quarterly assessments of the estimated losses. The Company’s methodology for assessing the appropriateness of the allowance consists of a specific component for identified problem loans and a formula component to consider historical loan loss experience and additional risk factors affecting the portfolio.

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:

 

     Jun 30
2014
    Change
During
2014
    Dec 31
2013
    Jun 30
2013
    Change
During
2013
    Dec 31
2012
 
     (Dollars in thousands)  

Components

            

Specific:

            

Real Estate:

            

Commercial

     —          —          —          —          —          —     

Construction

     —          —          —          —          —          —     

Residential

     —          —          —          —          —          —     

Commercial & Industrial

     —          —          —          —          —          —     

Lease Financing & other

     —          —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Specific Component

     —          —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Formula:

            

Real Estate:

            

Commercial

   $ 11,831      $ 600      $ 11,231      $ 11,344      $ 1,254        10,090   

Construction

     4,460        (181     4,641        4,112        163        3,949   

Residential

     6,431        195        6,236        6,446        (1,673     8,119   

Commercial & Industrial

     4,177        741        3,436        3,638        (439     4,077   

Lease Financing & other

     376        (70     446        386        9        377   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Formula Component

     27,275        1,285        25,990        25,926        (686     26,612   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Allowance

   $ 27,275        $ 25,990      $ 25,926        $ 26,612   
  

 

 

     

 

 

   

 

 

     

 

 

 

Net Change

       1,285            (686  

Net (Recoveries) Charge-offs (1)

       (747         1,747     
    

 

 

       

 

 

   

Provision for loan losses

     $ 538          $ 1,061     
    

 

 

       

 

 

   

Coverage Ratio (2)

     133       111     86       76
  

 

 

     

 

 

   

 

 

     

 

 

 

Coverage Ratio excluding partial charge-offs

     132       110     89       82
  

 

 

     

 

 

   

 

 

     

 

 

 

 

(1) Includes partial charge-offs of $320 and $771 related to nonperforming and impaired loans for the six month period ended June 30, 2014 and 2013, respectively.
(2) Coverage Ratio is the allowance for loan losses divided by total nonperforming loans.

The specific component of the allowance for loan losses is the result of our analysis of impaired loans and our determination of the amount required to reduce the carrying amount of such loans to estimated fair value. Accordingly, such allowance is dependent on the particular loans and their characteristics at each measurement date, not necessarily the total amount of such loans. The Company usually records partial charge-offs as opposed to specific reserves for impaired loans that are real estate collateral dependent and for which independent appraisals have determined the fair value of the collateral to be less than the carrying amount of the loan. During the three and six months ended June 30, 2014, the Company recorded $0.5 million and $0.8 million, respectively, of charge-offs related to impaired loans. At June 30, 2014 and December 31, 2013, the Company had no specific reserves allocated, as partial charge-offs were recorded for all identified impairments. The Company’s analyses as of June 30, 2014 and December 31, 2013 indicated that impaired loans were principally real estate collateral dependent and that there was sufficient underlying value to indicate expected recovery of the carrying amount of the loans.

The changes in the formula component of the allowance for loan losses are 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 formula component is then adjusted to reflect changes in other relevant factors affecting loan collectability. Management periodically adjusted the formula component to an amount that, when considered with the specific component, represented its best estimate of probable losses in the loan portfolio as of each balance sheet date.

 

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Actual losses can vary significantly from the estimated amounts. The Company’s methodology permits adjustments to the allowance in the event that, in management’s judgment, significant factors which affect the collectability of the loan portfolio as of the evaluation date have changed. By assessing the estimated losses inherent in the loan portfolio on a quarterly basis, the Bank is able to adjust specific and inherent loss estimates based upon any more recent information that has become available. Additional information related to the Company’s allowance for loan losses is contained in Note 4 to the Company’s condensed consolidated financial statements presented in this Form 10-Q.

Management believes the allowance for loan losses is the best estimate of probable losses which have been incurred as of June 30, 2014. There is no assurance that the Company will not be required to make future adjustments to the allowance in response to changing economic conditions or regulatory examinations.

Deposits

Deposits totaled $2,859.9 million at June 30, 2014, an increase of $226.1 million or 8.6 percent from $2,633.7 million at December 31, 2013. The increase resulted primarily from higher Demand Checking and Money Market Deposit Account balances. 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. The following table presents a summary of deposits at the dates indicated:

 

     June 30
2014
     December 31
2013
     Increase
(Decrease)
 
     (In thousands)  

Demand deposits

   $ 1,082,169       $ 1,069,631       $ 12,538   

Money market accounts

     1,012,345         870,291         142,054   

Savings accounts

     120,350         120,000         350   

Time deposits of $100,000 or more

     83,029         85,205         (2,176

Time deposits of less than $100,000

     29,887         30,863         (976

Checking with interest

     532,096         457,754         74,342   
  

 

 

    

 

 

    

 

 

 

Total Deposits

   $ 2,859,876       $ 2,633,744       $ 226,132   
  

 

 

    

 

 

    

 

 

 

Borrowings

Total borrowings were $46.1 million at June 30, 2014, a decrease of $4.7 million or 9.3 percent from $50.8 million at December 31, 2013. The decrease resulted primarily from the Company prepaying all $16.4 million of its outstanding Federal Home Loan Bank borrowings, partially offset by additional securities sold under repurchase agreements. Borrowings are utilized as part of the Company’s continuing efforts to effectively leverage its capital and to manage interest rate risk.

Stockholders’ Equity

Stockholders’ equity totaled $292.0 million at June 30, 2014, an increase of $7.7 million or 2.7 percent from $284.3 million at December 31, 2013. The increase in stockholders’ equity resulted from an increase in accumulated other comprehensive income of $5.4 million, net income of $4.0 million, net proceeds from stock options of $0.1 million and restricted stock issued of $0.6 million, which was partially offset by cash dividends paid on common stock of $2.4 million.

The Company’s and the Bank’s capital ratios at the dates indicated were as follows:

 

     June 30
2014
    December 31
2013
    Minimum to be
Considered
Well Capitalized
 

Leverage ratio:

      

Company

     9.4     9.5     N/A   

HVB

     9.2     9.3     5.0

Tier 1 capital:

      

Company

     14.7     16.2     N/A   

HVB

     14.4     15.8     6.0

Total capital:

      

Company

     16.0     17.5     N/A   

HVB

     15.7     17.1     10.0

 

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On July 2, 2013, the Federal Reserve Board approved the final rules implementing the Basel Committee on Banking Supervision’s capital guidelines for U.S. banks. The rules include a new common equity Tier 1 capital to risk-weighted assets ratio of 4.5% and a common equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets. The final rules also raise the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0% and require a minimum leverage ratio of 4.0%. The final rules also implement strict eligibility criteria for regulatory capital instruments. The phase-in period for the final rules will begin for the Company on January 1, 2015, with full compliance with all of the final rule’s requirements phased in over a multi-year schedule. Management is currently evaluating the provisions of the final rules and their expected impact to the Company.

Liquidity

The Asset/Liability Strategic Committee (“ALSC”) of the Board of Directors of HVB establishes specific policies and operating procedures governing the Company’s liquidity levels and develops plans to address future liquidity needs, including contingent sources of liquidity. The primary functions of asset liability management are to provide safety of depositor and investor funds, assure adequate liquidity and maintain an appropriate balance between interest earning assets and interest bearing liabilities. Liquidity management involves the ability to meet the cash flow requirement of depositors wanting to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs. Interest rate sensitivity management seeks to manage fluctuating net interest margins and to enhance consistent growth of net interest income through periods of changing interest rates.

The Company’s liquid assets at June 30, 2014 include cash and due from banks of $52.9 million, $454.6 million of interest earning deposits and Federal funds sold of $15.5 million. Interest earning deposits and Federal funds sold represent the Company’s excess liquid funds which are invested with other financial institutions and are available daily.

Other sources of liquidity include maturities and principal and interest payments on loans and securities. The loan and securities portfolios are of high credit quality and of mixed maturity, providing a constant stream of maturing and re-investable assets, which can be converted into cash should the need arise. The ability to redeploy these funds is an important source of medium to long term liquidity. The amortized cost of securities having contractual maturities, expected call dates or average lives of one year or less amounted to $142.3 million at June 30, 2014. This represented 16.8 percent of the amortized cost of the securities portfolio. Excluding installment loans to individuals, real estate loans other than construction loans and lease financing, $242.2 million, or 13.7 percent of loans at June 30, 2014, mature in one year or less. The Company may increase liquidity by selling certain residential mortgages, or exchanging them for mortgage-backed securities that may be sold in the secondary market.

Non-interest bearing demand deposits and interest bearing deposits from businesses, professionals, not-for-profit organizations and individuals are relatively stable, low-cost sources of funds. The deposits of the Bank generally have shown a steady growth trend as well as a generally consistent deposit mix. However, there can be no assurance that deposit growth will continue or that the deposit mix will not shift to higher rate products.

HVB is a member of the FHLB. As a member, HVB is able to participate in various FHLB borrowing programs which require certain investments in FHLB common stock as a prerequisite to obtaining funds. As of June 30, 2014, HVB had short-term borrowing lines with the FHLB of $190 million with no amounts outstanding. These and various other FHLB borrowing programs available to members are subject to availability of qualifying loan and/or investment securities collateral and other terms and conditions.

HVB also has unsecured overnight borrowing lines totaling $75 million with three major financial institutions which were all unused and available at June 30, 2014. In addition, HVB has approved lines under Retail Certificate of Deposit Agreements with three major financial institutions totaling $1.0 billion of which no balances were outstanding as at June 30, 2014. Utilization of these lines is subject to product availability and other restrictions.

Additional liquidity is also provided by the Company’s ability to borrow from the Federal Reserve Bank’s discount window. In response to the current economic crisis, the Federal Reserve Bank has increased the ability of banks to borrow from this source through its Borrower-in-Custody (“BIC”) program, which expanded the types of collateral which qualify as security for such borrowings. HVB has been approved to participate in the BIC program. There were no balances outstanding with the Federal Reserve at June 30, 2014.

As of June 30, 2014, the Company had qualifying loan and investment securities totaling approximately $687 million which could be utilized under available borrowing programs thereby increasing liquidity.

Management considers the Company’s sources of liquidity to be adequate to meet any expected funding needs and to be responsive to changing interest rate markets.

Contractual Obligations and Off-Balance Sheet Arrangements

The Company has outstanding, at any time, a significant number of commitments to extend credit and provide financial guarantees to third parties. These arrangements are subject to strict credit control assessments. Guarantees specify limits to the Company’s

 

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obligations. Because many commitments and almost all guarantees expire without being funded in whole or in part, the contract amounts are not estimates of future cash flows. The Company is also obligated under leases or license agreements for certain of its branches and equipment. There have been no material changes to those obligations or arrangements outside the ordinary course of business since the most recent fiscal year end as reported in the Company’s Annual Report on Form 10-K.

Impact of Inflation and Changing Prices

The Condensed Consolidated Financial Statements and Notes thereto presented herein have been prepared in accordance with GAAP, which requires 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.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Quantitative and qualitative disclosures about market risk at December 31, 2013 were previously reported in the Company’s 2013 Annual Report on Form 10-K. There have been no material changes in the Company’s market risk exposure at June 30, 2014 compared to December 31, 2013.

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 are classified either as available for sale or held to maturity with no financial instruments entered into for trading purposes. The Company from time to time uses derivative financial instruments to manage risk. The Company did not enter into any new derivative financial instruments during the six month period ended June 30, 2014. The Company had no derivative financial instruments in place at June 30, 2014 and December 31, 2013.

The Company uses a simulation analysis to evaluate market risk to changes in interest rates. The simulation analysis at June 30, 2014 shows the Company’s net interest income increasing slightly if interest rates rise and decreasing slightly if interest rates fall, considering a continuation of the current yield curve. A change in the shape or steepness of the yield curve will impact our market risk to change in interest rates.

The Company also prepares a static gap analysis which, at June 30, 2014, shows a positive cumulative static gap of $320.1 million in the one year time frame.

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, 2014.

 

Gradual Change in Interest Rates

   Percent Change in
Estimated Net Interest Income
from June 30, 2014
    Policy Limit  

+200 basis points

     1.1     (5.0 )% 

-100 basis points

     (2.6 )%      (5.0 )% 

Beginning on June 30, 2008, a 100 basis point downward change was substituted for the 200 basis point downward scenario previously used, as management believes that a 200 basis point downward change is not a meaningful analysis in light of current interest rate levels. The percentage change in estimated net income in the +200 and -100 basis points scenario is within the Company’s policy limits.

 

Item 4. Controls and Procedures

The Company’s Chief Executive Officer (CEO) and Chief Financial Officer (CFO), with the assistance of other members of the Company’s management, have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, the Company’s CEO and CFO have concluded that the Company’s disclosure controls and procedures are effective as of the end of the period covered by this report.

 

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The Company’s CEO and CFO have also concluded that there have not been any changes in the Company’s internal control over financial reporting during the quarter ended June 30, 2014 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

The Company’s management, including the CEO and CFO, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, provides reasonable, not absolute, assurance that the objectives of the control system are met. The design of a control system reflects resource constraints and the benefits of controls must be considered relative to their costs. Because there are inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been or will be detected.

These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns occur because of simple error or mistake. Controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with the policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

PART II — OTHER INFORMATION

 

Item 1A. Risk Factors

Our business is subject to various risks. These risks are included in our 2013 Annual Report on Form 10-K under “Risk Factors”. There have been no material changes in such risk factors since the date of such report.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table sets forth information with respect to purchases made by the Company of its common stock during the three month period ended June 30, 2014:

 

 

     Issuer Purchases of Equity Securities  
Period    (a)
Total
Number of
Shares
Purchased
(1)
     (b)
Average
Price
Paid per
Share
     (c)
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs (2)
     (d)
Maximum Number (or
Approximate Dollar
Value) of Shares that
May Yet Be Purchased
Under the Plans or
Programs (2)
 

April 1, 2014 – April 30, 2014

     -         -         -         -   

May 1, 2014 – May 31, 2014

     1,946       $ 18.01         -         -   

June 1, 2014 – June 30, 2014

     -         -         -         -   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     1,946       $ 18.01         -         -   

 

(1) Represents shares of common stock withheld from employees to satisfy minimum tax withholding obligations relating to the vesting of restricted stock awards.
(2) The Company does not have a stock repurchase plan or program in place.

 

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Table of Contents
Item 6. Exhibits

(A) Exhibits

 

    3.1    Restated Certificate of Incorporation of Hudson Valley Holding Corp. (1)
    3.2    Amended and Restated By-Laws of Hudson Valley Holding Corp. (2)
  10.16    Hudson Valley Holding Corp. 2010 Omnibus Incentive Plan: Employee Performance-Based Restricted Stock Unit Award Agreement (3)
  10.17    Change in Control Agreement, dated April 10, 2014, between Hudson Valley Bank, N.A. and Stephen R. Brown* (3)
  10.18    Change in Control Agreement, dated April 10, 2014, between Hudson Valley Bank, N.A. and Michael J. Indiveri* (3)
  10.19    Change in Control Agreement, dated April 10, 2014, between Hudson Valley Bank, N.A. and James P. Blose* (3)
  10.20    Change in Control Agreement, dated April 10, 2014, between Hudson Valley Bank, N.A. and Michael E. Finn* (3)
  10.21    Change in Control Agreement, dated April 10, 2014, between Hudson Valley Bank, N.A. and John M. Swadba* (3)
  10.22    Change in Control Agreement, dated April 10, 2014, between Hudson Valley Bank, N.A. and Scott J. Skorobohaty* (3)
  31.1    Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (3)
  31.2    Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (3)
  32.1    Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (3)
  32.2    Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (3)
101.INS    XBRL Instance Document (3)
101.SCH    XBRL Taxonomy Extension Schema (3)
101.CAL    XBRL Taxonomy Extension Calculation Linkbase (3)
101.LAB    XBRL Taxonomy Extension Label Linkbase (3)
101.PRE    XBRL Taxonomy Extension Presentation Linkbase (3)
101.DEF    XBRL Taxonomy Extension Definition Linkbase (3)

 

(1) Incorporated herein by reference to the Form 10-Q filed on October 20, 2009.
(2) Incorporated herein by reference to the Form 8-K filed on April 28, 2010.
(3) Filed herewith.

 

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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 VALLEY HOLDING CORP.
By:  

/S/    MICHAEL J. INDIVERI        

  Michael J. Indiveri
  Executive Vice President,
  Chief Financial Officer

August 6, 2014

 

49