SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the Quarter Ended March 31, 2006

Commission File No. 030525

HUDSON VALLEY HOLDING CORP.

(Exact name of registrant as specified in its charter)

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

21 Scarsdale Road, Yonkers, NY 10707

(Address of principal executive office with zip code)

914-961-6100

(Registrant’s telephone number including area code)

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

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

Large accelerated filer  o   Accelerated filer  x   Non-accelerated filer  o  

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

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

	Outstanding at
Class	May 1, 2006
Common stock, par value $0.20 per share	8,139,732

TABLE OF CONTENTS

EX-31.1: CERTIFICATION

EX-31.2: CERTIFICATION

EX-32.1: CERTIFICATION

EX-32.2: CERTIFICATION

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,
				2006			2005
Interest Income:
	Loans, including fees			$	21,837		$	15,939
	Securities:
		Taxable			8,350			6,845
		Exempt from Federal income taxes			2,305			2,182
	Federal funds sold				257			77
	Deposits in banks				33			15
			Total interest income		32,782			25,058
Interest Expense:
	Deposits				3,805			1,586
	Securities sold under repurchase agreements and other short-term borrowings				2,067			945
	Other borrowings				2,907			2,836
			Total interest expense		8,779			5,367
Net Interest Income					24,003			19,691
Provision for loan losses					477			488
Net interest income after provision for loan losses					23,526			19,203
Non Interest Income:
	Service charges				1,348			940
	Investment advisory fees				1,540			1,061
	Realized (loss) gain on security transactions, net				(225	)		3
	Other income				455			207
			Total non interest income		3,118			2,211
Non Interest Expense:
	Salaries and employee benefits				8,143			6,060
	Occupancy				1,516			905
	Professional services				1,402			1,005
	Equipment				681			524
	Business development				613			470
	FDIC assessment				99			46
	Other operating expenses				2,556			1,543
			Total non interest expense		15,010			10,553
Income Before Income Taxes					11,634			10,861
Income Taxes					3,925			3,522
Net Income				$	7,709		$	7,339
Basic Earnings Per Common Share				$	0.95		$	0.91
Diluted Earnings Per Common Share					0.92			0.89

See notes to consolidated financial statements

2

HUDSON VALLEY HOLDING CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

Dollars in thousands

		Three Months Ended
		March 31,
		2006			2005
Net Income		$	7,709		$	7,339
Other comprehensive loss, net of tax:
	Unrealized holding loss on securities available for sale arising during the period		(6,879	)		(9,632	)
	Income tax effect		2,822			3,969
			(4,057	)		(5,663	)
	Reclassification adjustment for net loss (gain) realized on securities available for sale		225			(3	)
	Income tax effect		(91	)		1
			134			(2	)
	Unrealized holding loss on securities, net		(3,923	)		(5,665	)
	Minimum pension liability adjustment		(5	)		109
	Income tax effect		3			(44	)
			(2	)		65
Other comprehensive loss			(3,925	)		(5,600	)
Comprehensive income		$	3,784		$	1,739

See notes to consolidated financial statements

3

HUDSON VALLEY HOLDING CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

Dollars in thousands, except per share and share amounts

			March 31,			December 31,
			2006			2005
ASSETS
Cash and due from banks			$	50,800		$	47,776
Federal funds sold				47,644			17,329
Securities available for sale, at estimated fair value (amortized cost of $888,792 in 2006 and $843,200 in 2005)				872,811			833,873
Securities held to maturity, at amortized cost (estimated fair value of $45,929 in 2006 and $49,633 in 2005)				47,025			50,119
Federal Home Loan Bank of New York (FHLB) Stock				15,471			13,672
Loans (net of allowance for loan losses of $15,467 in 2006 and $13,525 in 2005)				1,086,685			1,009,819
Accrued interest and other receivables				14,630			12,625
Premises and equipment, net				21,985			13,591
Deferred income taxes, net				12,466			12,036
Other assets				28,156			21,881
TOTAL ASSETS			$	2,197,673		$	2,032,721
LIABILITIES
Deposits:
	Non interest-bearing		$	623,436		$	576,032
	Interest-bearing			892,021			831,964
		Total deposits		1,515,457			1,407,996
Securities sold under repurchase agreements and other short-term borrowings				227,888			172,115
Other borrowings				264,391			263,097
Accrued interest and other liabilities				20,541			19,724
TOTAL LIABILITIES				2,028,277			1,862,932
STOCKHOLDERS’ EQUITY
Common stock, $0.20 par value; authorized 10,000,000 shares; outstanding 8,144,139 and 8,138,752 shares in 2006 and 2005, respectively				1,864			1,856
Additional paid-in capital				208,681			207,372
Retained earnings				5,306			1,431
Accumulated other comprehensive loss, net				(10,209	)		(6,282	)
Treasury stock, at cost; 1,175,958 and 1,142,699 shares in 2006 and 2005, respectively				(36,246	)		(34,588	)
Total stockholders’ equity				169,396			169,789
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY			$	2,197,673		$	2,032,721

See notes to consolidated financial statements

4

HUDSON VALLEY HOLDING CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

Three Months Ended March 31, 2006 and 2005

Dollars in thousands, except share amounts

															Accumulated
		Number of								Additional					Other
		Shares			Common		Treasury			Paid-in		Retained			Comprehensive
		Outstanding			Stock		Stock			Capital		Earnings			Income (Loss)			Total
Balance at January 1, 2006			8,138,752		$	1,856	$	(34,588	)	$	207,372	$	1,431		$	(6,282	)	$	169,789
	Net income												7,709						7,709
	Exercise of stock options		38,646			8					1,309								1,317
	Purchase of treasury stock		(33,259	)				(1,658	)										(1,658	)
	Cash dividend												(3,834	)					(3,834	)
	Minimum pension liability adjustment															(3	)		(3	)
	Net unrealized loss on securities available for sale															(3,924	)		(3,924	)
Balance at March 31, 2006			8,144,139		$	1,864	$	(36,246	)	$	208,681	$	5,306		$	(10,209	)	$	169,396

															Accumulated
		Number of								Additional					Other
		Shares			Common		Treasury			Paid-in		Retained			Comprehensive
		Outstanding			Stock		Stock			Capital		Earnings			Income (Loss)			Total
Balance at January 1, 2005			7,359,160		$	1,680	$	(29,313	)	$	185,438	$	1,492		$	365		$	159,662
	Net income												7,339						7,339
	Exercise of stock options		23,052			4					689								693
	Purchase of treasury stock		(30,004	)				(1,273	)										(1,273	)
	Sale of treasury stock		666					19			9								28
	Cash dividend												(3,242	)					(3,242	)
	Minimum pension liability adjustment															65			65
	Net unrealized loss on securities available for sale															(5,665	)		(5,665	)
Balance at March 31, 2005			7,352,874		$	1,684	$	(30,567	)	$	186,136	$	5,589		$	(5,235	)	$	157,607

See notes to consolidated financial statements

5

HUDSON VALLEY HOLDING CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

Dollars in thousands

		Three Months Ended
		March 31,
		2006			2005
Operating Activities:
Net income		$	7,709		$	7,339
Adjustments to reconcile net income to net cash provided by operating activities:
	Provision for loan losses		477			488
	Depreciation and amortization		649			465
	Realized loss (gain) on security transactions, net		225			(3	)
	Amortization of premiums on securities, net		253			721
	Stock option expense		281			99
	Deferred taxes (benefit)		2,304			(314	)
Increase in deferred loan fees, net			143			151
Increase in accrued interest and other receivables			(2,005	)		(450	)
(Decrease) increase in other assets			(6,275	)		10
Increase (decrease) in accrued interest and other liabilities			817			(1,000	)
Other changes, net			(8	)		110
Net cash provided by operating activities			4,570			7,616
Investing Activities:
Net (increase) decrease in Federal funds sold			(30,315	)		136
Increase in FHLB stock			(1,799	)		(950	)
Proceeds from maturities and paydowns of securities available for sale			44,531			29,650
Proceeds from maturities and paydowns of securities held to maturity			3,123			3,702
Proceeds from sales of securities available for sale			45,637			—
Purchases of securities available for sale			(136,266	)		(58,473	)
Net increase in loans			(77,486	)		(33,900	)
Net purchases of premises and equipment			(9,043	)		(359	)
Net cash used in investing activities			(161,618	)		(60,194	)
Financing Activities:
Net increase in deposits			107,461			62,758
Net increase (decrease) in securities sold under repurchase agreements and other short-term borrowings			55,773			(2,965	)
Proceeds from other borrowings			7,550			—
Repayment of other borrowings			(6,256	)		(6	)
Proceeds from issuance of common stock			847			570
Excess tax benefit related to stock options			189			24
Proceeds from sale of treasury stock			—			28
Acquisition of treasury stock			(1,658	)		(1,273	)
Cash dividends paid			(3,834	)		(3,242	)
Net cash provided by financing activities			160,072			55,894
Increase in Cash and Due from Banks			3,024			3,316
Cash and due from banks, beginning of period			47,776			32,428
Cash and due from banks, end of period		$	50,800		$	35,744
Supplemental Disclosures:
Interest paid		$	8,474		$	5,166
Income tax payments			4,893			3,564
Change in unrealized loss on securities available for sale — net of tax			(3,923	)		(5,665	)

See notes to consolidated financial statements

6

HUDSON VALLEY HOLDING CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.     Description of Operations

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

      The Company provides financial services through its wholly-owned subsidiaries, Hudson Valley Bank (“HVB”), a New York chartered commercial bank headquartered in Westchester County, New York and NYNB Bank (“NYNB”), a New York chartered commercial bank headquartered in Bronx County, New York (together with HVB, “the Banks”). HVB is an independent bank established in 1982. NYNB, an independent bank, is the successor to New York National Bank, a national banking association which the Company acquired effective January 1, 2006. HVB has 15 branch offices in Westchester County, New York, 3 in Manhattan, New York, 2 in Bronx County, New York, and 1 in Queens County, New York. NYNB has 3 branch offices in Manhattan, New York and 2 in Bronx County, New York.

      The Company provides investment management services through a wholly-owned subsidiary of HVB, A.R. Schmeidler & Co., Inc. (“ARS”), a money management firm, thereby generating fee income. ARS has offices at 555 Fifth Avenue in Manhattan, New York.

      We derive substantially all of our revenue and income from providing banking and related services to businesses, professionals, municipalities, not-for-profit organizations and individuals within our market area. Our principal customers are businesses, professionals, municipalities, not-for-profit organizations and individuals. Our strategy is to operate community-oriented banking institutions dedicated to providing personalized service to customers and focusing on products and services for selected segments of the market. We believe that our ability to attract and retain customers is due primarily to our focused approach to our markets, our personalized and professional services, our product offerings, our experienced staff, our knowledge of our 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 by acquiring other banks and related businesses, adding staff and continuing to open new branch offices and loan production offices.

2.  Summary of Significant Accounting Policies

      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, 2006 and the results of its operations, comprehensive income, and cash flows and changes in stockholders’ equity for the three month periods ended March 31, 2006 and 2005. The results of operations for the three month period ended March 31, 2006 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.

      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.

7

      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 condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements as of and for the year ended December 31, 2005 and notes thereto.

      Allowance for Loan Losses — The Company maintains an allowance for loan losses to absorb losses inherent in the loan portfolio based on ongoing quarterly assessments of the estimated losses. The 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 Statement of Financial Accounting Standards (“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, consumer 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 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, 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 Company’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, 2006. 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 Company’s service area, since the majority of the Company’s loans are collateralized by real estate. In addition, various regulatory agencies, as an integral part of the examination process, periodically review the Company’s 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.

8

      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. 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 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 (specific identification). 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.

      Goodwill and Other Intangible Assets — In accordance with the provisions of SFAS No. 142, “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. The Company’s impairment evaluations as of December 31, 2005 did not indicate impairment of its goodwill or identified intangible assets. The Company is not aware of any events during the three month period ended March 31, 2006 which would have required additional impairment evaluations.

      Income Taxes — 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 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 — The Company has stock option plans that provide for the granting of options to directors, officers, eligible employees, and certain advisors, based upon eligibility as determined by the Compensation Committee. Options are granted for the purchase of shares of the Company’s common stock at an exercise price not less than the market value of the stock on the date of grant. Stock options under the Company’s plans vest over various periods. Vesting periods range from immediate to five years from date of grant. Options expire ten years from the date of grant. Effective January 1, 2006, the Company adopted SFAS No. 123R, “Share-Based Payment” (“SFAS 123R”), which requires that compensation cost relating to share-based payment transactions be recognized in the financial statements with measurement based upon the fair value of the equity or liability instruments issued. Non-employee stock options are expensed as of the date of grant. 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 6 herein for additional discussion.

9

3.     Goodwill and Other Intangible Assets

      In connection with the fourth quarter 2004 acquisition of A.R. Schmeidler & Co., Inc., the Company recorded customer relationship intangible assets of $2,470 and non-compete provision intangible assets of $516, which have amortization periods of 13 years and 7 years, respectively. Deferred tax benefits have been provided for the tax effect of temporary differences in the amortization periods of identified intangible assets for book and tax purposes. Also in connection with this acquisition, the Company recorded $4,492 of goodwill. In accordance with the terms of the acquisition agreement, the Company may make additional performance-based payments over the five years subsequent to the acquisition. These additional payments would be accounted for as additional purchase price and, as a result, would increase goodwill related to the acquisition. In December 2005, the Company made the first of these additional payments in the amount of $1,572.

      In connection with the acquisition of NYNB on January 1, 2006, the Company recorded a deposit premium intangible asset of $3,907 which has an amortization period of 7 years. The deferred tax liability related to this asset was also recorded as NYNB was acquired in a tax-free stock purchase transaction. Also in connection with this acquisition, the Company recorded $1,455 of goodwill.

      The following table sets forth the gross carrying amount and accumulated amortization for each of the Company’s intangible assets subject to amortization as of March 31, 2006 and December 31, 2005.

	March 31, 2006				December 31, 2005
	Gross				Gross
	Carrying		Accumulated		Carrying		Accumulated
	Amount		Amortization		Amount		Amortization
Deposit Premium	$	3,907	$	139		—		—
Customer Relationships		2,470		285	$	2,470	$	237
Employment Related		516		111		516		92
Total	$	6,893	$	535	$	2,986	$	329

      Goodwill totaled $7,519 and $6,064 at March 31, 2006 and December 31, 2005, respectively. Goodwill and other intangible assets are included in “Other assets” in the Company’s Consolidated Balance Sheets. The deferred income tax effects related to goodwill deductible for tax purposes and timing differences between the book and tax bases of identified intangible assets are included in net deferred tax assets in the Company’s Consolidated Balance Sheets.

      Intangible assets amortization expense was $206 and $65, respectively, for the three month periods ended March 31, 2006 and 2005. The annual intangible assets amortization expense is estimated to be approximately $822 in each of the five years subsequent to December 31, 2005.

10

4.  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,
			2006		2005
			(000’s except share data)
Numerator:
	Net income available to common shareholders for basic and diluted earnings per share		$	7,709	$	7,339
Denominator:
	Denominator for basic earnings per common share — weighted average shares			8,145,310		8,097,510
	Effect of dilutive securities:
		Stock options		237,445		166,756
	Denominator for diluted earnings per common share — adjusted weighted average shares			8,382,755		8,264,266
Basic earnings per common share			$	0.95	$	0.91
Diluted earnings per common share				0.92		0.89
Dividends declared per share				0.47		0.36

      In December 2005, the Company declared a 10% stock dividend. Share and per share amounts for 2005 have been retroactively restated to reflect the issuance of the additional shares.

5.  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 (dollars in thousands).

		Three Months
		Ended
		March 31,
		2006		2005
Service cost		$	77	$	65
Interest cost			131		120
Amortization of transition obligation			13		18
Amortization of prior service cost			37		37
Amortization of net loss			52		45
	Net periodic pension cost	$	310	$	285

      The Company makes contributions to the unfunded defined benefit plans only as benefit payments become due. The Company disclosed in its 2005 Annual Report on Form 10-K that it expected to contribute $513 to the unfunded defined benefit plans during 2006. For the three month period ended March 31, 2006, the Company contributed $128 to these plans.

6. Stock-Based Compensation

      The Company has stock option plans that provide for the granting of options to directors, officers, eligible employees, and certain advisors, based upon eligibility as determined by the Compensation Committee. Options are granted for the purchase of shares of the Company’s common stock at an exercise price not less than the market value of the stock on the date of grant. Stock options under the Company’s plans vest over

11

various periods. Vesting periods range from immediate to five years from date of grant. Options expire ten years from the date of grant. Effective January 1, 2006, the Company adopted SFAS No. 123R, “Share-Based Payment” (“SFAS 123R”), which requires that compensation cost relating to share-based payment transactions be recognized in the financial statements with measurement based upon the fair value of the equity or liability instruments issued. From January 1, 2002 through the adoption of SFAS 123R, the Company followed the fair value recognition provisions for stock-based compensation in accordance with SFAS No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure, an amendment of FASB Statement No. 123” (“SFAS No. 148”). Therefore, the Company has utilized fair value recognition provisions for measurement of cost related to share-based transactions since 2002. Non-employee stock options are expensed as of the date of grant.

      The following table summarizes stock option activity for the three month period ended March 31, 2006:

								Weighted
				Weighted		Aggregate		Average
				Average		Intrinsic		Remaining
				Exercise		Value(1)		Contractual
	Shares			Price		($000’s)		Term(Yrs.)
Outstanding at December 31, 2005		773,868		$	26.87
Granted at fair value		171,280			42.00
Exercised		(38,646	)		21.90
Forfeited or Expired		(1,027	)		36.09
Outstanding at March 31, 2006		905,475			29.94	$	11,603		7.28
Exercisable at March 31, 2006		598,808			27.48		9,143		4.33

(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 market 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, 2006. This amount changes based on changes in the market value of the Company’s stock.

      The fair value (present value of the estimated future benefit to the option holder) of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. The following table illustrates the assumptions used in the valuation model for activity during the three month periods ended March 31, 2006 and 2005.

	Three months ended
	March 31,
	2006			2005
Weighted average assumptions:
Dividend yield		4.4	%		4.8	%
Expected volatility		9.6	%		3.6	%
Risk-free interest rate		4.3	%		3.6	%
Expected lives		5.1			4.8

      The expected volatility is based on historical volatility. The risk-free interest rates for periods within the contractual life of the awards are based on the U.S. Treasury yield curve in effect at the time of the grant. The expected life is based on historical exercise experience.

      The weighted average fair values of options granted during the three month periods ended March 31, 2006 and 2005 were $2.60 per share and $0.72 per share, respectively. Net compensation expense of $281 and $91 related to the Company’s stock option plans was included in net income for the three month periods ended March 31, 2006 and 2005, respectively. Unrecognized compensation expense related to non-vested share-based compensation granted under the Company’s stock option plans totaled $429 at March 31, 2006. This

12

expense is expected to be recognized over a weighted-average period of 2.2 years. The total tax benefit related thereto was $81 and $24 for the three month periods ended March 31, 2006 and 2005, respectively.

      The following table presents a summary status of the Company’s non-vested options as of March 31, 2006, and changes during the three month period ended March 31, 2006:

				Weighted-
	Number			Average
	of			Grant Date
	Shares			Fair Value
Non-vested at December 31, 2005		271,516		$	32.82
Granted		84,780			44.66
Vested		(48,602	)		31.30
Forfeited or Expired		(1,027	)		37.96
Non-vested at March 31, 2006		306,667			36.32

7.  Recent Acquisition

      Effective January 1, 2006, the Company acquired NYNB (formerly known as New York National Bank) which it operates as a New York State chartered commercial bank with five branch locations in the Bronx and Manhattan boroughs of New York City. The Company acquired NYNB in a tax free stock purchase transaction for approximately $13.5 million in cash. At the time of the acquisition, including the effects of purchase accounting, NYNB had total assets of $136.5 million, net loans of $59.9 million and total deposits of $117.7 million.

8.  Recent Accounting Pronouncements

      Accounting Changes and Error Corrections — In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3” (“SFAS No. 154.”). SFAS No. 154 requires retrospective application to prior periods’ financial statements for changes in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS No. 154 also requires that retrospective application of a change in accounting principle be limited to the direct effects of the change. Indirect effects of a change in accounting principle, such as a change in non-discretionary profit-sharing payments resulting from an accounting change, should be recognized in the period of the accounting change. SFAS No. 154 also requires that a change in depreciation, amortization, or depletion method for long-lived, non-financial assets be accounted for as a change in accounting estimate effected by a change in accounting principle. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of SFAS No. 154 by the Company as of January 1, 2006 did not have any impact on the Company’s consolidated financial statements.

      Other-Than-Temporary Impairment of Investments — On November 3, 2005, the FASB issued FASB Staff Position (“FSP”) Nos. FAS 115-1 and FAS 124-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.” This FSP addresses the determination as to when an investment is considered impaired, whether that impairment is other than temporary, and the measurement of an impairment loss. This FSP also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. This FSP nullifies certain requirements of EITF Issue 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments”, and supersedes EITF Topic No. D-44, “Recognition of Other-Than-Temporary Impairment upon the Planned Sale of a Security Whose Cost Exceeds Fair Value.” The guidance in this FSP amends FASB Statement No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” The FSP is effective for reporting periods beginning after December 15, 2005. The Company’s adoption of this guidance on January 1, 2006 did not have any impact on its consolidated financial statements.

      Other — Certain 2005 amounts have been reclassified to conform to the 2006 presentation.

13

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, 2006 and December 31, 2005, and consolidated results of operations for the three month periods ended March 31, 2006 and March 31, 2005. The Company is consolidated with its wholly-owned subsidiaries, Hudson Valley Bank and its subsidiaries, Hudson Valley Investment Corp., Grassy Sprain Real Estate Holdings, Inc., Sprain Brook Realty Corp., HVB Leasing Corp., HVB Employment Corp., HVB Realty Corp. and A.R. Schmeidler & Co., Inc. (collectively “HVB”), and NYNB Bank and its subsidiary 369 East 149th Street Corp. (collectively “NYNB”). NYNB Bank was acquired by the Company effective January 1, 2006 and its financial condition and results of operations are included as of and for the three month period ended March 31, 2006. This discussion and analysis should be read in conjunction with the financial statements and supplementary financial information contained in the Company’s 2005 Annual Report on Form 10-K.

Overview of Management’s Discussion and Analysis

      This overview is intended to highlight selected information included in this Quarterly Report on Form 10-Q. It does not contain sufficient information for a complete understanding of the Company’s financial condition and operating results and, therefore, should be read in conjunction with this entire Quarterly Report on Form 10-Q and the Company’s 2005 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 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 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. 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.

      Effective January 1, 2006, the Company acquired NYNB (formerly known as New York National Bank) which it operates as a New York State chartered commercial bank with five branch locations in the Bronx and Manhattan boroughs of New York City. The Company acquired NYNB in a tax free stock purchase transaction for approximately $13.5 million. At the time of the acquisition, including the effects of purchase accounting, NYNB had total assets of $136.5 million, net loans of $59.9 million and total deposits of $117.7 million.

      Net income for the three month period ended March 31, 2006 was $7.7 million or $0.92 per diluted share, an increase of $0.4 million or 5.5 percent compared to $7.3 million or $0.89 per diluted share for the three month period ended March 31, 2005. The Company achieved substantial growth in both its core businesses of loans and deposits during the three month period ended March 31, 2006, primarily as a result of the acquisition of NYNB and the addition of new customers, partially offset by seasonal declines in certain deposits 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. In addition, the Company continued to increase its fee based revenue through its subsidiary A.R. Schmeidler & Co., Inc., a registered investment advisory firm located in Manhattan, New York, which at March 31, 2006 had approximately $915 million in assets under management as compared to approximately $600 million at March 31, 2005.

      Interest rates, particularly short-term interest rates, continued to rise gradually throughout 2005 and into the first quarter of 2006. The immediate effect of this rise in interest rates was positive to the Company, due to more assets than liabilities repricing in the near term. The rise in short-term rates, however, has not been accompanied with similar increases in longer term interest rates resulting in a flattening of the yield curve. This condition has put downward pressure on the Company’s net interest income as liabilities continue to reprice at higher rates and maturing longer term assets reprice at similar or only slightly higher rates.

14

      As a result of the effects of the rise in short-term interest rates, growth in the Company’s core businesses of loans and deposits and the acquisition of NYNB, tax equivalent basis net interest income increased by $4.3 million or 20.6 percent to $25.2 million for the three month period ended March 31, 2006, compared to $20.9 million for the same period in the prior year. The effect of the adjustment to a tax equivalent basis was $1.2 million for both three month periods ended March 31, 2006 and 2005, respectively.

      Non interest income, excluding securities net gains and losses, was $3.3 million for the three month period ended March 31, 2006, an increase of $1.1 million or 50.0 percent compared to $2.2 million for the same period in the prior year. The increase was primarily due to growth in the investment advisory fee income of A.R. Schmeidler & Co., Inc. and also reflects growth in deposit activity and other service fees and increases in scheduled fees.

      Non interest expense was $15.0 million for the three month period ended March 31, 2006, an increase of $4.4 million or 41.5 percent compared to $10.6 million for the same period in the prior year. The increase reflects the Company’s continued investment in its branch offices, technology and personnel to accommodate growth in both loans and deposits and the expansion of services and products available to new and existing customers, including approximately $2.1 million due to the addition of the operating expenses of NYNB and certain nonrecurring expenses related to the acquisition and operational integration of NYNB.

      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, 2006 reflects minimal near term interest rate risk with the Company’s net interest income decreasing 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 are sufficient for its current business needs.

      The Company, HVB and NYNB 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. The Company, HVB and NYNB exceeded all current regulatory capital requirements and were in the “well-capitalized” category at March 31, 2006. Management plans to conduct the affairs of the Company and its subsidiary banks so as to maintain a strong capital position in the future.

Critical Accounting Policies

      Allowance for Loan Losses — The Company maintains an allowance for loan losses to absorb losses inherent in the loan portfolio based on ongoing quarterly assessments of the estimated losses. The Company’s methodology for assessing the appropriateness of the allowance consists of 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

15

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 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, 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 Company’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, 2006. 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 Company’s service area, since the majority of the Company’s loans are collateralized by real estate. In addition, various regulatory agencies, as an integral part of the examination process, periodically review the Company’s 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 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 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 (specific identification). 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.

      Goodwill and Other Intangible Assets — In accordance with the provisions of SFAS No. 142, “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

16

impairment. The Company’s impairment evaluations as of December 31, 2005 did not indicate impairment of its goodwill or identified intangible assets. The Company is not aware of any events during the three month period ended March 31, 2006 which would have required additional impairment evaluations.

Results of Operations for the Three Month Periods Ended March 31, 2006 and March 31, 2005

Summary of Results

      The Company reported net income of $7.7 million for the three month period ended March 31, 2006, an increase of $0.4 million or 5.0 percent compared to $7.3 million reported for the same period in the prior year. The increases in net income in the current year period compared to the prior year period resulted from higher net interest income, higher non interest income and a slightly lower provision for loan losses, partially offset by higher non interest expenses and higher income taxes. In addition the three month period ended March 31, 2006 included $0.2 million pretax losses on sales of $45.6 million of securities available for sale, conducted as part of the Company’s ongoing asset/liability management efforts.

      Diluted earnings per share were $0.92 for the three month period ended March 31, 2006, an increase of $0.03 or 3.4 percent compared to $0.89 reported for the same period in the prior year. Annualized returns on average equity and average assets, excluding the effects of unrealized gains and losses on securities available for sale, were 17.4 percent and 1.4 percent, respectively, for the three month period ended March 31, 2006, compared to 18.2 percent and 1.6 percent, respectively, for the same period in the prior year.

17

  Average Balances and Interest Rates

      The following table sets forth the average balances of interest earning assets and interest bearing liabilities for the three month periods ended March 31, 2006 and March 31, 2005, 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 2006 and 2005.

				Three Months Ended March 31,
				2006							2005
				Average				Yield/			Average				Yield/
				Balance		Interest(3)		Rate			Balance		Interest(3)		Rate
				(000’s except percentages)
ASSETS
Interest earning assets:
	Deposits in banks			$	2,344	$	33		5.63	%	$	2,757	$	15		2.18	%
	Federal funds sold				23,842		257		4.31			10,660		77		2.89
	Securities:(1)
		Taxable			737,210		8,350		4.53			699,442		6,845		3.91
		Exempt from federal income taxes			210,818		3,546		6.73			196,563		3,357		6.83
	Loans, net(2)				1,075,186		21,837		8.12			880,398		15,939		7.24
			Total interest earning assets		2,049,400		34,023		6.64			1,789,820		26,233		5.86
Non interest earning assets:
	Cash and due from banks				47,523							41,535
	Other assets				75,553							50,493
			Total non interest earning assets		123,076							92,028
			Total assets	$	2,172,476						$	1,881,848
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest bearing liabilities:
	Deposits:
		Money market		$	424,357	$	1,709		1.61	%	$	349,196	$	683		0.78	%
		Savings			100,446		162		0.65			72,509		77		0.42
		Time			242,372		1,669		2.75			190,283		745		1.57
		Checking with interest			142,726		265		0.74			122,947		81		0.26
	Securities sold under repurchase agreements and other short-term borrowings				203,667		2,067		4.06			174,485		945		2.17
	Other borrowings				264,324		2,907		4.40			263,117		2,836		4.31
			Total interest bearing liabilities		1,377,892		8,779		2.55			1,172,537		5,367		1.83
Non interest bearing liabilities:
	Demand deposits				586,962							530,066
	Other liabilities				30,018							18,343
			Total non interest bearing liabilities		616,980							548,409
Stockholders’ equity(1)					177,604							160,902
			Total liabilities and stockholders’ equity(1)	$	2,172,476						$	1,881,848
Net interest earnings						$	25,244						$	20,866
Net yield on interest earning assets									4.93	%						4.66	%

(1)	Excludes unrealized gains (losses) on securities available for sale
(2)	Includes loans classified as non-accrual
(3)	Effects of adjustments to a tax equivalent basis were increases of $1,241 and $1,175 for the three month periods ended March 31, 2006 and March 31, 2005, respectively.

18

     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, 2006 and March 31, 2005.

				(000’s)
				Three Month Period Increase
				(Decrease) Due to Change in
				Volume			Rate			Total(1)
Interest Income:
	Deposits in banks			$	(2	)	$	20		$	18
	Federal funds sold				95			85			180
	Securities:
		Taxable			370			1,135			1,505
		Exempt from federal income taxes(2)			243			(54	)		189
	Loans, net				3,527			2,371			5,898
			Total interest income		4,233			3,557			7,790
Interest expense:
	Deposits:
		Money market			147			879			1,026
		Savings			30			55			85
		Time			204			720			924
		Checking with interest			13			171			184
	Securities sold under repurchase agreements and other short-term borrowings				158			964			1,122
	Other borrowings				13			58			71
			Total interest expense		565			2,847			3,412
Increase in interest differential				$	3,668		$	710		$	4,378

(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 2006 and 2005.

  Net Interest Income

      Net interest income, the difference between interest income and interest expense, is the most significant component of the Company’s consolidated earnings. For the three month period ended March 31, 2006, net interest income, on a tax equivalent basis, increased $4.3 million or 21.0 percent to $25.2 million compared to $20.9 million for the same period in the prior year. Net interest income for the three month period ended March 31, 2006 was higher due to an increase in the excess of average interest earning assets over average interest bearing liabilities of $54.2 million or 8.8 percent to $671.5 million compared to $617.3 million for the same period in the prior year, and an increase in the tax equivalent basis net interest margin to 4.93% for the three month period ended March 31, 2006 from 4.66% for the same period in the prior year.

      Interest income is determined by the volume of, and related rates earned on, interest earning assets. Interest income, on a tax equivalent basis, increased $7.8 million or 29.8 percent to $34.0 million for the three month period ended March 31, 2006, compared to $26.2 million for the same period in the prior year. Average interest earning assets increased $259.6 million or 14.5 percent to $2,049.4 million for the three month period ended March 31, 2006, compared to $1,789.8 million for the same period in the prior year. Volume increases in federal funds sold, taxable and tax-exempt securities and loans and generally higher interest rates, partially offset by a slight volume decrease in interest bearing deposits contributed to the higher interest income in the three month period ended March 31, 2006 compared to the same period in the prior year.

      Average total securities, excluding average net unrealized losses on available for sale securities, increased by $52.0 million or 5.8 percent to $948.0 million for the three period ended March 31, 2006, compared to

19

$896.0 million for the same period in the prior year. The increase in average total securities in the three month period ended March 31, 2006, compared to the same period in the prior year, resulted primarily from the acquisition of NYNB. The average yield on securities was higher for the three month period ended March 31, 2006 compared to the same period in the prior year. Average tax equivalent basis yield on securities for the three month period ended March 31, 2006 was 5.02 percent, compared to 4.55 percent for the same period in the prior year. As a result, tax equivalent basis interest income from securities was higher for the three month period ended March 31, 2006, compared to the same period in the prior year, due to higher volume and higher interest rates.

      Average net loans increased $194.8 million or 22.1 percent to $1,075.2 million for the three month period ended March 31, 2006, compared to $880.4 million for the same period in the prior year. The increase in average net loans reflects the Company’s continuing emphasis on making new loans, expansion of loan production facilities and more effective market penetration, including the acquisition of NYNB. The average yield on loans was 8.12 percent for the three month period ended March 31, 2006 compared to 7.24 percent for the same period in the prior year. As a result, interest income on loans was higher for the three month period ended March 31, 2006, compared to the same period in the prior year, due to higher volume and higher 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 increased $3.4 million or 63.6 percent to $8.8 million for the three month period ended March 31, 2006, compared to $5.4 million for the same period in the prior year. Average interest bearing liabilities increased $205.4 million or 17.5 percent to $1,377.9 million for the three month period ended March 31, 2006, compared to $1,172.5 million for the same period in the prior year. The increase in average interest bearing liabilities for the three month period ended March 31, 2006, compared to the same period in the prior year, resulted from volume increases in money market deposits, checking with interest, savings deposits, time deposits, securities sold under agreements to repurchase, other short term borrowings and borrowed funds. Deposits increased from new customers, existing customers and the continued growth resulting from the opening of new branches as well as increases arising from the acquisition of NYNB. The increase in average borrowed funds resulted from a $1.3 million increase in long-term borrowings acquired as part of the NYNB acquisition. Average interest rates on interest bearing liabilities were higher during the three month period ended March 31, 2006, compared to the same period in the prior year, due to higher average interest rates on deposits, short-term borrowings and long-term borrowings. As a result, interest expense was higher for the three month period ended March 31, 2006, compared to the same period in the prior year due to higher volume and higher average interest rates. Average non interest bearing demand deposits increased $56.9 million or 10.7 percent to $587.0 million for the three month period ended March 31, 2006, compared to $530.1 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 periods ended March 31, 2006 and 2005 is as follows:

		Three Month
		Period Ended
		March 31,
		2006			2005
Average interest rate on:
	Total average interest earning assets		6.64	%		5.86	%
	Total average interest bearing liabilities		2.55			1.83
	Total interest rate spread		4.09			4.03

      Interest rate spreads increased slightly in the current year period, compared to the prior year period. This slight increase reflects the general offset of increases in interest rates on earning assets and interest bearing liabilities between the periods. Management cannot predict what impact market conditions will have on its interest rate spread, and future compression in net interest rate spread may occur.

20

Provision for Loan Losses

      The Company recorded a provision for loan losses of $0.5 million for both the three month periods ended March 31, 2006 and 2005. The provision for loan losses is charged to income to bring the Company’s allowance for loan losses to a level deemed appropriate by management. See “Financial Condition” for further discussion.

Non Interest Income

      Non interest income, excluding net realized gains and losses on sales and redemptions of securities, increased $1.1 million to $3.3 million for the three month period ended March 31, 2006, compared to $2.2 million for the prior year period. The Company’s acquisition of NYNB contributed $0.5 million to non interest income during the three month period ended March 31, 2006.

      Service charges for the three month period ended March 31, 2006 increased $0.4 million or 43.4 percent to $1.3 million from $0.9 million in the prior year period. The increase was primarily the result of growth in deposit activity, including the acquisition of NYNB, and increases in scheduled fees.

      Investment advisory fee income for the three month period ended March 31, 2006 increased $0.5 million or 45.2 percent to $1.5 million from $1.1 million in the prior year period. The increase was primarily due to increases in assets under management.

      Other income for the three month period ended March 31, 2006 increased $0.3 million or 119.8 percent to $0.5 million from $0.2 million in the prior year period. The increase was primarily the result of growth in miscellaneous transaction fees, including the acquisition of NYNB.

      Gains and losses on sales or redemptions of securities were not significant in either the current or prior year periods.

Non Interest Expense

      Non interest expense for the three month period ended March 31, 2006 increased 42.2 percent to $15.0 million from $10.6 million in the prior year period. These increases reflect the overall growth of the Company, including the acquisition of NYNB, and resulted from increases in salaries and employee benefits expense, occupancy expense, professional services expense, equipment expense, business development expense, FDIC assessment and other operating expenses.

      Salaries and employee benefits, the largest component of non interest expense, for the three month period ended March 31, 2006 increased 34.4 percent to $8.1 million from $6.1 million in the prior year period. This increase resulted from the acquisition of NYNB, 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, 2006 increased 67.5 percent to $1.5 million from $0.9 million in prior year period. This increase reflected the Company’s continued expansion, including the opening of new branch facilities and the acquisition of NYNB, 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, 2006 increased 39.5 percent to $1.4 million from $1.0 million in the prior year period. The increase was due to expenses related to the acquisition of NYNB and higher audit costs associated with requirements of the Sarbanes-Oxley Act of 2002.

      Equipment expense for the three month period ended March 31, 2006 increased 30.0 percent to $0.7 million from $0.5 million in the prior year period. The increase reflects increased equipment costs related to the Company’s growth, which includes opening of new branches and the acquisition of NYNB.

21

      Business development expense for the three month period ended March 31, 2006 increased 30.4 percent to $0.6 million from $0.5 million in the prior year period. The increase was due to increased participation in public relations events and increased promotion of bank products.

      The assessment of the Federal Deposit Insurance Corporation (FDIC) for the three month period ended March 31, 2006 increased 115.2 percent to $99,000 from $46,000 in the prior year period. This increase was primarily due to increases in deposits subject to assessment which resulted from the acquisition of NYNB.

      Significant changes, more than 5 percent, in other components of non interest expense for the three month period ended March 31, 2006 compared to March 31, 2005, were due to the following (all items included the impact of the acquisition of NYNB):

•  Increase of $71,000 (1775.0%) 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 policies.

•  Increase of $93,000 (46.0%) in stationery and printing costs due to increased consumption resulting from company expansion and increased costs of paper.

•  Increase of $90,000 (52.3%) in courier costs due to increased utilization of the courier services due to branch expansion, increased service costs and increased fuel surcharges.

•  Increase of $389,000 (94.2%) in outside service costs due to a service termination charge related to the acquisition of NYNB and increased data processing costs.

•  Increase of $23,000 (22.1%) in dues, meetings and seminar expense due to increased participation in such events.

•  Decrease of $8,000 (11.4%) in other loan expenses due to a reduction in loan collection expenses.

Income Taxes

      Income taxes of $3.9 million and $3.5 million were recorded in the three month periods ended March 31, 2006 and 2005, respectively. The Company is currently subject to a statutory Federal tax rate of 35 percent, a New York State tax rate of 7.5 percent plus a 17 percent surcharge, and a New York City tax rate of approximately 9 percent. The Company’s overall effective tax rate was 33.7 percent and 32.4 percent for the 2006 and 2005 periods, respectively. The increase in the overall effective tax rate for the three month period ended March 31, 2006 as compared to the prior year period, resulted from increases in the percentages of income subject to Federal, New York State, and New York City taxes.

      In the normal course of business, the Company’s Federal, New York State and New York City corporation tax returns are subject to audit. The New York State Department of Taxation and Finance has completed audits of the Company’s New York State corporation tax returns for the years 1996 through 2004. The Company has reached a tentative agreement with New York State on all open issues for tax years 1996 through 2004, and does not believe the final resolution of this matter will have a significant impact on its financial position or results of operations.

Financial Condition

Assets

      The Company had total assets of $2,197.7 million at March 31, 2006, an increase of $165.0 million or 8.1 percent from $2,032.7 million at December 31, 2005.

Federal Funds Sold

      Federal funds sold totaled $47.6 million at March 31, 2006, an increase of $30.3 million from $17.3 million at December 31, 2005. The increase resulted from timing differences in the redeployment of available funds into loans and longer term investments and volatility in certain deposit types and relationships.

22

Securities and FHLB Stock

      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 $10.2 million at March 31, 2006 comprised primarily of obligations of municipalities located within the Company’s market area.

      Securities totaled $919.8 million at March 31, 2006, an increase of $35.8 million or 4.1 percent from $884.0 million at December 31, 2005. This increase resulted primarily from the acquisition of NYNB. Securities classified as available for sale, which are recorded at estimated fair value, totaled $872.8 million at March 31, 2006, an increase of $38.9 million or 4.7 percent from $833.9 million at December 31, 2005. Securities classified as held to maturity, which are recorded at amortized cost, totaled $47.0 million at March 31, 2006, a decrease of $3.1 million or 6.1 percent from $50.1 million at December 31, 2005. The following table sets forth the amortized cost, gross unrealized gains and losses and the estimated fair value of securities at March 31, 2006:

				Gross
				Unrealized
		Amortized						Estimated
Classified as Available for Sale		Cost		Gains		Losses		Fair Value
		(000’s)
U.S. Treasury and government agencies		$	136,678	$	1	$	3,816	$	132,863
Mortgage-backed securities			488,124		114		13,703		474,535
Obligations of state and political subdivisions			210,899		3,339		2,059		212,179
Other debt securities			28,217		189		133		28,273
Total debt securities			863,918		3,643		19,711		847,850
Mutual funds and other equity securities			24,874		631		544		24,961
	Total	$	888,792	$	4,274	$	20,255	$	872,811
Classified as Held to Maturity
Mortgage-backed securities		$	41,895		—	$	1,078	$	40,817
Obligations of states and political subdivisions			5,130	$	20		38		5,112
	Total	$	47,025	$	20	$	1,116	$	45,929

      U.S. Treasury and government agency obligations classified as available for sale totaled $132.9 million at March 31, 2006, an increase of $16.7 million or 14.4 percent from $116.2 million at December 31, 2005. The increase was due to purchases of $42.1 million partially offset by maturities and calls of $14.0 million, sales of $10.7 million and other decreases of $0.7 million. There were no U.S. Treasury or government agency obligations classified as held to maturity at March 31, 2006 or at December 31, 2005.

      Mortgage-backed securities, including collateralized mortgage obligations (“CMO’s”), classified as available for sale totaled $474.5 million at March 31, 2006, an increase of $15.1 million or 3.3 percent from $459.4 million at December 31, 2005. The increase was due to purchases of $80.6 million partially offset maturities and principal paydowns of $26.2 million, sales of $34.7 million and other decreases of $4.6 million. Mortgage-backed securities, including CMO’s, classified as held to maturity totaled $41.9 million at March 31, 2006, a decrease of $3.1 million or 6.9 percent from $45.0 million at December 31, 2005. The decrease was due to maturities and principal paydowns of $3.1 million. The purchases of available for sale securities consisted of fixed rate mortgage-backed securities with average lives of five years or less at the time of purchase.

      Obligations of state and political subdivisions classified as available for sale totaled $212.2 million at March 31, 2006, an increase of $6.1 million or 3.0 percent from $206.1 million at December 31, 2005. The increase was due to purchases of $12.5 million, partially offset by maturities and calls of $4.6 million, sales of $0.2 million and other decreases of $1.6 million. Obligations of state and political subdivisions classified as held to maturity totaled $5.1 million at both March 31, 2006 and December 31, 2005. The combined available for sale and held to maturity obligations at March 31, 2006 were comprised of approximately 68 percent of

23

New York State political subdivisions and 32 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, totaled $28.3 million at March 31, 2006, a increase of $0.5 million or 1.8 percent from $27.8 million at December 31, 2005. The increase resulted from purchase of $0.4 million and other changes of $0.1 million. All other debt securities are classified as available for sale.

      Mutual funds and other equity securities totaled $25.0 million at March 31, 2006, an increase of $0.7 million or 2.9 percent from $24.3 million at December 31, 2005. The increase resulted from purchases of $0.7 million. All mutual funds and other equity securities are classified as available for sale.

      The Banks, as members of the FHLB, invest in stock of the FHLB as a prerequisite to obtaining funding under various programs offered by the FHLB. The Banks 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 $15.5 million at March 31, 2006, compared to $13.7 million at December 31, 2005.

      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, 2006 or December 31, 2005.

Loans

      Net loans totaled $1,086.7 million at March 31, 2006, an increase of $76.9 million or 7.6 percent from $1,009.8 million at December 31, 2005. The increase resulted principally from a $27.7 million increase in commercial real estate loans, $18.6 million increase in residential real estate loans, $17.7 million increase in construction loans, a $10.4 million increase in commercial and industrial loans, a $4.4 million increase in loans to individuals, and a $0.1 million increase in lease financing. The increase in loans reflect the Company’s continuing emphasis on making new loans, expansion of loan production facilities, and more effective market penetration, including the acquisition of NYNB.

      Major classifications of loans at March 31, 2006 and December 31, 2005 are as follows:

			March 31,			December 31,
			2006			2005
			(000’s)
Real Estate:
	Commercial		$	248,119		$	220,384
	Construction			196,413			178,731
	Residential			295,006			276,384
Commercial and industrial				327,303			316,907
Individuals				29,996			25,632
Lease financing				8,500			8,348
		Total		1,105,337			1,026,386
Deferred loan fees, net				(3,185	)		(3,042	)
Allowance for loan losses				(15,467	)		(13,525	)
		Loans, net	$	1,086,685		$	1,009,819

      The following table summarizes the Company’s non-accrual loans and loans past due 90 days or more and still accruing as of March 31, 2006 and December 31, 2005:

	March 31,			December 31,
	2006			2005
	(000’s except percentages)
Non-accrual loans at period end	$	5,051		$	3,837
Loans past due 90 days or more and still accruing		3,132			3,522
Nonperforming assets to total assets at period end		0.23	%		0.19	%

24

      Gross interest income that would have been recorded if these borrowers had been current in accordance with their original loan terms was $84,000 and $283,000 for the three month period ended March 31, 2006 and the year ended December 31, 2005, respectively. There was no interest income on nonperforming assets included in net income for the three month period ended March 31, 2006 and the year ended December 31, 2005.

     Allowance for Loan Losses

      The Company maintains an allowance for loan losses to absorb losses inherent in the loan portfolio based on ongoing quarterly assessments of estimated losses. The Company’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:

		March 31,		Change During			December 31,
		2006		Period			2005
		(000’s)
Specific component		$	1,415	$	115		$	1,300
Formula component			952		327			625
Unallocated component			13,100		1,500			11,600
	Total allowance	$	15,467				$	13,525
Net change					1,942
Acquired with NYNB					1,529
Net chargeoffs					(64	)
Provision amount				$	477

      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 changes in the unallocated component of the allowance for loan losses are the result of management’s consideration of other relevant factors affecting loan collectibility. 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. Management periodically adjusted the unallocated component to an amount that, when considered with the specific and formula components, represented its best estimate of probable losses in the loan portfolio as of each balance sheet date. The following factors affected the changes in the unallocated component of the allowance for loan losses at March 31, 2006:

•  Economic and business conditions — Signs of increased inflation, such as the pronounced rise in energy costs, increases in the cost of raw materials used in construction, significant increases in real estate taxes within the Company’s market area, an increase in the time required for certain new construction to be absorbed in the market, and the steady rise in short-term interest rates which began in the third quarter of 2004 and continued throughout 2005 and into the first quarter of 2006. Continuation of such conditions could have negative effects on the demand for or value of real estate, the primary collateral for the Company’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 — Construction loans increased to $196.4 million or 17.8 percent of total loans at March 31, 2006 from $178.7 million or 17.4 percent of total loans at December 31, 2005. These loans generally have a higher degree of risk than other types of loans which the Company makes, since

25

	repayment of the loans is generally dependent on the borrowers’ ability to successfully construct and sell or lease completed properties. 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 of the unallocated component of the allowance.
•	Credit quality — Delinquencies increased during the three month period ended March 31, 2006 both within the HVB portfolio and as a result of the acquisition of NYNB. In addition, the dollar amount of nonperforming loans increased, primarily due to the addition of $1.4 million of nonperforming loans acquired with NYNB. Although the Company’s regular periodic loan review process noted continued strength in overall credit quality, which is believed to have been mainly attributable to the continued strength in real estate values in the Company’s primary market area, the continuation of recent trends of rising construction, energy and interest costs, as well as real estate taxes, may negatively impact the borrowers’ ability to pay and collateral values. 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 Company introduced a series of low cost home equity products since the fourth quarter of 2002. As of March 31, 2006, home equity loans represent approximately 7.1 percent of total loans. Any probable losses with respect to these products are not fully reflected in the formula component of the allowance for loan losses since there is limited loss history.

      As a result of our detailed review process and consideration of the identified relevant factors, management determined that a $1.5 million increase in the unallocated component of the allowance to $13.1 million reflects our best estimate of probable losses which have been incurred as of March 31, 2006.

     Deposits

      Deposits totaled $1,515.5 million at March 31, 2006, an increase of $107.5 million or 7.6 percent from $1,408.0 million at December 31, 2005. The following table presents a summary of deposits at March 31, 2006 and December 31, 2005:

		(000’s)
		March 31,		December 31,		Increase
		2006		2005		(Decrease)
Demand deposits		$	623,436	$	576,032	$	47,404
Money market accounts			410,788		421,720		(10,932	)
Savings accounts			101,367		73,028		28,339
Time deposits of $100,000 or more			183,401		149,231		34,170
Time deposits of less than $100,000			66,629		57,217		9,412
Checking with interest			129,836		130,768		(932	)
	Total Deposits	$	1,515,457	$	1,407,996	$	107,461

      The increase in deposits resulted from the acquisition of NYNB, new account relationships, and increased account activity, partially offset by seasonal decreases in certain accounts consistent with activity experienced by the Company in prior years.

Borrowings

      Total borrowings were $492.3 million at March 31, 2006, an increase of $55.8 million or 12.8 percent from $436.5 million at December 31, 2005. The overall increase resulted primarily from a $21.3 million increase short-term repurchase agreements and a $34.5 million increase in other short-term borrowings. Borrowings are utilized as part of the Company’s continuing efforts to effectively leverage its capital and to manage interest rate risk.

26

Stockholders’ Equity

      Stockholders’ equity totaled $169.4 million at March 31, 2006, an decrease of $0.4 million or 0.2 percent from $169.7 million at December 31, 2005. Increases in stockholders’ equity resulted from net income of $7.7 million for the three month period ended March 31, 2006, and $1.3 million proceeds from stock options exercised. Decreases in stockholders’ equity resulted from $3.8 million cash dividends paid on common stock, $1.7 million purchases of treasury stock and a $3.9 million decrease in accumulated comprehensive income, principally as a result of a decrease in the net unrealized value of securities available for sale.

      The Company’s and the Banks’ capital ratios at March 31, 2006 and December 31, 2005 are as follows:

								Minimum for
								Capital
		March 31,			December 31,			Adequacy
		2006			2005			Purposes
Leverage ratio:
	Company		7.7	%		8.3	%		4.0	%
	HVB		7.8			8.3			4.0
	NYNB		7.4			—			4.0
Tier 1 capital:
	Company		12.8	%		13.8	%		4.0	%
	HVB		12.8			13.8			4.0
	NYNB		12.9			—			4.0
Total capital:
	Company		13.9	%		14.9	%		8.0	%
	HVB		13.9			14.9			8.0
	NYNB		14.2			—			4.0

      The Company, HVB and NYNB exceed all current regulatory capital requirements. In addition, HVB and NYNB were both in the “well capitalized” category at March 31, 2006.

     Liquidity

      The Company’s liquid assets, at March 31, 2006, include cash and due from banks of $50.8 million and Federal funds sold of $47.6 million. Other sources of liquidity at March 31, 2006 include maturities and principal payments on loans and securities, including approximately $277.4 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 $149.3 million of securities having contractual maturities, expected call dates or average lives of one year or less. In addition, at March 31, 2006, the Banks had available borrowing facilities of $65 million from the FHLB, $80 million under three federal funds purchased facilities and $110 million available under Retail CD Brokerage Agreements. These facilities are subject to various terms and conditions including, in some cases, loan or securities collateral requirements. Based on the above facilities and additional collateral that could be sold under agreements to repurchase, the Banks’ available borrowing capacity was approximately $454.0 million at March 31, 2006.

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

Forward-Looking Statements

      The Company has made, and may continue to make, various forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to earnings, credit quality and other financial and business matters for periods subsequent to March 31, 2006. These statements may be identified by such forward-looking terminology as “expect”, “may”, “will”, “anticipate”, “continue”, “believe” or similar statements or variations of such terms. 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

27

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;

•  regulatory delays or conditions imposed by regulators in connection with acquisitions or other expansion plans;

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

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

•  difficulties in integrating acquisitions, offering new services or expanding into new markets.

Impact of Inflation and Changing Prices

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

28

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

      Quantitative and qualitative disclosures about market risk at December 31, 2005 were previously reported in the Company’s 2005 Annual Report on Form 10-K. There have been no material changes in the Company’s market risk exposure at March 31, 2006 compared to December 31, 2005.

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

      All market risk sensitive instruments are classified either as available for sale or held to maturity with no financial instruments entered into for trading purposes. The Company from time to time uses derivative financial instruments to manage risk. The Company did not enter into any new derivative financial instruments during the three month period ended March 31, 2006. The Company had no derivative financial instruments in place at March 31, 2006.

      The Company uses a simulation analysis to evaluate market risk to changes in interest rates. The simulation analysis at March 31, 2006 shows the Company’s net interest income decreasing slightly if rates rise or fall.

      The Company also prepares a static gap analysis which, at March 31, 2006, shows a positive cumulative static gap of $5.3 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, 2006.

		Percentage Change in
		Estimated Net Interest Income
Gradual Change in Interest Rates		from March 31, 2006			Policy Limit
	+200 basis points		(1.2	)%		(5.0	)%
	-200 basis points		(2.2	)%		(5.0	)%

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 of March 31, 2006. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2006, the Company’s 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, 2006, there has not been any change that has affected or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

29

PART II — OTHER INFORMATION

Item 1A.   Risk Factors

Our business is subject to various risks. These risks are included in our 2005 Annual Report on Form 10-K under “Risk Factors”.

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

The following table sets forth information with respect to purchases made by the Company of its common stock during the three month period ended March 31, 2006:

							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 2006(1)		15,898	$	49.81		13,338		—
February 2006(1)		3,036	$	49.00		3,036		—
March 2006(2)		14,325	$	50.02		14,325		60,675
Total		33,259	$	49.83		30,699

(1)	In November 2005, the Company announced that the Board of Directors had approved a share repurchase program, effective December 12, 2006, which authorized the repurchase of up to 75,000 of the Company’s shares at a price of $42.00 per share, or a price of $50.50 per share for transactions of at least 2,500 shares. This offer expired on February 28, 2006.
(2)	In February 2006, the Company announced that the Board of Directors had approved a share repurchase program, effective March 1, 2006, which authorized the repurchase of up to 75,000 of the Company’s shares at a price of $42.75 per share, or a price of $51.25 per share for transactions of at least 2,500 shares. This offer expires on May 30, 2006.

Item 6.  Exhibits

      (A) Exhibits

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).

30

SIGNATURES

      Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

HUDSON VALLEY HOLDING CORP.

By:  /s/ Stephen R. Brown

Stephen R. Brown

Senior Executive Vice President,

Chief Financial Officer and Treasurer

May 10, 2006

31