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 March 31, 2011
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
(Registrants 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 þ No o
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 o No o
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 definition of
large accelerated filer accelerated
filer and smaller reporting company in
Rule 12b-2 of the Exchange Act. (Check one):
|
|
|
|
|
|
|
Large accelerated
filer o
|
|
Accelerated
filer þ
|
|
Non-accelerated
filer o
(Do not check if a smaller reporting company)
|
|
Smaller reporting
company o
|
Indicate by check mark whether the Registrant is a shell company
(as defined in Rule 12b-2 of the
Act.) Yes o No þ
Indicate the number of shares outstanding of each of the
issuers classes of common stock, as of the latest
practicable date.
|
|
|
|
|
Outstanding at
|
|
|
May 2,
|
Class
|
|
2011
|
Common stock, par value $0.20 per share
|
|
17,689,049
|
FORM 10-Q
TABLE OF CONTENTS
1
PART
1 FINANCIAL INFORMATION
Item 1. Condensed
Financial Statements
HUDSON
VALLEY HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Dollars in thousands, except per share amounts
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
Interest Income:
|
|
|
|
|
|
|
|
|
Loans, including fees
|
|
$
|
26,332
|
|
|
$
|
27,564
|
|
Securities:
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
2,950
|
|
|
|
3,687
|
|
Exempt from Federal income taxes
|
|
|
1,161
|
|
|
|
1,710
|
|
Federal funds sold
|
|
|
26
|
|
|
|
42
|
|
Deposits in banks
|
|
|
164
|
|
|
|
93
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
30,633
|
|
|
|
33,096
|
|
|
|
|
|
|
|
|
|
|
Interest Expense:
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
2,274
|
|
|
|
3,335
|
|
Securities sold under repurchase agreements and other
short-term
borrowings
|
|
|
47
|
|
|
|
77
|
|
Other borrowings
|
|
|
844
|
|
|
|
1,498
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
3,165
|
|
|
|
4,910
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income
|
|
|
27,468
|
|
|
|
28,186
|
|
Provision for loan losses
|
|
|
5,451
|
|
|
|
5,582
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
22,017
|
|
|
|
22,604
|
|
|
|
|
|
|
|
|
|
|
Non Interest Income:
|
|
|
|
|
|
|
|
|
Service charges
|
|
|
2,040
|
|
|
|
1,803
|
|
Investment advisory fees
|
|
|
2,606
|
|
|
|
2,225
|
|
Recognized impairment charge on securities available for sale
(includes $773 and $1,757 of total losses in 2011 and 2010,
respectively, less $612 of losses and $15 of gains on securities
available for sale, recognized in other comprehensive income in
2011 and 2010, respectively,)
|
|
|
(161
|
)
|
|
|
(1,772
|
)
|
Realized gain on securities available for sale, net
|
|
|
|
|
|
|
68
|
|
Gains (losses) on sale of other real estate owned
|
|
|
127
|
|
|
|
(65
|
)
|
Other income
|
|
|
607
|
|
|
|
534
|
|
|
|
|
|
|
|
|
|
|
Total non interest income
|
|
|
5,219
|
|
|
|
2,793
|
|
|
|
|
|
|
|
|
|
|
Non Interest Expense:
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
10,818
|
|
|
|
9,872
|
|
Occupancy
|
|
|
2,345
|
|
|
|
2,185
|
|
Professional services
|
|
|
1,453
|
|
|
|
1,315
|
|
Equipment
|
|
|
1,010
|
|
|
|
966
|
|
Business development
|
|
|
506
|
|
|
|
562
|
|
FDIC assessment
|
|
|
1,111
|
|
|
|
1,088
|
|
Other operating expenses
|
|
|
3,207
|
|
|
|
2,466
|
|
|
|
|
|
|
|
|
|
|
Total non interest expense
|
|
|
20,450
|
|
|
|
18,454
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes
|
|
|
6,786
|
|
|
|
6,943
|
|
Income Taxes
|
|
|
1,962
|
|
|
|
2,088
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
4,824
|
|
|
$
|
4,855
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Common Share
|
|
$
|
0.27
|
|
|
$
|
0.28
|
|
Diluted Earnings Per Common Share
|
|
$
|
0.27
|
|
|
$
|
0.27
|
|
See notes to condensed consolidated financial statements
2
HUDSON
VALLEY HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME (UNAUDITED)
Dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
Net Income
|
|
$
|
4,824
|
|
|
$
|
4,855
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive gain (loss), net of tax:
|
|
|
|
|
|
|
|
|
Net change in unrealized (losses) gains:
|
|
|
|
|
|
|
|
|
Other-than-temporarily impaired securities available for sale:
|
|
|
|
|
|
|
|
|
Total (losses) gains
|
|
|
(773
|
)
|
|
|
(1,757
|
)
|
Losses recognized in earnings
|
|
|
161
|
|
|
|
1,772
|
|
|
|
|
|
|
|
|
|
|
(Losses) gains recognized in comprehensive income
|
|
|
(612
|
)
|
|
|
15
|
|
Income tax effect
|
|
|
251
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
Unrealized holding (losses) gains on other-than-temporarily
impaired securities available for sale, net of tax
|
|
|
(361
|
)
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
Securities available for sale not other-than-temporarily
impaired:
|
|
|
|
|
|
|
|
|
(Losses) gains arising during the year
|
|
|
(2,533
|
)
|
|
|
3,214
|
|
Income tax effect
|
|
|
989
|
|
|
|
(1,266
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,544
|
)
|
|
|
1,948
|
|
|
|
|
|
|
|
|
|
|
Gains recognized in earnings
|
|
|
|
|
|
|
(68
|
)
|
Income tax effect
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(41
|
)
|
|
|
|
|
|
|
|
|
|
Unrealized holding (losses) gains on securities available for
sale not other-than-temporarily- impaired , net of tax
|
|
|
(1,544
|
)
|
|
|
1,907
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding (loss) gain on securities, net
|
|
|
(1,905
|
)
|
|
|
1,916
|
|
|
|
|
|
|
|
|
|
|
Minimum pension liability adjustment
|
|
|
81
|
|
|
|
102
|
|
Income tax effect
|
|
|
(32
|
)
|
|
|
(41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
49
|
|
|
|
61
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income
|
|
|
(1,856
|
)
|
|
|
1,977
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income
|
|
$
|
2,968
|
|
|
$
|
6,832
|
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements
3
HUDSON
VALLEY HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
Dollars in thousands, except share amounts
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
41,934
|
|
|
$
|
25,876
|
|
Interest earning deposits in banks
|
|
|
198,173
|
|
|
|
258,280
|
|
Federal funds sold
|
|
|
39,511
|
|
|
|
72,071
|
|
Securities available for sale at estimated fair value (amortized
cost of $433,991 in 2011 and $440,792 in 2010)
|
|
|
433,721
|
|
|
|
443,667
|
|
Securities held to maturity at amortized cost (estimated fair
value of $16,258 in 2011 and $17,272 in 2010)
|
|
|
15,252
|
|
|
|
16,267
|
|
Federal Home Loan Bank of New York (FHLB) Stock
|
|
|
5,378
|
|
|
|
7,010
|
|
Nonperforming loans held for sale
|
|
|
5,506
|
|
|
|
7,811
|
|
Loans (net of allowance for loan losses of $40,287 in 2011 and
$38,949 in 2010)
|
|
|
1,774,679
|
|
|
|
1,689,187
|
|
Accrued interest and other receivables
|
|
|
15,158
|
|
|
|
16,396
|
|
Premises and equipment, net
|
|
|
27,233
|
|
|
|
28,611
|
|
Other real estate owned
|
|
|
4,810
|
|
|
|
11,028
|
|
Deferred income taxes, net
|
|
|
26,898
|
|
|
|
25,043
|
|
Bank owned life insurance
|
|
|
26,502
|
|
|
|
25,976
|
|
Goodwill
|
|
|
23,842
|
|
|
|
23,842
|
|
Other intangible assets
|
|
|
2,248
|
|
|
|
2,454
|
|
Other assets
|
|
|
14,428
|
|
|
|
15,514
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
2,655,273
|
|
|
$
|
2,669,033
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
Non interest-bearing
|
|
$
|
814,755
|
|
|
$
|
756,917
|
|
Interest-bearing
|
|
|
1,428,858
|
|
|
|
1,477,495
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
2,243,613
|
|
|
|
2,234,412
|
|
Securities sold under repurchase agreements and other short-term
borrowings
|
|
|
46,480
|
|
|
|
36,594
|
|
Other borrowings
|
|
|
51,492
|
|
|
|
87,751
|
|
Accrued interest and other liabilities
|
|
|
23,034
|
|
|
|
20,359
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
2,364,619
|
|
|
|
2,379,116
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value; authorized 15,000,000; no
shares outstanding in 2011 and 2010, respectively
|
|
|
|
|
|
|
|
|
Common stock, $0.20 par value; authorized 25,000,000 shares;
outstanding 17,686,063 and 17,665,908 shares in 2011
and 2010, respectively
|
|
|
3,797
|
|
|
|
3,793
|
|
Additional paid-in capital
|
|
|
347,166
|
|
|
|
346,750
|
|
Retained earnings (deficit)
|
|
|
(1,816
|
)
|
|
|
(3,989
|
)
|
Accumulated other comprehensive income (loss), net
|
|
|
(929
|
)
|
|
|
927
|
|
Treasury stock, at cost; 1,299,414 shares in both 2011 and
2010
|
|
|
(57,564
|
)
|
|
|
(57,564
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
290,654
|
|
|
|
289,917
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
|
|
$
|
2,655,273
|
|
|
$
|
2,669,033
|
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements
4
HUDSON
VALLEY HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS EQUITY (UNAUDITED)
Three Months Ended March 31, 2011 and 2010
Dollars in thousands, except share amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Common
|
|
|
Treasury
|
|
|
Paid-in
|
|
|
Earnings
|
|
|
Income
|
|
|
|
|
|
|
Outstanding
|
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
(Deficit)
|
|
|
(Loss)
|
|
|
Total
|
|
|
Balance at January 1, 2011
|
|
|
17,665,908
|
|
|
$
|
3,793
|
|
|
$
|
(57,564
|
)
|
|
$
|
346,750
|
|
|
$
|
(3,989
|
)
|
|
$
|
927
|
|
|
$
|
289,917
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,824
|
|
|
|
|
|
|
|
4,824
|
|
Stock option expense and exercises of stock options, net of tax
|
|
|
20,155
|
|
|
|
4
|
|
|
|
|
|
|
|
416
|
|
|
|
|
|
|
|
|
|
|
|
420
|
|
Cash dividends ($0.15 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,651
|
)
|
|
|
|
|
|
|
(2,651
|
)
|
Accrued benefit liability adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49
|
|
|
|
49
|
|
Net unrealized gain on securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not other-than-temporarily impaired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,544
|
)
|
|
|
(1,544
|
)
|
Other-than-temporarily impaired (includes $773 of total losses
less $161 of losses recognized in earnings, net of $251 tax)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(361
|
)
|
|
|
(361
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2011
|
|
|
17,686,063
|
|
|
$
|
3,797
|
|
|
$
|
(57,564
|
)
|
|
$
|
347,166
|
|
|
$
|
(1,816
|
)
|
|
$
|
(929
|
)
|
|
$
|
290,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Common
|
|
|
Treasury
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Income
|
|
|
|
|
|
|
Outstanding
|
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
(Loss)
|
|
|
Total
|
|
|
Balance at January 1, 2010
|
|
|
16,016,738
|
|
|
$
|
3,463
|
|
|
$
|
(57,564
|
)
|
|
$
|
346,297
|
|
|
$
|
2,294
|
|
|
$
|
(812
|
)
|
|
$
|
293,678
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,855
|
|
|
|
|
|
|
|
4,855
|
|
Stock option expense and exercises of stock options, net of tax
|
|
|
9,054
|
|
|
|
2
|
|
|
|
|
|
|
|
176
|
|
|
|
|
|
|
|
|
|
|
|
178
|
|
Cash dividends ($0.19 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,686
|
)
|
|
|
|
|
|
|
(3,686
|
)
|
Accrued benefit liability adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
|
|
|
|
61
|
|
Net unrealized gain on securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not other-than-temporarily impaired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,907
|
|
|
|
1,907
|
|
Other-than-temporarily impaired (includes $1,757 of total losses
less $1,772 of losses recognized in earnings, net of $(6) tax)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2010
|
|
|
16,025,792
|
|
|
$
|
3,465
|
|
|
$
|
(57,564
|
)
|
|
$
|
346,473
|
|
|
$
|
3,463
|
|
|
$
|
1,165
|
|
|
$
|
297,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements
5
HUDSON
VALLEY HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Dollars in thousands
|
|
|
|
|
|
|
|
|
|
|
For the Three Months
|
|
|
|
Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,824
|
|
|
$
|
4,855
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
5,451
|
|
|
|
5,582
|
|
Depreciation and amortization
|
|
|
1,001
|
|
|
|
988
|
|
Recognized impairment charge on securities available for sale
|
|
|
161
|
|
|
|
1,772
|
|
Realized gain on security transactions, net
|
|
|
|
|
|
|
(68
|
)
|
(Gain) loss on other real estate owned
|
|
|
(127
|
)
|
|
|
65
|
|
Amortization of premiums on securities, net
|
|
|
666
|
|
|
|
383
|
|
Increase in cash value of bank owned life insurance
|
|
|
(267
|
)
|
|
|
(348
|
)
|
Amortization of intangible assets
|
|
|
206
|
|
|
|
206
|
|
Stock option expense and related tax benefits
|
|
|
47
|
|
|
|
50
|
|
Deferred tax benefit
|
|
|
(647
|
)
|
|
|
(1,688
|
)
|
Decrease (increase) in deferred loan fees, net
|
|
|
72
|
|
|
|
(560
|
)
|
Decrease (increase) in accrued interest and other receivables
|
|
|
1,238
|
|
|
|
(696
|
)
|
Decrease (increase) in other assets
|
|
|
1,086
|
|
|
|
(1,363
|
)
|
Excess tax benefits from share-based payment arrangements
|
|
|
(7
|
)
|
|
|
|
|
Decrease in accrued interest and other liabilities
|
|
|
2,675
|
|
|
|
4,301
|
|
Decrease in accrued benefit liability adjustment
|
|
|
49
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
16,428
|
|
|
|
13,542
|
|
|
|
|
|
|
|
|
|
|
Investing Activities:
|
|
|
|
|
|
|
|
|
Net decrease (increase) in Federal funds sold
|
|
|
32,560
|
|
|
|
(19,755
|
)
|
Decrease in FHLB stock
|
|
|
1,632
|
|
|
|
|
|
Proceeds from maturities and paydowns of securities available
for sale
|
|
|
52,516
|
|
|
|
40,636
|
|
Proceeds from maturities and paydowns of securities held to
maturity
|
|
|
1,015
|
|
|
|
1,658
|
|
Proceeds from sales of securities available for sale
|
|
|
|
|
|
|
4,942
|
|
Purchases of securities available for sale
|
|
|
(46,510
|
)
|
|
|
(58,657
|
)
|
Net (increase) decrease in loans
|
|
|
(88,710
|
)
|
|
|
11,642
|
|
Proceeds from sale of other real estate owned
|
|
|
6,345
|
|
|
|
2,209
|
|
Net dispositions (purchases) of premises and equipment
|
|
|
377
|
|
|
|
(245
|
)
|
Premiums paid on bank owned life insurance
|
|
|
(259
|
)
|
|
|
(51
|
)
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(41,034
|
)
|
|
|
(17,621
|
)
|
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
Net increase in deposits
|
|
|
9,201
|
|
|
|
112,323
|
|
Net decrease in securities sold under repurchase agreements and
short-term borrowings
|
|
|
9,886
|
|
|
|
18,701
|
|
Repayment of other borrowings
|
|
|
(36,259
|
)
|
|
|
(6
|
)
|
Proceeds from exercise of stock options
|
|
|
373
|
|
|
|
128
|
|
Excess tax benefits from share-based payment arrangements
|
|
|
7
|
|
|
|
|
|
Cash dividends paid
|
|
|
(2,651
|
)
|
|
|
(3,686
|
)
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(19,443
|
)
|
|
|
127,460
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in Cash and Due from Banks and interest
earning deposits
|
|
|
(44,049
|
)
|
|
|
123,381
|
|
Cash and due from banks and interest earning deposits, beginning
of period
|
|
|
284,156
|
|
|
|
166,980
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks and interest earning deposits, end of
period
|
|
$
|
240,107
|
|
|
$
|
290,361
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
3,537
|
|
|
$
|
5,087
|
|
Income tax payments
|
|
|
60
|
|
|
|
1,378
|
|
Transfer from loans held for sale back to loan portfolio
|
|
|
2,305
|
|
|
|
|
|
See notes to condensed consolidated financial statements
6
HUDSON
VALLEY HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Dollars in thousands, except per share and share amounts
1. Description
of Operations
Hudson Valley Holding Corp. (the Company) is a New
York corporation founded in 1982. The Company is registered as a
bank holding company under the Bank Holding Company Act of 1956.
The Company provides financial services through its wholly-owned
subsidiary, Hudson Valley Bank, N.A. (HVB or
the Bank), a national banking association
established in 1972, with operational headquarters in
Westchester County, New York. The Bank has 18 branch offices in
Westchester County, New York, 10 in New York City, New York, 1
in Rockland County, New York, 5 in Fairfield County, Connecticut
and 1 in New Haven County, Connecticut.
The Company provides investment management services through a
wholly-owned subsidiary of HVB, A.R. Schmeidler & Co.,
Inc. (ARS), a Manhattan, New York based money
management firm.
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, primarily Westchester County
and Rockland County, New York, portions of New York City,
Fairfield County and New Haven County, Connecticut.
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. We
are 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 local
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. We
anticipate that we will continue to expand in our current market
and surrounding area through various means which include
acquiring other banks and related businesses, adding staff,
opening loan production offices and continuing to open new
branch offices.
2. Basis
of Presentation
In the opinion of management, the accompanying unaudited
condensed consolidated financial statements include all
adjustments (comprising only normal recurring adjustments)
necessary to present fairly the financial position of the
Company at March 31, 2011 and December 31, 2010 and
the results of its operations, comprehensive income, cash
flows and changes in stockholders equity for the three
month periods ended March 31, 2011 and 2010. The results of
operations for the three month period ended March 31, 2011
are not necessarily indicative of the results of operations to
be expected for the remainder of the year.
The unaudited condensed consolidated financial statements have
been prepared in accordance with accounting principles generally
accepted in the United States of America (GAAP) and
predominant practices used within the banking industry. Certain
information and note disclosures normally included in annual
financial statements have been omitted.
In preparing such financial statements, management is required
to make estimates and assumptions that affect the reported
amounts of assets and liabilities as of the dates of the
consolidated balance sheets and 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 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
7
connection with the determination of the allowance for loan
losses, management utilizes the work of professional appraisers
for significant properties.
Intercompany items and transactions have been eliminated in
consolidation. Certain prior period amounts have been
reclassified to conform to the current periods
presentation.
These unaudited condensed consolidated financial statements
should be read in conjunction with our audited consolidated
financial statements as of and for the year ended
December 31, 2010 and notes thereto.
Securities 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 that the Company has
determined that it is more likely than not that it would not be
required to sell prior to maturity or recovery of cost.
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.
Interest income includes amortization of purchase premium and
accretion of purchase discount. The amortization of premiums and
accretion of discounts is determined by using the level yield
method. Securities are not acquired for purposes of engaging in
trading activities. Realized gains and losses from sales of
securities are determined using the specific identification
method. The Company regularly reviews declines in the fair value
of securities below their costs for purposes of determining
whether such declines are
other-than-temporary
in nature. In estimating
other-than-temporary
impairment (OTTI), management considers adverse
changes in expected cash flows, the length of time and extent
that fair value has been less than cost and the financial
condition and near term prospects of the issuer. The Company
also assesses whether it intends to sell, or it is more likely
than not that it will be required to sell, a security in an
unrealized loss position before recovery of its amortized cost
basis. If either of these criteria is met, the entire difference
between amortized cost and fair value is recognized as
impairment through earnings. For securities that do not meet the
aforementioned criteria, the amount of impairment is split into
two components as follows: 1) OTTI related to credit loss,
which must be recognized in the income statement and
2) OTTI related to other factors, which is recognized in
other comprehensive income. The credit loss is defined as the
difference between the present value of the cash flows expected
to be collected and the amortized cost basis.
Loans Loans are reported at their outstanding
principal balance, net of the allowance for loan losses, and
deferred loan origination fees and costs. Loan origination fees
and certain direct loan origination costs are deferred and
recognized over the life of the related loan or commitment as an
adjustment to yield, or taken directly into income when the
related loan is sold or commitment expires.
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 Companys
methodology for assessing the appropriateness of the allowance
consists of a specific component for identified problem loans,
and a formula component which addresses historical loan loss
experience together with other relevant risk factors affecting
the portfolio. This methodology applies to all loan classes.
Risk characteristics of the Companys portfolio classes
include the following:
Commercial Real Estate Loans In underwriting
commercial real estate loans, the Company evaluates both the
prospective borrowers 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 businesss 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 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.
8
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.
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.
Commercial and Industrial Loans The
Companys 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 borrowers cash flow as the source
of repayment with collateral and personal guarantees, where
obtained, as a 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,
managements inability to effectively manage the business,
claims of others against the borrowers assets which may
take priority over the Companys claims against assets,
death or disability of the borrower or loss of market for the
borrowers 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 and provide financing principally for office
equipment, telephone systems, computer systems, energy saving
improvements and other special use equipment. 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, managements inability to effectively manage
the business. 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 specific component incorporates the results of measuring
impaired loans as required by the Receivables topic
of the FASB Accounting Standards Codification. These accounting
standards prescribe the measurement methods, income recognition
and disclosures related to impaired loans. A loan is recognized
as impaired when it is probable that principal
and/or
interest are not collectible in accordance with the loans
contractual terms. In addition, a loan which has been
renegotiated with a borrower experiencing financial difficulties
for which the terms of the loan have been modified with a
concession that the Company would not otherwise have granted are
considered troubled debt restructurings and are also recognized
as impaired. A loan is not deemed to be impaired if there is a
short delay in receipt of payment or if, during a longer period
of delay, the Company expects to collect all amounts due
including interest accrued at the contractual rate during the
period of delay. Measurement of impairment can be based on the
present value of expected future cash flows discounted at the
loans effective interest rate, the loans observable
market price or the fair value of the collateral, if the loan is
collateral dependent. This evaluation is inherently subjective
as it requires material estimates that may be susceptible to
significant change. If the fair value of an impaired loan is
less than the related recorded amount, a specific valuation
component is established within the allowance for loan losses
or, if the impairment is considered to be permanent, a partial
charge-off is recorded against the allowance for loan losses.
Individual measurement of impairment does not apply to large
groups of smaller balance homogenous loans that are collectively
evaluated for impairment such as portions of the Companys
portfolios of home equity loans, real estate mortgages,
installment and other loans.
The formula component is calculated by first applying historical
loss experience factors to outstanding loans by type. The
Company uses a three year average loss experience as the
starting base for the formula component.
9
This component is then adjusted to reflect additional risk
factors not addressed by historical loss experience. These
factors include the evaluation of then-existing economic and
business conditions affecting the key lending areas of the
Company and other conditions, such as new loan products, credit
quality trends (including trends in nonperforming loans expected
to result from existing conditions), collateral values, loan
volumes and concentrations, recent charge-off and delinquency
experience, specific industry conditions within portfolio
segments that existed as of the balance sheet date and the
impact that such conditions were believed to have had on the
collectibility of the loan portfolio. Senior management reviews
these conditions quarterly. Managements evaluation of the
loss related to each of these conditions is quantified by loan
type and reflected in the formula component. The evaluations of
the inherent loss with respect to these conditions is subject to
a higher degree of uncertainty due to the subjective nature of
such evaluations and because they are not identified with
specific problem credits.
Actual losses can vary significantly from the estimated amounts.
The Companys methodology permits adjustments to the
allowance in the event that, in managements judgment,
significant factors which affect the collectibility of the loan
portfolio as of the evaluation date have changed.
Management believes the allowance for loan losses is the best
estimate of probable losses which have been incurred as of
March 31, 2011. There is no assurance that the Company will
not be required to make future adjustments to the allowance in
response to changing economic conditions, particularly in the
Companys service area, since the majority of the
Companys loans are collateralized by real estate. In
addition, various regulatory agencies, as an integral part of
their examination process, periodically review the
Companys allowance for loan losses. Such agencies may
require the Company to recognize additions to the allowance
based on their judgments at the time of their examinations.
Income Recognition on Loans Interest on loans
is accrued monthly. Net loan origination and commitment fees are
deferred and recognized as an adjustment of yield over the lives
of the related loans. Loans, including impaired loans, are
placed on a non-accrual status when management believes that
interest or principal on such loans may not be collected in the
normal course of business. When a loan is placed on non-accrual
status, all interest previously accrued, but not collected, is
reversed against interest income. Interest received on
non-accrual loans generally is either applied against principal
or reported as interest income, in accordance with
managements judgment as to the collectibility of
principal. Loans can be returned to accruing status when they
become current as to principal and interest, demonstrate a
period of performance under the contractual terms, and when, in
managements opinion, they are estimated to be fully
collectible.
Premises and Equipment Premises and equipment
are stated at cost less accumulated depreciation and
amortization. Depreciation is computed using the straight-line
method over the estimated useful lives of the related assets,
generally 3 to 5 years for furniture, fixtures and
equipment and 31.5 years for buildings. Leasehold
improvements are amortized over the lesser of the term of the
lease or the estimated useful life of the asset.
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.
Credit losses arising at the time of foreclosure are charged
against the allowance for loan losses. Subsequent valuations are
periodically performed by management and the carrying value is
adjusted by a charge to expense to reflect any subsequent
declines in the estimated fair value. Routine holding costs are
charged to expense as incurred.
Goodwill and Other Intangible Assets Goodwill
and identified intangible assets with indefinite useful lives
are not subject to amortization. Identified intangible assets
that have finite useful lives are amortized over those lives by
a method which reflects the pattern in which the economic
benefits of the intangible asset are used up. All goodwill and
identified intangible assets are subject to impairment testing
on an annual basis, or more often if events or circumstances
indicate that impairment may exist. If such testing indicates
impairment in the values
and/or
remaining amortization periods of the intangible assets,
adjustments are made to reflect such impairment.
Income Taxes Income tax expense is the total
of the current year income tax due or refundable and the change
in deferred tax assets and liabilities. Deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to
10
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period the change is enacted.
Stock-Based Compensation On May 27,
2010, at the Companys Annual Meeting of Shareholders, the
Hudson Valley Holding Corp. 2010 Omnibus Incentive Plan was
approved. The purpose of the 2010 Plan is to provide additional
incentive to directors, officers, key employees, consultants and
advisors of the Company and its subsidiaries. Included in the
provisions of the 2010 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. The 2010 Plan
provides for the issuance of up to 1,210,000 shares of the
Companys common stock. Prior to the adoption of the 2010
Plan, the Company had stock option plans that provided for the
granting of options to directors, officers, eligible employees,
and certain advisors, based upon eligibility as determined by
the Compensation Committee. Under the prior plans options were
granted for the purchase of shares of the Companys common
stock at an exercise price not less than the market value of the
stock on the date of grant, vested over various periods ranging
from immediate to five years from date of grant, and had
expiration dates of up to ten years from the date of grant.
Compensation costs relating to share-based payment transactions
are recognized in the financial statements with measurement
based upon the fair value of the equity or liability instruments
issued. Compensation costs related to share based payment
transactions are expensed over their respective vesting periods.
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. See
Note 7 Stock-Based Compensation herein for
additional discussion.
Earnings per Common Share The Earnings
per Share, topic of the FASB Accounting Standards
Codification establishes standards for computing and presenting
earnings per share. The statement requires disclosure of basic
earnings per common share (i.e. common stock equivalents are not
considered) and diluted earnings per common share (i.e. common
stock equivalents are considered using the treasury stock
method) on the face of the statement of income, along with a
reconciliation of the numerator and denominator of basic and
diluted earnings per share. Basic earnings per common share are
computed by dividing net income by the weighted average number
of common shares outstanding during the period. The computation
of diluted earnings per common share is similar to the
computation of basic earnings per share except that the
denominator is increased to include the number of additional
common shares that would have been outstanding if the dilutive
potential common shares, consisting of stock options, had been
issued.
11
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 March 31, 2011 and December 31, 2010 (in thousands):
March 31,
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Unrealized
|
|
|
Estimated Fair
|
|
|
|
Amortized Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Classified as Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government agencies
|
|
$
|
3,001
|
|
|
$
|
10
|
|
|
|
|
|
|
$
|
3,011
|
|
Mortgage-backed securities residential
|
|
|
300,568
|
|
|
|
5,310
|
|
|
$
|
1,902
|
|
|
|
303,976
|
|
Obligations of states and political subdivisions
|
|
|
108,207
|
|
|
|
4,443
|
|
|
|
9
|
|
|
|
112,641
|
|
Other debt securities
|
|
|
12,144
|
|
|
|
2
|
|
|
|
8,562
|
|
|
|
3,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
|
423,920
|
|
|
|
9,765
|
|
|
|
10,473
|
|
|
|
423,212
|
|
Mutual funds and other equity securities
|
|
|
10,071
|
|
|
|
556
|
|
|
|
118
|
|
|
|
10,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
433,991
|
|
|
$
|
10,321
|
|
|
$
|
10,591
|
|
|
$
|
433,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Unrecognized
|
|
|
Estimated Fair
|
|
|
|
Amortized Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Classified as Held to Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities residential
|
|
$
|
10,116
|
|
|
$
|
682
|
|
|
$
|
1
|
|
|
$
|
10,797
|
|
Obligations of states and political subdivisions
|
|
|
5,136
|
|
|
|
325
|
|
|
|
|
|
|
|
5,461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
15,252
|
|
|
$
|
1,007
|
|
|
$
|
1
|
|
|
$
|
16,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Unrealized
|
|
|
Estimated Fair
|
|
|
|
Amortized Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Classified as Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government agencies
|
|
$
|
3,001
|
|
|
$
|
11
|
|
|
|
|
|
|
$
|
3,012
|
|
Mortgage-backed securities residential
|
|
|
303,479
|
|
|
|
6,648
|
|
|
$
|
587
|
|
|
|
309,540
|
|
Obligations of states and political subdivisions
|
|
|
111,912
|
|
|
|
4,170
|
|
|
|
1
|
|
|
|
116,081
|
|
Other debt securities
|
|
|
12,329
|
|
|
|
|
|
|
|
7,956
|
|
|
|
4,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
|
430,721
|
|
|
|
10,829
|
|
|
|
8,544
|
|
|
|
433,006
|
|
Mutual funds and other equity securities
|
|
|
10,071
|
|
|
|
706
|
|
|
|
116
|
|
|
|
10,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
440,792
|
|
|
$
|
11,535
|
|
|
$
|
8,660
|
|
|
$
|
443,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Unrecognized
|
|
|
Estimated Fair
|
|
|
|
Amortized Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Classified as Held to Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities residential
|
|
$
|
11,131
|
|
|
$
|
700
|
|
|
$
|
1
|
|
|
$
|
11,830
|
|
Obligations of states and political subdivisions
|
|
|
5,136
|
|
|
|
306
|
|
|
|
|
|
|
|
5,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
16,267
|
|
|
$
|
1,006
|
|
|
$
|
1
|
|
|
$
|
17,272
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in other debt securities are investments in six pooled
trust preferred securities with amortized costs and estimated
fair values of $11,578 and $3,016, respectively, at
March 31, 2011. These investments represent trust preferred
obligations of banking industry companies. The value of these
investments has been severely negatively affected by the recent
downturn in the economy and increased investor concerns about
recent and potential future
12
losses in the financial services industry. These investments are
rated below investment grade by Moodys Investor Services
at March 31, 2011 with ratings ranging from Caa1 to C. In
light of these conditions, these investments were reviewed for
other-than-temporary
impairment.
In estimating OTTI losses, the Company considers: (1) the
length of time and extent that fair value has been less than
cost, (2) the financial condition and near term prospects
of the issuers, (3) whether the Company intends to sell or
whether it is more likely than not that the Company would be
required to sell the investments prior to recovery of cost and
(4) evaluation of cash flows to determine if they have been
adversely affected.
The Company uses a discounted cash flow (DCF)
analysis to provide an estimate of an OTTI loss. Inputs to the
discount model included known defaults and interest deferrals,
projected additional default rates, projected additional
deferrals of interest, over-collateralization tests, interest
coverage tests and other factors. Expected default and deferral
rates were weighted toward the near future to reflect the
current adverse economic environment affecting the banking
industry. The discount rate was based upon the yield expected
from the related securities. Significant inputs to the cash flow
models used in determining credit related other-than-temporary
impairment losses on pooled trust preferred securities as of
March 31, 2011 included the following:
|
|
|
|
Annual prepayment
|
|
1.0%
|
Projected specific defaults/deferrals
|
|
27.1% - 73.6%
|
Projected severity of loss on specific defaults/deferrals
|
|
50.0% - 87.1%
|
Projected additional defaults:
|
|
|
Year 1
|
|
2.0%
|
Year 2
|
|
1.0%
|
Thereafter
|
|
0.25%
|
Projected severity of loss on additional defaults
|
|
85.0%
|
Present value discount rates
|
|
3m LIBOR + 1.60% - 2.25%
|
The following table summarizes the change in pretax OTTI credit
related losses on securities available for sale for the three
months ended March 31, 2011 and 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
Balance at beginning of period:
|
|
|
|
|
|
|
|
|
Total OTTI credit related impairment charges beginning of period
|
|
$
|
9,110
|
|
|
$
|
6,557
|
|
Increase to the amount related to the credit loss for which
other-than-temporary impairment was previously recognized
|
|
|
161
|
|
|
|
1,615
|
|
Credit related impairment not previously recognized
|
|
|
|
|
|
|
158
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
9,271
|
|
|
$
|
8,330
|
|
|
|
|
|
|
|
|
|
|
During the three month period ended March 31, 2011, pretax
OTTI losses of $82, $38, $24, $16 and $1, respectively, were
recognized on five pooled trust preferred securities which prior
to the 2011 charges had book values of $2,208, $949, $5,583,
$2,180 and $656, respectively. These OTTI losses resulted from
adverse changes in the expected cash flows of these securities
which indicated that the Company may not recover the entire cost
basis of these investments. Continuation or worsening of current
adverse economic conditions may result in further impairment
charges in the future.
13
The following tables reflect the Companys
investments fair value and gross unrealized loss,
aggregated by investment category and length of time the
individual securities have been in a continuous unrealized loss
position, as of March 31, 2011 and December 31, 2010
(in thousands):
March 31,
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Duration of Unrealized Loss
|
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
|
Greater than 12 Months
|
|
|
Total
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
Classified as Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasuries and government agencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities residential
|
|
$
|
104,979
|
|
|
$
|
1,898
|
|
|
$
|
2,354
|
|
|
$
|
4
|
|
|
$
|
107,333
|
|
|
$
|
1,902
|
|
Obligations of states and political subdivisions
|
|
|
1,630
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
1,630
|
|
|
|
9
|
|
Other debt securities
|
|
|
|
|
|
|
|
|
|
|
3,016
|
|
|
|
8,562
|
|
|
|
3,016
|
|
|
|
8,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
|
106,609
|
|
|
|
1,907
|
|
|
|
5,370
|
|
|
|
8,566
|
|
|
|
111,979
|
|
|
|
10,473
|
|
Mutual funds and other equity securities
|
|
|
25
|
|
|
|
6
|
|
|
|
82
|
|
|
|
112
|
|
|
|
107
|
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
|
$
|
106,634
|
|
|
$
|
1,913
|
|
|
$
|
5,452
|
|
|
$
|
8,678
|
|
|
$
|
112,086
|
|
|
$
|
10,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classified as Held to Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities residential
|
|
$
|
354
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
$
|
354
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
|
$
|
354
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
$
|
354
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Duration of Unrealized Loss
|
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
|
Greater than 12 Months
|
|
|
Total
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
Value
|
|
|
Loss
|
|
|
Classified as Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasuries and government agencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities residential
|
|
$
|
72,105
|
|
|
$
|
587
|
|
|
|
|
|
|
|
|
|
|
$
|
72,105
|
|
|
$
|
587
|
|
Obligations of states and political subdivisions
|
|
|
461
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
461
|
|
|
|
1
|
|
Other debt securities
|
|
|
|
|
|
|
|
|
|
$
|
4,193
|
|
|
$
|
7,956
|
|
|
|
4,193
|
|
|
|
7,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
|
72,566
|
|
|
|
588
|
|
|
|
4,193
|
|
|
|
7,956
|
|
|
|
76,759
|
|
|
|
8,544
|
|
Mutual funds and other equity securities
|
|
|
|
|
|
|
|
|
|
|
118
|
|
|
|
116
|
|
|
|
118
|
|
|
|
116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
|
$
|
72,566
|
|
|
$
|
588
|
|
|
$
|
4,311
|
|
|
$
|
8,072
|
|
|
$
|
76,877
|
|
|
$
|
8,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Classified as Held to Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities residential
|
|
$
|
400
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
$
|
400
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities
|
|
$
|
400
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
$
|
400
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total number of securities in the Companys portfolio
that were in an unrealized loss position was 115 and 90,
respectively, at March 31, 2011 and December 31, 2010.
The Company has determined that it does not intend to sell, or
it is 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. With the exception of the
investment in pooled trust preferred securities discussed above,
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. Therefore, management does not consider these investments
to be
other-than-temporarily
impaired at March 31, 2011. With
14
regard to the investments in pooled trust preferred securities,
the Company has decided to hold these securities as it believes
that current market quotes for these securities are not
necessarily indicative of their value. The Company has
recognized impairment charges on five of the pooled trust
preferred securities. Management believes that the remaining
impairment in the value of these securities to be primarily
related to illiquidity in the market and therefore not credit
related at March 31, 2011.
At March 31, 2011 and December 31, 2010, securities
having a stated value of approximately $307,000 and $310,000,
respectively, were pledged to secure public deposits, securities
sold under agreements to repurchase and for other purposes as
required or permitted by law.
The contractual maturity of all debt securities held at
March 31, 2011 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
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
(000s)
|
|
|
Contractual Maturity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 year
|
|
$
|
10,280
|
|
|
$
|
10,027
|
|
|
|
|
|
|
|
|
|
After 1 but within 5 years
|
|
|
33,505
|
|
|
|
35,123
|
|
|
$
|
5,136
|
|
|
$
|
5,461
|
|
After 5 years but within 10 years
|
|
|
64,265
|
|
|
|
67,258
|
|
|
|
|
|
|
|
|
|
After 10 years
|
|
|
15,302
|
|
|
|
6,828
|
|
|
|
|
|
|
|
|
|
Mortgage-backed Securities residential
|
|
|
300,568
|
|
|
|
303,976
|
|
|
|
10,116
|
|
|
|
10,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
423,920
|
|
|
$
|
423,212
|
|
|
$
|
15,252
|
|
|
$
|
16,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4. Loans
The loan portfolio is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(000s)
|
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
821,959
|
|
|
$
|
796,253
|
|
Construction
|
|
|
168,567
|
|
|
|
174,369
|
|
Residential
|
|
|
548,346
|
|
|
|
467,326
|
|
Commercial & Industrial
|
|
|
234,742
|
|
|
|
245,263
|
|
Lease Financing and other
|
|
|
45,539
|
|
|
|
49,040
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,819,153
|
|
|
|
1,732,251
|
|
Deferred loan fees, net
|
|
|
(4,187
|
)
|
|
|
(4,115
|
)
|
Allowance for loan losses
|
|
|
(40,287
|
)
|
|
|
(38,949
|
)
|
|
|
|
|
|
|
|
|
|
Loans, net
|
|
$
|
1,774,679
|
|
|
$
|
1,689,187
|
|
|
|
|
|
|
|
|
|
|
15
The following table presents the allowance for loan losses and
the recorded investment in loans by portfolio segment for the
three month periods ended March 31, 2011 and 2010 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
Residential
|
|
|
Commercial &
|
|
|
Financing
|
|
|
|
Total
|
|
|
Real Estate
|
|
|
Construction
|
|
|
Real Estate
|
|
|
Industrial
|
|
|
& Other
|
|
|
Balance at beginning of year
|
|
$
|
38,949
|
|
|
$
|
16,736
|
|
|
$
|
7,140
|
|
|
$
|
9,851
|
|
|
$
|
4,290
|
|
|
$
|
932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs
|
|
|
(5,255
|
)
|
|
|
(156
|
)
|
|
|
(736
|
)
|
|
|
(2,195
|
)
|
|
|
(2,168
|
)
|
|
|
|
|
Recoveries
|
|
|
1,142
|
|
|
|
238
|
|
|
|
139
|
|
|
|
554
|
|
|
|
205
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Charge-offs
|
|
|
(4,113
|
)
|
|
|
82
|
|
|
|
(597
|
)
|
|
|
(1,641
|
)
|
|
|
(1,963
|
)
|
|
|
6
|
|
Provision for loan losses
|
|
|
5,451
|
|
|
|
(145
|
)
|
|
|
587
|
|
|
|
2,749
|
|
|
|
2,288
|
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change during the period
|
|
|
1,338
|
|
|
|
(63
|
)
|
|
|
(10
|
)
|
|
|
1,108
|
|
|
|
325
|
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
40,287
|
|
|
$
|
16,673
|
|
|
$
|
7,130
|
|
|
$
|
10,959
|
|
|
$
|
4,615
|
|
|
$
|
910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
Residential
|
|
|
Commercial &
|
|
|
Financing
|
|
|
|
Total
|
|
|
Real Estate
|
|
|
Construction
|
|
|
Real Estate
|
|
|
Industrial
|
|
|
& Other
|
|
|
Balance at beginning of year
|
|
$
|
38,645
|
|
|
$
|
15,273
|
|
|
$
|
5,802
|
|
|
$
|
9,706
|
|
|
$
|
7,326
|
|
|
$
|
538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs
|
|
|
(4,894
|
)
|
|
|
(114
|
)
|
|
|
(112
|
)
|
|
|
(4,396
|
)
|
|
|
(249
|
)
|
|
|
(23
|
)
|
Recoveries
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
18
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Charge-offs
|
|
|
(4,864
|
)
|
|
|
(114
|
)
|
|
|
(112
|
)
|
|
|
(4,390
|
)
|
|
|
(231
|
)
|
|
|
(17
|
)
|
Provision for loan losses
|
|
|
5,582
|
|
|
|
1,671
|
|
|
|
1,258
|
|
|
|
3,456
|
|
|
|
(799
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change during the period
|
|
|
718
|
|
|
|
1,557
|
|
|
|
1,146
|
|
|
|
(934
|
)
|
|
|
(1,030
|
)
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
39,363
|
|
|
$
|
16,830
|
|
|
$
|
6,948
|
|
|
$
|
8,772
|
|
|
$
|
6,296
|
|
|
$
|
517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
Impaired loans as of March 31, 2011 and December 31,
2010 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
|
|
Unpaid
|
|
|
|
|
|
Allowance for
|
|
|
Unpaid
|
|
|
|
|
|
Allowance for
|
|
|
|
Principal
|
|
|
Recorded
|
|
|
Loan Losses
|
|
|
Principal
|
|
|
Recorded
|
|
|
Loan Losses
|
|
|
|
Balance
|
|
|
Investment
|
|
|
Allocated
|
|
|
Balance
|
|
|
Investment
|
|
|
Allocated
|
|
|
With no related allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
26,439
|
|
|
$
|
25,055
|
|
|
|
|
|
|
$
|
22,714
|
|
|
$
|
21,166
|
|
|
|
|
|
Construction
|
|
|
14,416
|
|
|
|
11,482
|
|
|
|
|
|
|
|
16,985
|
|
|
|
11,868
|
|
|
|
|
|
Residential
|
|
|
17,376
|
|
|
|
13,224
|
|
|
|
|
|
|
|
11,476
|
|
|
|
7,223
|
|
|
|
|
|
Commercial & industrial
|
|
|
7,703
|
|
|
|
5,523
|
|
|
|
|
|
|
|
5,543
|
|
|
|
4,538
|
|
|
|
|
|
Lease financing & other
|
|
|
645
|
|
|
|
388
|
|
|
|
|
|
|
|
651
|
|
|
|
393
|
|
|
|
|
|
With an allowance recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
3,821
|
|
|
|
3,822
|
|
|
$
|
850
|
|
|
|
3,821
|
|
|
|
3,821
|
|
|
$
|
850
|
|
Residential
|
|
|
521
|
|
|
|
521
|
|
|
|
19
|
|
|
|
521
|
|
|
|
521
|
|
|
|
17
|
|
Commercial & industrial
|
|
|
289
|
|
|
|
289
|
|
|
|
68
|
|
|
|
25
|
|
|
|
25
|
|
|
|
25
|
|
Lease financing & other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
71,210
|
|
|
$
|
60,304
|
|
|
$
|
937
|
|
|
$
|
61,736
|
|
|
$
|
49,555
|
|
|
$
|
892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company classifies all loans considered to be troubled debt
restructurings (TDRs) as impaired. Impaired loans as
of March 31, 2011 and December 31, 2010 included
$20,311 and $17,236, respectively, of loans considered to be
TDRs. At March 31, 2011 and December 31, 2010, one TDR
with a carrying amount of $5,871 was on accrual status and
performing in accordance with its modified terms. All other TDRs
as of March 31, 2011 and December 31, 2010 were on
nonaccrual status. 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 allowance for loan losses and
the recorded investment in loans by portfolio segment based on
impairment method as of March 31, 2011 and December 31,
2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
Residential
|
|
|
Commercial &
|
|
|
Financing
|
|
|
|
Total
|
|
|
Real Estate
|
|
|
Construction
|
|
|
Real Estate
|
|
|
Industrial
|
|
|
& Other
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance attributed to loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively evaluated for impairment
|
|
$
|
39,350
|
|
|
$
|
16,673
|
|
|
$
|
6,280
|
|
|
$
|
10,940
|
|
|
$
|
4,547
|
|
|
$
|
910
|
|
Individually evaluated for impairment
|
|
|
937
|
|
|
|
|
|
|
|
850
|
|
|
|
19
|
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending balance of allowance
|
|
$
|
40,287
|
|
|
$
|
16,673
|
|
|
$
|
7,130
|
|
|
$
|
10,959
|
|
|
$
|
4,615
|
|
|
$
|
910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance of loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively evaluated for impairment
|
|
$
|
1,758,849
|
|
|
$
|
796,904
|
|
|
$
|
153,263
|
|
|
$
|
534,601
|
|
|
$
|
228,930
|
|
|
$
|
45,151
|
|
Individually evaluated for impairment
|
|
|
60,304
|
|
|
|
25,055
|
|
|
|
15,304
|
|
|
|
13,745
|
|
|
|
5,812
|
|
|
|
388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending balance of loans
|
|
$
|
1,819,153
|
|
|
$
|
821,959
|
|
|
$
|
168,567
|
|
|
$
|
548,346
|
|
|
$
|
234,742
|
|
|
$
|
45,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
Residential
|
|
|
Commercial &
|
|
|
Financing
|
|
|
|
Total
|
|
|
Real Estate
|
|
|
Construction
|
|
|
Real Estate
|
|
|
Industrial
|
|
|
& Other
|
|
|
Allowance for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance attributed to loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively evaluated for impairment
|
|
$
|
38,057
|
|
|
$
|
16,736
|
|
|
$
|
6,290
|
|
|
$
|
9,834
|
|
|
$
|
4,265
|
|
|
$
|
932
|
|
Individually evaluated for impairment
|
|
|
892
|
|
|
|
|
|
|
|
850
|
|
|
|
17
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending balance of allowance
|
|
$
|
38,949
|
|
|
$
|
16,736
|
|
|
$
|
7,140
|
|
|
$
|
9,851
|
|
|
$
|
4,290
|
|
|
$
|
932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance of loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collectively evaluated for impairment
|
|
$
|
1,682,696
|
|
|
$
|
775,087
|
|
|
$
|
158,680
|
|
|
$
|
459,582
|
|
|
$
|
240,700
|
|
|
$
|
48,647
|
|
Individually evaluated for impairment
|
|
|
49,555
|
|
|
|
21,166
|
|
|
|
15,689
|
|
|
|
7,744
|
|
|
|
4,563
|
|
|
|
393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending balance of loans
|
|
$
|
1,732,251
|
|
|
$
|
796,253
|
|
|
$
|
174,369
|
|
|
$
|
467,326
|
|
|
$
|
245,263
|
|
|
$
|
49,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 March 31, 2011 and
December 31, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
|
|
|
|
|
Past Due
|
|
|
|
|
|
Past Due
|
|
|
|
|
|
|
90 Days
|
|
|
|
|
|
90 Days
|
|
|
|
|
|
|
and Still
|
|
|
|
|
|
and Still
|
|
|
|
Non-Accrual
|
|
|
Accruing
|
|
|
Non-Accrual
|
|
|
Accruing
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
$
|
4,660
|
|
|
|
|
|
|
$
|
1,942
|
|
|
$
|
292
|
|
Non owner occupied
|
|
|
14,524
|
|
|
|
|
|
|
|
13,353
|
|
|
|
|
|
Construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
5,372
|
|
|
|
|
|
|
|
4,477
|
|
|
|
1,323
|
|
Residential
|
|
|
9,933
|
|
|
|
|
|
|
|
11,212
|
|
|
|
|
|
Residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
5,429
|
|
|
|
|
|
|
|
1,437
|
|
|
|
|
|
1-4 family
|
|
|
5,092
|
|
|
|
|
|
|
|
4,649
|
|
|
|
|
|
Home equity
|
|
|
3,224
|
|
|
|
|
|
|
|
1,658
|
|
|
|
10
|
|
Commercial & Industrial
|
|
|
5,546
|
|
|
|
|
|
|
|
4,563
|
|
|
|
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease financing and other
|
|
|
653
|
|
|
|
|
|
|
|
393
|
|
|
|
|
|
Overdrafts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
54,433
|
|
|
|
|
|
|
$
|
43,684
|
|
|
$
|
1,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
The following table presents the aging of the recorded
investment in loans (including past due and non-accrual loans)
as of March 31, 2011 and December 31, 2010 by class of
loans (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
90 days
|
|
|
|
|
|
|
|
|
|
|
|
|
31-59 Days
|
|
|
60-89 Days
|
|
|
or more
|
|
|
Total
|
|
|
|
|
|
|
Total
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Current
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
$
|
316,746
|
|
|
$
|
2,496
|
|
|
$
|
2,013
|
|
|
$
|
3,328
|
|
|
$
|
7,837
|
|
|
$
|
308,909
|
|
Non owner occupied
|
|
|
505,213
|
|
|
|
3,610
|
|
|
|
|
|
|
|
14,524
|
|
|
|
18,134
|
|
|
|
487,079
|
|
Construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
102,048
|
|
|
|
|
|
|
|
1,792
|
|
|
|
3,580
|
|
|
|
5,372
|
|
|
|
96,676
|
|
Residential
|
|
|
66,519
|
|
|
|
|
|
|
|
|
|
|
|
9,933
|
|
|
|
9,933
|
|
|
|
56,586
|
|
Residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
248,566
|
|
|
|
|
|
|
|
|
|
|
|
5,429
|
|
|
|
5,429
|
|
|
|
243,137
|
|
1- 4 family
|
|
|
181,900
|
|
|
|
445
|
|
|
|
985
|
|
|
|
5,007
|
|
|
|
6,437
|
|
|
|
175,463
|
|
Home equity
|
|
|
117,880
|
|
|
|
559
|
|
|
|
893
|
|
|
|
3,224
|
|
|
|
4,676
|
|
|
|
113,204
|
|
Commercial & Industrial
|
|
|
234,742
|
|
|
|
3,014
|
|
|
|
1,434
|
|
|
|
4,165
|
|
|
|
8,613
|
|
|
|
226,129
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease financing and other
|
|
|
43,251
|
|
|
|
109
|
|
|
|
55
|
|
|
|
584
|
|
|
|
748
|
|
|
|
42,503
|
|
Overdrafts
|
|
|
2,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,819,153
|
|
|
$
|
10,233
|
|
|
$
|
7,172
|
|
|
$
|
49,774
|
|
|
$
|
67,179
|
|
|
$
|
1,751,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
90 days
|
|
|
|
|
|
|
|
|
|
|
|
|
31-59 Days
|
|
|
60-89 Days
|
|
|
or more
|
|
|
Total
|
|
|
|
|
|
|
Total
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Current
|
|
|
Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
$
|
317,926
|
|
|
$
|
100
|
|
|
$
|
3,204
|
|
|
$
|
2,234
|
|
|
$
|
5,538
|
|
|
$
|
312,388
|
|
Non owner occupied
|
|
|
478,327
|
|
|
|
4,199
|
|
|
|
7,014
|
|
|
|
8,899
|
|
|
|
20,112
|
|
|
|
458,215
|
|
Construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
104,466
|
|
|
|
|
|
|
|
2,913
|
|
|
|
5,799
|
|
|
|
8,712
|
|
|
|
95,754
|
|
Residential
|
|
|
69,903
|
|
|
|
|
|
|
|
3,821
|
|
|
|
7,390
|
|
|
|
11,211
|
|
|
|
58,692
|
|
Residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
152,295
|
|
|
|
1,160
|
|
|
|
1,132
|
|
|
|
1,437
|
|
|
|
3,729
|
|
|
|
148,566
|
|
1-4 family
|
|
|
187,728
|
|
|
|
1,096
|
|
|
|
2,064
|
|
|
|
4,211
|
|
|
|
7,371
|
|
|
|
180,357
|
|
Home equity
|
|
|
127,303
|
|
|
|
721
|
|
|
|
1,240
|
|
|
|
1,657
|
|
|
|
3,618
|
|
|
|
123,685
|
|
Commercial & Industrial
|
|
|
245,263
|
|
|
|
2,258
|
|
|
|
738
|
|
|
|
2,414
|
|
|
|
5,410
|
|
|
|
239,853
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease financing and other
|
|
|
45,096
|
|
|
|
219
|
|
|
|
70
|
|
|
|
323
|
|
|
|
612
|
|
|
|
44,484
|
|
Overdrafts
|
|
|
3,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,732,251
|
|
|
$
|
9,753
|
|
|
$
|
22,196
|
|
|
$
|
34,364
|
|
|
$
|
66,313
|
|
|
$
|
1,665,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
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. This analysis is performed 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 managements
close attention. If left uncorrected, these potential weaknesses
may result in deterioration of repayment prospects for the asset
or in the institutions credit position at some future date.
Substandard Loans classified as substandard
asset 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.
The following table presents the risk category by class of loans
as of March 31, 2011 and December 31, 2010 of
non-homogeneous loans individually classified as to credit risk
as of the most recent analysis performed (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
|
|
|
|
|
|
|
Special
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Pass
|
|
|
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
$
|
316,746
|
|
|
$
|
240,205
|
|
|
$
|
32,715
|
|
|
$
|
43,826
|
|
|
|
|
|
Non owner occupied
|
|
|
505,214
|
|
|
|
424,707
|
|
|
|
32,371
|
|
|
|
48,136
|
|
|
|
|
|
Construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
102,048
|
|
|
|
71,701
|
|
|
|
11,699
|
|
|
|
18,648
|
|
|
|
|
|
Residential
|
|
|
66,519
|
|
|
|
45,621
|
|
|
|
|
|
|
|
20,898
|
|
|
|
|
|
Residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
248,566
|
|
|
|
230,130
|
|
|
|
8,498
|
|
|
|
9,938
|
|
|
|
|
|
1-4 family
|
|
|
89,521
|
|
|
|
67,451
|
|
|
|
9,750
|
|
|
|
12,320
|
|
|
|
|
|
Home equity
|
|
|
7,117
|
|
|
|
316
|
|
|
|
|
|
|
|
6,801
|
|
|
|
|
|
Commercial & Industrial
|
|
|
235,568
|
|
|
|
215,698
|
|
|
|
5,875
|
|
|
|
13,995
|
|
|
|
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease Financing & Other
|
|
|
40,794
|
|
|
|
39,243
|
|
|
|
515
|
|
|
|
1,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
1,612,093
|
|
|
$
|
1,335,072
|
|
|
$
|
101,423
|
|
|
$
|
175,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
Special
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Pass
|
|
|
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Commercial Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner occupied
|
|
$
|
317,926
|
|
|
$
|
247,210
|
|
|
$
|
25,164
|
|
|
$
|
45,552
|
|
|
$
|
|
|
Non owner occupied
|
|
|
478,327
|
|
|
|
406,949
|
|
|
|
42,552
|
|
|
|
25,826
|
|
|
|
3,000
|
|
Construction:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
104,466
|
|
|
|
79,861
|
|
|
|
5,426
|
|
|
|
19,179
|
|
|
|
|
|
Residential
|
|
|
69,903
|
|
|
|
48,777
|
|
|
|
|
|
|
|
21,126
|
|
|
|
|
|
Residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multifamily
|
|
|
152,295
|
|
|
|
139,725
|
|
|
|
2,620
|
|
|
|
9,950
|
|
|
|
|
|
1-4 family
|
|
|
91,761
|
|
|
|
67,401
|
|
|
|
12,342
|
|
|
|
12,018
|
|
|
|
|
|
Home equity
|
|
|
12,135
|
|
|
|
6,715
|
|
|
|
249
|
|
|
|
5,171
|
|
|
|
|
|
Commercial & Industrial
|
|
|
245,262
|
|
|
|
218,088
|
|
|
|
11,559
|
|
|
|
15,615
|
|
|
|
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease Financing & Other
|
|
|
43,570
|
|
|
|
41,502
|
|
|
|
332
|
|
|
|
1,736
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
1,515,645
|
|
|
$
|
1,256,228
|
|
|
$
|
100,244
|
|
|
$
|
156,173
|
|
|
$
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
The following table presents the delinquency categories by class
of loans as of March 31, 2011 and December 31, 2010
for loans evaluated for risk in groups of homogeneous loans (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
90 Days
|
|
|
|
|
|
|
|
|
|
|
|
|
31-59 Days
|
|
|
60-89 Days
|
|
|
Or More
|
|
|
Total
|
|
|
|
|
|
|
Total
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Current
|
|
|
Residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 family
|
|
$
|
92,379
|
|
|
$
|
163
|
|
|
$
|
894
|
|
|
|
|
|
|
$
|
1,057
|
|
|
$
|
91,322
|
|
Home equity
|
|
|
110,763
|
|
|
|
114
|
|
|
|
893
|
|
|
|
|
|
|
|
1,007
|
|
|
|
109,756
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other loans
|
|
|
1,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,630
|
|
Overdrafts
|
|
|
2,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
207,060
|
|
|
$
|
277
|
|
|
$
|
1,787
|
|
|
|
|
|
|
$
|
2,064
|
|
|
$
|
204,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
90 Days
|
|
|
|
|
|
|
|
|
|
|
|
|
31-59 Days
|
|
|
60-89 Days
|
|
|
Or More
|
|
|
Total
|
|
|
|
|
|
|
Total
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Past Due
|
|
|
Current
|
|
|
Residential:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-4 family
|
|
$
|
95,968
|
|
|
$
|
1,090
|
|
|
$
|
413
|
|
|
|
|
|
|
$
|
1,503
|
|
|
$
|
94,465
|
|
Home equity
|
|
|
115,167
|
|
|
|
342
|
|
|
|
|
|
|
|
|
|
|
|
342
|
|
|
|
114,825
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other loans
|
|
|
1,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,527
|
|
Overdrafts
|
|
|
3,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
216,606
|
|
|
$
|
1,432
|
|
|
$
|
413
|
|
|
|
|
|
|
$
|
1,845
|
|
|
$
|
214,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
The following table presents the average recorded investment in
impaired loans by portfolio segment and interest recognized on
impaired loans for the three month periods ended March 31,
2011 and 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
Residential
|
|
|
Commercial &
|
|
|
Financing
|
|
|
|
Total
|
|
|
Real Estate
|
|
|
Construction
|
|
|
Real Estate
|
|
|
Industrial
|
|
|
& Other
|
|
|
Three months ended March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average recorded investment in impaired loans
|
|
$
|
54,929
|
|
|
$
|
23,111
|
|
|
$
|
15,497
|
|
|
$
|
10,742
|
|
|
$
|
5,188
|
|
|
$
|
391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income recognized during impairment
|
|
$
|
59
|
|
|
$
|
59
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average recorded investment in impaired loans
|
|
$
|
60,138
|
|
|
$
|
25,625
|
|
|
$
|
13,762
|
|
|
$
|
16,687
|
|
|
$
|
2,407
|
|
|
$
|
1,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income recognized during impairment
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross interest income that would have been recorded if these
borrowers had been current in accordance with their original
loan terms was $836 and $2,468, respectively, for the three
month periods ended March 31, 2011 and 2010.
5. Earnings
Per Share
The following table sets forth the computation of basic and
diluted earnings per common share for each of the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(000s except share data)
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income (loss) available to common shareholders for basic and
diluted earnings per share
|
|
$
|
4,824
|
|
|
$
|
4,855
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per common share
weighted average shares
|
|
|
17,678,554
|
|
|
|
17,624,056
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
64,958
|
|
|
|
84,765
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per common share
adjusted weighted average shares
|
|
|
17,743,512
|
|
|
|
17,708,821
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share
|
|
$
|
0.27
|
|
|
$
|
0.28
|
|
Diluted earnings per common share
|
|
$
|
0.27
|
|
|
$
|
0.27
|
|
Dividends declared per share
|
|
$
|
0.15
|
|
|
$
|
0.19
|
|
In November 2010, the Company declared a 10% stock
dividend. Share and per share amounts for 2010 have been
retroactively restated to reflect the issuance of the additional
shares.
22
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 (in thousands).
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
Service cost
|
|
$
|
95
|
|
|
$
|
64
|
|
Interest cost
|
|
|
147
|
|
|
|
139
|
|
Amortization of prior service cost
|
|
|
(58
|
)
|
|
|
(48
|
)
|
Amortization of net loss
|
|
|
139
|
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost
|
|
$
|
323
|
|
|
$
|
305
|
|
|
|
|
|
|
|
|
|
|
The Company makes contributions to the unfunded defined benefit
plans only as benefit payments become due. The Company disclosed
in its 2010 Annual Report on
Form 10-K
that it expected to contribute $612 to the unfunded defined
benefit plans during 2011. For the three month period ended
March 31, 2011, the Company contributed $196 to these plans.
7. Stock-Based
Compensation
In accordance with the provisions of the Hudson Valley Holding
Corp. 2010 Omnibus Incentive Plan, approved by the
Companys shareholders on May 27, 2010, 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. The 2010 Plan provides for the issuance of up to
1,210,000 shares of the Companys common stock. 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, based upon eligibility
as determined by the Compensation Committee. Under the prior
plans, options were granted for the purchase of shares of the
Companys common stock at an exercise price not less than
the market value of the stock on the date of grant, vested over
various periods ranging from immediate to five years from date
of grant, and had expiration dates up to ten years from the date
of grant.
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 options are expensed over their respective vesting
periods. There were no stock-based compensation awards granted
under either the 2010 Plan or the prior plans during the three
month period ended March 31, 2011.
23
The following table summarizes stock option activity for the
three month period ended March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
Weighted Average
|
|
Aggregate Intrinsic
|
|
Remaining Contractual
|
|
|
Shares
|
|
Exercise Price
|
|
Value(1) ($000s)
|
|
Term(Yrs)
|
|
Outstanding at December 31, 2010
|
|
|
700,070
|
|
|
$
|
23.93
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(20,155
|
)
|
|
|
18.51
|
|
|
|
|
|
|
|
|
|
Cancelled or Expired
|
|
|
(10,235
|
)
|
|
|
17.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2011
|
|
|
669,680
|
|
|
|
24.19
|
|
|
$
|
1,318
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2011
|
|
|
638,475
|
|
|
|
23.47
|
|
|
$
|
1,318
|
|
|
|
3.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for future grant
|
|
|
1,210,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1) |
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 March 31, 2011. This amount changes based on
changes in the fair value of the Companys 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 three month period ended
March 31, 2011 or the year ended December 31, 2010.
Net compensation expense of $40 and $150 related to the
Companys stock option plans was included in net income for
the three month periods ended March 31, 2011 and 2010,
respectively. The total tax effect related thereto was $(1)
and $1, respectively. Unrecognized compensation expense related
to non-vested share-based compensation granted under the
Companys stock option plans totaled $193 at March 31,
2011. This expense is expected to be recognized over a remaining
weighted average period of 1.1 years.
The Company follows the Fair Value Measurement and
Disclosures topic of the FASB Accounting Standards
Codification which requires additional disclosures about the
Companys assets and liabilities that are measured at fair
value and establishes a fair value hierarchy which requires an
entity to maximize the use of observable inputs and minimize the
use of unobservable inputs when measuring fair value. The
standard describes three levels of inputs that may be used to
measure fair value:
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.
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 entitys 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
Companys 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.
The fair values of securities available for sale are determined
by obtaining quoted prices on nationally recognized securities
exchanges, which is a Level 1 input, or matrix pricing,
which is a mathematical technique widely used in the
24
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.
The Companys available for sale securities at
March 31, 2011 and December 31, 2010 include several
pooled trust preferred instruments. The recent severe downturn
in the overall economy and, in particular, in the financial
services industry has created a situation where significant
observable inputs (Level 2) are not readily available.
As an alternative, the Company combined Level 2 input of
market yield requirements of similar instruments together with
certain Level 3 assumptions addressing the impact of
current market illiquidity to estimate the fair value of these
instruments See Note 3 Securities for
further discussion of pooled trust preferred securities.
Assets and liabilities measured at fair value are summarized
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at March 31, 2011 Using:
|
|
|
|
Quoted Prices in
|
|
|
Significant
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets
|
|
|
Other
|
|
|
Unobservable
|
|
|
|
|
|
|
for Identical
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
|
|
|
|
|
Assets (Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
|
|
(000s)
|
|
|
Measured on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government agencies
|
|
|
|
|
|
$
|
3,011
|
|
|
|
|
|
|
$
|
3,011
|
|
Mortgage-backed securities residential
|
|
|
|
|
|
|
303,976
|
|
|
|
|
|
|
|
303,976
|
|
Obligations of states and political subdivisions
|
|
|
|
|
|
|
112,641
|
|
|
|
|
|
|
|
112,641
|
|
Other debt securities
|
|
|
|
|
|
|
568
|
|
|
$
|
3,016
|
|
|
|
3,584
|
|
Mutual funds and other equity securities
|
|
|
|
|
|
|
10,509
|
|
|
|
|
|
|
|
10,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
|
|
|
|
$
|
430,705
|
|
|
$
|
3,016
|
|
|
$
|
433,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Measured on a non-recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans(1)
|
|
|
|
|
|
|
|
|
|
$
|
19,833
|
|
|
$
|
19,833
|
|
Loans held for sale(2)
|
|
|
|
|
|
|
|
|
|
|
5,506
|
|
|
|
5,506
|
|
Other real estate owned(3)
|
|
|
|
|
|
|
|
|
|
|
4,810
|
|
|
|
4,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
|
|
|
|
|
|
|
|
$
|
30,149
|
|
|
$
|
30,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
March 31, 2011 was $20,770 for which a specific
allowance of $937 has been established within the allowance for
loan losses. The fair values were based on internally customized
discounting criteria of the collateral and thus classified as
Level 3 fair values. |
|
(2) |
|
Loans held for sale are reported at lower of cost or fair value.
Fair value is based on average bid indicators received from
third parties expected to participate in the loans sales. |
|
(3) |
|
Other real estate owned is reported at fair value less
anticipated costs to sell. Fair value is based on third party or
internally developed appraisals which, considering the
assumptions in the valuation, are considered Level 2 or
Level 3 inputs. The fair value of other real estate owned
at March 31, 2011 was derived by management from appraisals
which used various assumptions and were discounted as necessary,
resulting in a Level 3 classification. |
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2010 Using:
|
|
|
|
Quoted Prices in
|
|
|
Significant
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets
|
|
|
Other
|
|
|
Unobservable
|
|
|
|
|
|
|
for Identical
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
|
|
|
|
|
Assets (Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
|
|
(000s)
|
|
|
Measured on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government agencies
|
|
|
|
|
|
$
|
3,012
|
|
|
|
|
|
|
$
|
3,012
|
|
Mortgage-backed securities residential
|
|
|
|
|
|
|
309,540
|
|
|
|
|
|
|
|
309,540
|
|
Obligations of states and political subdivisions
|
|
|
|
|
|
|
116,081
|
|
|
|
|
|
|
|
116,081
|
|
Other debt securities
|
|
|
|
|
|
|
686
|
|
|
$
|
3,687
|
|
|
|
4,373
|
|
Mutual funds and other equity securities
|
|
|
|
|
|
|
10,661
|
|
|
|
|
|
|
|
10,661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
|
|
|
|
$
|
439,980
|
|
|
$
|
3,687
|
|
|
$
|
443,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Measured on a non-recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans(1)
|
|
|
|
|
|
|
|
|
|
$
|
18,594
|
|
|
$
|
18,594
|
|
Loans held for sale(2)
|
|
|
|
|
|
|
|
|
|
|
7,811
|
|
|
|
7,811
|
|
Other real estate owned(3)
|
|
|
|
|
|
|
|
|
|
|
11,028
|
|
|
|
11,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
|
|
|
|
$
|
|
|
|
$
|
37,433
|
|
|
$
|
37,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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, 2010 was $19,486 for which a specific
allowance of $892 has been established within the allowance for
loan losses. The fair values were based on internally customized
discounting criteria of the collateral and thus classified as
Level 3 fair values.
|
|
(2)
|
Loans held for sale are reported at lower of cost or fair value.
Fair value is based on average bid indicators received from
third parties expected to participate in the loan sales.
|
|
(3)
|
Other real estate owned is reported at lower of cost or fair
value less anticipated costs to sell. Fair value is based on
third party or internally developed appraisals which,
considering the assumptions in the valuation, are considered
Level 2 or Level 3 inputs. The fair value of other
real estate owned at December 31, 2010 was derived by
management from appraisals which used various assumptions and
were discounted as necessary, resulting in a Level 3
classification.
|
26
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 month periods ended March 31, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
Level 3 Assets Measured on a Recurring Basis
|
|
|
|
For the three months
|
|
|
|
ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(000s)
|
|
|
Balance at beginning of period
|
|
$
|
3,687
|
|
|
$
|
3,938
|
|
Transfers into (out of) Level 3
|
|
|
102
|
|
|
|
|
|
Net unrealized gain (loss) included in other comprehensive income
|
|
|
(612
|
)
|
|
|
1,634
|
|
Principal payments
|
|
|
|
|
|
|
|
|
Recognized impairment charge included in the statement of income
|
|
|
(161
|
)
|
|
|
(1,772
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
3,016
|
|
|
$
|
3,800
|
|
|
|
|
|
|
|
|
|
|
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 March 31,
2011 and December 31, 2010 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.
Carrying amount and estimated fair value of financial
instruments, not previously presented, at March 31, 2011
and December 31, 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
|
|
Carrying
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Estimated
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
|
(In millions)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets for which carrying value
approximates fair value
|
|
$
|
279.6
|
|
|
$
|
279.6
|
|
|
$
|
356.2
|
|
|
$
|
356.2
|
|
Held to maturity securities, and accrued interest
|
|
|
15.3
|
|
|
|
16.3
|
|
|
|
16.3
|
|
|
|
17.3
|
|
FHLB Stock
|
|
|
5.4
|
|
|
|
N/A
|
|
|
|
7.0
|
|
|
|
N/A
|
|
Loans and accrued interest
|
|
|
1,803.4
|
|
|
|
1,830.0
|
|
|
|
1,717.8
|
|
|
|
1,759.8
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits with no stated maturity and
accrued interest
|
|
|
2,070.8
|
|
|
|
2,070.8
|
|
|
|
2,047.4
|
|
|
|
2,047.4
|
|
Time deposits and accrued interest
|
|
|
174.1
|
|
|
|
174.4
|
|
|
|
188.5
|
|
|
|
188.9
|
|
Securities sold under repurchase
agreements and other short-term
borrowing and accrued interest
|
|
|
46.5
|
|
|
|
46.5
|
|
|
|
36.6
|
|
|
|
36.6
|
|
Other borrowings and accrued interest
|
|
|
51.8
|
|
|
|
50.0
|
|
|
|
88.2
|
|
|
|
85.6
|
|
27
The estimated fair value of the indicated items was determined
as follows:
Financial assets for which carrying value approximates fair
value 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. Cash and due from banks as well as Federal
funds sold are reported in this line item.
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.
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.
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. Recent
Accounting Pronouncements
In July 2010, the FASB issued Accounting Standards Update
2010-20
Disclosures about the Credit Quality of Financing
Receivables and the Allowance for Credit Losses. This
guidance has significantly expanded the disclosures that the
Company must make about the credit quality of financing
receivables and the allowance for credit losses. The objectives
of the enhanced disclosures are to provide financial statement
users with additional information about the nature of credit
risks inherent in the Companys financing receivables, how
credit risk is analyzed and assessed when determining the
allowance for credit losses, and the reasons for the change in
the allowance for credit losses. The disclosures as of the end
of the reporting period are effective for the Companys
interim and annual periods ending on or after December 15,
2010. The disclosures about activity that occurs during a
reporting period are effective for the Companys interim
and annual periods beginning on or after December 15, 2010.
The adoption of this Update by the Company required enhanced
disclosures and did not have a material effect on the
Companys financial condition or results of operations.
In April 2011, the Financial Accounting Standards Board
(FASB) issued Accounting Standards Update
(ASU)
No. 2011-02,
A Creditors Determination of Whether a
Restructuring is a Troubled Debt Restructuring. The
provisions of ASU
No. 2011-02
amend and clarify GAAP related to the accounting for debt
restructurings. Specifically, ASU
No. 2011-02
requires that, when evaluating whether a restructuring
constitutes a troubled debt restructuring, a creditor must
separately conclude that both (i) the restructuring
constitutes a concession and (ii) the debtor is
experiencing financial difficulties. In evaluating whether a
concession has been granted, a creditor must evaluate whether
(i) a debtor has access to funds at a market rate for debt
with similar risk characteristics as the restructured debt in
order to determine if the restructuring would be considered to
be at a below-market rate, indicating that the creditor has
granted a concession, (ii) a temporary or permanent
increase in the contractual interest rate as a result of a
restructuring may be considered a concession because the new
contractual interest rate on the restructured debt is still
below the market interest rate for new debt with similar risk
characteristics, and (iii) a
28
restructuring that results in a delay in payment is either
significant and is a concession or is insignificant and is not a
concession. In evaluating whether a debtor is experiencing
financial difficulties, a creditor may conclude that a debtor is
experiencing financial difficulties, even though the debtor is
not currently in payment default. A creditor should evaluate
whether it is probable that the debtor would be in payment
default on any of its debt in the foreseeable future without a
modification of the debt. The provisions of ASU
No. 2011-02
are effective for the first interim or annual period beginning
on or after June 15, 2011 and should be applied
retroactively to the beginning of the annual period of adoption.
Other Certain 2010 amounts have been
reclassified to conform to the 2011 presentation.
29
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
This section presents discussion and analysis of the
Companys consolidated financial condition at
March 31, 2011 and December 31, 2010, and the
consolidated results of operations for the three month periods
ended March 31, 2011 and March 31, 2010. 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 Companys 2010 Annual Report on
Form 10-K.
Overview
of Managements 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 Companys financial condition and
operating results and, therefore, should be read in conjunction
with this entire Quarterly Report on
Form 10-Q
and the Companys 2010 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, portions of New York City and
Fairfield County and New Haven County, Connecticut. The
Companys assets consist primarily of 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 loans and investments,
and interest expense on deposits and borrowed funds. The
Companys basic strategy is to grow net interest income and
non interest income by the retention of its existing customer
base and the expansion of its core businesses and branch offices
within its current market and surrounding areas. Considering
current economic conditions, the Companys primary market
risk exposures are interest rate risk, the risk of deterioration
of market values of collateral supporting the Companys
loan portfolio, particularly commercial and residential real
estate and potential risks associated with the impact of
regulatory changes that may take place in reaction to the
current crisis 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 Companys loans.
The Company recorded net income for the three month period ended
March 31, 2011 of $4.8 million or $0.27 per diluted
share, a slight decrease of $0.1 million compared to net
income of $4.9 million or $0.27 per diluted share for the
same period in the prior year. The per share amount for the 2010
period has been adjusted to reflect the effects of the
10 percent stock dividend issued in December 2010. Earnings
remained essentially unchanged in the first three months of
2011, compared to the same period in 2010; with little change in
the provision for loan losses which totaled $5.5 million
for the three month period ended March 31, 2011, compared
to $5.6 million for the same period in the prior year. The
provisions in both 2011 and 2010 are reflective of continued
weakness in the overall economy necessitating the Companys
decision to follow a more aggressive strategy for problem asset
resolution. As part of the revised resolution strategy, the
Company continues to reevaluate each problem loan and make a
determination of net realizable value based on managements
estimation of the most likely possible outcome considering the
individual characteristics of each asset against the likelihood
of resolution with the current borrower, expectations for
resolution through the court system, or other available market
opportunities.
Total loans increased $86.9 million during the three months
ended March 31, 2011 compared to the prior year end. This
increase resulted primarily from strong demand for local market
multi-family loans and an increase in commercial real estate
loans partially offset by decreased loan demand in other sectors
of the market; charge-offs and pay downs of existing loans. The
Company recognized $4.1 million of net charge-offs during
the three month period ended March 31, 2011. The Company
has continued to experience a slowdown in payments of certain
loans, such as construction loans, whose repayment is often
dependent on sales of completed properties, as well as
additional increases in delinquent and nonperforming loans in
other sectors of the loan portfolio, all of which have been
adversely impacted by the economic downturn and decline in the
real estate market. The Company, however, continues to provide
lending availability to both new and existing customers.
Nonperforming assets increased to $64.7 million at
March 31, 2011, compared to $64.1 million at
December 31, 2010. Overall asset quality continued to be
adversely affected by the current state of the economy and the
30
real estate market. Although there is growing evidence that the
current economic downturn may have begun to slowly turn around,
higher than normal levels of delinquent and nonperforming loans,
slowdowns in repayments and declines in the loan-to-value ratios
on existing loans continued during the first quarter of 2011.
Total deposits increased $9.2 million during the three
month period ended March 31, 2011, compared to the prior
year end. The Company continues to experience significant growth
in new customers both in existing branches and new branches
added during the last two years. Growth in the first quarter was
partially offset by seasonal decreases in certain municipal
deposit balances. Proceeds from deposit growth were used to fund
loan growth, reduce maturing term borrowings or were retained in
liquid investments, principally interest earning bank deposits.
The Company has continued to repay maturing long-term borrowings
with liquidity provided primarily by core deposit growth.
Additional liquidity from deposit growth was retained in the
Companys short-term liquidity portfolios, available to
fund future loan growth. With interest rates remaining at
historical low levels, this increase in liquidity contributed to
margin compression. This compression has been virtually offset
by reinvestment of available liquidity in new loans, primarily
local market multi-family loans and a $72.2 million
reduction of term borrowings since March 31, 2010, of which
$36.3 million occurred in the first quarter of 2011.
As a result of the aforementioned activity in the Companys
core businesses of loans and deposits and other asset/liability
management activities, net interest income declined slightly by
$0.7 million or 2.5 percent to $27.5 million for
the three month period ended March 31, 2011, compared to
$28.2 million for the same period in the prior year. The
net interest margin of 4.39 percent for the three month
period ended March 31, 2011 was essentially unchanged from
the 4.40 percent for the same period in the prior year. Tax
equivalent basis net interest income declined slightly by $
1.0 million or 3.4 percent to $28.1 million for the
three month period ended March 31, 2011, compared to
$29.1 million for the same period in the prior year. The
effect of the adjustment to a tax equivalent basis was
$0.6 million for the three month period ended
March 31, 2011, compared to $0.9 million for the same
period in the prior year.
The Companys non interest income was $5.2 million for
the three month period ended March 31, 2011. This
represented an increase of $2.4 million or
85.7 percent compared to $2.8 million for the same
period in the prior year. This increase partially resulted from
an increase in investment advisory fees. Fee income from this
source increased primarily as a result of the effects of recent
improvement in both domestic and international equity markets.
Assets under management were approximately $1.6 billion at
March 31, 2011 compared to $1.3 billion at
March 31, 2010. The overall increases in non interest
income also included growth in deposit service charges. Non
interest income also included recognized pre-tax impairment
charges on securities available for sale of $0.2 million
for the three month period ended March 31, 2011 and
$1.8 million for the same period in the prior year. The
impairment charges were related to the Companys
investments in pooled trust preferred securities. Non interest
income for the three month periods ended March 31, 2011 and
2010 also included $0.1 million of net gains and
$0.1 million of net losses, respectively, related to sales
and revaluations of other real estate owned.
Non interest expense was $20.5 million for the three month
period ended March 31, 2011. This represented an increase
of $2.0 million or 10.8 percent, compared to
$18.5 million for the same period in the prior year.
Increases in non interest expense resulted primarily from the
Companys reinstatement of an incentive compensation plan
previously terminated in 2009, increases in costs associated
with problem loan resolution and other real estate owned,
investment in technology and personnel to accommodate growth
and the expansion of services and products available to new and
existing customers.
The Office of the Comptroller of the Currency (OCC),
which is the primary federal regulator of the Bank, has directed
greater scrutiny to banks with higher levels of commercial real
estate loans. During the fourth quarter of 2009, the OCC
required HVB to maintain, by December 31, 2009, a total
risk-based capital ratio of at least 12.0%, a Tier 1
risk-based capital ratio of at least 10.0%, and a Tier 1
leverage ratio of at least 8.0%. These capital levels are in
excess of well capitalized levels generally
applicable to banks under current regulations. The Company and
HVB have continuously exceeded all required regulatory capital
ratios.
31
Critical
Accounting Policies
Application of Critical Accounting Policies
The Companys consolidated financial statements are
prepared in accordance with accounting principles generally
accepted in the United States (GAAP). The
Companys significant accounting policies are more fully
described in Note 2 to the Consolidated Financial
Statements. 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
accounting policies described below are those that most
frequently require management to make estimates and judgments,
and therefore, are critical to understanding the Companys
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
Companys Board of Directors.
Results
of Operations for the Three Month Periods Ended March 31,
2011 and March 31, 2010
Summary
of Results
The Company reported net income of $4.8 million for the
three month period ended March 31, 2011, a slight decrease
of $0.1 million or 2.0 percent compared to
$4.9 million for the same period in the prior year. The
slight decrease in net income for the three month period ended
March 31, 2011, compared to the same period in the prior
year, reflected slightly lower net interest income and higher
noninterest expense, partially offset by higher non interest
income, a lower provision for loan losses and lower income
taxes. Net interest income was slightly lower primarily due to
margin compression from the effects of the retention of excess
liquidity from deposit growth in short term liquidity
portfolios, essentially offset by partial reinvestment of
available liquidity in new loans. The provision for loan losses
totaled $5.5 million for the three month period ended
March 31, 2011, compared to $5.6 million for the same
period in the prior year, reflective of continued weakness in
the overall economy. Non interest income increased primarily as
a result of a $1.6 million decrease in recognized
impairment charges related to the Companys investments in
pooled trust preferred securities and increases in fee income
from investment advisory and deposit services. Increases in non
interest expense resulted primarily from the Companys
reinstatement of an incentive compensation plan previously
terminated in 2009, increase in costs associated with problem
loan resolution and other real estate owned, investment in
technology and personnel to accommodate growth and the
expansion of services and products available to new and existing
customers.
Diluted earnings per share were $0.27 for both the three month
period ended March 31, 2011 and March 31, 2010. The
prior period per share amount has been adjusted to reflect the
10 percent stock dividend distributed in December 2010.
Annualized returns on average stockholders equity and
average assets were 6.6 percent and 0.7 percent for
the three month period ended March 31, 2011, compared to
6.5 percent and 0.7 percent for the same period in the
prior year. Returns on adjusted average stockholders
equity were virtually the same at 6.6 percent and
6.5 percent, respectively for the three month periods ended
March 31, 2011 and 2010. Adjusted average
stockholders equity excludes the effects of net unrealized
gains, net of tax of $0.4 million and $1.8 million, on
securities available for sale for the three month periods ended
March 31, 2011 and 2010, respectively. The annualized
return on adjusted average stockholders equity is, under
SEC regulations, a non-GAAP financial measure. Management
believes that this non-GAAP financial measures more closely
reflects actual performance, as it is more consistent with the
Companys 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.
32
Average
Balances and Interest Rates
The following tables set forth the average balances of interest
earning assets and interest bearing liabilities for the three
month period ended March 31, 2011 and March 31, 2010,
as well as total interest and corresponding yields and rates
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
Average
|
|
|
|
|
|
Yield/
|
|
|
Average
|
|
|
|
|
|
Yield/
|
|
|
|
Balance
|
|
|
Interest(3)
|
|
|
Rate
|
|
|
Balance
|
|
|
Interest(3)
|
|
|
Rate
|
|
|
|
(Unaudited)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits in Banks
|
|
$
|
276,957
|
|
|
$
|
164
|
|
|
|
0.24
|
%
|
|
$
|
181,154
|
|
|
$
|
93
|
|
|
|
0.21
|
%
|
Federal funds sold
|
|
|
44,662
|
|
|
|
26
|
|
|
|
0.23
|
|
|
|
88,102
|
|
|
|
42
|
|
|
|
0.19
|
|
Securities:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
339,975
|
|
|
|
2,950
|
|
|
|
3.47
|
|
|
|
362,575
|
|
|
|
3,687
|
|
|
|
4.07
|
|
Exempt from federal income taxes
|
|
|
115,360
|
|
|
|
1,786
|
|
|
|
6.19
|
|
|
|
169,939
|
|
|
|
2,631
|
|
|
|
6.19
|
|
Loans, net(2)
|
|
|
1,727,420
|
|
|
|
26,332
|
|
|
|
6.10
|
|
|
|
1,758,302
|
|
|
|
27,564
|
|
|
|
6.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest earning assets
|
|
|
2,504,374
|
|
|
|
31,258
|
|
|
|
4.99
|
|
|
|
2,560,072
|
|
|
|
34,017
|
|
|
|
5.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non interest earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash & due from banks
|
|
|
41,022
|
|
|
|
|
|
|
|
|
|
|
|
42,009
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
153,212
|
|
|
|
|
|
|
|
|
|
|
|
141,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non interest earning assets
|
|
|
194,234
|
|
|
|
|
|
|
|
|
|
|
|
183,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,698,608
|
|
|
|
|
|
|
|
|
|
|
$
|
2,743,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market
|
|
$
|
870,155
|
|
|
$
|
1,539
|
|
|
|
0.71
|
%
|
|
$
|
889,697
|
|
|
$
|
2,180
|
|
|
|
0.98
|
%
|
Savings
|
|
|
114,769
|
|
|
|
127
|
|
|
|
0.44
|
|
|
|
112,779
|
|
|
|
128
|
|
|
|
0.45
|
|
Time
|
|
|
184,473
|
|
|
|
435
|
|
|
|
0.94
|
|
|
|
207,127
|
|
|
|
674
|
|
|
|
1.30
|
|
Checking with interest
|
|
|
280,805
|
|
|
|
173
|
|
|
|
0.25
|
|
|
|
328,819
|
|
|
|
353
|
|
|
|
0.43
|
|
Securities sold under repo & other s/t borrowings
|
|
|
39,708
|
|
|
|
47
|
|
|
|
0.47
|
|
|
|
66,071
|
|
|
|
77
|
|
|
|
0.47
|
|
Other borrowings
|
|
|
75,063
|
|
|
|
844
|
|
|
|
4.50
|
|
|
|
123,777
|
|
|
|
1,498
|
|
|
|
4.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest bearing liabilities
|
|
|
1,564,973
|
|
|
|
3,165
|
|
|
|
0.81
|
|
|
|
1,728,270
|
|
|
|
4,910
|
|
|
|
1.14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non interest bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
|
819,945
|
|
|
|
|
|
|
|
|
|
|
|
693,881
|
|
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
22,713
|
|
|
|
|
|
|
|
|
|
|
|
25,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non interest bearing liabilities
|
|
|
842,658
|
|
|
|
|
|
|
|
|
|
|
|
719,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity(1)
|
|
|
290,977
|
|
|
|
|
|
|
|
|
|
|
|
296,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,698,608
|
|
|
|
|
|
|
|
|
|
|
$
|
2,743,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest earnings
|
|
|
|
|
|
$
|
28,093
|
|
|
|
|
|
|
|
|
|
|
$
|
29,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on interest earning assets
|
|
|
|
|
|
|
|
|
|
|
4.49
|
%
|
|
|
|
|
|
|
|
|
|
|
4.55
|
%
|
|
|
(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
Companys 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 table below.
|
|
(2)
|
Includes loans classified as
non-accrual.
|
33
|
|
(3) |
The data contained in the tables has been adjusted to a tax
equivalent basis, based on the Companys 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 table below.
|
Average
Balances and Interest Rates Non-GAAP Reconciliation to
GAAP
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(000s)
|
|
|
Total interest earning assets:
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
2,504,935
|
|
|
$
|
2,562,904
|
|
Unrealized gain on securities available for sale(1)
|
|
|
561
|
|
|
|
2,832
|
|
|
|
|
|
|
|
|
|
|
Adjusted total interest earning assets
|
|
$
|
2,504,374
|
|
|
$
|
2,560,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest earnings:
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
27,468
|
|
|
$
|
28,186
|
|
Adjustment to tax equivalency basis(2)
|
|
|
625
|
|
|
|
921
|
|
|
|
|
|
|
|
|
|
|
Adjusted net interest earnings
|
|
$
|
28,093
|
|
|
$
|
29,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net yield on interest earning assets:
|
|
|
|
|
|
|
|
|
As reported
|
|
|
4.39
|
%
|
|
|
4.40
|
%
|
Effects of(1) and(2) above
|
|
|
0.10
|
%
|
|
|
0.15
|
%
|
|
|
|
|
|
|
|
|
|
Adjusted net yield on interest earning assets
|
|
|
4.49
|
%
|
|
|
4.55
|
%
|
|
|
|
|
|
|
|
|
|
Average stockholders equity:
|
|
|
|
|
|
|
|
|
As reported
|
|
$
|
291,426
|
|
|
$
|
297,941
|
|
Effects of (1) and (2) above
|
|
|
449
|
|
|
|
1,797
|
|
|
|
|
|
|
|
|
|
|
Adjusted average stockholders equity
|
|
$
|
290,927
|
|
|
$
|
296,144
|
|
|
|
|
|
|
|
|
|
|
34
Interest
Differential
The following table sets forth the dollar amount of changes in
interest income, interest expense and net interest income
between the three month periods ended March 31, 2011 and
March 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(000s)
|
|
|
|
Three Month Period Increase
|
|
|
|
(Decrease) Due to Change in
|
|
|
|
Volume
|
|
|
Rate
|
|
|
Total(1)
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits in Banks
|
|
$
|
49
|
|
|
$
|
22
|
|
|
$
|
71
|
|
Federal funds sold
|
|
|
(21
|
)
|
|
|
5
|
|
|
|
(16
|
)
|
Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable
|
|
|
(230
|
)
|
|
|
(507
|
)
|
|
|
(737
|
)
|
Exempt from federal income taxes
|
|
|
(845
|
)
|
|
|
|
|
|
|
(845
|
)
|
Loans, net
|
|
|
(484
|
)
|
|
|
(748
|
)
|
|
|
(1,232
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest income
|
|
|
(1,531
|
)
|
|
|
(1,228
|
)
|
|
|
(2,759
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market
|
|
|
(48
|
)
|
|
|
(593
|
)
|
|
|
(641
|
)
|
Savings
|
|
|
2
|
|
|
|
(3
|
)
|
|
|
(1
|
)
|
Time
|
|
|
(74
|
)
|
|
|
(165
|
)
|
|
|
(239
|
)
|
Checking with interest
|
|
|
(52
|
)
|
|
|
(128
|
)
|
|
|
(180
|
)
|
Securities sold under repo & other s/t borrowings
|
|
|
(31
|
)
|
|
|
1
|
|
|
|
(30
|
)
|
Other borrowings
|
|
|
(590
|
)
|
|
|
(64
|
)
|
|
|
(654
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
(793
|
)
|
|
|
(952
|
)
|
|
|
(1,745
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in interest differential
|
|
$
|
(738
|
)
|
|
$
|
(276
|
)
|
|
$
|
(1,014
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Changes attributable to both rate and volume are allocated
between the rate and volume variances based upon their absolute
relative weights to the total change.
|
|
(2)
|
Equivalent yields on securities exempt from federal income taxes
are based on a federal statutory rate of 35 percent in 2011 and
2010.
|
Net
Interest Income
Net interest income, the difference between interest income and
interest expense, is the most significant component of the
Companys consolidated earnings. Net interest income, on a
tax equivalent basis, declined slightly by $1.0 million or
3.4 percent to $28.1 million for the three month
period ended March 31, 2011, compared to $29.1 million
for the same period in the prior year. Net interest income was
slightly lower due to a decrease in the tax equivalent basis net
interest margin to 4.49 percent for the three month period
ended March 31, 2011, compared to 4.55 percent for the
same period in the prior year, partially offset by a
$107.6 million or 12.9 percent increase in the excess
of adjusted average interest earning assets over interest
bearing liabilities to $939.4 million for the three month
period ended March 31, 2011 from $831.8 million for
the same period in the prior year.
The Companys overall asset quality has been adversely
affected by the current state of the economy and has continued
to experience higher than normal levels of delinquent and
nonperforming loans and a continuation of the slowdowns in
repayments and declines in the
loan-to-value
ratios on existing loans. Changes in the levels of nonperforming
loans have a direct impact on net interest income.
The Company has continued to repay maturing long-term borrowings
with liquidity provided primarily by core deposit growth.
Additional liquidity from deposit growth was retained in the
Companys short-term liquidity
35
portfolios, available to fund future loan growth. With interest
rates remaining at historical low levels, this increase in
liquidity contributed to margin compression. This compression
has been virtually offset by reinvestment of available liquidity
in new loans, primarily local market multi-family loans and a
$72.2 million reduction of term borrowings since
March 31, 2010, of which $36.3 million occurred in the
first quarter of 2011.
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 Companys 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 in Average
Balances and Interest Rates section herein.
The Company has made efforts throughout the extended period of
severe economic uncertainty and fluctuating interest rates to
minimize the impact on its net interest income by appropriately
repositioning its securities portfolio and funding sources while
maintaining prudence and awareness of the potential consequences
that the current economic crisis could have on its asset quality
and interest rate risk profiles. The Company continues to
increase the number of loans originated with interest rate
floors as well as with fixed rates of interest and exercise
caution in reinvestment of excess liquidity provided from
continued strong deposit growth. These actions are being
conducted partially to maintain flexibility in reaction to the
continuation of historically low interest rates. The
Companys ability to make changes in its asset mix allows
management to capitalize on more desirable yields, as available,
on various interest earning assets. The result of these efforts
has enabled the Company, given the difficulties being
encountered in the current economic crisis, to maximize the
effective repositioning of its portfolios from both asset and
interest rate risk perspectives.
Interest income is determined by the volume of and related rates
earned on interest earning assets. Volume decreases in loans,
investments and federal funds sold and a lower average yield on
interest earning assets, partially offset by a volume increase
in interest earning deposits resulted in lower interest income
for the three months ended March 31, 2011, compared to the
same period in the prior year. Adjusted average interest earning
assets for the three month period ended March 31, 2011
decreased $55.7 million or 2.2 percent to
$2,504.4 million from $2,560.1 million for the same
period in the prior year.
Loans are the largest component of interest earning assets.
Average net loans decreased $30.9 million or
1.8 percent to $1,727.4 million for the three month
period ended March 31, 2011 from $1,758.3 million for
the same period in the prior year. The decrease in average net
loans reflects the general softness in the availability of loans
experienced over the past three years and the Companys
increased emphasis on problem loan resolution. The Company,
however, continues to emphasize making new loans, expansion of
loan production capabilities and more effective market
penetration as evidenced by recent growth in the loan portfolio
resulting primarily from strong demand for local market
multi-family loans. The average yield on loans was
6.10 percent for the three month period ended
March 31, 2011, compared to 6.27 percent for the same
period in the prior year. The decline in the average yield
resulted primarily from new loans being originated in a lower
interest rate environment. As a result, interest income on loans
was lower for the three month period ended March 31, 2011,
compared to the same period in the prior year, due to lower
volume and lower average interest rates.
Average total securities, including FHLB stock and excluding net
unrealized gains and losses, decreased $77.2 million or
14.5 percent to $455.3 million for the three month
period ended March 31, 2011 from $532.5 million for
the same period in the prior year. The decrease in average total
securities resulted primarily from a planned reduction in the
portfolio conducted by the Company as part of its ongoing
asset/liability management efforts. The decrease in average
total securities for the three month period ended March 31,
2011, compared to the same period in the prior year reflects
volume decreases in U.S. Treasury and Agency securities,
mortgage-backed securities including collateralized mortgage
obligations, obligations of state and political subdivisions and
FHLB stock, partially offset by a volume increase in other
securities. The average tax equivalent basis yield on securities
was 4.16 percent for the three month period ended
March 31, 2011, compared to 4.75 percent for the same
period in the prior year. As a result, tax equivalent basis
interest income on securities decreased for the three month
period ended March 31, 2011, compared to the same period in
the prior year, due to
36
lower volume and lower interest rates. Increases and decreases
in average FHLB stock results from purchases or redemptions of
stock in order to maintain required levels to support FHLB
borrowings.
Interest expense is a function of the volume of, and rates paid
for, interest bearing liabilities, comprised of deposits and
borrowings. Interest expense decreased $1.7 million or
34.7 percent to $3.2 million for the three month
period ended March 31, 2011 from $4.9 million for the
same period in the prior year. Average interest bearing
liabilities decreased $163.3 million or 9.4 percent to
$1,565.0 million for the three month period ended
March 31, 2011 from $1,728.3 million for the same
period in the prior year. The decrease in average interest
bearing liabilities for the three month period ended
March 31, 2011, compared to the same period in the prior
year, was due to volume decreases in interest bearing demand
deposits, time deposits, securities sold under repurchase
agreements and other short-term borrowings and other borrowings.
The decreases in interest bearing deposits were more than offset
by increases in noninterest bearing demand deposits. The
decreases in average short-term and other borrowings for the
three month period ended March 31, 2011, compared to the
same period in the prior year, resulted from managements
decision to utilize available cash flow from deposit growth and
maturing investment securities to reduce borrowings as part of
the Companys ongoing asset/liability management efforts.
The average interest rate paid on interest bearing liabilities
was 0.81 percent for the three month period ended
March 31, 2011, compared to 1.14 percent for the same
period in the prior year. As a result of these factors, interest
expense on average interest bearing liabilities was lower for
the three month period ended March 31, 2011, compared to
the same period in the prior year due to lower interest rates
and lower volume.
Average non interest bearing demand deposits increased
$126.0 million or 18.2 percent to $819.9 million
for the three month period ended March 31, 2011 from
$693.9 million for the same period in the prior year. Non
interest bearing demand deposits are an important component of
the Companys ongoing asset liability management, and also
have a direct impact on the determination of net interest income.
The interest rate spread on a tax equivalent basis for the three
month periods ended March 31, 2011 and 2010 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Month
|
|
|
|
Period Ended
|
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
Average interest rate on:
|
|
|
|
|
|
|
|
|
Total average interest earning assets
|
|
|
4.99
|
%
|
|
|
5.32
|
%
|
Total average interest bearing liabilities
|
|
|
0.81
|
%
|
|
|
1.14
|
%
|
Total interest rate spread
|
|
|
4.18
|
%
|
|
|
4.18
|
%
|
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. The interest rate spread was
unchanged for the three month period ended March 31, 2011,
compared to the prior year period. 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 Company recorded a provision for loan losses of
$5.5 million for the three month period ended
March 31, 2011, compared to $5.6 million for the same
period in the prior year. The provision for loan losses is
charged to income to bring the Companys allowance for loan
losses to a level deemed appropriate by management. See
Allowance for loan losses for further
discussion.
Non
Interest Income
The Companys non interest income was $5.2 million for
the three month period ended March 31, 2011. This
represented an increase of $2.4 million or
85.7 percent compared to $2.8 million for the same
period in the prior year. This increase partially resulted from
an increase in investment advisory fees. Fee income from this
source increased primarily as a result of the effects of recent
improvement in both domestic and international equity markets.
Assets under management were approximately $1.6 billion at
March 31, 2011 compared to $1.3 billion at
37
March 31, 2010. The overall increases in non interest
income also included growth in deposit service charges. Non
interest income also included recognized pre-tax impairment
charges on securities available for sale of $0.2 million
for the three month period ended March 31, 2011, compared
to $1.8 million for the same period in the prior year. The
impairment charges were related to the Companys
investments in pooled trust preferred securities. The Company
has continued to hold its investments in pooled trust preferred
securities as it does not believe that the current market value
estimates for these investments are indicative of their
underlying value. The pooled trust preferred securities are
primarily backed by various U.S. financial institutions
many of which are experiencing severe financial difficulties as
a result of the current economic downturn. Continuation of these
conditions may result in additional impairment charges on these
securities in the future. Non interest income for the three
month periods ended March 31, 2011 and 2010 also included
$0.1 million of net gains and $0.1 million of net
losses, respectively, related to sales and revaluations of other
real estate owned.
Non
Interest Expense
Non interest expense was $20.5 million for the three month
period ended March 31, 2011 which was an increase of
$2.0 million or 10.8 percent from $18.5 million
for the three month period ended March 31, 2010. Increases
in non interest expense resulted primarily from the
Companys reinstatement of an incentive compensation plan
previously terminated in 2009, increase in costs associated with
problem loan resolution and other real estate owned, investment
in technology and personnel to accommodate growth and the
expansion of services and products available to new and existing
customers.
Salaries and employee benefits, the largest component of non
interest expense, increased $0.9 million or
9.1 percent to $10.8 million as compared to
$9.9 million for the same period in the prior year. The
increase primarily resulted from merit increases, the
reinstatement of an incentive compensation plan and additional
personnel added to accommodate growth.
Occupancy expense totaled $2.3 million for the three month
period ended March 31, 2011 which was a slight increase of
$0.1 million or 4.5 percent as compared to
$2.2 million for the same period in the prior year. The
slight increase reflected the Companys continued
expansion, including the opening of new branch facilities, as
well as rising costs on leased facilities, real estate taxes,
utility costs, maintenance costs and other costs to operate the
Companys facilities.
Professional services expense totaled $1.5 million for the
three month period ended March 31, 2011 which was an
increase of $0.2 million or 15.4 percent as compared
to $1.3 million for the same period in the prior year. The
increase was primarily due to costs related to the engagement of
consultants to assist with new systems implementations.
Equipment expense totaled $1.0 million for the three month
period ended March 31, 2011 which was unchanged from the
same period in the prior year.
Business development expense was $0.5 million for the three
month period ended March 31, 2011 which was a decrease of
$0.1 million or 16.7 percent as compared to
$0.6 million for the same period in the prior year. The
decrease resulted for reduced participation in business
development events and an anticipated reduction in the cost of
the Companys annual and quarterly reports.
The FDIC assessment for the three period ended March 31,
2011 totaled $1.1 million which was unchanged as compared
to the same period in the prior year.
Significant changes, more than 5 percent, in other
components of non interest expense for the three month period
ended March 31, 2011 compared to March 31, 2010, were
due to the following:
|
|
|
|
|
Decrease of $143,000 (145.9%), in other insurance expense,
resulting from reductions in the estimates of the net cost of
certain life insurance policies due partially offset by
increases in bankers professional and automobile insurance
costs,
|
|
|
|
Decrease of $36,000 (14.9%) respectively, in stationery and
printing costs, due to continued cost saving measures and
decreased consumption,
|
38
|
|
|
|
|
Decrease of $40,000 (22.1%) in communications expense due to
continued cost saving measures,
|
|
|
|
Decrease of $199,000 (33.0%) in other loan expenses primarily
due to fluctuations in costs associated with the disposition and
management of properties held as other real estate owned and
asset recovery costs,
|
|
|
|
Increase of $316,000 (37.9%) in outside services, due to
outsourcing of several data processing and electronic services
functions,
|
|
|
|
Increase of $76,000 (135.7%) in dues and meetings due to
increased participation in such events.
|
Income
Taxes
Income taxes of $2.0 million and $2.1 million,
respectively, were recorded in the three month periods ended
March 31, 2011 and March 31, 2010, respectively. The
Companys overall effective tax rate was of
28.9 percent for the three month period ended
March 31, 2011 compared to 30.1 percent for the same
period in the prior year. The 2011 effective rate primarily due
to the fact that tax-exempt income represented a higher
percentage of pretax income in 2011 compared to 2010. The
Company is subject to a Federal statutory rate of
35 percent, a New York State tax rate of 7.1 percent
plus a 17 percent surcharge, a Connecticut State tax rate
of 7.5 percent and a New York City tax rate of
9 percent.
Assets
The Company had total assets of $2,655.3 million at
March 31, 2011, a slight decrease of $13.7 million or
0.5 percent from $2,669.0 million at December 31,
2010. The decrease resulted primarily from the repayment of
$36.3 million of maturing term borrowings which was
partially offset by deposit growth.
Cash and
Due from Banks
Cash and due from banks was $240.1 million at
March 31, 2011, a decrease of $44.1 million or
15.5 percent from $284.2 million at December 31,
2010. Included in cash and due from banks is interest earning
deposits of $198.2 million at March 31, 2011 and
$258.3 million at December 31, 2010.
Federal
Funds Sold
Federal funds sold totaled $39.5 million at March 31,
2011, a decrease of $32.6 million or 45.2 percent from
$72.1 million at December 31, 2010. The decrease was a
result of deposit growth and investment paydowns being deployed
into loans or utilized for the repayment of term borrowings.
Securities
and FHLB Stock
Securities are selected to provide safety of principal,
liquidity, pledging capabilities (to collateralize certain
deposits and borrowings), income and to leverage capital. The
Companys 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.
The securities portfolio, which consists of various debt and
equity securities, totaled $449.0 million at March 31,
2011, a decrease of $11.0 million or 2.4 percent from
$460.0 million at December 31, 2010. FHLB stock
totaled $5.4 million at March 31, 2011 and
$7.0 million at December 31, 2010.
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
$433.7 million at March 31, 2011 which was a decrease
of $10.0 million or 2.3 percent from
$443.7 million at December 31, 2010. The held to
maturity portfolio
39
totaled $15.3 million at March 31, 2011, which was a
decrease of $1.0 million or 6.1 percent from
$16.3 million at December 31, 2010.
U.S. Treasury and government agency obligations classified
as available for sale totaled $3.0 million at
March 31, 2011, which was unchanged from $3.0 million
at December 31, 2010. There were no U.S. Treasury or
government agency obligations classified as held to maturity at
March 31, 2011 or at December 31, 2010.
Mortgage-backed securities, including collateralized mortgage
obligations (CMOs), classified as available
for sale totaled $304.0 million at March 31, 2011, a
decrease of $5.5 million or 1.8 percent from
$309.5 million at December 31, 2010. The decrease was
due to maturities and principal paydowns of $47.9 million
and other changes of $3.2 million which were partially
offset by purchases of $45.6 million. Mortgage-backed
securities, including CMOs, classified as held to maturity
totaled $10.1 million at March 31, 2011, a decrease of
$1.0 million or 9.0 percent from $11.1 million at
December 31, 2010. The decrease was due to maturities and
principal paydowns of $1.0 million.
Obligations of state and political subdivisions classified as
available for sale totaled $112.6 million at March 31,
2011, a decrease of $3.5 million or 3.0 percent from
$116.1 million at December 31, 2010. The decrease was
a result of maturities and calls of $4.5 million which was
partially offset by purchases of $0.8 million and other
increases of $0.2 million. Obligations of state and
political subdivisions classified as held to maturity totaled
$5.1 million at both March 31, 2011 and
December 31, 2010. The combined available for sale and held
to maturity obligations of state and political subdivisions at
March 31, 2011 were comprised of approximately
83 percent of New York State political subdivisions and
17 percent of a variety of other states and their
subdivisions all with diversified maturity dates. The Company
considers such securities to have favorable tax equivalent
yields.
Other debt securities classified as available for sale decreased
$0.8 million or 18.2 percent, to $3.6 million at
March 31, 2010 from $4.4 million at December 31,
2010. The decrease was due to other changes of $0.7 million
and maturities and calls of $0.1 million. Included in other
changes were $0.2 million of OTTI losses related to the
Companys investments in pooled trust preferred securities.
These pooled trust preferred securities, which had an aggregate
cost basis of $11.6 million as of both March 31, 2011
and December 31, 2010, have suffered severe declines in
estimated fair value primarily as a result of both illiquidity
in the marketplace and declines in the credit ratings of a
number of issuing banks underlying these securities. Management
cannot predict what effect that continuation of such conditions
could have on potential future value or whether there will be
additional impairment charges related to these securities. There
were no other debt securities classified as held to maturity at
March 31, 2011 or at December 31, 2010.
Mutual funds and other equity securities classified as available
for sale totaled $10.5 million at March 31, 2011, a
decrease of $0.2 million or 1.9 percent from
$10.7 million at December 31, 2010. The decrease was
due to other changes of $0.2 million. There were no mutual
funds of other equity securities classified as held to maturity
at March 31, 2011 or at December 31, 2010.
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 $5.4 million at March 31, 2011 and
$7.0 million at December 31, 2010.
Except for securities of the U.S. Treasury and government
agencies, there were no obligations of any single issuer which
exceeded ten percent of stockholders equity at
March 31, 2011 or December 31, 2010.
Loans
Net loans totaled $1,774.7 million at March 31, 2011,
an increase of $85.5 million or 5.1 percent from
$1,689.2 million at December 31, 2010. The increase
resulted principally from a $81.0 million increase in
residential loans and a $25.7 million increase in
commercial real estate loans which was partially offset by a
$10.6 million decrease in commercial and industrial loans,
a $5.8 million decrease in construction loans and
$3.5 million decrease in lease financing and other loans.
The significant increase in residential loans was primarily the
result of strong demand for local market multi-family loans
which increased by $96.3 million during the three
40
month period ended March 31, 2011. The Company expects to
increase its focus on multi-family loans originated in the New
York City area.
The loan portfolio is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(000s)
|
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
821,959
|
|
|
$
|
796,253
|
|
Construction
|
|
|
168,567
|
|
|
|
174,369
|
|
Residential
|
|
|
548,346
|
|
|
|
467,326
|
|
Commercial and industrial
|
|
|
234,742
|
|
|
|
245,263
|
|
Lease financing and other
|
|
|
45,539
|
|
|
|
49,040
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,819,153
|
|
|
|
1,732,251
|
|
Deferred loan fees, net
|
|
|
(4,187
|
)
|
|
|
(4,115
|
)
|
Allowance for loan losses
|
|
|
(40,287
|
)
|
|
|
(38,949
|
)
|
|
|
|
|
|
|
|
|
|
Loans, net
|
|
$
|
1,774,679
|
|
|
$
|
1,689,187
|
|
|
|
|
|
|
|
|
|
|
41
The following table illustrates the trend in nonperforming
assets, delinquency and net charge-offs from March 2010 to March
2011 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
September 30,
|
|
|
June 30,
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
Loans Past Due 90 Days or More and Still Accruing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
$
|
292
|
|
|
|
|
|
|
|
|
|
|
$
|
7,061
|
|
Construction
|
|
|
|
|
|
|
1,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
|
|
|
|
|
|
|
$
|
197
|
|
|
$
|
342
|
|
|
|
1,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Real Estate
|
|
|
|
|
|
|
1,615
|
|
|
|
197
|
|
|
|
342
|
|
|
|
8,109
|
|
Commercial & Industrial
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
65
|
|
|
|
394
|
|
Lease Financing and Individuals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Loans Past Due 90 Days or More and Still Accruing
|
|
|
|
|
|
|
1,625
|
|
|
|
197
|
|
|
|
448
|
|
|
|
8,504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Accrual Loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
19,184
|
|
|
|
15,295
|
|
|
|
14,672
|
|
|
|
27,312
|
|
|
|
30,292
|
|
Construction
|
|
|
15,305
|
|
|
|
15,689
|
|
|
|
14,405
|
|
|
|
19,566
|
|
|
|
17,466
|
|
Residential
|
|
|
13,745
|
|
|
|
7,744
|
|
|
|
10,038
|
|
|
|
19,967
|
|
|
|
17,756
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Real Estate
|
|
|
48,234
|
|
|
|
38,728
|
|
|
|
39,115
|
|
|
|
66,845
|
|
|
|
65,514
|
|
Commercial & Industrial
|
|
|
5,546
|
|
|
|
4,563
|
|
|
|
2,410
|
|
|
|
2,583
|
|
|
|
3,988
|
|
Lease Financing and Individuals
|
|
|
653
|
|
|
|
393
|
|
|
|
393
|
|
|
|
134
|
|
|
|
184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-Accrual Loans
|
|
|
54,433
|
|
|
|
43,684
|
|
|
|
41,918
|
|
|
|
69,562
|
|
|
|
69,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Real Estate Owned
|
|
|
4,810
|
|
|
|
11,028
|
|
|
|
9,393
|
|
|
|
5,578
|
|
|
|
6,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming Assets excluding loans held for sale
|
|
|
59,243
|
|
|
|
56,337
|
|
|
|
51,508
|
|
|
|
75,588
|
|
|
|
85,127
|
|
Nonperforming loans held for sale
|
|
|
5,506
|
|
|
|
7,811
|
|
|
|
21,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Nonperforming Assets including loans held for sale
|
|
$
|
64,749
|
|
|
$
|
64,148
|
|
|
$
|
73,372
|
|
|
$
|
75,588
|
|
|
$
|
85,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs during quarter
|
|
$
|
4,113
|
|
|
$
|
46,223
|
|
|
$
|
16,813
|
|
|
$
|
20,784
|
|
|
$
|
4,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming assets to total assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excluding loans held for sale
|
|
|
2.23
|
%
|
|
|
2.11
|
%
|
|
|
1.82
|
%
|
|
|
2.62
|
%
|
|
|
3.04
|
%
|
Including loans held for sale
|
|
|
2.44
|
%
|
|
|
2.40
|
%
|
|
|
2.59
|
%
|
|
|
2.62
|
%
|
|
|
3.04
|
%
|
Non-accrual loans increased $10.7 million to
$54.4 million at March 31, 2011 from
$43.7 million at December 31, 2010. This increase
included the transfer of $2.3 million of nonaccrual
commercial real estate loans from the loans held for sale
category. There was no interest income on non-accrual loans
included in net income for the three month period ended
March 31, 2011 and the year ended December 31, 2010.
Gross interest income that would have been recorded if these
borrowers had been current in accordance with their original
loan terms was $0.8 million and $4.3 million for the
three month period ended March 31, 2011 and the year ended
December 31, 2010, 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, incur higher collection costs and
other costs associated with the management and disposition of
foreclosed properties.
42
The overall increase in nonperforming assets has primarily
resulted from the current severe economic slowdown, which has
had negative effects on real estate values, sales and available
financing, particularly in the commercial and residential real
estate sectors. Continuation of this condition could result in
additional increases in nonperforming assets and charge-offs in
the future.
During the three month period ended March 31, 2011:
|
|
|
|
|
Non-accrual commercial real estate loans increased
$3.9 million resulting from the transfer of eleven loans
totaling $6.5 million, which was partially offset by full
charge-off of one loan totaling $0.1 million, payoffs of
two loans totaling $2.3 million and principal payments of
$0.2 million.
|
|
|
|
Non-accrual construction loans decreased $0.4 million,
resulting from the payoff of two loans totaling
$1.6 million, full or partial charge-offs taken on seven
loans totaling $0.7 million which was partially offset by
the transfer of one loan totaling $1.9 million.
|
|
|
|
Non-accrual residential loans increased $6.0 million
resulting from the transfer of twelve loans totaling
$8.1 million which was partially offset by full or partial
charge-offs taken on five loans totaling $2.1 million.
|
|
|
|
Non-accrual commercial and industrial loans increased
$0.9 million resulting from the transfer of ten loans
totaling $3.3 million which was partially offset by full or
partial charge offs of ten loans totaling $2.2 million, the
payoff of one loan totaling $0.1 million and principal
payments of $0.1 million.
|
|
|
|
Non-accrual loans to individuals increased $0.2 million
resulting from the transfer of one loan totaling
$0.2 million.
|
|
|
|
Other real estate owned decreased $6.2 million resulting
from the sale of three properties totaling $6.0 million and
valuation adjustments of $0.2 million taken on two
properties.
|
At March 31, 2011, there were no loans past due
90 days or more and still accruing and three loans totaling
$1.6 million at December 31, 2010. In addition, the
Company had $12.7 million and $21.0 million of loans
that were 31-89 days delinquent and still accruing at
March 31, 2011 and December 31, 2010, respectively.
Loans considered by the Company to be impaired totaled
$60.3 million and $49.6 million at March 31, 2011
and December 31, 2010, respectively, for which specific
reserves of $0.9 million and $0.8 million had been
established.
There were fourteen loans totaling $21.3 million at
March 31, 2011 and eight loans totaling $17.2 million
at December 31, 2010 that were considered troubled debt
restructurings. One loan totaling $5.9 million at both
March 31, 2011 and December 31, 2010 was performing in
accordance with its restructured terms. The remaining loans
which totaled $15.4 million and $11.3 million at
March 31, 2011 and December 31, 2010, respectively,
are on non-accrual status. At March 31, 2011, the Company
had no commitments to lend additional funds to non-accrual or
restructured loans.
The Company performs extensive ongoing asset quality monitoring
by both internal and independent loan review functions. In
addition, the Company conducts timely remediation and collection
activities through a network of internal and external resources
which include an internal asset recovery department, real estate
and other loan workout attorneys and external collection
agencies. In addition, during the second quarter of 2010, the
Company decided to implement a more aggressive workout strategy
for the resolution of problem assets in light of a sluggish
economic recovery, continued weakness in local real estate
activity and market values and growing difficulty in resolving
problem loans in a timely fashion through traditional
foreclosure proceedings due to increased bankruptcy filings and
overcrowded court systems. See Allowance for Loan
Losses below for further discussion of this strategy.
Management believes that these efforts are appropriate for
accomplishing either successful remediation or maximizing
collections related to nonperforming assets.
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
Companys methodology for assessing the
43
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.
See Note 2 to the Companys condensed consolidated
financial statements presented in this Form 10-Q for a detailed
description of the methodology employed by the Company in
determining the specific and formula components of the allowance
for loan losses.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(000s)
|
|
|
|
|
|
|
Change
|
|
|
|
|
|
|
March 31,
|
|
|
During
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2011
|
|
|
2010
|
|
|
Components
|
|
|
|
|
|
|
|
|
|
|
|
|
Specific:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
$
|
850
|
|
|
|
|
|
|
$
|
850
|
|
Residential
|
|
|
19
|
|
|
$
|
2
|
|
|
|
17
|
|
Commercial and Industrial
|
|
|
68
|
|
|
|
43
|
|
|
|
25
|
|
Lease Financing and other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Specific component
|
|
|
937
|
|
|
|
45
|
|
|
|
892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Formula:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
16,673
|
|
|
$
|
(63
|
)
|
|
$
|
16,736
|
|
Construction
|
|
|
6,280
|
|
|
|
(10
|
)
|
|
|
6,290
|
|
Residential
|
|
|
10,940
|
|
|
|
1,106
|
|
|
|
9,834
|
|
Commercial and Industrial
|
|
|
4,547
|
|
|
|
282
|
|
|
|
4,265
|
|
Lease Financing and other
|
|
|
910
|
|
|
|
(22
|
)
|
|
|
932
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Formula component
|
|
|
39,350
|
|
|
|
1,293
|
|
|
|
38,057
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Allowance
|
|
$
|
40,287
|
|
|
|
|
|
|
$
|
38,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change
|
|
|
|
|
|
|
1,338
|
|
|
|
|
|
Net Charge-offs
|
|
|
|
|
|
|
4,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
|
|
|
$
|
5,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
|
|
|
|
March 31,
|
|
|
During
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2010
|
|
|
2009
|
|
|
Components
|
|
|
|
|
|
|
|
|
|
|
|
|
Specific:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
$
|
855
|
|
|
$
|
855
|
|
|
|
|
|
Construction
|
|
|
1,703
|
|
|
|
1,578
|
|
|
$
|
125
|
|
Residential
|
|
|
276
|
|
|
|
(2,202
|
)
|
|
|
2,478
|
|
Commercial and Industrial
|
|
|
131
|
|
|
|
(365
|
)
|
|
|
496
|
|
Lease Financing and other
|
|
|
478
|
|
|
|
3
|
|
|
|
475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Specific component
|
|
|
3,443
|
|
|
|
(131
|
)
|
|
|
3,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Formula:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
15,975
|
|
|
|
702
|
|
|
|
15,273
|
|
Construction
|
|
|
5,245
|
|
|
|
(432
|
)
|
|
|
5,677
|
|
Residential
|
|
|
8,496
|
|
|
|
1,268
|
|
|
|
7,228
|
|
Commercial and Industrial
|
|
|
6,165
|
|
|
|
(665
|
)
|
|
|
6,830
|
|
Lease Financing and other
|
|
|
39
|
|
|
|
(24
|
)
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Formula component
|
|
|
35,920
|
|
|
|
849
|
|
|
|
35,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Allowance
|
|
$
|
39,363
|
|
|
|
|
|
|
$
|
38,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Change
|
|
|
|
|
|
|
718
|
|
|
|
|
|
Net Charge-offs
|
|
|
|
|
|
|
4,864
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
|
|
|
$
|
5,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 months ended
March 31, 2011, the Company recorded $5.3 million of
charge-offs, of which $1.6 million were partial charge-offs
related to current nonaccrual loans. At March 31, 2011, the
Company had $0.9 million of specific reserves allocated to
five impaired loans. There were $0.8 million of specific
reserves allocated to three impaired loans as of
December 31, 2010. The Companys analyses as of
March 31, 2011 and December 31, 2010 indicated that
impaired loans were principally real estate collateral dependent
and that, with the exception of those loans for which specific
reserves were assigned, there was sufficient underlying
collateral value or guarantees 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 collectibility. 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. The following are the major additional factors which
affected the changes in the formula component of the allowance
for loan losses at March 31, 2011:
|
|
|
|
|
Economic and business conditions Although
current indicators clearly show that the economic downturn has
begun to turn around, recovery is still expected to be a slow
process. There is continued volatility in real estate values,
particularly in the Companys market areas, and the
availability of mortgage financing is still limited and
nonperforming loans have increased. As a result Company has
continued to include additional factors for adverse economic and
business conditions in the determination of the formula
component of the allowance. The factors were maintained at
December 2010 levels based on managements judgment of
|
45
|
|
|
|
|
limited impact on our portfolio from improvement in major
economic indicators due to the continuing lag effect of the
economic downturn offsetting the improvements in the economic
indicators.
|
|
|
|
|
|
Concentration The primary collateral for the
Companys loans is real estate, particularly commercial
real estate. The economic downturn has had a severe negative
effect on activity and values throughout the real estate
industry, which has heightened risk associated with this
concentration. Therefore, consideration of the changes in levels
of risk associated with concentrations resulting from adverse
conditions in the marketplace is part of the determination of
the formula component of the allowance. As result of
charge-offs, paydowns and reduced production of new loans,
concentrations in construction loans have been significantly
reduced, and concentrations in commercial real estate loans have
grown slightly. In addition, the Company has significantly
increased its portfolio of local-area multifamily loans.
The additional factor for concentrations in construction loans
had already been reduced in late 2010 to reflect reduced
balances, therefore, the factor was maintained at the December
2010 level. The additional factor for concentration in
commercial real estate was also maintained at the December 2010
level as there was no significant change in the concentration.
Due to recent significant increases in balances of multi-family
loans, a factor for the new concentration was added for
March 31, 2011.
|
|
|
|
Collateral Values Activity in commercial and
residential real estate continues to be extremely soft, and
there has been little improvement in values in the
Companys primary market areas. The Company has maintained
significant additional factors to compensate for continued
weakness in commercial and residential real estate collateral
values. As mentioned above, the Company has had significant
growth in its residential multi-family portfolio. The
significance of the outstanding balances of this new program to
the overall residential portfolio, together with the fact that
appraisals of the underlying collateral for these loans were
conducted after the effects of the economic downturn, resulted
in the reduction of the additional factor for collateral value
of residential real estate for the March 31, 2011 analysis.
Additional collateral value factors for all other parts of the
portfolio were maintained at December 2010 levels, as there was
no specific evidence of any significant change.
|
|
|
|
Asset quality Changes in the amount of
nonperforming loans, classified loans, delinquencies, and the
results of the Companys periodic loan review process are
also considered in the process of determining the formula
component. During the first quarter of 2011, the lagging effects
of the economic downturn within the economy and our local market
area have continued. The Company has continued to experience
significant charge-offs and the historical loss factor used for
determination of the formula component of the allowance,
although appearing to have leveled off, continues at a higher
than normal level. After considering the level of the historical
loss factor and charge-offs recorded in the first quarter of
2011, the additional factor for charge-offs was maintained at
December 2010 levels. The additional factors for delinquency and
extension risk, which had been reduced in the third quarter of
2010, reflective of general improvement in delinquency levels
and changes in portfolio concentrations were also maintained at
December 2010 levels as management has to decided to monitor
delinquency levels a little longer to ensure recent improvements
warrant further adjustment to these factors.
|
Actual losses can vary significantly from the estimated amounts.
The Companys methodology permits adjustments to the
allowance in the event that, in managements judgment,
significant factors which affect the collectibility 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
Companys allowance for loan losses is contained in
Note 4 to the Companys 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
March 31, 2011. 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.
46
Deposits
Deposits totaled $2,243.6 million at March 31, 2011,
an increase of $9.2 million or 0.4 percent from
$2,234.4 million at December 31, 2010. The following
table presents a summary of deposits at March 31, 2011 and
December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(000s)
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
|
|
2011
|
|
|
2010
|
|
|
Increase (Decrease)
|
|
|
Demand deposits
|
|
$
|
814,755
|
|
|
$
|
756,917
|
|
|
$
|
57,838
|
|
Money market accounts
|
|
|
884,906
|
|
|
|
862,450
|
|
|
|
22,456
|
|
Savings accounts
|
|
|
113,416
|
|
|
|
120,238
|
|
|
|
(6,822
|
)
|
Time deposits of $100,000 or more
|
|
|
131,487
|
|
|
|
144,497
|
|
|
|
(13,010
|
)
|
Time deposits of less than $100,000
|
|
|
42,485
|
|
|
|
43,851
|
|
|
|
(1,366
|
)
|
Checking with interest
|
|
|
256,564
|
|
|
|
306,459
|
|
|
|
(49,895
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deposits
|
|
$
|
2,243,613
|
|
|
$
|
2,234,412
|
|
|
$
|
9,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company experienced growth in both new and existing
customers, including growth from new branches added during 2009
and 2010 which was partially offset by seasonal decreases in
municipal deposits. Proceeds from deposit growth were retained
in liquid assets, primarily in interest earning bank deposits.
Borrowings
Total borrowings were $98.0 million at March 31, 2011,
a decrease of $26.3 million or 21.2 percent from
$124.3 million at December 31, 2010. The decrease
resulted from the maturity of FHLB term borrowings of
$36.3 million which was partially offset by a
$9.9 million increase in short-term repurchase agreements
and a $0.1 million increase in other borrowings. Borrowings
are utilized as part of the Companys continuing efforts to
effectively leverage its capital and to manage interest rate
risk.
Stockholders
Equity
Stockholders equity totaled $290.7 million at
March 31, 2011, an increase of $0.8 million or
0.3 percent from $289.9 million at December 31,
2010. The increase in stockholders equity resulted from
net income of $4.8 million and net increase related to
exercises of stock options of $0.4 million which was
partially offset by cash dividends paid on common stock of
$2.6 million, and decreases in accumulated other
comprehensive income of $1.8 million.
The Companys and the Banks capital ratios at
March 31, 2011 and December 31, 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum to be
|
|
Enhanced Capital Requirements
|
|
|
March 31,
|
|
December 31,
|
|
Considered
|
|
Effective
|
|
|
2011
|
|
2010
|
|
Well Capitalized
|
|
as of December 31, 2009
|
|
Leverage ratio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
9.9
|
%
|
|
|
9.6
|
%
|
|
|
5.0
|
%
|
|
|
N/A
|
|
HVB
|
|
|
9.1
|
|
|
|
8.8
|
|
|
|
5.0
|
|
|
|
8.0
|
%
|
Tier 1 capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
13.5
|
%
|
|
|
13.9
|
%
|
|
|
6.0
|
%
|
|
|
N/A
|
|
HVB
|
|
|
12.4
|
|
|
|
12.8
|
|
|
|
6.0
|
|
|
|
10.0
|
%
|
Total capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
14.8
|
%
|
|
|
15.2
|
%
|
|
|
10.0
|
%
|
|
|
N/A
|
|
HVB
|
|
|
13.7
|
|
|
|
14.0
|
|
|
|
10.0
|
|
|
|
12.0
|
%
|
During the fourth quarter of 2009, the Office of the Comptroller
of the Currency (OCC) required HVB to
maintain, a total risk-based capital ratio of at least 12.0%, a
Tier 1 risk-based capital ratio of at least 10.0%, and a
Tier 1 leverage ratio of at least 8.0%. These capital
levels are in excess of well capitalized levels
generally applicable to banks under current regulations.
47
Liquidity
The Asset/Liability Strategic Committee (ALSC) of
the Board of Directors of HVB establishes specific policies and
operating procedures governing the Companys 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 Companys liquid assets at March 31, 2011 include
cash and due from banks of $41.9 million,
$198.2 million of interest earning deposits and Federal
funds sold of $39.5 million. Interest earning deposits and
Federal funds sold represent the Companys 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
$108.5 million at March 31, 2011. This represented
24.2 percent of the amortized cost of the securities
portfolio. Excluding installment loans to individuals, real
estate loans other than construction loans and lease financing,
$248.4 million, or 13.7 percent of loans at
March 31, 2011, 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 March 31, 2011, HVB had short-term
borrowing lines with the FHLB of $200 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
$70 million with three major financial institutions which
were all unused and available at March 31, 2011. In
addition, HVB has approved lines under Retail Certificate of
Deposit Agreements with three major financial institutions
totaling $947 million of which no balances were outstanding
as at March 31, 2011. Utilization of these lines are
subject to product availability and other restrictions.
Additional liquidity is also provided by the Companys
ability to borrow from the Federal Reserve Banks 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
March 31, 2011.
As of March 31, 2011, the Company had qualifying loan and
investment securities totaling approximately $350 million
which could be utilized under available borrowing programs
thereby increasing liquidity.
Management considers the Companys sources of liquidity to
be adequate to meet any expected funding needs and to be
responsive to changing interest rate markets.
48
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
Companys 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.
Forward-Looking
Statements
The Company has made, and may continue to make, various
forward-looking statements with respect to earnings, credit
quality and other financial and business matters for periods
subsequent to December 31, 2010. 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 Companys
Annual Report on
Form 10-K
for the year ended December 31, 2010 include, but are not
limited to:
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further increases in our non-performing loans and allowance for
loan losses;
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our ability to manage our commercial real estate portfolio;
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the future performance of our investment portfolio;
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our opportunities for growth, our plans for expansion (including
opening new branches) and the competition we face in attracting
and retaining customers;
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economic conditions generally and in our market area in
particular, which may affect the ability of borrowers to repay
their loans and the value of real property or other property
held as collateral for such loans;
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demand for our products and services;
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possible impairment of our goodwill and other intangible assets;
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our ability to manage interest rate risk;
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the regulatory environment in which we operate, our regulatory
compliance and future regulatory requirements;
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our intention and ability to maintain regulatory capital above
the levels required by the OCC for the Bank and the levels
required for us to be well-capitalized, or such
higher capital levels as may be required;
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proposed legislative and regulatory action affecting us and the
financial services industry;
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legislative and regulatory actions (including the impact of the
Dodd-Frank Wall Street Reform and Consumer Protection Act and
related regulations) subject us to additional regulatory
oversight which may result in increased compliance costs
and/or
require us to change our business model;
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future FDIC special assessments or changes to regular
assessments;
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our ability to raise additional capital in the future;
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potential liabilities under federal and state environmental
laws; and
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limitations on dividends payable by the Company or the Bank.
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We assume no obligation for updating any such forward-looking
statements at any given time.
49
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 Companys 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 Companys 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, 2010 were previously reported in the
Companys 2010 Annual Report on Form 10-K. There have
been no material changes in the Companys market risk
exposure at March 31, 2011 compared to December 31,
2010.
The Companys 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 three month period ended
March 31, 2011. The Company had no derivative financial
instruments in place at March 31, 2011 and
December 31, 2010.
The Company uses a simulation analysis to evaluate market risk
to changes in interest rates. The simulation analysis at
March 31, 2011 shows the Companys 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
March 31, 2011, shows a positive cumulative static gap of
$145.7 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 March 31, 2011.
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Percentage Change
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in Estimated
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Net Interest
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Income from
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March 31,
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Gradual Change in Interest Rates
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2011
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Policy Limit
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+200 basis points
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0
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.8
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%
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(5.0
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)%
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100 basis points
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(1
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.4
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)%
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(5.0
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)%
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Beginning on March 31, 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 Companys policy limits.
50
Item 4. Controls
and Procedures
Our disclosure controls and procedures are designed to ensure
that information the Company must disclose in its reports filed
or submitted under the Securities Exchange Act of 1934, as
amended (the Exchange Act), is recorded, processed,
summarized, and reported on a timely basis. Any controls and
procedures, no matter how well designed and operated, can only
provide reasonable assurance of achieving the desired control
objectives. We carried out an evaluation, under the supervision
and with the participation of our Chief Executive Officer and
Chief Financial Officer, of the effectiveness of our disclosure
controls and procedures (as defined in
Rule 13a-15(e)
or
Rule 15d-15(e)
of the Exchange Act) as of March 31, 2011. Based on this
evaluation, the Chief Executive Officer and Chief Financial
Officer have concluded that, as of March 31, 2011, the
Companys disclosure controls and procedures were effective
in bringing to their attention on a timely basis information
required to be disclosed by the Company in reports that the
Company files or submits under the Exchange Act. Also, during
the quarter ended March 31, 2011, there has not been any
change that has materially affected or is reasonably likely to
materially affect, the Companys internal control over
financial reporting.
51
PART II
OTHER INFORMATION
Our business is subject to various risks. These risks are
included in our 2010 Annual Report on
Form 10-K
under Risk Factors.
There has been no material changes in such risk factors since
the date of such report.
Item 6. Exhibits
(A) Exhibits
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31.1
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Certification of the Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 (filed
herewith).
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31.2
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Certification of the Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 (filed
herewith).
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32.1
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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 (filed herewith).
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32.2
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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 (filed herewith).
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52
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.
Stephen R. Brown
Senior Executive Vice President,
Chief Financial Officer and Treasurer
May 10, 2011
53