FORM 10-Q

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act.) Yes x No o

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

Hudson Valley Holding Corp. (the “Company”) is a New York corporation founded in 1982. The Company is registered as a bank holding company under the Bank Holding Company Act of 1956.

The Company provides financial services through its wholly-owned subsidiary, Hudson Valley Bank (the “Bank”), a New York chartered commercial bank established in 1972. The Bank is an independent bank headquartered in Westchester County, New York. The Bank has 15 branch offices in Westchester County, New York, 2 in Bronx County, New York and 2 in Manhattan, New York. The Bank opened its second Manhattan branch located at 233 Broadway, New York, New York on April 26, 2004. In addition, the Bank has two loan production offices, one located at 300 Westage Business Center Drive, Fishkill, New York (Dutchess County) and, one located at 97-77 Queens Boulevard, Rego Park, New York. The Company and the Bank derive substantially all of their revenue and income from providing banking and related services to small and medium-sized businesses, professionals, municipalities, not-for-profit organizations and individuals located in Westchester County and, to a lesser but increasing extent, the Bronx and Manhattan.

In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments (comprising only normal recurring adjustments) necessary to present fairly the financial position of the Company at March 31, 2004 and the results of its operations and comprehensive income for the three month periods ended March 31, 2004 and 2003, and cash flows and changes in stockholders’ equity for the three month periods ended March 31, 2004 and 2003. The results of operations for the three month period ended March 31, 2004 are not necessarily indicative of the results of operations to be expected for the remainder of the year.

The unaudited consolidated financial statements have been prepared in accordance with 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.

An estimate that is particularly susceptible to significant change in the near term relates to the determination of the allowance for loan losses. In connection with the determination of the allowance for loan losses, management utilizes the work of professional appraisers for significant properties.

Intercompany items and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to the current period’s presentation.

These unaudited consolidated financial statements should be read in conjunction with our audited consolidated financial statements as of and for the year ended December 31, 2003 and notes thereto.

Interest Rate Contracts — The Company, from time to time, uses various interest rate contracts such as forward rate agreements, interest rate swaps, caps and floors, primarily as hedges against specific assets and liabilities. Statement of Financial Accounting Standards (“SFAS”) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by SFAS No. 137, “Accounting for Derivative Instruments and Hedging Activities — Deferral of the Effective Date of SFAS Statement No. 133” and as amended by SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” requires that all derivative instruments, including interest rate contracts, be recorded on the balance sheet at their fair value. Changes in the fair value of derivative instruments are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. The Company had two interest rate floor contracts which expired on

June 1, 2003, one with a notional value of $25 million and a 4.5% strike rate and one with a notional value of $25 million and a 4.0% strike rate, which did not qualify for hedge accounting under SFAS No. 133. There was no net gain or loss in the contracts in the three month period ended March 31, 2003.

Stock-Based Compensation — The Company has stock option plans that provide for the granting of options to directors, certain officers and to all eligible employees. SFAS No. 123, “Accounting for Stock-Based Compensation,” encourages but does not require companies to record compensation cost for stock-based employee compensation plans at fair value. In December 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure, an amendment of SFAS No. 123 (“SFAS No. 148”).” SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based compensation. Prior to 2002, the Company accounted for stock-based employee compensation plans under the recognition and measurement provisions of Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. Accordingly, no stock-based employee compensation cost was recorded prior to 2002 as all employee options granted during those years had an exercise price equal to the market value of the underlying common stock on the dates of grant. Non-employee stock options were expensed as of the date of grant. Effective January 1, 2002, the Company adopted the fair value recognition provisions of SFAS No. 123 prospectively for all stock options granted, modified or settled on or after January 1, 2002. Certain stock options under the Company’s plans vest over a five year period commencing one year from date of grant. Therefore, the cost related to stock-based employee compensation included in the determination of 2004 and 2003 net income is less than that which would have been recognized if the fair value method had been applied to all stock options granted since the original effective date of SFAS No. 123. Non-employee stock options are expensed as of the date of grant. The effect on net income and earnings per share for the three month periods ended March 31, 2004 and 2003 if the fair value based method had been applied to all outstanding and unvested awards in each period was not significant.

The following table sets forth the computation of basic and diluted earnings per common share for each of the periods indicated:

In December 2003, the Company declared a 10% stock dividend. Share and per share amounts for 2003 have been retroactively restated to reflect the issuance of the additional shares.

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).

The Company makes contributions to the unfunded defined benefit plans only as benefit payments become due. The Company disclosed in it’s annual report on Form 10-K for the year ended December 31, 2003 that it expected to contribute $513 to the unfunded defined benefit plans during 2004. For the three months ended March 31, 2004, the Company contributed $128 to these plans. There has been no change to the estimate of total contributions for 2004 from the amount previously reported.

In November 2002, the FASB issued Interpretation No. 45, “Guarantors Accounting and Disclosure Requirement for Guarantees, including Indirect Guarantees of Indebtedness of Others,” (“FIN No. 45”). FIN No. 45 requires a guarantor to recognize, at the inception of the guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. It also provides additional guidance on the disclosure of guarantees. The recognition, measurement and disclosure provisions do not encompass commercial letters of credit and other loan commitments because those instruments do not guarantee payment of a money obligation and do not provide for payment in the event of default by the counterparty. The adoption of FIN No. 45 by the Company on January 1, 2003 did not have a significant impact on its financial position or results of operations.

In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities — an Interpretation of Accounting Research Bulletin No. 51” (“FIN No. 46”). FIN No. 46 addresses consolidation by business enterprises of variable interest entities that have certain characteristics. It requires a business enterprise that has a controlling interest in a variable interest entity (as defined by FIN No. 46) to include the assets, liabilities, and results of the activities of the variable interest entity in the consolidated financial statements of the business enterprise. In October 2003, the FASB issued staff position FIN No. 46-6, “Deferral of Effective Date of FIN No. 46, Consolidation of Variable Interest Rate Entities” which deferred the effective date for applying the provisions of FIN No. 46 to periods ending after December 15, 2003. Subsequently, in December 2003, the FASB issued a revision of FIN No. 46 (“FIN No. 46R”), which replaced FIN No. 46, to address certain technical corrections and implementation issues that had arisen. Since the Company currently has no controlling or other interest in a variable interest entity, the adoption of FIN No. 46R by the Company on January 1. 2004 did not have any impact on its financial position or results of operations.

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (“SFAS No. 149”). The statement clarifies and amends financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”). In general, SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003 and for derivative instruments designated as hedges after June 30, 2003. The adoption of SFAS No. 149 by the Company on July 1, 2003 did not have any impact on its financial position or results of operations.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“SFAS No. 150”), which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity that have been presented either entirely as equity or as separate from the liabilities section and the equity section of the statement of financial position. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 by the Company did not have a significant impact on its financial position or results of operations.

In December 2003, the FASB issued SFAS No. 132 (revised 2003) (“SFAS No. 132”), “Employers’ Disclosures about Pensions and Other Postretirement Benefits,” that improves financial statement disclosures for defined benefits plans. SFAS No. 132 revised replaces existing disclosure requirements for pensions and other postretirement benefits but does not change the measurement of recognition of those plans required by SFAS No. 87, “Employers’ Accounting for Pensions,” and SFAS No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits,”. SFAS No. 132 revised retains the disclosure requirements contained in the original SFAS No. 132, but requires additional disclosures about the plan assets, obligations, cash flows and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. SFAS No. 132 revised is effective for annual and interim periods with fiscal years ending after December 15, 2003. The Company has adopted the revised disclosure requirements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This section presents discussion and analysis of the Company’s consolidated financial condition at March 31, 2004 and consolidated results of operations for the three month period ended March 31, 2004 and March 31, 2003. The Company is consolidated with its wholly-owned subsidiary, Hudson Valley Bank, and the Bank’s subsidiaries, Hudson Valley Investment Corp., Grassy Sprain Real Estate Holdings, Inc., Sprain Brook Realty Corp., HVB Employment Corp., HVB Realty Corp. and HVB Leasing Corp. (collectively the “Bank”). This discussion and analysis should be read in conjunction with the consolidated financial statements and supplementary financial information contained in the Company’s Annual Report on Form 10K.

This overview is intended to highlight selected information included in this Quarterly Report on Form 10-Q. It does not contain sufficient information for a complete understanding of the Company’s financial condition and operating results, and, therefore, should be read in conjunction with the entire Quarterly Report on Form 10-Q and the 2003 Annual Report on Form 10-K.

The Company derives substantially all of its revenue from providing banking and related services to small and medium-sized businesses, professionals, municipalities, not-for profit organizations and individuals within its market area, primarily Westchester County and portions of New York City. The Company’s 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 Company’s basic strategy is to maintain and grow net 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. The Company’s primary market risk exposure is interest rate risk. Interest rate risk is the exposure of net interest income to changes in interest rates.

Net income for the three months ended March 31, 2004 was $6.0 million or $0.89 per diluted share, a decrease of $1.6 million or 21.1 percent compared to $7.6 million or $1.15 per diluted share for the three months ended March 31, 2003. The decrease in net income in the current year period compared to the prior year period was primarily due to a $2.3 million of after tax realized gains on sales of securities available for sale during the prior year period, conducted as part of the Company’s ongoing asset/liability management process, which reflected the Company’s efforts to effectively reposition its portfolios during a protracted period of declining interest rates. Excluding the aforementioned realized gains, net income for the three months ended March 31, 2004 increased $0.7 million compared to the prior year period. The Company achieved substantial growth in both of its core businesses, loans and deposits, during the three months ended March 31, 2004, despite seasonal declines in certain demand deposits which were consistent with activity experienced in prior years. Overall asset quality continued to be good as a result of the Company’s conservative underwriting and investment standards. The declining interest rate environment which began in 2001 and continued through the first half of 2003 stabilized during the remainder of 2003 and into the first quarter of 2004. As rates stabilized, the Company was able to redeploy short-term investments and maturing funds into longer term opportunities. As a result of the redeployment and core growth, tax equivalent basis net interest income increased $1.9 million or 11.7 percent to $18.2 million for the three months ended March 31, 2004, compared to $16.3 million for the same period in the prior year. The effect of adjustment to a tax equivalent basis was $1.2 million and $1.1 million for the three month periods ended March 31, 2004 and March 31, 2003, respectively.

Non interest expense for the three months ended March 31, 2004 was $8.8 million, an increase of $0.8 million or 10.1 percent compared to $8.0 million for the three months ended March 31, 2003. The increase reflects the Company’s continued investment in its branch network, technology and personnel to accommodate growth in both loans and deposits and the expansion of services and products available to new and existing customers.

The Company uses a simulation analysis to estimate the effect that specific movements in interest rates would have on net interest income. Excluding the effects of planned growth and anticipated new business, the

simulation analysis at March 31, 2004 reflects minimal near term interest rate risk with the Company’s net interest income declining slightly if rates rise or fall.

The Company has established specific policies and operating procedures governing its liquidity levels to address future liquidity needs, including contingent sources of liquidity. The Company believes that its present liquidity and borrowing capacity is sufficient for its current business needs.

The Company and the Bank are subject to various regulatory capital guidelines. To be considered “well capitalized,” an institution must generally have a leverage ratio of at least 5 percent, a Tier 1 ratio of 6 percent and a Total capital ratio of 10 percent. Both the Company and the Bank exceeded all current regulatory capital requirements and were in the “well-capitalized” category at March 31, 2004. Management plans to conduct the affairs of the Company and the Bank so as to maintain a strong capital position in the future.

Allowance for Loan Losses — The Bank maintains an allowance for loan losses to absorb losses inherent in the loan portfolio based on ongoing quarterly assessments of the estimated losses. The Bank’s methodology for assessing the appropriateness of the allowance consists of several key components, which include a specific component for identified problem loans, a formula component, and an unallocated component. The specific component incorporates the results of measuring impaired loans as provided in SFAS No. 114, “Accounting by Creditors for Impairment of a Loan,” and SFAS No. 118, “Accounting by Creditors for Impairment of a Loan — Income Recognition and Disclosures.” 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 loan’s contractual terms. 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 loan’s effective interest rate, the loan’s 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 the impaired loan is less than the related recorded amount, a specific valuation allowance is established within the allowance for loan losses or a writedown is charged against the allowance for loan losses if the impairment is considered to be permanent. Measurement of impairment does not apply to large groups of smaller balance homogenous loans that are collectively evaluated for impairment such as the Company’s portfolios of home equity loans, real estate mortgages, installment and other loans.

The formula component is calculated by applying loss factors to outstanding loans by type. Loss factors are based on historical loss experience. New loan types, for which there has been no historical loss experience, as explained further below, is one of the considerations in determining the appropriateness of the unallocated component.

The appropriateness of the unallocated component is reviewed by management based upon its evaluation of then-existing economic and business conditions affecting the key lending areas of the Bank 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, 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. Management’s evaluation of the loss related to these conditions is reflected in the unallocated component. Due to the inherent uncertainty in the process, management does not attempt to quantify separate amounts for each of the conditions considered in estimating the unallocated component of the allowance. The evaluation of the inherent loss with respect to these conditions is subject to a higher degree of uncertainty because they are not identified with specific credits or portfolio segments.

Actual losses can vary significantly from the estimated amounts. The Bank’s methodology permits adjustments to the allowance in the event that, in management’s 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, 2004. 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 Bank’s service area, since the majority of the Bank’s loans are collateralized by real estate. In addition, various regulatory agencies, as an integral part of the examination process, periodically review the Bank’s allowance for loan losses. Such agencies may require the Bank 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 management’s judgment as to the collectability 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 management’s opinion, they are estimated to be fully collectible.

Securities — Securities are classified as either available for sale, representing securities the Bank may sell in the ordinary course of business, or as held for investment, representing securities the Bank 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 for investment are stated at amortized cost (specific identification). There were no securities held for investment at March 31, 2004 and December 31, 2003. The amortization of premiums and accretion of discounts is determined by using the level yield method to the earlier of the call or maturity date. 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.

Results of Operations for the Three Month Period Ended March 31, 2004 and March 31, 2003

The Company reported net income of $6.0 million for the three month period ended March 31, 2004. This compares to $7.6 million for the three months ended March 31, 2003. The decrease in net income in the current year period compared to the prior year period was primarily due to the fact that net income in the prior year period included approximately $2.3 million of after tax realized gains on sales of approximately $91.0 million of securities available for sale, conducted as part of the Company’s ongoing asset/liability management process, which reflected the Company’s efforts to effectively reposition its portfolios during a protracted period of declining interest rates. Excluding the aforementioned realized gains, net income for the three months ended March 31, 2004 increased $0.7 million compared to the prior year period. This increase resulted from higher net interest income, higher non interest income and a lower provision for loan losses, partially offset by higher non interest expenses and higher income taxes.

Diluted earnings per share were $0.89 for the three month period ended March 31, 2004, a decrease of $0.26 or 22.6 percent from the $1.15 recorded in the three month period ended March 31, 2003. Annualized returns on average equity and average assets, excluding the effects of unrealized gains and losses on securities available for sale, were 17.0 percent and 1.4 percent, respectively, for the three month period ended March 31, 2004, compared to 24.3 percent and 2.1 percent, respectively, in the prior year period. Excluding realized gains on sales of securities available for sale, diluted earnings per share, annualized return on average equity and annualized return on average assets were $0.80, 17.1 percent and 1.4 percent, respectively for the three months ended March 31, 2003.

The following table sets forth the average balances of interest earning assets and interest bearing liabilities for the three month periods ended March 31, 2004 and March 31, 2003, as well as total interest and corresponding yields and rates. The data contained in the table has been adjusted to a tax equivalent basis, based on the federal statutory rate of 35 percent in 2004 and 2003.

The following table sets forth the dollar amount of changes in interest income, interest expense and net interest income between the three month period ended March 31, 2004 and March 31, 2003.

Net interest income, the difference between interest income and interest expense, is the most significant component of the Company’s consolidated earnings. For the three month period ended March 31, 2004, net interest income, on a tax equivalent basis, increased $1.9 million or 11.9 percent to $18.2 million compared to $16.3 million in the prior year period. Net interest income was higher due to an increase in the excess of average interest earning assets over average interest bearing liabilities of $62.7 million or 12.8 percent to $551.1 million for the three months ended March 31, 2004 compared to $488.4 million in the prior year period, partially offset by a slight decrease in the tax equivalent basis net interest margin to 4.58% in 2004 from 4.60% in the prior year period.

Interest income is determined by the volume of, and related rates earned on, interest earning assets. For the three month period ended March 31, 2004, interest income, on a tax equivalent basis, increased $1.6 million or 8.3 percent to $21.9 million compared to $20.3 million in the prior year period. Average interest earning assets increased $174.4 million or 12.3 percent to $1,589.0 million for the three months ended March 31, 2004, compared to $1,414.5 million in the prior year period. Volume increases in interest bearing deposits in banks, taxable securities, tax-exempt securities and loans, partially offset by a volume decrease in federal funds sold and lower interest rates, contributed to the higher interest income in the current year period as compared to the same period in the prior year.

Average total securities, excluding average net unrealized gains on available for sale securities, increased $142.2 million or 20.0 percent to $852.4 million for the three month period ended March 31, 2004, compared to $710.2 million for the same period in the prior year. The increase in average total securities in the current year period as compared to the prior year period resulted from the gradual deployment, throughout the second half of 2003 and into the first quarter of 2004, of available free funds, deposit growth in excess of loan growth and increases in borrowings into fixed rate U.S. Agency bonds, fixed and variable rate mortgage backed securities, and tax exempt securities as interest rates began to stabilize. The increased investment in securities and the redeployment of maturing funds from existing securities were generally conducted at lower average yields due to the low interest rate environment and therefore the average yield on securities was lower for the three months ended March 31, 2004 compared to the prior year period. As a result, tax equivalent basis interest income from securities was higher for the three months ended March 31,2004, compared to the same period in the prior year, due to higher volume, partially offset by lower interest rates.

Average net loans increased $80.6 million or 12.5 percent to $725.0 million for the three months ended March 31, 2004, compared to $644.4 million for the same period in the prior year. The increase in average net loans reflect the Company’s continuing emphasis on making new loans and more effective market penetration. As a result of the current low interest rate environment, new loans were originated at generally lower interest rates and therefore the average yield on loans was lower for the three months ended March 31, 2004, compared to the prior year period. As a result, interest income on loans was higher for the three months ended March 31, 2004, compared to the same period in the prior year, due to higher volume, partially offset by lower interest rates.

Interest expense is a function of the volume of, and rates paid for, interest bearing liabilities, comprised of deposits and borrowings. Interest expense decreased $0.3 million or 6.5 percent to $3.7 million for the three months ended March 31, 2004, compared to $4.0 million for the same period in the prior year. Average interest bearing liabilities increased $111.7 million or 12.1 percent to $1,037.8 million for the three months ended March 31, 2004, compared to $926.1 million for the same period in the prior year. The increase in the average interest bearing liabilities resulted from volume increases in money market deposits, checking with interest, savings deposits and borrowed funds, partially offset by a slight volume decrease in time deposits. Deposits increased from new customers, existing customers and the continued growth resulting from the opening of new branches. The decrease in time deposits resulted primarily from a decrease in short-term jumbo certificates of deposit from municipal customers which are acquired on a bid basis. Interest rates on deposits and short-term borrowings were generally lower during the three months ended March 31, 2004, compared to the prior year period. As a result, interest expense was lower for the three months ended March 31, 2004, compared to the same period in the prior year due to lower interest rates, partially offset by higher volume. Average non interest bearing demand deposits increased $49.6 million or 11.7 percent to $474.3 million for the three months ended March 31, 2004, compared to $424.7 million for the same period in the prior year. These deposits are an important component of the Company’s asset/liability management and have a direct impact on the determination of net interest income. Funds from increases in both interest bearing liabilities and non interest bearing demand deposits were invested in loans and securities.

The interest rate spread on a tax equivalent basis for the three month period ended March 31, 2004 and 2003 is as follows:

Interest rate spreads increased slightly in the current year period, compared to the prior year period. The increase reflects the general stabilization of interest rates and the impact of full deployment of available funds

into loans and investments. Management cannot predict what impact market conditions will have on its interest rate spread, and future compression in net interest rate spread may occur.

The Bank recorded a provision for loan losses of $0.3 million and $0.4 million for the three month period ended March 31, 2004 and 2003. The provision for loan losses is charged to income to bring the Bank’s allowance for loan losses to a level deemed appropriate by management. See “Financial Condition” for further discussion.

Non interest income, excluding realized gains on sales of securities available for sale, for the three month period ended March 31, 2004 increased 11.7 percent to $676,000 from $605,000, compared to the prior year period.

There were no gains on sales of securities available for sale for the three month period ended March 31, 2004 compared to $4.0 million for prior year period. See “Net Interest Income” for further discussion.

Service charges for the three month period ended March 31, 2004 increased 15.7 percent to $487,000 from $421,000 compared to the prior year period. This increase reflects a higher level of fees charged and increased activity.

Other income for the three month period ended March 31, 2004 was essentially unchanged from the prior year period.

Non interest expense for the three month period ended March 31, 2004 increased 10.1 percent to $8.8 million from $8.0 million compared to the prior year period. These increases reflect the overall growth of the Company and resulted from increases in salaries and employee benefits expense, occupancy expense, equipment expense and other operating expenses partially offset by decreases in professional services expense, FDIC assessment and business development expense for the three month period ended March 31, 2004, as compared to the prior year period.

Salaries and employee benefits, the largest component of non interest expense, for the three month period ended March 31, 2004 increased 18.6 percent to $5.2 million from $4.4 million, compared to the prior year period. This increase resulted from additional staff to accommodate the growth in loans and deposits, the opening of new branch facilities, and merit increases. In addition, salaries and employee benefits increased as a result of higher costs of employee benefit plans and costs associated with related payroll taxes.

Occupancy expense for the three month period ended March 31, 2004 increased 2.9 percent to $732,000 from $711,000, compared to prior year period. This increase reflected 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 Company’s facilities.

Professional services for the three month period ended March 31, 2004 decreased 15.7 percent to $744,000 from $882,000 compared to prior year period. The decrease was due to a non-recurring expense related to the upgrade of the Bank’s credit file system in the prior period.

Equipment expense for the three month period ended March 31, 2004 increased 9.6 percent to $516,000 from $471,000 compared to the prior year period. The increase resulted from maintenance costs related to the opening of new locations.

Business development expense for the three month period ended March 31, 2004 decreased 8.3 percent to $353,000 from $385,000 compared to the prior year period. The decrease was due to increased promotion of bank products and new branches in the prior period.

The assessment of the Federal Deposit Insurance Corporation (FDIC) for the three month period ended March 31, 2004 decreased 8.5 percent to $43,000 from $47,000 compared to the prior year period. This decrease resulted from decreases in the assessment rate.

Significant changes, more than 5 percent, in other components of non interest expense for the three month period ended March 31, 2004 compared to March 31, 2003, were due to the following:


	•	Increase of $50,000 (33.3%) in stationary and printing costs due to the opening of new offices.

	•	Increase of $39,000 (169.6%) in other insurance expense resulting from increases in banker’s professional insurance costs and automobile insurance costs partially offset by reductions in the estimates of the net cost of certain life insurance programs.

	•	Increase of $15,000 (9.8%) in courier costs. The increase is due to higher customer utilization and higher costs.

	•	Increase of $43,000 (16.6%) in outside services costs due to increased data processing costs.

	•	Decrease of $53,000 (54.6%) in dues, meetings and seminar expense due to decreased participation in such events.

Income taxes for the three month period ended March 31, 2004 decreased 29.2 percent to $2.6 million from $3.7 million compared to the prior year period. The decrease was primarily due to tax related to the $4.0 million gain on sale of securities available for sale in the first quarter of 2003. The effective tax rate was 30.7 percent for the current year period compared to 32.8 percent in the prior year period. The overall decrease in the effective tax rate is primarily a result of a change in the mix of income subject to Federal and New York State income taxes.

The New York State Department of Taxation and Finance has recently completed an audit of the Company’s New York State Corporation Tax Returns for the years 1996 through 1998 and has assessed additional tax, interest and penalties of approximately $1.5 million. The Company is contesting this assessment. The Company does not believe the resolution of this matter will have a significant impact on its financial position. Further, the New York State Department of Taxation and Finance has informed the Company that they will begin an audit, later in 2004, of tax years 1999 through 2001.

The Company had total assets of $1,689.4 million at March 31, 2004, an increase of $19.9 million or 1.2 percent from $1,669.5 million at December 31, 2003.

Federal funds sold totaled $5.5 million at March 31, 2004, a decrease of $0.5 million or 8.3 percent from $6.0 million at December 31, 2003. The decrease resulted from redeployment of available funds into loans and longer term investments.

The Company invests in stock of the Federal Home Loan Bank of New York (“FHLB”) and other securities which are rated with an investment grade by nationally recognized credit rating organizations and, on a limited basis, in non-rated securities. Non-rated securities totaled $8.3 million at March 31, 2004 comprised primarily of obligations of municipalities located within the Company’s market area.

Securities available for sale totaled $851.0 million at March 31, 2004, a decrease of $10.4 million or 1.2 percent from $861.4 million at December 31, 2003. The following table sets forth the amortized cost, gross unrealized gains and losses and the estimated fair value of securities available for sale at March 31, 2004:

U.S. Treasury and government agency obligations totaled $170.6 million at March 31, 2004, a decrease of $16.5 million or 8.8 percent from $187.1 million at December 31, 2003. The decrease was due to maturities and calls of $43.6 million, partially offset by purchases of $25.1 million and other increases of $2.0 million. The maturities included $10.0 million of short-term U.S. Treasury bills with maturities of less than 60 days at the time of purchase. These maturing funds were redeployed into higher yielding longer term investments and loans as part of the Company’s ongoing asset/liability management.

Mortgage-backed securities, including collateralized mortgage obligations (“CMO’s”), totaled $429.4 million at March 31, 2004, a decrease of $4.8 million or 1.1 percent from $434.2 million at December 31, 2003. The decrease was due to principal paydowns of $24.5 million, partially offset by purchases of $15.1 million and other increases of $4.6 million. The purchases consisted of fixed and variable rate mortgage-backed securities with average lives of five years or less at the time of purchase.

Obligations of state and political subdivisions totaled $201.2 million at March 31, 2004, an increase of $10.5 million or 5.5 percent from $190.7 million at December 31, 2003. The increase was due to purchases of $11.9 million and other increases of $1.2 million, partially offset by maturities and calls of $2.6 million. The obligations at March 31, 2004 were comprised of approximately 65 percent of New York State political subdivisions and 35 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, consisting primarily of corporate bonds and trust preferred securities, were essentially unchanged at March 31, 2004, compared to December 31, 2003.

Mutual funds and other equity securities were also essentially unchanged at March 31, 2004, compared to December 31, 2003.

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 $10.0 million at March 31, 2004, compared to $11.2 million at December 31, 2003.

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, 2004 or December 31, 2003.

Net loans totaled $744.0 million at March 31, 2004, an increase of $36.9 million or 5.2 percent from $707.1 million at December 31, 2003. The increase resulted principally from a $21.5 million increase in commercial and industrial loans, a $16.6 million increase in construction loans, a $10.6 million increase in residential real estate loans and a $2.0 million increase in loans to individuals, partially offset by a $13.3 million decrease in commercial real estate loans.

Major classifications of loans at March 31, 2004 and December 31, 2003 are as follows:

The following table summarizes the Company’s non-accrual loans, loans past due 90 days or more and still accruing as of March 31, 2004 and December 31, 2003:

Gross interest income that would have been recorded if these borrowers had been current in accordance with their original loan terms was $85,000 and $188,000 for the three month period ended March 31, 2004 and the year ended December 31, 2003, respectively. There was no interest income on nonperforming assets included in net income for the three month period ended March 31, 2004 and the year ended December 31, 2003.

The Bank maintains an allowance for loan losses to absorb losses inherent in the loan portfolio based on ongoing quarterly assessments of estimated losses. The Bank’s methodology for assessing the appropriateness of the allowance consists of several key components, which include a specific component for identified problem loans, a formula component and an unallocated component.

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:

The change in the specific component of the allowance for loan losses is the result of our analysis of impaired and other problem loans and our determination of the amount required to reduce the carrying amount of such loans to estimated fair value.

The change in the formula component of the allowance for loan losses is the result of the application of historical loss experience to outstanding loans by type. Loss experience for each year is based upon average charge-off experience for the prior three year period by loan type.

The determination of the unallocated component of the allowance for loan losses is the result of our consideration of other relevant factors affecting loan collectibility. Due to the inherent uncertainty in the process, we do not attempt to quantify separate amounts for each of the conditions considered in estimating the unallocated component of the allowance. We periodically adjust the unallocated component to an amount that, when considered with the specific and formula components, represents our best estimate of probable losses in the loan portfolio as of each balance sheet date. The following factors affected the determination of the unallocated component for loan losses at March 31, 2004.


	•	Economic and business conditions — Continuation of the improvements in the overall economy which began during the second half of 2003, as evidenced by reduced unemployment and improvements in productivity and corporate profits, was less certain in the first quarter of 2004. Signs of increased inflation, such as the recent rise in energy costs, significant increases in local real estate taxes and the general expectation of near term rises in interest rates could have negative effects on the demand for real estate, the primary collateral for the Bank’s loans, and the ability of borrowers to repay their loans. Consideration of such events that trigger economic uncertainty is part of the determination of the unallocated component of the allowance.

	•	Concentration — Concentrations in commercial and industrial and construction loans increased to 31.6 percent and 10.2 percent of total loans at March 31, 2004 from 30.3 percent and 8.5 percent at December 31, 2003. These loans generally have a higher degree of risk than other types of loans which the Bank makes, since repayment of the loans is generally dependent on the ability of the borrowers to successfully operate their businesses in the case of commercial and industrial loans, and on the borrowers ability to sell or lease completed properties in the case of construction loans. Increases in such concentrations, and the associated increase in risk, is not reflected in the formula component of the allowance due to the lag caused by using three years historical losses in determining the loss factors. Therefore consideration of changes in concentrations is a part of the determination the unallocated component of the allowance.

	•	Credit quality — Delinquencies and nonperforming loans increased slightly in the aggregate during the three months ended March 31, 2004. As a result of the Bank’s regular periodic loan review process, certain loans were downgraded due to potential deterioration of collateral values, the borrower’s cash flows or other specific factors that negatively impact the borrower’s ability to meet their loan obligations. Certain of these loans are also considered in connection with the analysis of impaired loans performed to determine the specific component of the allowance. However, due to the uncertainty of that determination, such loans are also considered in the process of determining the unallocated component of the allowance.

	•	New loan products — The Bank introduced a low cost home equity product during the fourth quarter of 2002 and began financing business equipment leases during the fourth quarter of 2000. Any probable losses with respect to these products are not reflected in the formula component of the allowance for loan losses since there is no loss history.

As a result of our detailed review process and consideration of the identified relevant factors, management determined that a $400,000 increase in the unallocated component of the allowance to $9.0 million reflects our best estimate of probable losses which have been incurred as of March 31, 2004.

Deposits totaled $1,151.0 million at March 31, 2004, an increase of $26.1 million or 2.3 percent from $1,124.9 million at December 31, 2003. The following table presents a summary of deposits at March 31, 2004 and December 31, 2003:

The overall increase in deposits resulted from new account relationships and increased account activity, partially offset by seasonal decreases, principally in certain demand deposit accounts which were consistent with activity experienced by the Company in prior years.

Total borrowings were $371.8 million at March 31, 2004, a decrease of $14.6 million or 3.8 percent from $386.4 million at December 31, 2003. The decrease resulted from decreases in short-term repurchase agreements and other short-term borrowings. Borrowings are utilized as part of the Company’s continuing efforts to effectively leverage its capital position and to manage interest rate risk.

Stockholders’ equity totaled $152.2 million at March 31, 2004, an increase of $9.8 million or 6.9 percent from $142.4 million at December 31, 2003. Increases in stockholders’ equity resulted from net income of $6.0 million for the three months ended March 31, 2004, $1.3 million proceeds from stock options exercised and a $5.7 increase in accumulated comprehensive income, principally as a result of an increase in the net unrealized value of securities available for sale. Decreases in stockholders’ equity resulted from $2.7 million cash dividends paid on common stock and $0.5 million purchases of treasury stock.

The Company’s and the Bank’s capital ratios at March 31, 2004 and December 31, 2003 are as follows:

The Company and the Bank exceed all current regulatory capital requirements. In addition, the Bank was in the “well capitalized” category at March 31, 2004 and December 31, 2003.

The Bank’s liquid assets, at March 31, 2004, include cash and due from banks of $41.3 million and Federal funds sold of $5.5 million. Other sources of liquidity at March 31, 2004 include maturities and principal payments on loans and securities, including approximately $154.4 million of loans, excluding installment loans to individuals, real estate loans other than construction loans and lease financing, maturing in one year or less, and approximately $85.9 million of securities, having contractual maturities, expected call dates or average lives of one year or less. In addition, at March 31, 2004, the Bank had an available borrowing capacity of approximately $116 million from the FHLB, $30 million under three federal funds purchased facility, $110 million available under Retail CD Brokerage Agreements and had securities totaling approximately $132 million that could be sold under agreements to repurchase.

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 March 31, 2004. The Company cautions that these forward-looking statements are subject to numerous assumptions, risks and uncertainties, and that statements relating to subsequent periods increasingly are subject to greater uncertainty because of the increased likelihood of changes in underlying factors and assumptions. Actual results could differ materially from forward-looking statements.

In addition to those factors previously disclosed by the Company and those factors identified elsewhere herein, the following factors could cause actual results to differ materially from such forward-looking statements:


	•	competitive pressure on loan and deposit product pricing;

	•	other actions of competitors;

	•	changes in economic conditions;

	•	the extent and timing of actions of the Federal Reserve Board;

	•	a loss of customer deposits;

	•	changes in customer’s acceptance of the Banks’ products and services;

	•	increases in federal and state income taxes and/or the Company’s effective income tax rate; and

	•	the extent and timing of legislative and regulatory actions and reform.

The Consolidated Financial Statements and Notes thereto presented herein have been prepared in accordance with GAAP, which requires the measurement of financial position and operating results in terms of historical dollar amounts or estimated fair value without considering the changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of the Company’s operations. Unlike industrial companies, nearly all of the assets and liabilities of the Company are monetary in nature. As a result, interest rates have a greater impact on the Company’s performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the price of goods and services.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Quantitative and qualitative disclosures about market risk at December 31, 2003 were previously reported in the Company’s Annual Report on Form 10K. There have been no material changes in the Company’s market risk exposure at March 31, 2004 compared to December 31, 2003.

The Company’s primary market risk exposure is interest rate risk since substantially all transactions are denominated in U.S. dollars with no direct foreign exchange or changes in commodity price exposure.

All market risk sensitive instruments continue to be classified as available for sale with no financial instruments entered into for trading purposes. The Company 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, 2004. The Company had no derivative financial instruments in place at March 31, 2004.

The Company uses a simulation analysis to evaluate market risk to changes in interest rates. The simulation analysis at March 31, 2004 shows the Company’s net interest income increasing if rates rise and decreasing if rates fall.

The Company also prepares a static gap analysis which, at March 31, 2004, shows a negative cumulative static gap of $20.7 million in the one year time frame.

The Company’s policy limit on interest rate risk has remained unchanged since December 31, 2002. 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, 2004.

As of March 31, 2004, a 100 basis point downward change in interest rates was substituted for the 200 basis downward scenario, as management believes that a 200 basis point downward change is not meaningful in light of current interest rate levels. The percentage change in estimated net interest income in the +200 and -100 basis points scenario is within the Company’s policy limits.

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. 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 of March 31, 2004. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2004, the Company’s disclosure controls and procedures are 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, 2004, there have not been any significant changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

The following table sets forth information with respect to purchases made by the Company of it’s common stock during the three months ended March 31, 2004.


(1)	In November 2003, the Company announced that the Board of Directors had approved a share repurchase program which authorized the repurchase of up to 75,000 of the Company’s shares at a price of $36.25 per share, or a price of $41.75 per share for transactions of at least 2,000 shares. This offer expired on February 25, 2004.

(2)	In February 2004, the Company announced that the Board of Directors had approved a share repurchase program which authorized the repurchase of up to 75,000 of the Company’s shares at a price of $37.25 per share, or a price of $43.00 per share for transactions of at least 2,000 shares. This offer expires on May 25, 2004.


10.8	Hudson Valley Bank Amended and Restated Directors Retirement Plan Effective May 1, 2004 (filed herewith).

31.1	Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

31.2	Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

The Registrant filed a Current Report on Form 8-K on January 29, 2004 in connection with its declaration of a cash dividend (Items 5 and 7).

The Registrant filed a Current Report on Form 8-K on February 13, 2004 in connection with its earnings release for the year ended December 31, 2003 (Items 7 and 12).

The Registrant filed a Current Report on Form 8-K on February 25, 2004 in connection with a stock repurchase program (Items 5 and 7).

The Registrant filed a Current Report on Form 8-K on April 28, 2004 in connection with its first quarter earnings release and the declaration of a cash dividend (Items 7 and 12).

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.


	By:	/s/ STEPHEN R. BROWN



	Stephen R. Brown
	Senior Executive Vice President, Chief Operating Officer, Chief Financial Officer


NEW YORK		13-3148745
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)


		Outstanding at
Class		May 3, 2004

Common stock, par value $0.20 per share		6,613,630


PART 1 -- FINANCIAL INFORMATION
	Item 1. Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
PART II -- OTHER INFORMATION
	Item 2. Changes in Securities, Use of Proceeds and Issuer Repurchases of Equity Securities
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
AMENDED AND RESTATED DIRECTOR'S PLAN
CERTIFICATION
CERTIFICATION
CERTIFICATION
CERTIFICATION


		Page
		No.

PART I — FINANCIAL INFORMATION
	ITEM 1 FINANCIAL STATEMENTS		2
	ITEM 2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		11
	ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		23
	ITEM 4 CONTROLS AND PROCEDURES		24

PART II — OTHER INFORMATION
	ITEM 2 CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER REPURCHASES OF EQUITY SECURITIES		25
	ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K		25

SIGNATURES			26



				Three Months Ended
				March 31,

				2004		2003

Interest Income:
	Loans, including fees			$	12,648	$	11,840
	Securities:
		Taxable			5,912		5,192
		Exempt from federal income taxes			2,186		1,989
	Federal funds sold				18		167
	Deposits in banks				4		4

			Total interest income		20,768		19,192

Interest Expense:
	Deposits				957		1,329
	Securities sold under repurchase agreements and other short-term borrowings				526		435
	Other borrowings				2,251		2,229

			Total interest expense		3,734		3,993

Net Interest Income					17,034		15,199
Provision for loan losses					259		367

Net interest income after provision for loan losses					16,775		14,832

Non Interest Income:
	Service charges				487		421
	Realized gain on security transactions, net				—		3,967
	Other income				189		184

			Total non interest income		676		4,572

Non Interest Expense:
	Salaries and employee benefits				5,203		4,388
	Occupancy				732		711
	Professional services				744		882
	Equipment				516		471
	Business development				353		385
	FDIC assessment				43		47
	Other operating expenses				1,257		1,151

			Total non interest expense		8,848		8,035

Income Before Income Taxes					8,603		11,369
Income Taxes					2,641		3,731

Net Income				$	5,962	$	7,638

Basic Earnings Per Common Share				$	0.90	$	1.18
Diluted Earnings Per Common Share				$	0.89	$	1.15

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			March 31,			December 31,
			2004			2003

ASSETS
Cash and due from banks			$	41,332		$	42,558
Federal funds sold				5,500			6,000
Securities available for sale at estimated fair value (amortized cost of $836,906 in 2004 and $856,651 in 2003)				850,966			861,410
Federal Home Loan Bank of New York (FHLB) Stock				9,957			11,157
Loans (net of allowance for loan losses of $11,675 in 2004 and $11,441 in 2003)				744,006			707,104
Accrued interest and other receivables				10,612			10,778
Premises and equipment, net				14,261			14,436
Deferred income taxes, net				2,398			5,760
Other assets				10,345			10,310

TOTAL ASSETS			$	1,689,377		$	1,669,513

LIABILITIES
Deposits:
	Non interest-bearing		$	505,808		$	484,956
	Interest-bearing			645,219			639,944

		Total deposits		1,151,027			1,124,900
Securities sold under repurchase agreements and other short-term borrowings				183,656			198,256
Other borrowings				188,138			188,144
Accrued interest and other liabilities				14,390			15,852

		Total Liabilities		1,537,211			1,527,152

STOCKHOLDERS’ EQUITY
Common stock, $0.20 par value; authorized 10,000,000 shares; outstanding 6,621,221 and 6,586,816 shares in 2004 and 2003, respectively				1,528			1,519
Additional paid-in capital				166,834			165,562
Retained earnings				4,550			1,304
Accumulated other comprehensive income, net				7,544			1,800
Treasury stock, at cost; 1,020,665 and 1,009,374 shares in 2004 and 2003, respectively				(28,290	)		(27,824	)

Total stockholders’ equity				152,166			142,361

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY			$	1,689,377		$	1,669,513


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

Balance at January 1, 2004			6,586,816		$	1,519	$	(27,824	)	$	165,562	$	1,304		$	1,800	$	142,361
	Net income												5,962					5,962
	Exercise of stock options		45,696			9					1,272							1,281
	Purchase of treasury stock		(11,291	)				(466	)									(466	)
	Cash dividend												(2,716	)				(2,716	)
	Minimum pension liability adjustment															1		1
	Net unrealized gain on securities available for sale															5,743		5,743

Balance at March 31, 2004			6,621,221		$	1,528	$	(28,290	)	$	166,834	$	4,550		$	7,544	$	152,166



		For the Three Months
		Ended March 31,

		2004			2003

Operating Activities:
Net income		$	5,962		$	7,638
Adjustments to reconcile net income to net cash provided by operating activities:
	Provision for loan losses		259			367
	Depreciation		507			447
	Realized gain on security transactions, net					(3,967	)
	Stock option expense		141			226
	Amortization of premiums on securities, net		1,157			492
Deferred tax benefit			(198	)		(109	)
Increase (decrease) in deferred loan fees, net			342			23
Increase in accrued interest and other receivables			166			364
Increase in other assets			(35	)		(261	)
Increase (decrease) in accrued interest and other liabilities			(1,462	)		2,109
Other changes, net			3			3

Net cash provided by operating activities			6,842			7,332

Investing Activities:
Net (increase) decrease in federal funds sold			500			(39,407	)
Decrease in FHLB stock			1,200			1,051
Proceeds from maturities and paydowns of securities available for sale			70,691			422,025
Proceeds from sales of securities available for sale			—			91,408
Purchases of securities available for sale			(52,102	)		(520,616	)
Net increase in loans			(37,504	)		(1,748	)
Net purchases of premises and equipment			(332	)		(441	)

Net cash used in investing activities			(17,547	)		(47,728	)

Financing Activities:
Proceeds from issuance of common stock			1,140			255
Proceeds from sale of treasury stock			—			58
Net increase in deposits			26,127			27,200
Cash dividends paid			(2,716	)		(2,179	)
Repayment of other borrowings			(6	)		(5	)
Net increase (decrease) in securities sold under repurchase agreements and other short-term borrowings			(14,600	)		6,093
Purchase of treasury stock			(466	)		(653	)

Net cash provided by financing activities			9,479			30,769

Increase (decrease) in Cash and Due from Banks			(1,226	)		(9,627	)
Cash and due from banks, beginning of period			42,558			48,350

Cash and due from banks, end of period		$	41,332		$	38,723

Supplemental Disclosures:
Interest paid		$	3,739		$	4,051
Income tax payments			2,725			1,550
Change in unrealized gain (loss) on securities available for sale — net of tax			5,743			(4,155	)



		Three Months
		Ended
		March 31,

		2004		2003

Service cost		$	56	$	50
Interest cost			113		104
Amortization of transition obligation			22		22
Amortization of prior service cost			35		11
Amortization of net loss			59		22

	Net periodic pension cost	$	285	$	209



				Three Months Ended March 31,


				2004							2003

				Average				Yield/			Average				Yield/
				Balance		Interest(3)		Rate			Balance		Interest(3)		Rate


				(000’s except percentages)
ASSETS
Interest earning assets:
	Deposits in banks			$	4,071	$	4		0.39	%	$	2,243	$	4		0.71	%
	Federal funds sold				7,475		18		0.96			57,703		167		1.16
	Securities:(1)
		Taxable			664,626		5,912		3.56			543,295		5,192		3.82
		Exempt from federal income taxes			187,774		3,363		7.16			166,890		3,060		7.33
	Loans, net(2)				725,034		12,648		6.98			644,411		11,840		7.35

			Total interest earning assets		1,588,980		21,945		5.52			1,414,542		20,263		5.73

Non interest earning assets:
	Cash and due from banks				38,662							38,799
	Other assets				38,699							32,243

			Total non interest earning assets		77,361							71,042

			Total assets	$	1,666,341						$	1,485,584

LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest bearing liabilities:
	Deposits:
		Money market		$	306,793	$	417		0.54	%	$	275,990	$	580		0.84	%
		Savings			68,561		31		0.18			62,388		61		0.39
		Time			162,535		454		1.12			170,586		621		1.46
		Checking with interest			103,911		55		0.21			83,883		67		0.32
	Securities sold under repurchase agreements and other short-term borrowings				207,904		526		1.01			145,101		435		1.20
	Other borrowings				188,140		2,251		4.79			188,169		2,229		4.74

			Total interest bearing liabilities		1,037,844		3,734		1.44			926,117		3,993		1.72

Non interest bearing liabilities:
	Demand deposits				474,318							424,677
	Other liabilities				12,702							9,314

			Total non interest bearing liabilities		487,020							433,991

Stockholders’ equity(1)					141,477							125,476

			Total liabilities and stockholders’ equity(1)	$	1,666,341						$	1,485,584

Net interest earnings						$	18,211						$	16,270

Net yield on interest earning assets									4.58	%						4.60	%


(1)	Excludes unrealized gains (losses) on securities available for sale

(2)	Includes loans classified as non-accrual

(3)	Effect of adjustment to a tax equivalent basis was $1,177 and $1,071 for the three month periods ended March 31, 2004 and March 31, 2003, respectively.



				(000’s)


				Three Month Period Increase
				(Decrease) Due to Change in

				Volume			Rate			Total(1)

Interest Income:
	Deposits in banks			$	3		$	(3	)	$	—
	Federal funds sold				(145	)		(4	)		(149	)
	Securities:
		Taxable			1,159			(439	)		720
		Exempt from federal income taxes(2)			383			(80	)		303
	Loans, net				1,481			(673	)		808

			Total interest income		2,881			(1,199	)		1,682
Interest expense:
	Deposits:
		Money market			65			(228	)		(163	)
		Savings			6			(36	)		(30	)
		Time			(29	)		(138	)		(167	)
		Checking with interest			16			(28	)		(12	)
	Securities sold under repurchase agreements and other short-term borrowings				188			(97	)		91
	Other borrowings				—			22			22

			Total interest expense		246			(505	)		(259	)

Increase in interest differential				$	2,635		$	(694	)	$	1,941


(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 2004 and 2003.



		Three Month
		Period Ended
		March 31,

		2004			2003

Average interest rate on:
	Total average interest earning assets		5.52	%		5.73	%
	Total average interest bearing liabilities		1.44			1.72
	Total interest rate spread		4.08			4.01



				Gross Unrealized
		Amortized						Estimated
		Cost		Gains		Losses		Fair Value


		(000’s)
U.S. Treasury and government agencies		$	168,621	$	2,019	$	54	$	170,586
Mortgage-backed securities			426,959		4,062		1,580		429,441
Obligations of state and political subdivisions			192,349		9,368		525		201,192
Other debt securities			28,001		463		211		28,253

Total debt securities			815,930		15,912		2,370		829,472
Mutual funds and other equity securities			20,976		599		81		21,494

	Total	$	836,906	$	16,511	$	2,451	$	850,966


	Assets


	Federal Funds Sold


	Securities Available for Sale and FHLB Stock


	Loans


		March 31,		Change During			December 31,
		2004		Period			2003


		(000’s)
Specific component		$	1,434	$	(98	)	$	1,532
Formula component			1,241		(68	)		1,309
Unallocated component			9,000		400			8,600

	Total allowance	$	11,675				$	11,441

Net change					234
Net chargeoffs					25

Provision amount				$	259


								Minimum for
								Capital
		March 31,			December 31,			Adequacy
		2004			2003			Purposes

Leverage ratio:
	Company		8.6	%		8.4	%		4.0	%
	Bank		8.6			8.4			4.0
Tier 1 capital:
	Company		15.6	%		15.6	%		4.0	%
	Bank		15.6			15.6			4.0
Total capital:
	Company		16.9	%		16.9	%		8.0	%
	Bank		16.8			16.9			8.0


		Percentage Change in
		Estimated Net Interest Income
Gradual Change in Interest Rates		from March 31, 2004			Policy Limit

	+200 basis points		0.1	%		(5.0	)%
	-100 basis points		(1.0	%)		(5.0	)%


Item 2.	*Changes in Securities, Use of Proceeds and Issuer Repurchases of Equity Securities*


								Maximum
						Total number		number of
						of shares		shares that
						purchased as		may yet be
		Total number		Average		part of publicly		purchased
		of shares		price paid		announced		under the
Period		purchased		per share		programs		programs(2)


January 2004(1)			6,433	$	40.52		6,433		—
February 2004(1)			234		36.25		234		—
February 2004(2)			99		37.25		99		74,901

	Total February 2004		333		36.55		333

March 2004(2)			4,525		42.70		4,525		70,376

Total			11,291	$	41.28		11,291		70,376